UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the fiscal year ended December 31, 2005, or
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o
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from
to
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Commission File Number 1-32663
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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86-0812139
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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200 East Basse Road
San Antonio, Texas 78209
Telephone (210) 822-2828
(Address, including zip code, and telephone number, including area code, of registrant’s principal
executive offices)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Exchange on Which Registered
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Class A Common Stock, $.01 par value per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. YES
o
NO
þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. YES
o
NO
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES
þ
NO
o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
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Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). YES
o
NO
þ
On June 30, 2005, the last business day of the registrant’s most recently completed second fiscal
quarter, the Common Stock was not publicly traded.
On March 24, 2006, there were 35,242,211 outstanding shares of Class A Common Stock and 315,000,000
outstanding shares of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERNCE: None
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
INDEX TO FORM 10-K
2
PART I
ITEM 1. Business
The Company
Clear Channel Outdoor Holdings, Inc. provides clients with advertising opportunities through
billboards, street furniture displays, transit displays and other out-of-home advertising displays,
such as wallscapes, spectaculars and mall displays, which we own or operate in key markets
worldwide. Our business consists of two reportable operating segments: Americas and international.
Information relating to the operating segments of our Americas and international operations for
2005, 2004 and 2003 is included in “Note N — Segment Data” in the Notes to our Consolidated and Combined Financial
Statements in Item 8 included elsewhere in this Annual Report.
As of December 31, 2005, we owned or operated more than 875,000 advertising displays
worldwide. For the year ended December 31, 2005, we generated revenues of approximately $2.7
billion, with $1.2 billion and $1.5 billion from our Americas and international segments,
respectively. Our Americas reporting segment consists of our operations in the United States,
Canada and Latin America, with approximately 94% of our 2005 revenues in this segment derived from
the United States. Our international reporting segment consists of our operations in Europe, Asia,
Africa and Australia with approximately 51% of our 2005 revenues in this segment derived from
France and the United Kingdom. Additionally, we own equity interests in various out-of-home
advertising companies worldwide, which we account for under the equity method of accounting.
Our History
In 1997, Clear Channel Communications, Inc., or Clear Channel Communications, our parent
company, entered the outdoor advertising industry with its acquisition of Eller Media Company. In
1998, Clear Channel Communications acquired Universal Outdoor, giving Clear Channel Communications
an outdoor presence in 33 major U.S. markets with over 88,000 displays. Also in 1998, Clear Channel
Communications acquired More Group plc, a European-based company operating in 25 countries. In June
2002, Clear Channel Communications acquired The Ackerley Group.
In July 2005, Clear Channel Communications increased its investment in Clear Media Limited, a
Chinese company that operates street furniture displays throughout China, to a controlling majority
ownership interest. As a result, Clear Channel Communications began consolidating the results of
Clear Media in the third quarter of 2005. Clear Channel Communications accounted for Clear Media as
an equity investment prior to July 2005.
Effective November 9, 2005 Clear Channel Communications and its subsidiaries contributed and
transferred to us all of the assets and liabilities of the outdoor advertising businesses not
currently held by us. We became a publicly traded company on November 11, 2005 through an initial
public offering, or IPO, in which we sold 10% of our common stock, or 35.0 million shares of our
Class A common stock. Prior to our initial public offering we were an indirect wholly-owned
subsidiary of Clear Channel Communications. Clear Channel Communications currently owns all of our
outstanding shares of Class B common stock representing approximately 90% of the outstanding shares
of our common stock and approximately 99% of the total voting power of our common stock.
We entered into agreements with Clear Channel Communications that govern the relationship
between Clear Channel Communications and us and provide for, among other things, the provision of
services by Clear Channel Communications to us and the allocation of employee benefit, tax and
other liabilities and obligations attributable to our operations. These agreements include, among
others, a master agreement, corporate services agreement, registration rights agreement, tax
matters agreement and employee matters agreement. All of the agreements relating to our ongoing
relationship with Clear Channel Communications were made in the context of a parent-subsidiary
relationship and the terms of these agreements may be more or less favorable to us than if they had
been negotiated with unaffiliated third parties.
For as long as Clear Channel Communications is the owner of such number of shares representing
more than 50% of the total voting power of our common stock, it will have the ability to direct the
election of all of the members of our Board of Directors and to exercise a controlling influence
over our business and affairs, including
3
any determination with respect to mergers or other business combinations involving us, the
acquisition or disposition of assets by us, the incurrence of indebtedness by us, the issuance of
any additional common stock or other equity securities by us, the repurchase or redemption of
common stock or preferred stock by us and the payment of dividends by us. Similarly, Clear Channel
Communications will have the power to determine or significantly influence the outcome of matters
submitted to a vote of our shareholders, including the power to prevent an acquisition or any other
change in control of us, and to take other actions that might be favorable to Clear Channel
Communications. Clear Channel Communications has advised us of its current intent to continue to
hold all the shares of our Class B common stock it owns. However, Clear Channel Communications is
not subject to any contractual obligation that would prohibit it from selling, spinning off,
splitting off or otherwise disposing of any shares of our common stock, except that Clear Channel
Communications has agreed not to sell, spin off, split off or otherwise dispose of any shares of
our common stock prior to May 10, 2006, without the prior written consent of the underwriters of
our IPO, subject to certain limitations and limited exceptions.
Our Products — Americas
Our Americas segment consists of operations in the United States, Canada and Latin America,
with approximately 94% of our 2005 revenues in this segment derived from the United States. Our
Americas display inventory consists primarily of billboards, street furniture displays and transit
displays, with billboards contributing approximately 73% of our 2005 Americas revenues. The margins
on our billboard contracts also tend to be higher than contracts for other displays.
The following table shows the approximate percentage of revenues derived from each category of
our Americas advertising inventory:
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Year Ended December 31,
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2005
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2004
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2003
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Billboards:
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Bulletins(1)
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54
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%
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56
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%
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56
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%
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Posters
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19
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%
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19
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%
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20
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%
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Street furniture displays
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4
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%
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4
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%
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3
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%
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Transit displays
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11
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%
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11
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%
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11
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%
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Other displays(2)
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12
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%
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10
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%
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10
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%
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Total
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100
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%
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100
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%
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100
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%
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(1)
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Includes wallscapes.
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(2)
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Includes spectaculars and mall displays.
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Our displays in the United States, are located in all of the top 30 U.S. designated market
area regions, or DMA
®
regions (DMA
®
is a registered trademark of Nielsen
Media Research, Inc.), and in 46 of the top 50 DMA
®
regions, giving our clients the
ability to reach a significant portion of the U.S. population. A DMA
®
region, a term
developed by Nielsen Media Research, Inc., is used to designate a geographic area or media market.
The significant expenses associated with our Americas operations include (i) direct production
and installation expenses, (ii) site lease expenses for land under our displays and (iii)
revenue-sharing or minimum guaranteed amounts payable under our billboard, street furniture and
transit display contracts. Our direct production and installation expenses include costs for
printing, transporting and changing the advertising copy displayed on our bulletins, and related
labor and vinyl or paper costs. Vinyl and paper costs vary according to the complexity of the
advertising copy and the quantity of displays. Our site lease expenses include lease payments for
use of the land under our displays, as well as any revenue-sharing arrangements we may have with
the landlords. The terms of our site leases in the Americas generally range from 1 to 50 years.
4
Billboards
Our Americas billboard inventory primarily includes bulletins and posters.
Bulletins
Bulletins vary in size, with the most common size being 14 feet high by 48 feet wide. Almost
all of the advertising copy displayed on bulletins is computer printed on vinyl and transported to
the bulletin where it is secured to the display surface. Because of their greater size and impact,
we typically receive our highest rates for bulletins. Bulletins generally are located along major
expressways, primary commuting routes and main intersections that are highly visible and heavily
trafficked. Our clients may contract for individual bulletins or a network of bulletins, meaning
the clients’ advertisements are rotated among bulletins to increase the reach of the campaign.
“Reach” is the percent of a target audience exposed to an advertising message at least once during
a specified period of time, typically during a period of four weeks. Our client contracts for
bulletins generally have terms ranging from one month to one year.
Posters
Posters are available in two sizes, 30-sheet and 8-sheet displays. The 30-sheet posters are
approximately 11 feet high by 23 feet wide, and the 8-sheet posters are approximately 5 feet high
by 11 feet wide. Advertising copy for posters is printed using silk-screen or lithographic
processes to transfer the designs onto paper that is then transported and secured to the poster
surfaces. Posters generally are located in commercial areas on primary and secondary routes near
point-of-purchase locations, facilitating advertising campaigns with greater demographic targeting
than those displayed on bulletins. Our poster rates typically are less than our bulletin rates, and
our client contracts for posters generally have terms ranging from four weeks to one year. Two
types of posters are premiere panels and squares. Premiere displays are innovative hybrids between
bulletins and posters developed to provide our clients with an alternative for their targeted
marking campaigns. The premiere displays utilize one or more poster panels, but with vinyl
advertising stretched over the panels similar to bulletins. Our intent is to combine the creative
impact of bulletins with the additional reach and frequency of posters. “Frequency” is the average
number of exposures an individual has to an advertising message during a specified period of time.
Out-of-home frequency is typically measured over a four-week period.
Street Furniture Displays
Our street furniture displays, marketed under our global Adshel
TM
brand, are
advertising surfaces on bus shelters, information kiosks, public toilets, freestanding units and
other public structures, and are primarily located in major metropolitan cities and along major
commuting routes. Generally, we own the street furniture structures and are responsible for their
construction and maintenance. Contracts for the right to place our street furniture in the public
domain and sell advertising space on them are awarded by municipal and transit authorities in
competitive bidding processes governed by local law. Generally, these contracts have terms ranging
from 10 to 20 years. As compensation for the right to sell advertising space on our street
furniture structures, we pay the municipality or transit authority a fee or revenue share that is
either a fixed amount or a percentage of the revenues derived from the street furniture displays.
Typically, these revenue sharing arrangements include payments by us of minimum guaranteed amounts.
Client contracts for street furniture displays typically have terms ranging from four weeks to one
year and, similar to billboards, may be for network packages.
Transit Displays
Our transit displays are advertising surfaces on various types of vehicles or within transit
systems, including on the interior and exterior sides of buses, trains, trams and taxis and within
the common areas of rail stations and airports. Similar to street furniture, contracts for the
right to place our displays on such vehicles or within such transit systems and sell advertising
space on them generally are awarded by public transit authorities in competitive bidding processes
or are negotiated with private transit operators. These contracts typically have terms of up to
five years. Our client contracts for transit displays generally have terms ranging from four weeks
to one year.
5
Other Inventory
The balance of our Americas display inventory consists of spectaculars, mall displays and
wallscapes. Spectaculars are customized display structures often incorporating video,
multidimensional lettering and figures, mechanical devices and moving parts and other
embellishments to create special effects. The majority of our spectaculars are located in Dundas
Square in Toronto, Times Square and Penn Plaza in New York City, Fashion
Show in Las Vegas, Sunset Strip in Los Angeles and across from the Target Center in
Minneapolis. Client contracts for spectaculars typically have terms of one year. We also own
displays located within the common areas of malls on which our clients run advertising campaigns
for periods ranging from four weeks to one year. Contracts with mall operators grant us the
exclusive right to place our displays within the common areas and sell advertising on those
displays. Our contracts with mall operators generally have terms ranging from five to ten years.
Client contracts for mall displays typically have terms ranging from six to eight weeks. A
wallscape is a display that drapes over or is suspended from the sides of buildings or other
structures. Generally, wallscapes are located in high-profile areas where other types of outdoor
advertising displays are limited or unavailable. Clients typically contract for individual
wallscapes for extended terms.
Our Products — International
Our international segment consists of our advertising operations in Europe, Australia, Asia
and Africa, with approximately 51% of our 2005 revenues in this segment derived from France and the
United Kingdom. Our international display inventory consists primarily of billboards, street
furniture displays and transit displays in approximately 50 countries worldwide, with billboards
and street furniture displays collectively contributing approximately 78% of our 2005 international
revenues.
The following table shows the approximate percentage of revenues derived from each category of
our international advertising inventory:
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Year Ended December 31,
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2005
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2004
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2003
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Billboards (1)
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44
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%
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46
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%
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47
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%
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Street furniture displays
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34
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%
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31
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%
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33
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%
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Transit displays(2)
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9
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%
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10
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%
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10
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%
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Other displays(3)
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13
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%
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13
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%
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10
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%
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Total
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100
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%
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100
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%
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100
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%
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(1)
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Includes revenue from spectaculars and neon displays.
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(2)
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Includes small displays.
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(3)
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Includes advertising revenue from mall displays, other small displays, and non advertising
revenue from sales of street furniture equipment, cleaning and maintenance services and
production revenue.
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The majority of our international clients are advertisers targeting national audiences whose
business is placed with us through advertising agencies and outdoor buying services. The
significant expenses associated with our international operations include (i) revenue-sharing or
minimum guaranteed amounts payable under our billboard, street furniture and transit display
contracts, (ii) site lease expenses and (iii) cleaning and maintenance expenses related to our
street furniture. These expenses consist of costs similar to those associated with our Americas
operations. Internationally, the terms of our site leases typically range from 3 to 15 years, but
may vary across our networks. Because revenue-sharing and minimum guaranteed payment arrangements
are more prevalent in our international operations, the margins in our international operations
typically are less than the margins in our operations in the Americas.
Billboards
The size of our international billboards is not standardized. The billboards vary in both
format and size across our networks, with the majority of our international billboards being
similar in size to our Americas posters (30-sheet and 8-sheet displays). Our international
billboards are typically sold to clients as network packages with contract terms ranging from one
to two weeks. Long-term client contracts are also available and typically have terms
6
of up to one
year. DEFI, our international neon subsidiary, is a leading global provider of neon signs with
approximately 400 displays in 17 countries worldwide. Client contracts for international neon signs
typically have terms ranging from five to ten years. We lease the majority of our international
billboard sites from private landowners.
Street Furniture Displays
Our international street furniture displays are substantially similar to their Americas
counterparts, and include bus shelters, freestanding units, public toilets, various types of kiosks
and benches. Internationally, contracts with municipal and transit authorities for the right to
place our street furniture in the public domain and sell advertising on them typically range from
10 to 15 years. The major difference between our international and Americas street furniture
businesses is in the nature of the municipal contracts. In the international segment, these
contracts typically require us to provide the municipality with a broader range of urban amenities
such as public wastebaskets and lampposts, as well as space for the municipality to display maps or
other public information. In exchange for providing such urban amenities and display space, we are
authorized to sell advertising space on certain sections of the structures we erect in the public
domain. Our international street furniture displays are typically sold to clients as network
packages with contract terms ranging from one to two weeks. Long-term client contracts are also
available and typically have terms of up to one year.
Transit Displays
Our international transit display contracts are substantially similar to their Americas
counterparts, and typically require us to make only a minimal initial investment and few ongoing
maintenance expenditures. Contracts with public transit authorities or private transit operators
typically have terms ranging from three to seven years. Our client contracts for transit displays
generally have terms ranging from two weeks to one year.
Other Inventory
The balance of our international display inventory consists primarily of advertising revenue
from mall displays, other small displays and non-advertising revenue from sales of street furniture
equipment, cleaning and maintenance services and production revenue. Internationally, our contracts
with mall operators generally have terms ranging from five to ten years and client contracts for
mall displays generally have terms ranging from one to two weeks, but are available for up to six
months. Several of our international markets sell equipment or provide cleaning and maintenance
services as part of a billboard or street furniture contract with a municipality. Production
revenue relates to the production of advertising posters usually to small local customers.
Production
Americas
In a majority of our markets, our local production staff performs the full range of activities
required to create and install advertising copy. Production work includes creating the advertising
copy design and layout, coordinating its printing and installing the copy on displays. We provide
creative services to smaller advertisers and to advertisers not represented by advertising
agencies. National advertisers often use preprinted designs that require only installation. Our
creative and production personnel typically develop new designs or adopt copy from other media for
use on our inventory. Our creative staff also can assist in the development of marketing
presentations, demonstrations and strategies to attract new clients.
International
The majority of our international clients are advertisers targeting national audiences whose
business generally is placed with us through advertising agencies. These agencies often provide our
international clients creative services to design and produce both the advertising copy and the
physical printed advertisement. Advertising copy, both paper and vinyl, is shipped to centralized
warehouses operated by us. The copy is then sorted and delivered to sites where it is installed on
our displays.
7
Client Categories
In 2005, the top five client categories in our Americas segment, based on Americas revenues
derived from these categories, were entertainment and amusements, business and consumer services,
automotive, retail and telecommunications. In 2005, the top five client categories in our
international segment, based on international revenues derived from those categories, were food and
drink, retail, media and entertainment, automotive and business and consumer services.
Construction and Operation
Domestic
We typically own the physical structures on which our clients’ advertising copy is displayed.
We build some of the structures at our billboard fabrication business in Illinois and erect them on
sites we either lease or own or for which we have acquired permanent easements. The site lease
terms generally range from 1 to 50 years. In addition to the site lease, we must obtain a permit to
build the sign. Permits are typically issued in perpetuity by the state or local government and
typically are transferable or renewable for a minimal, or no, fee. Bulletin and poster advertising
copy is either printed with computer generated graphics on a single sheet of vinyl or placed on
lithographed or silk-screened paper sheets supplied by the advertiser. These advertisements are
then transported to the site and in the case of vinyl wrapped around the face, and in the case of
paper pasted and applied like wallpaper. The operational process also includes conducting visual
inspections of the inventory for display defects and taking the necessary corrective action within
a reasonable period of time.
International
The international manufacturing process largely consists of two elements: the manufacture and
installation of advertising structures and the weekly preparation of advertising posters for
distribution throughout our networks. Generally, we outsource the manufacturing of advertising
structures to third parties and regularly seek competitive bids. We use a wide range of suppliers,
located in each of our markets, none of whom represents more than 10% of our manufacturing budget
in any one year. The design of street furniture structures (such as bus shelters, bicycle racks,
kiosks and public toilets) is typically done in conjunction with a third-party design or
architecture firm. These street furniture designs then form the basis of a competitive bidding
process to select a manufacturer. Our street furniture sites are posted by our own employees or
subcontractors who also clean and maintain the sites. The decision to use our own employees or
subcontractors is made on a market-by-market basis taking into consideration the mix of products in
the market and local labor costs.
Our Markets
The following tables set forth certain information regarding our displays owned or operated in
markets worldwide. As of December 31, 2005, we owned or operated approximately 165,000 Americas
displays and approximately 711,000 international displays. Our Americas markets are listed in order
of their DMA
®
region ranking and our international markets are listed in descending
order according to revenues contribution for the year ended December 31, 2005.
8
Our Americas Displays
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DMA
®
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Billboards
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Street
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Region
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Furniture
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Transit
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Other
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Total
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Rank
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Markets
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Bulletins(1)
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Posters
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Displays
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Displays
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Displays(2)
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Displays
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United States
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1
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New York, NY
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•
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•
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•
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•
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•
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18,614
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2
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Los Angeles, CA
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•
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•
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•
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•
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•
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11,729
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3
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Chicago, IL
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•
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•
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•
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(3)
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•
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11,612
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4
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Philadelphia, PA
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•
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•
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•
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•
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•
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5,408
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5
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Boston, MA (Manchester, NH)
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•
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•
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•
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•
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6,893
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6
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San Francisco-Oakland-San Jose, CA
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•
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•
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•
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•
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•
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6,671
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7
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Dallas-Ft. Worth, TX
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•
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•
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•
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•
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6,906
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8
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Washington, DC (Hagerstown, MD)
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•
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•
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•
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•
|
|
|
|
•
|
|
|
|
3,775
|
|
|
9
|
|
|
Atlanta, GA
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
3,284
|
|
|
10
|
|
|
Houston, TX
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
(3)
|
|
|
•
|
|
|
|
4,717
|
|
|
11
|
|
|
Detroit, MI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
539
|
|
|
12
|
|
|
Tampa-St. Petersburg (Sarasota), FL
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
1,953
|
|
|
13
|
|
|
Seattle-Tacoma, WA
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
3,293
|
|
|
14
|
|
|
Phoenix (Prescott), AZ
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
(3)
|
|
|
1,465
|
|
|
15
|
|
|
Minneapolis-St. Paul, MN
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
1,978
|
|
|
16
|
|
|
Cleveland-Akron (Canton), OH
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
2,445
|
|
|
17
|
|
|
Miami-Ft. Lauderdale, FL
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
(3)
|
|
|
3,614
|
|
|
18
|
|
|
Denver, CO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
824
|
|
|
19
|
|
|
Sacramento-Stockton-Modesto, CA
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
950
|
|
|
20
|
|
|
Orlando-Daytona Beach-Melbourne, FL
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
3,431
|
|
|
21
|
|
|
St. Louis, MO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
234
|
|
|
22
|
|
|
Pittsburgh, PA
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
(3)
|
|
|
•
|
|
|
|
546
|
|
|
23
|
|
|
Portland, OR
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
1,269
|
|
|
24
|
|
|
Baltimore, MD
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
(3)
|
|
|
2,011
|
|
|
25
|
|
|
Indianapolis, IN
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
|
|
|
|
1,978
|
|
|
26
|
|
|
San Diego, CA
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
(3)
|
|
|
1,323
|
|
|
27
|
|
|
Charlotte, NC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
12
|
|
|
28
|
|
|
Hartford-New Haven, CT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
10
|
|
|
29
|
|
|
Raleigh-Durham (Fayetteville), NC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
11
|
|
|
30
|
|
|
Nashville, TN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
21
|
|
|
31
|
|
|
Kansas City, KS/MO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
(3)
|
|
|
|
|
|
|
—
|
|
|
32
|
|
|
Columbus, OH
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
1,401
|
|
|
33
|
|
|
Milwaukee, WI
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
1,689
|
|
|
34
|
|
|
Cincinnati, OH
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
8
|
|
|
36
|
|
|
Salt Lake City, UT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
124
|
|
|
37
|
|
|
San Antonio, TX
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
(3)
|
|
|
•
|
(3)
|
|
|
3,006
|
|
|
38
|
|
|
West Palm Beach-Ft. Pierce, FL
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
|
|
|
|
377
|
|
|
41
|
|
|
Harrisburg-Lancaster-Lebanon-York, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
31
|
|
|
42
|
|
|
Norfolk-Portsmouth-Newport News, VA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
11
|
|
|
43
|
|
|
New Orleans, LA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
|
|
|
|
2,775
|
|
|
44
|
|
|
Memphis, TN
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
2,220
|
|
|
45
|
|
|
Oklahoma City, OK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
12
|
|
|
46
|
|
|
Albuquerque-Santa Fe, NM
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,091
|
|
|
48
|
|
|
Las Vegas, NV
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
(3)
|
|
|
12,475
|
|
|
49
|
|
|
Buffalo, NY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
|
|
|
|
240
|
|
|
50
|
|
|
Louisville, KY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
16
|
|
|
51
|
|
|
Providence-New Bedford
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
|
|
|
|
25
|
|
|
52
|
|
|
Jacksonville, FL
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
850
|
|
|
53
|
|
|
Austin, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
(3)
|
|
|
•
|
|
|
|
16
|
|
|
54
|
|
|
Wilkes Barre-Scranton, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
39
|
|
|
56
|
|
|
Fresno-Visalia, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
11
|
|
|
60
|
|
|
Richmond-Petersburg, VA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
12
|
|
|
64
|
|
|
Charleston-Huntington, WV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
9
|
|
|
67
|
|
|
Wichita-Hutchinson, KS
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667
|
|
|
71
|
|
|
Tucson (Sierra Vista), AZ
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,546
|
|
|
73
|
|
|
Des Moines-Ames, IA
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
•
|
(3)
|
|
|
651
|
|
|
86
|
|
|
Chattanooga, TN
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
1,558
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DMA
®
|
|
|
|
|
Billboards
|
|
|
Street
|
|
|
|
|
|
|
|
|
|
|
Region
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture
|
|
|
Transit
|
|
|
Other
|
|
|
Total
|
|
Rank
|
|
|
Markets
|
|
Bulletins(1)
|
|
|
Posters
|
|
|
Displays
|
|
|
Displays
|
|
|
Displays(2)
|
|
|
Displays
|
|
|
88
|
|
|
Cedar Rapids-Waterloo-Iowa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
12
|
|
|
|
|
|
City-Dubuque, IA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
Northpark, MS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
(3)
|
|
|
6
|
|
|
93
|
|
|
Colorado Springs-Pueblo, CO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
7
|
|
|
98
|
|
|
Johnstown-Altoona, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
20
|
|
|
99
|
|
|
El Paso, TX (Las Cruces, NM)
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,297
|
|
|
102
|
|
|
Youngstown, OH
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
8
|
|
|
104
|
|
|
Ft. Smith-Fayetteville
-Springdale-Rogers, AR
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
902
|
|
|
109
|
|
|
Tallahassee, FL-Thomasville, GA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
9
|
|
|
112
|
|
|
Reno, NV
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
583
|
|
|
114
|
|
|
Sioux Falls (Mitchell), SD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
19
|
|
|
115
|
|
|
Augusta, GA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
(3)
|
|
|
16
|
|
|
122
|
|
|
Santa Barbara-Santa Maria-San Luis Obispo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
|
|
|
|
4
|
|
|
125
|
|
|
Monterey-Salinas, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
40
|
|
|
139
|
|
|
Wilmington, DE
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
(3)
|
|
|
•
|
(3)
|
|
|
1,001
|
|
|
143
|
|
|
Sioux City, IA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
8
|
|
|
146
|
|
|
Lubbock, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
16
|
|
|
148
|
|
|
Salisbury, MD
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
(3)
|
|
|
•
|
|
|
|
1,242
|
|
|
153
|
|
|
Palm Springs, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
16
|
|
|
162
|
|
|
Ocala-Gainesville, FL
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,310
|
|
|
171
|
|
|
Billings, MT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
8
|
|
|
177
|
|
|
Rapid City, SD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
10
|
|
|
187
|
|
|
Grand Junction-Aspen-Montrose, CO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
12
|
|
|
189
|
|
|
Great Falls, MT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
14
|
|
|
|
|
|
Non-U.S. Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a
|
|
|
Brazil
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
8,320
|
|
|
n/a
|
|
|
Canada
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
2,663
|
|
|
n/a
|
|
|
Chile
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,278
|
|
|
n/a
|
|
|
Mexico
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
4,908
|
|
|
n/a
|
|
|
Peru
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
2,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Americas Displays
|
|
|
164,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes wallscapes.
(2) Includes spectaculars and mall displays. Our inventory includes other small displays not
counted as separate displays in this Annual Report since their contribution to our revenues is
not material.
(3) We have access to additional displays through arrangements with local advertising and other
companies.
Our International Displays
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Street
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture
|
|
Transit
|
|
Other
|
|
Total
|
International Markets
|
|
Billboards(1)
|
|
Displays
|
|
Displays(2)
|
|
Displays(3)
|
|
Displays
|
France
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
169,385
|
|
United Kingdom
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
90,505
|
|
Italy
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
51,264
|
|
Spain
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
34,355
|
|
China (4)
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
54,586
|
|
Sweden
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
102,041
|
|
Switzerland
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
16,607
|
|
Belgium
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
22,739
|
|
Australia
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
13,183
|
|
Norway
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
20,554
|
|
Denmark
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
28,836
|
|
Ireland
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
5,975
|
|
Finland
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
44,633
|
|
Singapore
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
10,738
|
|
Holland
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
2,678
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Street
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture
|
|
Transit
|
|
Other
|
|
Total
|
International Markets
|
|
Billboards(1)
|
|
Displays
|
|
Displays(2)
|
|
Displays(3)
|
|
Displays
|
Turkey
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
5,904
|
|
Poland
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
12,365
|
|
Russia
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
4,627
|
|
New Zealand
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
3,124
|
|
Greece
|
|
|
|
|
|
|
|
|
|
|
•
|
|
|
|
•
|
|
|
|
1,197
|
|
Baltic States
|
|
|
•
|
|
|
|
|
|
|
|
•
|
|
|
|
|
|
|
|
14,554
|
|
India
|
|
|
•
|
|
|
|
•
|
|
|
|
•
|
|
|
|
|
|
|
|
656
|
|
Portugal
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Germany
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Hungary
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Austria
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
United Arab Emirates
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Czech Republic
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Ukraine
|
|
|
•
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International Displays
|
|
|
710,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes spectaculars and neon displays.
|
|
(2)
|
|
Includes small displays.
|
|
(3)
|
|
Includes mall displays and other small displays counted as separate displays in this Annual
Report since they form a substantial part of our network and international revenues.
|
|
(4)
|
|
In July 2005, Clear Media became a consolidated subsidiary when we increased our investment
to a controlling majority interest. Prior to July 2005, we had a non-controlling equity
investment in Clear Media.
|
Equity Investments
In addition to the displays listed above, as of December 31, 2005, we had equity investments
in various out-of-home advertising companies that operate in the following markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Street
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
Furniture
|
|
Transit
|
|
Other
|
Market
|
|
Company
|
|
Investment
|
|
Billboards(1)
|
|
Displays
|
|
Displays
|
|
Displays(2)
|
Outdoor Advertising Companies
|
|
|
|
|
|
|
|
|
|
|
South Africa(3)
|
|
Clear Channel
|
|
50.0%
|
|
•
|
|
•
|
|
•
|
|
|
|
|
Independent
|
|
|
|
|
|
|
|
|
|
|
Italy
|
|
Alessi
|
|
34.3%
|
|
•
|
|
•
|
|
•
|
|
|
Italy
|
|
AD Moving SpA
|
|
17.5%
|
|
•
|
|
|
|
•
|
|
|
Hong Kong
|
|
Buspak
|
|
50.0%
|
|
•
|
|
|
|
•
|
|
|
Thailand
|
|
Master & More
|
|
32.5%
|
|
•
|
|
|
|
|
|
|
Korea
|
|
Ad Sky Korea
|
|
30.0%
|
|
|
|
|
|
•
|
|
|
Belgium
|
|
MTB
|
|
49.0%
|
|
|
|
|
|
•
|
|
|
Belgium
|
|
Streep
|
|
25.0%
|
|
|
|
|
|
•
|
|
|
Denmark
|
|
City Reklame
|
|
45.0%
|
|
•
|
|
|
|
|
|
|
Other Media Companies
|
|
|
|
|
|
|
|
|
|
|
Norway
|
|
CAPA
|
|
50.0%
|
|
|
|
|
|
|
|
|
Holland
|
|
HOA Events
|
|
49.0%
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes spectaculars and neon displays.
|
|
(2)
|
|
Includes mall displays and other small displays.
|
|
(3)
|
|
Clear Channel Independent is headquartered and has the majority of its operations in South
Africa, but also operates in other African countries such as Angola, Botswana, Lesotho,
Malawi, Mauritius, Mozambique,
Namibia, Swaziland, Tanzania, Uganda and Zambia.
|
11
Company Strategy
Our fundamental goal is to increase shareholder value by maximizing our cash flow from
operations worldwide. Accomplishing this goal requires the successful implementation of the
following strategies:
Capitalize on global network and diversified product mix
We seek to capitalize on our global network and diversified product mix to maximize revenues
and increase profits. We can increase our operating margins by spreading our fixed investment costs
over our broad asset base. In addition, by sharing best practices globally, we can quickly and
effectively replicate our successes throughout the markets in which we operate. We believe our
diversified product mix and long-standing presence in many of our existing markets provide us with
the platform necessary to launch new products and test new initiatives in a reliable and
cost-effective manner.
Highlight the value of outdoor advertising relative to other media
We seek to enhance revenue opportunities by focusing on specific initiatives that highlight
the value of outdoor advertising relative to other media. We have made significant investments in
research tools, enabling our clients to better understand how our displays can successfully reach
their target audiences and promote their advertising campaigns. Also, we are working closely with
clients, advertising agencies and other diversified media companies to develop more sophisticated
systems that will provide improved demographic measurements of outdoor advertising. We believe
these measurement systems will further enhance the attractiveness of outdoor advertising for both
existing clients and new advertisers.
Continue to focus on achieving operating efficiencies
We continue to focus on achieving operating efficiencies throughout our global network. For
example, in most of our U.S. markets, we have been transitioning our compensation programs in our
operations departments from hourly-wage scales to productivity-based programs. We have decreased
operating costs and capital needs by introducing energy-saving lighting systems and innovative
processes for changing advertising copy on our displays. Additionally, in certain heavy storm areas
we continue to convert large format billboards to sectionless panels that face less wind
resistance, reducing our weather-related losses in such areas.
Promote customer service
We believe customer service is critical, and we have made significant commitments to provide
innovative services to our clients. For example, we provide our U.S. clients with online access to
information about our inventory, including pictures, locations and other pertinent display data
that is helpful in their buying decisions. Additionally, in the United States we recently
introduced a service guaranty in which we have committed to specific monitoring and reporting
services to provide greater accountability and enhance customer satisfaction. We also introduced a
proprietary online proof-of-performance system that is an additional tool our clients may use to
measure our accountability. This system provides our clients with information about the dates on
which their advertising copy is installed or removed from any display in their advertising program.
Pursue attractive acquisitions and other investments worldwide
Through acquisitions and investments, we intend to strengthen our presence in existing markets
and selectively enter into new markets where the returns and growth potential of such expansion are
consistent with our fundamental goal of increasing shareholder value. In particular, in recent
years we have steadily added to our presence in Europe, Asia and Latin America. All three regions
continue to offer additional growth opportunities.
Pursue new cost-effective technologies
Advances in electronic displays, including flat screens, LCDs and LEDs, as well as
corresponding reductions in costs, allow us to provide these technologies as alternatives to
traditional methods of displaying our clients’ advertisements. These electronic displays may be
linked through centralized computer systems to instantaneously and simultaneously change static
advertisements on a large number of displays. We believe these
capabilities will allow us to transition from selling space on a display to a single advertiser to
selling time on that
12
display to multiple advertisers. We believe this transition will create new
advertising opportunities for our existing clients and will attract new advertisers, such as
certain retailers that desire to change advertisements frequently and on short notice. For example,
these technologies will allow retailers to promote weekend sales with the flexibility during the
sales to make multiple changes to the advertised products and prices.
Maintain an entrepreneurial culture
We maintain an entrepreneurial and customer-oriented culture by empowering local market
managers to operate their businesses as separate profit centers, subject to centralized oversight.
A portion of our managers’ compensation is dependent upon the financial success of their individual
business units. This culture motivates local market managers to maximize our cash flow from
operations by providing high-quality service to our clients and seeking innovative ways to deploy
capital to further grow their businesses. Our managers also have full access to our extensive
centralized resources, including sales training, research tools, shared best practices, global
procurement and financial and legal support.
Employees
As of March 15, 2006, we had approximately 2,700 employees in our Americas segment and
approximately 4,900 employees in our international segment, of which approximately 100 were
employed in corporate activities.
Available Information
You can find more information about us at our Internet website located at
www.clearchanneloutdoor.com. Our filings are available free of charge via a link on our Internet
website after we electronically file such material with the SEC.
ITEM 1A. Risk Factors
Risks Related to Our Business
Government regulation of outdoor advertising may restrict our outdoor advertising
operations.
Changes in laws and regulations affecting outdoor advertising at any level of government,
including laws of the foreign jurisdictions in which we operate, could have a significant financial
impact on us by requiring us to make significant expenditures or otherwise limiting or restricting
some of our operations.
U.S. federal, state and local regulations have impacted the outdoor advertising industry. One
of the seminal laws was The Highway Beautification Act of 1965 (HBA), which regulates outdoor
advertising on the 306,000 miles of Federal-Aid Primary, Interstate and National Highway Systems
roads. HBA regulates the locations of billboards, mandates a state compliance program, requires the
development of state standards, promotes the expeditious removal of illegal signs, and requires
just compensation for takings. Size, spacing and lighting are regulated by state and local
municipalities.
From time to time, certain state and local governments and third parties have attempted to
force the removal of displays not governed by the HBA under various state and local laws, including
amortization. Amortization permits the display owner to operate its display which does not meet
current code requirements for a specified period of time, after which it must remove or otherwise
conform its display to the applicable regulations at its own cost without any compensation. Several
municipalities within our existing markets have adopted amortization ordinances. Other regulations
limit our ability to rebuild or replace nonconforming displays and require us to remove or modify
displays not in strict compliance with applicable laws. In addition, from time to time third
parties or local governments assert that we own or operate displays that either are not properly
permitted or otherwise are not in strict compliance with applicable law. Such regulations and
allegations have not materially impacted our results of operations to date, but if we are
increasingly unable to resolve such allegations or obtain acceptable arrangements in circumstances
in which our displays are subject to removal, modification or amortization, or if there occurs an
increase in such regulations or their enforcement, our results could suffer.
13
Legislation has from time to time been introduced in state and local jurisdictions attempting
to impose taxes on revenues of outdoor advertising companies. Several jurisdictions have already
imposed such taxes as a percentage of our gross receipts of outdoor advertising revenues in that
jurisdiction. While these taxes have not materially impacted our business and financial results to
date, we expect states to continue to try to impose such taxes as a way of increasing revenues. The
increased imposition of these taxes and our inability to pass on the cost of these taxes to our
clients could negatively affect our operating income.
In addition, we are unable to predict what additional regulations may be imposed on outdoor
advertising in the future. Legislation that would regulate the content of billboard advertisements
and implement additional billboard restrictions has been introduced in Congress from time to time
in the past.
International regulation of the outdoor advertising industry varies by region and country, but
generally limits the size, placement, nature and density of out-of-home displays. Significant
international regulations include the Law of December 29, 1979 in France, the Town and Country
Planning (Control of Advertisements) Regulations 1992 in the United Kingdom, and Règlement Régional
Urbain de l’agglomération bruxelloise in Belgium. These laws define issues such as the extent to
which advertisements can be erected in rural areas, the hours during which illuminated signs may be
lit and whether the consent of local authorities is required to place a sign in certain
communities. Other regulations limit the subject matter and language of out-of-home displays. For
instance, the United States and most European Union countries, among other nations, have banned
outdoor advertisements for tobacco products. Our failure to comply with these or any future
international regulations could have an adverse impact on the effectiveness of our displays or
their attractiveness to clients as an advertising medium and may require us to make significant
expenditures to ensure compliance. As a result, we may experience a significant impact on our
operations, revenues, international client base and overall financial condition.
We face intense competition in the outdoor advertising industry that may adversely affect
the advertising fees we can charge, and consequently lower our operating margins and
profits.
We operate in a highly competitive industry, and we may not be able to maintain or increase
the fees we charge our customers, which may consequently lower our operating margins and profits.
Our advertising properties compete for audiences and advertising revenues with other outdoor
advertising companies, as well as with other media, such as radio, magazines, newspapers, prime
time television, direct mail, the Internet and telephone directories. It is possible new
competitors may emerge and rapidly acquire significant market share. Competitive factors in our
industry could adversely affect our financial performance by, among other things, leading to
decreases in overall revenues, numbers of advertising clients, advertising fees or profit margins.
These factors include:
|
•
|
|
our competitors offering reduced advertising rates, which we may be unable or
unwilling to match;
|
|
|
•
|
|
our competitors adopting technological changes and innovations we are unable to
adopt or are delayed in adopting and that offer more attractive advertising
alternatives than those we currently offer;
|
|
|
•
|
|
shifts in the general population or specific demographic groups to markets where we
have fewer outdoor advertising displays;
|
|
|
•
|
|
our competitors securing more effective advertising sites than those sites where our
displays are located;
|
|
|
•
|
|
our competitors’ abilities to complete and integrate acquisitions better than our
ability to complete and integrate acquisitions;
|
|
|
•
|
|
our inability to secure street furniture contracts on favorable terms; and
|
|
|
•
|
|
development, governmental actions and strategic trading or retirement of displays,
which, excluding acquisitions, may result in a reduction of our existing displays and
increased competition for attractive display locations.
|
14
Doing business in foreign countries creates certain risks not involved in doing business in
the United States that may disrupt our international operations or cause us to realize lower
returns from our international operations.
Doing business in foreign countries involves certain risks that may not exist when doing
business in the United States. The risks involved in foreign operations that could result in
disruptions to our business or financial losses in our international operations against which we
are not insured include:
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exposure to local economic conditions, foreign exchange restrictions and
restrictions on the withdrawal of foreign investment and earnings, investment
restrictions or requirements, expropriations of property and changes in foreign
taxation structures, each of which could reduce our profit from international
operations;
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potential adverse changes in the diplomatic relations of foreign countries with the
United States and government policies against businesses owned by foreigners, each of
which could affect our ability to continue operations in or enter into an otherwise
profitable market;
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changes in foreign regulations, such as the decision in France to lift the ban on
retail advertising on television by 2007;
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hostility from local populations, potential instability of foreign governments and
risks of insurrections, each of which could disrupt our ability to conduct normal
business operations; and
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risks of renegotiation or modification of existing agreements with governmental
authorities and diminished ability to legally enforce our contractual rights in foreign
countries, each of which could cause financial losses in otherwise profitable
operations.
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In addition, we may incur substantial tax liabilities if we repatriate any of the cash
generated by our international operations back to the United States, due to our current inability
to recognize any foreign tax credits associated with such repatriation. We are not currently in a
position to recognize any tax assets in the United States that are the result of payments of income
or withholding taxes in foreign jurisdictions.
Exchange rates may cause fluctuations in our results of operations that are not related to
our operations.
Because we own assets overseas and derive revenues from our international operations, we may
incur currency translation losses or gains due to changes in the values of foreign currencies
relative to the United States dollar. We cannot predict the effect of exchange rate fluctuations
upon future operating results. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Market Risk Management — Foreign Currency Risk.”
The success of our street furniture and transit products is dependent on our obtaining key
municipal concessions, which we may not be able to obtain on favorable terms.
Our street furniture and transit products businesses require us to obtain contracts with
municipalities and other governmental entities. Many of these contracts require us to participate
in competitive bidding processes, have terms typically ranging from 3 to 20 years and have revenue
share or fixed payment components. Our inability to successfully negotiate or complete these
contracts due to governmental demands and delay and the highly competitive bidding processes for
these contracts could affect our ability to offer these products to our clients, or to offer them
to our clients at rates that are competitive to other forms of advertising, without adversely
affecting our net income.
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Future acquisitions of businesses or properties could have adverse consequences on our
existing business or assets.
We may acquire outdoor advertising assets and other assets or businesses we believe will
assist our clients in marketing their products and services. Our acquisition strategy involves
numerous risks, including:
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possible failures of our acquisitions to be profitable or to generate anticipated
cash flows, which could affect our overall profitability and cash flows;
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entry into markets and geographic areas where our competitors are operating but
where we have limited or no experience;
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potential difficulties in integrating our operations and systems with those of
acquired companies, causing delays in realizing the potential benefits of acquisitions;
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diversion of our management team’s attention away from other business concerns; and
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loss of key employees of acquired companies or the inability to recruit additional
senior management to supplement or replace senior management of acquired companies.
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Antitrust regulations may limit future acquisitions due to our current inventory of
advertising properties in certain markets.
Additional acquisitions by us may require antitrust review by federal antitrust agencies and
may require review by foreign antitrust agencies under the antitrust laws of foreign jurisdictions.
We can give no assurances the Department of Justice, the Federal Trade Commission or foreign
antitrust agencies will not investigate, possibly challenge or seek divestitures or other remedies
as a condition to not challenging future acquisitions. If those agencies take any such action, we
may not be able to complete, or realize the desired benefits of, the proposed acquisition.
The lack of availability of potential acquisitions at reasonable prices could harm our
growth strategy.
We face stiff competition from other outdoor advertising companies for acquisition
opportunities. If the prices sought by sellers of these companies were to rise, we may find fewer
acceptable acquisition opportunities. In addition, the purchase price of possible acquisitions
could require the incurrence of additional debt or equity financing on our part. Since the terms
and availability of this financing depend to a large degree upon general economic conditions and
third parties over which we have no control, we can give no assurance we will obtain the needed
financing or we will obtain such financing on attractive terms. In addition, our ability to obtain
financing depends on a number of other factors, many of which are also beyond our control, such as
interest rates and national and local business conditions. If the cost of obtaining needed
financing is too high or the terms of such financing are otherwise unacceptable in relation to the
acquisition opportunity we are presented with, we may decide to forgo that opportunity. Additional
indebtedness could increase our leverage and make us more vulnerable to economic downturns and may
limit our ability to withstand competitive pressures. Additional equity financing could result in
dilution to our shareholders.
We have substantial debt obligations that could restrict our operations and impair our
financial condition.
At December 31, 2005, our total indebtedness for borrowed money was $2.7 billion,
approximately $2.5 billion of which is intercompany indebtedness owed to Clear Channel
Communications. As of December 31, 2005, approximately $140.8 million of such total indebtedness
(excluding interest) is due in 2006, $1.7 million is due in 2007, $26.6 million is due in 2008,
$55.6 million is due in 2009 and $2.5 billion thereafter. We may also incur additional substantial
indebtedness in the future.
Our substantial indebtedness could have adverse consequences, including:
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increasing our vulnerability to adverse economic, regulatory and industry
conditions;
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limiting our ability to compete and our flexibility in planning for, or reacting to,
changes in our business and the industry;
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limiting our ability to borrow additional funds; and
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requiring us to dedicate a substantial portion of our cash flow from operations to
payments on our debt, thereby reducing funds available for working capital, capital
expenditures, acquisitions and other purposes.
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If our cash flow and capital resources are insufficient to service our debt obligations, we
may be forced to sell assets, seek additional equity or debt capital or restructure our debt.
However, these measures might be unsuccessful or inadequate in permitting us to meet scheduled debt
service obligations. We may be unable to restructure or refinance our obligations and obtain
additional equity financing or sell assets on satisfactory terms or at all. As a result, inability
to meet our debt obligations could cause us to default on those obligations. A default under any
debt instrument could, in turn, result in defaults under other debt instruments. Any such defaults
could materially impair our financial condition and liquidity.
To service our debt obligations and to fund potential capital expenditures, we will require
a significant amount of cash to meet our needs, which depends on many factors beyond our
control.
Our ability to service our debt obligations and to fund potential capital expenditures for
display construction or renovation will require a significant amount of cash, which depends on many
factors beyond our control. Our ability to make payments on and to refinance our debt will also
depend on our ability to generate cash in the future. This, to an extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors beyond our control.
We cannot assure our business will generate sufficient cash flow or that future borrowings
will be available to us in an amount sufficient to enable us to pay our debt, including our
intercompany notes, or to fund our other liquidity needs. If our future cash flow from operations
and other capital resources are insufficient to pay our obligations as they mature or to fund our
liquidity needs, we may be forced to reduce or delay our business activities and capital
expenditures, sell assets, obtain additional equity capital or restructure or refinance all or a
portion of our debt, including the intercompany notes, on or before maturity. We cannot assure we
will be able to refinance any of our debt, including the intercompany notes, on a timely basis or
on satisfactory terms, if at all. In addition, the terms of our existing debt, including the
intercompany notes, and other future debt may limit our ability to pursue any of these
alternatives.
The $2.5 billion intercompany note and agreements with Clear Channel Communications impose
restrictions on our ability to finance operations and capital needs, make acquisitions or
engage in other business activities and requires prepayment from substantially all proceeds
from debt or equity raised by us.
The $2.5 billion intercompany note and Master Agreement with Clear Channel Communications
include restrictive covenants that, among other things, restrict our ability to:
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incur additional debt;
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pay dividends and make distributions;
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make certain acquisitions and investments;
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repurchase our stock;
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create liens;
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enter into transactions with affiliates;
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enter into sale-leaseback transactions;
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dispose of all or substantially all of our assets; and
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merge or consolidate.
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The existence of these restrictions could limit our ability to grow and increase our revenues
or respond to competitive changes.
In addition, the intercompany note requires us to prepay it in full upon a change of control
(as defined in the note), and, upon our issuances of equity and incurrences of debt, subject to
certain exceptions, to prepay the note in the amount of net proceeds received from such events. Our
failure to comply with the terms and covenants in our indebtedness could lead to a default under
the terms of those documents, which would entitle Clear Channel Communications or other holders to
accelerate the indebtedness and declare all amounts owed due and payable.
Additional restrictions on outdoor advertising of tobacco, alcohol and other products may
further restrict the categories of clients that can advertise using our products.
Out-of-court settlements between the major U.S. tobacco companies and all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico and four other U.S. territories include a ban
on the outdoor advertising of tobacco products. Legislation regulating tobacco and alcohol
advertising has also been introduced in a number of European countries in which we conduct business
and could have a similar impact. Any significant reduction in alcohol-related advertising due to
content-related restrictions could cause a reduction in our direct revenues from such
advertisements and an increase in the available space on the existing inventory of billboards in
the outdoor advertising industry.
A general deterioration in economic conditions may cause our clients to reduce their
advertising budgets or to choose advertising plans other than outdoor advertising.
The risks associated with our businesses become more acute in periods of a slowing economy or
recession, which may be accompanied by a decrease in advertising and which could have an adverse
effect on our revenues and profit margins or result in an impairment in the value of our assets.
The impact of slowdowns on our business is difficult to predict, but they may result in reductions
in purchases of advertising. In addition, to the extent our street furniture and transit businesses
rely on long-term guaranteed contracts with government entities, we may suffer losses on those
contracts in times of economic slowdowns.
Our outdoor advertising properties and revenues may be adversely affected by the occurrence
of extraordinary events.
The occurrence of extraordinary events with respect to our properties or the economy
generally, such as terrorist attacks, severe weather conditions such as hurricanes or similar
events may substantially decrease the use of and demand for advertising or expose us to substantial
liability, which may decrease our revenues or increase our expenses. The September 11, 2001
terrorist attacks, for example, caused a nationwide disruption of commercial activities. The
occurrence of future terrorist attacks, military actions, contagious disease outbreaks or similar
events cannot be predicted, and their occurrence can be expected to further negatively affect the
economies of the United States and other foreign countries where we do business generally,
specifically the market for advertising.
Risks Related to Our Relationship with Clear Channel Communications
We have a short operating history as a publicly traded company and our historical financial
information prior to the IPO is not necessarily representative of the results we would have
achieved as an independent publicly traded company and may not be a reliable indicator of
our future results.
The historical combined financial information prior to the IPO included in this Annual Report
does not reflect the financial condition, results of operations or cash flows we would have
achieved as an independent publicly traded company during the periods presented or those results we
will achieve in the future. This is primarily a result of the following factors:
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Our historical combined financial results reflect allocations of corporate expenses
from Clear Channel Communications.
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Our working capital requirements and capital for our general corporate purposes,
including acquisitions and capital expenditures, historically have been satisfied as
part of the corporate-wide cash management policies of Clear Channel Communications.
Subsequent to the IPO, Clear Channel
Communications is not required to provide us with funds to finance our working capital
or other cash requirements. Without the opportunity to obtain financing from Clear
Channel Communications, we may in the future need to obtain additional financing from
banks, or through public offerings or private placements of debt or equity securities,
strategic relationships or other arrangements. We may have a lower credit rating than
Clear Channel Communications and may incur debt on terms and at interest rates that
will not be as favorable as those generally enjoyed by Clear Channel Communications.
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Significant changes may occur in our cost structure, management, financing and
business operations as a result of our operating as a publicly traded subsidiary of
Clear Channel Communications. These changes could result in increased costs associated
with reduced economies of scale, stand-alone costs for services currently provided by
Clear Channel Communications, the need for additional personnel to perform services
currently provided by Clear Channel Communications and the legal, accounting,
compliance and other costs associated with being a public company with equity
securities listed on a national stock exchange. We are obligated to continue to use the
services of Clear Channel Communications under the Corporate Services Agreement until
such time as Clear Channel Communications owns less than 50% of the total voting power
of our common stock, or longer for certain information technology services, and, in the
event our Corporate Services Agreement with Clear Channel Communications terminates, we
may not be able to replace the services Clear Channel Communications provides us until
such time or in a timely manner or on comparable terms.
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Pursuant to a cash management arrangement, substantially all of our cash generated
from our Americas operations is transferred daily by Clear Channel Communications into
accounts where funds of ours and of Clear Channel Communications may be commingled. The
amounts so held by Clear Channel Communications are evidenced in a cash management note
issued by Clear Channel Communications to us. We do not have a commitment from Clear
Channel Communications to advance funds to us, and we have no access to the cash
transferred from our concentration account to the master account of Clear Channel
Communications. If Clear Channel Communications were to become insolvent, we would be
an unsecured creditor like other unsecured creditors of Clear Channel Communications
and could experience a liquidity shortfall.
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Because Clear Channel Communications controls substantially all the voting power of our
common stock, investors will not be able to affect the outcome of any shareholder vote.
As of December 31, 2005, Clear Channel Communications owned all of our outstanding shares of
Class B common stock, representing approximately 90% of the outstanding shares of our common stock.
Each share of our Class B common stock entitles its holder to 20 votes and each share of our Class
A common stock entitles its holder to 1 vote on all matters on which shareholders are entitled to
vote. As a result, Clear Channel Communications controlled approximately 99% of the total voting
power of our common stock.
For so long as Clear Channel Communications continues to own shares of our common stock
representing more than 50% of the total voting power of our common stock, it will have the ability
to direct the election of all members of our Board of Directors and to exercise a controlling
influence over our business and affairs, including any determinations with respect to mergers or
other business combinations involving us, our acquisition or disposition of assets, our incurrence
of indebtedness, our issuance of any additional common stock or other equity securities, our
repurchase or redemption of common stock or preferred stock and our payment of dividends.
Similarly, Clear Channel Communications will have the power to determine or significantly influence
the outcome of matters submitted to a vote of our shareholders, including the power to prevent an
acquisition or any other change in control of us. Because Clear Channel Communications’ interests
as our controlling shareholder may differ from other shareholder’s interests, actions taken by
Clear Channel Communications with respect to us may not be favorable to all shareholders.
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We have entered into a master agreement, a corporate services agreement, a trademark license
agreement and a number of other agreements with Clear Channel Communications setting forth various
matters governing our relationship with Clear Channel Communications while it remains a significant
shareholder in us. These agreements, along with the $2.5 billion intercompany note, govern our
relationship with Clear Channel Communications and
allow Clear Channel Communications to retain control over, among other things, the continued
use of the trademark “Clear Channel,” the provision of corporate services to us and our ability to
make certain acquisitions or to merge or consolidate or to sell all or substantially all our
assets. The rights of Clear Channel Communications under these agreements may allow Clear Channel
Communications to delay or prevent an acquisition of us that our other shareholders may consider
favorable. We are not able to terminate these agreements or amend them in a manner we deem more
favorable so long as Clear Channel Communications continues to own shares of our common stock
representing more than 50% of the total voting power of our common stock.
Conflicts of interest may arise between Clear Channel Communications and us that could be
resolved in a manner unfavorable to us.
Questions relating to conflicts of interest may arise between Clear Channel Communications and
us in a number of areas relating to our past and ongoing relationships. Three of our directors
continue to serve as directors of Clear Channel Communications and two of these are our executive
officers. For as long as Clear Channel Communications continues to own shares of our common stock
representing more than 50% of the total voting power of our common stock, it has the ability to
direct the election of all the members of our Board of Directors and to exercise a controlling
influence over our business and affairs.
Areas in which conflicts of interest between Clear Channel Communications and us could arise
include, but are not limited to, the following:
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Cross officerships, directorships and stock ownership
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our directors or executive officers in the common stock of Clear Channel Communications
or service as a director or officer of both Clear Channel Communications and us could
create, or appear to create, conflicts of interest when directors and executive
officers are faced with decisions that could have different implications for the two
companies. For example, these decisions could relate to (i) the nature, quality and
cost of services rendered to us by Clear Channel Communications, (ii) disagreement over
the desirability of a potential acquisition opportunity, (iii) employee retention or
recruiting or (iv) our dividend policy.
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Intercompany transactions.
From time to time, Clear Channel Communications or its
affiliates may enter into transactions with us or our subsidiaries or other affiliates.
Although the terms of any such transactions will be established based upon negotiations
between employees of Clear Channel Communications and us and, when appropriate, subject
to the approval of the independent directors on our Board or a committee of
disinterested directors, there can be no assurance the terms of any such transactions
will be as favorable to us or our subsidiaries or affiliates as may otherwise be
obtained in arm’s length negotiations.
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Intercompany agreements.
We have entered into certain agreements with Clear Channel
Communications pursuant to which it provides us certain management, administrative,
accounting, tax, legal and other services, for which we reimburse Clear Channel
Communications on a cost basis. In addition, we entered into a number of intercompany
agreements covering matters such as tax sharing and our responsibility for certain
liabilities previously undertaken by Clear Channel Communications for certain of our
businesses. Pursuant to the corporate services agreement between Clear Channel
Communications and us, we are contractually obligated to utilize the services of the
chief executive officer of Clear Channel Communications as our Chief Executive Officer
and the chief financial officer of Clear Channel Communications as our Chief Financial
Officer until Clear Channel Communications owns less than 50% of the voting power of
our common stock, or we provide Clear Channel Communications with six months prior
written notice of termination. The terms of these agreements were established while we
were a wholly owned subsidiary of Clear Channel Communications and were not the result
of arm’s length negotiations. In addition, conflicts could arise in the interpretation
or any extension or renegotiation of these existing agreements.
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If Clear Channel Communications engages in the same type of business we conduct or takes
advantage of business opportunities that might be attractive to us, our ability to
successfully operate and expand our business may be hampered.
Our amended and restated certificate of incorporation provides that, subject to any
contractual provision to the contrary, Clear Channel Communications will have no obligation to
refrain from:
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engaging in the same or similar business activities or lines of business as us; or
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doing business with any of our clients, customers or vendors.
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In addition, the corporate opportunity policy set forth in our amended and restated
certificate of incorporation addresses potential conflicts of interest between our company, on the
one hand, and Clear Channel Communications and its officers and directors who are officers or
directors of our company, on the other hand. The policy provides that if Clear Channel
Communications acquires knowledge of a potential transaction or matter which may be a corporate
opportunity for both Clear Channel Communications and us, we will have renounced our interest in
the corporate opportunity. It also provides that if one of our directors or officers who is also a
director or officer of Clear Channel Communications learns of a potential transaction or matter
that may be a corporate opportunity for both Clear Channel Communications and us, we will have
renounced our interest in the corporate opportunity, unless that opportunity is expressly offered
to that person in writing solely in his or her capacity as our director or officer.
If one of our officers or directors, who also serves as a director or officer of Clear Channel
Communications, learns of a potential transaction or matter that may be a corporate opportunity for
both Clear Channel Communications and us, our amended and restated certificate of incorporation
provides that the director or officer will have no duty to communicate or present that corporate
opportunity to us and will not be liable to us or our shareholders for breach of fiduciary duty by
reason of Clear Channel Communications’ actions with respect to that corporate opportunity.
This policy could result in Clear Channel Communications having rights to corporate
opportunities in which both we and Clear Channel Communications have an interest.
We are a “controlled company” within the meaning of the New York Stock Exchange rules and,
as a result, will qualify for, and intend to rely on, exemptions from certain corporate
governance requirements that may not provide as many protections as those afforded to
shareholders of other companies.
Clear Channel Communications owns more than 50% of the total voting power of our common stock,
and we are a “controlled company” under the NYSE corporate governance standards. As a controlled
company, we may elect to utilize certain exemptions under the NYSE standards that free us from the
obligation to comply with certain NYSE corporate governance requirements, including the
requirements (i) that a majority of the Board of Directors consists of independent directors, (ii)
that we have a Nominating and Governance Committee, and that such Committee be composed entirely of
independent directors and governed by a written charter addressing the Committee’s purpose and
responsibilities, (iii) that we have a Compensation Committee composed entirely of independent
directors with a written charter addressing the Committee’s purpose and responsibilities and (iv)
for an annual performance evaluation of the Compensation Committee. We intend to continue to
utilize certain of these exemptions and, as a result, we may not create or maintain a Nominating
and Governance Committee, and the Nominating and Governance Committee, if created, and the
Compensation Committee may not consist entirely of independent directors, and our Board of
Directors may not consist of a majority of independent directors. Accordingly, you may not have the
same protections afforded to shareholders of companies that are subject to all of the NYSE
corporate governance requirements.
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We only have the right to use the Clear Channel brand name, logo and corporate name for so
long as Clear Channel Communications owns at least 50% of the total voting power of our
common stock. If Clear Channel Communications’ ownership falls below such 50% threshold and
we fail to establish in a timely manner a new, independently recognized brand name with a
strong reputation, our revenue and profitability could decline.
Our corporate name is “Clear Channel Outdoor Holdings, Inc.,” and we and our subsidiaries
currently use the Clear Channel brand name and logo in marketing our products and services.
Pursuant to a trademark license agreement, Clear Channel Communications grants us the right to use
the “Clear Channel” mark and logo in connection with our products and services and the right to use
“Clear Channel” in our corporate name and the corporate names of our subsidiaries until 12 months
after the date on which Clear Channel Communications owns less than 50% of the total voting power
of our common stock. In the event our right to use the Clear Channel brand name and logo and
corporate name expires, we will be required to conduct our business under a new brand name, which
may not be immediately recognized by our clients and suppliers or by potential employees we are
trying to recruit. We will need to expend significant time, effort and resources to establish a new
brand name in the marketplace. We cannot guarantee this effort will ultimately be successful. If
our effort to establish a new brand identity is unsuccessful, our business, financial condition and
results of operations may suffer.
Any future separation from Clear Channel Communications could adversely affect our business
and profitability due to Clear Channel Communications’ strong brand and reputation.
As a subsidiary of Clear Channel Communications, our businesses marketed many of their
products and services using the “Clear Channel” brand name and logo, and we believe the association
with Clear Channel Communications has provided many benefits, including:
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a world-class brand associated with trust, integrity and longevity;
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perception of high-quality products and services;
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preferred status among our clients and employees;
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strong capital base and financial strength; and
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established relationships with U.S. federal and state regulators and non-U.S. regulators.
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Any future separation from Clear Channel Communications could adversely affect our ability to
attract and retain highly qualified dedicated sales specialists for our products and services. We
may be required to lower the prices of our products and services, increase our sales commissions
and fees, change long-term advertising and marketing agreements and take other action to maintain
our relationship with our clients, suppliers and dedicated sales specialists, all of which could
have an adverse effect on our financial condition and results of operations. Any future separation
from Clear Channel Communications also could cause some of our existing clients to choose to stop
doing business with us, and could cause other potential clients to decide not to purchase our
products and services because we are no longer part of Clear Channel Communications.
We cannot accurately predict the effect a separation from Clear Channel Communications would
have on our sales, clients or employees. The risks relating to a separation from Clear Channel
Communications could materialize at various times, including:
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if and when Clear Channel Communications reduces its ownership in our common stock
to a level below 50% of the total voting power; and
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if and when we are required to cease using the Clear Channel name and logo in our
sales and marketing materials.
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We will not have control over our tax decisions and could be liable for income taxes owed by
Clear Channel Communications.
For so long as Clear Channel Communications continues to own at least 80% of the total voting
power and value of our common stock, we and certain of our subsidiaries will be included in Clear
Channel Communications’ consolidated group for U.S. federal income tax purposes. In addition, we or
one or more of our subsidiaries may be included in the combined, consolidated or unitary tax
returns of Clear Channel Communications or one or more of its subsidiaries for foreign, state and
local income tax purposes. Under the Tax Matters Agreement, we pay to Clear Channel Communications
the amount of federal, foreign, state and local income taxes which we would be required to pay to
the relevant taxing authorities if we and our subsidiaries filed combined, consolidated or unitary
tax returns and were not included in the consolidated, combined or unitary tax returns of Clear
Channel Communications or its subsidiaries. In addition, by virtue of its controlling ownership and
the Tax Matters Agreement, Clear Channel Communications effectively controls all of our tax
decisions. The Tax Matters Agreement provides that Clear Channel Communications has the sole
authority to respond to and conduct all tax proceedings (including tax audits) relating to us, to
file all income tax returns on our behalf and to determine the amount of our liability to (or
entitlement to payment from) Clear Channel Communications under the Tax Matters Agreement. This
arrangement may result in conflicts of interest between Clear Channel Communications and us. For
example, under the Tax Matters Agreement, Clear Channel Communications is able to choose to
contest, compromise or settle any adjustment or deficiency proposed by the relevant taxing
authority in a manner that may be beneficial to Clear Channel Communications and detrimental to us.
Moreover, notwithstanding the Tax Matters Agreement, federal law provides that each member of
a consolidated group is liable for the group’s entire tax obligation. Thus, to the extent Clear
Channel Communications or other members of the group fail to make any U.S. federal income tax
payments required by law, we would be liable for the shortfall. Similar principles may apply for
foreign, state and local income tax purposes where we file combined, consolidated or unitary
returns with Clear Channel Communications or its subsidiaries for federal, foreign, state and local
income tax purposes.
If Clear Channel Communications spins off our Class B common stock to its shareholders, we
have agreed in the Tax Matters Agreement to indemnify Clear Channel Communications for its
tax-related liabilities in certain circumstances.
If Clear Channel Communications spins off our Class B common stock to its shareholders in a
distribution intended to be tax-free under Section 355 of the Internal Revenue Code of 1986, as
amended, which we refer to herein as the Code, we have agreed in the Tax Matters Agreement to
indemnify Clear Channel Communications and its affiliates against any and all tax-related
liabilities if such a spin-off fails to qualify as a tax-free distribution (including as a result
of Section 355(e) of the Code) due to actions, events or transactions relating to our stock, assets
or business, or a breach of the relevant representations or covenants made by us in the Tax Matters
Agreement. If neither we nor Clear Channel Communications is responsible under the Tax Matters
Agreement for any such spin-off not being tax-free under Section 355 of the Code, we and Clear
Channel Communications have agreed to each be responsible for 50% of the tax-related liabilities
arising from the failure of such a spin-off to so qualify.
Future sales or distributions of our shares by Clear Channel Communications could depress
the market price for shares of our Class A common stock.
Clear Channel Communications may sell all or part of the shares of our common stock it owns or
distribute those shares to its shareholders, including pursuant to demand registration rights
described in the Registration Rights Agreement. Sales or distributions by Clear Channel
Communications of substantial amounts of our common stock in the public market or to its
shareholders could adversely affect prevailing market prices for our Class A common stock. Clear
Channel Communications has advised us it currently intends to continue to hold all of our common
stock it owns. However, Clear Channel Communications is not subject to any contractual obligation
that would prohibit it from selling, spinning off, splitting off or otherwise disposing of any
shares of our common stock, except Clear Channel Communications has agreed not to sell, spin off,
split off or otherwise dispose of any of our shares of common stock prior to May 10, 2006, without
the prior written consent of the underwriters of our IPO, subject to certain limitations and
limited exceptions. Consequently, we cannot assure you Clear Channel Communications will maintain
its ownership of our common stock after May 10, 2006.
23
The terms of our arrangements with Clear Channel Communications may be more favorable than
we will be able to obtain from an unaffiliated third party, and we may be unable to replace
the services Clear Channel Communications provides us in a timely manner or on comparable
terms.
We and Clear Channel Communications entered into a Corporate Services Agreement. Pursuant to
the Corporate Services Agreement, Clear Channel Communications and its affiliates agree to provide
us with corporate services, including treasury, payroll and other financial services, executive
officer services, human resources and employee benefit services, legal services, information
systems and network services and procurement and sourcing support.
We negotiated these arrangements with Clear Channel Communications in the context of a
parent-subsidiary relationship. Although Clear Channel Communications is contractually obligated to
provide us with services during the term of the Corporate Services Agreement, we cannot assure you
these services will be sustained at the same level after the expiration of that agreement, or that
we will be able to replace these services in a timely manner or on comparable terms. In addition,
we cannot provide assurance that the amount we pay Clear Channel Communications for the services
will be as favorable to us as that which may be available for comparable services provided by
unrelated third parties. Other agreements with Clear Channel Communications also govern our
relationship with Clear Channel Communications and provide for the allocation of employee benefit,
tax and other liabilities and obligations attributable to our operations. The agreements also
contain terms and provisions that may be more or less favorable than terms and provisions we might
have obtained in arm’s length negotiations with unaffiliated third parties. If Clear Channel
Communications ceases to provide services to us pursuant to those agreements, our costs of
procuring those services from third parties may increase.
Any deterioration in the financial condition of Clear Channel Communications could adversely
affect our access to the credit markets and increase our borrowing costs.
For so long as Clear Channel Communications maintains a significant interest in us, a
deterioration in the financial condition of Clear Channel Communications could have the effect of
increasing our borrowing costs or impairing our access to the capital markets because of our
reliance on Clear Channel Communications for availability under its revolving credit facility. In
addition, because the interest rate we pay on the $2.5 billion intercompany note is based on the
weighted average cost of debt for Clear Channel Communications, any such deterioration would likely
result in an increase in Clear Channel Communications’ cost of debt and in our interest rate. To
the extent we do not pass on our increased borrowing costs to our clients, our profitability, and
potentially our ability to raise capital, could be materially affected. Also, until the first date
Clear Channel Communications owns less than 50% of our voting stock, pursuant to the Master
Agreement between us and Clear Channel Communications, as well as pursuant to the $2.5 billion
intercompany note, Clear Channel Communications will have the ability to limit our ability to incur
debt or issue equity securities, which could adversely affect our ability to meet our liquidity
needs or to grow our business. See “Item 13. Certain Relationships and Related Transactions —
Arrangements Between Clear Channel Communications and Us.”
Risks Related to Our Class A Common Stock
As a new public company, the price of our Class A common stock may fluctuate significantly,
and you could lose all or part of your investment.
As a new public company, the market price of our Class A common stock may be influenced by
many factors, some of which are beyond our control, including:
|
•
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|
our quarterly or annual earnings, or those of other companies in our industry;
|
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|
•
|
|
our loss of a large client;
|
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|
•
|
|
announcements by us or our competitors of significant contracts or acquisitions;
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|
•
|
|
changes in accounting standards, policies, guidance, interpretations or principles;
|
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|
•
|
|
general economic conditions;
|
24
|
•
|
|
the failure of securities analysts to cover our Class A common stock or changes in
financial estimates by analysts;
|
|
|
•
|
|
future sales by us or other shareholders of our Class A common stock; and
|
|
|
•
|
|
other factors described in “Item 1A. Risk Factors.”
|
In recent years, the stock market has experienced extreme price and volume fluctuations. This
volatility has significantly impacted the market price of securities issued by many companies,
including companies in our industry. The changes frequently appear to occur without regard to the
operating performance of these companies. The price of our Class A common stock could fluctuate
based upon factors that have little or nothing to do with our company, and these fluctuations could
materially reduce our stock price.
In the past, some companies that have had volatile market prices for their securities have
been subject to securities class action suits filed against them. If a suit were to be filed
against us, regardless of the outcome, it could result in substantial legal costs and a diversion
of our management’s attention and resources. This could have a material adverse effect on our
business, results of operations and financial condition.
Our stock ownership by Clear Channel Communications, provisions in our agreements with Clear
Channel Communications and our corporate governance documents and Delaware law may delay or
prevent an acquisition of us that our other shareholders may consider favorable, which could
decrease the value of your shares of Class A common stock.
For as long as Clear Channel Communications continues to own shares of our common stock
representing more than 50% of the total voting power of our common stock, it will have the ability
to control decisions regarding an acquisition of us by a third party. As a controlled company, we
are exempt from some of the corporate governance requirements of the NYSE, including the
requirement that our board of directors be comprised of a majority of independent directors. In
addition, our amended and restated certificate of incorporation, bylaws and Delaware law contain
provisions that could make it more difficult for a third party to acquire us without the consent of
our board of directors. These provisions include restrictions on the ability of our shareholders to
remove directors, supermajority voting requirements for shareholders to amend our organizational
documents, restrictions on a classified board of directors and limitations on action by our
shareholders by written consent. Some of these provisions, such as the limitation on shareholder
action by written consent, only become effective once Clear Channel Communications no longer
controls us. In addition, our board of directors has the right to issue preferred stock without
shareholder approval, which could be used to dilute the stock ownership of a potential hostile
acquirer. Delaware law also imposes certain restrictions on mergers and other business combinations
between any holder of 15% or more of our outstanding voting stock. These restrictions under
Delaware law do not apply to Clear Channel Communications while it retains at least 15% or more of
our Class B common stock. Although we believe these provisions protect our shareholders from
coercive or otherwise unfair takeover tactics and thereby provide for an opportunity to receive a
higher bid by requiring potential acquirers to negotiate with our board of directors, these
provisions apply even if the offer may be considered beneficial by some shareholders.
If Clear Channel Communications spins off our high vote Class B common stock to its
shareholders and such shares do not convert into Class A common stock upon a sale or other
transfer subsequent to such distribution, the voting rights of our Class A common stock will
continue to be disproportionately lower than the voting rights of our Class B common stock.
In connection with any distribution of shares of our Class B common stock to Clear Channel
Communications’ common shareholders in a spin-off, Clear Channel Communications may elect in its
sole discretion whether our Class B common stock so distributed will automatically convert into
shares of Class A common stock upon a transfer or sale by the recipient subsequent to the spin-off
or whether the Class B common stock will continue as high vote Class B common stock after the
distribution. In the event the Class B common stock does not convert into Class A common stock upon
a sale or transfer subsequent to a spin-off, the voting rights of Class A common stock will
continue to be disproportionately lower than the voting rights of our Class B common stock.
Therefore, the holders of our Class B common stock will continue to be able to direct the election
of all the members of our board of directors and exercise a controlling influence over our business
and affairs.
25
We currently do not intend to pay dividends on our Class A common stock.
We do not expect to pay dividends on our Class A common stock in the foreseeable future. We
are a holding company with no independent operations and no significant assets other than the stock
of our subsidiaries. We therefore are dependent upon the receipt of dividends or other
distributions from our subsidiaries to pay dividends. In addition, pursuant to the covenants on the
$2.5 billion intercompany note with Clear Channel Communications, our ability to pay dividends is
restricted. Accordingly, if you purchase shares in us, the price of our Class A common stock must
appreciate in order to realize a gain on your investment. This appreciation may not occur.
We will incur increased costs as a result of being a public company.
The Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the
Securities and Exchange Commission and New York Stock Exchange, have required changes in corporate
governance practices of public companies. We expect these new rules and regulations to increase our
legal and financial compliance costs and to make some activities more time-consuming and costly.
For example, when we cease to take advantage of the “controlled company” exemption available in the
NYSE rules, we will have to add a number of independent directors in order that our board consist
of a majority of independent directors and create additional board committees. In addition, we will
incur additional costs associated with our public company reporting requirements. We also expect
these new rules and regulations to make it more difficult and more expensive for us to obtain
director and officer liability insurance and we may be required to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar coverage. As a result,
it may be more difficult for us to attract and retain qualified persons to serve on our board of
directors or as executive officers. We are currently evaluating and monitoring developments with
respect to these new rules, and we cannot predict or estimate the amount of additional costs we may
incur or the timing of such costs.
If we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, or
our internal controls over financial reporting are not effective, the reliability of our
financial statements may be questioned and our stock price may suffer.
Section 404 of the Sarbanes-Oxley Act requires any company subject to the reporting
requirements of the U.S. securities laws to do a comprehensive evaluation of its and its combined
subsidiaries’ internal controls over financial reporting. To comply with this statute, we will be
required to document and test our internal control procedures; our management will be required to
assess and issue a report concerning our internal controls over financial reporting; and our
independent auditors will be required to issue an opinion on management’s assessment of those
matters. Our compliance with Section 404 of the Sarbanes-Oxley Act will first be tested in
connection with the filing of our annual report on Form 10-K for the fiscal year ending December
31, 2006. The rules governing the standards that must be met for management to assess our internal
controls over financial reporting are new and complex and require significant documentation,
testing and possible remediation to meet the detailed standards under the rules. During the course
of its testing, our management may identify material weaknesses or significant deficiencies which
may not be remedied in time to meet the deadline imposed by the Sarbanes-Oxley Act. If our
management cannot favorably assess the effectiveness of our internal controls over financial
reporting or our auditors identify material weaknesses in our internal controls, investor
confidence in our financial results may weaken, and our stock price may suffer.
Caution Concerning Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by us or on our behalf. Except for the historical information, this
Annual Report contains various forward-looking statements which represent our expectations or
beliefs concerning future events, including the future levels of cash flow from operations.
Management believes all statements expressing expectations and projections with respect to future
matters, including our ability to negotiate contracts having more favorable terms and the
availability of capital resources, are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. We caution that these forward-looking statements involve a
number of risks and uncertainties and are subject to many variables which could impact our
financial performance. These statements are made on the basis of management’s views and
assumptions, as of the time the statements are made, regarding future events and business
performance. There can be no assurance, however, that management’s expectations will necessarily
come to pass.
26
A wide range of factors could materially affect future developments and performance,
including:
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•
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the impact of general economic and political conditions in the United States and in
other countries in which we currently do business, including those resulting from
recessions, political events and acts or threats of terrorism or military conflicts;
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•
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the impact of the geopolitical environment;
|
|
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•
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our ability to integrate the operations of acquired companies;
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•
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shifts in population and other demographics;
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•
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industry conditions, including competition;
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•
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fluctuations in operating costs;
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•
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technological changes and innovations;
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•
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changes in labor conditions;
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•
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fluctuations in exchange rates and currency values;
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•
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capital expenditure requirements;
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•
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the outcome of pending and future litigation settlements;
|
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•
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legislative or regulatory requirements;
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•
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interest rates;
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•
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the effect of leverage on our financial position and earnings;
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•
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taxes;
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•
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access to capital markets; and
|
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•
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|
certain other factors set forth in our filings with the Securities and Exchange Commission.
|
This list of factors that may affect future performance and the accuracy of forward-looking
statements is illustrative, but by no means exhaustive. Accordingly, all forward-looking
statements should be evaluated with the understanding of their inherent uncertainty.
ITEM 1B. Unresolved Staff Comments
Not Applicable
ITEM 2. Properties
Our worldwide corporate headquarters are in San Antonio, Texas. The headquarters of our
Americas advertising operations are in Phoenix, Arizona, and the headquarters of our international
operations are in London, England. The types of properties required to support each of our
advertising branches include offices, production facilities and structure sites. A branch and
production facility is generally located in an industrial or warehouse district.
We own or have acquired permanent easements for relatively few parcels of real property that
serve as the sites for our outdoor displays. Our remaining outdoor display sites are leased. Our
leases generally range from month-to-month to year-to-year and can be for terms of ten years or
longer, and many provide for renewal options.
27
There is no significant concentration of displays under any one lease or subject to
negotiation with any one landlord. We believe an important part of our management activity is to
negotiate suitable lease renewals and extensions.
ITEM 3. Legal Proceedings
From time to time, we are involved in legal proceedings arising in the ordinary course of
business. Under our agreements with Clear Channel Communications, we have assumed and will
indemnify Clear Channel Communications for liabilities related to our business. Other than as
described below, we do not believe there is any litigation pending that would have, individually or
in the aggregate, a material adverse effect on our financial position, results of operations or
cash flow.
We are the defendant in a lawsuit filed October 20, 1998 by Jorge Luis Cabrera, Sr., and
Martha Serrano, as personal representatives of the Estate of Jorge Luis Cabrera, Jr., in the 11th
Judicial Circuit in and for Miami-Dade County, Florida. The plaintiff alleged we negligently
constructed, installed or maintained the electrical system in a bus shelter, which resulted in the
death of Jorge Luis Cabrera, Jr. Martha Serrano settled her claims with us. On June 24, 2005, the
jury rendered a verdict in favor of the plaintiff, and awarded the plaintiff $4.1 million in actual
damages and $61.0 million in punitive damages. The Company filed a motion to have the punitive
damages award reduced. The trial judge granted the Company’s motion. A final judgment in the
amount of $4.1 million in compensatory damages and $12.3 million in punitive damages was signed on
January 23, 2006. The Company has appealed the underlying judgment and the Plaintiff filed a
cross-appeal. The Plaintiff seeks to reinstate the original award of punitive damages. We have
insurance coverage for up to approximately $50.0 million in damages for this matter.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders in the fourth quarter of fiscal
year 2005.
28
PART II
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|
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ITEM 5.
|
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
|
Our Class A
common stock trades on the New York Stock Exchange under the symbol “CCO.” There were 125
shareholders of record as of March 24, 2006. This figure does not include an estimate of the
indeterminate number of beneficial holders whose shares may be held of record by brokerage firms
and clearing agencies. The following table sets forth, for the calendar quarter indicated, the
reported high and low sales price of our Class A common stock as reported on the NYSE, beginning on
November 11, 2005, the first day of trading for our common stock.
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Common Stock
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Market Price
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High
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|
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Low
|
|
2005
|
|
|
|
|
|
|
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|
Fourth Quarter
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$
|
20.40
|
|
|
$
|
18.00
|
|
See Part III, Item 12 for information regarding securities authorized for issuance under our
equity compensation plans.
Dividend Policy
To date, we have not paid dividends on our common stock and we do not anticipate paying any
dividends on the shares of our common stock in the foreseeable future. Pursuant to the covenants on
the $2.5 billion intercompany note with Clear Channel Communications, our ability to pay dividends
is restricted. If cash dividends were to be paid on our common stock, holders of Class A common
stock and Class B common stock would share equally, on a per share basis, in any such cash
dividend.
Use of Initial Public Offering Proceeds
On November 10, 2005, the SEC declared effective
our Registration Statement on Form S-1 (File No. 333-127375)
(“Registration Statement”) for our initial public offering. Under the Registration Statement,
we registered 40,250,000 shares of our Class A common stock for an aggregate offering size of $885.5 million. In this
offering we sold 35,000,000 shares of our Class A common stock. All of the 35,000,000 shares sold in this offering were
sold at $18.00 per share. The offering closed on November 16, 2005. This offering was made through an underwriting syndicate
led by Goldman, Sachs &
Co. that acted as global coordinator and senior book-running manager. Deutsche Bank Securities Inc.,
J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and UBS Securities LLC acted as joint
book-running managers for this offering. The aggregate gross proceeds from the sale of the 35,000,000 shares of our Class A
common stock were $630.0 million. The aggregate net proceeds to us after the offering were $605.8 million, after deducting an
aggregate of $24.2 million in underwriting discounts and commissions paid to the underwriters. The aggregate net proceeds were
used to pay direct costs of the offering ($5.2 million) and repay debt outstanding to Clear Channel Communications ($600.6 million).
ITEM 6. Selected Financial Data
The historical financial and other data prior to the IPO have been prepared on a combined
basis from Clear Channel Communications combined financial statements using the historical results
of operations and bases of the assets and liabilities of Clear Channel Communications’ Americas
outdoor and international outdoor advertising businesses and give effect to allocations of expenses
from Clear Channel Communications. Our historical financial data will not be indicative of our
future performance nor will such data reflect what our financial position and results of operations
would have been had we operated as an independent publicly traded company during the periods shown.
We have prepared our combined financial statements as if Clear Channel Outdoor had been in
existence as a separate company throughout all relevant periods. The results of operations data,
segment data and cash flow data for the year ended December 2001 and the combined balance sheet
data as of December 31, 2001 presented below were derived from our unaudited combined financial
statements. The results of operations data, segment data and cash flow data for the remaining years
presented below were derived from our audited consolidated and combined financial statements.
29
You should read the information contained in this table in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and the historical
audited and unaudited consolidated and combined financial statements and the accompanying notes
thereto included elsewhere in this Annual Report.
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Year Ended December 31,
|
|
(In thousands, except per share data)
|
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2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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(Unaudited)
|
|
Results of Operations Data:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Revenue
|
|
$
|
2,666,078
|
|
|
$
|
2,447,040
|
|
|
$
|
2,174,597
|
|
|
$
|
1,859,641
|
|
|
$
|
1,748,030
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (exclusive of
depreciation and amortization)
|
|
|
1,342,307
|
|
|
|
1,262,317
|
|
|
|
1,133,386
|
|
|
|
957,830
|
|
|
|
861,854
|
|
Selling, general and administrative
expenses (exclusive of depreciation and
amortization)
|
|
|
541,794
|
|
|
|
499,457
|
|
|
|
456,893
|
|
|
|
392,803
|
|
|
|
355,370
|
|
Depreciation and amortization
|
|
|
400,639
|
|
|
|
388,217
|
|
|
|
379,640
|
|
|
|
336,895
|
|
|
|
559,498
|
|
Corporate expenses (exclusive of
depreciation and amortization)
|
|
|
61,096
|
|
|
|
53,770
|
|
|
|
54,233
|
|
|
|
52,218
|
|
|
|
62,266
|
|
Gain (loss) on disposition of assets — net
|
|
|
3,488
|
|
|
|
10,791
|
|
|
|
16,669
|
|
|
|
8,223
|
|
|
|
(9,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
323,730
|
|
|
|
254,070
|
|
|
|
167,114
|
|
|
|
128,118
|
|
|
|
(100,763
|
)
|
Interest expense
|
|
|
15,687
|
|
|
|
14,177
|
|
|
|
14,201
|
|
|
|
11,623
|
|
|
|
13,331
|
|
Intercompany interest expense
|
|
|
182,667
|
|
|
|
145,653
|
|
|
|
145,648
|
|
|
|
227,402
|
|
|
|
220,798
|
|
Equity in earnings (loss) of nonconsolidated
affiliates
|
|
|
9,844
|
|
|
|
(76
|
)
|
|
|
(5,142
|
)
|
|
|
3,620
|
|
|
|
(4,422
|
)
|
Other income (expense) — net
|
|
|
(12,291
|
)
|
|
|
(16,530
|
)
|
|
|
(21,358
|
)
|
|
|
(837
|
)
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income (loss) before income taxes, minority
interest and cumulative effect of a change in
accounting principle
|
|
|
122,929
|
|
|
|
77,634
|
|
|
|
(19,235
|
)
|
|
|
(108,124
|
)
|
|
|
(339,289
|
)
|
Income tax (expense) benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(51,173
|
)
|
|
|
(23,422
|
)
|
|
|
12,092
|
|
|
|
72,008
|
|
|
|
68,101
|
|
Deferred
|
|
|
5,689
|
|
|
|
(39,132
|
)
|
|
|
(23,944
|
)
|
|
|
(21,370
|
)
|
|
|
(5,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
(45,484
|
)
|
|
|
(62,554
|
)
|
|
|
(11,852
|
)
|
|
|
50,638
|
|
|
|
62,902
|
|
Minority interest income (expense)
|
|
|
(15,872
|
)
|
|
|
(7,602
|
)
|
|
|
(3,906
|
)
|
|
|
1,778
|
|
|
|
(4,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of a
change in accounting principle
|
|
|
61,573
|
|
|
|
7,478
|
|
|
|
(34,993
|
)
|
|
|
(55,708
|
)
|
|
|
(280,573
|
)
|
Cumulative effect of a change in accounting
principle, net of tax of, $113,173 in 2004
and $504,927 in 2002 (1)
|
|
|
—
|
|
|
|
(162,858
|
)
|
|
|
—
|
|
|
|
(3,527,198
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
61,573
|
|
|
$
|
(155,380
|
)
|
|
$
|
(34,993
|
)
|
|
$
|
(3,582,906
|
)
|
|
$
|
(280,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In thousands, except per share data)
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative
effect of a change in accounting
principle
|
|
$
|
.19
|
|
|
$
|
.02
|
|
|
$
|
(.11
|
)
|
|
$
|
(.18
|
)
|
|
$
|
(.89
|
)
|
Cumulative effect of a change in
accounting principle
|
|
|
—
|
|
|
|
(.52
|
)
|
|
|
—
|
|
|
|
(11.20
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
.19
|
|
|
$
|
(.50
|
)
|
|
$
|
(.11
|
)
|
|
$
|
(11.38
|
)
|
|
$
|
(.89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares (2)
|
|
|
319,890
|
|
|
|
315,000
|
|
|
|
315,000
|
|
|
|
315,000
|
|
|
|
315,000
|
|
Diluted:
|
|
Income (loss) before cumulative
effect of a change in accounting
principle
|
|
$
|
.19
|
|
|
$
|
.02
|
|
|
$
|
(.11
|
)
|
|
$
|
(.18
|
)
|
|
$
|
(.89
|
)
|
Cumulative effect of a change in
accounting principle
|
|
|
—
|
|
|
|
(.52
|
)
|
|
|
—
|
|
|
|
(11.20
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
.19
|
|
|
$
|
(.50
|
)
|
|
$
|
(.11
|
)
|
|
$
|
(11.38
|
)
|
|
$
|
(.89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares (2)
|
|
|
319,921
|
|
|
|
315,000
|
|
|
|
315,000
|
|
|
|
315,000
|
|
|
|
315,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
As of December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
900,295
|
|
|
$
|
1,107,240
|
|
|
$
|
958,669
|
|
|
$
|
753,289
|
|
|
$
|
642,536
|
|
Property, plant and equipment — net
|
|
|
2,153,428
|
|
|
|
2,195,985
|
|
|
|
2,264,106
|
|
|
|
2,213,817
|
|
|
|
2,039,002
|
|
Total assets
|
|
|
4,918,345
|
|
|
|
5,240,933
|
|
|
|
5,232,820
|
|
|
|
4,926,205
|
|
|
|
7,807,624
|
|
Current liabilities
|
|
|
793,812
|
|
|
|
749,055
|
|
|
|
736,202
|
|
|
|
642,330
|
|
|
|
1,825,904
|
|
Long-term debt, including current
maturities
|
|
|
2,727,786
|
|
|
|
1,639,380
|
|
|
|
1,670,017
|
|
|
|
1,713,493
|
|
|
|
1,526,427
|
|
Shareholders’/owner’s equity
|
|
|
1,209,437
|
|
|
|
2,729,653
|
|
|
|
2,760,164
|
|
|
|
2,578,943
|
|
|
|
5,413,398
|
|
|
|
|
(1)
|
|
Cumulative effect of change in accounting principle for the year ended December 31, 2004,
related to a non-cash charge recognized in accordance with the adoption of Topic D-108,
Use of
Residual Method to Value Acquired Assets other than Goodwill
. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates —
Indefinite-lived Assets.” Cumulative effect of change in accounting principle for the year
ended December 31, 2002, related to an impairment of goodwill recognized in accordance with
the adoption of Statement of Financial Accounting Standards No. 142,
Goodwill and Other
Intangible Assets
.
|
|
(2)
|
|
Weighted average common shares outstanding for the year ended December 31, 2005 reflects the
sale of 35.0 million shares of our Class A common stock in our IPO on November 11, 2005.
|
The Selected Financial Data should be read in conjunction with Management’s Discussion and Analysis.
31
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
Management’s discussion and analysis, or MD&A, of our financial condition and results of
operations is provided as a supplement to the audited annual financial statements and accompanying
notes thereto to help provide an understanding of our financial condition, changes in our financial
condition and results of our operations. The information included in MD&A should be read in
conjunction with the annual financial statements. MD&A is organized as follows:
|
•
|
|
Overview.
This section provides a general description of our business, as well as
other matters we believe are important in understanding our results of operations and
financial condition and in anticipating future trends.
|
|
|
•
|
|
Results of operations.
This section provides an analysis of our results of
operations for the years ended December 31, 2005, 2004 and 2003. Our discussion is
presented on both a consolidated and segment basis. Our reportable operating segments
are Americas and international. Approximately 94% of our 2005 Americas revenues were
derived from the United States, with the balance derived from Canada and Latin America.
Approximately 51% of our 2005 international revenues were derived from France and the
United Kingdom. Our French operations incurred a restructuring charge in the third
quarter of 2005 and in 2003. One measure we use to manage our segments is operating
income. Corporate expenses, gain on the disposition of assets — net, interest expense,
equity in earnings (loss) of nonconsolidated affiliates, other income (expense) — net,
income taxes, minority interest expense — net, and cumulative effect of change in
accounting principle are managed on a total company basis and are, therefore, included
only in our discussion of consolidated results.
|
|
|
•
|
|
Financial condition and liquidity.
This section provides a discussion of our
financial condition as of December 31, 2005, as well as an analysis of our cash flows
for the years ended December 31, 2005 and 2004. The discussion of our financial
condition and liquidity includes summaries of (i) our primary sources of liquidity,
(ii) our key debt covenants and (iii) our outstanding debt and commitments (both firm
and contingent) that existed as of December 31, 2005.
|
|
|
•
|
|
Seasonality.
This section discusses seasonal performance of our Americas and
international segments.
|
|
|
•
|
|
Market risk management.
This section discusses how we manage exposure to potential
losses arising from adverse changes in foreign currency exchange rates and interest
rates.
|
|
|
•
|
|
Critical accounting estimates.
This section discusses accounting policies considered
to be important to our financial condition and results of operations and which require
significant judgment and estimates on the part of management in their application. In
addition, all of our significant accounting policies, including our critical accounting
policies, are summarized in Note A to our consolidated and combined financial
statements included elsewhere in this Annual Report.
|
OVERVIEW
Description of Business
Our revenues are derived from selling advertising space on approximately 875,000 displays
owned or operated as of December 31, 2005, consisting primarily of billboards, street furniture
displays and transit displays. We own the majority of our advertising displays, which typically are
located on sites that we either lease or own or for which we have acquired permanent easements. Our
advertising contracts with clients typically outline the number of displays reserved, the duration
of the advertising campaign and the unit price per display. The margins on our billboard contracts
tend to be higher than those on contracts for our other displays.
Generally, our advertising rates are based on the “gross rating points,” or total number of
impressions delivered expressed as a percentage of a market population, of a display or group of
displays. The number of “impressions” delivered by a display is measured by the number of people
passing the site during a defined period of
32
time and, in some international markets, is weighted to account for such factors as
illumination, proximity to other displays and the speed and viewing angle of approaching traffic.
To monitor our business, management typically reviews the average rates, average revenues per
display, occupancy and inventory levels of each of our display types by market. In addition,
because a significant portion of our advertising operations are conducted in foreign markets,
management reviews the operating results from our foreign operations on a constant dollar basis. A
constant dollar basis allows for comparison of operations independent of foreign exchange
movements. Because revenue-sharing and minimum guaranteed payment arrangements are more prevalent
in our international operations, the margins in our international operations typically are less
than the margins in our Americas operations. Foreign currency transaction gains and losses, as well
as gains and losses from translation of financial statements of subsidiaries and investees in
highly inflationary countries, are included in operations.
The significant expenses associated with our operations include (i) direct production,
maintenance and installation expenses, (ii) site lease expenses for land under our displays and
(iii) revenue-sharing or minimum guaranteed amounts payable under our billboard, street furniture
and transit display contracts. Our direct production, maintenance and installation expenses include
costs for printing, transporting and changing the advertising copy on our displays, the related
labor costs, the vinyl and paper costs and the costs for cleaning and maintaining our displays.
Vinyl and paper costs vary according to the complexity of the advertising copy and the quantity of
displays. Our site lease expenses include lease payments for use of the land under our displays, as
well as any revenue-sharing arrangements we may have with the landlords. The terms of our Americas
site leases generally range from 1 to 50 years. Internationally, the terms of our site leases
generally range from 3 to 15 years, but may vary across our networks.
We have long-standing relationships with a diversified group of local, regional and national
advertising brands and agencies in the United States and worldwide.
Relationship with Clear Channel Communications
Clear Channel Communications has advised us its current intent is to continue to hold all of
our Class B common stock and thereby retain its controlling interest in us. However, Clear Channel
Communications is not subject to any contractual obligation that would prohibit it from selling,
spinning off, splitting off or otherwise disposing of any shares of our common stock, except Clear
Channel Communications has agreed not to sell, spin off, split off or otherwise dispose of any
shares of our common stock prior to May 10, 2006, without the prior written consent of the
underwriters of the IPO, subject to certain limitations and limited exceptions.
Our branch managers have historically followed a corporate policy allowing Clear Channel
Communications to use, without charge, Americas displays they or their staff believe would
otherwise be unsold. Our sales personnel receive partial revenue credit for that usage for
compensation purposes. This partial revenue credit is not included in our reported revenues. Clear
Channel Communications bears the cost of producing the advertising and we bear the costs of
installing and removing this advertising. In 2005, we estimated these discounted revenues would
have been less than 2% of our Americas revenues. Under the Master Agreement, this policy will
continue.
Factors Affecting Results of Operations and Financial Condition
Our revenues are derived primarily from the sale of advertising space on displays we own and
operate in key markets worldwide, and our operating results are therefore affected by general
economic conditions, as well as trends in the out-of-home advertising industry.
The outdoor advertising industry is significantly influenced by general local and national
economic conditions, as well as the general advertising environment in individual markets. In July
2005, we announced a plan to restructure our French operations to reduce approximately 6% of our
French workforce and streamline our operations, which we anticipate will provide cost savings over
the next three years. In connection with this restructuring effort, we recorded approximately $26.6
million as a component of selling, general and administrative expenses.
Government regulation and geopolitical events also impact the outdoor advertising industry. In
certain markets, deregulation of the advertising industry may have a negative impact on our
revenues. For example, recent
33
changes in French regulation will allow advertisers to place retail advertisements on
television by January 1, 2007. We anticipate that such changes will impact our national advertising
revenues derived from France as a portion of French retail advertising dollars shift from outdoor
media to television. National retail advertising in France was approximately 3% of our consolidated
global revenues.
The outdoor advertising industry is also influenced by the commuting habits of the general
population. Population growth and increasing drive and other commute times are key growth drivers
for us. Outdoor advertising provides advertisers the ability to capture a growing mobile audience
base that spends an increasing amount of time out-of-home. Technological advances also provide
opportunities in the outdoor advertising industry. For example, digital display capabilities offer
innovative advances in electronic displays. Technological advances are also expected to allow us to
quickly and frequently change advertisements on displays, facilitating our transition from selling
an advertiser display space to selling an advertiser time on multiple displays.
There are several additional factors that could materially impact our results of operations.
See “Risk Factors” for a more comprehensive list of these factors.
Basis of Presentation
Our combined financial statements for the periods prior to our initial public offering have
been derived from the financial statements and accounting records of Clear Channel Communications,
principally from the statements and records representing Clear Channel Communications’ Americas and
International Outdoor segments, using the historical results of operations and historical bases of
assets and liabilities of our business. The consolidated and combined statements of operations
include expense allocations for certain corporate functions historically provided to us by Clear
Channel Communications. These allocations were made on a specifically identifiable basis or using
relative percentages of headcount as compared to Clear Channel Communications’ other businesses or
other methods. We and Clear Channel Communications considered these allocations to be a reflection
of the utilization of services provided. Additionally, Clear Channel Communications primarily uses
a centralized approach to cash management and the financing of its operations with all related
acquisition activity prior to the IPO between Clear Channel Communications and us reflected in our
shareholders’/owner’s equity as “Owner’s net investment” while all other cash transactions are
recorded as part of “Due from Clear Channel Communications” in the accompanying consolidated and
combined balance sheets.
Under the Corporate Services Agreement, Clear Channel Communications will allocate to us our
share of costs for services provided on our behalf based on actual direct costs incurred by Clear
Channel Communications or an estimate of Clear Channel Communications’ expenses incurred on our
behalf. For the years ended December 31, 2005, 2004 and 2003, we recorded approximately $16.0
million, $16.6 million and $19.6 million, respectively, as a component of corporate expenses for
these services.
We believe the assumptions underlying the combined financial statements prior to the IPO are
reasonable. However, the combined financial statements may not necessarily reflect our results of
operations, financial position and cash flows in the future or what our results of operations,
financial position and cash flows would have been had we been a separate, stand-alone company
during the periods presented.
34
RESULTS OF OPERATIONS
Consolidated and Combined Results of Operations
The following table summarizes our historical results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Revenue
|
|
$
|
2,666,078
|
|
|
$
|
2,447,040
|
|
|
$
|
2,174,597
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (exclusive of
depreciation and amortization)
|
|
|
1,342,307
|
|
|
|
1,262,317
|
|
|
|
1,133,386
|
|
Selling, general and administrative expenses
(exclusive of depreciation and amortization)
|
|
|
541,794
|
|
|
|
499,457
|
|
|
|
456,893
|
|
Depreciation and amortization
|
|
|
400,639
|
|
|
|
388,217
|
|
|
|
379,640
|
|
Corporate expenses (exclusive of depreciation and
amortization)
|
|
|
61,096
|
|
|
|
53,770
|
|
|
|
54,233
|
|
Gain on disposition of assets — net
|
|
|
3,488
|
|
|
|
10,791
|
|
|
|
16,669
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
323,730
|
|
|
|
254,070
|
|
|
|
167,114
|
|
Interest expense (including intercompany)
|
|
|
198,354
|
|
|
|
159,830
|
|
|
|
159,849
|
|
Equity in earnings (loss) of nonconsolidated affiliates
|
|
|
9,844
|
|
|
|
(76
|
)
|
|
|
(5,142
|
)
|
Other income (expense)— net
|
|
|
(12,291
|
)
|
|
|
(16,530
|
)
|
|
|
(21,358
|
)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, minority interest
and cumulative effect of a change in accounting
principle
|
|
|
122,929
|
|
|
|
77,634
|
|
|
|
(19,235
|
)
|
Income tax (expense) benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(51,173
|
)
|
|
|
(23,422
|
)
|
|
|
12,092
|
|
Deferred
|
|
|
5,689
|
|
|
|
(39,132
|
)
|
|
|
(23,944
|
)
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
(45,484
|
)
|
|
|
(62,554
|
)
|
|
|
(11,852
|
)
|
Minority interest expense— net
|
|
|
15,872
|
|
|
|
7,602
|
|
|
|
3,906
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of a change in
accounting principle
|
|
|
61,573
|
|
|
|
7,478
|
|
|
|
(34,993
|
)
|
Cumulative effect of a change in accounting principle,
net of tax of $113,173 in 2004
|
|
|
—
|
|
|
|
(162,858
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
61,573
|
|
|
$
|
(155,380
|
)
|
|
$
|
(34,993
|
)
|
|
|
|
|
|
|
|
|
|
|
Revenue
Our revenue increased approximately $219.0 million, or 9%, during 2005 as compared to 2004.
Included in these results is approximately $8.6 million from increases in foreign exchange as
compared to the same period of 2004. Our Americas operations contributed approximately $124.3
million primarily from increased rates on our bulletin and poster inventory during 2005. Our
international operations contributed approximately $47.4 million related to our consolidation of
Clear Media Limited, a Chinese outdoor advertising company. In the third quarter of 2005, we
increased our investment in Clear Media to a majority controlling interest. We previously accounted
for this investment as an equity method investment. In addition, our international operations also
experienced improved yield on our street furniture inventory during 2005 compared to 2004.
Partially offsetting this international revenue growth was a decline in revenue in our French
business in 2005 as compared to 2004.
Our revenue increased approximately $272.4 million, or 13%, during 2004 as compared to 2003.
Included in the increase is approximately $128.6 million from foreign exchange increases. Our
Americas operations contributed approximately $85.7 million to the increase, primarily from
increased rates on our bulletin and poster inventory. In addition to foreign exchange increases,
our international operations contributed $58.1 million to the increase, principally from street
furniture sales as a result of an increase in average revenue per display.
35
Direct Operating Expenses
Direct operating expenses increased approximately $80.0 million, or 6%, during 2005 as
compared 2004. Included in these expenses is approximately $4.1 million from increases in foreign
exchange as compared to the same period of 2004. Our Americas operations contributed approximately
$21.8 million to the increased expense primarily due to increased site lease expenses from higher
revenue sharing rentals on our transit, mall and wallscape inventory as well as increased direct
production expenses, all associated with the increase in revenues. Our international operations
experienced higher expenses attributable to increases in revenue sharing and minimum annual
guarantees partially from new contracts entered in 2005 and approximately $18.3 million from our
consolidation of Clear Media.
Direct operating expenses increased $128.9 million, or 11%, during 2004 as compared to 2003.
Included in the increase is approximately $76.0 million from foreign exchange increases. Our
Americas operations contributed approximately $33.6 million primarily from increased site lease
rent expense. Our international operations had more direct operating expenses due to higher site
lease rent expense and approximately $6.2 million from the consolidation of a joint venture.
Selling, General and Administrative Expenses (SG&A)
SG&A increased approximately $42.3 million, or 8%, during 2005 as compared to 2004. Included
in these expenses is approximately $1.7 million from increases in foreign exchange as compared to
the same period of 2004. Our Americas operations increased approximately $13.7 million primarily
from increased commission expenses associated with the increase in revenues. In addition to foreign
exchange increases, our international operations SG&A increased $26.6 million from restructuring
costs from restructuring our business in France during the third quarter of 2005.
SG&A increased approximately $42.6 million, or 9%, during 2004 as compared to 2003. Included
in the increase is approximately $31.3 million from foreign exchange increases. SG&A in our
Americas operations increased approximately $11.4 million primarily from higher commission expenses
associated with the increase in revenue. In addition to foreign exchange increases, our
international operations SG&A increased due primarily to a $4.1 million restructuring charge in
Spain, $2.6 million associated with the consolidation of a joint venture, and increased commission
expenses associated with the increase in revenue in 2004. These increases were partially offset by
a reduction in expenses related $13.8 million restructuring charge in France recorded in 2003,
which did not reoccur in 2004.
Depreciation and Amortization
Depreciation and amortization increased approximately $12.4 million in 2005 as compared to
2004. The increase is primarily attributable to the consolidation of Clear Media and from increases
in foreign exchange rates, partially offset by a decrease in our Americas segment as a result of
fewer display removals in 2005 which resulted in less accelerated depreciation.
Depreciation and amortization increased approximately $8.6 million in 2004 as compared to
2003. The increase is primarily attributable to approximately $3.0 million related to damage from
the hurricanes that struck Florida and the Gulf Coast during the third quarter of 2004 and
approximately $18.8 million from fluctuations in foreign exchange rates that impacted our
international segment, largely offset by accelerated depreciation on display removals of
approximately $17.1 million recognized during 2003 that did not reoccur during 2004.
Corporate Expenses
Corporate expenses increased approximately $7.3 million in 2005 as compared to 2004. The
increase is primarily a result of higher performance related bonus expenses.
Clear Channel Communications provides management services to us, which include, among other
things, (i) treasury, payroll and other financial related services, (ii) executive officer
services, (iii) human resources and employee benefits services, (iv) legal, public affairs and
related services, (v) information systems, network and related services, (vi) investment services,
(vii) procurement and sourcing support services, and (viii) other general corporate services. These
services are allocated to us based on actual direct costs incurred or on Clear Channel
36
Communications’ estimate of expenses relative to a seasonally adjusted headcount. For the
years ended December 31, 2005, 2004, and 2003, we recorded approximately $16.0 million, $16.6
million, and $19.6 million, respectively, as a component of corporate expenses for these services.
Interest Expense (Including Intercompany)
Interest expense increased $38.5 million during 2005 as compared to 2004 primarily from a $2.5
billion intercompany note with Clear Channel Communications issued on August 2, 2005. The note
accrues interest at a variable per annum rate based on the weighted average cost of debt for Clear
Channel Communications, calculated on a monthly basis. The interest rate as of December 31, 2005
was 5.9%.
Prior to the date of the IPO, we had in place two fixed principal and interest rate notes. The
first note, in the original principal amount of approximately $1.4 billion, accrued interest at a
per annum rate of 10%. The second note, in the original principal amount of $73.0 million, accrued
interest at a per annum rate of 9%. We used all of the net proceeds of the IPO, along with our
balance in the “Due from Clear Channel Communications” account, to repay a portion of the
outstanding balances of the $1.4 billion and $73.0 million intercompany notes. The remaining
balance of $393.7 million was recorded as a capital contribution pursuant to the Master Agreement
between us and Clear Channel Communications.
Other Income (Expense) — Net
The principal components of other income (expense) — net were:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Royalty fee
|
|
$
|
(14.8
|
)
|
|
$
|
(15.8
|
)
|
|
$
|
(14.1
|
)
|
Transitional asset retirement obligation
|
|
|
—
|
|
|
|
—
|
|
|
|
(7.0
|
)
|
Other
|
|
|
2.5
|
|
|
|
(.7
|
)
|
|
|
(.3
|
)
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) – net
|
|
$
|
(12.3
|
)
|
|
$
|
(16.5
|
)
|
|
$
|
(21.4
|
)
|
|
|
|
|
|
|
|
|
|
|
The royalty fee represents payments to Clear Channel Communications for our use of certain
trademarks and licenses.
Income Taxes
Our operations are included in a consolidated income tax return filed by Clear Channel
Communications. However, for our financial statements, our provision for income taxes was computed
on the basis that we file separate consolidated income tax returns with our subsidiaries.
Our effective tax rate for the year ended December 31, 2005 was 37%. During 2005, the company
recorded a current tax benefit of approximately $8.0 million due to the favorable resolution of
certain tax contingencies in 2005 which resulted in a lower effective tax rate for the year.
The increase in current tax expense of $27.8 million for the year ended December 31, 2005 was
due primarily to an increase in “Income (loss) before income taxes and cumulative effect of a
change in accounting principle” of $45.3 million. Deferred tax expense decreased by $44.8 million
for the year ended December 31, 2005 due to less tax depreciation recorded in 2005 as well as
certain tax losses on the disposition of assets recorded in 2004. The decrease in tax depreciation
is primarily the result of the expiration of certain favorable bonus depreciation tax rules in
2004.
Our effective tax rate for the year ended December 31, 2004 was 89%. The effective tax rate is
primarily a result of our mix of earnings and losses in foreign jurisdictions and certain deferred
tax adjustments necessary to transition from being a wholly-owned subsidiary.
In 2004, current and deferred foreign tax expense of $16.6 million was recorded on certain
international subsidiaries generating net positive taxable income. There were no current and
deferred foreign tax benefits
37
recorded on certain international subsidiaries generating taxable losses due to the
uncertainty of the ability to utilize such losses within the applicable carryforward periods. The
impact of the foregoing provides for foreign tax expense of $16.6 million on foreign pre-tax
earnings of $14.8 million, which is an effective tax rate of 112.2% The foreign tax rate in
combination with certain adjustments to our domestic effective tax rate related to (i) additional
state deferred tax expense necessary to adjust state deferred tax assets to an amount expected to
be recoverable in future years considering the pending Clear Channel Communications group structure
changes, and (ii) additional current tax expense of approximately $6.3 million necessary to accrue
for tax and interest on ongoing tax contingencies, contribute to our overall effective tax rate for
the period.
During 2003, we recorded additional current tax expense due to certain tax contingencies of
approximately $10.1 million. In addition, we did not record a tax benefit on certain tax losses
from our foreign operations due to the uncertainty of the ability to utilize those tax losses in
the future. As a result of the above items, our effective tax rate of negative 51% resulted in an
income tax expense of approximately $11.9 million on an approximately $23.1 million loss before
income taxes and cumulative effect of a change in accounting principle for the year ended December
31, 2003.
Cumulative Effect of a Change in Accounting Principle
The SEC staff issued Staff Announcement No. D-108,
Use of the Residual Method to Value
Acquired Assets Other Than Goodwill
, at the September 2004 meeting of the Emerging Issues Task
Force which we adopted in the fourth quarter of 2004. The Staff Announcement states that the
residual method should no longer be used to value intangible assets other than goodwill. Rather, a
direct method should be used to determine the fair value of all intangible assets other than
goodwill required to be recognized under Statement of Financial Accounting Standards No. 141,
Business Combinations
. Our adoption of the Staff Announcement resulted in the aggregate carrying
value of our Americas permits exceeding their fair value. The Staff Announcement requires us to
report the excess value of approximately $162.9 million, net of tax, as a cumulative effect of a
change in accounting principle.
Americas Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Revenue
|
|
$
|
1,216,382
|
|
|
$
|
1,092,089
|
|
|
$
|
1,006,376
|
|
Direct operating expenses
|
|
|
490,519
|
|
|
|
468,687
|
|
|
|
435,075
|
|
Selling, general and administrative expenses
|
|
|
186,749
|
|
|
|
173,010
|
|
|
|
161,579
|
|
Depreciation and amortization
|
|
|
180,559
|
|
|
|
186,620
|
|
|
|
194,237
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
358,555
|
|
|
$
|
263,772
|
|
|
$
|
215,485
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2005, our revenue grew approximately $124.3 million, or 11%,
over the prior year. The increase was primarily due to an increase in bulletin and poster revenues
attributable to increased rates during 2005. Increased revenues from our airport, street furniture
and transit advertising displays also contributed to the revenue increase. Growth occurred across
our markets including New York, Miami, Houston, Seattle, Cleveland and Las Vegas. Strong
advertising client categories for the year included business and consumer services, entertainment
and amusements, retail and telecommunications.
Direct operating expenses increased approximately $21.8 million, or 5%, during the 2005 as
compared to 2004. The increase is primarily related to increased site lease expenses from higher
revenue sharing rentals on our transit, mall and wallscape inventory as well as increased direct
production expenses, all associated with the increase in revenues. SG&A increased $13.7 million, or
8%, primarily from increased commission expenses associated with the increase in revenues.
Depreciation and amortization declined $6.1 million in 2005 as compared to 2004 primarily from
fewer display removals during the current period, which resulted in less accelerated depreciation.
We suffered hurricane damage on some of our billboards in Florida and the Gulf Coast which required
us to write-off the remaining book value of these structures as additional depreciation and
amortization expense in 2004.
38
During 2004, revenue increased approximately $85.7 million, or 9%, over 2003. Revenue growth
occurred
across our inventory, with bulletins and posters leading the way. Increased rates drove the
growth in bulletin revenues, partially offset by a decrease in occupancy. We also grew rates on our
poster inventory in 2004, with occupancy flat compared to 2003. Revenue growth occurred across the
nation, fueled by growth in Los Angeles, New York, Miami, San Antonio, Seattle and Cleveland. The
client categories leading revenue growth remained consistent throughout the year, the largest being
entertainment. Business and consumer services was also a strong client category and was led by
advertising spending from banking and telecommunications clients. Revenues from the automotive
client category increased due to national, regional and local auto dealer advertisements.
Direct operating expenses increased approximately $33.6 million, or 8%, during 2004 as
compared to 2003 primarily as a result of $21.8 million from site lease rent expense as a result of
an increase in revenue-share payments associated with the increase in revenues. Our SG&A in 2004
increased approximately $11.4 million, or 7%, primarily from approximately $5.1 million related to
commission and wage expenses relative to the growth in revenue.
International Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Revenue
|
|
$
|
1,449,696
|
|
|
$
|
1,354,951
|
|
|
$
|
1,168,221
|
|
Direct operating expenses
|
|
|
851,788
|
|
|
|
793,630
|
|
|
|
698,311
|
|
Selling, general and administrative expenses
|
|
|
355,045
|
|
|
|
326,447
|
|
|
|
295,314
|
|
Depreciation and amortization
|
|
|
220,080
|
|
|
|
201,597
|
|
|
|
185,403
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
22,783
|
|
|
$
|
33,277
|
|
|
$
|
(10,807
|
)
|
|
|
|
|
|
|
|
|
|
|
Revenue increased approximately $94.7 million, or 7%, during 2005 as compared to 2004. Revenue
growth was attributable to increases in our street furniture and transit revenues. We also
experienced improved yield on our street furniture inventory during 2005 compared to 2004. Also
included in the year ended December 31, 2005 is approximately $47.4 million from our consolidation
of Clear Media, which we previously accounted for as an equity method investment. Leading markets
contributing to the Company’s international revenue growth were China, Italy, the United Kingdom
and Australia. The Company faced challenges in France throughout 2005, with revenues declining
from 2004. Strong advertising categories during 2005 were food and drink, retail, media and
entertainment, business and consumer services and financial services
Direct operating expenses grew $58.2 million, or 7%, during the year ended December 31, 2005
as compared to 2004. Our direct operating expenses increased as a result of higher site lease
rental expense associated with increases in revenue sharing and minimum annual guarantees partially
from new contracts entered in 2005. Included in the increase is approximately $18.3 million from
our consolidation of Clear Media. Our SG&A grew approximately $28.6 million, or 9%, during 2005 as
compared to 2004 primarily due to a $26.6 million charge associated with our restructuring of our
business in France during the third quarter of 2005
Depreciation and amortization expense increased approximately $18.5 million in 2005 as
compared to 2004, due primarily to our consolidation of Clear Media and increases in foreign
exchange.
During 2004, revenue increased approximately $186.7 million, or 16%, over 2003, including
approximately $128.6 million from foreign exchange increases. Street furniture sales in the United
Kingdom, Belgium, Australia, New Zealand and Denmark were the leading contributors to our revenue
growth. We saw strong demand for our street furniture inventory, enabling us to realize an increase
in the average revenue per display. Our billboard revenues increased slightly as a result of an
increase in average revenues per display. Also contributing to the increase was approximately $10.4
million related to the consolidation of our outdoor advertising joint venture in Australia during
the second quarter of 2003, which we previously accounted for under the equity method of
accounting. Our 2004 results were tempered by a difficult competitive environment for billboard
sales in the United Kingdom and challenging market conditions for all of our products in France.
39
Direct operating expenses increased $95.3 million, or 14%, during 2004 as compared to 2003.
Included in the increase is approximately $76.0 million from foreign exchange increases. In
addition to foreign exchange, direct
operating expenses grew approximately $19.3 million during this period, principally from
higher site lease rent expense and approximately $6.2 million from the consolidation of a joint
venture in Australia, which was previously accounted for under the equity method. SG&A increased
$31.1 million, or 11%, during 2004 as compared to 2003. Included in the increase is approximately
$31.3 million from foreign exchange increases. After the effect of foreign exchange increases, SG&A
declined approximately $0.2 million. The decline is primarily due to a restructuring charge of
$13.8 million in France taken during 2003, partially offset by a restructuring charge of $4.1
million in Spain taken during 2004, $2.6 million associated with the consolidation of a joint
venture, as well as increased commission expenses associated with the increase in revenue during
2004.
Depreciation and amortization increased approximately $16.2 million in 2004 as compared to
2003 primarily attributable to foreign exchange increases.
Reconciliation of Segment Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Americas
|
|
$
|
358,555
|
|
|
$
|
263,772
|
|
|
$
|
215,485
|
|
International
|
|
|
22,783
|
|
|
|
33,277
|
|
|
|
(10,807
|
)
|
Corporate
|
|
|
(61,096
|
)
|
|
|
(53,770
|
)
|
|
|
(54,233
|
)
|
Gain on disposition of assets – net
|
|
|
3,488
|
|
|
|
10,791
|
|
|
|
16,669
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated and combined operating income
|
|
$
|
323,730
|
|
|
$
|
254,070
|
|
|
$
|
167,114
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL CONDITION AND LIQUIDITY
Financial Condition as of December 31, 2005
As of December 31, 2005, we had approximately $2.7 billion of debt, approximately $108.6
million of cash and cash equivalents and approximately $1.2 billion of shareholders’ equity.
Cash Flows
The following table summarizes our historical cash flows.
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Year Ended December 31,
|
|
|
2005
|
|
2004
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
510,088
|
|
|
$
|
492,495
|
|
Investing activities
|
|
$
|
(361,371
|
)
|
|
$
|
(310,658
|
)
|
Financing activities
|
|
$
|
(77,550
|
)
|
|
$
|
(182,006
|
)
|
Operating Activities
2005
Net cash flow from operating activities of $510.1 million for the year ended December 31, 2005
principally reflects net income of $61.6 million and depreciation and amortization of $400.6
million. Net cash flow from operating activities also reflects decreases in current assets,
accounts payable and deferred income. These decreases were partially offset by increases in
accounts receivable, prepaid expenses and accrued income taxes.
2004
Net cash flow from operating activities of $492.5 million for the year ended December 31, 2004
principally reflects a net loss of $155.4 million, adjusted for non-cash charges of $162.9 million
for the adoption of Topic D-108 and depreciation and amortization of $388.2 million. Net cash flows
from operating activities also reflects increases in accounts receivable, accounts payable, accrued
expenses and other liabilities and accrued income taxes.
40
Investing Activities
2005
Net cash used in investing activities of $361.4 million for the year ended December 31, 2005
principally reflects capital expenditures of $208.2 million related to purchases of property, plant
and equipment and $99.6 million related to acquisitions of operating assets.
2004
Net cash used in investing activities of $310.7 million for the year ended December 31, 2004
principally reflects capital expenditures of $176.1 million related to purchases of property, plant
and equipment and $94.9 million related to acquisitions of operating assets.
Financing Activities
2005
Cash used in financing activities was $77.6 million for the year ended December 31, 2005.
Included in cash flow from financing activities are changes in the “Due from Clear Channel
Communications” account which relates to cash transfers between our Americas operations and Clear
Channel Communications. For the year ended December 31, 2005, we had a net transfer of cash to
Clear Channel Communications of approximately $70.0 million. Also included in cash used in
financing activities is the $600.6 million in proceeds received from the IPO which was used, along
with the balance outstanding in the “Due from Clear Channel Communications” account, to pay off a
portion of the $1.4 billion and $73.0 million intercompany notes with Clear Channel Communications.
2004
Cash used in financing activities of $182.0 million for the year ended December 31, 2004,
principally reflects a net reduction in debt of $33.8 million and net payments of $148.2 million to
Clear Channel Communications.
Liquidity
Sources of Capital
Our primary sources of liquidity and capital resources are cash flows generated from our
operations, availability of up to $150.0 million under a revolving credit facility sub-limit for
use in our international operations through Clear Channel Communications, funding through a cash
management note with Clear Channel Communications and available cash and cash equivalents.
Management believes future funds generated from our operations and available borrowing
capacity of up to $150.0 million under the sub-limit of the Clear Channel Communications revolving
credit facility discussed below will be sufficient to fund our debt service requirements, working
capital requirements and capital expenditure requirements for the foreseeable future. However, our
ability to continue to fund these items and to reduce debt may be affected by general economic,
financial, competitive, legislative and regulatory factors, as well as other industry-specific
factors.
Our cash flow from operations was $510.1 million, $492.5 million, and $433.5 million for 2005,
2004 and 2003, respectively. Certain of our international subsidiaries have the ability to borrow
under a $150.0 million sub-limit of the Clear Channel Communications revolving credit facility
discussed below under “— Bank Credit Facility,” to the extent Clear Channel Communications has not
already borrowed against this capacity. At December 31, 2005, approximately $135.0 million was
available for future borrowings under this facility.
41
As of December 31, 2005 and 2004, we had the following debt outstanding, cash and cash
equivalents and amounts due from Clear Channel Communications:
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
Bank credit facility
|
|
$
|
15.0
|
|
|
$
|
23.9
|
|
Debt with Clear Channel Communications
|
|
|
2,500.0
|
|
|
|
1,463.0
|
|
Other long-term debt
|
|
|
212.8
|
|
|
|
152.4
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
2,727.8
|
|
|
|
1,639.3
|
|
Less: Cash and cash equivalents
|
|
|
108.6
|
|
|
|
37.9
|
|
Less: Due from Clear Channel Communications
|
|
|
0.1
|
|
|
|
302.6
|
|
|
|
|
|
|
|
|
|
|
$
|
2,619.1
|
|
|
$
|
1,298.8
|
|
|
|
|
|
|
|
|
Bank Credit Facility
. In addition to cash flows from operations, a primary source of our liquidity
is through borrowings under a $150.0 million sub-limit included in Clear Channel Communications’
five-year, multicurrency $1.75 billion revolving credit facility. Certain of our international
subsidiaries may borrow under the sub-limit to the extent Clear Channel Communications has not
already borrowed against this capacity and is in compliance with its covenants under the credit
facility. The interest rate on outstanding balances under the credit facility is based upon LIBOR
or, for Euro denominated borrowings, EURIBOR, plus, in each case, a margin. At December 31, 2005,
the outstanding balance on the sub-limit was approximately $15.0 million, and approximately $135.0
million was available for future borrowings, with the entire balance to be paid on July 12, 2009.
At December 31, 2005, the interest rate on borrowings under this credit facility was 4.2%. As of
March 24, 2006, the outstanding balance on the sub-limit was $15.5 million and $134.5 million was
available for future borrowings.
Debt with Clear Channel Communications
. In 2003, two intercompany notes were issued to
Clear Channel Communications in the total original principal amount of approximately $1.5 billion.
The first intercompany note in the original principal amount of approximately $1.4 billion accrued
interest at a per annum rate of 10%. The second intercompany note in the original principal amount
of $73.0 million accrued interest at a per annum rate of 9%. We used all of the net proceeds of the
IPO, along with our balance in the “Due from Clear Channel Communications” account, to repay a
portion of the outstanding balances of the $1.4 billion and $73.0 million intercompany notes. The
remaining balance of $393.7 million was recorded as a capital contribution pursuant to the Master
Agreement between us and Clear Channel Communications.
On August 2, 2005, we distributed a note in the original principal amount of $2.5 billion to
Clear Channel Communications as a dividend. This note matures on August 2, 2010 and may be prepaid in
whole or in part at any time. The note accrues interest at a variable per annum rate equal to the
weighted average cost of debt for Clear Channel Communications, calculated on a monthly basis. This
note is mandatorily payable upon a change of control of us and, subject to certain exceptions, all
proceeds from debt or equity raised by us must be used to prepay such note. At December 31, 2005,
the interest rate on the $2.5 billion intercompany note was 5.9%.
Our working capital requirements and capital for general corporate purposes, including
acquisitions and capital expenditures, historically have been satisfied as part of the
corporate-wide cash management policies of Clear Channel Communications. After the IPO, our working
capital requirements and capital for general corporate purposes may be provided to us by Clear
Channel Communications, in its sole discretion, pursuant to a cash management note issued by us to
Clear Channel Communications. See “Cash and cash equivalents; cash management policies,” below.
Without the opportunity to obtain financing from Clear Channel Communications, we may need to
obtain additional financing from banks, or through public offerings or private placements of debt,
strategic relationships or other arrangements at some future date. Management currently believes we
could raise the funds if needed given our credit profile. Additionally, management believes our
publicly traded stock could be used as a source to raise capital through public or private
placements of our equity securities. Subject to certain exceptions, the first $2.5 billion of such
debt or equity proceeds (plus an amount equal to accrued interest thereon) would be required to be
used to prepay the $2.5 billion intercompany note, unless such requirement is waived by Clear
Channel Communications.
42
Other long-term debt
. Other long-term debt consists primarily of loans with international
banks and other types of debt. At December 31, 2005, approximately $212.8 million was outstanding
as other long-term debt.
Cash and cash equivalents; cash management policies.
We have an account that represents net
amounts due to or from Clear Channel Communications, which is recorded as “Due from Clear Channel
Communications” on the consolidated and combined balance sheets. Included in the account is the net
activity resulting from day-to-day cash management services provided by Clear Channel
Communications pursuant to the Corporate Services Agreement entered into between Clear Channel
Communications and us. As part of the cash management services, on a daily basis, cash from our
U.S. based operations is transferred to a concentration account maintained by us which is then
transferred, or used to fund, our disbursement account. Our disbursement account is used to pay our
accounts payable and payroll obligations. Any amount remaining in our concentration account after
funding our disbursement account is transferred to Clear Channel Communications or Clear Channel
Communications transfers cash to our concentration account to fund our disbursement account. The
net cash position after transfers of cash between Clear Channel Communications and us is determined
by Clear Channel Communications and recorded in our financial statements as an asset in “Due from
Clear Channel Communications” or, if owed by us, as a liability in “Due to Clear Channel
Communications.” After our IPO, these balances are evidenced by interest accruing cash management
notes between us and Clear Channel Communications. At December 31, 2005 the balance in “Due from
Clear Channel Communications” was $0.1 million. The net interest income for the year ended December
31, 2005 was $0.1 million.
Unlike the management of cash from our U.S. based operations, the amount of cash, if any,
which is transferred from our foreign operations to Clear Channel Communications is determined on a
basis mutually agreeable to us and Clear Channel Communications, and not on a pre-determined basis.
In arriving at such mutual agreement, the reasonably foreseeable cash needs of our foreign
operations are evaluated before a cash amount is considered as an excess or surplus amount for
transfer to Clear Channel Communications.
For so long as Clear Channel Communications maintains a significant interest in us, a
deterioration in the financial condition of Clear Channel Communications could increase our
borrowing costs or impair our access to the capital markets because of our reliance on Clear
Channel Communications for availability under its revolving credit facility. In addition, because
the interest rate we pay on our $2.5 billion promissory note is based on the weighted average cost
of debt for Clear Channel Communications, any such deterioration would likely result in an increase
in our interest rate. To the extent we cannot pass on our increased borrowing costs to our clients,
our profitability, and potentially our ability to raise capital, could be materially affected.
Also, so long as Clear Channel Communications maintains a significant interest in us, pursuant to
the Master Agreement between Clear Channel Communications and us, Clear Channel Communications will
have the ability to limit our ability to incur debt or issue equity securities, which could
adversely affect our ability to meet our liquidity needs. In addition, the $2.5 billion
intercompany note requires us to prepay it in full upon a change of control (as defined in the
note), and, upon our issuances of equity and incurrence of debt, subject to certain exceptions, to
prepay the note in the amount of net proceeds received from such events.
Uses of Capital
Our primary uses of capital are funding our working capital needs, debt service, acquisitions
and capital expenditures. Our working capital needs are generally funded through cash flows from
operations. Other uses of capital include cash paid for interest, which was $195.4 million, $175.4
million and $198.3 million during the years ended December 31, 2005, 2004 and 2003, respectively.
Our short and long term cash requirements for funding working capital include minimum annual
guarantees for our street furniture contracts and operating leases. Minimum annual guarantees and
operating lease requirements are included in our direct operating expenses, which historically have
been satisfied by cash flows from operations. For 2006, we are committed to $356.1 million and
$202.7 million for minimum annual guarantees and operating leases, respectively. Our long-term
commitments for minimum annual guarantees, operating leases and capital expenditure requirements
are included in “Contractual and Other Obligations,” below.
We have entered into certain agreements relating to acquisitions that provide for purchase
price adjustments and other future contingent payments based on the financial performance of the
acquired company. We
43
will continue to accrue additional amounts related to such contingent payments if and when it
is determinable that the applicable financial performance targets will be met. The aggregate of
these contingent payments, if performance targets are met, would not significantly impact our
financial position or results of operations. The following is a summary of our acquisition activity
for the years ended December 31, 2005, 2004 and 2003:
2005 Acquisitions.
During 2005, we acquired display faces for approximately $130.4 million in
cash and acquired a controlling majority interest in Clear Media for approximately $8.9 million in
cash. As a result of consolidating Clear Media during the third quarter of 2005, the acquisition
resulted in an increase to our cash of $39.7 million.
2004 Acquisitions.
In September 2004, we acquired Medallion Taxi Media, Inc. for approximately
$31.6 million. In addition, during 2004 we acquired display faces for approximately $60.8 million
in cash and acquired equity interests in international outdoor companies for approximately $2.5
million in cash. We also exchanged advertising assets, valued at approximately $23.7 million, for
other advertising assets valued at approximately $32.3 million.
2003 Acquisitions
. During 2003 we acquired display faces for approximately $28.3 million in
cash. We also acquired investments in nonconsolidated affiliates for approximately $10.7 million in
cash and acquired an additional 10% interest in a subsidiary for approximately $5.1 million in
cash.
Capital Expenditures.
Our capital expenditures have consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Non-revenue producing
|
|
$
|
78.1
|
|
|
$
|
70.1
|
|
|
$
|
63.4
|
|
Revenue producing
|
|
|
130.1
|
|
|
|
106.0
|
|
|
|
141.7
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
208.2
|
|
|
$
|
176.1
|
|
|
$
|
205.1
|
|
|
|
|
|
|
|
|
|
|
|
We define non-revenue producing capital expenditures as those expenditures required on a
recurring basis. Revenue producing capital expenditures are discretionary capital investments for
new revenue streams, similar to an acquisition. Capital expenditures increased $32.1 million in
2005 as compared to 2004. The consolidation of Clear Media in 2005 contributed $15.4 million to the
increase. Our capital expenditures declined from 2003 to 2004, primarily as a result of fewer
revenue producing capital expenditures in our international segment. Due to successful bidding on
street furniture contracts in prior years, we needed to supply the street furniture required under
the contracts.
Part of our long-term strategy is to pursue the technology of electronic displays, including
flat screens, LCDs and LEDs, as alternatives to traditional methods of displaying our clients’
advertisements. We are currently performing limited tests of these technologies in certain markets.
We believe cash flow from operations will be sufficient to fund these expenditures because we
expect enhanced margins through: (i) lower cost of production as the advertisements will be digital
and controlled by a central computer network, (ii) decreased down time on displays because the
advertisements will be digitally changed rather than manually posted paper or vinyl on the face of
the display, and (iii) incremental revenue through more targeted and time specific advertisements
allowing us to sell more advertisements on a single display.
Covenant Compliance
The $2.5 billion intercompany note requires us to comply with various negative covenants,
including restrictions on the following activities: incurring consolidated funded indebtedness (as
defined in the note), excluding intercompany indebtedness, in a principal amount in excess of
$400.0 million at any one time outstanding; creating liens; making investments; entering into sale
and leaseback transactions (as defined in the note), which when aggregated with consolidated funded
indebtedness secured by liens, will not exceed an amount equal to 10% of our total consolidated
shareholders’ equity (as defined in the note) as shown on our most recently reported annual audited
consolidated financial statements; disposing of all or substantially all of our assets; entering
into mergers and consolidations; declaring or making dividends or other distributions; repurchasing
our equity; and
entering into transactions with our affiliates.
44
In addition, the note requires us to prepay it in full upon a change of control. The note
defines a change of control to occur when Clear Channel Communications ceases to control (i)
directly or indirectly, more than 50% of the aggregate voting equity interests of us, our operating
subsidiary or our respective successors or assigns, or (ii) the ability to elect a majority of the
Board of Directors of us, our operating subsidiary or our respective successors or assigns. Upon
our issuances of equity and incurrences of debt, subject to certain exceptions, we are also
required to prepay the note in the amount of the net proceeds received by us from such events.
Generally, the following constitute events of default under the $2.5 billion intercompany
note: any principal or accrued interest on the principal remains unpaid when due on the stated
maturity date (as defined in the note) or upon the occurrence of a mandatory prepayment event (as
defined in the note); any accrued interest or accrued expenses remain unpaid three days after the
interest payment date (as defined in the note); any provision in the note or any related security
document that represents a right or remedy ceases to be binding on our operating subsidiary or
available to us; any representation or warranty made in the note or any related security document
is untrue or inaccurate in any material respect; breaches of covenants or agreements or the
occurrence of an event of default in the note or any related security document; defaults by us in
the payment of indebtedness in excess of $25.0 million, a final judgment or order in excess of
$25.0 million against us or forfeiture of property by us having a value in excess of $25.0 million;
or the declaration by us or against us of bankruptcy or insolvency.
Certain of our international subsidiaries are offshore borrowers. These subsidiaries may
borrow up to $150.0 million for use in our international operations under a sub-limit of the
approximately $1.75 billion revolving credit facility of Clear Channel Communications so long as
Clear Channel Communications remains in compliance with its covenants under the facility and does
not otherwise borrow against such capacity. The significant covenants contained in the credit
facility relate to leverage and interest coverage (as defined in the credit facility). The leverage
ratio covenant requires Clear Channel Communications to maintain a ratio of consolidated funded
indebtedness to operating cash flow (as defined by the credit facility) of less than 5.25x. The
interest coverage covenant requires Clear Channel Communications to maintain a minimum ratio of
operating cash flow to interest expense (as defined by the credit facility) of 2.50x.
Generally, the following constitute events of default under the $1.75 billion revolving credit
facility: failure to pay borrowings and interest when they become due; failure to perform or
observe covenants contained in the credit facility; failure to perform or observe any covenant
contained in any other loan document; incorrect or misleading representations and warranties made
in connection with the credit facility agreement; default on any other indebtedness greater than
$200 million; the declaration by Clear Channel Communications or against Clear Channel
Communications of bankruptcy or insolvency; failure to pay debts as they become due; a final
judgment for the payment of money exceeding $250 million; invalidity of loan documents at any time
after their execution and delivery; change of control; and failure to comply with the
Communications Act or any rule or regulation promulgated by the Federal Communications Commission.
A change of control occurs under the $1.75 billion credit facility generally when any person or
group acquires more than 50% of the voting interest of Clear Channel Communications or when there
has been a turnover of a majority of the Board of Directors of Clear Channel Communications during
a 24 consecutive month period.
There are no significant covenants or events of default contained in the cash management note
issued by Clear Channel Communications to us or the cash management note issued by us to Clear
Channel Communications.
At December 31, 2005, we and Clear Channel Communications were in compliance with all debt
covenants. We expect to remain in compliance throughout 2006.
Contractual and Other Obligations
Firm Commitments
In addition to the scheduled maturities on our debt, we have future cash obligations under
various types of contracts. We lease office space, certain equipment and the majority of the land
occupied by our advertising structures under long-term operating leases. Some of our lease
agreements contain renewal options and annual rental escalation clauses (generally tied to the
consumer price index), as well as provisions for our payment of utilities and
maintenance.
45
We have minimum franchise payments associated with noncancelable contracts that enable us to
display advertising on such media as buses, taxis, trains, bus shelters and terminals. The majority
of these contracts contain rent provisions calculated as the greater of a percentage of the
relevant advertising revenues or a specified guaranteed minimum annual payment.
The scheduled maturities of our credit facility, other long-term debt outstanding, future
minimum rental commitments under noncancelable lease agreements, minimum payments under other
noncancelable contracts, minimum annual guarantees and capital expenditures commitments as of
December 31, 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 and
|
|
|
|
Total
|
|
|
2006
|
|
|
2007-2008
|
|
|
2009-2010
|
|
|
Thereafter
|
|
Revolving credit facility
|
|
$
|
15,035
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15,035
|
|
|
$
|
—
|
|
Debt with Clear Channel Communications
|
|
|
2,500,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,500,000
|
|
Other long-term debt
|
|
|
212,751
|
|
|
|
140,846
|
|
|
|
28,278
|
|
|
|
40,676
|
|
|
|
2,951
|
|
Minimum annual guarantees
|
|
|
1,873,933
|
|
|
|
356,109
|
|
|
|
457,683
|
|
|
|
362,749
|
|
|
|
697,392
|
|
Noncancelable operating leases
|
|
|
1,380,753
|
|
|
|
202,671
|
|
|
|
290,239
|
|
|
|
260,082
|
|
|
|
627,761
|
|
Capital expenditure commitments
|
|
|
162,052
|
|
|
|
72,015
|
|
|
|
61,380
|
|
|
|
20,631
|
|
|
|
8,026
|
|
Noncancelable contracts
|
|
|
7,057
|
|
|
|
4,081
|
|
|
|
2,968
|
|
|
|
8
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total firm commitments and
outstanding debt
|
|
$
|
6,151,581
|
|
|
$
|
775,722
|
|
|
$
|
840,548
|
|
|
$
|
699,181
|
|
|
$
|
3,836,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEASONALITY
Typically, both our Americas and international segments experience their lowest financial
performance in the first quarter of the calendar year, with international typically experiencing a
loss from operations in this period. Our Americas segment typically experiences consistent
performance in the remainder of our calendar year. Our international segment typically experiences
its strongest performance in the second and fourth quarters of our calendar year. We expect this
trend to continue in the future.
MARKET RISK MANAGEMENT
We are exposed to market risks arising from changes in market rates and prices, including
movements in foreign currency exchange rates and interest rates.
Foreign Currency Risk
We have operations in countries throughout the world. The financial results of our foreign
operations are measured in their local currencies, except in the hyperinflationary countries in
which we operate. As a result, our financial results could be affected by factors such as changes
in foreign currency exchange rates or weak economic conditions in the foreign markets in which we
operate. We believe we mitigate a small portion of our exposure to foreign currency fluctuations
with a natural hedge through borrowings in currencies other than the U.S. dollar. Our foreign
operations reported a net loss of approximately $3.5 million for the year ended December 31, 2005.
We estimate a 10% change in the value of the U.S. dollar relative to foreign currencies would have
changed our net income for the year ended December 31, 2005 by approximately $0.3 million.
This analysis does not consider the implication such currency fluctuations could have on the
overall economic activity that could exist in such an environment in the United States or the
foreign countries or on the results of operations of these foreign entities.
Interest Rate Risk
We had approximately $2.7 billion total debt outstanding as of December 31, 2005, of which
$2.5 billion
was variable rate debt. Based on the amount of our floating-rate debt as of December 31, 2005,
each 50 basis point
46
increase or decrease in interest rates would increase or decrease our annual
interest expense and cash outlay by approximately $12.5 million. This potential increase or
decrease is based on the simplified assumption that the level of floating-rate debt remains
constant with an immediate across-the-board increase or decrease as of December 31, 2005 with no
subsequent change in rates for the remainder of the period.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2005, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations
(“FIN 47”). FIN 47 is an interpretation of
FASB Statement 143,
Asset Retirement Obligations,
which was issued in June 2001. According to FIN
47, uncertainty about the timing and (or) method of settlement because they are conditional on a
future event that may or may not be within the control of the entity should be factored into the
measurement of the asset retirement obligation when sufficient information exists. FIN 47 also
clarifies when an entity would have sufficient information to reasonably estimate the fair value of
an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending
after December 15, 2005. Retrospective application of interim financial information is permitted,
but is not required. We adopted FIN 47 on January 1, 2005, which did not materially impact our
financial position or results of operations.
In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin
No. 107
Share-Based Payment
(“SAB 107”). SAB 107 expresses the SEC staff’s views regarding the
interaction between Statement of Financial Accounting Standards No. 123(R)
Share-Based Payment
(“Statement 123(R)”) and certain SEC rules and regulations and provides the staff’s views regarding
the valuation of share-based payment arrangements for public companies. In particular, SAB 107
provides guidance related to share-based payment transactions with nonemployees, the transition
from nonpublic to public entity status, valuation methods (including assumptions such as expected
volatility and expected term), the accounting for certain redeemable financial instruments issued
under share-based payment arrangements, the classification of compensation expense, non-GAAP
financial measures, first time adoption of Statement 123(R) in an interim period, capitalization of
compensation cost related to share-based payment arrangements, the accounting for income tax
effects of share-based payment arrangements upon adoption of Statement 123(R) and the modification
of employee share options prior to adoption of Statement 123(R).
In April 2005, the SEC issued a press release announcing it would provide for phased-in
implementation guidance for Statement 123(R). The SEC would require that registrants that are not
small business issuers adopt Statement 123(R)’s fair value method of accounting for share-based
payments to employees no later than the beginning of the first fiscal year beginning after June 15,
2005. We will adopt Statement 123(R) on January 1, 2006. We expect the impact of adopting SAB 107
and Statement 123(R) to be in the range of $5.0 million to $8.0 million recorded as a component of
operating expenses in our consolidated statement of operations for the year ended December 31,
2006.
In May 2005, the FASB issued Statement No. 154,
Accounting Changes and Error Corrections
(“Statement 154”). This Statement replaces APB Opinion No. 20,
Accounting Changes
, and FASB
Statement No. 3,
Reporting Accounting Changes in Interim Financial Statements
, and changes the
requirements for the accounting for and reporting of a change in accounting principle. Statement
154 applies to all voluntary changes in accounting principle. It also applies to changes required
by an accounting pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific transition provisions,
those provisions should be followed. This Statement is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. We will adopt
Statement 154 on January 1, 2006 and anticipate adoption will not materially impact our financial
position or results of operations.
In June 2005, the Emerging Issues Task Force (“EITF”) issued EITF 05-6,
Determining the
Amortization Period of Leasehold Improvements
(“EITF 05-6”). EITF 05-6 requires assets recognized
under capital leases generally be amortized in a manner consistent with the lessee’s normal
depreciation policy except the amortization period is limited to the lease term (which includes
renewal periods that are reasonably assured). EITF 05-6 also addresses the determination of the
amortization period for leasehold improvements purchased subsequent to the inception of the lease.
Leasehold improvements acquired in a business combination or purchased subsequent to the
inception of the lease should be amortized over the lesser of the useful life of the asset or
the lease term that includes
47
reasonably assured lease renewals as determined on the date of the
acquisition of the leasehold improvement. We adopted EITF 05-6 on July 1, 2005 which did not
materially impact our financial position or results of operations.
In October 2005, the FASB issued Staff Position 13-1 (“FSP 13-1”). FSP 13-1 requires rental
costs associated with ground or building operating leases incurred during a construction period be
recognized as rental expense. The guidance in FSP 13-1 shall be applied to the first reporting
period beginning after December 15, 2005. We will adopt FSP 13-1 January 1, 2006 and anticipate
adoption will not materially impact our financial position or results of operations.
In November 2005, the FASB staff issued FASB Staff Position FAS 115-1 (“FAS 115-1”). FAS 115-1
replaces the impairment evaluation guidance (paragraphs 10-18) of EITF Issue No. 03-1,
The Meaning
of Other-Than-Temporary Impairment and Its Application to Certain Investments
(“EITF 03-1”), with
references to the existing other-than-temporary impairment guidance. EITF 03-1 disclosure
requirements remain in effect, and are applicable for year-end reporting and for interim periods if
there are significant changes from the previous year-end. FAS 115-1 also supersedes EITF Topic No.
D-44,
Recognition of Other Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost
Exceeds Fair Value
, and clarifies an investor should recognize an impairment loss no later than
when the impairment is deemed other-than-temporary, even if a decision to sell an impaired security
has not been made. The guidance in FAS 115-1 is to be applied to reporting periods beginning after
December 15, 2005. We will adopt FAS 115-1 January 1, 2006 and anticipate adoption will not
materially impact our financial position or results of operations.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in conformity with generally accepted accounting
principles requires management to make estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of expenses during the reporting period.
On an ongoing basis, we evaluate our estimates based on historical experience and on various other
assumptions believed to be reasonable under the circumstances. The result of these evaluations
forms the basis for making judgments about the carrying values of assets and liabilities and the
reported amount of expenses not readily apparent from other sources. Because future events and
their effects cannot be determined with certainty, actual results could differ from our assumptions
and estimates, and such difference could be material. Our significant accounting policies are
discussed in Note A to our consolidated and combined financial statements included elsewhere in
this Annual Report. Management believes the following accounting estimates are the most critical to
aid in fully understanding and evaluating our reported financial results, and they require
management’s most difficult, subjective or complex judgments, resulting from the need to make
estimates about the effect of matters that are inherently uncertain. The following narrative
describes these critical accounting estimates, the judgments and assumptions and the effect if
actual results differ from these assumptions.
Allowance for Doubtful Accounts
We evaluate the collectibility of our accounts receivable based on a combination of factors.
In circumstances where we are aware of a specific client’s inability to meet its financial
obligations, we record a specific reserve to reduce the amounts recorded to what we believe will be
collected. For all other clients, we recognize reserves for bad debt based on historical experience
of bad debts as a percentage of revenues for each business unit, adjusted for relative improvements
or deteriorations in the agings and changes in current economic conditions.
If our agings were to improve or deteriorate resulting in a 10% change in our allowance, we
estimated our bad debt expense for the year ended December 31, 2005 would have changed by
approximately $2.2 million and our net income for the same period would have changed by
approximately $1.3 million.
Long-lived Assets
Long-lived assets, such as property, plant and equipment are reviewed for impairment when
events and circumstances indicate that depreciable and amortizable long-lived assets might be
impaired and the undiscounted cash flows estimated to be generated by those assets are less than
the carrying amount of those assets. When specific
assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect
the current fair market value.
48
We use various assumptions in determining the current fair market value of these assets,
including future expected cash flows and discount rates, as well as future salvage values. Our
impairment loss calculations require management to apply judgment in estimating future cash flows,
including forecasting useful lives of the assets and selecting the discount rate that reflects the
risk inherent in future cash flows.
If actual results are not consistent with our assumptions and judgments used in estimating
future cash flows and asset fair values, we may be exposed to future impairment losses that could
be material to our results of operations.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net
assets acquired in business combinations. We review goodwill for potential impairment annually
using the income approach to determine the fair value of our reporting units. The fair value of our
reporting units is used to apply value to the net assets of each reporting unit. To the extent the
carrying amount of net assets would exceed the fair value, an impairment charge may be required to
be recorded.
The income approach we use for valuing goodwill involves estimating future cash flows expected
to be generated from the related assets, discounted to their present value using a risk-adjusted
discount rate. Terminal values are also estimated and discounted to their present value. In
accordance with Statement 142, we performed our annual impairment tests as of October 1, 2003, 2004
and 2005 on goodwill. No impairment charges resulted from these tests. We may incur impairment
charges in future periods under Statement 142 to the extent we do not achieve our expected cash
flow growth rates, and to the extent market values decrease and long-term interest rates increase.
Indefinite-lived Assets
Indefinite-lived assets such as our billboard permits are reviewed annually for possible
impairment using the direct method. Our key assumptions using the direct method are market revenue
growth rates, market share, profit margin, duration and profile of the build-up period, estimated
start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount
rate and terminal values. This data is populated using industry normalized information representing
an average permit within a market.
The SEC staff issued Staff Announcement No. D-108,
Use of the Residual Method to Value
Acquired Assets Other Than Goodwill
, at the September 2004 meeting of the Emerging Issues Task
Force. D-108 states the residual method should no longer be used to value intangible assets other
than goodwill. Prior to the adoption of Staff Announcement No. D-108, we recorded our acquisition
of permits at fair value using an industry accepted income approach and consequently applied the
same approach for purposes of impairment testing. Our adoption of the direct method resulted in an
aggregate fair value of our permits that was less than the carrying value determined under our
prior method. As a result, we recorded a non-cash charge of $162.9 million, net of deferred taxes,
as a cumulative effect of a change in accounting principle during the fourth quarter 2004.
If actual results are not consistent with our assumptions and estimates, we may be exposed to
impairment charges in the future. If our assumption on market revenue growth rate decreased 10%,
our 2004 non-cash charge, net of tax, would increase approximately $25.1 million. Similarly, if our
assumption on market revenue growth rate increased 10%, our non-cash charge, net of tax, would
decrease approximately $30.0 million.
Asset Retirement Obligations
Statement of Financial Accounting Standards No. 143,
Accounting for Asset Retirement
Obligations
, requires us to estimate our obligation upon the termination or nonrenewal of a lease,
to dismantle and remove our billboard structures from the leased land and to reclaim the site to
its original condition. We record the present value of obligations associated with the retirement
of tangible long-lived assets in the period in which they are incurred. The liability is
capitalized as part of the related long-lived asset’s carrying amount. Over time, accretion of the
liability is recognized as an operating expense and the capitalized cost is depreciated over the
expected useful life of
the related asset.
49
Due to the high rate of lease renewals over a long period of time, our calculation assumes all
related assets will be removed at some period over the next 50 years. An estimate of third-party
cost information is used with respect to the dismantling of the structures and the reclamation of
the site. The interest rate used to calculate the present value of such costs over the retirement
period is based on an estimated risk-adjusted credit rate for the same period. If our assumption of
the risk-adjusted credit rate used to discount current year additions to the asset retirement
obligation decreased 1%, our liability as of December 31, 2005 would increase approximately $0.4
million. Similarly, if our assumption of the risk-adjusted credit rate increased 1%, our liability
would decrease approximately $0.2 million.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Required information is within Item 7.
50
ITEM 8. Financial Statements and Supplementary Data
MANAGEMENT’S REPORT ON FINANCIAL STATEMENTS
The consolidated and combined financial statements and notes related thereto were prepared by and
are the responsibility of management. The financial statements and related notes were prepared in
conformity with U.S. generally accepted accounting principles and include amounts based upon
management’s best estimates and judgments.
It is management’s objective to ensure the integrity and objectivity of its financial data through
systems of internal controls designed to provide reasonable assurance that all transactions are
properly recorded in our books and records, that assets are safeguarded from unauthorized use and
that financial records are reliable to serve as a basis for preparation of financial statements.
The financial statements have been audited by our independent registered public accounting firm,
Ernst & Young LLP, to the extent required by auditing standards of the Public Company Accounting
Oversight Board (United States) and, accordingly, they have expressed their professional opinion on
the financial statements in their report included herein.
The Board of Directors meets with the independent registered public accounting firm and management
periodically to satisfy itself that they are properly discharging their responsibilities. The
independent registered public accounting firm has unrestricted access to the Board, without
management present, to discuss the results of their audit and the quality of financial reporting
and internal accounting controls.
/s/Mark P. Mays
Chief Executive Officer
/s/Randall T. Mays
Chief Financial Officer
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE BOARD OF DIRECTORS AND SHAREHOLDERS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
We have audited the accompanying consolidated and combined balance sheets of Clear Channel
Outdoor Holdings, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related
consolidated and combined statements of operations, changes in shareholders’/owner’s equity, and
cash flows for each of the three years in the period ended December 31, 2005. Our audits also
included the financial statement schedule listed in the index at Item 15(a)2. These financial
statements and the schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. We
were not engaged to perform an audit of the Company’s internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated and combined financial position of Clear Channel Outdoor Holdings, Inc.
and subsidiaries at December 31, 2005 and 2004, and the consolidated and combined results of their
operations and their cash flows for each of the three years
in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
As discussed in Note B to the consolidated and combined financial statements, in 2004 the Company
changed its method of accounting for indefinite lived intangibles.
/s/ Ernst & Young LLP
San Antonio, Texas
March 9, 2006
51
CONSOLIDATED AND COMBINED BALANCE SHEETS
ASSETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
108,644
|
|
|
$
|
37,948
|
|
Accounts receivable, less allowance of $21,699 in 2005 and $19,487 in 2004
|
|
|
689,007
|
|
|
|
661,244
|
|
Due from Clear Channel Communications
|
|
|
131
|
|
|
|
302,634
|
|
Prepaid expenses
|
|
|
70,459
|
|
|
|
59,601
|
|
Other current assets
|
|
|
32,054
|
|
|
|
45,813
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
900,295
|
|
|
|
1,107,240
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Land, buildings and improvements
|
|
|
313,011
|
|
|
|
318,478
|
|
Structures
|
|
|
3,327,326
|
|
|
|
3,110,233
|
|
Furniture and other equipment
|
|
|
231,758
|
|
|
|
238,973
|
|
Construction in progress
|
|
|
43,012
|
|
|
|
54,021
|
|
|
|
|
|
|
|
|
|
|
|
3,915,107
|
|
|
|
3,721,705
|
|
Less accumulated depreciation
|
|
|
1,761,679
|
|
|
|
1,525,720
|
|
|
|
|
|
|
|
|
|
|
|
2,153,428
|
|
|
|
2,195,985
|
|
|
|
|
|
|
|
|
|
|
INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
Definite-lived intangibles, net
|
|
|
251,951
|
|
|
|
334,284
|
|
Indefinite-lived intangibles – permits
|
|
|
207,921
|
|
|
|
211,690
|
|
Goodwill
|
|
|
748,886
|
|
|
|
787,006
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Notes receivable
|
|
|
5,452
|
|
|
|
5,872
|
|
Investments in, and advances to, nonconsolidated affiliates
|
|
|
98,975
|
|
|
|
175,057
|
|
Deferred tax asset
|
|
|
239,947
|
|
|
|
231,056
|
|
Other assets
|
|
|
311,490
|
|
|
|
192,743
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
4,918,345
|
|
|
$
|
5,240,933
|
|
|
|
|
|
|
|
|
See Notes to Consolidated and Combined Financial Statements
52
LIABILITIES AND SHAREHOLDERS’/OWNER’S EQUITY
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
213,021
|
|
|
$
|
243,542
|
|
Accrued expenses
|
|
|
337,441
|
|
|
|
264,567
|
|
Accrued interest
|
|
|
2,496
|
|
|
|
558
|
|
Accrued income taxes
|
|
|
16,812
|
|
|
|
—
|
|
Deferred income
|
|
|
83,196
|
|
|
|
94,120
|
|
Current portion of long-term debt
|
|
|
140,846
|
|
|
|
146,268
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
793,812
|
|
|
|
749,055
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
86,940
|
|
|
|
30,112
|
|
Debt with Clear Channel Communications
|
|
|
2,500,000
|
|
|
|
1,463,000
|
|
Other long-term liabilities
|
|
|
160,879
|
|
|
|
205,811
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
167,277
|
|
|
|
63,302
|
|
Commitment and contingent liabilities (Note H)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’/OWNER’S EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, par value $.01 per share, authorized 150,000
shares, no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Class A common stock, $.01 par value, 750,000 shares
authorized, 35,237 shares issued and outstanding in 2005
|
|
|
352
|
|
|
|
—
|
|
Class B common stock, $.01 par value, 600,000 shares
authorized, 315,000 shares issued and outstanding in 2005
|
|
|
3,150
|
|
|
|
—
|
|
Additional paid-in capital
|
|
|
1,183,258
|
|
|
|
—
|
|
Owner’s net investment
|
|
|
—
|
|
|
|
6,679,664
|
|
Retained earnings (deficit)
|
|
|
20,205
|
|
|
|
(4,250,222
|
)
|
Accumulated other comprehensive income
|
|
|
2,472
|
|
|
|
300,211
|
|
|
|
|
|
|
|
|
Total Shareholders’/Owner’s Equity
|
|
|
1,209,437
|
|
|
|
2,729,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’/Owner’s Equity
|
|
$
|
4,918,345
|
|
|
$
|
5,240,933
|
|
|
|
|
|
|
|
|
See Notes to Consolidated and Combined Financial Statements
53
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Revenue
|
|
$
|
2,666,078
|
|
|
$
|
2,447,040
|
|
|
$
|
2,174,597
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (exclusive of depreciation and
amortization)
|
|
|
1,342,307
|
|
|
|
1,262,317
|
|
|
|
1,133,386
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization)
|
|
|
541,794
|
|
|
|
499,457
|
|
|
|
456,893
|
|
Depreciation and amortization
|
|
|
400,639
|
|
|
|
388,217
|
|
|
|
379,640
|
|
Corporate expenses (exclusive of depreciation and amortization)
|
|
|
61,096
|
|
|
|
53,770
|
|
|
|
54,233
|
|
Gain on the disposition of assets — net
|
|
|
3,488
|
|
|
|
10,791
|
|
|
|
16,669
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
323,730
|
|
|
|
254,070
|
|
|
|
167,114
|
|
Interest expense
|
|
|
15,687
|
|
|
|
14,177
|
|
|
|
14,201
|
|
Intercompany interest expense
|
|
|
182,667
|
|
|
|
145,653
|
|
|
|
145,648
|
|
Equity in earnings (loss) of nonconsolidated affiliates
|
|
|
9,844
|
|
|
|
(76
|
)
|
|
|
(5,142
|
)
|
Other income (expense) — net
|
|
|
(12,291
|
)
|
|
|
(16,530
|
)
|
|
|
(21,358
|
)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, minority interest and
cumulative effect of a change in accounting principle
|
|
|
122,929
|
|
|
|
77,634
|
|
|
|
(19,235
|
)
|
Income tax (expense) benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(51,173
|
)
|
|
|
(23,422
|
)
|
|
|
12,092
|
|
Deferred
|
|
|
5,689
|
|
|
|
(39,132
|
)
|
|
|
(23,944
|
)
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
(45,484
|
)
|
|
|
(62,554
|
)
|
|
|
(11,852
|
)
|
Minority interest expense
|
|
|
15,872
|
|
|
|
7,602
|
|
|
|
3,906
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting
principle
|
|
|
61,573
|
|
|
|
7,478
|
|
|
|
(34,993
|
)
|
Cumulative effect of change in accounting principle, net of tax
of, $113,173 in 2004
|
|
|
—
|
|
|
|
(162,858
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
61,573
|
|
|
|
(155,380
|
)
|
|
|
(34,993
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(76,315
|
)
|
|
|
124,869
|
|
|
|
216,214
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(14,742
|
)
|
|
$
|
(30,511
|
)
|
|
$
|
181,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change in accounting
principle
|
|
$
|
.19
|
|
|
$
|
.02
|
|
|
$
|
(.11
|
)
|
Cumulative effect of a change in accounting principle
|
|
|
—
|
|
|
|
(.52
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
.19
|
|
|
$
|
(.50
|
)
|
|
$
|
(.11
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
319,890
|
|
|
|
315,000
|
|
|
|
315,000
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change in accounting
principle
|
|
$
|
.19
|
|
|
$
|
.02
|
|
|
$
|
(.11
|
)
|
Cumulative effect of a change in accounting principle
|
|
|
—
|
|
|
|
(.52
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
.19
|
|
|
$
|
(.50
|
)
|
|
$
|
(.11
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
319,921
|
|
|
|
315,000
|
|
|
|
315,000
|
|
See Notes to Consolidated and Combined Financial Statements
54
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS’/OWNER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Class A
|
|
|
Class B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Other
|
|
|
|
|
|
|
Shares
|
|
|
Shares
|
|
|
|
|
|
|
|
|
Common
|
|
|
Owner’s Net
|
|
|
Paid-in
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
|
|
|
|
Issued
|
|
|
Issued
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Investment
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Income (Loss)
|
|
|
Total
|
|
Balances at December 31, 2002
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
6,679,664
|
|
|
$
|
—
|
|
|
$
|
(4,059,849
|
)
|
|
$
|
(40,872
|
)
|
|
$
|
2,578,943
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,993
|
)
|
|
|
|
|
|
|
(34,993
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216,214
|
|
|
|
216,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2003
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
6,679,664
|
|
|
|
—
|
|
|
|
(4,094,842
|
)
|
|
|
175,342
|
|
|
|
2,760,164
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155,380
|
)
|
|
|
|
|
|
|
(155,380
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,869
|
|
|
|
124,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
6,679,664
|
|
|
|
—
|
|
|
|
(4,250,222
|
)
|
|
|
300,211
|
|
|
|
2,729,653
|
|
Net income, pre IPO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,368
|
|
|
|
|
|
|
|
41,368
|
|
Currency translation adjustment, pre IPO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,787
|
)
|
|
|
(78,787
|
)
|
Dividend to Clear Channel Communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,500,000
|
)
|
Contribution
|
|
|
|
|
|
|
315,000
|
|
|
|
|
|
|
|
|
|
3,150
|
|
|
|
(4,179,664
|
)
|
|
|
189,084
|
|
|
|
4,208,854
|
|
|
|
(221,424
|
)
|
|
|
—
|
|
Distribution from Clear Channel Communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393,717
|
|
|
|
|
|
|
|
|
|
|
|
393,717
|
|
IPO proceeds, net of offering costs
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350
|
|
|
|
|
|
|
|
600,292
|
|
|
|
|
|
|
|
|
|
|
|
600,642
|
|
Net income, post IPO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,205
|
|
|
|
|
|
|
|
20,205
|
|
Currency translation adjustment, post IPO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,472
|
|
|
|
2,472
|
|
Exercise of stock options and other
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Amortization and adjustment of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005
|
|
|
35,237
|
|
|
|
315,000
|
|
|
|
|
|
|
|
|
$
|
3,502
|
|
|
$
|
—
|
|
|
$
|
1,183,258
|
|
|
$
|
20,205
|
|
|
$
|
2,472
|
|
|
$
|
1,209,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated and Combined Financial Statements
55
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
61,573
|
|
|
$
|
(155,380
|
)
|
|
$
|
(34,993
|
)
|
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle, net of tax
|
|
|
—
|
|
|
|
162,858
|
|
|
|
—
|
|
Depreciation
|
|
|
311,376
|
|
|
|
321,071
|
|
|
|
312,692
|
|
Amortization of intangibles
|
|
|
89,263
|
|
|
|
67,146
|
|
|
|
66,948
|
|
Deferred taxes
|
|
|
(5,689
|
)
|
|
|
39,132
|
|
|
|
23,944
|
|
(Gain) loss on sale of operating and fixed assets
|
|
|
5,513
|
|
|
|
(11,718
|
)
|
|
|
(11,047
|
)
|
(Gain) loss on sale of other investments
|
|
|
—
|
|
|
|
—
|
|
|
|
(81
|
)
|
Equity in earnings (loss) of nonconsolidated affiliates
|
|
|
(9,844
|
)
|
|
|
76
|
|
|
|
5,142
|
|
Increase (decrease) other, net
|
|
|
15,872
|
|
|
|
5,024
|
|
|
|
2,888
|
|
Changes in operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
(10,634
|
)
|
|
|
(21,149
|
)
|
|
|
(84,197
|
)
|
Decrease (increase) in prepaid expenses
|
|
|
(10,859
|
)
|
|
|
(1,468
|
)
|
|
|
(5,478
|
)
|
Decrease (increase) in other current assets
|
|
|
59,214
|
|
|
|
4,262
|
|
|
|
2,589
|
|
Increase (decrease) in accounts payable, accrued expenses and other
liabilities
|
|
|
(13,300
|
)
|
|
|
51,535
|
|
|
|
99,583
|
|
Increase (decrease) in accrued interest
|
|
|
1,908
|
|
|
|
343
|
|
|
|
(692
|
)
|
Increase (decrease) in deferred income
|
|
|
(12,512
|
)
|
|
|
(2,537
|
)
|
|
|
10,587
|
|
Increase (decrease) in accrued income taxes
|
|
|
28,207
|
|
|
|
33,300
|
|
|
|
45,574
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
510,088
|
|
|
|
492,495
|
|
|
|
433,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in notes receivable, net
|
|
|
420
|
|
|
|
414
|
|
|
|
(202
|
)
|
Decrease (increase) in investments in, and advances to nonconsolidated
affiliates — net
|
|
|
951
|
|
|
|
(6,986
|
)
|
|
|
(619
|
)
|
Purchase of other investments
|
|
|
(99
|
)
|
|
|
(961
|
)
|
|
|
—
|
|
Proceeds from sale of other investment
|
|
|
—
|
|
|
|
12,076
|
|
|
|
—
|
|
Purchases of property, plant and equipment
|
|
|
(208,156
|
)
|
|
|
(176,140
|
)
|
|
|
(205,145
|
)
|
Proceeds from disposal of assets
|
|
|
920
|
|
|
|
8,354
|
|
|
|
48,806
|
|
Acquisition of operating assets, net of cash acquired
|
|
|
(99,605
|
)
|
|
|
(94,878
|
)
|
|
|
(44,137
|
)
|
Decrease (increase) in other – net
|
|
|
(55,802
|
)
|
|
|
(52,537
|
)
|
|
|
(28,865
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(361,371
|
)
|
|
|
(310,658
|
)
|
|
|
(230,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Draws on credit facilities
|
|
|
108,601
|
|
|
|
71,389
|
|
|
|
122,032
|
|
Payments on credit facilities
|
|
|
(113,193
|
)
|
|
|
(104,945
|
)
|
|
|
(190,077
|
)
|
Payments on long-term debt
|
|
|
(3,118
|
)
|
|
|
(262
|
)
|
|
|
—
|
|
Payments on long-term debt with Clear Channel Communications
|
|
|
(600,642
|
)
|
|
|
—
|
|
|
|
—
|
|
Net transfers (to) from Clear Channel Communications
|
|
|
(70,006
|
)
|
|
|
(148,188
|
)
|
|
|
(154,446
|
)
|
Proceeds from exercise of stock options
|
|
|
166
|
|
|
|
—
|
|
|
|
—
|
|
Proceeds from initial public offering
|
|
|
600,642
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(77,550
|
)
|
|
|
(182,006
|
)
|
|
|
(222,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(471
|
)
|
|
|
4,012
|
|
|
|
7,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
70,696
|
|
|
|
3,843
|
|
|
|
(11,636
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
37,948
|
|
|
|
34,105
|
|
|
|
45,741
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
108,644
|
|
|
$
|
37,948
|
|
|
$
|
34,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
195,350
|
|
|
$
|
175,395
|
|
|
$
|
198,296
|
|
Cash paid during the year for taxes
|
|
$
|
38,493
|
|
|
$
|
22,195
|
|
|
$
|
18,043
|
|
See Notes to Consolidated and Combined Financial Statements
56
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE A
—
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Clear Channel Outdoor Holdings, Inc. (“the Company”) is an outdoor advertising company which
owns or operates advertising display faces domestically and internationally. Prior to November 11,
2005, the Company was a wholly-owned subsidiary of Clear Channel Communications, Inc. (“Clear
Channel Communications”), a diversified media company with operations in radio broadcasting and
outdoor advertising. In preparation for the initial public offering (“IPO”) Clear Channel
Communications and its subsidiaries contributed and transferred to the Company all of the assets
and liabilities of the outdoor advertising businesses (the “Contribution”). The net assets were
transferred at Clear Channel Communications’ historical cost basis. The Company completed the
Contribution just prior to the IPO, which was effective on November 11, 2005. Pursuant to the IPO
registration statement on Form S-1, the Company sold 35.0 million shares of its Class A common
stock at a price of $18.00 per share, for net proceeds of $600.6 million after deducting
underwriting discounts and offering expenses. Clear Channel Communications holds all of the 315.0
million Class B shares of common stock outstanding, representing approximately 90% of the shares
outstanding and approximately 99% of the voting power. The holders of Class A common stock and
Class B common stock have identical rights, except holders of Class A common stock are entitled to
1 vote per share while holders of Class B common stock are entitled to 20 votes per share. The
Class B shares of common stock are convertible, at the option of the holder at any time or upon any
transfer, into shares of Class A common stock on a one-for-one basis, subject to certain limited
exceptions.
Nature of Business
The Company operates in the outdoor advertising industry by selling advertising on billboards,
street furniture displays, transit displays and other advertising displays. The Company has two
principal business segments: Americas and international. The Americas segment includes operations
in the United States, Canada and Latin America; and the international segment includes operations
in Europe, Asia, Africa and Australia.
Principles of Consolidation and Combination
The combined financial statements include amounts prior to the Contribution derived from Clear
Channel Communications’ consolidated financial statements using the historical results of
operations and bases of the assets and liabilities of Clear Channel Communications’ outdoor
advertising businesses and give effect to allocations of expenses from Clear Channel
Communications. These allocations were made on a specifically identifiable basis or using relative
percentages of headcount or other methods management considered to be a reasonable reflection of
the utilization of services provided. The Company’s historical financial data may not be indicative
of its future performance nor will such data reflect what its financial position and results of
operations would have been had it operated as an independent publicly traded company during the
periods shown. Significant intercompany accounts among the combined businesses have been eliminated
in consolidation. Investments in nonconsolidated affiliates are accounted for using the equity
method of accounting.
Certain Reclassifications
Certain amounts in prior years have been reclassified to conform to 2005 presentation. The
Company has reclassified operating gains and losses to be included as a component of operating
income and reclassified minority interest expense below its provision for income taxes to conform
to current year presentation.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of
three months or less.
Allowance for Doubtful Accounts
The Company evaluates the collectibility of its accounts receivable based on a combination of
factors. In circumstances where it is aware of a specific customer’s inability to meet its
financial obligations, it records a
57
specific reserve to reduce the amounts recorded to what it believes will be collected. For all
other customers, it recognizes reserves for bad debt based on historical experience of bad debts as
a percent of revenues for each business unit, adjusted for relative improvements or deteriorations
in the agings and changes in current economic conditions. The Company believes the credit risk with
respect to trade receivables is limited due to the large number and the geographic diversification
of its customers.
Land Leases and Other Structure Licenses
Most of the Company’s advertising structures are located on leased land. Americas land rents
are typically paid in advance for periods ranging from 1 to 12 months. International land rents are
paid both in advance and in arrears, for periods ranging from 1 to 12 months. Most international
street furniture advertising display faces are licensed through municipalities for up to 20 years.
The street furniture licenses often include a percent of revenue to be paid along with a base rent
payment. Prepaid land leases are recorded as an asset and expensed ratably over the related rental
term and license and rent payments in arrears are recorded as an accrued liability.
Purchase Accounting
The Company accounts for its business acquisitions under the purchase method of accounting.
The total cost of acquisitions is allocated to the underlying identifiable net assets, including
any related indefinite-lived permit intangible assets, based on their respective estimated fair
values. The excess of the purchase price over the estimated fair values of the net assets acquired
is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed
requires management’s judgment and often involves the use of significant estimates and assumptions,
including assumptions with respect to future cash inflows and outflows, discount rates, asset lives
and market multiples, among other items. In addition, reserves have been established on the
Company’s balance sheet related to acquired liabilities and qualifying restructuring costs and
contingencies based on assumptions made at the time of acquisition. The Company evaluates these
reserves on a regular basis to determine the adequacies of the amounts.
Asset Retirement Obligation
Statement of Financial Accounting Standards No. 143,
Accounting for Asset Retirement
Obligations
requires the Company to estimate its obligation upon the termination or non-renewal of
a lease to dismantle and remove its advertising structures from the leased land and to reclaim the
site to its original condition. The Company’s asset retirement obligation is reported in
“Other long-term liabilities.” The Company records the present value of obligations associated with
the retirement of its advertising structures in the period in which the obligation is incurred. The
liability is capitalized as part of the related advertising structures carrying amount. Over time,
accretion of the liability is recognized as an operating expense and the capitalized cost is
depreciated over the expected useful life of the related asset.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed using the
straight-line method at rates that, in the opinion of management, are adequate to allocate the cost
of such assets over their estimated useful lives, which are as follows:
Buildings and improvements — 10 to 39 years
Structures — 5 to 40 years
Furniture and other equipment — 3 to 20 years
Leasehold improvements — shorter of economic life or lease term assuming renewal periods, if
appropriate
For assets associated with a lease or contract, the assets are depreciated at the shorter of
the economic life or the lease or contract term, assuming renewal periods, if appropriate.
Expenditures for maintenance and repairs are charged to operations as incurred, whereas
expenditures for renewal and betterments are capitalized.
The Company tests for possible impairment of property, plant, and equipment whenever events or
changes in circumstances, such as a reduction in operating cash flow or a dramatic change in the
manner the asset is intended to be used indicate the carrying amount of the asset may not be
recoverable. If indicators exist, the Company compares the estimated undiscounted future cash flows
related to the asset to the carrying value of the asset. If the
58
carrying value is greater than the estimated undiscounted future cash flow amount, an
impairment charge is recorded in depreciation and amortization expense in the statement of
operations for amounts necessary to reduce the carrying value of the asset to fair value. The
impairment loss calculations require management to apply judgment in estimating future cash flows
and the discount rates that reflects the risk inherent in future cash flows.
Intangible Assets
The Company classifies intangible assets as definite-lived or indefinite-lived intangible
assets, as well as goodwill. Definite-lived intangibles include primarily transit and street
furniture contracts, which are amortized over the respective lives of the agreements, typically 5
to 15 years. The Company periodically reviews the appropriateness of the amortization periods
related to its definite-lived assets. These assets are stated at cost. Indefinite-lived intangibles
include billboard permits. The excess cost over fair value of net assets acquired is classified as
goodwill. The indefinite-lived intangibles and goodwill are not subject to amortization, but are
tested for impairment at least annually.
The Company tests for possible impairment of definite-lived intangible assets whenever events
or changes in circumstances, such as a reduction in operating cash flow or a dramatic change in the
manner the asset is intended to be used indicate the carrying amount of the asset may not be
recoverable. If indicators exist, the Company compares the estimated undiscounted future cash flows
related to the asset to the carrying value of the asset. If the carrying value is greater than the
estimated undiscounted future cash flow amount, an impairment charge is recorded in depreciation
and amortization expense in the statement of operations for amounts necessary to reduce the
carrying value of the asset to fair value.
The Company performs its annual impairment test for its permits using a direct valuation
technique as prescribed by the Emerging Issues Task Force (“EITF”) Topic D-108,
Use of the Residual
Method to Value Acquired Assets Other Than Goodwill
(“D-108”), which the Company adopted in the
fourth quarter of 2004. Certain assumptions are used under the Company’s direct valuation
technique, including market penetration leading to revenue potential, profit margin, duration and
profile of the buildup period, estimated start-up cost and losses incurred during the build-up
period, the risk adjusted discount rate and terminal values. The Company considered fair values
derived by a third-party valuation firm to assist it in performing its impairment test. Impairment
charges, other than the charge taken under the transitional rules of Financial Accounting Standards
No.
142, Goodwill and Other Intangible Assets
(“Statement 142”) and D-108, are recorded in
depreciation and amortization expense on the statement of operations.
At least annually, the Company performs its impairment test for each reporting unit’s goodwill
using a discounted cash flow model to determine if the carrying value of the reporting unit,
including goodwill, is less than the fair value of the reporting unit. Certain assumptions are used
in determining the fair value, including assumptions about future cash flows, discount rates, and
terminal values. If the fair value of the Company’s reporting unit is less than the carrying value
of the reporting unit, the Company reduces the carrying amount of goodwill. Impairment charges,
other than the charge taken under the transitional rules of Statement 142, are recorded in
depreciation and amortization expense on the statement of operations.
Nonconsolidated Affiliates
In general, investments in which the Company owns 20 percent to 50 percent of the common stock
or otherwise exercises significant influence over the company are accounted for under the equity
method. The Company does not recognize gains or losses upon the issuance of securities by any of
its equity method investees. The Company reviews the value of equity method investments and records
impairment charges in the statement of operations for any decline in value determined to be
other-than-temporary.
Financial Instruments
Due to their short maturity, the carrying amounts of accounts and notes receivable, accounts
payable, accrued liabilities and short-term borrowings approximated their fair values at December
31, 2005 and 2004. Additionally, as none of the Company’s debt is publicly traded, the carrying
amounts of long-term debt approximated their fair value at December 31, 2005 and 2004.
59
Income Taxes
The Company accounts for income taxes using the liability method. Under this method, deferred
tax assets and liabilities are determined based on differences between financial reporting bases
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. Deferred tax assets are reduced by valuation allowances if the Company
believes it is more likely than not some portion or all of the asset will not be realized. As all
earnings from the Company’s foreign operations are permanently reinvested and not distributed, the
Company’s income tax provision does not include additional U.S. taxes on foreign operations. It is
not practical to determine the amount of federal income taxes, if any, that might become due in the
event the earnings were distributed.
The operations of the Company are included in a consolidated federal income tax return filed
by Clear Channel Communications, Inc. However, for financial reporting purposes, the Company’s
provision for income taxes has been computed on the basis that the Company files separate
consolidated income tax returns with its subsidiaries.
Revenue Recognition
The Company provides services under the terms of contracts covering periods up to three years,
which are generally billed monthly. Revenue for advertising space rental is recognized ratably over
the term of the contract. Advertising revenue is reported net of agency commissions. Agency
commissions are calculated based on a stated percentage applied to gross billing revenue for the
Company’s operations. Payments received in advance of being earned are recorded as deferred income.
Foreign Currency
Results of operations for foreign subsidiaries and foreign equity investees are translated
into U.S. dollars using the average exchange rates during the year. The assets and liabilities of
those subsidiaries and investees, other than those of operations in highly inflationary countries,
are translated into U.S. dollars using the exchange rates at the balance sheet date. The related
translation adjustments are recorded in a separate component of shareholders’/owner’s equity,
“Accumulated other comprehensive income.” Foreign currency transaction gains and losses, as well as
gains and losses from translation of financial statements of subsidiaries and investees in highly
inflationary countries, are included in operations.
Advertising Expense
The Company records advertising expense as it is incurred. Advertising expenses of $16.1
million, $18.2 million and $18.2 million were recorded during the year ended December 31, 2005,
2004 and 2003, respectively, as a component of selling, general and administrative expenses.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates, judgments, and assumptions that affect the
amounts reported in the financial statements and accompanying notes including, but not limited to,
legal, tax and insurance accruals. The Company bases its estimates on historical experience and on
various other assumptions believed to be reasonable under the circumstances. Actual results could
differ from those estimates.
New Accounting Pronouncements
In March 2005, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations
(“FIN 47”). FIN 47 is an interpretation of
FASB Statement 143,
Accounting for Asset Retirement Obligations,
which was issued in June 2001.
According to FIN 47, uncertainty about the timing and (or) method of settlement because they are
conditional on a future event that may or may not be within the control of the entity, should be
factored into the measurement of the asset retirement obligation when sufficient information
exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the
end of fiscal years ending after December 15, 2005. Retrospective application of interim financial
information is permitted, but is not required. The Company adopted FIN 47 on January 1, 2005,
which did not materially impact
the Company’s financial position or results of operations.
60
In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin
No. 107
Share-Based Payment
(“SAB 107”). SAB 107 expresses the SEC staff’s views regarding the
interaction between Statement of Financial Accounting Standards No. 123(R)
Share-Based Payment
(“Statement 123(R)”) and certain SEC rules and regulations and provides the staff’s views regarding
the valuation of share-based payment arrangements for public companies. In particular, SAB 107
provides guidance related to share-based payment transactions with nonemployees, the transition
from nonpublic to public entity status, valuation methods (including assumptions such as expected
volatility and expected term), the accounting for certain redeemable financial instruments issued
under share-based payment arrangements, the classification of compensation expense, non-GAAP
financial measures, first time adoption of Statement 123(R) in an interim period, capitalization of
compensation cost related to share-based payment arrangements, the accounting for income tax
effects of share-based payment arrangements upon adoption of Statement 123(R) and the modification
of employee share options prior to adoption of Statement 123(R).
In April 2005, the SEC issued a press release announcing it would provide for phased-in
implementation guidance for Statement 123(R). The SEC would require that registrants that are not
small business issuers adopt Statement 123(R)’s fair value method of accounting for share-based
payments to employees no later than the beginning of the first fiscal year beginning after June 15,
2005. The Company will adopt Statement 123(R) on January 1, 2006. The Company expects the impact
of adopting SAB 107 and Statement 123(R) to be in the range of $5.0 million to $8.0 million
recorded as a component of operating expenses in its consolidated statement of operations for the
year ended December 31, 2006.
In May 2005, the FASB issued Statement No. 154
Accounting Changes and Error Corrections
(“Statement 154”). This Statement replaces APB Opinion No. 20,
Accounting Changes
, and FASB
Statement No. 3,
Reporting Accounting Changes in Interim Financial Statements
, and changes the
requirements for the accounting for and reporting of a change in accounting principle. Statement
154 applies to all voluntary changes in accounting principle. It also applies to changes required
by an accounting pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific transition provisions, those
provisions should be followed. This Statement is effective for accounting changes and corrections
of errors made in fiscal years beginning after December 15, 2005. The Company will adopt Statement
154 on January 1, 2006 and anticipates adoption will not materially impact its financial position
or results of operations.
In June 2005, the EITF issued EITF 05-6,
Determining the Amortization Period of Leasehold
Improvements
(“EITF 05-6”). EITF 05-6 requires assets recognized under capital leases generally be
amortized in a manner consistent with the lessee’s normal depreciation policy except the
amortization period is limited to the lease term (which includes renewal periods that are
reasonably assured). EITF 05-6 also addresses the determination of the amortization period for
leasehold improvements purchased subsequent to the inception of the lease. Leasehold improvements
acquired in a business combination or purchased subsequent to the inception of the lease should be
amortized over the lesser of the useful life of the asset or the lease term that includes
reasonably assured lease renewals as determined on the date of the acquisition of the leasehold
improvement. The Company adopted EITF 05-6 on July 1, 2005 which did not materially impact its
financial position or results of operations.
In October 2005, the FASB issued Staff Position 13-1 (“FSP 13-1”). FSP 13-1 requires rental
costs associated with ground or building operating leases incurred during a construction period be
recognized as rental expense. The guidance in FSP 13-1 shall be applied to the first reporting
period beginning after December 15, 2005. The Company will adopt FSP 13-1 January 1, 2006 and
anticipates adoption will not materially impact its financial position or results of operations.
In November 2005, the FASB staff issued FASB Staff Position FAS 115-1 (“FAS 115-1”). FAS 115-1
replaces the impairment evaluation guidance (paragraphs 10-18) of EITF Issue No. 03-1,
The Meaning
of Other-Than-Temporary Impairment and Its Application to Certain Investments
(“EITF 03-1”), with
references to the existing other-than-temporary impairment guidance. EITF 03-1 disclosure
requirements remain in effect, and are applicable for year-end reporting and for interim periods if
there are significant changes from the previous year-end. FAS 115-1 also supersedes EITF Topic No.
D-44,
Recognition of Other Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost
Exceeds Fair Value
, and clarifies an investor should recognize an impairment loss no later
than when the impairment is deemed other-than-temporary, even if a decision to sell an
impaired security has not
61
been made. The guidance in FAS 115-1 is to be applied to reporting
periods beginning after December 15, 2005. The Company will adopt FAS 115-1 January 1, 2006 and
anticipates adoption will not materially impact its financial position or results of operations.
Other
Under the Sarbanes-Oxley Act of 2002, U.S. public companies are subject to requirements for
management and independent auditors to report on the effectiveness of internal control over
financial reporting. Internal control over financial reporting is a process designed and maintained
by a company’s management to provide reasonable assurance about the reliability of financial
reporting. The Company’s compliance with Section 404 of the Sarbanes-Oxley Act will initially be
tested in connection with the filing of its annual report on Form 10-K for the fiscal year ending
December 31, 2006.
Stock Based Compensation
At the close of the IPO, 3.6 million options to purchase Clear Channel Communications’ common
stock were converted to 6.3 million options to purchase the Company’s Class A common stock. In
addition, the Company granted an additional 2.3 million options subsequent to the IPO. Prior to the
IPO, the Company did not have any compensation plans under which it granted stock awards to
employees. However, Clear Channel Communications granted the Company’s officers and other key
employees stock options to purchase shares of Clear Channel Communications common stock. As does
the Company, Clear Channel Communications accounted for its stock-based award plans in accordance
with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(“APB
25”), and related interpretations, under which compensation expense is recorded to the extent the
current market price of the underlying stock exceeds the exercise price. Clear Channel
Communications calculated the pro forma stock compensation expense as if the stock-based awards had
been accounted for using the provisions of Statement 123,
Accounting for Stock-Based Compensation
.
The stock compensation expense was then allocated to the Company based on the percentage of options
outstanding to employees of the Company.
Pro forma net income and earnings per share, assuming the Company and Clear Channel
Communications accounted for all employee stock options using the fair value method and amortized
such to expense over the options’ vesting period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Income (loss) before cumulative
effect of a change in accounting
principle:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
$
|
61,573
|
|
|
$
|
7,478
|
|
|
$
|
(34,993
|
)
|
Pro forma stock compensation
expense, net of tax
|
|
|
(3,002
|
)
|
|
|
(6,474
|
)
|
|
|
(3,701
|
)
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
$
|
58,571
|
|
|
$
|
1,004
|
|
|
$
|
(38,694
|
)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative
effect of a change in accounting
principle per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
$
|
.19
|
|
|
$
|
.02
|
|
|
$
|
(.11
|
)
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
$
|
.18
|
|
|
$
|
.00
|
|
|
$
|
(.12
|
)
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
$
|
.19
|
|
|
$
|
.02
|
|
|
$
|
(.11
|
)
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
$
|
.18
|
|
|
$
|
.00
|
|
|
$
|
(.12
|
)
|
|
|
|
|
|
|
|
|
|
|
All options granted by the Company contain a retirement provision which allows for continued
vesting upon retirement. It is the Company’s policy to recognize the fair value of such grants over
the vesting period, and any remaining unrecognized compensation cost is recognized when an employee
actually retires. In accordance with Statement 123(R), the fair value of such grants is to be
recognized over the period through the date the employee
62
first becomes eligible to retire and is no
longer required to provide service to earn part or all of the award. If the Company had been
accounting for its stock options in accordance with the provisions of Statement 123(R), it would
have reported an additional $1.3 million of pro forma stock compensation expense, net of tax, for
the year ended December 31, 2005.
NOTE B
—
INTANGIBLE ASSETS AND GOODWILL
Definite-lived Intangibles
The Company has definite-lived intangible assets which consist primarily of transit and street
furniture contracts and other contractual rights, all of which are amortized over the shorter of
either the respective lives of the agreements or over the period of time the assets are expected to
contribute to the Company’s future cash flows. Other definite-lived intangible assets are amortized
over the period of time the assets are expected to contribute directly or indirectly to the
Company’s future cash flows. The following table presents the gross carrying amount and accumulated
amortization for each major class of definite-lived intangible assets at December 31, 2005 and
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2005
|
|
|
2004
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
Transit, street
furniture, and
other contractual
rights
|
|
$
|
651,456
|
|
|
$
|
408,017
|
|
|
$
|
688,373
|
|
|
$
|
364,939
|
|
Other
|
|
|
56,449
|
|
|
|
47,937
|
|
|
|
57,093
|
|
|
|
46,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
707,905
|
|
|
$
|
455,954
|
|
|
$
|
745,466
|
|
|
$
|
411,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense from definite-lived intangible assets for the years ended December
31, 2005, 2004 and 2003 was $89.3 million, $67.1 million and $66.9 million, respectively. The
following table presents the Company’s estimate of amortization expense for each of the five
succeeding fiscal years for definite-lived intangible assets that exist at December 31, 2005:
|
|
|
|
|
(In thousands)
|
|
|
|
|
2006
|
|
$
|
76,311
|
|
2007
|
|
|
41,536
|
|
2008
|
|
|
22,894
|
|
2009
|
|
|
19,176
|
|
2010
|
|
|
12,513
|
|
As acquisitions and dispositions occur in the future and as purchase price allocations are
finalized, amortization expense may vary.
Indefinite-lived Intangibles
The Company’s indefinite-lived intangibles consist of billboard permits. The Company’s
billboard permits are issued in perpetuity by state and local governments and are transferable or
renewable at little or no cost. Permits typically include the location for which the permit allows
the Company the right to operate an advertising structure. The Company’s permits are located on
either owned or leased land. In cases where the Company’s permits are located on leased land, the
leases are typically from 10 to 20 years and renew indefinitely, with rental payments generally
escalating at an inflation based index. If the Company loses its lease, the Company will typically
obtain permission to relocate the permit or bank it with the municipality for future use.
The Company does not amortize its billboard permits. The Company tests these indefinite-lived
intangible assets for impairment at least annually. The carrying amount for billboard permits at
December 31, 2005 and 2004 were $207.9 million and $211.7 million, respectively.
The SEC staff issued D-108 at the September 2004 meeting of the EITF. D-108 states the
residual method should no longer be used to value intangible assets other than goodwill. Rather,
D-108 requires a direct method be used to value intangible assets other than goodwill. Prior to
adoption of D-108, the Company recorded its acquisition
63
at fair value using an industry accepted
income approach. The value calculated using the income approach was allocated to the
indefinite-lived intangibles after deducting the value of tangible and intangible assets, as well
as estimated costs of establishing a business at the market level. The Company used a similar
approach in its annual impairment test prior to its adoption of D-108.
D-108 requires an impairment test be performed upon adoption using a direct method for valuing
intangible assets other than goodwill. Under the direct method, it is assumed that rather than
acquiring indefinite-lived intangible assets as a part of a going concern business, the buyer
hypothetically obtains indefinite-lived intangible assets and builds a new operation with similar
attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are
normally associated with going concern value. Initial capital costs are deducted from the
discounted cash flows model, which results in value directly attributable to the indefinite-lived
intangible assets.
Under the direct method, the Company continues to aggregate its indefinite-lived intangible
assets at the market level for purposes of impairment testing as prescribed by EITF 02-07,
Unit of
Accounting for Testing Impairment of Indefinite-Lived Intangible Assets.
The Company’s key
assumptions using the direct method are market revenue growth rates, market share, profit margin,
duration and profile of the build-up period, estimated start-up capital costs and losses incurred
during the build-up period, the risk-adjusted discount rate and terminal values. This data is
populated using industry normalized information representing an average station within a market.
The Company’s adoption of the direct method resulted in an aggregate fair value of its
indefinite-lived intangible assets that were less than the carrying value determined under its
prior method. As a result of the adoption of D-108, the Company recorded a non-cash charge of
$162.9 million, net of deferred taxes of $113.2 million as a cumulative effect of a change in
accounting principle during the fourth quarter of 2004.
Goodwill
The Company tests goodwill for impairment using a two-step process. The first step, used to
screen for potential impairment, compares the fair value of the reporting unit with its carrying
amount, including goodwill. The second step, used to measure the amount of the impairment loss,
compares the implied fair value of the reporting unit goodwill with the carrying amount of that
goodwill. The following table presents the changes in the carrying amount of goodwill in each of
the Company’s reportable segments for the years ended December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Americas
|
|
|
International
|
|
|
Total
|
|
Balance as of December 31, 2003
|
|
$
|
345,336
|
|
|
$
|
355,461
|
|
|
$
|
700,797
|
|
Acquisitions
|
|
|
53,719
|
|
|
|
3,066
|
|
|
|
56,785
|
|
Foreign currency translation
|
|
|
¾
|
|
|
|
29,401
|
|
|
|
29,401
|
|
Adjustments
|
|
|
(1,678
|
)
|
|
|
1,701
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2004
|
|
|
397,377
|
|
|
|
389,629
|
|
|
|
787,006
|
|
Acquisitions
|
|
|
1,896
|
|
|
|
4,407
|
|
|
|
6,303
|
|
Foreign currency translation
|
|
|
¾
|
|
|
|
(50,232
|
)
|
|
|
(50,232
|
)
|
Adjustments
|
|
|
6,002
|
|
|
|
(193
|
)
|
|
|
5,809
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2005
|
|
$
|
405,275
|
|
|
$
|
343,611
|
|
|
$
|
748,886
|
|
|
|
|
|
|
|
|
|
|
|
NOTE C
—
BUSINESS ACQUISITIONS
2005 Acquisitions:
During 2005 the Company acquired Americas display faces for $113.3 million in cash. The
Company’s international segment acquired display faces for $17.1 million and increased its
investment to a controlling majority interest in Clear Media Limited for $8.9 million. Clear Media
is a Chinese outdoor advertising company and as a result of consolidating its operations during the
third quarter of 2005, the acquisition resulted in an increase in the Company’s cash of $39.7
million.
64
2004 Acquisitions:
Medallion Merger
In September 2004, the Company acquired Medallion Taxi Media, Inc. (“Medallion”) for $31.6
million. Medallion’s operations include advertising displays placed on the top of taxi cabs. The
Company began consolidating the results of operations in September 2004.
In addition to the above, during 2004 the Company acquired display faces for $60.8 million in
cash and acquired equity interests in international outdoor companies for $2.5 million in cash.
Also, the Company exchanged advertising assets, valued at $23.7 million for other advertising
assets valued at $32.3 million. As a result of this exchange, the Company recorded a gain of $8.6
million in “Gain on disposition of assets — net.”
2003 Acquisitions:
During 2003 the Company acquired Americas display faces for $28.3 million in cash. The Company
also acquired investments in nonconsolidated affiliates for $10.7 million in cash and acquired an
additional 10% interest in a subsidiary for $5.1 million in cash.
Acquisition Summary
The following is a summary of the assets and liabilities acquired and the consideration given
for all acquisitions made during 2005 and 2004. Due to the timing of certain acquisitions, the
purchase price allocation is preliminary pending completion of third-party appraisals and other
fair value analysis of assets and liabilities.
|
|
|
|
|
|
|
|
|
(
In thousands)
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
Cash
|
|
$
|
39,656
|
|
|
$
|
—
|
|
Accounts receivable
|
|
|
30,301
|
|
|
|
¾
|
|
Property, plant and equipment
|
|
|
156,386
|
|
|
|
15,061
|
|
Permits
|
|
|
2,228
|
|
|
|
36,956
|
|
Definite-lived intangibles
|
|
|
22,453
|
|
|
|
—
|
|
Goodwill
|
|
|
6,303
|
|
|
|
45,762
|
|
Investments
|
|
|
805
|
|
|
|
2,512
|
|
Other assets
|
|
|
49,682
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
307,814
|
|
|
|
100,291
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
(63,594
|
)
|
|
|
(3,058
|
)
|
Minority interests
|
|
|
(101,133
|
)
|
|
|
—
|
|
Deferred tax
|
|
|
(3,826
|
)
|
|
|
(2,355
|
)
|
|
|
|
|
|
|
|
|
|
|
(168,553
|
)
|
|
|
(5,413
|
)
|
|
|
|
|
|
|
|
Total cash consideration
|
|
|
139,261
|
|
|
|
94,878
|
|
Less cash received
|
|
|
39,656
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Net cash paid for acquisitions
|
|
$
|
99,605
|
|
|
$
|
94,878
|
|
|
|
|
|
|
|
|
The Company has entered into certain agreements relating to acquisitions that provide for
purchase price adjustments and other future contingent payments based on the financial performance
of the acquired company. The Company will continue to accrue additional amounts related to such
contingent payments if and when it is determinable that the applicable financial performance
targets will be met. The aggregate of these contingent payments, if performance targets were met,
would not significantly impact the Company’s financial position or results of operations.
65
NOTE D — RESTRUCTURING
The following table summarizes the activities related to the Company’s restructuring accruals:
|
|
|
|
|
|
|
|
|
|
|
|
|
(
In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Balance at January 1
|
|
$
|
6,867
|
|
|
$
|
7,469
|
|
|
$
|
8,940
|
|
Estimated costs charged to
restructuring accrual
|
|
|
26,576
|
|
|
|
4,131
|
|
|
|
13,800
|
|
Adjustments to restructuring accrual
|
|
|
(1,281
|
)
|
|
|
(377
|
)
|
|
|
(5,265
|
)
|
Payments charged against
restructuring accrual
|
|
|
(8,941
|
)
|
|
|
(4,356
|
)
|
|
|
(10,006
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
23,221
|
|
|
$
|
6,867
|
|
|
$
|
7,469
|
|
|
|
|
|
|
|
|
|
|
|
In the third quarter of 2005, the Company restructured its operations in France. As a result,
the Company recorded $26.6 million in restructuring costs as a component of selling, general and
administrative expenses during the third quarter of 2005; $22.5 million was related to severance
costs and $4.1 million was related to other costs. The restructuring will result in the termination
of 101 employees. As of December 31, 2005, $5.6 million of costs have been incurred and applied
against the reserve. As of December 31, 2005, the portion of the accrual associated with the France
restructuring was $21.0 million.
The Company restructured its operations in Spain during 2004. As a result, the Company
recorded a $4.1 million accrual in selling, general and administrative expenses; $2.2 million was
related to severance and $1.9 million was related to consulting and other costs. The remainder of
the accrual was utilized in 2005. This restructuring has resulted in the termination of 44
employees.
The Company restructured its operations in France during 2003. As a result, the Company
recorded a $13.8 million accrual in selling, general and administrative expenses; $12.5 million was
related to severance and $1.3 million was related to lease terminations and consulting and other
costs. As of December 31, 2005, the accrual balance relating to the 2003 France restructuring was
$0.7 million, which is related to severance. It is expected that these accruals will be paid during
2006. This restructuring has resulted in the termination of 134 employees.
In addition to the above, the Company has a restructuring liability related to Clear Channel
Communications’ merger with Ackerley in June 2002. At December 31, 2005, the accrual balance for
this restructuring was $1.5 million. The remaining restructuring accrual is comprised solely of
lease termination, which will be paid over the next five years.
NOTE E
—
INVESTMENTS
The Company’s most significant investments in nonconsolidated affiliates are listed below:
Clear Channel Independent
The Company owns a 50% interest in Clear Channel Independent (“CCI”), formerly known as Corp
Comm, a South African outdoor advertising company.
Alessi
The Company owns a 35% interest in Alessi, an Italian outdoor advertising company.
66
Summarized Financial Information
The following table summarizes the Company’s investments in these nonconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Clear
|
|
|
|
|
|
|
|
|
|
|
All
|
|
|
|
|
|
|
Media
|
|
|
CCI
|
|
|
Alessi
|
|
|
Others
|
|
|
Total
|
|
At December 31, 2004
|
|
$
|
73,234
|
|
|
$
|
51,368
|
|
|
$
|
26,098
|
|
|
$
|
24,357
|
|
|
$
|
175,057
|
|
Acquisition (disposition) of investments
|
|
|
8,921
|
|
|
|
—
|
|
|
|
763
|
|
|
|
(46
|
)
|
|
|
9,638
|
|
Additional investment, net
|
|
|
|
|
|
|
—
|
|
|
|
(378
|
)
|
|
|
(573
|
)
|
|
|
(951
|
)
|
Equity in net earnings (loss)
|
|
|
2,757
|
|
|
|
6,998
|
|
|
|
142
|
|
|
|
(53
|
)
|
|
|
9,844
|
|
Reclassifications
|
|
|
(84,912
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(84,912
|
)
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
(5,678
|
)
|
|
|
(3,479
|
)
|
|
|
(544
|
)
|
|
|
(9,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
$
|
—
|
|
|
$
|
52,688
|
|
|
$
|
23,146
|
|
|
$
|
23,141
|
|
|
$
|
98,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In July, 2005, the Company increased its investment in Clear Media, a Chinese company that
operates street furniture displays throughout China, to a controlling majority ownership interest.
As a result, the Company began consolidating the results of Clear Media in the third quarter of
2005. The Company accounted for Clear Media as an equity investment prior to July 2005. With the
exception of Clear Media, the investments in the table above are not consolidated, but are
accounted for under the equity method of accounting, whereby the Company records its investments in
these entities in the balance sheet as “Investments in, and advances to, nonconsolidated
affiliates.” The Company’s interests in their operations are recorded in the statement of
operations as “Equity in earnings (loss) of nonconsolidated affiliates.” The accumulated
undistributed earnings included in retained earnings for these investments were $2.7 million as of
December 31, 2005. Accumulated undistributed losses included in retained deficit for these
investments were $3.4 million and $3.3 million as of December 31, 2004 and 2003, respectively.
NOTE F
—
ASSET RETIREMENT OBLIGATION
The Company has an asset retirement obligation of $49.8 million and $49.2 million as of
December 31, 2005 and 2004, respectively, which is reported in “Other long-term liabilities.” The
liability relates to the Company’s obligation to dismantle and remove its advertising displays from
leased land and to reclaim the site to its original condition upon the termination or non-renewal
of a lease. The liability is capitalized as part of the related long-lived assets’ carrying value.
Due to the high rate of lease renewals over a long period of time, the calculation assumes all
related assets will be removed at some period over the next 50 years. An estimate of third-party
cost information is used with respect to the dismantling of the structures and the reclamation of
the site. The interest rate used to calculate the present value of such costs over the retirement
period is based on an estimated risk adjusted credit rate for the same period. During 2004, the
Company increased its liability due to a change in estimate associated with the remediation costs
used in the calculation. This change was recorded as an addition to the liability and the related
assets’ carrying value.
The following table presents the activity related to the Company’s asset retirement
obligation:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2005
|
|
|
2004
|
|
Balance at January 1
|
|
$
|
49,216
|
|
|
$
|
24,000
|
|
Adjustment due to change in estimate of
related costs
|
|
|
(1,344
|
)
|
|
|
26,850
|
|
Accretion of liability
|
|
|
3,616
|
|
|
|
1,800
|
|
Liabilities settled
|
|
|
(1,681
|
)
|
|
|
(3,434
|
)
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
49,807
|
|
|
$
|
49,216
|
|
|
|
|
|
|
|
|
67
NOTE G — LONG-TERM DEBT
Long-term debt at December 31, 2005 and 2004 consisted of the following:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
Debt with Clear Channel Communications
|
|
$
|
2,500,000
|
|
|
$
|
1,463,000
|
|
Bank credit facilities
|
|
|
15,035
|
|
|
|
23,938
|
|
Other long-term debt
|
|
|
212,751
|
|
|
|
152,442
|
|
|
|
|
|
|
|
|
|
|
|
2,727,786
|
|
|
|
1,639,380
|
|
Less: current portion
|
|
|
140,846
|
|
|
|
146,268
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
2,586,940
|
|
|
$
|
1,493,112
|
|
|
|
|
|
|
|
|
Debt with Clear Channel Communications
In 2002, the Company issued two intercompany notes to Clear Channel Communications in the
aggregate original principal amount of approximately $1.5 billion. The first intercompany note in
the original principal amount of approximately $1.4 billion accrued interest at a per annum rate of
10%. The second intercompany note in the original principal amount of approximately $73.0 million
accrued interest at a per annum rate of 9%. The Company used all of the net proceeds of the IPO,
along with its balance in the “Due from Clear Channel Communications” account, to repay a portion
of the outstanding balances of the $1.4 billion and $73.0 million intercompany notes. The remaining
balance of $393.7 million was recorded as a capital contribution pursuant to the Master Agreement
between the Company and Clear Channel Communications.
On August 2, 2005, the Company distributed a note in the original principal amount of $2.5
billion to Clear Channel Communications as a dividend. This note matures on August 2, 2010, may be
prepaid in whole at any time, or in part from time to time. The note accrues interest at a variable
per annum rate equal to the weighted average cost of debt for Clear Channel Communications,
calculated on a monthly basis. This note is mandatorily payable upon a change of control and,
subject to certain exceptions, all proceeds from debt or equity raised by the Company must be used
to prepay such note. At December 31, 2005, the interest rate on the $2.5 billion intercompany note
was 5.9%.
Bank Credit Facility
An international subsidiary of the Company had a $150.0 million five-year revolving credit
facility with a group of international banks. This facility allowed for borrowings in various
foreign currencies, which were used to hedge net assets in those currencies and provide funds to
the Company’s international operations for certain working capital needs. On July 30, 2004, the
Company paid in full this $150.0 million five-year revolving credit facility. The $150.0 million
five-year revolving credit facility was then terminated on August 6, 2004.
On July 13, 2004, Clear Channel Communications, entered into a five-year, multi-currency
revolving credit facility in the amount of $1.75 billion. Certain of the Company’s international
subsidiaries are offshore borrowers under a $150.0 million sub-limit within this $1.75 billion
credit facility. This sub-limit allows for borrowings in various foreign currencies, which are used
to hedge net assets in those currencies and provide funds to the Company’s international operations
for certain working capital needs. Certain of the Company’s international subsidiary borrowings
under this sub-limit are guaranteed by Clear Channel Communications. The interest rate is based
upon LIBOR or, in the case of Euro, EURIBOR, plus a margin. At December 31, 2005, the interest rate
on this bank credit facility was 4.2%. At December 31, 2005, the outstanding balance on the $150.0
million sub-limit was $15.0 million and $135.0 million was available for future borrowings, with
the entire balance to be repaid on July 12, 2009.
Debt Covenants
The $2.5 billion intercompany note requires the Company to comply with various negative
covenants, including restrictions on the following activities: incurring consolidated funded
indebtedness (as defined in the note), excluding intercompany indebtedness, in a principal amount
in excess of $400.0 million at any one time outstanding; creating liens; making investments;
entering into sale and leaseback transactions (as defined in the
68
note), which when aggregated with consolidated funded indebtedness secured by liens, will not
exceed an amount equal to 10% of the Company’s total consolidated shareholders’ equity (as defined
in the note) as shown on its most recently reported annual audited consolidated financial
statements; disposing of all or substantially all of its assets; entering into mergers and
consolidations; declaring or making dividends or other distributions; repurchasing its equity; and
entering into transactions with its affiliates. In addition, the note requires the Company to
prepay it in full upon a change of control. The note defines a change of control to occur when
Clear Channel Communications ceases to control (i) directly or indirectly, more than 50% of the
aggregate voting equity interests of the Company, its operating subsidiary or its respective
successors or assigns, or (ii) the ability to elect a majority of the Board of Directors of the
Company, its operating subsidiary or its respective successors or assigns. Upon the Company’s
issuances of equity and incurrences of debt, subject to certain exceptions, it is also required to
prepay the note in the amount of the net proceeds received by it from such events. Generally, the
following constitute events of default under the $2.5 billion intercompany note: any principal or
accrued interest on the principal remains unpaid when due on the stated maturity date (as defined
in the note) or upon the occurrence of a mandatory prepayment event (as defined in the note); any
accrued interest or accrued expenses remain unpaid three days after the interest payment date (as
defined in the note); any provision in the note or any related security document that represents a
right or remedy ceases to be binding on the Company’s operating subsidiary or available to it; any
representation or warranty made in the note or any related security document is untrue or
inaccurate in any material respect; breaches of covenants or agreements or the occurrence of an
event of default in the note or any related security document; defaults by the Company in the
payment of indebtedness in excess of $25.0 million, a final judgment or order in excess of $25.0
million against the Company or forfeiture of property by it having a value in excess of $25.0
million; or the declaration by the Company or against the Company of bankruptcy or insolvency.
Clear Channel Communications’ significant covenants on its $1.75 billion five-year,
multi-currency revolving credit facility relate to leverage and interest coverage contained and
defined in the credit facility. The leverage ratio covenant requires Clear Channel Communications
to maintain a ratio of consolidated funded indebtedness to operating cash flow (as defined by the
credit facility) of less than 5.25x. The interest coverage covenant requires Clear Channel
Communications to maintain a minimum ratio of operating cash flow (as defined by the credit
facility) to interest expense of 2.50x. In the event Clear Channel Communications does not meet
these covenants, it is considered to be in default on the credit facility at which time the credit
facility, including the $150.0 sub-limit utilized by certain of the Company’s international
subsidiaries, may become immediately due. At December 31 2005, Clear Channel Communications’
leverage and interest coverage ratios were 3.4x and 4.9x, respectively. This credit facility
contains a cross default provision that would be triggered if Clear Channel Communications were to
default on any other indebtedness greater than $200.0 million.
At December 31, 2005, the Company and Clear Channel Communications were in compliance with all
debt covenants.
Other Debt
Other debt includes various borrowings and capital leases utilized for general operating
purposes. Included in the $212.8 million balance at December 31, 2005 is $140.8 million that
matures in less than one year.
Debt Maturities
Future maturities of long-term debt at December 31, 2005 are as follows:
|
|
|
|
|
(In thousands)
|
|
|
|
|
2006
|
|
$
|
140,846
|
|
2007
|
|
|
1,655
|
|
2008
|
|
|
26,623
|
|
2009
|
|
|
55,636
|
|
2010
|
|
|
75
|
|
Thereafter
|
|
|
2,502,951
|
|
|
|
|
|
Total
|
|
$
|
2,727,786
|
|
|
|
|
|
69
NOTE H — COMMITMENTS AND CONTINGENCIES
The Company leases office space, equipment and the majority of the land occupied by its
advertising structures under long-term operating leases. Some of the lease agreements contain
renewal options and annual rental escalation clauses (generally tied to the consumer price index),
as well as provisions for the payment of utilities and maintenance by the Company.
The Company has minimum franchise payments associated with non-cancelable contracts that
enable it to display advertising on such media as buses, taxis, trains, bus shelters and terminals,
as well as other similar type surfaces. The majority of these contracts contain rent provisions
calculated as the greater of a percentage of the relevant advertising revenue or a specified
guaranteed minimum annual payment. In addition, the Company has commitments relating to required
purchases of property, plant, and equipment under certain street furniture contracts.
As of December 31, 2005, the Company’s future minimum rental commitments under non-cancelable
operating lease agreements with terms in excess of one year, minimum payments under non-cancelable
contracts in excess of one year, and capital expenditure commitments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Non-Cancelable
|
|
|
Non-Cancelable
|
|
|
Capital
|
|
|
|
Operating Leases
|
|
|
Contracts
|
|
|
Expenditures
|
|
2006
|
|
$
|
202,671
|
|
|
$
|
356,109
|
|
|
$
|
72,015
|
|
2007
|
|
|
157,339
|
|
|
|
248,055
|
|
|
|
44,578
|
|
2008
|
|
|
132,900
|
|
|
|
209,628
|
|
|
|
16,802
|
|
2009
|
|
|
124,984
|
|
|
|
189,205
|
|
|
|
9,233
|
|
2010
|
|
|
135,098
|
|
|
|
173,544
|
|
|
|
11,398
|
|
Thereafter
|
|
|
627,761
|
|
|
|
697,392
|
|
|
|
8,026
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,380,753
|
|
|
$
|
1,873,933
|
|
|
$
|
162,052
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense charged to operations for 2005, 2004 and 2003 was $876.5 million, $822.8 million
and $721.5 million, respectively.
The Company is currently involved in certain legal proceedings and, as required, has accrued
its estimate of the probable costs for the resolution of these claims. These estimates have been
developed in consultation with counsel and are based upon an analysis of potential results,
assuming a combination of litigation and settlement strategies. It is possible, however, that
future results of operations for any particular period could be materially affected by changes in
the Company’s assumptions or the effectiveness of its strategies related to these proceedings.
The Company is the defendant in a lawsuit filed October 20, 1998 by Jorge Luis Cabrera, Sr.,
and Martha Serrano, as personal representatives of the Estate of Jorge Luis Cabrera, Jr., in the
11th Judicial Circuit in and for Miami-Dade County, Florida. The plaintiff alleged the Company
negligently constructed, installed or maintained the electrical system in a bus shelter, which
resulted in the death of Jorge Luis Cabrera, Jr. Martha Serrano settled her claims with the
Company. On June 24, 2005, the jury rendered a verdict in favor of the plaintiff, and awarded the
plaintiff $4.1 million in actual damages and $61.0 million in punitive damages. The Company filed a
motion to have the punitive damages award reduced. The trial judge granted the Company’s motion. A
final judgment in the amount of $4.1 million in compensatory damages and $12.3 million in punitive
damages was signed on January 23, 2006. The Company has appealed the underlying judgment and the
Plaintiff filed a cross-appeal. The Plaintiff seeks to reinstate the original award of punitive
damages. The Company has insurance coverage for up to approximately $50.0 million in damages for
this matter.
In various areas in which the Company operates, outdoor advertising is the object of
restrictive and, in some cases, prohibitive zoning and other regulatory provisions, either enacted
or proposed. The impact to the Company of loss of displays due to governmental action has been
somewhat mitigated by federal and state laws mandating compensation for such loss and
constitutional restraints.
70
Various acquisition agreements include deferred consideration payments including future
contingent payments based on the financial performance of the acquired companies, generally over a one to
five year period. Contingent payments involving the financial performance of the acquired companies
are typically based on the acquired company meeting certain EBITDA targets as defined in the
agreement. The contingent payment amounts are generally calculated based on predetermined multiples
of the achieved EBITDA not to exceed a predetermined maximum payment. At December 31, 2005, the
Company believes its maximum aggregate contingency, which is subject to the financial performance
of the acquired companies, is approximately $26.3 million. In addition, certain acquisition
agreements include deferred consideration payments based on performance requirements by the seller,
generally over a one to five year period. Contingent payments based on performance requirements by
the seller typically involve the completion of a development or obtaining appropriate permits that
enable the Company to construct additional advertising displays. At December 31, 2005, the Company
believes its maximum aggregate contingency, which is subject to performance requirements by the
seller, is approximately $36.4 million. As the contingencies have not been met or resolved as of
December 31, 2005, these amounts are not recorded. If future payments are made, amounts will be
recorded as additional purchase price.
The Company has various investments in nonconsolidated affiliates subject to agreements that
contain provisions that may result in future additional investments to be made by the Company. The
put values are contingent upon financial performance of the investee and are typically based on the
investee meeting certain EBITDA targets, as defined in the agreement. The contingent payment
amounts are generally calculated based on predetermined multiples of the achieved EBITDA not to
exceed a predetermined maximum amount.
NOTE I — RELATED PARTY TRANSACTIONS
The Company has an account that represents net amounts due to or from Clear Channel
Communications, which is recorded as “Due from Clear Channel Communications” on the consolidated
and combined balance sheets. Subsequent to the IPO, the account accrues interest pursuant to the
Master Agreement and is generally payable on demand. Included in the account is the net activity
resulting from day-to-day cash management services provided by Clear Channel Communications. As a
part of these services, the Company maintains collection bank accounts swept daily by Clear Channel
Communications. In return, Clear Channel Communications funds the Company’s controlled disbursement
accounts as checks or electronic payments are presented for payment. At December 31, 2005 and 2004,
the balance in “Due from Clear Channel Communications” was $0.1 million and $302.6 million,
respectively. The net interest income for the year ended December 31, 2005 was $0.1 million.
The Company issued two intercompany notes to Clear Channel Communications in the aggregate
original principal amount of approximately $1.5 billion. These notes are further disclosed in Note
G. The Company used all of the net proceeds of the IPO, along with its balance in the “Due from
Clear Channel Communications” account, to repay a portion of the outstanding balances of the $1.4
billion and $73.0 million intercompany notes. The remaining balance of $393.7 million was recorded
as a capital contribution pursuant to the Master Agreement between the Company and Clear Channel
Communications.
On August 2, 2005, the Company distributed a note in the original principal amount of $2.5
billion to Clear Channel Communications as a dividend. This note matures on August 2, 2010 and
accrues interest at a variable per annum rate equal to the weighted average cost of debt for Clear
Channel Communications, calculated on a monthly basis. At December 31, 2005, the interest rate on
the $2.5 billion intercompany note was 5.9%.
Prior to the IPO, Clear Channel Communications provided funding for certain of the Company’s
acquisitions of outdoor advertising net assets. The amounts funded by Clear Channel Communications
for these acquisitions are recorded prior to the IPO in “Owner’s net investment,” a component of
shareholders’/owner’s equity.
The Company provides advertising space on its billboards for radio stations owned by Clear
Channel Communications. For the years ended December 31, 2005, 2004 and 2003, the Company recorded
$10.0 million, $12.4 million, and $17.5 million, respectively, in revenue for these advertisements.
Clear Channel Communications provides management services to the Company, which include, among
other things: (i) treasury, payroll and other financial related services; (ii) executive officer
services; (iii) human
71
resources and employee benefits services; (iv) legal and related services;
(v) information systems, network and
related services; (vi) investment services; (vii) procurement and sourcing support services;
and (viii) other general corporate services. These services are charged to the Company based on
actual direct costs incurred or allocated by Clear Channel Communications based on headcount,
revenue or other factors on a pro rata basis. For the years ended December 31, 2005, 2004 and 2003,
the Company recorded $16.0 million, $16.6 million, and $19.6 million, respectively, as a component
of corporate expenses for these services.
Clear Channel Communications owns the trademark and trade names used by the Company. Beginning
January 1, 2003, Clear Channel Communications began charging the Company a royalty fee based on
annual revenue for use of the Clear Channel trademark name. Clear Channel Communications used a
third party valuation firm to assist in the calculation of the royalty fee. For the years ended
December 31, 2005, 2004 and 2003, the Company recorded $14.8 million, $15.8 million, and $14.1
million, respectively, of royalty fees in “Other income (expense) — net.”
Pursuant to the tax matters agreement, the operations of the Company are included in a
consolidated federal income tax return filed by Clear Channel Communications. The Company’s
provision for income taxes has been computed on the basis that the Company files separate
consolidated income tax returns with its subsidiaries. Tax payments are made to Clear Channel
Communications on the basis of the Company’s separate taxable income. Tax benefits recognized on
the Company’s employee stock options exercises are retained by the Company.
The Company computes its deferred income tax provision using the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes
,
as if the Company was a separate taxpayer. Deferred tax assets and liabilities are determined based
on differences between financial reporting bases 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. Deferred tax assets are
reduced by valuation allowances if the Company believes it is more likely than not some portion or
all of the asset will not be realized. The Company’s provision for income taxes is further
disclosed in Note J.
Pursuant to the employee matters agreement, the Company’s employees participate in Clear
Channel Communications employee benefit plans, including employee medical insurance and a 401(k)
retirement benefit plan. These costs are recorded as a component of selling, general and
administrative expenses and were approximately $9.1 million, $8.2 million, and $7.1 million for the
years ended December 31, 2005, 2004 and 2003, respectively.
NOTE J — INCOME TAXES
The operations of the Company are included in a consolidated federal income tax return filed
by Clear Channel Communications, Inc. However, for financial reporting purposes, the Company’s
provision for income taxes has been computed on the basis that the Company files separate
consolidated income tax returns with its subsidiaries.
Significant components of the provision for income tax expense (benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Current — federal
|
|
$
|
2,280
|
|
|
$
|
(10,291
|
)
|
|
$
|
(27,813
|
)
|
Current — foreign
|
|
|
48,037
|
|
|
|
34,894
|
|
|
|
22,734
|
|
Current — state
|
|
|
856
|
|
|
|
(1,181
|
)
|
|
|
(7,013
|
)
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
51,173
|
|
|
|
23,422
|
|
|
|
(12,092
|
)
|
Deferred — federal
|
|
|
26,007
|
|
|
|
40,048
|
|
|
|
44,098
|
|
Deferred — foreign
|
|
|
(35,040
|
)
|
|
|
(18,339
|
)
|
|
|
(27,714
|
)
|
Deferred — state
|
|
|
3,344
|
|
|
|
17,423
|
|
|
|
7,560
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(5,689
|
)
|
|
|
39,132
|
|
|
|
23,944
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
45,484
|
|
|
$
|
62,554
|
|
|
$
|
11,852
|
|
|
|
|
|
|
|
|
|
|
|
The increase in current tax expense of $27.8 million for the year ended December 31, 2005 was
due primarily to an increase in “Income (loss) before income taxes, minority interest and
cumulative effect of a change
72
in accounting principle” of $45.3 million. Deferred tax expense
decreased by $44.8 million for the year ended December 31, 2005 due to less tax depreciation recorded in 2005 as well as certain tax losses
on the disposition of assets recorded in 2004. The decrease in tax depreciation is primarily due to
a change in the tax laws resulting in the expiration of the favorable bonus depreciation tax rules
in 2004. In addition foreign deferred tax benefits increased $16.7 million for the year ended
December 31, 2005 primarily due to a change in the carrying value of certain deferred tax
liabilities as a result of certain local country law and tax rate changes.
The increases in current and deferred expense of $35.5 million and $15.2 million,
respectively, for the year ended December 31, 2004 were due to an increase in “Income (loss) before
income taxes, minority interest and cumulative effect of a change in accounting principle” of $96.9
million and additional deferred tax expense of approximately $16.0 million being recorded in order
to adjust the deferred tax asset balance to an amount determined to be realizable by the Company.
Significant components of the Company’s deferred tax liabilities and assets as of December 31,
2005 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Foreign
|
|
$
|
3,917
|
|
|
$
|
37,185
|
|
Other
|
|
|
1,450
|
|
|
|
1,816
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
5,367
|
|
|
|
39,001
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Intangibles and fixed assets
|
|
|
241,016
|
|
|
|
266,053
|
|
Accrued expenses
|
|
|
24
|
|
|
|
1,163
|
|
Equity in earnings
|
|
|
2,138
|
|
|
|
2,138
|
|
Net operating loss carryforwards
|
|
|
338
|
|
|
|
—
|
|
Bad debt reserves
|
|
|
2,799
|
|
|
|
1,624
|
|
Deferred income
|
|
|
4,801
|
|
|
|
8,762
|
|
Other
|
|
|
417
|
|
|
|
95
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
251,533
|
|
|
|
279,835
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
246,166
|
|
|
|
240,834
|
|
Less current portion
|
|
|
6,219
|
|
|
|
9,778
|
|
|
|
|
|
|
|
|
Long-term net deferred tax assets
|
|
$
|
239,947
|
|
|
$
|
231,056
|
|
|
|
|
|
|
|
|
The deferred tax asset associated with intangibles and fixed assets primarily relates to the
difference in book and tax basis of acquired permits and tax deductible goodwill created from the
Company’s various stock acquisitions. As discussed in Note B, in 2004 the Company adopted D-108,
which resulted in the Company recording a non-cash charge of approximately $162.9 million, net of
deferred tax of $113.2 million, related to its permits. In accordance with Statement No. 142, the
Company no longer amortizes its book basis in permits. As the Company continues to amortize its tax
basis in its permits and tax deductible goodwill, the deferred tax asset will decrease over time.
The reconciliation of income tax computed at the U.S. federal statutory tax rates to income
tax expense is:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Income tax expense (benefit) at statutory rates
|
|
$
|
43,025
|
|
|
$
|
24,511
|
|
|
$
|
(8,100
|
)
|
State income taxes, net of federal tax benefit
|
|
|
4,200
|
|
|
|
16,242
|
|
|
|
547
|
|
Foreign taxes
|
|
|
4,816
|
|
|
|
11,379
|
|
|
|
5,974
|
|
Nondeductible items
|
|
|
597
|
|
|
|
607
|
|
|
|
560
|
|
Additional deferred tax expense
|
|
|
—
|
|
|
|
4,804
|
|
|
|
—
|
|
Tax contingencies
|
|
|
(7,074
|
)
|
|
|
4,626
|
|
|
|
10,116
|
|
Subpart F income
|
|
|
—
|
|
|
|
441
|
|
|
|
2,542
|
|
Other, net
|
|
|
(80
|
)
|
|
|
(56
|
)
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,484
|
|
|
$
|
62,554
|
|
|
$
|
11,852
|
|
|
|
|
|
|
|
|
|
|
|
73
During 2005, the Company recorded tax expense of approximately $45.5 million on income (loss)
before income taxes, minority interest and cumulative effect of a change in accounting principle of
$122.9 million. Foreign income (loss) before income taxes was approximately $23.4 million for 2005. The Company
recorded a current tax benefit of approximately $8.0 million due to the favorable resolution of
certain tax contingencies in 2005. These tax contingencies primarily associated with tax planning
related to the Company’s foreign operations that was reviewed and not adjusted by the taxing
authorities during 2005. The tax contingencies were originally recorded through the income
statement by increasing current tax expense in earlier years when the planning was implemented and
therefore, when the contingencies were settled favorably the amounts were reversed in the income
statement as a current tax benefit in the current year. In addition, the Company did not record a
tax benefit on certain tax losses in its foreign operations due to the uncertainty of the ability
to utilize those tax losses in the future.
During 2004, the Company recorded tax expense of approximately $62.6 million on income (loss)
before income taxes, minority interest and cumulative effect of a change in accounting principle of
$77.6 million. Foreign income (loss) before income taxes was approximately $14.8 million for 2004.
The Company recorded additional deferred tax expense of approximately $16.0 million in 2004 in
order to adjust the deferred tax asset balance to an amount determined to be realizable by the
Company. In addition, the Company did not record a tax benefit on certain tax losses in its foreign
operations due to the uncertainty of the ability to utilize those tax losses in the future.
During 2003, the Company recorded tax expense of approximately $11.9 million on income (loss)
before income taxes, minority interest and cumulative effect of a change in accounting principle of
($19.2) million. Foreign income (loss) before income taxes was approximately ($31.3) million. The
Company recorded additional current tax expense due to certain tax contingencies of approximately
$10.1 million in 2003. In addition, the Company did not record a tax benefit on certain tax losses
in its foreign operations due to the uncertainty of the ability to utilize those tax losses in the
future.
All tax liabilities owed by the Company are paid by the Company or on behalf of the Company by
Clear Channel Communications through an operating account that represents net amounts due to or
from Clear Channel Communications.
NOTE K — SHAREHOLDERS’/OWNER’S EQUITY
Stock Options
The Company has granted options to purchase its Class A common stock to employees and
directors of the Company and its affiliates at no less than the fair market value of the underlying
stock on the date of grant. These options are granted for a term not exceeding ten years and are
forfeited in the event the employee or director terminates his or her employment or relationship
with the Company or one of its affiliates. All option plans contain anti-dilutive provisions that
permit the adjustment of the number of shares of the Company common stock represented by each
option for any change in capitalization.
The following table presents a summary of the Company’s stock options outstanding at and stock
option activity during the year ended December 31, 2005 (“Price” reflects the weighted average
exercise price per share). There were no options to purchase the Company’s stock issued or
outstanding prior to the IPO:
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
Options
|
|
|
Price
|
|
Outstanding, beginning of year
|
|
|
—
|
|
|
$
|
—
|
|
Options converted from Clear Channel
Communications (1)
|
|
|
6,296
|
|
|
|
26.26
|
|
Granted
|
|
|
2,302
|
|
|
|
18.00
|
|
Exercised
|
|
|
(1
|
)
|
|
|
15.43
|
|
Forfeited or expired
|
|
|
(88
|
)
|
|
|
23.86
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
8,509
|
|
|
$
|
24.05
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year
|
|
|
2,875
|
|
|
|
|
|
Weighted average fair value per option granted
|
|
$
|
6.51
|
|
|
|
|
|
74
(1)
|
|
Prior to the IPO, the Company’s employees held 3.6 million options to purchase shares of
Clear Channel Communications’ common stock. All of these options for Clear Channel
Communications’ common stock were converted into options of the Company at the closing of the IPO.
|
There were 33.3 million shares available for future grants under the various option plans at
December 31, 2005. Vesting dates range from February 2004 to November 2010, and expiration dates
range from February 2006 to December 2015 at exercise prices and average contractual lives as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of shares)
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
Outstanding
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercisable
|
|
|
Average
|
|
|
|
as of
|
|
|
Contractual
|
|
|
Exercise
|
|
|
as of
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
12/31/05
|
|
|
Life
|
|
|
Price
|
|
|
12/31/05
|
|
|
Price
|
|
$15.01—$20.00
|
|
|
3,317
|
|
|
|
7.2
|
|
|
$
|
17.94
|
|
|
|
43
|
|
|
$
|
17.20
|
|
20.01—25.00
|
|
|
1,195
|
|
|
|
5.0
|
|
|
|
21.06
|
|
|
|
54
|
|
|
|
23.87
|
|
25.01—30.00
|
|
|
2,329
|
|
|
|
3.6
|
|
|
|
26.12
|
|
|
|
1,642
|
|
|
|
26.03
|
|
30.01—35.00
|
|
|
994
|
|
|
|
2.6
|
|
|
|
32.80
|
|
|
|
462
|
|
|
|
32.87
|
|
35.01—40.00
|
|
|
521
|
|
|
|
1.2
|
|
|
|
37.93
|
|
|
|
521
|
|
|
|
37.93
|
|
40.01—45.00
|
|
|
114
|
|
|
|
4.6
|
|
|
|
42.80
|
|
|
|
114
|
|
|
|
42.80
|
|
45.01—50.00
|
|
|
39
|
|
|
|
1.0
|
|
|
|
49.52
|
|
|
|
39
|
|
|
|
49.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,509
|
|
|
|
4.9
|
|
|
$
|
24.05
|
|
|
|
2,875
|
|
|
$
|
30.09
|
|
Prior to the IPO, the Company did not have any compensation plans under which it granted stock
awards to employees. However, Clear Channel Communications granted the Company’s officers and other
key employees stock options to purchase shares of Clear Channel Communications’ common stock. As
does the Company, Clear Channel Communications accounted for its stock-based award plans in
accordance with APB 25, and related interpretations, under which compensation expense is recorded
to the extent the current market price of the underlying stock exceeds the exercise price. Clear
Channel Communications calculated the pro forma stock compensation expense as if the stock-based
awards had been accounted for using the provisions of Statement 123,
Accounting for Stock-Based
Compensation
. The stock compensation expense was then allocated to the Company based on the
percentage of options outstanding to employees of the Company.
The fair value of the 6.3 million options converted from Clear Channel Communications to the
Company’s options was estimated at the date of conversion and the fair value of the 2.3 million new
options granted was estimated at the date of grant, using a Black-Scholes option-pricing model with
the following assumptions: Risk-free interest rate ranging from 4.42% to 4.58%, a dividend yield of
0%, an expected volatility factor ranging from 25% to 27% and an expected life ranging from 1.3
years to 7.5 years.
75
Pro forma net income and earnings per share, assuming the Company and Clear Channel
Communications accounted for all employee stock options using the fair value method and amortized
such to expense over the options’ vesting period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Income (loss) before cumulative
effect of a change in accounting
principle:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
$
|
61,573
|
|
|
$
|
7,478
|
|
|
$
|
(34,993
|
)
|
Pro forma stock compensation
expense, net of tax
|
|
|
(3,002
|
)
|
|
|
(6,474
|
)
|
|
|
(3,701
|
)
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
$
|
58,571
|
|
|
$
|
1,004
|
|
|
$
|
(38,694
|
)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative
effect of a change in accounting
principle per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
$
|
.19
|
|
|
$
|
.02
|
|
|
$
|
(.11
|
)
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
$
|
.18
|
|
|
$
|
.00
|
|
|
$
|
(.12
|
)
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
$
|
.19
|
|
|
$
|
.02
|
|
|
$
|
(.11
|
)
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
$
|
.18
|
|
|
$
|
.00
|
|
|
$
|
(.12
|
)
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value of stock options granted is required to be based on a
theoretical option pricing model. In actuality, because the company’s employee stock options are
not traded on an exchange, employees can receive no value nor derive any benefit from holding stock
options under these plans without an increase in the market price of the Company’s stock. Such an
increase in stock price would benefit all shareholders commensurately.
Restricted Stock Awards
The Company granted 0.2 million restricted stock awards to its employees at the close of the
IPO at a weighted average share price of $18.00. These common shares hold a legend which restricts
their transferability for a term of from three to five years and are forfeited in the event the
employee terminates his or her employment or relationship with the Company prior to the lapse of
the restriction. The restricted stock awards were granted out of the Company’s stock option plan.
For the years ended December 31, 2005, 2004 and 2003, the Company recorded $0.8 million, $0.1
million and none, respectively, as a component of direct operating expenses for restricted stock.
The amount recorded prior to the IPO relates to Clear Channel Communications’ restricted stock
awards granted to the Company’s employees.
Reconciliation of Earnings per Share
In connection with the IPO, all of Clear Channel Communications shares of the Company’s common
stock outstanding were converted into 315.0 million shares of Class B common stock. This conversion
is reflected as a recapitalization for earnings per share purposes which requires retroactive
statement in accordance with FAS 128,
Earnings Per Share
. As a result, shares outstanding prior to
the IPO are 315.0 million.
76
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
NUMERATOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of a
change in accounting principle
|
|
$
|
61,573
|
|
|
$
|
7,478
|
|
|
$
|
(34,993
|
)
|
Cumulative effect of a change in accounting
principle
|
|
|
¾
|
|
|
|
(162,858
|
)
|
|
|
¾
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
61,573
|
|
|
|
(155,380
|
)
|
|
|
(34,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
¾
|
|
|
|
¾
|
|
|
|
¾
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for net income (loss) per common
share — diluted
|
|
$
|
61,573
|
|
|
$
|
(155,380
|
)
|
|
$
|
(34,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DENOMINATOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
319,890
|
|
|
|
315,000
|
|
|
|
315,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock awards
|
|
|
31
|
|
|
|
¾
|
|
|
|
¾
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income (loss) per common
share — diluted
|
|
|
319,921
|
|
|
|
315,000
|
|
|
|
315,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a
change in accounting principle — Basic
|
|
$
|
.19
|
|
|
$
|
.02
|
|
|
$
|
(.11
|
)
|
Cumulative effect of a change in
accounting principle — Basic
|
|
|
¾
|
|
|
|
(.52
|
)
|
|
|
¾
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) — Basic
|
|
$
|
.19
|
|
|
$
|
(.50
|
)
|
|
$
|
(.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a
change in accounting principle — Diluted
|
|
$
|
.19
|
|
|
$
|
.02
|
|
|
$
|
(.11
|
)
|
Cumulative effect of a change in
accounting principle — Diluted
|
|
|
¾
|
|
|
|
(.52
|
)
|
|
|
¾
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) — Diluted
|
|
$
|
.19
|
|
|
$
|
(.50
|
)
|
|
$
|
(.11
|
)
|
|
|
|
|
|
|
|
|
|
|
NOTE L — EMPLOYEE STOCK AND SAVINGS PLANS
The Company’s U.S. employees are eligible to participate in various 401(K) savings and other
plans provided by Clear Channel Communications for the purpose of providing retirement benefits for
substantially all employees. Both the employees and the Company make contributions to the plan. The
Company matches a portion of an employee’s contribution. Beginning January 1, 2003, the Company
match was increased from 35% to 50% of the employee’s first 5% of pay contributed to the plan.
Company matched contributions vest to the employees based upon their years of service to the
Company. Contributions to these plans of $2.1 million, $1.9 million and $1.6 million were recorded
as a component of operating expenses for 2005, 2004 and 2003, respectively.
In addition, employees in the Company’s international segment participate in retirement plans
administered by the Company which are not part of the 401(K) savings and other plans provided by
Clear Channel Communications. Contributions to these plans of $16.2 million, $15.0 million and $9.4
million were recorded as a component of operating expenses for 2005, 2004 and 2003, respectively.
The Company’s employees are also eligible to participate in a non-qualified employee stock
purchase plan provided by Clear Channel Communications. Under the plan, shares of Clear Channel
Communications’ common stock may be purchased at 95% of the market value on the day of purchase.
Clear Channel Communications changed its discount from market value offered to participants under
the plan from 15% to 5% in July 2005.
77
Employees may purchase shares having a value not exceeding 10% of their annual gross
compensation or $25,000, whichever is lower. During 2005, 2004 and 2003, all Clear Channel
Communications employees purchased 222,789, 262,163 and 266,978 shares at weighted average share
prices of $28.79, $32.05 and $34.01, respectively. The Company’s employees represent approximately
13% of the total participation in this plan.
Certain highly compensated executives of the Company are eligible to participate in a
non-qualified deferred compensation plan provided by Clear Channel Communications, which allows
deferrals up to 50% of their annual salary and up to 80% of their bonus before taxes. Clear Channel
Communications does not match any deferral amounts and retains ownership of all assets until
distributed. There is no liability recorded by the Company under this deferred compensation plan as
the liability of this plan is Clear Channel Communications’.
NOTE M — OTHER INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
For the Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
The following details the components of “Other income
(expense) — net:”
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty fee to Clear Channel Communications
|
|
$
|
(14,825
|
)
|
|
$
|
(15,809
|
)
|
|
$
|
(14,063
|
)
|
Asset retirement obligation
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,000
|
)
|
Other
|
|
|
2,534
|
|
|
|
(721
|
)
|
|
|
(295
|
)
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) — net
|
|
$
|
(12,291
|
)
|
|
$
|
(16,530
|
)
|
|
$
|
(21,358
|
)
|
|
|
|
|
|
|
|
|
|
|
NOTE N — SEGMENT DATA
The Company has two reportable operating segments — Americas and international. The Americas
segment includes operations in the United States, Canada and Latin America, and the international
segment includes operations in Europe, Asia, Africa and Australia.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Corporate and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gain on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
disposition of
|
|
|
Consolidated/
|
|
|
|
Americas
|
|
|
International
|
|
|
assets - net
|
|
|
Combined
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,216,382
|
|
|
$
|
1,449,696
|
|
|
$
|
—
|
|
|
$
|
2,666,078
|
|
Direct operating expenses
|
|
|
490,519
|
|
|
|
851,788
|
|
|
|
—
|
|
|
|
1,342,307
|
|
Selling, general and
administrative expenses
|
|
|
186,749
|
|
|
|
355,045
|
|
|
|
—
|
|
|
|
541,794
|
|
Depreciation and amortization
|
|
|
180,559
|
|
|
|
220,080
|
|
|
|
—
|
|
|
|
400,639
|
|
Corporate expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
61,096
|
|
|
|
61,096
|
|
Gain on disposition of
assets – net
|
|
|
—
|
|
|
|
—
|
|
|
|
3,488
|
|
|
|
3,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
358,555
|
|
|
$
|
22,783
|
|
|
$
|
(57,608
|
)
|
|
$
|
323,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,531,641
|
|
|
$
|
2,140,407
|
|
|
$
|
246,297
|
|
|
$
|
4,918,345
|
|
Capital expenditures
|
|
$
|
73,084
|
|
|
$
|
135,072
|
|
|
$
|
—
|
|
|
$
|
208,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,092,089
|
|
|
$
|
1,354,951
|
|
|
$
|
—
|
|
|
$
|
2,447,040
|
|
Direct operating expenses
|
|
|
468,687
|
|
|
|
793,630
|
|
|
|
—
|
|
|
|
1,262,317
|
|
Selling, general and
administrative expenses
|
|
|
173,010
|
|
|
|
326,447
|
|
|
|
—
|
|
|
|
499,457
|
|
Depreciation and amortization
|
|
|
186,620
|
|
|
|
201,597
|
|
|
|
—
|
|
|
|
388,217
|
|
Corporate expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
53,770
|
|
|
|
53,770
|
|
Gain on disposition of
assets – net
|
|
|
—
|
|
|
|
—
|
|
|
|
10,791
|
|
|
|
10,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
263,772
|
|
|
$
|
33,277
|
|
|
$
|
(42,979
|
)
|
|
$
|
254,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,460,011
|
|
|
$
|
2,223,918
|
|
|
$
|
557,004
|
|
|
$
|
5,240,933
|
|
Capital expenditures
|
|
$
|
60,506
|
|
|
$
|
115,634
|
|
|
$
|
—
|
|
|
$
|
176,140
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Corporate and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gain on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
disposition of
|
|
|
Consolidated/
|
|
|
|
Americas
|
|
|
International
|
|
|
assets - net
|
|
|
Combined
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,006,376
|
|
|
$
|
1,168,221
|
|
|
$
|
—
|
|
|
$
|
2,174,597
|
|
Divisional operating expenses
|
|
|
435,075
|
|
|
|
698,311
|
|
|
|
—
|
|
|
|
1,133,386
|
|
Selling, general and
administrative expenses
|
|
|
161,579
|
|
|
|
295,314
|
|
|
|
—
|
|
|
|
456,893
|
|
Depreciation and amortization
|
|
|
194,237
|
|
|
|
185,403
|
|
|
|
—
|
|
|
|
379,640
|
|
Corporate expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
54,233
|
|
|
|
54,233
|
|
Gain on disposition of
assets – net
|
|
|
—
|
|
|
|
—
|
|
|
|
16,669
|
|
|
|
16,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
215,485
|
|
|
$
|
(10,807
|
)
|
|
$
|
(37,564
|
)
|
|
$
|
167,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,705,321
|
|
|
$
|
2,159,503
|
|
|
$
|
367,996
|
|
|
$
|
5,232,820
|
|
Capital expenditures
|
|
$
|
60,685
|
|
|
$
|
144,460
|
|
|
$
|
—
|
|
|
$
|
205,145
|
|
Revenue of $69.7 million, $57.5 million and $46.6 million and identifiable assets of $68.2
million, $35.7 million and $28.9 million derived from the Company’s operations in Latin America
and Canada are included in the Americas data above for the years ended December 31, 2005, 2004 and
2003, respectively.
79
NOTE O — QUARTERLY RESULTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
Revenue
|
|
$
|
578,959
|
|
|
$
|
521,593
|
|
|
$
|
684,509
|
|
|
$
|
639,549
|
|
|
$
|
668,003
|
|
|
$
|
600,166
|
|
|
$
|
734,607
|
|
|
$
|
685,732
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
326,054
|
|
|
|
293,851
|
|
|
|
332,706
|
|
|
|
312,815
|
|
|
|
329,688
|
|
|
|
317,754
|
|
|
|
353,859
|
|
|
|
337,897
|
|
Selling, general and administrative
expenses
|
|
|
129,597
|
|
|
|
118,022
|
|
|
|
127,316
|
|
|
|
119,310
|
|
|
|
153,162
|
|
|
|
120,856
|
|
|
|
131,719
|
|
|
|
141,269
|
|
Depreciation and amortization
|
|
|
98,266
|
|
|
|
99,750
|
|
|
|
96,562
|
|
|
|
92,806
|
|
|
|
95,405
|
|
|
|
96,254
|
|
|
|
110,406
|
|
|
|
99,407
|
|
Corporate expenses
|
|
|
12,975
|
|
|
|
11,856
|
|
|
|
13,423
|
|
|
|
14,681
|
|
|
|
12,999
|
|
|
|
12,914
|
|
|
|
21,699
|
|
|
|
14,319
|
|
Gain (loss) on the disposition of
assets — net
|
|
|
1,581
|
|
|
|
368
|
|
|
|
290
|
|
|
|
(100
|
)
|
|
|
1,043
|
|
|
|
577
|
|
|
|
574
|
|
|
|
9,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
13,648
|
|
|
|
(1,518
|
)
|
|
|
114,792
|
|
|
|
99,837
|
|
|
|
77,792
|
|
|
|
52,965
|
|
|
|
117,498
|
|
|
|
102,786
|
|
Interest expense
|
|
|
3,244
|
|
|
|
3,675
|
|
|
|
3,223
|
|
|
|
3,600
|
|
|
|
3,407
|
|
|
|
3,836
|
|
|
|
5,813
|
|
|
|
3,066
|
|
Intercompany interest expense
|
|
|
36,414
|
|
|
|
36,413
|
|
|
|
36,414
|
|
|
|
36,413
|
|
|
|
60,265
|
|
|
|
36,413
|
|
|
|
49,574
|
|
|
|
36,414
|
|
Equity in earnings of nonconsolidated
affiliates
|
|
|
345
|
|
|
|
319
|
|
|
|
5,602
|
|
|
|
4,468
|
|
|
|
3,961
|
|
|
|
(2,517
|
)
|
|
|
(64
|
)
|
|
|
(2,346
|
)
|
Other income (expense) — net
|
|
|
(2,842
|
)
|
|
|
(6,055
|
)
|
|
|
(1,129
|
)
|
|
|
(2,469
|
)
|
|
|
(5,748
|
)
|
|
|
(4,568
|
)
|
|
|
(2,572
|
)
|
|
|
(3,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes,
minority interest and cumulative effect
of a change in accounting principle
|
|
|
(28,507
|
)
|
|
|
(47,342
|
)
|
|
|
79,628
|
|
|
|
61,823
|
|
|
|
12,333
|
|
|
|
5,631
|
|
|
|
59,475
|
|
|
|
57,522
|
|
Income tax (expense) benefit
|
|
|
23,565
|
|
|
|
35,706
|
|
|
|
(58,431
|
)
|
|
|
(43,946
|
)
|
|
|
3,122
|
|
|
|
(3,009
|
)
|
|
|
(13,740
|
)
|
|
|
(51,305
|
)
|
Minority interest expense
|
|
|
950
|
|
|
|
748
|
|
|
|
3,685
|
|
|
|
2,634
|
|
|
|
5,913
|
|
|
|
1,581
|
|
|
|
5,324
|
|
|
|
2,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect
of a change in accounting principle
|
|
|
(5,892
|
)
|
|
|
(12,384
|
)
|
|
|
17,512
|
|
|
|
15,243
|
|
|
|
9,542
|
|
|
|
1,041
|
|
|
|
40,411
|
|
|
|
3,578
|
|
Cumulative effect of a change in
accounting principle, net of
tax of $113,173
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(162,858
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5,892
|
)
|
|
$
|
(12,384
|
)
|
|
$
|
17,512
|
|
|
$
|
15,243
|
|
|
$
|
9,542
|
|
|
$
|
1,041
|
|
|
$
|
40,411
|
|
|
$
|
(159,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(.02
|
)
|
|
$
|
(.04
|
)
|
|
$
|
.06
|
|
|
$
|
.05
|
|
|
$
|
.03
|
|
|
|
.00
|
|
|
$
|
.12
|
|
|
|
(.51
|
)
|
Diluted
|
|
$
|
(.02
|
)
|
|
$
|
(.04
|
)
|
|
$
|
.06
|
|
|
$
|
.05
|
|
|
$
|
.03
|
|
|
|
.00
|
|
|
$
|
.12
|
|
|
|
(.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20.40
|
|
|
$
|
—
|
|
Low
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18.00
|
|
|
|
—
|
|
The Company’s Class A common stock is traded on the New York Stock Exchange under the symbol CCO.
80
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable
ITEM 9A. Controls and Procedures
Our principal executive and financial officers have concluded, based on their evaluation as of
the end of the period covered by this Form 10-K, that our disclosure controls and procedures, as
defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, are effective
to ensure that information we are required to disclose in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SEC’s rules and forms, and include controls and procedures designed to ensure that information
we are required to disclose in such reports is accumulated and communicated to management,
including our principal executive and financial officers, as appropriate to allow timely decisions
regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred during
the most recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
Not applicable
81
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Set forth below are the names and ages and current positions of our executive officers,
directors and significant employees as of March 15, 2006.
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Term as Director
|
L. Lowry Mays
|
|
|
70
|
|
|
Chairman of the Board and Director
|
|
Expires 2007
|
William D. Parker
|
|
|
44
|
|
|
Director
|
|
Expires 2009
|
James M. Raines
|
|
|
66
|
|
|
Director
|
|
Expires 2007
|
Marsha McCombs Shields
|
|
|
51
|
|
|
Director
|
|
Expires 2008
|
Dale W. Tremblay
|
|
|
47
|
|
|
Director
|
|
Expires 2009
|
Mark P. Mays
|
|
|
42
|
|
|
Chief Executive Officer and Director
|
|
Expires 2009
|
Randall T. Mays
|
|
|
40
|
|
|
Chief
Financial Officer and Director
|
|
Expires 2008
|
Paul J. Meyer
|
|
|
63
|
|
|
President and Chief Operating Officer
|
|
|
Jonathan Bevan
|
|
|
34
|
|
|
Chief Financial Officer —
International
|
|
|
Augusto Claux
|
|
|
58
|
|
|
Regional President — Latin America
|
|
|
Michael R. Deeds
|
|
|
63
|
|
|
Executive Vice President — Americas
Operations
|
|
|
Bo Rickard Hedlund
|
|
|
40
|
|
|
Chief Executive Officer — Northern
Europe
|
|
|
Michael F. Hudes
|
|
|
45
|
|
|
Global Director — Digital Media
|
|
|
Eugene P. Leehan
|
|
|
43
|
|
|
Regional President — Western United
States
|
|
|
Coline McConville
|
|
|
41
|
|
|
Chief Executive Officer — Europe
|
|
|
Franklin G. Sisson, Jr
|
|
|
53
|
|
|
Global Director — Sales and Marketing
|
|
|
Timothy C. Stauning
|
|
|
49
|
|
|
Regional President — Eastern United
States
|
|
|
Kurt Tingey
|
|
|
41
|
|
|
Executive Vice President — Americas
Chief Financial Officer
|
|
|
Laura C. Toncheff
|
|
|
38
|
|
|
Executive Vice President — Americas
Real Estate, Public Affairs and
Legal
|
|
|
L. Lowry Mays
has served as a member of our Board of Directors since April 1997 and has been
our Chairman of the Board since October 2005. Mr. Mays is Chairman of the Board of Directors of
Clear Channel Communications, and prior to October 2004 he was the company’s Chief Executive
Officer. Mr. Mays has been a member of Clear Channel Communications’ Board of Directors since its
inception and has served on the Board of Directors of Live Nation, Inc. since August 2005. Mr. Mays
is the father of Mark P. Mays and Randall T. Mays, both of whom are members of our Board of
Directors and executive officers of us.
William D. Parker
has served as Chairman and Chief Executive Officer of America West Holdings
Corporation and America West Airlines since September 2001. Since May 2000, Mr. Parker has served
as President of America West Airlines. He assumed the position of Chief Operating Officer of
America West Airlines in December 2000 in addition to his role as President of the company. From
1999 to 2000, Mr. Parker served as Executive Vice President, Corporate Group of America West
Airlines.
James M. Raines
has served as the President of James M. Raines & Co., an investment banking
company, since 1988. Since 1998, Mr. Raines has served on the Board of Directors of Waddell & Reed
Financial, Inc., a financial services corporation.
Marsha McCombs Shields
has served as a director of Primera Insurance since March 1989. Since
June 2002, Ms. McCombs has served as the President of the McCombs Foundation and as Dealer
Principal for McCombs Automotive. She has served as Manager of McCombs Family Ltd. since January
2000. Ms. Shields is the daughter of one of the Board members of Clear Channel Communications.
82
Dale W. Tremblay
has served as President and Chief Executive Officer of C.H. Guenther & Son,
Inc., a food marketing and manufacturing company, since July 2001. Prior to that, from May 1998 to
July 2001, Mr. Tremblay served as the Executive Vice President and Chief Operating Officer of C.H.
Guenther & Son, Inc. Mr. Tremblay was a Financial Analyst for R.R. Donnelley & Sons from June 1980
to May 1982. He currently serves on the Advisory Board for the Michigan State University Financial
Analysis Lab.
Mark P. Mays
has served as our Chief Executive Officer since August 2005 and Director since
April 1997. Mr. Mays was President and Chief Operating Officer of Clear Channel Communications from
February 1997 until his appointment as President and Chief Executive Officer in October 2004. He
relinquished his duties as President of Clear Channel Communications in February 2006. Mr. Mays has
served on the Board of Directors of Clear Channel Communications since May 1998, and has served on
the Board of Live Nation, Inc. since August 2005. Mr. Mays is the son of L. Lowry Mays, Clear
Channel Communications’ Chairman and one of our Board members, and is the brother of Randall T.
Mays, our Executive Vice President and Chief Financial Officer and one of our Board members.
Randall T. Mays
has served as our Chief Financial Officer since
August 2005 and Director since April 1997. Mr. Mays has served as Chairman of the Board of
Directors of Live Nation, Inc. since August 2005. He also was appointed Executive Vice President
and Chief Financial Officer of Clear Channel Communications in February 1997 and was appointed
Secretary in April 2003. He was appointed President of Clear Channel Communications in February
2006. He has served on the Board of Directors of Clear Channel Communications since April 1999.
Mr. Mays is the son of L. Lowry Mays, Clear Channel Communications’ Chairman and one of our board
members, and is the brother of Mark P. Mays, our Chief Executive Officer and one of our board
members.
Paul J. Meyer
has served as our President and Chief Operating Officer since April 2005. Prior
thereto, he served as President and Chief Executive Officer of our Americas segment from January
2002 to April 2005 and President/Chief Operating Officer of our Americas segment from March 1999 to
December 2001. Mr. Meyer has also served as Vice President of Clear Channel Communications since
March 1999.
Jonathan D. Bevan
has served as our Chief Financial Officer — International since January
2006. Prior thereto, he served as Chief Operating Officer — International since December 2004. Mr.
Bevan served as Senior Vice President/Operations of our international segment from September 2002
to December 2004 and, prior thereto, as Director of Finance for the remainder of the relevant
five-year period.
Augusto Claux
has served as our Regional President — Latin America since 1999.
Michael R. Deeds
has served as our Executive Vice President — Americas Operations since 1999
and has been employed with us for 38 years.
Bo Rickard Hedlund
has served as the Chief Executive Officer — Northern Europe of our
international segment since April 1, 2005. Prior thereto, Mr. Hedlund served as Executive Vice
President — Nordic Region from October 2001 to March 2005 and Regional Director for all of our
business units in Sweden, Norway, Denmark and Finland. From November 1997 to September 2001, Mr.
Hedlund served as General Manager — Sweden. From 2003, Mr. Hedlund was responsible for our Baltics
and Russia regions and was also responsible for our Dutch business unit and Clear Channel Hillenaar
from 2004.
Michael F. Hudes
has served as our Global Director — Digital Media (previously Executive Vice
President/Corporate Development) since August 2005. Prior thereto, he served as our Executive Vice
President/Corporate Development since March 2004. From April 2002 to February 2004, he also served
as President, Chief Operating Officer and a Director of AdSpace Networks, Inc., a digital media
network builder. Prior thereto, Mr. Hudes was President, Chief Operating Officer and a Director of
Organic, Inc., an internet professional services company from November 1995 to September 2001.
Eugene P. Leehan
has served as our Regional President — Western United States since January
2003. Prior thereto, Mr. Leehan has worked for us or our predecessor companies in various
capacities since February 1986.
83
Coline L. McConville
has served as Chief Executive Officer — Europe of our international
segment since January 2003. Prior thereto, she served as Chief Operating Officer for our
international segment for the remainder of the relevant five-year period.
Franklin G. Sisson, Jr.
has served as our Global Director — Sales and Marketing since August
2005. Prior thereto, he served as Executive Vice President Sales and Marketing of the Americas
segment since January 2001 and as President/General Manager Orlando Division from August 1998 to
December 2000.
Timothy C. Stauning
has served as our Regional President — Eastern United States since August
2004. Prior thereto, Mr. Stauning served as President of our New York Branch since August 1998.
Kurt A. Tingey
has served as our Executive Vice President and Americas Chief Financial Officer
since January 1, 2000. From March 1999 to January 2000, Mr. Tingey served as our Senior Vice
President — Business Development.
Laura C. Toncheff
has served as our Executive Vice President — Americas Real Estate, Public
Affairs and Legal since January 2003. Prior thereto, Ms. Toncheff served as the Executive Vice
President and General Counsel for our Americas operations from January 2000, and prior thereto she
served as Senior Vice President.
Composition of the Board of Directors
For so long as Clear Channel Communications is the owner of such number of shares representing
more than 50% of the total voting power of our common stock, it will have the ability to direct the
election of all the members of our Board of Directors, the composition of our Board Committee and
the size of the Board.
We intend to avail ourselves of certain of the “controlled company” exemptions of the New York
Stock Exchange corporate governance standards which free us from the obligation to comply with
certain NYSE corporate governance requirements that would otherwise require (i) that the majority
of the Board of Directors consists of independent directors, (ii) that we have a Nominating and
Governance Committee and that it be composed entirely of independent directors with a written
charter addressing the Committee’s purpose and responsibilities, (iii) that we have a Compensation
Committee composed entirely of independent directors with a written charter addressing the
Committee’s purpose and responsibilities and (iv) an annual performance evaluation of the
Compensation Committee. See “Risk Factors — Risks Related to Our Relationship with Clear Channel
Communications.”
Director Independence
Our board currently consists of seven directors, four of whom are independent (as defined by
our Governance Guidelines and NYSE listing standards) and one of whom is our Chief Executive
Officer. Our Governance Guidelines, which include guidelines for determining director
independence, are published in the investor relations section of our website at
www.clearchanneloutdoor.com . For a director to be independent, the board must determine
the director does not have any direct or indirect material relationship with Clear Channel Outdoor.
The board has established guidelines to assist it in determining director independence, which
conform to, or are more exacting than, the independence requirements of the NYSE. The independence
guidelines are set forth in Appendix A of the Governance Guidelines. The board has determined Mr.
Parker, Mr. Raines, Ms. Shields and Mr. Tremblay satisfy the NYSE’s independence requirements and
our board’s independence guidelines.
Audit Committee
The three independent (as determined by the Board of Directors based on the NYSE listing
standards) Audit Committee members are James M. Raines, who serves as the chairman, Marsha McCombs
Shields and Dale W. Tremblay. James M. Raines has been designated by our Board of Directors as the
Audit Committee financial expert (as defined in the applicable regulations of the SEC). The Audit
Committee operates under a written charter adopted by the Board of Directors which reflects
standards set forth in SEC regulations and NYSE rules. The composition and responsibilities of the
Audit Committee and the attributes of its members, as reflected in the charter, are intended to be
in accordance with applicable requirements for corporate Audit Committees. The charter
84
will be reviewed, and amended if necessary, on an annual basis. The full text of the Audit
Committee’s charter can be found on our website at www.clearchanneloutdoor.com or may be
obtained upon request from our Secretary.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors,
executive officers and beneficial owners of more than 10% of any class of equity securities of
Clear Channel Outdoor to file reports of ownership and changes in ownership with the SEC and the
NYSE. Directors, executive officers and greater than 10% shareholders are required to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or written
representations from certain reporting persons that no such forms were required to be filed by
those persons, Clear Channel Outdoor believes all such Section 16(a) filing requirements were
satisfied during fiscal year 2005.
Code of Business Conduct and Ethics
We adopted a Code of Business Conduct and Ethics applicable to all of our directors and
employees, including our chief executive officer, chief financial officer and chief operating
officer, which is a “code of ethics” as defined by applicable SEC rules. This code is publicly
available on our website at www.clearchanneloutdoor.com or may be obtained upon request
from our Secretary. If we make any amendments to this code, other than technical, administrative or
other non-substantive amendments, or grant any waivers, including implicit waivers, from any
provisions of this code that apply to our chief executive officer, chief financial officer or chief
operating officer and relate to an element of the SEC’s “code of ethics” definition, we will
disclose the nature of the amendment or waiver, its effective date and to whom it applies on our
website or in a report on Form 8-K filed with the SEC.
ITEM 11. Executive Compensation
The following tables set forth compensation information with respect to the Company and Clear
Channel Communications for our chief executive officer and our other four most highly compensated
executive officers who served as officers of Clear Channel Outdoor as of December 31, 2005, as well
as our additional individual for whom disclosure would have been provided but for the fact that the
individual was not serving as an executive officer of the Company as of December 31, 2005. We refer
to these individuals as our “named executive officers” in this Annual Report.
85
Summary Compensation Table – Clear Channel Outdoor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Compensation
|
|
|
|
|
|
|
|
|
Annual Compensation
|
|
Awards
|
|
Payouts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Annual
|
|
Restricted
|
|
|
|
|
|
|
|
|
Name and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
Stock
|
|
|
|
|
|
LTIP
|
|
All Other
|
Principal Position
|
|
Year
|
|
Salary ($)
|
|
Bonus ($)
|
|
($)(1)
|
|
Award(s) ($)
|
|
Options (#)
|
|
Payout ($)
|
|
Compensation ($)
|
Mark P. Mays
|
|
|
2005
|
|
|
|
191,317
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
1,143
|
(4)
|
CEO (2) (3)
|
|
|
2004
|
|
|
|
140,972
|
|
|
|
348,094
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,049
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul J. Meyer
|
|
|
2005
|
|
|
|
566,742
|
|
|
|
920,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
365,000
|
|
|
|
—
|
|
|
|
5,250
|
(4)
|
President and COO
|
|
|
2004
|
|
|
|
465,686
|
|
|
|
342,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,125
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin G.
Sisson, Jr.
|
|
|
2005
|
|
|
|
281,821
|
|
|
|
270,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
110,000
|
|
|
|
—
|
|
|
|
5,250
|
(4)
|
Global Director —
|
|
|
2004
|
|
|
|
249,068
|
|
|
|
99,250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,048
|
(4)
|
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kurt A. Tingey
|
|
|
2005
|
|
|
|
236,221
|
|
|
|
228,000
|
|
|
|
—
|
|
|
|
99,000
|
(5)
|
|
|
68,000
|
|
|
|
—
|
|
|
|
5,250
|
(4)
|
Executive VP and
|
|
|
2004
|
|
|
|
216,105
|
|
|
|
86,348
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,125
|
(4)
|
CFO — Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laura C. Toncheff
|
|
|
2005
|
|
|
|
236,201
|
|
|
|
228,000
|
|
|
|
—
|
|
|
|
355,500
|
(6)
|
|
|
11,000
|
|
|
|
—
|
|
|
|
5,250
|
(4)
|
Executive VP — Real
|
|
|
2004
|
|
|
|
216,010
|
|
|
|
86,348
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,125
|
(4)
|
Estate, Public Affairs
and Legal — Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger Parry* (7)
|
|
|
2005
|
|
|
|
818,641
|
|
|
|
444,949
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
269,992
|
(8)
|
|
|
|
2004
|
|
|
|
785,355
|
|
|
|
598,719
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
214,502
|
(8)
|
|
|
|
*
|
|
Mr. Parry resigned his position as Chief Executive Officer of Clear Channel International and
remains a non-executive level employee with us.
|
|
(1)
|
|
Perquisites that are less than $50,000 in the aggregate for any named executive officer are
not disclosed in the table in accordance with SEC rules.
|
|
(2)
|
|
Mr. Mays has served as our Chief Executive Officer since August 2005. Mr. Mays was President
and Chief Operating Officer of Clear Channel Communications from February 1997 until his
appointment as President and Chief Executive Officer in October 2004. He relinquished his
duties as President of Clear Channel Communications in February 2006.
|
|
(3)
|
|
For 2005, the amounts reflected in the “Salary,” “Bonus” and “All Other Compensation” for Mr. Mays
represent the costs allocated to Clear Channel Outdoor under the Corporate Services Agreement
with Clear Channel Communications for Mr. Mays’ salary, bonus and other standard employee
benefits. For a description of the Corporate Services Agreement, see “Item 13. Certain
Relationships and Related Transactions—Arrangements Between Clear Channel Communications and
Us—Corporate Services Agreement.” For 2004, the amounts
reflected in the table represent a portion of compensation paid to
our CEO by Clear Channel Communications allocated to us based on services
rendered to us in his capacity as CEO.
|
|
(4)
|
|
Represents the amount of matching contributions paid related to participation in the Clear
Channel Communications 401(k) Plan.
|
|
(5)
|
|
Grant of 5,500 shares of the Company’s restricted stock was awarded on November 11, 2005. The
restricted stock had a fair market value of $110,275 as of December 31, 2005. The restriction
will lapse and 25% of the shares will vest on the third and fourth anniversary of the date of
the grant, with the remaining 50% of the shares vesting on the fifth anniversary of the date
of the grant.
|
|
(6)
|
|
Grant of 19,750 shares of the Company’s restricted stock was awarded on November 11, 2005.
The restricted stock had a fair market value of $395,988 as of December 31, 2005. The
restriction will lapse and 25% of the shares will vest on the third and fourth anniversary of
the date of the grant, with the remaining 50% of the shares vesting on the fifth anniversary
of the date of the grant.
|
86
|
|
|
(7)
|
|
Mr. Parry is a citizen of the United Kingdom. The compensation amounts reported in this table
have been converted from British pounds to U.S. dollars using the average exchange rate from
each applicable year.
|
|
(8)
|
|
Includes $68,221 and $62,902 in contracted payments to Mr. Parry in lieu of a company
automobile for 2005 and 2004, respectively. Also includes $4,549 and $9,334 in contracted
payments to Mr. Parry in lieu of medical benefit for 2005 and 2004, respectively. Also
includes $197,222 and $142,266 in contributions paid by Clear Channel Communications to Mr.
Parry’s pension plan for 2005 and 2004, respectively.
|
Summary Compensation Table – Clear Channel Communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Compensation
|
|
|
|
|
|
|
|
|
Annual Compensation
|
|
Awards
|
|
Payouts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Annual
|
|
Restricted
|
|
|
|
|
|
|
|
|
Name and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
Stock
|
|
|
|
|
|
LTIP
|
|
All Other
|
Principal Position
|
|
Year
|
|
Salary ($)
|
|
Bonus ($)
|
|
($)(1)
|
|
Award(s) ($)
|
|
Options (#)
|
|
Payout ($)
|
|
Compensation ($)
|
Mark P. Mays
|
|
|
2005
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,840,060
|
(3)
|
|
|
255,000
|
|
|
|
—
|
|
|
|
—
|
|
CEO
|
|
|
2004
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,113,250
|
(3)
|
|
|
150,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul J. Meyer
|
|
|
2005
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
377,040
|
(4)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
President and COO
|
|
|
2004
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
65,000
|
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin G.
Sisson, Jr.
|
|
|
2005
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,000
|
(2)
|
|
|
—
|
|
|
|
—
|
|
Global Director —
|
|
|
2004
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,000
|
(2)
|
|
|
—
|
|
|
|
—
|
|
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kurt A. Tingey
|
|
|
2005
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,000
|
(2)
|
|
|
—
|
|
|
|
—
|
|
Executive VP and
|
|
|
2004
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,000
|
(2)
|
|
|
—
|
|
|
|
—
|
|
CFO — Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laura C. Toncheff
|
|
|
2005
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62,840
|
(5)
|
|
|
10,000
|
(2)
|
|
|
—
|
|
|
|
—
|
|
Executive VP — Real
|
|
|
2004
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,000
|
(2)
|
|
|
—
|
|
|
|
—
|
|
Estate, Public Affairs
and Legal — Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger Parry
|
|
|
2005
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
125,680
|
(4)
|
|
|
20,000
|
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
2004
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,000
|
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(1)
|
|
Perquisites that are less than $50,000 in the aggregate for any named executive officer are
not disclosed in the table in accordance with SEC rules.
|
|
(2)
|
|
Prior to the IPO, these named executive officers were granted options to purchase shares of
Clear Channel Communications’ common stock. As a result of the IPO, these options were
converted to options to purchase our Class A common stock. Amounts reflected in the table
represent the initial grants of Clear Channel Communications’ common stock.
|
|
(3)
|
|
Grants of 150,000 and 34,000 shares of Clear Channel Communications’ restricted stock were
awarded on December 22, 2005 and February 16, 2005, respectively. The grants authorized in
December 2005 were made in lieu of option grants that would otherwise have been made in 2006.
Grants of 25,000 shares of Clear Channel Communications’ restricted stock were awarded on both
February 19, 2004 and February 19, 2003. The aggregate 234,000 shares of restricted stock had
a fair market value of $7,359,300 as of December 31, 2005. The restriction will lapse and the
shares will vest on the fifth anniversary of the date of grant. The holder will receive all
cash dividends declared by and paid by Clear Channel Communications during the vesting period.
|
|
(4)
|
|
Grants of 12,000 and 4,000 shares of Clear Channel Communications’ restricted stock were
awarded to Mr. Meyer and Mr. Parry, respectively, on January 12, 2005. The aggregate shares of
Clear Channel
|
87
|
|
|
|
|
Communications’ restricted stock had a fair market value of $377,400 and
$125,800, respectively, as of December 31, 2005. The restriction will lapse and 25% of the
shares will vest on the third and fourth anniversary of the date of the grant, with the
remaining shares vesting on the fifth anniversary of the date of grant. The holder will
receive all cash dividends declared and paid by Clear Channel Communications during the
vesting period.
|
|
(5)
|
|
Grant of 2,000 shares of Clear Channel Communications’ restricted stock was awarded on
January 12, 2005. The restricted stock had a fair market value of $62,900 as of December 31,
2005. The holder will receive all cash dividends declared and paid by Clear Channel
Communications during the vesting period. The restriction will lapse and 25% of the shares
will vest on the third and fourth anniversary of the date of the grant, with the remaining 50%
of the shares vesting on the fifth anniversary of the date of the grant.
|
Stock Options
The following table sets forth certain information regarding stock options to purchase shares
of our Class A common stock granted to our named executive officers during the year ended December
31, 2005:
Stock Option Grant Table – Clear Channel Outdoor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Percent of Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Options Granted to
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Underlying Options
|
|
Employees in Fiscal
|
|
Exercise or Base
|
|
|
|
|
|
Present
|
Name
|
|
Date of Grant
|
|
Granted (#)
|
|
Year
|
|
Price ($/share)
|
|
Expiration Date
|
|
Value ($)(1)
|
Mark P. Mays
|
|
|
11/11/05
|
|
|
|
100,000
|
(2)
|
|
|
4.1
|
%
|
|
|
18.00
|
|
|
|
11/11/15
|
|
|
|
744,000
|
|
Paul J. Meyer
|
|
|
11/11/05
|
|
|
|
365,000
|
(3)
|
|
|
15.0
|
%
|
|
|
18.00
|
|
|
|
11/11/12
|
|
|
|
2,294,025
|
|
Franklin G.
Sisson, Jr.
|
|
|
11/11/05
|
|
|
|
110,000
|
(3)
|
|
|
4.5
|
%
|
|
|
18.00
|
|
|
|
11/11/12
|
|
|
|
691,350
|
|
Kurt A. Tingey
|
|
|
11/11/05
|
|
|
|
68,000
|
(3)
|
|
|
2.8
|
%
|
|
|
18.00
|
|
|
|
11/11/12
|
|
|
|
427,380
|
|
Laura C. Toncheff
|
|
|
11/11/05
|
|
|
|
11,000
|
(3)
|
|
|
.5
|
%
|
|
|
18.00
|
|
|
|
11/11/12
|
|
|
|
69,135
|
|
Roger Parry
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(1)
|
|
Present value for this option was estimated at the date of grant using the Black-Scholes
option pricing model with the following assumptions: Risk-free interest rate ranging from
4.51% to 4.58%, a dividend yield of 0%, an expected volatility factor of 27% and the expected
life ranging from 5 years to 7.5 years. The present value of stock options granted is based on
a theoretical option-pricing model. In actuality, because Clear Channel Outdoor’s employee
stock options are not traded on an exchange, optionees can receive no value nor derive any
benefit from holding stock options under these plans without an increase in the market price
of our Class A common stock. Such an increase in stock price would benefit all shareholders
commensurately.
|
|
(2)
|
|
The stock options granted vest 100% on the fifth anniversary of the date of the grant.
|
|
(3)
|
|
The stock options granted vest 25% on the third and fourth anniversary of the date of the
grant, with the remaining 50% of the shares vesting on the fifth anniversary of the date of
the grant.
|
88
The following table sets forth certain information regarding stock options to purchase shares
of Clear Channel Communications’ common stock granted to the named executive officers during the
year ended December 31, 2005:
Stock Option Grant Table – Clear Channel Communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Percent of Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Options Granted to
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Underlying Options
|
|
Employees in Fiscal
|
|
Exercise or Base
|
|
|
|
|
|
Present
|
Name
|
|
Date of Grant
|
|
Granted (#)
|
|
Year
|
|
Price ($/share)
|
|
Expiration Date
|
|
Value ($)(1)
|
Mark P. Mays
|
|
|
1/12/05
|
|
|
|
210,000
|
(2)
|
|
|
2.9
|
%
|
|
|
31.42
|
|
|
|
1/12/15
|
|
|
|
1,967,700
|
|
Mark P. Mays
|
|
|
2/16/05
|
|
|
|
45,000
|
(3)
|
|
|
.6
|
%
|
|
|
34.34
|
|
|
|
2/16/15
|
|
|
|
469,800
|
|
Paul J. Meyer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Franklin G.
Sisson, Jr.
|
|
|
1/12/05
|
|
|
|
20,000
|
(4)
|
|
|
.3
|
%
|
|
|
31.42
|
|
|
|
1/12/15
|
|
|
|
187,400
|
|
Kurt A. Tingey
|
|
|
1/12/05
|
|
|
|
20,000
|
(4)
|
|
|
.3
|
%
|
|
|
31.42
|
|
|
|
1/12/15
|
|
|
|
187,400
|
|
Laura C. Toncheff
|
|
|
1/12/05
|
|
|
|
10,000
|
(5)
|
|
|
.1
|
%
|
|
|
31.42
|
|
|
|
1/12/12
|
|
|
|
80,875
|
|
Roger Parry
|
|
|
1/12/05
|
|
|
|
20,000
|
(5)
|
|
|
.3
|
%
|
|
|
31.42
|
|
|
|
1/12/12
|
|
|
|
161,750
|
|
|
|
|
(1)
|
|
Present value for this option was estimated at the date of grant using the Black-Scholes
option pricing model with the following assumptions: Risk-free interest rate ranging from
3.76% to 4.33%, a dividend yield ranging from 1.46% to 2.36%, an expected volatility factor of
25% and the expected life ranging from 5 years to 7.5 years. The present value of stock
options granted is based on a theoretical option-pricing model. In actuality, because the
employee stock options are not traded on an exchange, optionees can receive no value nor
derive any benefit from holding stock options under these plans without an increase in the
market price of the common stock. Such an increase in stock price would benefit all
shareholders commensurately.
|
|
(2)
|
|
As a result of the December 21, 2005 spin-off of Clear Channel Communications’ entertainment
division, the 210,000 options granted on January 12, 2005 at the exercise price of $31.42 per
share were subsequently adjusted to 217,684 options at an exercise price of $30.3107 per
share. This adjustment was pursuant to the recapitalization provision of the stock option
agreement. The stock options granted vest 100% on the fifth anniversary of the date of the
grant.
|
|
(3)
|
|
As a result of the December 21, 2005 spin-off of Clear Channel Communications’ entertainment
division, the 45,000 options granted on February 16, 2005 at the exercise price of $34.34 per
share were subsequently adjusted to 47,001 options at an exercise price of $32.8777 per share.
This adjustment was pursuant to the recapitalization provision of the stock option agreement.
The stock options granted vest 100% on the fifth anniversary of the date of the grant.
|
|
(4)
|
|
As a result of our IPO, the 20,000 options to purchase shares of Clear Channel
Communications’ stock at an exercise price of $31.42 were converted to 35,133 options to
purchase shares of our Class A common stock at an exercise price of $17.8861. The
stock options granted vest 100% on the fifth anniversary of the date of the grant.
|
|
(5)
|
|
As a result of our IPO, the 10,000 and 20,000 options to purchase shares of Clear Channel
Communications’ stock at an exercise price of $31.42 granted to Ms. Toncheff and Mr. Parry,
respectively, were converted to 17,566 and 35,133 options to purchase shares of our
Class A common stock at an exercise price of $17.8861. The stock options granted vest 25% on
the third and fourth anniversary of the date of the grant, with the remaining 50% of the
shares vesting on the fifth anniversary of the date of the grant.
|
Exercise of Stock Options
The following table sets forth certain
information regarding stock options to purchase shares
of our Class A common stock exercised by the named executive officers during
the year ended December 31, 2005, including the aggregate value of gains on the date of exercise.
In addition, the table sets forth the number of shares covered by both exercisable and
unexercisable stock options as of December 31, 2005. Also reported are the values of “in the money”
options which represent the positive spread between the exercise price of any existing stock
options and Clear Channel Outdoor’s common stock price as of December 31, 2005.
89
Aggregated Option Exercises and Fiscal Year-End Option Value Table – Clear Channel Outdoor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying Unexercised
|
|
Value of Unexercised
|
|
|
|
|
|
|
|
|
|
|
Options at Fiscal Year
|
|
In-The-Money Options at
|
|
|
Shares Acquired on
|
|
|
|
|
|
End (#)
|
|
Fiscal Year End ($)
|
Name
|
|
Exercise (#)
|
|
Value Realized ($)
|
|
Exercisable/Unexercisable
|
|
Exercisable/Unexercisable
|
Mark P. Mays
|
|
|
—
|
|
|
|
—
|
|
|
|
-0- / 100,000
|
|
|
|
-0- / 205,000
|
|
Paul J. Meyer (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
276,673 / 501,141
|
|
|
|
-0- / 748,250
|
|
Franklin G.
Sisson, Jr. (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
79,399 / 190,630
|
|
|
|
-0- / 301,524
|
|
Kurt A. Tingey (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
59,023 / 134,929
|
|
|
|
-0- / 215,424
|
|
Laura C. Toncheff (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
52,875 / 60,362
|
|
|
|
-0- / 60,561
|
|
Roger Parry (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
259,117 / 111,988
|
|
|
|
-0- / 76,024
|
|
|
|
|
(1)
|
|
As a result of our IPO on November 11, 2005, all of the options to purchase shares of
Clear Channel Communications, Inc. were converted to options to purchase our Class A common
stock.
|
The following table sets forth certain information regarding stock options to purchase shares
of Clear Channel Communications’ common stock exercised by the named executive officers during the
year ended December 31, 2005, including the aggregate value of gains on the date of exercise. In
addition, the table sets forth the number of shares covered by both exercisable and unexercisable
stock options as of December 31, 2005. Also reported are the values of “in the money” options which
represent the positive spread between the exercise price of any existing stock options and Clear
Channel Communications’ common stock price as of December 31, 2005.
Aggregated Option Exercises and Fiscal Year-End Option Value Table – Clear Channel Communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying Unexercised
|
|
Value of Unexercised
|
|
|
|
|
|
|
|
|
|
|
Options at Fiscal Year
|
|
In-The-Money Options at
|
|
|
Shares Acquired on
|
|
|
|
|
|
End (#)
|
|
Fiscal Year End ($)
|
Name
|
|
Exercise (#)
|
|
Value Realized ($)
|
|
Exercisable/Unexercisable
|
|
Exercisable/Unexercisable(1)
|
Mark P. Mays
|
|
|
—
|
|
|
|
—
|
|
|
|
313,341 / 1,021,928
|
|
|
|
-0- / 248,007
|
|
Paul J. Meyer
|
|
|
—
|
|
|
|
—
|
|
|
|
-0- / -0-
|
|
|
|
-0- / -0-
|
|
Franklin G.
Sisson, Jr.
|
|
|
—
|
|
|
|
—
|
|
|
|
-0- / -0-
|
|
|
|
-0- / -0-
|
|
Kurt A. Tingey
|
|
|
—
|
|
|
|
—
|
|
|
|
-0- / -0-
|
|
|
|
-0- / -0-
|
|
Laura C. Toncheff
|
|
|
—
|
|
|
|
—
|
|
|
|
-0- / -0-
|
|
|
|
-0- / -0-
|
|
Roger Parry
|
|
|
—
|
|
|
|
—
|
|
|
|
-0- / -0-
|
|
|
|
-0- / -0-
|
|
|
|
|
(1)
|
|
All options that remained outstanding after the spin-off of Clear Channel
Communications’ entertainment division were adjusted pursuant to the recapitalization terms
of the options plans. The adjustment was determined using an intrinsic value method. The
amounts shown as of December 31, 2005 have been adjusted accordingly.
|
Director Compensation
We pay our non-employee directors an annual cash retainer of $25,000, an additional $1,500 for
each board meeting attended and an additional $1,000 for each Committee meeting attended. We may
also grant stock options or other stock-based awards to our non-employee directors, and
non-employee directors may elect to receive their fees in the form of shares of our Class A common
stock. We pay the chairperson of the Audit Committee and the chairperson of the Compensation
Committee an additional annual cash retainer of approximately $10,000 and $5,000, respectively. In
November 2005, each non-employee director was granted options to purchase 7,500 shares of our
common stock and 5,000 shares of restricted stock. Both awards vest 20% annually over five years.
Employment Agreements
Mark P. Mays has an employment agreement with Clear Channel Communications. Paul J. Meyer has
an employment agreement with us. Roger Parry also has an agreement with us. Set forth below are
summaries of these agreements.
90
On March 10, 2005, Clear Channel Communications entered into an amended and restated
employment agreement with Mark P. Mays. This agreement amended and restated the existing employment
agreement dated October 1, 1999 between Clear Channel Communications and Mr. Mays. The amended and
restated agreement has a term of seven years with automatic daily extensions unless Clear Channel
Communications or Mr. Mays elects not to extend the agreement. The employment agreement provides
for a minimum base salary, subject to review and annual increase by the Compensation Committee of
Clear Channel Communications. In addition, the agreement provides for an annual bonus pursuant to
Clear Channel Communications’ Annual Incentive Plan or as the Executive Performance Subcommittee of
the Compensation Committee of Clear Channel Communications determines. The employment agreement
provides for base minimum salaries of $350,000, and for minimum option grants to acquire 50,000
shares of Clear Channel Communications common stock; provided, however, that the annual option
grant will not be smaller than the option grant in the preceding year unless waived by Mr. Mays.
Each option will be exercisable at fair market value at the date of grant for a 10-year period even
if Mr. Mays is not employed by Clear Channel Communications. The Compensation Committee of Clear
Channel Communications or the Executive Performance Subcommittee of the Compensation Committee of
Clear Channel Communications will determine the schedule upon which the options will vest and
become exercisable.
The executive employment agreement provides for severance and change-in-control payments in
the event that Clear Channel Communications terminates the executive’s employment without “Cause”
or if Mr. Mays terminates for “Good Reason.” “Cause” is narrowly defined, and any determination of
“Cause” is subject to a supermajority vote of Clear Channel Communications’ independent directors.
“Good Reason” includes defined change-in-control transactions involving Clear Channel
Communications, Clear Channel Communications’ election not to automatically extend the term of the
employment agreement, a diminution in the executive’s pay, duties or title or, at any time that the
office of Chairman is held by someone other than himself, L. Lowry Mays or Randall Mays. If Mr.
Mays is terminated by Clear Channel Communications without “Cause” or he resigns for “Good Reason”
then he will receive a lump-sum cash payment equal to the base salary and bonus that otherwise
would have been paid for the remainder of the term of the agreement (using the highest bonus paid
to him in the three years preceding the termination but not less than $1,000,000), continuation of
benefits, immediate vesting on the date of termination of all stock options held by him on the date
of termination, and either: (i) an option to acquire 1,000,000 shares of Clear Channel
Communications’ common stock at fair market value as of the date of termination that is fully
vested and exercisable for a period of 10 years, or (ii) a grant of a number of shares of Clear
Channel Communications’ common stock equal to: (a) 1,000,000, divided by (b) the number computed by
dividing: (x) the last reported sale price of Clear Channel Communications’ common stock on the New
York Stock Exchange at the close of the trading day immediately preceding the date of termination
of executive’s employment, by (y) the value of the stock option described in clause (i) above as
determined by Clear Channel Communications in accordance with generally accepted accounting
principles. Certain tax gross up payments would also be due on such amounts. In the event Mr. Mays
is terminated without “Cause” or for “Good Reason,” the employment agreement also restricts his
business activities that compete with the business of Clear Channel Communications for a period of
two years following such termination.
On August 5, 2005, we entered into an employment agreement with Paul J. Meyer. The initial
term of the agreement ends on the third anniversary of the date of the agreement; the term
automatically extends one day at a time beginning on the second anniversary of the date of the
agreement, unless one party gives the other one year’s notice of expiration at or prior to the
second anniversary of the date of the agreement. The contract calls for Mr. Meyer to be our
President and Chief Operating Officer for a base salary of $600,000 in the first year of the
agreement; $625,000 in the second year of the agreement; and $650,000 in the third year of the
agreement, subject to additional annual raises thereafter in accordance with company policies. Mr.
Meyer is also eligible to receive a performance bonus as decided at the sole discretion of our
Board of Directors and the Compensation Committee.
Mr. Meyer may terminate his employment at any time after the second anniversary of the date of
the agreement upon one year’s written notice. We may terminate Mr. Meyer without “Cause” after the
second anniversary of the date of the agreement upon one year’s written notice. “Cause” is narrowly
defined in the agreement. If Mr. Meyer is terminated without “Cause,” he is entitled to receive a
lump sum payment of accrued and unpaid base salary and prorated bonus, if any, and any payments to
which he may be entitled under any applicable employee benefit plan. Mr. Meyer is prohibited by his
employment agreement from activities that compete with us for one year after he leaves us and he is
prohibited from soliciting our employees for employment for 12 months after termination regardless
of the reason for termination of employment.
91
Effective May 27, 2005, Roger Parry and Clear Channel Outdoor entered into a letter agreement
pursuant to which Mr. Parry resigned is position as Chief Executive Officer of Clear Channel
International. From June 1, 2005 through May 31, 2006, the Company agreed to pay Mr. Parry a base
salary of Pound Sterling 37,493.76 per month, and a car allowance of Pound Sterling 3,124.50 per
month. In addition, Mr. Parry is eligible to receive a performance based bonus. From June 1, 2005
through May 31, 2006, Mr. Parry will continue to have the right to participate in employee benefit
plans as in effect on the effective date of the letter agreement. Beginning on June 1, 2006 through
May 31, 2009, Mr. Parry will continue to be employed as a non-executive level employee at a salary
of Pound Sterling 2,000.00 per month. After May 31, 2006, Mr. Parry will no longer be eligible to
receive bonus compensation. Mr. Parry agreed to certain non-competition covenants during the term
of the letter agreement.
Compensation Committee
The Compensation Committee members are Mark P. Mays, who is chairman of the committee and our
chief executive officer, Dale W. Tremblay and William D. Parker. The Compensation Committee
operates under a written charter adopted by the Board of Directors. The Committee is primarily
responsible for administering Clear Channel Outdoor’s stock incentive plans, performance-based
compensation plans and other incentive compensation plans. Also, the Committee determines
compensation arrangements for all of our executive officers and makes recommendations to the Board
of Directors concerning compensation policies for us and our subsidiaries.
Compensation Committee Interlocks and Insider Participation
Other than Mark P. Mays and Randall T. Mays, who each serve as an executive officer and member
of the Board of Directors of Clear Channel Communications, none of our executive officers serve as
a member of the Compensation Committee or as a member of the Board of Directors of any other
company of which any member of our Compensation Committee or Board of Directors is an executive
officer.
Employee Benefit Plans
Our employees currently participate in various incentive, retirement savings, group welfare
and other employee benefit plans sponsored by Clear Channel Communications. We are able to withdraw
our participation in any Clear Channel Communications plan (subject to 90 days’ notice). Similarly,
Clear Channel Communications may terminate our participation in its plans (subject to 90 days’
notice). Unless sooner terminated, it is likely our participation in the Clear Channel
Communications employee benefit plans will end if and at such time as Clear Channel Communications
owns less than 80% of the total voting power of our common stock. It is anticipated our stock will
be added to the listing of available investments under the Clear Channel Communications 401(k)
plan, but there is no assurance this will occur or continue.
We reimburse Clear Channel Communications for the costs incurred by it and its other
affiliates in connection with the continuing coverage of our employees in the Clear Channel
Communications employee benefit plans and in connection with its or their services relating to
payroll administration and the administration of our own stock incentive and other plans. We retain
responsibility for employment-related liabilities and obligations with respect to our employees.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Ownership of Common Stock
The following table sets forth information as of March 24, 2006 regarding the beneficial
ownership of our common stock by:
|
•
|
|
all persons known by us to own beneficially more than 5% of any class of our common stock;
|
|
|
•
|
|
our chief executive officer and each of the named executive officers in 2005;
|
|
|
•
|
|
each of our directors;
|
92
|
•
|
|
and all directors and executive officers as a group.
|
The following table also sets forth information as of March 24, 2006 regarding the beneficial
ownership of Clear Channel Communications common stock by:
|
•
|
|
our chief executive officer and each of the named executive officers in 2005;
|
|
|
•
|
|
each of our directors;
|
|
|
•
|
|
and all directors and executive officers as a group.
|
Beneficial ownership is determined in accordance with the rules of the SEC. In computing the
number of shares beneficially owned by a person and the percentage ownership of that person, shares
of common stock issuable upon the exercise of stock options or conversion of other securities held
by that person that are currently exercisable or convertible, or are exercisable or convertible
within 60 days of March 24, 2006 are deemed to be issued and outstanding. These shares, however,
are not deemed outstanding for purposes of computing percentage ownership of each other
shareholder. As of March 24, 2006, there were 35,242,211 shares of our Class A common stock,
315,000,000 shares of our Class B common stock outstanding and 505,294,806 shares of common stock
of Clear Channel Communications outstanding. The percentages in the table below are based on a
total of 35,242,211 shares of our Class A common stock outstanding.
Except for Clear Channel Communications, each of the persons listed below is the beneficial
owner of shares of our Class A common stock. Clear Channel Communications is the beneficial owner
of all of the outstanding shares of our Class B common stock (representing approximately 90% of the
outstanding shares of our common stock and approximately 99% of the total voting power of our
common stock) and no shares of our Class A common stock. Each share of our Class B common stock is
convertible while owned by Clear Channel Communications or any of its affiliates (excluding us and
our subsidiaries) at the option of the holder thereof into one share of our Class A common stock.
Clear Channel Communications has advised us its current intent is to continue to hold all of our
Class B common stock owned by it and thereby retain its controlling interest in us. However, Clear
Channel Communications is not subject to any contractual obligation that would prohibit it from
selling, spinning off, splitting off or otherwise disposing of any shares of our common stock,
except Clear Channel Communications has agreed not to sell, spin off, split off or otherwise
dispose of any shares of our common stock prior to May 10, 2006 without the prior written consent
of the underwriters of the IPO, subject to certain limitations and limited exceptions.
Clear Channel Communications beneficially owns approximately 90% of our outstanding common
stock (consisting of 100% of our outstanding shares of Class B common stock and no shares of Class
A common stock).
93
The address of each director and executive officer listed below is c/o Clear Channel Outdoor
Holdings, Inc., 200 East Basse Road, San Antonio, Texas 78209.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Number of Shares
|
|
Percent of Shares
|
|
of Clear Channel
|
|
|
of the Company’s
|
|
of the Company’s
|
|
Communications’
|
Name
|
|
Common Stock
|
|
Class A Common Stock
|
|
Common Stock
|
L. Lowry Mays
|
|
|
—
|
|
|
|
—
|
|
|
|
31,566,109
|
(12)
|
Mark P. Mays
|
|
|
—
|
|
|
|
—
|
|
|
|
2,104,945
|
(13)
|
Randall T. Mays
|
|
|
—
|
|
|
|
—
|
|
|
|
1,717,625
|
(14)
|
William D. Parker
|
|
|
5,000
|
|
|
|
*
|
|
|
|
—
|
|
James M. Raines
|
|
|
5,000
|
|
|
|
*
|
|
|
|
—
|
|
Marsha McCombs Shields
|
|
|
5,000
|
|
|
|
*
|
|
|
|
4,755,353
|
(15)
|
Dale W. Tremblay
|
|
|
5,000
|
|
|
|
*
|
|
|
|
—
|
|
Paul J. Meyer
|
|
|
324,981
|
(1)
|
|
|
*
|
|
|
|
21,874
|
|
Franklin G. Sisson, Jr.
|
|
|
88,128
|
(2)
|
|
|
*
|
|
|
|
578
|
|
Kurt Tingey
|
|
|
74,828
|
(3)
|
|
|
*
|
|
|
|
2,398
|
|
Laura C. Toncheff
|
|
|
81,030
|
(4)
|
|
|
*
|
|
|
|
2,116
|
|
Clear Channel Communications, Inc
|
|
|
315,000,000
|
|
|
|
—
|
(5)
|
|
|
|
|
AMVESCAP PLC
|
|
|
1,917,201
|
(6)
|
|
|
5.4
|
%
|
|
|
|
|
Artisan Partners Limited Partnership
|
|
|
3,123,800
|
(7)
|
|
|
8.9
|
%
|
|
|
|
|
AXA Financial, Inc.
|
|
|
1,875,300
|
(8)
|
|
|
5.3
|
%
|
|
|
|
|
FMR Corp.
|
|
|
6,362,000
|
(9)
|
|
|
18.1
|
%
|
|
|
|
|
T. Rowe Price Associates, Inc.
|
|
|
3,039,300
|
(10)
|
|
|
8.6
|
%
|
|
|
|
|
All Directors and Executive Officers
as a Group (11 persons)
|
|
|
588,967
|
(11)
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
*
|
|
Percentage of shares beneficially owned by such person does not exceed one percent of the class so owned.
|
|
(1)
|
|
Includes 324,981 shares subject to options held by Mr. Meyer.
|
|
(2)
|
|
Includes 87,128 shares subject to options held by Mr. Sisson.
|
|
(3)
|
|
Includes 66,928 shares subject to options held by Mr. Tingey.
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(4)
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Includes 60,780 shares subject to options held by Ms. Toncheff.
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(5)
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Clear Channel Communications does not own any of our Class A common stock. The 315.0 million
shares owned by Clear Channel Communications represent 100% of the shares of our Class B
common stock.
|
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(6)
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Information about our Class A common stock owned by AMVESCAP PLC (“AMVESCAP”) is based solely
on a Schedule 13G filed by AMVESCAP with the SEC on February 13, 2006 reporting share
ownership as of December 31, 2005. AMVESCAP’s address is 30 Finsbury Square, London EC2A 1AG,
England.
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(7)
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Information about our Class A common stock owned by Artisan Partners Limited Partnership
(“Artisan”) is based solely on a Schedule 13G filed by Artisan with the SEC on January 27,
2006 reporting share ownership as of December 31, 2005. Artisan’s address is 875 East
Wisconsin Avenue, Suite 800, Milwaukee, WI 53202. Shares are shown as being held by Artisan,
Artisan Investment Corporation, which is the general partner of Artisan, and Andrew A. Ziegler
and Carlene Murphy Ziegler, who are the principal stockholders of Artisan Corp.
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(8)
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Information about our Class A common stock owned by AXA Financial, Inc. (“AXA”) is based
solely on a Schedule 13G filed by AXA with the SEC on February 14, 2006 reporting share
ownership as of December 31, 2005. AXA’s address is 1290 Avenue of the Americas, New York, New
York 10104.
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(9)
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Information about our Class A common stock owned by FMR Corp. is based solely on a Schedule
13G filed by FMR Corp with the SEC on February 14, 2006 reporting share ownership as of
December 31, 2005. FMR Corp’s address is 82 Devonshire Street, Boston, Massachusetts 02109.
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94
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(10)
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Information about our Class A common stock owned by T. Rowe Price Associates, Inc. (“Price
Associates”) is based solely on a letter from Price Associates dated February 14, 2006 and a
Schedule 13G filed by Price Associates with the SEC on February 13, 2006 reporting share
ownership as of December 31, 2005. Price Associates’ address is 100 R. Pratt Street,
Baltimore, Maryland 21202. These securities are owned by various individual and institutional
investors which Price Associates serves as investment adviser with power to direct investments
and/or sole power to vote the securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of such
securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial
owner of such securities.
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(11)
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Includes 539,981 shares subject to options held by such persons.
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(12)
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Includes 2,994,525 shares of Clear Channel Communications subject to options held by Mr. L.
Mays, 48,456 shares of Clear Channel Communications held by trusts of which Mr. L. Mays is the
trustee, but not a beneficiary, 26,801,698 shares of Clear Channel Communications held by the
LLM Partners Ltd of which Mr. L. Mays shares control of the sole general partner, 1,532,120
shares of Clear Channel Communications held by the Mays Family Foundation and 102,874 shares
of Clear Channel Communications held by the Clear Channel Foundation over which Mr. L. Mays
has either sole or shared investment or voting authority.
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(13)
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Includes 496,124 shares of Clear Channel Communications subject to options held by Mr. M.
Mays, 156,252 shares of Clear Channel Communications held by trusts of which Mr. M. Mays is
the trustee, but not a beneficiary, and 1,022,293 shares of Clear Channel Communications held
by the MPM Partners, Ltd. Mr. M. Mays controls the sole general partner of MPM Partners, Ltd.
Also includes 6,570 shares and 1,030 shares, which represent shares in LLM Partners.
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(14)
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Includes 496,124 shares of Clear Channel Communications subject to options held by Mr. R.
Mays, 168,228 shares of Clear Channel Communications held by trusts of which Mr. R. Mays is
the trustee, but not a beneficiary, and 622,575 shares of Clear Channel Communications held by
RTM Partners, Ltd. Mr. R. Mays controls the sole general partner of RTM Partners, Ltd. Also
includes 4,380 shares and 1,030 shares, which represent shares in LLM Partners.
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(15)
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Includes 2,080,573 shares of Clear Channel Communications held by Mc Combs Family Ltd. and
2,674,780 shares of Clear Channel Communications held by a Foundation over each of which Ms.
Shields has either sole or shared investment or voting authority.
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Equity Compensation Plans
The following table summarizes information, as of December 31, 2005, relating to the Company’s
equity compensation plans pursuant to which grants of options, restricted stock or other rights to
acquire shares may be granted from time to time.
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
Number of securities
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|
|
|
|
|
|
|
|
|
|
|
remaining available
|
|
|
|
Number of securities
|
|
|
|
|
|
|
for future issuance
|
|
|
|
to be issued upon
|
|
|
Weighted-average
|
|
under equity
|
|
|
|
exercise price of
|
|
|
exercise price of
|
|
compensation plans
|
|
|
|
outstanding options,
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|
|
outstanding warrants
|
|
(excluding securities
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|
Plan category
|
|
warrants and rights
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|
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and rights
|
|
reflected in column (a))
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|
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(a)
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(b)
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(c)
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Equity compensation plans approved by security holders
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|
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—
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|
$ —
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|
|
|
—
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Equity compensation plans not approved by security
holders (1)
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|
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8,509,177
|
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$24.05
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|
33,254,004
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|
|
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|
|
|
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Total
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8,509,177
|
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|
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$24.05
|
|
|
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33,254,004
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|
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(1)
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This plan is the Clear Channel Outdoor Holdings, Inc. 2005 Stock Incentive Plan, included
with the exhibits to this Annual Report.
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95
ITEM 13. Certain Relationships and Related Transactions
Each of Mark P. Mays, Randall T. Mays and L. Lowry Mays, our current directors, is an
executive officer of Clear Channel Communications. We currently have issued one intercompany note
to Clear Channel Communications in the aggregate principal amount of approximately $2.5 billion,
which represents in excess of five percent of our total consolidated assets at December 31, 2005.
Marsha McCombs Shields, one of our directors, is the daughter of one of the board members of Clear
Channel Communications.
ARRANGEMENTS BETWEEN CLEAR CHANNEL COMMUNICATIONS AND US
We have provided below a summary description of the Master Agreement between Clear Channel
Communications and us and the other key agreements that relate to our separation from and
post-separation relationship with Clear Channel Communications. This description, which summarizes
the material terms of these agreements, is not complete. You should read the full text of these
agreements, which have been incorporated by reference as exhibits to this Annual Report.
Relationship with Clear Channel Communications
Clear Channel Communications owns all of our outstanding shares of Class B common stock,
representing approximately 90% of the outstanding shares of our common stock and approximately 99%
of the total voting power of our common stock. For as long as Clear Channel Communications
continues to own shares of common stock representing more than 50% of the total voting power of our
common stock, Clear Channel Communications will be able to direct the election of all the members
of our board of directors and exercise a controlling influence over our business and affairs,
including any determinations with respect to mergers or other business combinations involving us,
our acquisition or disposition of assets, our incurrence of indebtedness, the issuance of any
additional common stock or other equity securities, the repurchase or redemption of common stock or
preferred stock and the payment of dividends. Similarly, Clear Channel Communications has the power
to determine or significantly influence the outcome of matters submitted to a vote of our
shareholders, has the power to prevent a change in control of us and could take other actions that
might be favorable to Clear Channel Communications.
Prior to the IPO, we entered into a Master Agreement and a number of other agreements with
Clear Channel Communications setting forth various matters governing our separation from Clear
Channel Communications and our relationship with Clear Channel Communications while it remains a
significant shareholder in us. These agreements govern our relationship with Clear Channel
Communications and provide for, among other things, the allocation of employee benefit, tax and
other liabilities and obligations attributable to our operations.
Set forth below are descriptions of certain agreements, relationships and transactions we have
with Clear Channel Communications. The following descriptions and summaries of each of the
agreements with Clear Channel Communications are qualified in their entirety by reference to the
complete texts of the agreements, which are incorporated by reference into this Annual Report as
exhibits. We encourage you to read each agreement in its entirety for a more complete description
of the terms and conditions of each agreement.
Master Agreement
Prior to the IPO, we entered into a master agreement with Clear Channel Communications. In
this Annual Report, we refer to this agreement as the Master Agreement. The Master Agreement sets
forth our agreements with Clear Channel Communications regarding the principal transactions that
were required to effect the transfer of assets and the assumption of liabilities necessary to
complete the separation of our company from Clear Channel Communications. It also sets forth other
agreements governing our relationship after the separation.
The Transfers
To effect the separation, Clear Channel Communications transferred, or caused to be
transferred, to us the assets related to our businesses not owned by us. We or our subsidiaries
assumed and agreed to perform, discharge and fulfill the liabilities related to our businesses for
which Clear Channel Communications or its affiliates were
96
obligated (which, in the case of tax
liabilities, is governed by the Tax Matters Agreement described below). With respect to any
governmental approval or other consent required to transfer any assets to us or for us to assume
any liabilities that was not obtained prior to the completion of the IPO, we agreed with Clear
Channel Communications that such transfer or assumption would be deferred until the necessary
approvals or consents are obtained. Clear Channel Communications agreed to continue to hold any
such assets and be responsible for the liabilities for our benefit and at our expense until the
necessary approvals or consents are obtained.
Similarly, we transferred, or caused to be transferred, to Clear Channel Communications the
assets related to its business that were owned by us. Clear Channel Communications assumed from us
and agreed to perform, discharge and fulfill the liabilities related to its business for which we
were obligated.
Except as expressly set forth in the Master Agreement or in any other transaction document,
neither we nor Clear Channel Communications made any representation or warranty as to:
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the assets, businesses or liabilities contributed, transferred or assumed as part of the separation;
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•
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any consents or approvals required in connection with the transfers;
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•
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the value, or freedom from any security interests, of, or any other matter
concerning, any assets transferred;
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•
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the absence of any defenses or right of set-off or freedom from counterclaim with
respect to any claim or other assets of either us or Clear Channel Communications; or
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•
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the legal sufficiency of any document or instrument delivered to convey title to any
asset transferred.
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Except as expressly set forth in any transaction document, all assets were transferred on an
“as is,” “where is” basis, and we and our subsidiaries agreed to bear the economic and legal risks
that any conveyance was insufficient to vest in us good title, free and clear of any security
interest, and that any necessary consents or approvals are not obtained or that any requirements of
laws or judgments are not complied with.
Auditors and Audits; Annual Financial Statements and Accounting
We have agreed that, for so long as Clear Channel Communications is required to consolidate
our results of operations and financial position or account for its investment in our company under
the equity method of accounting, we will maintain a fiscal year end and accounting periods the same
as Clear Channel Communications, conform our financial presentation with that of Clear Channel
Communications and we will not change our independent auditors without Clear Channel
Communications’ prior written consent (which will not be unreasonably withheld), and we will use
commercially reasonable efforts to enable our independent auditors to complete their audit of our
financial statements in a timely manner so as to permit timely filing of Clear Channel
Communications’ financial statements. We have also agreed to provide to Clear Channel
Communications all information required for Clear Channel Communications to meet its schedule for
the filing and distribution of its financial statements and to make available to Clear Channel
Communications and its independent auditors all documents necessary for the annual audit of our
company as well as access to the responsible personnel so that Clear Channel Communications and its
independent auditors may conduct their audits relating to our financial statements. We will provide
Clear Channel Communications with financial reports, financial statements, budgets, projections,
press releases and other financial data and information with respect to our business, properties
and financial positions. We have also agreed to adhere to certain specified disclosure controls and
procedures and Clear Channel Communications accounting policies and to notify and consult with
Clear Channel Communications regarding any changes to our accounting principles and estimates used
in the preparation of our financial statements, and any deficiencies in, or violations of law in
connection with, our internal control over financial reporting and certain fraudulent conduct and
other violations of law.
97
Exchange of Other Information
The Master Agreement also provides for other arrangements with respect to the mutual sharing
of information between Clear Channel Communications and us in order to comply with reporting,
filing, audit or tax requirements, for use in judicial proceedings, and in order to comply with our
respective obligations after the separation. We also agreed to provide mutual access to historical
records relating to the other’s businesses that may be in our possession.
Releases and Indemnification
Except for each party’s obligations under the Master Agreement, the other transaction
documents and certain other specified liabilities, we and Clear Channel Communications agreed to
release and discharge each other and each of our affiliates, and their directors, officers, agents
and employees from all liabilities existing or arising between us on or before the separation,
including in connection with the separation and the IPO. The releases do not extend to obligations
or liabilities under any agreements between Clear Channel Communications and us that remain in
effect following the separation.
We agree to indemnify, hold harmless and defend Clear Channel Communications, each of its
affiliates and each of their respective directors, officers and employees, on an after-tax basis,
from and against all liabilities relating to, arising out of or resulting from:
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the failure by us or any of our affiliates or any other person or entity to pay,
perform or otherwise promptly discharge any liabilities or contractual obligations
associated with our businesses, whether arising before or after the separation;
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•
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the operations, liabilities and contractual obligations of our business whether
arising before or after the separation;
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•
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any guarantee, indemnification obligation, surety bond or other credit support
arrangement by Clear Channel Communications or any of its affiliates for our benefit;
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•
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any breach by us or any of our affiliates of the Master Agreement, the other
transaction documents or our amended and restated certificate of incorporation or
bylaws;
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•
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any untrue statement of, or omission to state, a material fact in Clear Channel
Communications’ public filings to the extent the statement or omission was as a result
of information that we furnished to Clear Channel Communications or that Clear Channel
Communications incorporated by reference from our public filings, if the statement or
omission was made or occurred after the separation; and
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•
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any untrue statement of, or omission to state, a material fact in any registration
statement or prospectus related to the IPO, except to the extent the statement was made
or omitted in reliance upon information provided to us by Clear Channel Communications
expressly for use in any such registration statement or prospectus or information
relating to and provided by any underwriter expressly for use in any such registration
statement or prospectus.
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Clear Channel Communications agrees to indemnify, hold harmless and defend us, each of our
affiliates and each of our and their respective directors, officers and employees, on an after-tax
basis, from and against all liabilities relating to, arising out of or resulting from:
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•
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the failure of Clear Channel Communications or any of its affiliates or any other
person or entity to pay, perform or otherwise promptly discharge any liabilities of
Clear Channel Communications or its affiliates, other than liabilities associated with
our businesses, whether arising before or after the separation;
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•
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the liabilities of Clear Channel Communications and its affiliates’ businesses,
other than liabilities associated with our businesses;
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98
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•
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any breach by Clear Channel Communications or any of its affiliates of the Master
Agreement or the other transaction documents;
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•
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any untrue statement of, or omission to state, a material fact in our public filings
to the extent the statement or omission was as a result of information that Clear
Channel Communications furnished to us or that we incorporated by reference from Clear
Channel Communications’ public filings, if the statement or omission was made or
occurred after the separation; and
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•
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any untrue statement of, or omission to state, a material fact contained in any
registration statement or prospectus related to the IPO, but only to the extent the
statement or omission was made or omitted in reliance upon information provided by
Clear Channel Communications expressly for use in any such registration statement or
prospectus.
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The Master Agreement also specifies procedures with respect to claims subject to
indemnification and related matters and provides for contribution in the event that indemnification
is not available to an indemnified party.
Expenses of the Separation and Our Initial Public Offering.
Clear Channel Communications paid
or reimbursed us for all out-of-pocket fees, costs and expenses (including all legal, accounting
and printing expenses) incurred prior to the completion of the IPO in connection with our
separation from Clear Channel Communications, except that we were responsible for fees and expenses
attributable to the IPO.
Dispute Resolution Procedures
We agreed with Clear Channel Communications that neither party will commence any court action
to resolve any dispute or claim arising out of or relating to the Master Agreement, subject to
certain exceptions. Instead, any dispute that is not resolved in the normal course of business will
be submitted to senior executives of each business entity involved in the dispute for resolution.
If the dispute is not resolved by negotiation within 45 days after submission to the executives,
either party may submit the dispute to mediation. If the dispute is not resolved by mediation
within 30 days after the selection of a mediator, either party may submit the dispute to binding
arbitration before a panel of three arbitrators. The arbitrators will determine the dispute in
accordance with Texas law. Most of the other agreements between Clear Channel Communications and us
have similar dispute resolution provisions.
Other Provisions
The Master Agreement also contains covenants between Clear Channel Communications and us with
respect to other matters, including the following:
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•
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our agreement (subject to certain limited exceptions) not to repurchase shares of
our outstanding Class A common stock or any other securities convertible into or
exercisable for our Class A common stock, without first obtaining the prior written
consent or affirmative vote of Clear Channel Communications, for so long as Clear
Channel Communications owns more than 50% of the total voting power of our common
stock;
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•
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|
confidentiality of our and Clear Channel Communications’ information;
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•
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|
our right to continue coverage under Clear Channel Communications’ insurance
policies for so long as Clear Channel Communications owns more than 50% of our
outstanding common stock;
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•
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restrictions on our ability to take any action or enter into any agreement that
would cause Clear Channel Communications to violate any law, organizational document,
agreement or judgment;
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•
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restrictions on our ability to take any action that limits Clear Channel
Communications’ ability to freely sell, transfer, pledge or otherwise dispose of our
stock;
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99
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•
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|
our obligation to comply with Clear Channel Communications’ policies applicable to
its subsidiaries for so long as Clear Channel Communications owns more than 50% of the
total voting power of our outstanding common stock, except (i) to the extent such
policies conflict with our amended and restated certificate of incorporation or bylaws
or any of the agreements between Clear Channel Communications and us, or (ii) as
otherwise agreed with Clear Channel Communications or superseded by any policies
adopted by our board of directors; and
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•
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|
restrictions on our ability to enter into any agreement that binds or purports to
bind Clear Channel Communications.
|
Approval Rights of Clear Channel Communications on Certain of our Activities
Until the first date on which Clear Channel Communications owns less than 50% of the total
voting power of our common stock, the prior affirmative vote or written consent of Clear Channel
Communications is required for the following actions (subject in each case to certain agreed
exceptions):
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•
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a merger involving us or any of our subsidiaries (other than mergers involving our
subsidiaries or to effect acquisitions permitted under our amended and restated
certificate of incorporation);
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•
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acquisitions by us or our subsidiaries of the stock or assets of another business
for a price (including assumed debt) in excess of $5 million;
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•
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dispositions by us or our subsidiaries of assets in a single transaction or a series
of related transactions for a price (including assumed debt) in excess of $5 million;
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•
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incurrence or guarantee of debt by us or our subsidiaries in excess of $400.0
million outstanding at any one time or that could reasonably be expected to result in a
negative change in any of our credit ratings, excluding our debt with Clear Channel
Communications, intercompany debt (within our company and its subsidiaries), and debt
determined to constitute operating leverage by a nationally recognized statistical
rating organization;
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•
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issuance by us or our subsidiaries of capital stock or other securities convertible
into capital stock;
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•
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|
enter into any agreement restricting our ability or the ability of any of our
subsidiaries to pay dividends, borrow money, repay indebtedness, make loans or transfer
assets, in any such case to our company or Clear Channel Communications;
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•
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dissolution, liquidation or winding up of our company or any of our subsidiaries;
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•
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adoption of a rights agreement; and
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•
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alteration, amendment, termination or repeal of, or adoption of any provision
inconsistent with, the provisions of our amended and restated certificate of
incorporation or our bylaws relating to our authorized capital stock, the rights
granted to the holders of the Class B common stock, amendments to our bylaws,
shareholder action by written consent, shareholder proposals and meetings, limitation
of liability of and indemnification of our officers and directors, the size or classes
of our board of directors, corporate opportunities and conflicts of interest between
our company and Clear Channel Communications, and Section 203 of the Delaware General
Corporation Law.
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100
Corporate Services Agreement
We entered into a corporate services agreement with Clear Channel Communications prior to the
completion of the IPO to provide us certain administrative and support services and other
assistance in the United States consistent with the services provided to us before the IPO. In this
Annual Report, we refer to this agreement as the Corporate Services Agreement. The services Clear
Channel Communications provides us, as qualified in the agreement, include, without limitation, the
following:
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treasury, payroll and other financial related services;
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•
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executive officer services;
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•
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human resources and employee benefits;
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•
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legal and related services;
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•
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information systems, network and related services;
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•
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|
investment services;
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•
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corporate services; and
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•
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|
procurement and sourcing support.
|
The charges for the corporate services generally are intended to allow Clear Channel
Communications to fully recover the allocated direct costs of providing the services, plus all
out-of-pocket costs and expenses, generally without profit. The allocation of cost is based on
various measures depending on the service provided, which measures will include relative revenue,
employee headcount or number of users of a service.
Under the Corporate Services Agreement, we and Clear Channel Communications each have the
right to purchase goods or services, use intellectual property licensed from third parties and
realize other benefits and rights under the other party’s agreements with third-party vendors to
the extent allowed by such vendor agreements. The agreement also will provide for the lease or
sublease of certain facilities used in the operation of our respective businesses and for access to
each other’s computing and telecommunications systems to the extent necessary to perform or receive
the corporate services.
The Corporate Services Agreement requires Clear Channel Communications to continue to make
available to us the range of services provided by Clear Channel Communications prior to the IPO, as
qualified by such agreement, and requires us to utilize such services in the conduct of our
business until such time as Clear Channel Communications owns less than 50% of the total voting
power of our common stock. The Corporate Services Agreement may be terminated by mutual agreement
of Clear Channel Communications and us at any time, or upon no less than six months prior notice
after such time as Clear Channel Communications owns less than 50% of the total voting power of our
common stock. However, the Corporate Services Agreement requires Clear Channel Communications to
provide, and us to continue to use, certain specified services, generally related to information
technology, for a period of time specified in the agreement after the expiration of the six month
notice period. Our participation in the Clear Channel Communications employee benefit plans may be
terminated by us or by Clear Channel Communications on 90 days’ notice and, unless otherwise
agreed, will terminate if and when Clear Channel Communications owns less than 80% of the total
combined voting power of our common stock. See “— Employee Matters Agreement” below. Under the
terms of the Corporate Services Agreement, Clear Channel Communications will not be liable to us
for or in connection with any services rendered pursuant to the agreement or for any actions or
inactions taken by Clear Channel Communications in connection with the provision of services.
However, Clear Channel Communications will be liable for, and will indemnify a receiving party for,
liabilities resulting from its gross negligence, willful misconduct, improper use or disclosure of
client information or violations of law, subject to a cap on Clear Channel Communications’
liability of the amount received by Clear Channel Communications under the Corporate Services
Agreement during the immediately preceding 12-month period. Additionally, we will indemnify Clear
Channel Communications for any losses arising from the provision of
101
services, except to the extent
the liabilities are caused by Clear Channel Communications’ gross negligence or material breach of
the Corporate Services Agreement.
The Corporate Services Agreement provides that, with respect to executive services, Clear
Channel Communications will make available to us, and we will be obligated to utilize, the services
of the chief executive officer of Clear Channel Communications, currently Mark P. Mays, to serve as
our Chief Executive Officer, and the chief financial officer of Clear Channel Communications,
currently Randall T. Mays, to serve as our Chief Financial Officer. Our obligation to utilize the
services of each of the chief executive officer and chief financial officer of Clear Channel
Communications in these capacities will continue until Clear Channel Communications owns less than
50% of the voting power of our common stock or we provide Clear Channel Communications with six
months prior written notice of termination. Clear Channel Communications will charge an allocable
portion of the compensation and benefits costs of such persons based on the ratio of our OIBDAN to
the total Clear Channel Communications OIBDAN using the previous year’s fiscal results. The
compensation and benefits costs allocated to us will include such executives’ salary, bonus and
other standard employee benefits, but will exclude equity based compensation. Because bonus is a
major component of the allocable part of such executives’ compensation and increase in OIBDAN is a
major element in calculating such bonus, OIBDAN was used as the basis for making the allocation of
overall compensation expense between Clear Channel Communications and us.
Each of Mark and Randall Mays is employed by Clear Channel Communications, and spends a
substantial part of his professional time and effort on behalf of Clear Channel Communications. In
addition, both Mark and Randall Mays serve as directors of Live Nation, Inc., which was the
entertainment business of Clear Channel Communications prior to being spun off by Clear Channel
Communications to its shareholders. We have not established any minimum time requirements for such
officers. In addition, Mark and Randall Mays continue to participate in Clear Channel
Communications’ stock incentive and other benefits plans and continue to hold a substantial number
of shares of and/or options to purchase shares of common stock of Clear Channel Communications.
These substantial interests in Clear Channel Communications’ equity present these officers with
incentives different from those of our shareholders, and may create conflicts of interest described
under “1A. Risk Factors — Risks Related to Our Relationship with Clear Channel Communications.”
Registration Rights Agreement
We entered into a registration rights agreement with Clear Channel Communications prior to the
completion of the IPO to provide Clear Channel Communications with registration rights relating to
shares of our outstanding common stock held by Clear Channel Communications after the IPO. In this
Annual Report, we refer to this agreement as the Registration Rights Agreement.
Clear Channel Communications may assign its rights under the Registration Rights Agreement to
any person that acquires shares of our outstanding common stock subject to the agreement and agrees
to be bound by the terms of the agreement. Subject to certain limitations, Clear Channel
Communications and its permitted transferees may require us to register under the Securities Act of
1933, as amended, all or any portion of these shares, a so-called “demand request.” We are not
obligated to effect the following:
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a demand registration within 60 days after the effective date of a previous demand
registration, other than a shelf registration pursuant to Rule 415 under the Securities
Act;
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|
•
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|
a demand registration within 180 days after the effective date of the registration
statement related to the IPO;
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|
•
|
|
a demand registration, unless the demand request is for a number of shares of common
stock with a market value that is equal to at least $150.0 million; and
|
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|
•
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|
more than two demand registrations during the first 12 months after the IPO or more
than three demand registrations during any 12-month period thereafter.
|
We may defer the filing of a registration statement for a period of up to 90 days after a
demand request has been made if (i) at the time of such request we are engaged in confidential
business activities, which would be
102
required to be disclosed in the registration statement, and our
board of directors determines that such disclosure would be materially detrimental to us and our
shareholders, or (ii) prior to receiving such request, our board of directors had determined to
effect a registered underwritten public offering of our securities for our account and we have
taken substantial steps to effect such offering. However, with respect to two demand requests only,
if Clear Channel Communications or any of its affiliates makes a demand request during the two-year
period after the IPO, we will not have the right to defer such demand registration or to not file
such registration statement during that period.
Additionally, Clear Channel Communications and its permitted transferees have so-called
“piggyback” registration rights, which means that Clear Channel Communications and its permitted
transferees may include their respective shares in any future registrations of our equity
securities, whether or not that registration relates to a primary offering by us or a secondary
offering by or on behalf of any of our shareholders. The demand registration rights and piggyback
registrations are each subject to market cutback exceptions.
We will pay all costs and expenses in connection with any “demand” registration and any
“piggyback” registration, except in each case underwriting discounts, commissions or fees
attributable to the shares of common stock sold by Clear Channel Communications. The Registration
Rights Agreement sets forth customary registration procedures, including an agreement by us to make
our management available for road show presentations in connection with any underwritten offerings.
We also agree to indemnify Clear Channel Communications and its permitted transferees with respect
to liabilities resulting from untrue statements or omissions in any registration statement used in
any such registration, other than untrue statements or omissions resulting from information
furnished to us for use in the registration statement by Clear Channel Communications or any
permitted transferee.
The rights of Clear Channel Communications and its permitted transferees under the
Registration Rights Agreement will remain in effect with respect to the shares of common stock
covered by the agreement until those shares:
|
•
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|
have been sold pursuant to an effective registration statement under the Securities Act;
|
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|
•
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|
have been sold to the public pursuant to Rule 144 under the Securities Act;
|
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|
•
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|
have been transferred in a transaction where subsequent public distribution of the shares would not require registration under the Securities Act; or
|
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|
•
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|
are no longer outstanding.
|
Additionally, the registration rights under the agreement will cease to apply to a holder
other than Clear Channel Communications or its affiliates when such holder holds less than 3% of
economic value of the then-outstanding shares of common stock covered by the agreement and such
shares are eligible for sale pursuant to Rule 144(k) under the Securities Act.
Tax Matters Agreement
We and certain of our eligible corporate subsidiaries continue to be included in the
affiliated group of corporations that files a consolidated return for U.S. federal income tax
purposes of which Clear Channel Communications is the common parent corporation, and in certain
cases, we or one or more of our subsidiaries may be included in a combined, consolidated or unitary
group with Clear Channel Communications or one or more of its subsidiaries for certain state and
local income tax purposes. Prior to the completion of the IPO, we and Clear Channel Communications
entered into a tax matters agreement to allocate the responsibility of Clear Channel Communications
and its subsidiaries, on the one hand, and we and our subsidiaries, on the other, for the payment
of taxes resulting from filing tax returns on a combined, consolidated or unitary basis. In this
Annual Report, we refer to this agreement as the Tax Matters Agreement.
With respect to tax returns in which we or any of our subsidiaries are included in a combined,
consolidated or unitary group with Clear Channel Communications or any of its subsidiaries for
federal, state or local tax purposes, we will make payments to Clear Channel Communications
pursuant to the Tax Matters Agreement equal
103
to the amount of taxes that would be paid if we and
each of our subsidiaries included in such group filed a separate tax return. We will also reimburse
Clear Channel Communications for the amount of any taxes paid by it on our behalf with respect to
tax returns that include only us or any of our subsidiaries for federal, state or local tax
purposes, which tax returns, as described below, will be prepared and filed by Clear Channel
Communications. With respect to certain tax items, such as foreign tax credits, alternative minimum
tax credits, net operating losses and net capital losses, that are generated by us or our
subsidiaries, but are used by Clear Channel Communications or its subsidiaries when a tax return is
filed on a combined, consolidated or unitary basis for federal, state or local tax purposes, we
will be reimbursed by Clear Channel Communications as such tax items are used.
Under the Tax Matters Agreement, Clear Channel Communications is appointed the sole and
exclusive agent for us and our subsidiaries in any and all matters relating to federal, state and
local income taxes, has sole and exclusive responsibility for the preparation and filing of all tax
returns (or amended returns) related to such taxes and has the power, in its sole discretion, to
contest or compromise any asserted tax adjustment or deficiency and to file, litigate or compromise
any claim for refund on behalf of us or any of our subsidiaries with respect to such taxes.
Additionally, Clear Channel Communications will determine the amount of our liability to (or
entitlement to payment from) Clear Channel Communications under the Tax Matters Agreement. This
arrangement may result in conflicts of interest between Clear Channel Communications and us. For
example, under the Tax Matters Agreement, Clear Channel Communications is able to choose to
contest, compromise or settle any adjustment or deficiency proposed by the relevant taxing
authority in a manner that may be beneficial to Clear Channel Communications and detrimental to us.
For U.S. federal income tax purposes, each member of an affiliated group of corporations that
files a consolidated return is jointly and severally liable for the U.S. federal income tax
liability of the entire group. Similar principles may apply with respect to members of a group that
file a tax return on a combined, consolidated or unitary group basis for state and local tax
purposes. Accordingly, although the Tax Matters Agreement allocates tax liabilities between Clear
Channel Communications and us during the period in which we or any of our subsidiaries are included
in the consolidated group of Clear Channel Communications or any of its subsidiaries, we and our
subsidiaries included in such consolidated group could be liable for the tax liability of the
entire consolidated group in the event any such tax liability is incurred and not discharged by
Clear Channel Communications. The Tax Matters Agreement provides, however, that Clear Channel
Communications will indemnify us and our subsidiaries to the extent that, as a result of us or any
of our subsidiaries being a member of a consolidated group, we or our subsidiaries becomes liable
for the tax liability of the entire consolidated group (other than the portion of such liability
for which we and our subsidiaries are liable under the Tax Matters Agreement).
Under Section 482 of the Code, the Internal Revenue Service has the authority in certain
instances to redistribute, reapportion or reallocate gross income, deductions, credits or
allowances between Clear Channel Communications and us. Other taxing authorities may have similar
authority under comparable provisions of foreign, state and local law. The Tax Matters Agreement
provides that we or Clear Channel Communications will indemnify the other to the extent that, as a
result of the Internal Revenue Service exercising its authority (or any other taxing authority
exercising a similar authority), the tax liability of one group is reduced while the tax liability
of the other group is increased.
If Clear Channel Communications spins off our Class B common stock to its shareholders in a
distribution that is intended to be tax-free under Section 355 of the Code, we have agreed in the
Tax Matters Agreement to indemnify Clear Channel Communications and its affiliates against any and
all tax-related liabilities if such a spin-off fails to qualify as a tax-free distribution
(including as a result of Section 355(e) of the Code) due to actions, events or transactions
relating to our stock, assets or business, or a breach of the relevant representations or covenants
made by us in the Tax Matters Agreement. If neither we nor Clear Channel Communications is
responsible under the Tax Matters Agreement for any such spin-off not being tax-free under Section
355 of the Code, we and Clear Channel Communications have agreed that we will each be responsible
for 50% of the tax related liabilities arising from the failure of such a spin-off to so qualify.
Employee Matters Agreement
We have entered into an employee matters agreement with Clear Channel Communications covering
certain compensation and employee benefit issues. In this Annual Report, we refer to this agreement as the
104
Employee Matters Agreement. In general, with certain exceptions, our employees continue to
participate in the Clear Channel Communications employee plans and arrangements along with the
employees of other Clear Channel Communications subsidiaries, on terms and conditions consistent
with past practice. We also continue to have our payroll administered by Clear Channel
Communications, also on terms and conditions consistent with past practice.
We and Clear Channel Communications reserve the right to withdraw from or terminate our
participation, as the case may be, in any of the Clear Channel Communications employee plans and
arrangements at any time and for any reason, subject to at least 90 days’ notice. Unless sooner
terminated, it is likely that our participation in Clear Channel Communications employee plans and
arrangements will end if and at such time as we are no longer a subsidiary of Clear Channel
Communications, which, for this purpose, means Clear Channel Communications owns less than 80% of
the total combined voting power of all classes of our capital stock entitled to vote. We will,
however, continue to bear the cost of and retain responsibility for all employment-related
liabilities and obligations associated with our employees (and their covered dependents and
beneficiaries), regardless of when incurred.
We have our own stock incentive and annual incentive plans in place for our employees. Our
employees who participated in the Clear Channel Communications Annual Incentive Compensation Plan
continued their participation through the end of 2005, pursuant to the performance-based awards
previously made to them. We made the performance-related evaluations and determinations of 2005
bonus amounts earned by our executive officers under the Clear Channel Communications plan. For
2006, our executive officers and other designated key employees will be covered by our plan.
Trademarks
Prior to the completion of the IPO, we amended and restate a trademark license agreement that
entitles us to use (i) on a nonexclusive basis, the “Clear Channel” trademark and the Clear Channel
Communications “outdoor” trademark logo with respect to day-to-day operations of our business; and
(ii) certain other Clear Channel Communications marks in connection with our business. In this
Annual Report, we refer to this agreement as the Trademark License Agreement. Our use of the marks
is subject to Clear Channel Communications’ approval. Clear Channel Communications may terminate
our use of the marks in certain circumstances, including (i) a breach by us of a term or condition
of the Master Agreement, the Corporate Services Agreement, the Tax Matters Agreement or the
Employee Matters Agreement and (ii) at any time after Clear Channel Communications ceases to own at
least 50% of the total voting power of our common stock. For our use of these trademarks and other
marks, we pay Clear Channel Communications a royalty fee which is approximately 1.5% of gross
receipts (or outdoor advertising revenues earned by users of the marks) less an annual management
fee of $21,600. For the years ended December 31, 2005, 2004 and 2003, we recorded $14.8 million,
$15.8 million and $14.1 million of royalty fees, respectively.
Clear Channel Communications Agreements with Third Parties
Historically, we have received services provided by third parties pursuant to various
agreements that Clear Channel Communications has entered into for the benefit of its affiliates. We
pay the third parties directly for the services they provide to us or reimburse Clear Channel
Communications for our share of the actual costs incurred under the agreements. We intend to
continue to procure certain of these third-party services, including services related to insurance,
vehicle leases, information technology and software, through contracts entered into by Clear
Channel Communications, to the extent we are permitted (and elect to) or required to do so.
Products and Services Provided between Clear Channel Communications and Us
We and Clear Channel Communications engage in transactions in the ordinary course of our
respective businesses. These transactions include our providing billboard and other advertising
space to Clear Channel Communications at rates we believe would be charged to a third party in an
arm’s length transaction.
Our branch managers have historically followed a corporate policy allowing Clear Channel
Communications to use, without charge, Americas displays that they or their staff believe would
otherwise be unsold. Our sales personnel receive partial revenue credit for that usage for
compensation purposes. This partial revenue credit is not included in our reported revenues. Clear
Channel Communications bears the cost of producing
105
the advertising and we bear the costs of
installing and removing this advertising. In 2005, we estimated that these discounted revenues
would have been less than 2% of our Americas revenues. Under the Master Agreement, this policy will
continue.
Intercompany Notes
We currently have issued one intercompany note to Clear Channel Communications in the total
original principal amount of $2.5 billion. See “Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations.”
ITEM 14. Principal Accountant Fees and Services
Ernst & Young LLP billed Clear Channel the following fees for services provided during the
year ended December 31, 2005:
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(in thousands)
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Annual audit fees (1)
|
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$
|
556
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|
Audit-related fees
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—
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Tax fees
|
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—
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All other fees
|
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—
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$
|
556
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(1)
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Annual audit fees are for incremental professional services rendered for the audit of our
stand-alone annual financial statements and reviews of stand-alone quarterly financial
statements. This category also includes incremental assistance with and review of documents
filed with the SEC, attest services, work done by tax professionals in connection with the
audit or quarterly reviews, and accounting consultations and research work necessary to comply
with generally accepted auditing standards. These fees are in addition to the fees paid by
Clear Channel Communications for professional services rendered on behalf of the consolidated
company. During 2005, Clear Channel Communications allocated approximately $6.0 million of its
consolidated audit fees to us.
|
The Audit Committee pre-approves all audit and permitted non-audit services (including the
fees and terms thereof) to be performed for the Company by its independent auditor. The chairperson
of the Audit Committee may represent the entire Committee for the purposes of pre-approving
permissible non-audit services, provided the decision to pre-approve any service is disclosed to
the Audit Committee no later than its next scheduled meeting.
106
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
(a)1. Financial Statements.
The following consolidated financial statements are included in Item 8.
Consolidated and Combined Balance Sheets as of December 31, 2005 and 2004
Consolidated and Combined Statements of Operations for the Years Ended December 31, 2005, 2004 and
2003
Consolidated and Combined Statements of Changes in Shareholders’/Owner’s Equity for the Years Ended
December 31, 2005, 2004 and 2003
Consolidated and Combined Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and
2003
Notes to Consolidated and Combined Financial Statements
(a)2. Financial Statement Schedule.
The following financial statement schedule for the years ended December 31, 2005, 2004 and 2003 is
filed as part of this Annual Report and should be read in conjunction with the consolidated and
combined financial statements.
Schedule II Valuation and Qualifying Accounts
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.
107
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
(In thousands)
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Charges
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Balance at
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to Costs,
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Write-off
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Balance
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Beginning
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Expenses
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of Accounts
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at end of
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Description
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of period
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and other
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Receivable
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Other (1)
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Period
|
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Year ended
December 31,
2003
|
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$
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18,819
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$
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6,996
|
|
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$
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12,311
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|
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$
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2,209
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$
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15,713
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Year ended
December 31,
2004
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$
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15,713
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$
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8,731
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$
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6,112
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$
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1,155
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$
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19,487
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Year ended
December 31,
2005
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$
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19,487
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$
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11,583
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$
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7,505
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$
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(1,866
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)
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$
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21,699
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(1)
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Foreign currency adjustments.
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108
(a)3. Exhibits.
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Exhibit
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Number
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Description
|
3.1*
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Amended and Restated Certificate of Incorporation of Clear Channel Outdoor Holdings, Inc.
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3.2*
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Amended and Restated Bylaws of the Clear Channel Outdoor Holdings, Inc.
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4.1
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Form of Specimen Class A Common Stock certificate of Clear Channel Outdoor Holdings,
Inc. (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on
Form S-1 (File No. 333-333-127375 (the “Registration Statement”))
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4.2
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Form of Specimen Class B Common Stock certificate of Clear Channel Outdoor Holdings,
Inc. (incorporated herein by reference to Exhibit 4.2 to the Registration Statement)
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10.1*
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Master Agreement dated November 16, 2005 between Clear Channel Outdoor Holdings, Inc.
and Clear Channel Communications, Inc.
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10.2*
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Registration Rights Agreement dated November 16, 2005 between Clear Channel Outdoor
Holdings, Inc. and Clear Channel Communications, Inc.
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10.3*
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Corporate Services Agreement dated November 16, 2005 between Clear Channel Outdoor
Holdings, Inc. and Clear Channel Management Services, L.P.
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10.4*
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Tax Matters Agreement dated November 10, 2005 by and between Clear Channel Outdoor
Holdings, Inc. and Clear Channel Communications, Inc.
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10.5*
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Employee Matters Agreement dated November 10, 2005 between Clear Channel Outdoor
Holdings, Inc. and Clear Channel Communications, Inc.
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10.6*
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Amended and Restated License Agreement dated November 10, 2005 between Clear Channel
Identity, L.P. and Outdoor Management Services, Inc.
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10.7*
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Revolving Promissory Note dated November 10, 2005 payable by Clear Channel Outdoor
Holdings, Inc. to Clear Channel Communications, Inc. in the original principal amount of
$1,000,000,000.
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10.8*
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Revolving Promissory Note dated November 10, 2005 payable by Clear Channel
Communications, Inc. to Clear Channel Outdoor Holdings, Inc. in the original principal
amount of $1,000,000,000.
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10.9
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Senior Unsecured Term Promissory Note dated August 2, 2005 in the original principal
amount of $2.5 billion (incorporated herein by reference to Exhibit 10.9 to the
Registration Statement)
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10.10
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First Amendment to Senior Unsecured Term Promissory Note dated October 7, 2005
(incorporated herein by reference to Exhibit 10.10 to the Registration Statement)
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10.11§
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Clear Channel Outdoor Holdings, Inc. 2005 Stock Incentive Plan (incorporated herein by
reference to Exhibit 10.1 to the Registration Statement on Form S-8 filed December 9,
2005 (File No. 333-130229))
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10.12§
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Form of Option Agreement under the Clear Channel Outdoor Holdings, Inc. 2005 Stock
Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the Registration
Statement on Form S-8 filed December 9, 2005 (File No. 333-130229))
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10.13
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Form of Restricted Stock Award Agreement under the Clear Channel Outdoor Holdings, Inc.
2005 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the
Registration Statement on Form S-8 filed December 9, 2005 (File No. 333-130229))
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109
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Exhibit
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Number
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Description
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10.14§
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2006 Annual Incentive Plan of Clear Channel Outdoor Holdings, Inc. (incorporated herein
by reference to Exhibit 10.12 to the Registration Statement)
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10.15§
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Amended and Restated Employment Agreement by and between Clear Channel Communications,
Inc. and Mark P. Mays dated March 10, 2005 (incorporated herein by reference to Exhibit
10.15 to the Clear Channel Communications, Inc. Form 10-K (File No. 1-9645) filed March
11, 2005)
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10.16§
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Amended and Restated Employment Agreement by and between Clear Channel Communications,
Inc. and Randall T. Mays dated March 10, 2005 (incorporated herein by reference to
Exhibit 10.16 to the Clear Channel Communications, Inc. Form 10-K (File No. 1-9645)
filed March 11, 2005)
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10.17§
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Employment Agreement by and between Clear Channel Outdoor Holdings, Inc. and Paul J.
Meyer dated August 5, 2005 (incorporated herein by reference to Exhibit 10.1 to the
Clear Channel Communications, Inc. Form 8-K (File No. 1-9645) filed August 10, 2005)
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11*
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Statement re: Computation of Per Share Earnings.
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21*
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Subsidiaries of Clear Channel Outdoor Holdings, Inc.
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23.1*
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Consent of Ernst & Young LLP.
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24*
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Power of Attorney (included on signature page).
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31.1*
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Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2*
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Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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32.1*
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|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
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32.2*
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|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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*
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|
Filed herewith
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§
|
|
Management contract or compensatory plan or arrangement
|
The Company has not filed long-term debt instruments of its subsidiaries where the total amount
under such instruments is less than ten percent of the total assets of the Company and its
subsidiaries on a consolidated basis. However, the Company will furnish a copy of such instruments
to the Commission upon request.
110
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on March 29, 2006.
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CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
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By:
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/S/ Mark P. Mays
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Mark P. Mays
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Chief Executive Officer
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Power of Attorney
Each person whose signature appears below authorizes Mark P. Mays and Randall T. Mays, or any
one of them, each of whom may act without joinder of the others, to execute in the name of each
such person who is then an officer or director of the Registrant and to file any amendments to this
annual report on Form 10-K necessary or advisable to enable the Registrant to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, which amendments may make such changes in
such report as such attorney-in-fact may deem appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
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Name
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Title
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|
Date
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/S/ L. Lowry Mays
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|
Chairman of the Board and Director
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|
March 29, 2006
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L. Lowry Mays
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/S/ Mark P. Mays
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Chief Executive Officer and Director
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Mark P. Mays
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(Principal Executive Officer)
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|
March 29, 2006
|
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/S/ Randall T. Mays
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|
Chief Financial Officer and Director
|
|
|
Randall T. Mays
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|
(Principal Financial and Accounting Officer)
|
|
March 29, 2006
|
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/S/ William D. Parker
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Director
|
|
March 29, 2006
|
William D. Parker
|
|
|
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/S/ James M. Raines
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Director
|
|
March 29, 2006
|
James M. Raines
|
|
|
|
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|
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/S/ Marsha McCombs Shields
|
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Director
|
|
March 29, 2006
|
Marsha McCombs Shields
|
|
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/S/ Dale W. Tremblay
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Director
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March 29, 2006
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Dale W. Tremblay
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111
Exhibit Index
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Exhibit
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Number
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Description
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3.1*
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Amended and Restated Certificate of Incorporation of Clear Channel Outdoor Holdings, Inc.
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3.2*
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Amended and Restated Bylaws of the Clear Channel Outdoor Holdings, Inc.
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4.1
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Form of Specimen Class A Common Stock certificate of Clear Channel Outdoor Holdings,
Inc. (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on
Form S-1 (File No. 333-333-127375 (the “Registration Statement”))
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4.2
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Form of Specimen Class B Common Stock certificate of Clear Channel Outdoor Holdings,
Inc. (incorporated herein by reference to Exhibit 4.2 to the Registration Statement)
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10.1*
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Master Agreement dated November 16, 2005 between Clear Channel Outdoor Holdings, Inc.
and Clear Channel Communications, Inc.
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10.2*
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Registration Rights Agreement dated November 16, 2005 between Clear Channel Outdoor
Holdings, Inc. and Clear Channel Communications, Inc.
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10.3*
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Corporate Services Agreement dated November 16, 2005 between Clear Channel Outdoor
Holdings, Inc. and Clear Channel Management Services, L.P.
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10.4*
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Tax Matters Agreement dated November 10, 2005 by and between Clear Channel Outdoor
Holdings, Inc. and Clear Channel Communications, Inc.
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10.5*
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Employee Matters Agreement dated November 10, 2005 between Clear Channel Outdoor
Holdings, Inc. and Clear Channel Communications, Inc.
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10.6*
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Amended and Restated License Agreement dated November 10, 2005 between Clear Channel
Identity, L.P. and Outdoor Management Services, Inc.
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10.7*
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Revolving Promissory Note dated November 10, 2005 payable by Clear Channel Outdoor
Holdings, Inc. to Clear Channel Communications, Inc. in the original principal amount of
$1,000,000,000.
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10.8*
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Revolving Promissory Note dated November 10, 2005 payable by Clear Channel
Communications, Inc. to Clear Channel Outdoor Holdings, Inc. in the original principal
amount of $1,000,000,000.
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10.9
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Senior Unsecured Term Promissory Note dated August 2, 2005 in the original principal
amount of $2.5 billion (incorporated herein by reference to Exhibit 10.9 to the
Registration Statement)
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10.10
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First Amendment to Senior Unsecured Term Promissory Note dated October 7, 2005
(incorporated herein by reference to Exhibit 10.10 to the Registration Statement)
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10.11§
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Clear Channel Outdoor Holdings, Inc. 2005 Stock Incentive Plan (incorporated herein by
reference to Exhibit 10.1 to the Registration Statement on Form S-8 filed December 9,
2005 (File No. 333-130229))
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10.12§
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Form of Option Agreement under the Clear Channel Outdoor Holdings, Inc. 2005 Stock
Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the Registration
Statement on Form S-8 filed December 9, 2005 (File No. 333-130229))
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10.13
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Form of Restricted Stock Award Agreement under the Clear Channel Outdoor Holdings, Inc.
2005 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the
Registration Statement on Form S-8 filed December 9, 2005 (File No. 333-130229))
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112
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Exhibit
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Number
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Description
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10.14§
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2006 Annual Incentive Plan of Clear Channel Outdoor Holdings, Inc. (incorporated herein
by reference to Exhibit 10.12 to the Registration Statement)
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10.15§
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Amended and Restated Employment Agreement by and between Clear Channel Communications,
Inc. and Mark P. Mays dated March 10, 2005 (incorporated herein by reference to Exhibit
10.15 to the Clear Channel Communications, Inc. Form 10-K (File No. 1-9645) filed March
11, 2005)
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10.16§
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Amended and Restated Employment Agreement by and between Clear Channel Communications,
Inc. and Randall T. Mays dated March 10, 2005 (incorporated herein by reference to
Exhibit 10.16 to the Clear Channel Communications, Inc. Form 10-K (File No. 1-9645)
filed March 11, 2005)
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10.17§
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Employment Agreement by and between Clear Channel Outdoor Holdings, Inc. and Paul J.
Meyer dated August 5, 2005 (incorporated herein by reference to Exhibit 10.1 to the
Clear Channel Communications, Inc. Form 8-K (File No. 1-9645) filed August 10, 2005)
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11*
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Statement re: Computation of Per Share Earnings.
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21*
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Subsidiaries of Clear Channel Outdoor Holdings, Inc.
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23.1*
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Consent of Ernst & Young LLP.
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24*
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Power of Attorney (included on signature page).
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31.1*
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Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2*
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Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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32.1*
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Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2*
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Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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*
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Filed herewith
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§
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Management contract or compensatory plan or arrangement
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The Company has not filed long-term debt instruments of its subsidiaries where the total amount
under such instruments is less than ten percent of the total assets of the Company and its
subsidiaries on a consolidated basis. However, the Company will furnish a copy of such instruments
to the Commission upon request.
113
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
Incorporated under the Laws of the State of Delaware
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1
Offices
. The Corporation may have such offices, either within or without the State
of Delaware, as the Board of Directors may designate or as the business of the Corporation may from
time to time require.
SECTION 1.2
Books and Records
. The books and records of the Corporation may be kept outside
the State of Delaware at such place or places as may from time to time be designated by the Board
of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1
Annual Meeting
. The annual meeting of the stockholders of the Corporation shall be
held on such date and at such place and time as may be fixed by resolution of the Board of
Directors.
SECTION 2.2
Special Meeting
. Except as otherwise required by law or provided by the resolution
or resolutions adopted by the Board of Directors designating the rights, powers and preferences of
any series of Preferred Stock and the Certificate of Designations filed by the Corporation with
respect thereto (collectively, a “Certificate of Designations”), and except as set forth in the
Corporation’s Certificate of Incorporation, as amended or restated (the “Certificate of
Incorporation”), special meetings of the stockholders may be called only by the Chairman of the
Board of Directors (the “Chairman of the Board”) or by the Board of Directors pursuant to a
resolution adopted by a majority of the entire Board of Directors.
SECTION 2.3
Place of Meeting
. The Board of Directors or the Chairman of the Board, as the case
may be, may designate the place of meeting for any annual meeting or for any special meeting of the
stockholders called by the Board of Directors or the Chairman of the Board. If no designation is so
made, the place of meeting shall be the principal executive office of the Corporation.
-1-
SECTION 2.4
Notice of Meeting
. Written or printed notice, stating the place, if any, date and
time of the meeting, and the means of remote communications, if any, by which stockholders and
proxyholders may be deemed to be present in person and vote at such meeting, shall be delivered by
the Corporation not less than ten (10) days nor more than sixty (60) days before the date of the
meeting, either personally, by mail or by other lawful means, to each stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at
his or her address as it appears on the stock transfer books of the Corporation. Such further
notice shall be given as may be required by law. Meetings may be held without notice if all
stockholders entitled to vote are present, or if notice is waived by those not present in
accordance with Section 6.6 of these By-Laws. Any previously scheduled meeting of the stockholders
may be postponed, and, unless the Certificate of Incorporation otherwise provides, any special
meeting of the stockholders may be cancelled, by resolution of the Board of Directors upon public
notice given prior to the date previously scheduled for such meeting of stockholders.
SECTION 2.5
Quorum and Adjournment
. Except as otherwise provided by law or by the Certificate
of Incorporation, the holders of a majority of the total voting power of all classes of the
then-outstanding capital stock of the Corporation entitled to vote generally in the election of
directors (the “Voting Stock”), represented in person or by proxy, shall constitute a quorum at a
meeting of stockholders, except that when specified business is to be voted on by a class or series
of stock voting as a separate class or series, the holders of a majority of the then-outstanding
shares of such class or series shall constitute a quorum of such class or series for the
transaction of such business. Attendance of a person at a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened shall not constitute the presence of such person for the
purposes of determining whether a quorum exists. The chairman of the meeting or the holders of
shares representing a majority of the votes entitled to be cast by the holders of Voting Stock so
present may adjourn the meeting from time to time, whether or not there is such a quorum. No notice
of the time and place of adjourned meetings need be given except as required by law;
provided,
however
, that if the date of any adjourned meeting is more than thirty (30) days after the date for
which the meeting was originally noticed, or if a new record date is fixed for the adjourned
meeting, notice of the place, if any, date, and time of the adjourned meeting and the means of
remote communications, if any, by which stockholders and proxyholders may be deemed to be present
in person and vote at such adjourned meeting shall be given in conformity herewith. The
stockholders present at a duly called meeting at which a quorum is present may continue to transact
business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
SECTION 2.6
Conduct of Business
. The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including such regulation of the manner of
voting and the conduct of discussion as seem to him or her in order. The chairman shall have the
power to adjourn the meeting to another place, if any, date and time.
SECTION 2.7
Proxies
. At all meetings of stockholders, a stockholder may vote by proxy executed
in writing (or in such manner prescribed by the General Corporation Law of the State of Delaware)
by the stockholder, or by his or her duly authorized attorney-in-fact. Such
-2-
proxy must be filed with the Secretary or his or her representative at or before the time of
the meeting at which such proxy will be voted. No proxy shall be valid after eleven (11) months
from the date of its execution. Each proxy shall be revocable unless expressly provided therein to
be irrevocable or unless otherwise made irrevocable by law.
SECTION 2.8
Notice of Stockholder Business and Nominations
.
(A)
Annual Meetings of Stockholders
.
(1) Nominations of persons for election to the Board of Directors and the proposal of business
to be considered by the stockholders at an annual meeting of stockholders may be made (a) pursuant
to the Corporation’s notice of meeting, (b) by or at the direction of the Board of Directors or (c)
by any stockholder of the Corporation who was a stockholder of record at the time of giving of the
Corporation’s notice of meeting, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in paragraph (A)(2) of this Section 2.8.
(2) For nominations of persons for election to the Board of Directors or other business to be
properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Section 2.8, the stockholder must give timely notice thereof in writing to the
Secretary, and such other business must otherwise be a proper matter for stockholder action. To be
timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive
office of the Corporation not earlier than the close of business on the 120th day, nor later than
the close of business on the 90th day, prior to the first anniversary of the preceding year’s
annual meeting; provided, however, that in the event that the date of any annual meeting is more
than thirty (30) days before or more than thirty (30) days after such anniversary date, notice by
the stockholder, to be timely, must be so delivered not earlier than the close of business on the
120th day prior to such annual meeting and not later than the close of business on the later of (a)
the close of business on the 90th day prior to such annual meeting and (b) the close of business on
the 10th day following the day on which public announcement of the date of such meeting is first
made by the Corporation. Except as provided in Section 2.5 of these By-Laws, the public
announcement of an adjournment of an annual meeting shall not commence a new time period for the
giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth (x)
as to each person who the stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be disclosed in a
solicitation of proxies for the election of directors in an election contest, or that is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), and such nominated person’s written consent to serve as a director if
elected; (y) as to any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (z) as to
the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination
or proposal is made, (i) the name and address of such stockholder, as they appear on the
Corporation’s books, and of such beneficial owner, and (ii) the class and number of shares of
Voting Stock that are owned beneficially and of record by such stockholder and by any such
beneficial owner. For purposes of these By-Laws, the term “beneficial owner” and “beneficial
-3-
ownership” shall have the meaning ascribed to such terms in Rule 13d-3 under the Exchange Act,
and shall be determined in accordance with such rule.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this Section 2.8 to
the contrary, in the event that the number of directors to be elected to the Board of Directors is
increased and there is no public announcement by the Corporation naming all of the Corporation’s
nominees for director or specifying the size of the increased Board of Directors at least 120 days
prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice
pursuant to this Section 2.8 shall also be considered timely, but only with respect to nominees for
any new seats on the Board of Directors created by such increase, if it is delivered to the
Secretary at the principal executive office of the Corporation not later than the close of business
on the 10th day following the day on which such public announcement is first made by the
Corporation.
(B)
Special Meetings of Stockholders
. No business other than that stated in the Corporation’s
notice of a special meeting of stockholders shall be transacted at such special meeting. If the
business stated in the Corporation’s notice of a special meeting of stockholders includes electing
one or more directors to the Board of Directors, nominations of persons for election to the Board
of Directors at such special meeting may be made (1) by or at the direction of the Board of
Directors or (2) by any stockholder of the Corporation who was a stockholder of record at the time
of giving of the Corporation’s notice of meeting, who is entitled to vote at the meeting and who
gives timely notice thereof in writing to the Secretary. To be timely, a stockholder’s notice shall
be delivered to the Secretary at the principal executive office of the Corporation not earlier than
the close of business on the 120th day prior to such special meeting and not later than the close
of business on the later of (a) the close of business on the 90th day prior to such special meeting
and (b) the close of business on the 10th day following the day on which public announcement is
first made of the date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. Such stockholder’s notice shall set forth (x) as to each
person who the stockholder proposes to nominate for election or reelection as a director, all
information relating to such person that is required to be disclosed in a solicitation of proxies
for the election of directors in an election contest, or that is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act, and such nominated person’s written consent to
serve as a director if elected; and (y) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination is made, (i) the name and address of such
stockholder, as they appear on the Corporation’s books, and of such beneficial owner, and (ii) the
class and number of shares of Voting Stock that are owned beneficially and of record by such
stockholder and by any such beneficial owner. Except as provided in Section 2.5 of these By-Laws,
the public announcement of an adjournment of an annual meeting shall not commence a new time period
for the giving of a stockholder’s notice as described above.
(C)
General
.
(1) Only such persons who are nominated in accordance with the procedures set forth in this
Section 2.8 shall be eligible to serve as directors and only such business shall be conducted at a
meeting of stockholders as shall have been brought before the meeting in accordance with the
procedures set forth in this Section 2.8. Except as otherwise
-4-
provided by law, the Certificate of Incorporation or these By-Laws, the chairman of the
meeting shall have the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this Section 2.8 and, if any proposed nomination or business was not made
or proposed in compliance with this Section 2.8, to declare that such non-compliant proposal or
nomination be disregarded.
(2) For purposes of this Section 2.8, “public announcement” shall mean disclosure in a press
release reported by the Dow Jones News Service, Associated Press or comparable national news
service or in a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 2.8, a stockholder shall also
comply with all applicable requirements of the Exchange Act and the rules and regulations
thereunder with respect to the nomination of persons for election to the Board of Directors or the
proposal of business to be considered by the stockholders at a meeting of stockholders. Nothing in
this Section 2.8 shall be deemed to affect any rights (a) of stockholders to request inclusion of
proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (b)
of the holders of any series of Preferred Stock to elect directors under specified circumstances.
(D)
Clear Channel
. Notwithstanding anything to the contrary contained in these By-Laws, until
such time as the Clear Channel Entities (as defined below) cease to be the beneficial owner of
shares representing at least a majority of the total voting power of the Voting Stock, Clear
Channel Communications, Inc., a Texas corporation (“Clear Channel”), shall be entitled to nominate
persons for election to the Board of Directors and propose business to be considered by the
stockholders at any meeting of stockholders without compliance with the notice requirements and
procedures of this Section 2.8. “Clear Channel Entities” shall mean any one or more of (1) Clear
Channel, (2) any corporation, partnership, joint venture, association or other entity of which
Clear Channel is the beneficial owner (directly or indirectly) of 20% or more of the outstanding
voting stock, voting power, partnership interests or similar voting interests and (3) any other
corporation, partnership, joint venture, association or other entity that is controlled by Clear
Channel, controls Clear Channel or is under common control with Clear Channel; provided, however,
that in no event shall “Clear Channel Entities” include (a) the Corporation, (b) any corporation,
partnership, joint venture, association or other entity of which the Corporation is the beneficial
owner (directly or indirectly) of 20% or more of the outstanding voting stock, voting power,
partnership interests or similar voting interests or (c) any other corporation, partnership, joint
venture, association or other entity that is controlled by the Corporation. For purposes of this
definition of “Clear Channel Entities,” the term “control” (including the terms “controlling,”
“controlled by” and “under common control with”) means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of an entity, whether through
the ownership of voting securities, by contract, or otherwise.
SECTION 2.9
Procedure for Election of Directors; Required Vote
. Election of directors at all
meetings of the stockholders at which directors are to be elected shall be by ballot, and, subject
to the rights of the holders of any series of Preferred Stock to elect directors under
-5-
specified circumstances, a plurality of the votes cast thereat shall elect directors. Except
as otherwise provided by law, the Certificate of Incorporation, any Certificate of Designations or
these By-Laws, in all matters other than the election of directors, the affirmative vote of the
holders of at least a majority of the total voting power of the Voting Stock actually present in
person or represented by proxy at the meeting and entitled to vote on the matter shall be the act
of the stockholders. No stockholder shall be entitled to exercise any right of cumulative voting.
Every reference in these By-Laws to a majority or other proportion of shares, or a majority or
other proportion of the votes of shares, of Voting Stock (or any one or more classes or series of
Voting Stock) shall refer to such majority or other proportion of the votes to which such shares of
Voting Stock entitle their holders to cast as provided in the Certificate of Incorporation.
SECTION 2.10
Inspectors of Elections; Opening and Closing the Polls
. The Board of Directors by
resolution shall appoint one or more inspectors, which inspector or inspectors may include
individuals who serve the Corporation in other capacities, including, without limitation, as
officers, employees, agents or representatives, to act at the meetings of stockholders and make a
written report thereof. One or more persons may be designated as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate has been appointed to act or is able
to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take
and sign an oath faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the duties prescribed by
law.
The chairman of the meeting shall fix and announce at the meeting the date and time of the
opening and the closing of the polls for each matter upon which the stockholders will vote at a
meeting.
SECTION 2.11
Stockholder Action by Written Consent
. Any action required or permitted to be
taken by stockholders at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding capital stock having not
less than the minimum number of votes that would be necessary to authorize or take such action at a
meeting at which all shares of capital stock entitled to vote thereon were present and voted;
provided
,
however
, that except as otherwise provided by a Certificate of Designations, from and
after the date that the Clear Channel Entities collectively cease to be the beneficial owner of
shares representing at least a majority of the total voting power of the Voting Stock, any action
required or permitted to be taken by stockholders may be effected only at a duly called annual or
special meeting of stockholders and may not be effected by a written consent or consents by
stockholders in lieu of such a meeting. All written consents authorized by this Section 2.11 shall
be delivered to the Corporation by delivery to its registered office, its principal place of
business or the Secretary. Delivery made to a corporation’s registered office shall be by hand or
by certified or registered mail, return receipt requested.
Prompt notice of the taking of any corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in writing and who, if
the action had been taken at a meeting, would have been entitled to notice of the meeting if the
record date for such meeting had been the date that written consents signed by
-6-
a sufficient number of stockholders to take the action were delivered to the Corporation as
provided in this Section 2.11. In the event that the action that is consented to is such as would
have required the filing of a certificate under the General Corporation Law of the State of
Delaware that such action had been voted on by stockholders or by members at a meeting thereof, the
certificate filed shall state, in lieu of any statement concerning any vote of stockholders or
members, that written consent has been given in accordance with the General Corporation Law of the
State of Delaware.
SECTION 2.12
Stock List
. A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing the address of
each such stockholder and the number of shares registered in his or her name, shall be open to the
examination of any such stockholder for a period of at least 10 days prior to the meeting in the
manner provided by law. The stock list shall also be open to the examination of any stockholder
during the whole time of the meeting as provided by law. This list shall presumptively determine
the identity of the stockholders entitled to vote at the meeting and the number of shares held by
each of them. So long the Clear Channel Entities collectively are the beneficial owner of shares
representing at least a majority of the total voting power of the Voting Stock, upon the request of
Clear Channel, the stock list shall be provided to Clear Channel promptly.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1
General Powers
. The business and affairs of the Corporation shall be managed under
the direction of the Board of Directors. In addition to the powers and authorities expressly
conferred upon the Board of Directors by these By-Laws, the Board of Directors may exercise all
such powers of the Corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these By-Laws required to be exercised or done by the stockholders.
SECTION 3.2
Number, Tenure and Qualifications
. Subject to the rights of the holders of any
series of Preferred Stock to elect directors under specified circumstances, the number of directors
shall be fixed, and may be increased or decreased from time to time, exclusively by a resolution
adopted by a majority of the entire Board of Directors. The directors, other than those who may be
elected by the holders of any series of Preferred Stock under specified circumstances, shall be
apportioned, with respect to the time for which they severally hold office, into three classes, as
nearly equal in number as is possible and designated Class I, Class II and Class III. Class I shall
be initially elected for a term expiring at the annual meeting of stockholders to be held in 2007,
Class II shall be initially elected for a term expiring at the annual meeting of stockholders to be
held in 2008, and Class III shall be initially elected for a term expiring at the annual meeting of
stockholders to be held in 2009. Members of each class shall hold office until their successors are
elected and qualified. At each succeeding annual meeting of the stockholders of the Corporation,
the successors of the class of directors whose term expires at that meeting shall be elected for a
term expiring at the annual meeting of stockholders held in the third year following the year of
their election. In case of any increase or decrease, from time to time, in the number of directors,
other than those who may be elected by
-7-
the holders of any series of Preferred Stock under specified circumstances, the number of
directors added to or eliminated from each class shall be apportioned so that the number of
directors in each class thereafter shall be as nearly equal as possible.
SECTION 3.3
Regular Meetings
. Regular meetings of the Board of Directors shall be held at such
place or places, on such date or dates, and at such time or times as shall have been established by
the Board of Directors and publicized among all directors. A notice of each regular meeting shall
not be required.
SECTION 3.4
Special Meetings
. Special meetings of the Board of Directors shall be called by
the Chairman of the Board, the Chief Executive Officer, a majority of the Board of Directors then
in office or, until the Clear Channel Entities cease to be the beneficial owner of shares
representing at least a majority of the total voting power of the Voting Stock, Clear Channel. The
person or persons authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.
SECTION 3.5
Notice
. Notice of any special meeting of directors shall be given to each director
at his or her business or residence (as he or she may specify) in writing by hand delivery,
first-class mail, overnight mail or courier service, confirmed facsimile transmission or electronic
transmission or orally by telephone. If mailed by first-class mail, such notice shall be deemed
adequately delivered when deposited in the United States mail so addressed, with postage thereon
prepaid, at least five (5) days before such meeting. If given by overnight mail or courier service,
such notice shall be deemed adequately delivered when the notice is delivered to the overnight mail
or courier service company at least twenty-four (24) hours before such meeting. If given by
telephone, hand delivery or confirmed facsimile transmission or electronic transmission, such
notice shall be deemed adequately delivered when the notice is transmitted at least twenty-four
(24) hours before such meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the notice of such
meeting, except for amendments to these By-Laws, as provided under Section 8.1. A meeting may be
held at any time without notice if all the directors are present or if those not present waive
notice of the meeting in accordance with Section 6.6 of these By-Laws.
SECTION 3.6
Action by Consent of Board of Directors
. Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board or committee, as the case may be, consent thereto in writing or
by electronic transmission, and the writing or writings or electronic transmission or transmissions
are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper
form if the minutes are maintained in paper form and shall be in electronic form if the minutes are
maintained in electronic form.
SECTION 3.7
Conference Telephone Meetings
. Members of the Board of Directors, or any committee
thereof, may participate in a meeting of the Board of Directors, or such committee, by means of
conference telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
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SECTION 3.8
Quorum; Voting
. Subject to Section 3.9, at all meetings of the Board of Directors,
the presence of a majority of the total number of directors shall constitute a quorum for the
transaction of business, but if at any meeting of the Board of Directors there shall be less than a
quorum present, the directors present thereat may adjourn the meeting from time to time without
further notice. Attendance of a director at a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting is not lawfully
called or convened shall not constitute the presence of such director for the purposes of
determining whether a quorum exists. The act of a majority of directors present at a meeting at
which there is a quorum shall be the act of the Board of Directors.
SECTION 3.9
Vacancies
. Except as otherwise provided by a Certificate of Designations, newly
created directorships resulting from any increase in the authorized number of directors or any
vacancies in the Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled solely by the affirmative vote
of a majority of the remaining directors then in office, even though less than a quorum of the
Board of Directors, or by the sole remaining director; provided, however, that, until the Clear
Channel Entities collectively cease to be the beneficial owner of shares representing at least a
majority of the total voting power of the Voting Stock, if such vacancy was caused by an action of
the stockholders, such vacancy shall be filled only by the affirmative vote of the holders of at
least a majority of the total voting power of the Voting Stock. Any director so chosen shall hold
office until his or her successor shall be elected and qualified and, if the Board of Directors at
such time is classified, until the next election of the class for which such director shall have
been chosen. No decrease in the number of directors shall shorten the term of any incumbent
director.
SECTION 3.10
Committees of the Board of Directors
. The Board of Directors may from time to
time designate committees of the Board of Directors, with such lawfully delegable powers and duties
as it thereby confers, to serve at the pleasure of the Board of Directors and shall, for those
committees and any others provided for herein, elect a director or directors to serve as the member
or members, designating, if it desires, other directors as alternate members who may replace any
absent or disqualified member at any meeting of the committee. In the absence or disqualification
of any member of any committee and any alternate member in his or her place, the member or members
of the committee present at the meeting and not disqualified from voting, whether or not he, she or
they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to
act at the meeting in the place of the absent or disqualified member.
Each committee may determine the procedural rules for meeting and conducting its business and
shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate
provision shall be made for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2) members, in which
event one (1) member shall constitute a quorum; and all matters shall be determined by a majority
vote of the members present.
No committee shall have the power or authority in reference to any of the following matters:
(a) approving or adopting, or recommending to the stockholders, any action or matter (other than
the election or removal of directors) expressly required by General Corporation Law
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of the State of Delaware to be submitted to stockholders for approval or (b) altering,
amending or repealing any By-Law, or adopting any new By-Law.
SECTION 3.11
Removal
. Except as otherwise provided by a Certificate of Designations, any
director or the entire Board of Directors may be removed from office at any time with or without
cause, but only by the affirmative vote of the holders of at least a majority of the total voting
power of the Voting Stock; provided, however, that, from and after the date that the Clear Channel
Entities collectively cease to be the beneficial owner of shares representing at least a majority
of the total voting power of the Voting Stock, any director or the entire Board of Directors may be
removed from office only for cause and only by the affirmative vote of the holders of at least 80%
of the total voting power of the Voting Stock.
SECTION 3.12
Records
. The Board of Directors shall cause to be kept a record containing the
minutes of the proceedings of the meetings of the Board of Directors, and of any committee thereof,
and of the stockholders, appropriate stock books and registers and such books of records and
accounts as may be necessary for the proper conduct of the business of the Corporation.
SECTION 3.13
Compensation
. The Board of Directors shall have authority to determine from time
to time the amount of compensation, if any, that shall be paid to its members for their services as
directors and as members of standing or special committees of the Board of Directors. The Board of
Directors shall also have power, in its discretion, to provide for and to pay to directors
rendering services to the Corporation not ordinarily rendered by directors as such, special
compensation appropriate to the value of such services as determined by the Board of Directors from
time to time. Nothing herein contained shall be construed to preclude any directors from serving
the Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
OFFICERS
SECTION 4.1
Elected Officers
. The elected officers of the Corporation shall be a Chairman of
the Board, a Chief Executive Officer, a President, a Secretary, a Treasurer and such other officers
(including, without limitation, one or more Vice Presidents, a Chief Operating Officer and a Chief
Financial Officer) as the Board of Directors from time to time may deem proper. The Chairman of the
Board shall be chosen from among the directors. All officers elected by the Board of Directors
shall each have such powers and duties as generally pertain to their respective offices, subject to
the specific provisions of this Article IV. Such officers shall also have such powers and duties as
from time to time may be conferred by the Board of Directors or by any committee thereof. The Board
of Directors, or any committee thereof, may from time to time elect, or the Chairman of the Board
or Chief Executive Officer may appoint, such other officers (including one or more Assistant Vice
Presidents, Assistant Secretaries, Assistant Treasurers and Assistant Controllers) and such agents,
as may be necessary or desirable for the conduct of the business of the Corporation. Such other
officers and agents shall have such duties and shall hold their offices for such terms as shall be
provided in these By-Laws or as may
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be prescribed by the Board of Directors, or such committee, or by the Chairman of the Board or
Chief Executive Officer, as the case may be.
SECTION 4.2
Election and Term of Office
. The elected officers of the Corporation shall be
elected annually by the Board of Directors at the regular meeting of the Board of Directors held
after the annual meeting of the stockholders. If the election of officers shall not be held at such
meeting, such election shall be held as soon thereafter as convenient. Each officer shall hold
office until his or her successor shall have been duly elected and shall have qualified or until
his or her death or until he or she shall resign, but any officer may be removed from office at any
time by the affirmative vote of a majority of the members of the Board of Directors or, except in
the case of an officer or agent elected by the Board, by the Chairman of the Board or Chief
Executive Officer. Such removal shall be without prejudice to the contractual rights, if any, of
the person so removed.
SECTION 4.3
Chairman of the Board
. The Chairman of the Board shall preside at all meetings of
the stockholders and of the Board of Directors. The Chairman of the Board shall have such other
powers and duties as may from time to time be prescribed by the Board of Directors, upon written
directions given to him pursuant to resolutions duly adopted by the Board of Directors.
SECTION 4.4
Chief Executive Officer
. The Chief Executive Officer, subject to the control of
the Board of Directors, shall act in a general executive capacity and shall control the business
and affairs of the Corporation. In the absence of the Chairman of the Board, the Chief Executive
Officer shall preside at all meetings of the Board of Directors and of the stockholders. He or she
may also preside at any such meeting attended by the Chairman of the Board if he or she is so
designated by the Chairman. The Chief Executive Officer shall have the power to appoint and remove
subordinate officers, agents and employees, except those elected by the Board of Directors. The
Chief Executive Officer shall keep the Board of Directors fully informed and shall consult with
them concerning the business of the Corporation.
SECTION 4.5
President
. The President shall have general supervision over strategic planning
and implementation, administration and the accounting and finance operations of the Corporation,
and shall see that all resolutions of the board of directors are carried into effect. The President
shall have such other duties as may be determined from time to time by resolution of the Board of
Directors not inconsistent with these By-Laws. The President, in the absence or incapacity of the
Chief Executive Officer, shall also perform the duties of that office. He or she may sign with the
Secretary or any other officer of the Corporation thereunto authorized by the Board of Directors,
certificates for shares of the Corporation and any deeds, bonds, mortgages, contracts, checks,
notes, drafts or other instruments that the Board of Directors has authorized to be executed,
except in cases where the signing and execution thereof has been expressly delegated by these
By-Laws or by the Board of Directors to some other officer or agent of the Corporation, or shall be
required by law to be otherwise executed. He or she shall vote, or give a proxy to any other
officer of the Corporation to vote, all shares of stock of any other corporation standing in the
name of the Corporation and in general he or she shall perform all other duties normally incident
to the office of President and such other duties as may be prescribed by the Board of Directors
from time to time.
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SECTION 4.6
Vice-Presidents
. Each Vice President shall have such powers and shall perform such
duties as shall be assigned to him by the Board of Directors.
SECTION 4.7
Chief Operating Officer
. The Chief Operating Officer, if one is elected, shall
report to the Chief Executive Officer, in the event that he or she is also the President, or to the
Chief Executive Officer and the President, in the event that he or she is not also the President,
and shall have general supervision of the day-to-day operation of the activities of the Corporation
and shall perform such duties, and shall have such other authority and powers, as the President (in
the event that he or she is not also the Chief Executive Officer), the Chief Executive Officer or
the Board of Directors may from time to time prescribe. The Chief Operating Officer, with the
approval of either the Chief Executive Officer or the President, shall have authority to execute
instruments, documents, agreements and contracts, in the name of the Corporation, to the same
extent as the President or any Vice President.
SECTION 4.8
Chief Financial Officer
. The Chief Financial Officer, if any, shall act in an
executive financial capacity. He or she shall assist the Chairman of the Board and the Chief
Executive Officer in the general supervision of the Corporation’s financial policies and affairs.
SECTION 4.9
Treasurer
. The Treasurer shall exercise general supervision over the receipt,
custody and disbursement of corporate funds. The Treasurer shall cause the funds of the Corporation
to be deposited in such banks as may be authorized by the Board of Directors, or in such banks as
may be designated as depositaries in the manner provided by resolution of the Board of Directors.
He or she shall have such further powers and duties and shall be subject to such directions as may
be granted or imposed upon him from time to time by the Board of Directors, the Chairman of the
Board or the Chief Executive Officer.
SECTION 4.10
Secretary
. The Secretary shall keep, or cause to be kept, in one or more books
provided for that purpose, the minutes of all meetings of the Board of Directors, the committees of
the Board of Directors and the stockholders; he or she shall see that all notices are duly given in
accordance with the provisions of the Certificate of Incorporation, these By-Laws and as required
by law; he or she shall be custodian of the records and the seal of the Corporation and affix and
attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on
such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to
all other documents to be executed on behalf of the Corporation under its seal; and he or she shall
see that the books, reports, statements, certificates and other documents and records required by
law to be kept and filed are properly kept and filed; and in general, he or she shall perform all
the duties incident to the office of Secretary and such other duties as from time to time may be
assigned to him by the Board of Directors, the Chairman of the Board or the Chief Executive
Officer.
SECTION 4.11
Removal
. Any officer elected, or agent appointed, by the Board of Directors may
be removed by the affirmative vote of a majority of the entire Board of Directors whenever, in
their judgment, the best interests of the Corporation would be served thereby. Any officer or agent
appointed by the Chairman of the Board or the Chief Executive Officer may be removed by him
whenever, in his or her judgment, the best interests of the Corporation would be served thereby. No
elected officer shall have any contractual rights against the Corporation for compensation by
virtue of such election beyond the date of the election of his or her successor or
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his or her death, resignation or removal, whichever event shall first occur, except as
otherwise provided in an employment contract or under an employee deferred compensation plan.
SECTION 4.12
Vacancies
. Any newly created elected office and any vacancy in any elected office
because of death, resignation or removal may be filled by the Board of Directors for the unexpired
portion of the term at any meeting of the Board of Directors. Any vacancy in an office appointed by
the Chairman of the Board or the Chief Executive Officer because of death, resignation or removal
may be filled by the Chairman of the Board or the Chief Executive Officer.
ARTICLE V
STOCK
SECTION 5.1
Stock Certificates and Transfers
. The interest of each stockholder of the
Corporation shall be evidenced by certificates for shares of stock in such form as the appropriate
officers of the Corporation may from time to time prescribe. Subject to the satisfaction of any
additional requirements specified in the Certificate of Incorporation, the shares of the stock of
the Corporation shall be transferred on the books of the Corporation by the holder thereof in
person or by his or her attorney, upon surrender for cancellation of certificates for at least the
same number of shares, with an assignment and power of transfer endorsed thereon or attached
thereto, duly executed, with such proof of the authenticity of the signature as the Corporation or
its agents may reasonably require.
The certificates of stock shall be signed, countersigned and registered in such manner as the
Board of Directors may by resolution prescribe, which resolution may permit all or any of the
signatures on such certificates to be in facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased
to be such officer, transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he or she were such officer, transfer agent or
registrar at the date of issue.
SECTION 5.2
Record Date
. In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or
other distribution or allotment of any rights or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may, except as otherwise required by law, fix a record date, which record date shall not
precede the date on which the resolution fixing the record date is adopted by the Board of
Directors and which record date shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting of stockholders, nor more than sixty (60) days prior to the time
for such other action as described above;
provided, however,
that if no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be at the close of business on the day next preceding the day on
which notice is given or, if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held, and, for determining stockholders entitled to receive payment
of any dividend or other distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date shall
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be at the close of business on the day on which the Board of Directors adopts a resolution
relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
SECTION 5.3
Lost, Stolen or Destroyed Certificates
. No certificate for shares of stock in the
Corporation shall be issued in place of any certificate alleged to have been lost, destroyed or
stolen, except on production of such evidence of such loss, destruction or theft and on delivery to
the Corporation of a bond of indemnity in such amount, upon such terms and secured by such surety,
as the Board of Directors, or any financial officer of the Corporation, may in its, or his or her,
discretion require.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1
Fiscal Year
. The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
SECTION 6.2
Dividends
. The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law and the Certificate of Incorporation.
SECTION 6.3
Seal
. The corporate seal shall have inscribed thereon the words “Corporate Seal,”
the year of incorporation and around the margin thereof the words “Clear Channel Outdoor Holdings,
Inc.”
SECTION 6.4
Facsimile Signatures
. In addition to the provisions for use of facsimile
signatures elsewhere specifically authorized in these By-Laws, facsimile signatures of any officer
or officers of the Corporation may be used whenever and as authorized by the Board of Directors or
any committee thereof.
SECTION 6.5
Reliance upon Books, Reports and Records
. The Board of Directors, each committee
thereof, each member of the Board of Directors and such committees and each officer of the
Corporation shall, in the performance of its, his or her duties, be fully protected in relying in
good faith upon the books of account or other records of the Corporation and upon such information,
opinions, reports or documents presented to it or them by any of the Corporation’s officers or
employees, by any committee of the Board of Directors or by any other person as to matters that the
Board, such committee, such member or such officer reasonably believes are within such other
person’s professional or expert competence and who has been selected with reasonable care by or on
behalf of the Corporation.
SECTION 6.6
Waiver of Notice
. Whenever any notice is required to be given to any stockholder
or director of the Corporation under the provisions of the General Corporation Law of the State of
Delaware, the Certificate of Incorporation or these By-Laws, a waiver thereof in writing, signed by
the person or persons entitled to such notice, or a waiver by electronic
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transmission by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any annual or special meeting of the stockholders or the Board
of Directors or committee thereof need be specified in any waiver of notice of such meeting.
Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully called or convened.
SECTION 6.7
Audits
. The accounts, books and records of the Corporation shall be audited upon
the conclusion of each fiscal year by an independent certified public accountant selected by the
Board of Directors, or a committee thereof, and it shall be the duty of the Board of Directors, or
such committee, to cause such audit to be done annually.
SECTION 6.8
Resignations
. Any director or any officer, whether elected or appointed, may
resign at any time by giving written notice of such resignation to the Chairman of the Board, the
Chief Executive Officer or the Secretary, and such resignation shall be deemed to be effective as
of the close of business on the date said notice is received by the Chairman of the Board, the
Chief Executive Officer or the Secretary, or at such later time as is specified therein. No formal
action shall be required of the Board of Directors or the stockholders to make any such resignation
effective.
SECTION 6.9
Indemnification and Insurance
.
(A) Each person who was or is made a party, or is threatened to be made a party to, or is
involved, in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a “proceeding”), by reason of the fact that he or she or a person of
whom he or she is the legal representative is or was a director or officer of the Corporation or,
while a director or officer of the Corporation, is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation or of a partnership, limited
liability company, joint venture, trust or other enterprise, including service with respect to
employee benefit plans maintained or sponsored by the Corporation, 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 General Corporation
Law of the State of Delaware 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,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement) actually and
reasonably incurred or suffered by such person in connection therewith, and such indemnification
shall continue as to a 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 (C) of this Section 6.9, 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. The
right to indemnification conferred in this Section 6.9 shall be a contract right and shall include
the right to be paid by the Corporation the expenses incurred in defending
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any such proceeding in advance of its final disposition, such advances to be paid by the
Corporation within twenty (20) days after the receipt by the Corporation of a statement or
statements from the claimant requesting such advance or advances from time to time;
provided,
however
, that if the General Corporation Law of the State of Delaware requires, 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 Section 6.9 or otherwise.
(B) To obtain indemnification under this Section 6.9, a claimant shall submit to the
Corporation a written request, including therein or therewith such documentation and information as
is reasonably available to the claimant and is reasonably necessary to determine whether and to
what extent the claimant is entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this paragraph (B), a determination, if required
by applicable law, with respect to the claimant’s entitlement thereto shall be made as follows: (1)
if requested by the claimant, by Independent Counsel (as hereinafter defined), or (2) if no request
is made by the claimant for a determination by Independent Counsel, (i) by the Board of Directors
by a majority vote of a quorum consisting solely of Disinterested Directors (as hereinafter
defined), or (ii) if a quorum of the Board of Directors consisting of Disinterested Directors is
not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by
Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be
delivered to the claimant, or (iii) if a quorum of Disinterested Directors so directs, by the
stockholders of the Corporation. In the event the determination of entitlement to indemnification
is to be made by Independent Counsel at the request of the claimant, the Independent Counsel shall
be selected by the Board of Directors unless there shall have occurred within two (2) years prior
to the date of the commencement of the action, suit or proceeding for which indemnification is
claimed a “Change in Control,” in which case the Independent Counsel shall be selected by the
claimant unless the claimant shall request that such selection be made by the Board of Directors.
If it is so determined that the claimant is entitled to indemnification, payment to the claimant
shall be made within ten (10) days after such determination.
(C) If a claim under paragraph (A) of this Section 6.9 is not paid in full by the Corporation
within thirty (30) days after a written claim pursuant to paragraph (B) of this Section 6.9 has
been received by the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where the required undertaking, if
any is required, has been tendered to the Corporation) that the claimant has not met the standard
of conduct that makes it permissible under the General Corporation Law of the State of Delaware for
the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of
Directors, Independent Counsel or stockholders) to make a determination prior to the commencement
of such action that indemnification of the claimant is
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proper in the circumstances because he or she has met the applicable standard of conduct set
forth in the General Corporation Law of the State of Delaware, nor an actual determination by the
Corporation (including its Board of Directors, Independent Counsel or 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.
(D) If a determination is made pursuant to paragraph (B) of this Section 6.9 that the claimant
is entitled to indemnification, the Corporation shall be bound by such determination in any
judicial proceeding commenced pursuant to paragraph (C) of this Section 6.9.
(E) The Corporation shall be precluded from asserting in any judicial proceeding commenced
pursuant to paragraph (C) of this Section 6.9 that the procedures and presumptions of this Section
6.9 are not valid, binding and enforceable and shall stipulate in such proceeding that the
Corporation is bound by all the provisions of this Section 6.9.
(F) The right to indemnification and the payment of expenses incurred in defending a
proceeding in advance of its final disposition conferred in this Section 6.9 shall not be exclusive
of any other right that any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, these By-Laws, any agreement or vote of stockholders or
Disinterested Directors, or otherwise. No repeal or modification of this Section 6.9 shall in any
way diminish or adversely affect the rights of any director, officer, employee or agent of the
Corporation hereunder in respect of any occurrence or matter arising prior to any such repeal or
modification.
(G) 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,
limited liability company, joint venture, trust or other enterprise against any expense, liability
or loss, whether or not the Corporation would have the power to indemnify such person against such
expense, liability or loss under the General Corporation Law of the State of Delaware. To the
extent that the Corporation maintains any policy or policies providing such insurance, each such
director or officer, and each such agent or employee to which rights to indemnification have been
granted as provided in paragraph (H) of this Section 6.9, shall be covered by such policy or
policies in accordance with its or their terms to the maximum extent of the coverage thereunder for
any such director, officer, employee or agent.
(H) The Corporation may, to the extent authorized from time to time by the Board of Directors,
grant rights to indemnification, and rights to be paid by the Corporation the expenses incurred in
defending any proceeding in advance of its final disposition, to any employee or agent of the
Corporation to the fullest extent of the provisions of this Section 6.9 with respect to the
indemnification and advancement of expenses of directors and officers of the Corporation.
(I) If any provision or provisions of this Section 6.9 shall be held to be invalid, illegal or
unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the
remaining provisions of this Section 6.9 (including, without limitation, each portion of any
paragraph of this Section 6.9 containing any such provision held to be invalid,
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illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the
provisions of this Section 6.9 (including, without limitation, each such portion of any paragraph
of this Section 6.9 containing any such provision held to be invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
(J) For purposes of this Section 6.9:
(1) “Change in Control” means any of the following events:
(i) The acquisition in one or more transactions by any “Person” (as the term person is used
for purposes of Section 13(d) or 14(d) of the Exchange Act), other than the Clear Channel Entities,
of beneficial ownership of shares representing at least a majority of the total voting power of the
Voting Stock; or
(ii) Consummation by the Corporation, in a single transaction or series of related
transactions, of (A) a merger or consolidation involving the Corporation if the stockholders of the
Corporation immediately prior to such merger or consolidation do not own, directly or indirectly,
immediately following such merger or consolidation, at least a majority of the total voting power
of the outstanding voting securities of the entity resulting from such merger or consolidation or
(B) a sale, conveyance, lease, license, exchange or transfer (for cash, shares of stock, securities
or other consideration) of a majority or more of the assets or earning power of the Corporation.
Notwithstanding the foregoing, a “Change in Control” shall not be deemed to occur solely because a
majority or more of the total voting power of the Voting Stock is acquired by (a) a trustee or
other fiduciary holding securities under one or more employee benefit plans maintained by the
Corporation or any of its subsidiaries or (b) any corporation that, immediately prior to such
acquisition, is owned directly or indirectly by the stockholders of the Corporation in the same
proportion as their ownership of stock in the Corporation immediately prior to such acquisition.
(2) “Disinterested Director” means a director of the Corporation who is not and was not a
party to the matter in respect of which indemnification is sought by the claimant.
(3) “Independent Counsel” means a law firm, a member of a law firm, or an independent legal
practitioner, that is experienced in matters of corporation law and shall include any person who,
under the applicable standards of professional conduct then prevailing, would not have a conflict
of interest in representing either the Corporation or the claimant in an action to determine the
claimant’s rights under this Section 6.9.
(K) Any notice, request or other communication required or permitted to be given to the
Corporation under this Section 6.9 shall be in writing and either delivered in person or sent by
telecopy, telex, telegram, overnight mail or courier service, or certified or registered mail,
postage prepaid, return receipt requested, to the Secretary and shall be effective only upon
receipt by the Secretary.
-18-
ARTICLE VII
CONTRACTS, PROXIES, ETC.
SECTION 7.1
Contracts
. Except as otherwise required by law, the Certificate of Incorporation
or these By-Laws, any contracts or other instruments may be executed and delivered in the name and
on the behalf of the Corporation by such officer or officers of the Corporation as the Board of
Directors may from time to time specify. Such authority may be general or confined to specific
instances as the Board of Directors may determine. The Chairman of the Board, the Chief Executive
Officer or such other persons as the Board of Directors may authorize may execute bonds, contracts,
deeds, leases and other instruments to be made or executed for or on behalf of the Corporation.
Subject to any restrictions imposed by the Board of Directors or the Chairman of the Board, the
Chief Executive Officer or such other persons as the Board of Directors may authorize may delegate
contractual powers to others under his or her jurisdiction, it being understood, however, that any
such delegation of power shall not relieve such person of responsibility with respect to the
exercise of such delegated power.
SECTION 7.2
Proxies
. Unless otherwise provided by resolution adopted by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer, the President or any Vice
President may from time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes that the Corporation
may be entitled to cast as the holder of stock or other securities in any other entity, any of
whose stock or other securities may be held by the Corporation, at meetings of the holders of the
stock or other securities of such other entity, or to consent in writing, in the name of the
Corporation as such holder, to any action by such other entity, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such consent, and may execute
or cause to be executed, in the name and on behalf of the Corporation and under its corporate seal
or otherwise, all such written proxies or other instruments as he or she may deem necessary or
proper in the premises.
ARTICLE VIII
AMENDMENTS
SECTION 8.1
Amendments
. These By-Laws may be altered, amended or repealed at any meeting of
the Board of Directors or of the stockholders, provided that notice of the proposed change was
given in the notice of the meeting;
provided, however,
that, in the case of amendments by the Board
of Directors, notwithstanding any other provisions of these By-Laws or any provision of law that
might otherwise permit a lesser vote or no vote, the affirmative vote of a majority of the members
of the Board of Directors shall be required to alter, amend or repeal any provision of the By-Laws,
or to adopt any new By-Law. Notwithstanding any other provision of these By-Laws or any provision
of law that might otherwise permit a lesser vote or no vote, but in addition to any affirmative
vote of the holders of any series of Preferred Stock required by law, by this Certificate of
Incorporation or by a Certificate of Designations, the affirmative vote of the holders of a
majority of the total voting power of the Voting Stock, voting together as a single class, shall be
required for the stockholders of the Corporation to alter, amend or repeal any provision of the
By-Laws, or to adopt any new By-Law;
provided, however,
-19-
that, from and after the date that the Clear Channel Entities collectively cease to be the
beneficial owner of shares representing at least a majority of the total voting power of the Voting
Stock, the affirmative vote of the holders of at least 80% of the total voting power of the Voting
Stock, voting together as a single class, shall be required for the stockholders of the Corporation
to alter, amend or repeal, or adopt any By-Law inconsistent with, the following provisions of these
By-Laws: Sections 2.1, 2.2, 2.4, 2.5, 2.6, 2.8, 2.9 and 2.11 of ARTICLE II; Sections 3.1, 3.2, 3.9
and 3.11 of ARTICLE III; Section 6.9 of ARTICLE VI; and this Section 8.1 of ARTICLE VIII, or in
each case, any successor provision (including, without limitation, any such article or section as
renumbered as a result of any amendment, alteration, change, repeal or adoption of any other
By-Law).
-20-
Exhibit 10.1
MASTER AGREEMENT
BETWEEN
CLEAR CHANNEL COMMUNICATIONS, INC.
AND
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
Dated November 16, 2005
TABLE OF CONTENTS
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Page
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ARTICLE I DEFINITIONS
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2
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1.1 Certain Definitions
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2
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1.2 Other Terms
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8
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ARTICLE II THE SEPARATION
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10
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2.1 Transfer of Outdoor Assets; Assumption of Outdoor Liabilities
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10
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2.2 Outdoor Assets
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11
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2.3 Outdoor Liabilities
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12
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2.4 Termination of Agreements
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13
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2.5 Governmental Approvals and Consents; Delayed Transfer Assets and
Liabilities
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14
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2.6 Novation of Assumed Outdoor Liabilities
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15
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2.7 Novation of Liabilities other than Outdoor Liabilities
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16
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2.8 Transfers of Assets and Assumption of Liabilities
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17
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2.9 Transfer of Excluded Assets by Outdoor; Assumption of Excluded
Liabilities by CCU
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17
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2.10 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
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19
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ARTICLE III INTERCOMPANY TRANSACTIONS AS OF THE CLOSING DATE
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20
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3.1 Time and Place of Closing
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20
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3.2 Closing Transactions
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20
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3.3 Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws
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21
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3.4 The Initial Public Offering
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21
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3.5 Intercompany Notes
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21
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3.6 Reclassification of Outstanding Outdoor Common Stock into Class B
Common Stock
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21
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3.7 Rescission
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22
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ARTICLE IV FINANCIAL AND OTHER INFORMATION
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22
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4.1 Financial and Other Information
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22
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4.2 Agreement for Exchange of Information; Archives
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29
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4.3 Ownership of Information
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30
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4.4 Compensation for Providing Information
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31
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-i-
TABLE OF CONTENTS
(continued)
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Page
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4.5 Record Retention
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31
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4.6 Liability
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31
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4.7 Other Agreements Providing for Exchange of Information
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31
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4.8 Production of Witnesses; Records; Cooperation
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32
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4.9 Privilege
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33
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ARTICLE V RELEASE; INDEMNIFICATION
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33
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5.1 Release of Pre-Closing Claims
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33
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5.2 General Indemnification by Outdoor
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35
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5.3 General Indemnification by CCU
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36
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5.4 Registration Statement Indemnification
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36
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5.5 Contribution
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37
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5.6 Indemnification Obligations Net of Insurance Proceeds and Other Amounts
on an After-Tax Basis
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38
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5.7 Procedures for Indemnification of Third Party Claims
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38
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5.8 Additional Matters
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40
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5.9 Remedies Cumulative; Limitations of Liability
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41
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5.10 Survival of Indemnities
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41
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ARTICLE VI OTHER AGREEMENTS
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41
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6.1 Further Assurances
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41
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6.2 Confidentiality
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42
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6.3 Insurance Matters
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44
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6.4 Allocation of Costs and Expenses
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45
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6.5 Covenants Against Taking Certain Actions Affecting CCU
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46
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6.6 No Violations
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48
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6.7 Registration Statements
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49
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6.8 Compliance with Charter Provisions
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49
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6.9 Future Intercompany Transactions
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49
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6.10 Board of Directors
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49
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6.11 CCU Policies
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50
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6.12 Operations
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50
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-ii-
TABLE OF CONTENTS
(continued)
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Page
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6.13 Distribution of Outdoor Common Stock by CCU
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50
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6.14 Tax Matters
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51
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6.15 Litigation
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52
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ARTICLE VII DISPUTE RESOLUTION
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53
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7.1 General Provisions
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53
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7.2 Consideration by Senior Executives
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54
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7.3 Mediation
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54
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7.4 Arbitration
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54
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ARTICLE VIII MISCELLANEOUS
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55
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8.1 Corporate Power; Fiduciary Duty
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55
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8.2 Governing Law
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56
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8.3 Survival of Covenants
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56
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8.4 Force Majeure
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56
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8.5 Notices
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56
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8.6 Severability
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57
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8.7 Entire Agreement
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57
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8.8 Assignment; No Third-Party Beneficiaries
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57
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8.9 Public Announcements
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58
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8.10 Amendment
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58
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8.11 Rules of Construction
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58
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8.12 Counterparts
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58
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-iii-
EXHIBITS
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A
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Form of Corporate Services Agreement
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B
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Form of Registration Rights Agreement
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C
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Form of Tax Matters Agreement
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D
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Form of Employee Matters Agreement
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E
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Form of Amended and Restated Trademark License Agreement
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F
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Form of Amended and Restated Certificate of Incorporation
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G
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Form of Amended and Restated Bylaws
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-iv-
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Schedule 2.4(b)(ii)
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Continuing Agreements
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Schedule 5.4(a)
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Statements in Prospectus Provided by CCU
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Schedule 6.15(b)
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Existing Actions
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-v-
MASTER AGREEMENT
This MASTER AGREEMENT, dated November 16, 2005 (this “
Agreement
”), is made between
Clear Channel Communications, Inc., a Texas corporation (“
CCU
”), and Clear Channel Outdoor
Holdings, Inc., a Delaware corporation and as of the date hereof, an indirect, wholly owned
subsidiary of CCU (“
Outdoor
”). Certain capitalized terms used in this Agreement are
defined in
Section 1.1
and the definitions of the other capitalized terms used in this
Agreement are cross-referenced in
Section 1.2
.
W I T N E S S E T H:
WHEREAS, the board of directors of CCU has determined that it is appropriate and desirable for
CCU to separate the Outdoor Group from CCU;
WHEREAS, in connection with the separation of the Outdoor Group from CCU, CCU desires to
contribute, assign or otherwise transfer, and to cause certain of its Subsidiaries to contribute,
assign or otherwise transfer, to Outdoor and certain of Outdoor’s Subsidiaries, certain Assets and
Liabilities associated with the Outdoor Business, including the stock or other equity interests of
certain of CCU’s Subsidiaries dedicated to the Outdoor Business;
WHEREAS, the boards of directors of CCU and Outdoor have further approved the initial public
offering by Outdoor of shares of its Class A Common Stock in a registered offering under the
Securities Act, concurrently with the closing of the Separation;
WHEREAS, in connection with the Separation, Outdoor intends to reclassify the Outdoor Common
Stock currently held indirectly by CCU into shares of its Class B Common Stock, such that CCU
indirectly will own all of the outstanding Class B Common Stock immediately following the
consummation of the Initial Public Offering;
WHEREAS, in connection with the Separation, the Intercompany Notes owed by a member of the
Outdoor Group to CCU will be satisfied in full as follows: (a) first, a portion of the outstanding
balance of the Intercompany Notes will be reduced by the balance of the intercompany account due to
Outdoor from CCU, (b) second, CCU will contribute a portion of the outstanding balance of the
Intercompany Notes to the capital of Outdoor, (c) third, the net cash proceeds of the Initial
Public Offering will be used by Outdoor to pay a portion of the outstanding balance of the
Intercompany Notes, and (d) fourth, to the extent the Underwriters do not exercise in full their
Over-Allotment Option to purchase additional shares of Class A Common Stock in the Initial Public
Offering, Outdoor will issue additional shares of Class B Common Stock to CCU in exchange for the
extinguishment of the remaining balance of the Intercompany Notes;
WHEREAS, it is appropriate and desirable to set forth the principal corporate transactions
required to effect the Separation and certain other agreements that will, following the
consummation of the Initial Public Offering, govern certain matters relating to the Separation, the
Initial Public Offering and the relationship of CCU, Outdoor and their respective Groups; and
-1-
WHEREAS, the terms and conditions set forth herein have not resulted from arms length
negotiations between the parties because of the context of CCU’s and Outdoor’s parent –Subsidiary
relationship, and accordingly, such terms and conditions may be in some respects less favorable to
Outdoor than those it could obtain from unaffiliated third parties.
NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained
herein, and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1
Certain Definitions
.
For purposes of this Agreement, the following terms shall have the meanings specified in this
Section 1.1
:
“
Action
” means any demand, action, claim, dispute, suit, countersuit, arbitration,
inquiry, proceeding or investigation by or before any federal, state, local, foreign or
international Governmental Authority or any arbitration or mediation tribunal.
“
Affiliate
” (and, with a correlative meaning, “
affiliated
”) means, with
respect to any Person, any direct or indirect Subsidiary of such Person, and any other Person that
directly, or through one or more intermediaries, controls or is controlled by or is under common
control with such first Person;
provided
,
however
, that from and after the Closing
Date, no member of the Outdoor Group shall be deemed an Affiliate of any member of the CCU Group
for purposes of this Agreement and the Transaction Documents and no member of the CCU Group shall
be deemed an Affiliate of any member of the Outdoor Group for purposes of this Agreement and the
Transaction Documents. As used in this definition, “
control
” (including with correlative
meanings, “
controlled by
” and “
under common control with
”) means possession,
directly or indirectly, of power to direct or cause the direction of management or policies, or the
power to appoint and remove a majority of directors (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise), of a Person.
“
Assets
” means, with respect to any Person, the assets, properties and rights
(including goodwill) of such Person, wherever located (including in the possession of vendors or
other third parties or elsewhere), whether real, personal or mixed, tangible, intangible or
contingent, in each case whether or not recorded or reflected or required to be recorded or
reflected on the books and records or financial statements of such Person, including the following:
(a) all interests in any capital stock, equity interests or capital or profit interests of any
Subsidiary or any other Person, all bonds, notes, debentures or other securities issued by any
Subsidiary or any other Person, all loans, advances or other extensions of credit or capital
contributions to any Subsidiary or any other Person and all other investments in securities of any
Person;
-2-
(b) all apparatus, computers and other electronic data processing equipment, fixtures,
machinery, equipment, furniture, office equipment, automobiles, trucks, vessels, motor vehicles and
other transportation equipment and other tangible personal property;
(c) all interests in real property of whatever nature, including easements, whether as owner,
mortgagee or holder of a Security Interest in real property, lessor, sublessor, lessee, sublessee
or otherwise;
(d) all accounting and other books, records and files whether in paper, microfilm, microfiche,
computer tape or disc, magnetic tape or any other form;
(e) all license agreements, leases of personal property, open purchase orders for supplies,
parts or services and other contracts, agreements or commitments;
(f) all deposits, letters of credit and performance and surety bonds;
(g) all written technical information, data, specifications, research and development
information, engineering drawings, operating and maintenance manuals, and materials and analyses
prepared by consultants and other third parties;
(h) all domestic and foreign intangible personal property, patents, copyrights, trade names,
trademarks, service marks and registrations and applications for any of the foregoing, mask works,
trade secrets, inventions, designs, ideas, improvements, works of authorship, recordings, other
proprietary and confidential information and licenses from third Persons granting the right to use
any of the foregoing;
(i) all computer applications, programs and other software, including operating software,
network software firmware, middleware, design software, design tools, systems documentation and
instructions;
(j) all cost information, sales and pricing data, customer prospect lists, supplier records,
customer and supplier lists, customer and vendor data, correspondence and lists, product
literature, artwork, design, formulations and specifications, quality records and reports and other
books, records, studies, surveys, reports, plans and documents;
(k) all prepaid expenses, trade accounts and other accounts and notes receivables;
(l) all rights under contracts or agreements, all claims or rights against any Person arising
from the ownership of any Asset, all rights in connection with any bids or offers and all claims,
choses in action or similar rights, whether accrued or contingent;
(m) all rights under insurance policies and all rights in the nature of insurance,
indemnification or contribution;
(n) all licenses, permits, approvals and authorizations which have been issued by any
Governmental Authority;
-3-
(o) cash or cash equivalents, bank accounts, lock boxes and other deposit arrangements; and
(p) interest rate, currency, commodity or other swap, collar, cap or other hedging or similar
agreements or arrangements.
“
Business Day
” means a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by Law to close. Any event the
scheduled occurrence of which would fall on a day that is not a Business Day shall be deferred
until the next succeeding Business Day.
“
CCU Group
” means CCU and each Person (other than a member of the Outdoor Group) that
is an Affiliate of CCU immediately following the Closing.
“
Class A Common Stock
” means the class A common stock, $0.01 par value per share, of
Outdoor.
“
Class B Common Stock
” means the class B common stock, $0.01 par value per share, of
Outdoor.
“
Code
” means the Internal Revenue Code of 1986, as amended.
“
Consents
” means any consent, waiver or approval from, or notification requirement to,
any third parties.
“
Delayed Transfer Assets
” means any Outdoor Assets that are expressly provided in this
Agreement or any Transaction Document to be transferred after the Closing Date.
“
Delayed Transfer Liabilities
” means any Outdoor Liabilities that are expressly
provided in this Agreement or any Transaction Document to be assumed after the Closing Date.
“
Exchange Act
” shall mean the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC thereunder, all as the same shall be in effect at the time that
reference is made thereto.
“
Firm Public Offering Shares
” means the Class A Common Stock sold in the Initial
Public Offering, other than Class A Common Stock sold as a result of exercise of the Over-Allotment
Option by the Underwriters.
“
Force Majeure
” means, with respect to a party, an event beyond the control of such
party (or any Person acting on its behalf), which by its nature could not have been foreseen by
such party (or such Person), or, if it could have been foreseen, was unavoidable, and includes,
without limitation, acts of God, storms, floods, riots, fires, sabotage, civil commotion or civil
unrest, interference by civil or military authorities, acts of war (declared or undeclared) or
armed hostilities or other national or international calamity or one or more acts of terrorism or
failure of energy sources or distribution facilities.
“
GAAP
” means United States generally accepted accounting principles.
-4-
“
Governmental Approvals
” means any notice, report or other filing to be made with, or
any consent, registration, approval, permit or authorization to be obtained from, any Governmental
Authority.
“
Governmental Authority
” means any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government, including any
governmental authority, agency, department, board, commission or instrumentality, whether federal,
state, local or foreign (or any political subdivision thereof), and any tribunal, court or
arbitrator(s) of competent jurisdiction.
“
Group
” means the CCU Group or the Outdoor Group, as the context requires.
“
Information
” means information, whether or not patentable or copyrightable, in
written, oral, electronic or other tangible or intangible form, stored in any medium, including
studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts,
know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes,
samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other
software, marketing plans, customer names, communications by or to attorneys (including
attorney-client privileged communications), memoranda and other materials prepared by attorneys or
under their direction (including attorney work product), and other technical, financial, employee
or business information or data.
“
Initial Public Offering
” means the initial public offering by Outdoor of the Class A
Common Stock.
“
Insurance Policies
” means the insurance policies written by insurance carriers,
including those affiliated with CCU and any self-insurance arrangements, pursuant to which Outdoor
or one or more of its Subsidiaries (or their respective officers or directors) will be insured
parties after the Closing Date.
“
Insurance Proceeds
” means those monies: (a) received by an insured from an insurance
carrier; (b) paid by an insurance carrier on behalf of the insured; or (c) received (including by
way of setoff) from any third party in the nature of insurance, contribution or indemnification in
respect of any Liability; in any such case net of any applicable premium adjustments (including
reserves and retrospectively rated premium adjustments) and net of any costs or expenses incurred
in the collection thereof.
“
Intercompany Notes
” means the two promissory notes in the original principal amounts
of $1.39 billion and $73 million, respectively, payable by Clear Channel Outdoor, Inc., a member of
the Outdoor Group, to CCU.
“
IPO Registration Statement
” means the registration statement on Form S-1 filed under
the Securities Act pursuant to which the Class A Common Stock to be sold by Outdoor in the Initial
Public Offering will be registered, and all amendments and supplements to such registration
statement, including post-effective amendments, all exhibits and all materials incorporated by
reference in such registration statement.
-5-
“
Law
” means any federal, state, local or foreign law (including common law), statute,
code, ordinance, rule, regulation or other requirement enacted, promulgated, issued or entered by a
Governmental Authority.
“
Liabilities
” means any debt, loss, damage, adverse claim, liability or obligation of
any Person (whether direct or indirect, known or unknown, asserted or unasserted, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated, or due or to become due, and whether
in contract, tort, strict liability or otherwise), and including all costs and expenses relating
thereto.
“
Outdoor Balance Sheet
” means Outdoor’s unaudited pro forma consolidated statement of
financial position as of June 30, 2005 included in the IPO Registration Statement.
“
Outdoor Business
” means the current businesses of the members of the Outdoor Group,
including, without limitation, the world-wide billboard advertising, street furniture displays, and
transit displays businesses described in the IPO Registration Statement, as well as those
terminated, divested or discontinued businesses of the members of Outdoor Group.
“
Outdoor Capital Stock
” means all classes or series of capital stock of Outdoor,
including the Class A Common Stock, the Class B Common Stock, and all options, warrants and other
rights to acquire such capital stock.
“
Outdoor Common Stock
” means the Class A Common Stock and the Class B Common Stock.
“
Outdoor Contracts
” means the following contracts and agreements to which CCU or any
of its Subsidiaries is a party or by which CCU or any of its Subsidiaries or any of their
respective Assets is bound, whether or not in writing, except for any such contract or agreement
that is contemplated to be retained by CCU or any member of the CCU Group pursuant to any provision
of this Agreement or any Transaction Document:
(a) any contract or agreement entered into in the name of, or expressly on behalf of, any
division, business unit or member of the Outdoor Group;
(b) any contract or agreement, including any joint venture agreement, that is used
exclusively or held for use exclusively in the Outdoor Business;
(c) any guarantee, indemnity, representation, warranty or other Liability of any member of
the Outdoor Group or the CCU Group in respect of (i) any other Outdoor Contract or Outdoor
Asset, (ii) any Outdoor Liability or (iii) the Outdoor Business; and
(d) any contract or agreement that is otherwise expressly contemplated pursuant to this
Agreement or any of the Transaction Documents to be assigned to Outdoor or any member of the
Outdoor Group in connection with the Separation.
“
Outdoor Group
” means Outdoor, each Subsidiary of Outdoor immediately after the
Closing and each other Person that is either controlled directly or indirectly by Outdoor
immediately after the Closing;
provided
that
, any Delayed Transfer Asset that is
transferred to
-6-
Outdoor at any time following the Closing shall, to the extent applicable, and from and after
the Closing Date, be considered part of the Outdoor Group for all purposes of this Agreement.
“
Outdoor Indebtedness
” means the aggregate principal amount of total liabilities
(whether long-term or short-term) for borrowed money (including capitalized leases) of the Outdoor
Group collectively, as determined for purposes of its financial statements prepared in accordance
with GAAP.
“
Over-Allotment Option
” means the over-allotment option that may be exercised by the
underwriters of the Initial Public Offering pursuant to the Underwriting Agreement relating to the
Initial Public Offering.
“
Person
” means any individual, corporation, partnership, limited liability company,
firm, joint venture, association, joint-stock company, trust, unincorporated organization,
Governmental Authority or other entity.
“
Prospectus
” means the prospectus or prospectuses included in the IPO Registration
Statement, as amended or supplemented by prospectus supplement and by all other amendments and
supplements to any such prospectus, including post-effective amendments and all material
incorporated by reference in such prospectus or prospectuses.
“
SEC
” means the Securities and Exchange Commission.
“
Securities Act
” means the Securities Act of 1933, as amended, and the rules and
regulations of the SEC thereunder, all as the same shall be in effect at the time that reference is
made thereto.
“
Security Interest
” means any mortgage, security interest, pledge, lien, charge,
claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition,
easement, encroachment, restriction on transfer (other than restrictions on transfer imposed by
federal or state securities laws), or other encumbrance of any nature whatsoever.
“
Separation
” means collectively, (a) the transfer of the Outdoor Assets, to the extent
not already held by Outdoor and the Outdoor Group, and the assumption by Outdoor and the Outdoor
Group of the Outdoor Liabilities, and (b) the transfer of certain Excluded Assets to CCU and the
CCU Group, and the assumption by CCU and the CCU Group of certain Excluded Liabilities, all as more
fully described in this Agreement and the Transaction Documents.
“
Subsidiary
” or “
subsidiary
” means, with respect to any Person, any
corporation, limited liability company, joint venture or partnership of which such Person (a)
beneficially owns, either directly or indirectly, more than fifty percent (50%) of (i) the total
combined voting power of all classes of voting securities of such entity, (ii) the total combined
equity interests, or (iii) the capital or profit interests, in the case of a partnership; or (b)
otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a
majority of the board of directors or similar governing body.
“
Tax
” means all federal, state, provincial, territorial, municipal, local or foreign
income, profits, franchise, gross receipts, environmental (including taxes under Code Section 59A),
-7-
customs, duties, net worth, sales, use, goods and services, withholding, value added,
ad
valorem
, employment, social security, disability, occupation, pension, real property, personal
property (tangible and intangible), stamp, transfer, conveyance, severance, production, excise,
premium, retaliatory and other taxes, withholdings, duties, levies, imposts, guarantee fund
assessments and other similar charges and assessments (including any and all fines, penalties and
additions attributable to or otherwise imposed on or with respect to any such taxes, charges, fees,
levies or other assessments, and interest thereon) imposed by or on behalf of any Taxing Authority,
in each case whether such Tax arises by Law, contract, agreement or otherwise.
“
Taxing Authority
” means any Governmental Authority exercising any authority to
impose, regulate, levy, assess or administer the imposition of any Tax.
“
Transactions
” means, collectively, (a) the Separation, (b) the Initial Public
Offering, (c) the repayment by Outdoor of the principal of, and accrued interest on, the
Intercompany Notes as set forth in
Section 3.6
, and (d) all other transactions contemplated
by this Agreement or any Transaction Document.
“
Trigger Date
” means the first date on which members of the CCU Group cease to
beneficially own more than fifty percent (50%) of the total voting power of Outdoor Common Stock.
“
Underwriters
” means the managing underwriters for the Initial Public Offering.
“
Underwriting Agreement
” means the Underwriting Agreement to be entered into by and
among CCU, Outdoor and the Underwriters in connection with the offering of Outdoor Common Stock in
the Initial Public Offering.
1.2
Other Terms
.
For purposes of this Agreement, the following terms have the
meanings set forth in the sections indicated.
|
|
|
Term
|
|
Section
|
After-Tax Basis
|
|
5.6(c)
|
Agreement
|
|
Recitals
|
Annual Financial Statements
|
|
4.1(a)(v)
|
Assumed Actions
|
|
6.15(a)
|
Bylaws
|
|
3.3
|
CCU
|
|
Preamble
|
CCU Annual Statements
|
|
4.1(b)(ii)
|
CCU Auditors
|
|
4.1(b)(ii)
|
CCU Confidential Information
|
|
6.2(b)
|
CCU Indemnified Parties
|
|
5.2
|
CCU Policies
|
|
6.11
|
CCU Public Filings
|
|
4.1(a)(xii)
|
CCU Transfer Documents
|
|
2.8
|
Charter
|
|
3.3
|
Closing
|
|
3.1
|
Closing Date
|
|
3.1
|
-8-
|
|
|
Term
|
|
Section
|
Conversion Upon Transfer Provision
|
|
6.13
|
Corporate Services Agreement
|
|
3.2(b)(i)
|
CPR
|
|
7.3
|
CPR Arbitration Rules
|
|
7.4(a)
|
Dispute
|
|
7.1(a)
|
Distribution
|
|
6.13
|
Employee Matters Agreement
|
|
3.2(b)(iv)
|
Excluded Assets
|
|
2.2(b)
|
Excluded Liabilities
|
|
2.3(b)
|
Existing Actions
|
|
6.15(b)
|
Existing CCU Indebtedness
|
|
3.5
|
Indemnified Party
|
|
5.6(a)
|
Indemnifying Party
|
|
5.6(a)
|
Indemnity Payment
|
|
5.6(a)
|
Initial Notice
|
|
7.2
|
International Tax Matters Agreement
|
|
3.2(b)(vi)
|
Optional Conversion Right
|
|
6.13
|
Outdoor
|
|
Preamble
|
Outdoor Assets
|
|
2.2(a)
|
Outdoor Auditors
|
|
4.1(b)(i)
|
Outdoor Confidential Information
|
|
6.2(a)
|
Outdoor Indemnified Parties
|
|
5.3
|
Outdoor Liabilities
|
|
2.3(a)
|
Outdoor Public Documents
|
|
4.1(a)(viii)
|
Outdoor Transfer Documents
|
|
2.9(a)(iii)
|
Privilege
|
|
4.9
|
Quarterly Financial Statements
|
|
4.1(a)(iv)
|
Registration Rights Agreement
|
|
3.2(b)(ii)
|
Representatives
|
|
6.2(a)
|
Response
|
|
7.2
|
Tax-Free Spin-Off
|
|
6.13
|
Tax Matters Agreement
|
|
3.2(b)(iii)
|
Termination Option
|
|
6.13
|
Third Party Claim
|
|
5.7(a)
|
Trademark License Agreement
|
|
3.2(b)(v)
|
Transaction Documents
|
|
3.2(b)
|
Transfer Documents
|
|
2.9(a)(iii)
|
ARTICLE II
THE SEPARATION
2.1
Transfer of Outdoor Assets; Assumption of Outdoor Liabilities
.
(a) The Separation shall be effected in accordance with the terms and conditions of this
Agreement and the other Transfer Documents. Subject to
Section 3.7
, immediately
-9-
following the execution and delivery of the Underwriting Agreement by each of the parties
thereto:
(i) CCU shall, and shall cause its applicable Subsidiaries to, contribute, assign,
transfer, convey and deliver to Outdoor or certain of its Subsidiaries designated by
Outdoor, and Outdoor or such applicable Subsidiaries shall accept from CCU and its
applicable Subsidiaries, all of CCU’s and such Subsidiaries’ respective rights, titles and
interests in and to all Outdoor Assets, other than the Delayed Transfer Assets, with such
contributions, assignments, transfers and conveyances being subject to the terms and
conditions of this Agreement and any applicable Transfer Documents; and
(ii) Outdoor shall, and shall cause its domestic Subsidiaries to, accept, assume and
agree, on a several and not joint basis, to perform, discharge and fulfill all the Outdoor
Liabilities, other than the Delayed Transfer Liabilities, in accordance with their
respective terms. Outdoor and such Subsidiaries shall be responsible for all Outdoor
Liabilities assumed by it, regardless of when or where such Outdoor Liabilities arose or
arise, or whether the facts on which they are based occurred prior to or subsequent to the
Closing Date, regardless of where or against whom such Outdoor Liabilities are asserted or
determined (including any Outdoor Liabilities arising out of claims made by CCU’s or
Outdoor’s respective directors, officers, employees, agents, Subsidiaries or Affiliates
against any member of the CCU Group or the Outdoor Group) or whether asserted or determined
prior to the date hereof, and, except as set forth in
Section 2.3(b)(iv)
, regardless
of whether arising from or alleged to arise from negligence, recklessness, violation of Law,
fraud or misrepresentation by any member of the CCU Group or the Outdoor Group, or any of
their past or present respective directors, officers, employees, agents, Subsidiaries or
Affiliates. Such assumption of Outdoor Liabilities shall be subject to the terms and
conditions of this Agreement and any applicable Transfer Documents.
(b) Each of the parties agrees that the Delayed Transfer Assets will be contributed, assigned,
transferred, conveyed and delivered, and the Delayed Transfer Liabilities will be accepted and
assumed, in accordance with the terms of the applicable Transaction Documents. Notwithstanding the
date on which any such Delayed Transfer Asset is actually contributed, assigned, conveyed and
delivered, or the date on which any such Delayed Transfer Liability is actually accepted and
assumed, such contribution, assignment, transfer, conveyance and delivery of any Delayed Transfer
Asset, or the acceptance and assumption of any Delayed Transfer Liability, shall be deemed to have
taken place on, and shall be effective as of, the Closing Date, and the applicable Delayed Transfer
Asset or Delayed Transfer Liability shall be treated for all purposes of this Agreement and the
Transaction Documents as an Outdoor Asset or an Outdoor Liability, as the case may be, from and
after the Closing Date.
(c) If at any time or from time to time (whether prior to or after the Closing Date) any party
hereto (or any member of such party’s respective Group) shall receive or otherwise possess any
Asset that is allocated to any other Person pursuant to this Agreement or any Transaction Document,
such party shall promptly transfer, or cause to be transferred, such Asset to the Person so
entitled thereto. Prior to any such transfer, the Person receiving or possessing such Asset shall
hold such Asset in trust for any such other Person.
-10-
(d) Outdoor hereby waives compliance by each member of the CCU Group with the requirements and
provisions of the “bulk-sale” or “bulk-transfer” Laws of any jurisdiction that may otherwise be
applicable with respect to the transfer or sale of any or all of the Outdoor Assets to any member
of the Outdoor Group.
2.2
Outdoor Assets
.
(a) Subject to
Section 2.2(b)
, for purposes of this Agreement, “
Outdoor
Assets
” shall mean (without duplication):
(i) all Assets that are expressly provided by this Agreement or any Transaction
Document as Assets to be transferred by CCU and other members of the CCU Group to Outdoor or
another designated member of the Outdoor Group;
(ii) all Outdoor Contracts;
(iii) subject to
Section 6.3
, any rights of any member of the Outdoor Group
under any of the Insurance Policies, including any rights thereunder arising after the
Closing Date in respect of any Insurance Policies;
(iv) all Assets reflected as Assets of Outdoor and its Subsidiaries in the Outdoor
Balance Sheet, other than any dispositions of such Assets subsequent to the date of the
Outdoor Balance Sheet; and
(v) any and all Assets owned or held immediately prior to the Closing Date by CCU or
any of its Subsidiaries that are used exclusively in the Outdoor Business. The intention of
this
clause (v)
is only to rectify any inadvertent omission of transfer or
conveyance of any Asset that, had the parties given specific consideration to such Asset as
of the date hereof, would have otherwise been classified as an Outdoor Asset.
(b) Notwithstanding the foregoing, the Outdoor Assets shall not in any event include the
Excluded Assets. For purposes of this Agreement, “
Excluded Assets
” shall mean Assets not
used exclusively in the Outdoor Business, including, without limitation any and all Assets that are
expressly contemplated by this Agreement or any Transaction Document as either Assets to be
retained by CCU or any other member of the CCU Group, other than assets of CCE Spinco, Inc. and its
Subsidiaries, or Assets that are to be transferred by Outdoor or any member of the Outdoor Group to
CCU or a designated member of the CCU Group, including CCE Spinco, Inc. and its Subsidiaries.
2.3
Outdoor Liabilities
.
(a) Subject to
Section 2.3(b)
, for purposes of this Agreement, “
Outdoor
Liabilities
” shall mean (without duplication):
(i) all Liabilities that are expressly provided by this Agreement or any Transaction
Document as Liabilities to be assumed by Outdoor or any other member of the Outdoor Group,
and all agreements, obligations and Liabilities of Outdoor or any
-11-
other member of the Outdoor Group under this Agreement or any of the Transaction
Documents;
(ii) all Liabilities, including any employee-related Liabilities relating to, arising
out of or resulting from:
(A) the operation of the Outdoor Business, as conducted at any time before, on
or after the Closing Date (including any Liability relating to, arising out of or
resulting from any act or failure to act by any director, officer, employee, agent
or representative (whether or not such act or failure to act is or was within such
Person’s authority));
(B) the operation of any business conducted by any member of the Outdoor Group
at any time after the Closing Date (including any Liability relating to, arising out
of or resulting from any act or failure to act by any director, officer, employee,
agent or representative (whether or not such act or failure to act is or was within
such Person’s authority)); or
(C) any Outdoor Assets (including any Outdoor Contracts and any real property
and leasehold interests), in any such case whether arising before, on or after the
Closing Date;
(iii) all Liabilities reflected as liabilities or obligations of Outdoor or its
Subsidiaries in the Outdoor Balance Sheet;
(iv) all Liabilities related to Assumed Actions and Existing Actions, as further
provided in
Section 6.15
;
(v) all Liabilities related to any and all other Actions initiated on or after the
Closing Date that arise out of or relate in any material respect to the operation of the
Outdoor Business or the ownership or use of the Outdoor Assets, in any such case whether
such Action arises before, on or after the Closing Date, including any such Action in which
CCU or any member of the CCU Group is named as a defendant or party subject to any claim or
investigation;
(vi) all Liabilities for any payments to be made by any member of the CCU Group or any
member of the Outdoor Group pursuant to the terms and conditions of purchase agreements
relating to the acquisition of Outdoor Assets, including, without limitation, purchase price
installment payments based on the financial performance of the Outdoor Asset subsequent to
the acquisition; and
(vii) all Liabilities arising out of claims made by CCU’s or Outdoor’s respective
directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the
CCU Group or the Outdoor Group with respect to the Outdoor Business.
(b) Notwithstanding the foregoing, the Outdoor Liabilities shall not in any event include the
Excluded Liabilities. For purposes of this Agreement, “
Excluded Liabilities
” shall mean
(without duplication):
-12-
(i) any and all Liabilities that are expressly contemplated by this Agreement or any
Transaction Document as Liabilities to be retained or assumed by CCU or any other member of
the CCU Group (in each case other than Delayed Transfer Liabilities), and all agreements and
obligations of any member of the CCU Group under this Agreement or any of the Transaction
Documents;
(ii) any and all Liabilities of a member of the CCU Group relating solely to, arising
solely out of or resulting from any Excluded Assets; and
(iii) any and all liabilities arising from a knowing violation of Law, fraud or
misrepresentation by any member of the CCU Group or any of their respective directors,
officers, employees or agents (other than any individual who at the time of such act was
acting in his or her capacity as a director, officer, employee or agent of any member of the
Outdoor Group).
2.4
Termination of Agreements
.
(a) Except as set forth in
Section 2.4(b)
, Outdoor and each member of the Outdoor
Group, on the one hand, and CCU and each member of the CCU Group, on the other hand, hereby
terminate any and all agreements, arrangements, commitments or understandings, whether or not in
writing, between or among Outdoor or any member of the Outdoor Group, on the one hand, and CCU or
any member of the CCU Group, on the other hand, effective as of the Closing Date. No such
terminated agreement, arrangement, commitment or understanding (including any provision thereof
which purports to survive termination) shall be of any further force or effect after the Closing
Date. Each party shall, at the reasonable request of any other party, take, or cause to be taken,
such other actions as may be necessary to effect the foregoing.
(b) The provisions of
Section 2.4(a)
shall not apply to any of the following
agreements, arrangements, commitments or understandings (or to any of the provisions thereof):
(i) this Agreement and the Transaction Documents (and each other agreement or
instrument expressly contemplated by this Agreement or any Transaction Document to be
entered into or continued by either of the parties or any of the members of their respective
Groups);
(ii) except to the extent redundant with any provision of or service provided under
this Agreement or any of the Transaction Documents (including any exhibits or schedules
thereto), the agreements, arrangements, commitments and understandings listed or described
on
Schedule 2.4(b)(ii)
;
(iii) any agreements, arrangements, commitments or understandings to which any Person
other than the parties and their respective Affiliates is a party (it being understood that
to the extent that the rights and obligations of the parties and the members of their
respective Groups under any such agreements, arrangements, commitments or understandings
constitute Outdoor Assets or Outdoor Liabilities, they shall be assigned pursuant to
Section 2.1)
;
-13-
(iv) any accounts or notes payable or accounts or notes receivable between a member of
the CCU Group, on the one hand, and a member of the Outdoor Group, on the other hand,
accrued as of the Closing Date and reflected in the books and records of the parties or
otherwise documented in accordance with past practices;
(v) any agreements, arrangements, commitments or understandings to which any non-wholly
owned Subsidiary of CCU or Outdoor, as the case may be, is a party; and
(vi) any other agreements, arrangements, commitments or understandings that this
Agreement or any Transaction Document expressly contemplates will survive the Closing Date.
2.5
Governmental Approvals and Consents; Delayed Transfer Assets and Liabilities
.
(a) To the extent that the Separation requires any Governmental Approvals or Consents, the
parties will use their commercially reasonable efforts to obtain such Governmental Approvals and
Consents;
provided
,
however
, that neither CCU nor Outdoor shall be obligated to
contribute capital in any form to any entity in order to obtain such Governmental Approvals and
Consents.
(b) If and to the extent that the valid, complete and perfected contribution, transfer or
assignment to the Outdoor Group of any Outdoor Assets or the assumption by the Outdoor Group of any
Outdoor Liabilities would be a violation of applicable Law or require any Consent or Governmental
Approval in connection with the Separation or the Initial Public Offering, then, unless the parties
mutually shall otherwise determine, the transfer or assignment to the Outdoor Group of such Outdoor
Assets or the assumption by the Outdoor Group of such Outdoor Liabilities shall be automatically
deemed deferred and any such purported contribution, transfer, assignment or assumption shall be
null and void until such time as all legal impediments are removed or such Consents or Governmental
Approvals have been obtained. If and when the Consents and Governmental Approvals are obtained,
the contribution, transfer or assignment of the applicable Outdoor Asset or Outdoor Liability shall
be effected in accordance with the terms of this Agreement and/or the applicable Transfer Document.
Any such Liability shall be deemed a Delayed Transfer Liability. Any such Asset shall be deemed a
Delayed Transfer Asset and notwithstanding the foregoing, an Outdoor Asset for purposes of
determining whether any Liability is an Outdoor Liability.
(c) If any contribution, transfer or assignment of any Outdoor Asset intended to be
contributed, transferred or assigned hereunder or any assumption of any Outdoor Liability intended
to be assumed by the Outdoor Group hereunder is not consummated on the Closing Date for any reason,
then, insofar as reasonably possible, (i) the member of the CCU Group retaining such Outdoor Asset
shall thereafter hold such Outdoor Asset for the use and benefit of the member of the Outdoor Group
entitled thereto (at the expense of the member of the Outdoor Group entitled thereto) and (ii)
Outdoor shall, or shall cause the applicable member of the Outdoor Group to, pay or reimburse the
member of the CCU Group retaining such Outdoor Liability for all amounts paid or incurred in
connection with such Outdoor Liability. In addition, the member of the CCU Group retaining such
Outdoor Asset shall, insofar as reasonably possible
-14-
and to the extent permitted by applicable Law, treat such Asset in the ordinary course of
business in accordance with past practice and take such other actions as may be reasonably
requested by the Outdoor Group member to whom such Outdoor Asset is to be transferred in order to
place such Outdoor Group member in the same position as if such Outdoor Asset had been transferred
as contemplated hereby and so that all the benefits and burdens relating to such Outdoor Asset,
including possession, use, risk of loss, potential for gain, and dominion, control and command over
such Outdoor Asset, is to inure from and after the Closing Date to the Outdoor Group.
(d) The Person retaining an Asset or Liability due to the deferral of the transfer of such
Asset or the deferral of the assumption of such Liability shall not be obligated, in connection
with the foregoing, to expend any money unless the necessary funds are advanced (or otherwise made
available) by the Person entitled to the Asset or the Person intended to be subject to the
Liability, other than reasonable out-of-pocket expenses, attorneys’ fees and recording or similar
fees, all of which shall be promptly reimbursed by the Person entitled to such Asset or the Person
intended to be subject to the Outdoor Liability.
2.6
Novation of Assumed Outdoor Liabilities
.
(a) Each of CCU and Outdoor, at the request of the other, shall use commercially reasonable
efforts to obtain, or to cause to be obtained, any Consent, substitution or amendment required to
novate or assign all obligations under agreements, leases, licenses and other obligations or
Liabilities of any nature whatsoever that constitute Outdoor Liabilities, or to obtain in writing
the unconditional release of all parties to such arrangements (other than any member of the Outdoor
Group), so that, in any such case, Outdoor and the other members of the Outdoor Group will be
solely responsible for such Outdoor Liabilities;
provided
,
however
, that neither
the CCU Group nor the Outdoor Group shall be obligated to pay any consideration or assume any
additional obligation therefor to any third party from whom any such Consent, substitution or
amendment is requested.
(b) If CCU or Outdoor is unable to obtain, or to cause to be obtained, any such required
Consent, release, substitution or amendment, the applicable member of the CCU Group shall continue
to be bound by such agreement, lease, license or other obligation that constitutes an Outdoor
Liability and, unless not permitted by Law or the terms thereof, as agent or subcontractor for such
member of the CCU Group, Outdoor shall, or shall cause a member of the Outdoor Group to, pay,
perform and discharge fully all the obligations or other Liabilities of members of the CCU Group
thereunder that constitute Outdoor Liabilities from and after the Closing Date. Outdoor shall
indemnify each CCU Indemnified Party, and hold each of them harmless against any Liabilities
arising in connection therewith;
provided
that
, Outdoor shall have no obligation to
indemnify any CCU Indemnified Party with respect to any matter to the extent that such CCU
Indemnified Party has engaged in any knowing violation of Law, fraud or misrepresentation in
connection therewith. CCU shall, without further consideration, promptly pay and remit, or cause
to be promptly paid or remitted, to Outdoor, all money, rights and other consideration received by
it or any member of the CCU Group in respect of such performance (unless any such consideration is
an Excluded Asset). If and when any such Consent, release, substitution or amendment shall be
obtained or such agreement, lease, license or other rights or obligations shall otherwise become
assignable or able to be novated, CCU shall thereafter assign,
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or cause to be assigned, all rights and obligations of any member of the CCU Group thereunder
and any other Outdoor Liabilities thereunder to Outdoor or a designated member of the Outdoor
Group, without payment of further consideration and Outdoor, or a designated member of the Outdoor
Group, shall, without the payment of any further consideration, assume such Outdoor Liabilities and
rights.
2.7
Novation of Liabilities other than Outdoor Liabilities
.
(a) Each of CCU and Outdoor, at the request of the other, shall use commercially reasonable
efforts to obtain, or to cause to be obtained, any Consent, substitution, or amendment required to
novate or assign all obligations under agreements, leases, licenses and other obligations or
Liabilities for which a member of the CCU Group and a member of the Outdoor Group are jointly or
severally liable and that do not constitute Outdoor Liabilities, or to obtain in writing the
unconditional release of all parties to such arrangements other than any member of the CCU Group,
so that, in any such case, the members of the CCU Group will be solely responsible for such
Liabilities;
provided
,
however
, that neither the CCU Group nor the Outdoor Group
shall be obligated to pay any consideration therefor to any third party from whom any such Consent,
substitution or amendment is requested.
(b) If CCU or Outdoor is unable to obtain, or to cause to be obtained, any such required
Consent, release, substitution or amendment, the applicable member of the Outdoor Group shall
continue to be bound by such agreement, lease, license or other obligation that does not constitute
an Outdoor Liability and, unless not permitted by Law or the terms thereof, as agent or
subcontractor for such member of the Outdoor Group, CCU shall, or shall cause a member of the CCU
Group to, pay, perform and discharge fully all the obligations or other Liabilities of such member
of the Outdoor Group thereunder from and after the Closing Date. CCU shall indemnify each Outdoor
Indemnified Party and hold each of them harmless against any Liabilities (other than Outdoor
Liabilities) arising in connection therewith;
provided
that
, CCU shall have no
obligation to indemnify any Outdoor Indemnified Party with respect to any matter to the extent that
such Outdoor Indemnified Party has engaged in any knowing violation of Law, fraud or
misrepresentation in connection therewith. Outdoor shall, without further consideration, promptly
pay and remit, or cause to be promptly paid or remitted, to CCU or to another member of the CCU
Group specified by CCU, all money, rights and other consideration received by it or any member of
the Outdoor Group in respect of such performance (unless any such consideration is an Outdoor
Asset). If and when any such Consent, release, substitution or amendment shall be obtained or such
agreement, lease, license or other rights or obligations shall otherwise become assignable or able
to be novated, Outdoor shall promptly assign, or cause to be assigned, all rights, obligations and
other Liabilities thereunder of any member of the Outdoor Group to CCU or to another member of the
CCU Group specified by CCU, without payment of any further consideration and CCU, or another member
of the CCU Group, without the payment of any further consideration shall assume such rights and
Liabilities.
2.8
Transfers of Assets and Assumption of Liabilities
.
In furtherance of the contribution, assignment, transfer and conveyance of Outdoor Assets and
the assumption of Outdoor Liabilities, on the Closing Date, (a) CCU shall execute and deliver, and
shall cause the other members of the CCU Group to execute and deliver, such
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stock powers, merger certificates, bills of sale, certificates of title, assignments of
contracts and other instruments of contribution, transfer, conveyance and assignment as and to the
extent necessary to evidence the contribution, transfer, merger, conveyance and assignment of all
of the CCU Group’s right, title and interest in and to the Outdoor Assets to the Outdoor Group, and
(b) Outdoor shall execute and deliver, and shall cause the other members of the Outdoor Group to
execute and deliver, such assumptions of contracts and other instruments of assumption as and to
the extent necessary to evidence the valid and effective assumption of the Outdoor Liabilities by
the Outdoor Group. All of the foregoing documents contemplated by this
Section 2.8
shall
be referred to collectively herein as the “
CCU Transfer Documents
.”
2.9
Transfer of Excluded Assets by Outdoor; Assumption of Excluded Liabilities by CCU
.
(a) To the extent any Excluded Asset or Excluded Liability is transferred to a member of the
Outdoor Group at the Closing or remains owned or held by a member of the Outdoor Group after the
Closing, from and after the Closing:
(i) Outdoor shall, and shall cause the members of the Outdoor Group to, promptly
contribute, assign, transfer, convey and deliver to CCU or designated CCU Group members, and
CCU or such CCU Group members shall accept from Outdoor and its applicable Group members,
all of Outdoor’s and such Group members’ respective rights, titles and interests in and to
such Excluded Assets.
(ii) CCU and certain CCU Group members designated by CCU, shall promptly accept, assume
and agree to perform, discharge and fulfill all such Excluded Liabilities in accordance with
their respective terms.
(iii) In furtherance of the assignment, transfer and conveyance of Excluded Assets and
the assumption of Excluded Liabilities (A) Outdoor shall execute and deliver, and shall
cause its Subsidiaries to execute and deliver, such bills of sale, stock powers,
certificates of title, assignments of contracts and other instruments of transfer,
conveyance and assignment as and to the extent necessary to evidence the transfer,
conveyance and assignment of all of Outdoor’s and its Subsidiaries’ right, title and
interest in and to the Excluded Assets to CCU and its Subsidiaries, and (B) CCU shall
execute and deliver such assumptions of contracts and other instruments of assumption as and
to the extent necessary to evidence the valid and effective assumption of the Excluded
Liabilities by CCU. All of the foregoing documents contemplated by this
Section
2.9(a)(iii)
shall be referred to collectively herein as the “
Outdoor Transfer
Documents
” and, together with the CCU Transfer Documents, the “
Transfer
Documents
.”
(iv) To the extent that the transfer of such Excluded Assets and the assumption of such
Excluded Liabilities requires any Governmental Approvals or Consents, the parties shall use
commercially reasonable efforts to obtain such Governmental Approvals and Consents;
provided
,
however
, that neither CCU nor Outdoor shall be obligated to
contribute capital in any form to any entity in order to obtain such Governmental Approvals
and Consents.
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(v) If and to the extent that the valid, complete and perfected transfer or assignment
to the CCU Group of any Excluded Assets or the assumption by the CCU Group of any Excluded
Liabilities would be a violation of applicable Law or require any Consent or Governmental
Approval, then, unless the parties mutually shall otherwise determine, the transfer or
assignment to the CCU Group of such Excluded Assets or the assumption by the CCU Group of
such Excluded Liabilities shall be automatically deemed deferred and any such purported
transfer, assignment or assumption shall be null and void until such time as all legal
impediments are removed or such Consents or Governmental Approvals have been obtained.
(b) If any transfer or assignment of any Excluded Asset intended to be transferred or assigned
hereunder or any assumption of any Excluded Liability intended to be assumed by CCU hereunder is
not consummated on the Closing Date, whether as a result of the failure to obtain any required
Governmental Approvals or Consents or any other reason, then, insofar as reasonably possible, (i)
the member of the Outdoor Group retaining such Excluded Asset shall thereafter hold such Excluded
Asset for the use and benefit of CCU (at CCU’s expense) and (ii) CCU shall, or shall cause its
applicable Group member to, pay or reimburse the member of the Outdoor Group retaining such
Excluded Liability for all amounts paid or incurred in connection with such Excluded Liability. In
addition, the member of the Outdoor Group retaining such Excluded Asset shall, insofar as
reasonably possible and to the extent permitted by applicable Law, treat such Excluded Asset in the
ordinary course of business in accordance with past practice and take such other actions as may be
reasonably requested by CCU in order to place CCU in the same position as if such Excluded Asset
had been transferred as contemplated hereby and so that all the benefits and burdens relating to
such Excluded Asset, including possession, use, risk of loss, potential for gain, and dominion,
control and command over such Excluded Asset, is to inure from and after the Closing Date to the
CCU Group.
(c) If and when the Consents and Governmental Approvals, the absence of which caused the
deferral of transfer of any Excluded Asset or the deferral of assumption of any Excluded Liability,
are obtained, the transfer or assignment of the applicable Excluded Asset or Excluded Liability
shall be effected in accordance with the terms of this Agreement and/or the applicable Transfer
Document.
(d) Any member of the Outdoor Group retaining an Excluded Asset or Excluded Liability due to
the deferral of the transfer of such Excluded Asset or the deferral of the assumption of such
Excluded Liability shall not be obligated, in connection with the foregoing, to expend any money
unless the necessary funds are advanced (or otherwise made available) by CCU or the member of the
CCU Group intended to be subject to the Excluded Liability, other than reasonable out-of-pocket
expenses, attorneys’ fees and recording or similar fees, all of which shall be promptly reimbursed
by CCU or the member of the CCU Group entitled to such Excluded Asset or intended to be subject to
such Excluded Liability.
2.10
DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
.
EACH OF CCU (ON BEHALF OF ITSELF AND EACH MEMBER OF THE CCU GROUP) AND OUTDOOR (ON BEHALF OF
ITSELF AND EACH MEMBER OF THE OUTDOOR GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY
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SET FORTH HEREIN OR IN ANY TRANSACTION DOCUMENT, NO PARTY TO THIS AGREEMENT, ANY TRANSACTION
DOCUMENT OR ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT, ANY TRANSACTION
DOCUMENT OR OTHERWISE, IS REPRESENTING OR WARRANTING IN ANY WAY AS TO THE ASSETS, BUSINESSES OR
LIABILITIES CONTRIBUTED, TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, AS TO ANY
CONSENTS OR APPROVALS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, AS TO THE VALUE OR FREEDOM FROM
ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY, OR AS TO THE
ABSENCE OF ANY DEFENSES OR RIGHT OF SETOFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY CLAIM
OR OTHER ASSET, INCLUDING ACCOUNTS RECEIVABLE, OF ANY PARTY, OR AS TO THE LEGAL SUFFICIENCY OF ANY
CONTRIBUTION, ASSIGNMENT, DOCUMENT, CERTIFICATE OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY TITLE
TO ANY ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF. EXCEPT
AS MAY EXPRESSLY BE SET FORTH HEREIN OR IN ANY TRANSACTION DOCUMENT, ALL SUCH ASSETS ARE BEING
TRANSFERRED ON AN “AS IS,” “WHERE IS” BASIS (AND, IN THE CASE OF ANY REAL PROPERTY, BY MEANS OF A
QUITCLAIM OR SIMILAR FORM DEED OR CONVEYANCE) AND THE RESPECTIVE TRANSFEREES SHALL BEAR THE
ECONOMIC AND LEGAL RISKS THAT (I) ANY CONVEYANCE SHALL PROVE TO BE INSUFFICIENT TO VEST IN THE
TRANSFEREE GOOD TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST, AND (II) ANY NECESSARY CONSENTS OR
GOVERNMENTAL APPROVALS ARE NOT OBTAINED OR THAT ANY REQUIREMENTS OF LAWS OR JUDGMENTS ARE NOT
COMPLIED WITH.
ARTICLE III
INTERCOMPANY TRANSACTIONS AS OF THE CLOSING DATE
3.1
Time and Place of Closing
.
Subject to the terms and conditions of this Agreement, all transactions contemplated by this
Agreement shall be consummated at a closing (the “
Closing
”) to be held at such place as CCU
and Outdoor mutually agree and on the date on which (and after) the Underwriting Agreement is
executed and delivered by each of the parties thereto or at such other time as CCU and Outdoor may
mutually agree (the day on which the Closing takes place being the “
Closing Date
”).
3.2
Closing Transactions
.
In each case subject to
Section 3.7
, after execution and delivery of the Underwriting
Agreement by all parties thereto, at the Closing:
(a) The Separation shall be effected in accordance with this Agreement and the applicable
Transfer Documents.
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(b) The appropriate parties shall enter into, and (as necessary) shall cause the respective
members of their Group to enter into, the agreements set forth below (collectively with the
Transfer Documents, the “
Transaction Documents
”):
(i) the Corporate Services Agreement in the form attached as
Exhibit A
(the
“
Corporate Services Agreement
”);
(ii) the Registration Rights Agreement in the form attached as
Exhibit B
(the
“
Registration Rights Agreement
”);
(iii) the Tax Matters Agreement in the form attached as
Exhibit C
(the “
Tax
Matters Agreement
”);
(iv) the Employee Matters Agreement in the form attached as
Exhibit D
(the
“
Employee Matters Agreement
”); and
(v) the Amended and Restated Trademark License Agreement in the form attached as
Exhibit E
(the “
Trademark License Agreement
”).
3.3
Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws
.
At or prior to the Closing, CCU and Outdoor shall each take all necessary actions that may be
required to provide for the adoption by Outdoor of the Amended and Restated Certificate of
Incorporation of Outdoor in the form attached hereto as
Exhibit F
(the “
Charter
”),
and the Amended and Restated Bylaws of Outdoor in the form attached hereto as
Exhibit G
(the “
Bylaws
”). The Charter and Bylaws shall be in full force and effect as of the Closing
Date.
3.4
The Initial Public Offering
.
The Initial Public Offering will be a primary offering of Class A Common Stock. Outdoor shall
(a) consult with, and cooperate in all respects with, CCU in connection with the pricing of the
Class A Common Stock to be offered in the Initial Public Offering; (b) at the direction of CCU,
execute and deliver the Underwriting Agreement in such form and substance as is reasonably
satisfactory to CCU; and (c) at the direction of CCU, promptly take any and all actions necessary
or desirable to consummate the Initial Public Offering as contemplated by the IPO Registration
Statement and the Underwriting Agreement.
3.5
Intercompany Notes.
At or prior to the Closing and as detailed in the IPO Registration Statement, the intercompany
account balance of approximately $419.8 million representing accounts payable and other accrued
amounts owed to Outdoor by CCU will be applied to reduce the outstanding balance of the
Intercompany Notes, and CCU will then contribute no less than $442.9 million of the outstanding
balance of the Intercompany Notes to the capital of Outdoor. All of the net cash proceeds of the
Initial Public Offering will be used by Outdoor to repay the remaining outstanding balance of the
Intercompany Notes. If the Underwriters do not exercise the Over-Allotment Option in full, thereby
reducing the maximum net proceeds of the Initial Public
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Offering, Outdoor will issue additional shares of Class B Common Stock to CCU in exchange for
the extinguishment of the remaining outstanding balance of the Intercompany Notes and the accrued
interest thereon. The aggregate number of shares of Class B Common Stock so distributed will equal
the difference of (a) the number of shares of Class A Common Stock subject to the Over-Allotment
Option, less (b) the actual number of shares of Class A Common Stock purchased by the Underwriters
pursuant to the Over-Allotment Option. Upon completion of the Initial Public Offering and the
payment in full of the Intercompany Notes, the Outdoor Group will continue to owe senior unsecured
indebtedness to CCU of $2.5 billion, as evidenced by a Senior Unsecured Term Promissory Note, dated
August 2, 2005 in the original principal amount of $2.5 billion (the “
Existing CCU
Indebtedness
”).
3.6
Reclassification of Outstanding Outdoor Common Stock into Class B Common Stock
.
Prior to the consummation of the Initial Public Offering, CCU and Outdoor will each take all
actions (including, without limitation, such actions that are required to effect the adoption by
Outdoor of the Charter) that CCU determines, in its sole discretion, may be required to provide for
the reclassification of the issued and outstanding shares of Outdoor Common Stock then held by CCU
into shares of Class B Common Stock.
3.7
Rescission
.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS AGREEMENT, IF DELIVERY OF THE FIRM
PUBLIC OFFERING SHARES TO THE UNDERWRITERS AGAINST PAYMENT THEREFOR IS NOT COMPLETE WITHIN FOUR (4)
BUSINESS DAYS AFTER THE CLOSING DATE, ALL TRANSACTIONS THERETOFORE COMPLETED UNDER THIS AGREEMENT
OR ANY OF THE TRANSACTION DOCUMENTS SHALL IMMEDIATELY BE RESCINDED IN ALL RESPECTS AND THIS
AGREEMENT AND ALL OF THE TRANSACTION DOCUMENTS SHALL TERMINATE AND ALL ASSETS TRANSFERRED PURSUANT
TO THE TRANSACTION DOCUMENTS SHALL BE RETURNED TO THE ENTITIES THAT TRANSFERRED SUCH ASSETS, AND
ALL ASSUMPTIONS OF LIABILITIES HEREUNDER AND THEREUNDER SHALL BE RESCINDED AND NULLIFIED.
ARTICLE IV
FINANCIAL AND OTHER INFORMATION
4.1
Financial and Other Information
.
(a)
Financial Information
. Outdoor agrees that, for so long as CCU is required to
either consolidate the results of operations and financial position of Outdoor and the other
members of the Outdoor Group with the results of operations and financial position of CCU, or to
account for its investment in Outdoor under the equity method of accounting (determined in
accordance with GAAP and consistent with SEC reporting requirements):
(i)
Disclosure of Financial Controls
. Outdoor will, and will cause each other
member of the Outdoor Group to, maintain, as of and after the Closing Date, disclosure
controls and procedures and internal control over financial reporting as defined in
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Exchange Act Rule 13a-15 promulgated under the Exchange Act; Outdoor will cause each of
its principal executive and principal financial officers to sign and deliver certifications
to Outdoor’s periodic reports and will include the certifications in Outdoor’s periodic
reports, as and when required pursuant to Exchange Act Rule 13a-14 and Item 601 of
Regulation S-K; Outdoor will cause its management to evaluate Outdoor’s disclosure controls
and procedures and internal control over financial reporting (including any change in
internal control over financial reporting) as and when required pursuant to Exchange Act
Rule 13a-15; Outdoor will disclose in its periodic reports filed with the SEC information
concerning Outdoor management’s responsibilities for and evaluation of Outdoor’s disclosure
controls and procedures and internal control over financial reporting (including, without
limitation, the annual management report and attestation report of Outdoor’s independent
auditors relating to internal control over financial reporting) as and when required under
Items 307 and 308 of Regulation S-K and other applicable SEC rules; and, without limiting
the general application of the foregoing, Outdoor will, and will cause each other member of
the Outdoor Group to, maintain as of and after the Closing Date internal systems and
procedures that will provide reasonable assurance that (A) the Financial Statements are
reliable and timely prepared in accordance with GAAP and applicable law, (B) all
transactions of members of the Outdoor Group are recorded as necessary to permit the
preparation of the Financial Statements, (C) the receipts and expenditures of members of the
Outdoor Group are authorized at the appropriate level within Outdoor, and (D) unauthorized
use or disposition of the assets of any member of the Outdoor Group that could have material
effect on the financial statements of the Outdoor Group is prevented or detected in a
timely manner.
(ii)
Fiscal Year
. Outdoor will, and will cause each member of the Outdoor Group
organized in the United States to, maintain a fiscal year that commences and ends on the
same calendar day as CCU’s fiscal year commences and ends, and to maintain monthly
accounting periods that commence and end on the same calendar days as CCU’s monthly
accounting periods commence and end.
(iii)
Monthly Financial Reports
. No later than ten (10) Business Days after
the end of the first three monthly accounting periods of Outdoor following the Closing Date,
Outdoor will deliver to CCU a consolidated income statement and balance sheet for Outdoor
for such period and an income statement and balance sheet for each Outdoor Affiliate that is
consolidated with Outdoor in such format and detail as CCU may request, and no later than
twelve (12) Business Days after the end of each of the first three (3) monthly accounting
periods of Outdoor following the Closing Date, Outdoor will deliver to CCU a consolidated
statement of cash flow for Outdoor for such period and statement of cash flow for each
Outdoor Affiliate that is consolidated with Outdoor, as the case may be, in such format and
detail as CCU may request. No later than five (5) Business Days after the end of each
monthly accounting period of Outdoor thereafter (including the last monthly accounting
period of Outdoor of each fiscal year), Outdoor will deliver to CCU a consolidated income
statement, balance sheet and statement of cash flow for Outdoor for such period and an
income statement, balance sheet and statement of cash flow for each Outdoor Affiliate that
is consolidated with Outdoor, as the case may be, in such format and detail as CCU may
request.
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(iv)
Quarterly Financial Statements
. As soon as practicable, and in any event
no later than the earlier of (x) ten (10) Business Days prior to the date on which Outdoor
is required to file a Form 10-Q or other document containing Quarterly Financial Statements
with the SEC for each of the first three (3) fiscal quarters in each fiscal year of Outdoor,
and (y) five (5) Business Days prior to the date on which CCU has notified Outdoor that CCU
intends to file its Form 10-Q or other document containing quarterly financial statements
with the SEC, Outdoor will deliver to CCU drafts of (A) the consolidated financial
statements of the Outdoor Group (and notes thereto) for such periods and for the period from
the beginning of the current fiscal year to the end of such quarter, setting forth in each
case in comparative form for each such fiscal quarter of Outdoor the consolidated figures
(and notes thereto) for the corresponding quarter and periods of the previous fiscal year
and all in reasonable detail and prepared in accordance with Article 10 of Regulation S-X
and GAAP, and (B) a discussion and analysis by Outdoor’s management of the Outdoor Group’s
financial condition and results of operations for such fiscal period, including, without
limitation, an explanation of any material period-to-period change and any off-balance sheet
transactions, all in reasonable detail and prepared in accordance with Item 303(b) of
Regulation S-K;
provided
,
however
, that Outdoor will deliver such
information at such earlier time upon CCU’s written request with thirty (30) days’ notice
resulting from CCU’s determination to accelerate the timing of the filing of its financial
statements with the SEC. The information set forth in
clauses (A)
and
(B)
above is referred to in this Agreement as the “
Quarterly Financial Statements
.” No
later than the earlier of (1) three (3) Business Days prior to the date Outdoor publicly
files the Quarterly Financial Statements with the SEC or otherwise makes such Quarterly
Financial Statements publicly available, and (2) three (3) Business Days prior to the date
on which CCU has notified Outdoor that CCU intends to file its quarterly financial
statements with the SEC, Outdoor will deliver to CCU the final form of the Quarterly
Financial Statements and certifications thereof by the principal executive and financial
officers of Outdoor in the forms required under SEC rules for periodic reports;
provided
,
however
, that Outdoor may continue to revise such Quarterly
Financial Statements prior to the filing thereof in order to make corrections and
non-substantive changes which corrections and changes will be delivered by Outdoor to CCU as
soon as practicable, and in any event within eight (8) hours thereafter;
provided
,
further
, that CCU’s and Outdoor’s financial Representatives will actively consult
with each other regarding any changes (whether or not substantive) that Outdoor may consider
making to the Quarterly Financial Statements and related disclosures during the two (2)
Business Days immediately prior to any anticipated filing with the SEC, with particular
focus on any changes which would have an effect upon CCU’s financial statements or related
disclosures. In addition to the foregoing, no Quarterly Financial Statement or any other
document which refers to, or contains information not previously publicly disclosed with
respect to, CCU’s ownership interest in Outdoor or the Separation will be filed with the SEC
or otherwise made public by any Outdoor Group member without the prior written consent of
CCU. Notwithstanding anything to the contrary in this
Section 4.1(a)(iv),
Outdoor
will file the Quarterly Financial Statements with the SEC on the same date and at
substantially the same time that CCU files its quarterly financial statements with the SEC
unless otherwise required by applicable law.
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(v)
Annual Financial Statements
. As soon as practicable, and in any event no
later than the earlier of (x) ten (10) Business Days prior to the date on which Outdoor is
required to file a Form 10-K or other document containing its Annual Financial Statements
with the SEC, and (y) ten (10) Business Days prior to the date on which CCU has notified
Outdoor that CCU intends to file its Form 10-K or other document containing annual financial
statements with the SEC, Outdoor will deliver to CCU (A) drafts of the consolidated
financial statements of the Outdoor Group (and notes thereto) for such year, setting forth
in each case in comparative form the consolidated figures (and notes thereto) for the
previous fiscal year and all in reasonable detail and prepared in accordance with Regulation
S-X and GAAP, and (B) a discussion and analysis by Outdoor’s management of the Outdoor
Group’s financial condition and results of operations for such year, including, without
limitation, an explanation of any material period-to-period change and any off-balance sheet
transactions, all in reasonable detail and prepared in accordance with Item 303(a) of
Regulation S-K. The information set forth in
clauses (A)
and
(B)
above is
referred to in this Agreement as the “
Annual Financial Statements
.” Outdoor will
deliver to CCU all revisions to such drafts as soon as any such revisions are prepared or
made. No later than the earlier of (1) five (5) Business Days prior to the date Outdoor
publicly files the Annual Financial Statements with the SEC or otherwise makes such Annual
Financial Statements publicly available, and (2) five (5) Business Days prior to the date on
which CCU has notified Outdoor that CCU intends to file its annual financial statements with
the SEC, Outdoor will deliver to CCU the final form of the Outdoor Annual Financial
Statements and certifications thereof by the principal executive and financial officers of
Outdoor in the forms required under SEC rules for periodic reports;
provided
,
however
, that Outdoor may continue to revise such Annual Financial Statements prior
to the filing thereof in order to make corrections and non-substantive changes which
corrections and changes will be delivered by Outdoor to CCU as soon as practicable, and in
any event within eight (8) hours thereafter;
provided
,
further
, that CCU and
Outdoor financial Representatives will actively consult with each other regarding any
changes (whether or not substantive) which Outdoor may consider making to the Annual
Financial Statements and related disclosures during the three (3) Business Days immediately
prior to any anticipated filing with the SEC, with particular focus on any changes which
would have an effect upon CCU’s financial statements or related disclosures. In addition to
the foregoing, no Annual Financial Statement or any other document which refers to, or
contains information not previously publicly disclosed with respect to, CCU’s ownership
interest in Outdoor or the Separation will be filed with the SEC or otherwise made public by
any Outdoor Group member without the prior written consent of CCU, except to the extent
required by applicable law. In any event, Outdoor will deliver to CCU, no later than three
(3) Business Days prior to the date on which CCU has notified Outdoor that CCU intends to
file its annual financial statements with the SEC, the final form of the Annual Financial
Statements accompanied by an opinion thereon by Outdoor’s independent certified public
accountants. Notwithstanding anything to the contrary in this
Section 4.1(a)(v)
,
Outdoor will file the Annual Financial Statements with the SEC on the same date and at
substantially the same time that CCU files its annual financial statements with the SEC
unless otherwise required by applicable law.
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(vi)
Affiliate Financial Statements
. Outdoor will deliver to CCU all Quarterly
Financial Statements and Annual Financial Statements of each Outdoor Affiliate which is
itself required to file financial statements with the SEC or otherwise make such financial
statements publicly available, with such financial statements to be provided in the same
manner and detail and on the same time schedule as those financial statements of Outdoor
required to be delivered to CCU pursuant to this
Section 4.1
.
(vii)
Conformance with CCU Financial Presentation.
All information provided by
any Outdoor Group member to CCU or filed with the SEC pursuant to
Sections
4.1(a)(iii)
through
(vi)
inclusive will be consistent in terms of format and
detail and otherwise with CCU’s policies with respect to the application of GAAP and
practices in effect on the Closing Date with respect to the provision of such financial
information by such Outdoor Group member to CCU (and, where appropriate, as presently
presented in financial reports to CCU’s board of directors), with such changes therein as
may be requested by CCU from time to time consistent with changes in such accounting
principles and practices.
(viii)
Outdoor Reports Generally
. Each Outdoor Group member that files
information with the SEC will deliver to CCU: (A) substantially final drafts, as soon as the
same are prepared, of (x) all reports, notices and proxy and information statements to be
sent or made available by such Outdoor Group member to its respective security holders, (y)
all regular, periodic and other reports to be filed or furnished under Sections 13, 14 and
15 of the Exchange Act (including Reports on Forms 10-K, 10-Q and 8-K and Annual Reports to
Shareholders), and (z) all registration statements and prospectuses to be filed by such
Outdoor Group member with the SEC or any securities exchange pursuant to the listed company
manual (or similar requirements) of such exchange (collectively, the documents identified in
clauses (x)
,
(y)
and
(z)
above are referred to as the “
Outdoor
Public Documents
”); and (B) as soon as practicable, but in no event later than four (4)
Business Days (other than with respect to Current Reports on Form 8-K) prior to the earliest
of the dates the same are printed, sent or filed, current drafts of all such Outdoor Public
Documents and, with respect to Current Reports on Form 8-K, as soon as practicable, but in
no event later than two (2) Business Days prior to the earliest of the dates the same are
printed, sent or filed in the case of planned Current Reports on Form 8-K and as soon as
practicable, but in no event less than two (2) hours in the case of unplanned Current
Reports on Form 8-K;
provided
,
however
, that Outdoor may continue to revise
such Outdoor Public Documents prior to the filing thereof in order to make corrections and
non-substantive changes which corrections and changes will be delivered by Outdoor to CCU as
soon as practicable, and in any event within eight (8) hours thereafter;
provided
,
further
, that CCU and Outdoor financial Representatives will actively consult with
each other regarding any changes (whether or not substantive) which Outdoor may consider
making to any of its Outdoor Public Documents and related disclosures prior to any
anticipated filing with the SEC, with particular focus on any changes which would have an
effect upon CCU’s financial statements or related disclosures. In addition to the foregoing,
no Outdoor Public Document or any other document which refers to, or contains information
not previously publicly disclosed with respect to, CCU’s ownership interest in Outdoor or
the Separation will be filed with the
-25-
SEC or otherwise made public by any Outdoor Group member without the prior written
consent of CCU, except as required by applicable law.
(ix)
Budgets and Financial Projections
. Outdoor will, as promptly as
practicable, deliver to CCU copies of all annual and other budgets and financial projections
(consistent in terms of format and detail and otherwise required by CCU) relating to the
Outdoor Group on a consolidated basis and will provide CCU an opportunity to meet with
management of Outdoor to discuss such budgets and projections.
(x)
Other Information
. With reasonable promptness, Outdoor will deliver to CCU
such additional financial and other information and data with respect to the Outdoor Group
and their business, properties, financial positions, results of operations and prospects as
from time to time may be reasonably requested by CCU.
(xi)
Press Releases and Similar Information
. Outdoor and CCU will consult with
each other as to the timing of their annual and quarterly earnings releases and any interim
financial guidance for a current or future period and will give each other the opportunity
to review the information therein relating to the Outdoor Group and to comment thereon. CCU
and Outdoor will make commercially reasonable efforts to issue their respective annual and
quarterly earnings releases at approximately the same time on the same date. No later than
eight (8) hours prior to the time and date that a party intends to publish its regular
annual or quarterly earnings release or any financial guidance for a current or future
period, such party will deliver to the other party copies of substantially final drafts of
all press releases and other statements to be made available by any member of that party’s
Group to employees of any member of that party’s Group or to the public concerning any
matters that could be reasonably likely to have a material financial impact on the earnings,
results of operations, financial condition or prospects of any Outdoor Group member. In
addition, prior to the issuance of any such press release or public statement that meets the
criteria set forth in the preceding two sentences, the issuing party will consult with the
other party regarding any changes (other than typographical or other similar minor changes)
to such substantially final drafts. Immediately following the issuance thereof, the issuing
party will deliver to the other party copies of final drafts of all press releases and other
public statements.
(xii)
Cooperation on CCU Filings
. Outdoor will cooperate fully, and will cause
Outdoor Auditors to cooperate fully, with CCU to the extent requested by CCU in the
preparation of CCU’s public earnings or other press releases, Quarterly Reports on Form
10-Q, Annual Reports to Shareholders, Annual Reports on Form 10-K, any Current Reports on
Form 8-K and any other proxy, information and registration statements, reports, notices,
prospectuses and any other filings made by CCU with the SEC, any national securities
exchange or otherwise made publicly available (collectively, the “
CCU Public
Filings
”). Outdoor agrees to provide to CCU all information that CCU reasonably requests
in connection with any CCU Public Filings or that, in the judgment of CCU’s legal
department, is required to be disclosed or incorporated by reference therein under any law,
rule or regulation. Outdoor will provide such information in a timely manner on the dates
requested by CCU (which may be earlier than the dates on
-26-
which Outdoor otherwise would be required hereunder to have such information available)
to enable CCU to prepare, print and release all CCU Public Filings on such dates as CCU will
determine but in no event later than as required by applicable law. Outdoor will use
commercially reasonable efforts to cause Outdoor Auditors to consent to any reference to
them as experts in any CCU Public Filings required under any law, rule or regulation. If and
to the extent requested by CCU, Outdoor will diligently and promptly review all drafts of
such CCU Public Filings and prepare in a diligent and timely fashion any portion of such CCU
Public Filing pertaining to Outdoor. Prior to any printing or public release of any CCU
Public Filing, an appropriate executive officer of Outdoor will, if requested by CCU,
certify that the information relating to any Outdoor Group member or the Outdoor Business in
such CCU Public Filing is accurate, true, complete and correct in all material respects.
Unless required by law, rule or regulation, Outdoor will not publicly release any financial
or other information which conflicts with the information with respect to any Outdoor Group
member or the Outdoor Business that is included in any CCU Public Filing without CCU’s prior
written consent. Prior to the release or filing thereof, CCU will provide Outdoor with a
draft of any portion of a CCU Public Filing containing information relating to the Outdoor
Group and will give Outdoor an opportunity to review such information and comment thereon;
provided
that
, CCU will determine in its sole and absolute discretion the
final form and content of all CCU Public Filings.
(b)
Auditors and Audits; Annual Statements and Accounting
. Outdoor agrees that, for
so long as CCU is required to either consolidate the results of operations and financial position
of Outdoor and any members of the Outdoor Group, or to account for its investment in Outdoor under
the equity method of accounting (in accordance with GAAP and consistent with SEC reporting
requirements):
(i)
Selection of Outdoor Auditors
. Unless required by law, Outdoor will not
select a different accounting firm than Ernst & Young LLP (or its affiliate accounting
firms) (unless so directed by CCU in accordance with a change by CCU in its accounting firm)
to serve as its (and the Outdoor Group’s) independent certified public accountants
(“
Outdoor Auditors
”), without CCU’s prior written consent (which will not be
unreasonably withheld);
provided
,
however
, that, to the extent any members
of the Outdoor Group are currently using a different accounting firm to serve as their
independent certified public accountants, such members of the Outdoor Group may continue to
use such accounting firm provided such accounting firm is reasonably satisfactory to CCU.
(ii)
Audit Timing
. Outdoor will use commercially reasonable efforts to enable
Outdoor Auditors to complete their audit such that they will be able to date their opinion
on the Annual Financial Statements on the same date that CCU’s independent certified public
accountants (“
CCU Auditors
”) date their opinion on CCU’s audited annual financial
statements (the “
CCU Annual Statements
”), and to enable CCU to meet its schedule for
the printing, filing and public dissemination of the CCU Annual Statements, all in
accordance with
Section 4.1(a)
hereof and as required by applicable law.
-27-
(iii)
Information Needed by CCU
. Outdoor will provide to CCU on a timely basis
all information that CCU reasonably requires to meet its schedule for the preparation,
printing, filing, and public dissemination of the CCU Annual Statements in accordance with
Section 4.1(a)
hereof and as required by applicable law. Without limiting the
generality of the foregoing, Outdoor will provide all required financial information with
respect to the Outdoor Group to Outdoor Auditors in a sufficient and reasonable time and in
sufficient detail to permit Outdoor Auditors to take all steps and perform all reviews
necessary to provide sufficient assistance to CCU Auditors with respect to information to be
included or contained in the CCU Annual Statements.
(iv)
Access to Outdoor Auditors
. Outdoor will authorize Outdoor Auditors to
make available to CCU Auditors the personnel who performed, or are performing, the annual
audit of Outdoor as well as the work papers related to the annual audit of Outdoor, in all
cases within a reasonable time prior to the date of the Outdoor Auditors’ opinion on the
Annual Financial Statements, so that CCU Auditors are able to perform the procedures they
consider necessary to take responsibility for the work of Outdoor Auditors as it relates to
CCU Auditors’ report on the CCU Annual Statements, all within sufficient time to enable CCU
to meet its schedule for the preparation, printing, filing and public dissemination of the
CCU Annual Statements.
(v)
Access to Records
. If CCU determines in good faith that there may be any
inaccuracy in an Outdoor Group member’s financial statements or deficiency in an Outdoor
Group member’s internal accounting controls or operations that could materially impact CCU’s
financial statements, at CCU’s request, Outdoor will provide CCU’s internal auditors with
access to the Outdoor Group’s books and records so that CCU may conduct reasonable audits
relating to the financial statements provided by Outdoor under this Agreement as well as to
the internal accounting controls and operations of the Outdoor Group.
(vi)
Notice of Changes
. Subject to
Section 4.1(a)(vii)
, Outdoor will
give CCU as much prior notice as reasonably practicable of any proposed determination of, or
any significant changes in, Outdoor’s accounting estimates or accounting principles from
those in effect on the Closing Date. Outdoor will consult with CCU and, if requested by CCU,
Outdoor will consult with CCU Auditors with respect thereto. Outdoor will not make any such
determination or changes without CCU’s prior written consent if such a determination or a
change would be sufficiently material to be required to be disclosed in Outdoor’s or CCU’s
financial statements as filed with the SEC or otherwise publicly disclosed therein.
(vii)
Accounting Changes Requested by CCU
. Notwithstanding
Section
4(a)(vi)
, Outdoor will make any changes in its accounting estimates or accounting
principles that are requested by CCU in order for Outdoor’s accounting practices and
principles to be consistent with those of CCU.
(viii)
Special Reports of Deficiencies or Violations
. Outdoor will report in
reasonable detail to CCU the following events or circumstances promptly after any executive
officer of Outdoor or any member of the Outdoor board of directors becomes
-28-
aware of such matter: (A) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely
to adversely affect Outdoor’s ability to record, process, summarize and report financial
information; (B) any fraud, whether or not material, that involves management or other
employees who have a significant role in Outdoor’s internal control over financial
reporting; (C) any illegal act within the meaning of Section 10A(b) and (f) of the Exchange
Act; and (D) any report of a material violation of law that an attorney representing any
Outdoor Group member has formally made to any officers or directors of Outdoor pursuant to
the SEC’s attorney conduct rules (17 C.F.R. Part 205).
4.2
Agreement for Exchange of Information; Archives
.
(a) Each of CCU and Outdoor, on behalf of its respective Group, agrees to provide, or cause to
be provided, to the other Group, at any time before or after the Closing Date, as soon as
reasonably practicable after written request therefor, any Information in the possession or under
the control of such respective Group which the requesting party reasonably needs (i) to comply with
reporting, disclosure, filing or other requirements imposed on the requesting party (including
under applicable securities or tax Laws) by a Governmental Authority having jurisdiction over the
requesting party, (ii) for use in any other judicial, regulatory, administrative, tax or other
proceeding or in order to satisfy audit, accounting, claim, regulatory, litigation, tax or other
similar requirements, in each case other than claims or allegations that one party to this
Agreement has against the other, or (iii) subject to the foregoing clause (ii), to comply with its
obligations under this Agreement or any Transaction Document;
provided
,
however
,
that in the event that any party reasonably determines that any such provision of Information could
be commercially detrimental, violate any Law or agreement, or waive any attorney-client privilege,
the parties shall take all commercially reasonable measures to permit the compliance with such
obligations in a manner that avoids any such harm or consequence.
(b) After the Closing Date, Outdoor shall have access during regular business hours (as in
effect from time to time) to the documents and objects of historic significance that relate to the
Outdoor Business that are located in archives retained or maintained by any member of the CCU
Group. Outdoor may obtain copies (but not originals unless it is an Outdoor Asset) of documents
for bona fide business purposes and may obtain objects for exhibition purposes for commercially
reasonable periods of time if required for bona fide business purposes;
provided
that
, Outdoor shall cause any such objects to be returned promptly in the same condition in
which they were delivered to Outdoor, and Outdoor shall comply with any rules, procedures or other
requirements, and shall be subject to any restrictions (including prohibitions on removal of
specified objects), that are then applicable to CCU. Outdoor shall pay the applicable fee or rate
per hour for archive research services (subject to increase from time to time to reflect rates then
in effect for CCU generally). Nothing herein shall be deemed to restrict the access of any member
of the CCU Group to any such documents or objects or to impose any liability on any member of the
CCU Group if any such documents or objects are not maintained or preserved by CCU.
(c) After the Closing Date, CCU shall have access during regular business hours (as in effect
from time to time) to the documents and objects of historic significance that relate to the
businesses of any member of the CCU Group that are located in archives retained or maintained
-29-
by any member of the Outdoor Group. CCU may obtain copies (but not originals unless it is not
an Outdoor Asset) of documents for bona fide business purposes and may obtain objects for
exhibition purposes for commercially reasonable periods of time if required for bona fide business
purposes;
provided
that
, CCU shall cause any such objects to be returned promptly
in the same condition in which they were delivered to CCU, and CCU shall comply with any rules,
procedures or other requirements, and shall be subject to any restrictions (including prohibitions
on removal of specified objects), that are then applicable to Outdoor. CCU shall pay the
applicable fee or rate per hour for archive research services (subject to increase from time to
time to reflect rates then in effect for Outdoor generally). Nothing herein shall be deemed to
restrict the access of any member of the Outdoor Group to any such documents or objects or to
impose any liability on any member of the Outdoor Group if any such documents or objects are not
maintained or preserved by Outdoor.
4.3
Ownership of Information
.
Any Information owned by a member of a Group that is provided to a requesting party pursuant
to
Section 4.2
shall be deemed to remain the property of the providing party. Unless
specifically set forth herein, nothing contained in this Agreement shall be construed as granting
or conferring rights of license or otherwise in any such Information.
4.4
Compensation for Providing Information
.
The party requesting Information agrees to reimburse the party providing Information for the
reasonable out-of-pocket costs, if any, of creating, gathering and copying such Information, to the
extent that such costs are incurred for the benefit of the requesting party. Except as may be
otherwise specifically provided elsewhere in this Agreement, the Transaction Documents or in any
other agreement between the parties, such costs shall be computed in accordance with the providing
party’s standard methodology and procedures.
4.5
Record Retention
.
To facilitate the possible exchange of Information pursuant to this
Article IV
and
other provisions of this Agreement and the Transaction Documents, after the Closing Date, the
parties agree to use commercially reasonable efforts to retain all Information in their respective
possession or control in accordance with the policies of CCU as in effect on the Closing Date or
such other policies as may be reasonably adopted by the appropriate party after the Closing Date.
No party will destroy, or permit any of its Subsidiaries to destroy, any Information which the
other party may have the right to obtain pursuant to this Agreement prior to the seventh
anniversary of the date hereof without first notifying the other party of the proposed destruction
and giving the other party the opportunity to take possession of such Information prior to such
destruction;
provided
,
however
, that in the case of any Information relating to
Taxes or employee benefits, such period shall be extended to the expiration of the applicable
statute of limitations (giving effect to any extensions thereof);
provided
,
further
,
however
, no party will destroy, or permit any of its Subsidiaries to
destroy, any Information required to be retained by applicable Law.
-30-
4.6
Liability
.
No party shall have any liability to any other party in the event that any Information
exchanged or provided pursuant to this Agreement which is an estimate or forecast, or which is
based on an estimate or forecast, is found to be inaccurate in the absence of willful misconduct by
the party providing such Information. No party shall have any liability to any other party if any
Information is destroyed after commercially reasonable efforts by such party to comply with the
provisions of
Section 4.5
.
4.7
Other Agreements Providing for Exchange of Information
.
(a) The rights and obligations granted under this
Article IV
are subject to any
specific limitations, qualifications or additional provisions on the sharing, exchange, retention
or confidential treatment of Information set forth in any Transaction Document.
(b) When any Information provided by one Group to the other Group (other than Information
provided pursuant to
Section 4.5
) is no longer needed for the purposes contemplated by this
Agreement or any other Transaction Document or is no longer required to be retained by applicable
Law, the receiving party will promptly after request of the other party either return to the other
party all Information in a tangible form (including all copies thereof and all notes, extracts or
summaries based thereon) or certify to the other party that it has destroyed such Information (and
such copies thereof and such notes, extracts or summaries based thereon).
4.8
Production of Witnesses; Records; Cooperation
.
(a) After the Closing Date, except in the case of an adversarial Action by one or more members
of one Group against one or more members of the other Group, each party hereto shall use
commercially reasonable efforts to make available to each other party, upon written request, the
former, current and future directors, officers, employees, other personnel and agents of the
members of its respective Group as witnesses and any books, records or other documents within its
control or which it otherwise has the ability to make available, to the extent that any such person
(giving consideration to business demands of such directors, officers, employees, other personnel
and agents) or books, records or other documents may reasonably be required in connection with any
Action or IP Application in which the requesting party may from time to time be involved,
regardless of whether such Action or IP Application is a matter with respect to which
indemnification may be sought hereunder. The requesting party shall bear all costs and expenses in
connection therewith.
(b) If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third
Party Claim, the parties shall make available to such Indemnifying Party, upon written request, the
former, current and future directors, officers, employees, other personnel and agents of the
members of its respective Group as witnesses and any books, records or other documents within its
control or which it otherwise has the ability to make available, to the extent that any such person
(giving consideration to business demands of such directors, officers, employees, other personnel
and agents) or books, records or other documents may reasonably be required in connection with such
defense, settlement or compromise, or the prosecution, evaluation or
-31-
pursuit thereof, as the case may be, and shall otherwise cooperate in such defense, settlement
or compromise, or such prosecution, evaluation or pursuit, as the case may be.
(c) Without limiting the foregoing, the parties shall cooperate and consult to the extent
reasonably necessary with respect to any Actions, except in the case of an adversarial Action by
one or more members of one Group against one or more members of the other Group.
(d) Without limiting any provision of this Section, each of the parties agrees to cooperate,
and to cause each member of its respective Group to cooperate, with each other in the defense of
any infringement or similar claim with respect to any intellectual property and shall not claim to
acknowledge, or permit any member of its respective Group to claim to acknowledge, the validity or
infringing use of any intellectual property of a third Person in a manner that would hamper or
undermine the defense of such infringement or similar claim except as required by Law.
(e) The obligation of the parties to provide witnesses pursuant to this
Section 4.8
is
intended to be interpreted in a manner so as to facilitate cooperation and shall include the
obligation to provide as witnesses inventors and other officers without regard to whether the
witness or the employer of the witness could assert a possible business conflict (subject to the
exception set forth in the first sentence of
Section 4.8(a)
).
(f) In connection with any matter contemplated by this
Section 4.8
, the parties will
enter into a mutually acceptable joint defense agreement so as to maintain to the extent
practicable any applicable attorney-client privilege, work product immunity or other applicable
privileges or immunities of any member of any Group.
4.9
Privilege
.
The provision of any information pursuant to this
Article IV
shall not be deemed a
waiver of any privilege, including privileges arising under or related to the attorney-client
privilege or any other applicable privileges (a “
Privilege
”). Following the Closing Date,
neither Outdoor or its Subsidiaries nor CCU or its Subsidiaries will be required to provide any
information pursuant to this
Article IV
if the provision of such information would serve as
a waiver of any Privilege afforded such information.
ARTICLE V
RELEASE; INDEMNIFICATION
5.1
Release of Pre-Closing Claims
.
(a) Except (i) as provided in
Section 5.1(c)
, (ii) as may provided in any Transaction
Document and (iii) for any matter for which an Outdoor Indemnified Party is entitled to
indemnification or contribution pursuant to
Section 5.3
,
5.4
or
5.5
,
effective as of the Closing Date, Outdoor, for itself and each other member of the Outdoor Group,
their respective Affiliates and all Persons who at any time prior to the Closing Date were
directors, officers, agents or employees of any member of the Outdoor Group (in their respective
capacities as such), in each case, together with their respective heirs, executors, administrators,
successors and assigns, does hereby remise, release and forever discharge CCU and the other members
of the CCU Group,
-32-
their respective Affiliates and all Persons who at any time prior to the Closing Date were
shareholders, directors, officers, agents or employees of any member of the CCU Group (in their
respective capacities as such), in each case, together with their respective heirs, executors,
administrators, successors and assigns, from any and all Liabilities whatsoever, whether at Law or
in equity (including any right of contribution), whether arising under any contract or agreement,
by operation of Law or otherwise, existing or arising from any acts or events occurring or failing
to occur or alleged to have occurred or to have failed to occur or any conditions existing or
alleged to have existed on or before the Closing Date, including in connection with the
transactions and all other activities to implement the Separation, the Initial Public Offering and
any of the other transactions contemplated hereunder and under the Transaction Documents.
(b) Except (i) as provided in
Section 5.1(c)
, (ii) as may be provided in any
Transaction Document and (iii) for any matter for which a CCU Indemnified Party is entitled to
indemnification or contribution pursuant to
Section 5.2
,
5.4
or
5.5
,
effective as of the Closing Date, CCU, for itself and each other member of the CCU Group, their
respective Affiliates and all Persons who at any time prior to the Closing Date were directors,
officers, agents or employees of any member of the CCU Group (in their respective capacities as
such), in each case, together with their respective heirs, executors, administrators, successors
and assigns, does hereby remise, release and forever discharge Outdoor and the other members of the
Outdoor Group, their respective Affiliates and all Persons who at any time prior to the Closing
Date were shareholders, directors, officers, agents or employees of any member of the Outdoor Group
(in their respective capacities as such), in each case, together with their respective heirs,
executors, administrators, successors and assigns, from any and all Liabilities whatsoever, whether
at Law or in equity (including any right of contribution), whether arising under any contract or
agreement, by operation of Law or otherwise, existing or arising from any acts or events occurring
or failing to occur or alleged to have occurred or to have failed to occur or any conditions
existing or alleged to have existed on or before the Closing Date, including in connection with the
transactions and all other activities to implement the Separation, the Initial Public Offering and
any of the other transactions contemplated hereunder and under the Transaction Documents.
(c) Nothing contained in
Section 5.1(a)
or
Section 5.1(b)
shall impair any
right of any Person to enforce this Agreement, any Transaction Document or any agreements,
arrangements, commitments or understandings to continue in effect after the Closing Date in
accordance with
Section 2.4(b)
, in each case in accordance with its terms. Nothing
contained in
Section 5.1(a)
or
Section 5.1(b)
shall release any Person from:
(i) any Liability provided in or resulting from any agreement among any members of the CCU
Group or the Outdoor Group that is to continue in effect after the Closing Date in accordance with
Section 2.4(b)
, or any other Liability specified in such
Section 2.4(b)
not to
terminate as of the Closing Date;
(ii) any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to
the Group of which such Person is a member in accordance with, or any other Liability of any member
of such Group under, this Agreement or any Transaction Document;
-33-
(iii) any Liability for the sale, lease, construction or receipt of goods, property or
services purchased, obtained or used in the ordinary course of business by a member of one Group
from a member of the other Group prior to the Closing Date;
(iv) any Liability for unpaid amounts for products or services or refunds owing on products or
services due on a value-received basis for work done by a member of one Group at the request or on
behalf of a member of the other Group; or
(v) any Liability that the parties may have with respect to indemnification or contribution
pursuant to this Agreement or otherwise for claims brought against the parties by third Persons,
which Liability shall be governed by the provisions of this
Article V
and, if applicable,
the appropriate provisions of the Transaction Documents.
In addition, nothing contained in
Section 5.1(a)
shall release CCU from indemnifying
any director, officer or employee of Outdoor who was a director, officer or employee of CCU or any
of its Affiliates on or prior to the Closing Date, to the extent such director, officer or employee
is or becomes a named defendant in any Action with respect to which he or she was entitled to such
indemnification pursuant to then existing obligations.
(d) Outdoor shall not make, and shall not permit any member of the Outdoor Group to make, any
claim or demand, or commence any Action asserting any claim or demand, including any claim of
contribution or any indemnification, against CCU or any member of the CCU Group, or any other
Person released pursuant to
Section 5.1(a)
, with respect to any Liabilities released
pursuant to
Section 5.1(a)
. CCU shall not, and shall not permit any member of the CCU
Group, to make any claim or demand, or commence any Action asserting any claim or demand, including
any claim of contribution or any indemnification against Outdoor or any member of the Outdoor
Group, or any other Person released pursuant to
Section 5.1(b)
, with respect to any
Liabilities released pursuant to
Section 5.1(b)
.
(e) It is the intent of each of CCU and Outdoor, by virtue of the provisions of this
Section 5.1
, to provide for a full and complete release and discharge of all Liabilities
existing or arising from all acts and events occurring or failing to occur or alleged to have
occurred or to have failed to occur and all conditions existing or alleged to have existed on or
before the Closing Date, whether known or unknown, between or among Outdoor or any member of the
Outdoor Group, on the one hand, and CCU or any member of the CCU Group, on the other hand
(including any contractual agreements or arrangements existing or alleged to exist between or among
any such members on or before the Closing Date), except as expressly set forth in
Sections 5.1
(a), (b)
and
(c)
. At any time, at the request of any other party, each party shall
cause each member of its respective Group and each other Person on whose behalf it released
Liabilities pursuant to this
Section 5.1
to execute and deliver releases reflecting the
provisions hereof.
5.2
General Indemnification by Outdoor
.
Except as provided in
Section 5.5
, Outdoor shall, and shall cause the other members of
the Outdoor Group to, jointly and severally, indemnify, defend and hold harmless on an After-Tax
Basis each member of the CCU Group and each of their respective directors, officers and
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employees, and each of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the “
CCU Indemnified Parties
”), from and against any and all Liabilities of
the CCU Indemnified Parties relating to, arising out of or resulting from any of the following
items (without duplication):
(a) the failure of Outdoor or any other member of the Outdoor Group or any other Person to
pay, perform or otherwise promptly discharge any Outdoor Liabilities or Outdoor Contract in
accordance with its respective terms, whether prior to or after the Closing Date;
(b) any Outdoor Liability or any Outdoor Contract;
(c) except to the extent it relates to an Excluded Liability, any guarantee, indemnification
obligation, surety bond or other credit support agreement, arrangement, commitment or understanding
by any member of the CCU Group for the benefit of any member of the Outdoor Group that survives the
Closing;
(d) any breach by any member of the Outdoor Group of this Agreement or any of the Transaction
Documents or any action by Outdoor in contravention of the Charter or Bylaws; and
(e) any untrue statement or alleged untrue statement of a material fact contained in any CCU
Public Filing or any other document filed with the SEC by any member of the CCU Group pursuant to
the Securities Act or the Exchange Act, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, in each case to the extent, but
only to the extent, that those Liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information that is either furnished to any member
of the CCU Group by any member of the Outdoor Group or incorporated by reference by any member of
the CCU Group from any filings made by any member of the Outdoor Group with the SEC pursuant to the
Securities Act or the Exchange Act, and then only if that statement or omission was made or
occurred after the Closing Date.
5.3
General Indemnification by CCU
.
Except as provided in
Section 5.5
, CCU shall indemnify, defend and hold harmless on an
After-Tax Basis each member of the Outdoor Group and each of their respective directors, officers
and employees, and each of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the “
Outdoor Indemnified Parties
”), from and against any and all Liabilities
of the Outdoor Indemnified Parties relating to, arising out of or resulting from any of the
following items (without duplication):
(a) the failure of any member of the CCU Group or any other Person to pay, perform or
otherwise promptly discharge any Liabilities of the CCU Group other than the Outdoor Liabilities,
whether prior to or after the Closing Date or the date hereof;
(b) any Excluded Liability or any Liability of a member of the CCU Group other than the
Outdoor Liabilities;
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(c) any breach by any member of the CCU Group of this Agreement or any of the Transaction
Documents; and
(d) any untrue statement or alleged untrue statement of a material fact contained in any
document filed with the SEC by any member of the Outdoor Group pursuant to the Securities Act or
the Exchange Act other than the IPO Registration Statement or Prospectus, or any omission or
alleged omission to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that those Liabilities are caused
by any such untrue statement or omission or alleged untrue statement or omission based upon
information that is either furnished to any member of the Outdoor Group by any member of the CCU
Group or incorporated by reference by any member of the Outdoor Group from any CCU Public Filings
or any other document filed with the SEC by any member of the CCU Group pursuant to the Securities
Act or the Exchange Act, and then only if that statement or omission was made or occurred after the
Closing Date.
5.4
Registration Statement Indemnification
.
(a) Outdoor agrees to indemnify and hold harmless on an After-Tax Basis the CCU Indemnified
Parties and each Person, if any, who controls any member of the CCU Group within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all
Liabilities arising out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in the IPO Registration Statement or Prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except to the extent such
Liabilities arise out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in reliance upon and in
conformity with information provided by a member of the CCU Group expressly for use in the IPO
Registration Statement or Prospectus or information relating to any underwriter furnished to
Outdoor by or on behalf of such underwriter expressly for use in the IPO Registration Statement or
Prospectus, all of which such statements that have been furnished by the CCU Group being set forth
on
Schedule 5.4(a)
hereto.
(b) CCU agrees to indemnify and hold harmless on an After-Tax Basis Outdoor and its
Subsidiaries and any of their respective directors or officers who sign the IPO Registration
Statement, and any person who controls Outdoor within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, from and against any and all Liabilities arising out of or
based upon any untrue statement or alleged untrue statement of a material fact contained in the IPO
Registration Statement or Prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such Liabilities arise out of or are
based upon any untrue statement or omission or alleged untrue statement or omission with respect to
information provided by a CCU Group member expressly for use in the IPO Registration Statement or
Prospectus, all of which such statements that have been furnished by the CCU Group being set forth
on
Schedule 5.4(a)
hereto.
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5.5
Contribution
.
(a) If the indemnification provided for in this
Article V
is unavailable to, or
insufficient to hold harmless on an After-Tax Basis, an Indemnified Party under
Section
5.2(e)
,
Section 5.3(d)
or
Section 5.4
in respect of any Liabilities referred to
therein, then each Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Liabilities in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Party and the Indemnified Party in connection with the
actions or omissions that resulted in Liabilities as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates to information
supplied by such Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such statement or omission.
For purposes of this
Section 5.5(a)
, the information set forth in the IPO Registration
Statement that is described on
Schedule 5.4(a)
shall be the only “information supplied by”
any member of the CCU Group.
(b) The parties agree that it would not be just and equitable if contribution pursuant to this
Section 5.5
were determined by a pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to in
Section 5.5(a)
.
The amount paid or payable by an Indemnified Party as a result of the Liabilities referred to in
Section 5.5(a)
shall be deemed to include, subject to the limitations set forth above, any
legal or other fees or expenses reasonably incurred by such Indemnified Party in connection with
investigating any claim or defending any Action. Notwithstanding the provisions of this
Section 5.5
, CCU shall not be required to contribute any amount that, together with the
amount of any damages that CCU has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, exceeds the benefits received solely by
CCU from the Initial Public Offering (excluding benefits received by the Company and all other
parties). No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
5.6
Indemnification Obligations Net of Insurance Proceeds and Other Amounts on an
After-Tax Basis
.
(a) Any Liability subject to indemnification or contribution pursuant to this
Article
V
will be net of Insurance Proceeds that actually reduce the amount of the Liability and will
be determined on an After-Tax Basis. Accordingly, the amount which any Person is required to pay
pursuant to this
Article V
(an “
Indemnifying Party
”) to any Person entitled to
indemnification or contribution pursuant to this
Article V
(an “
Indemnified Party
”)
will be reduced by any Insurance Proceeds theretofore actually recovered by or on behalf of the
Indemnified Party in respect of the related Liability. If an Indemnified Party receives a payment
required by this Agreement from an Indemnifying Party in respect of any Liability (an
“
Indemnity Payment
”) and subsequently receives Insurance Proceeds, then the Indemnified
Party will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment
received over the amount of the Indemnity Payment that would have been due if the Insurance
Proceeds had been received, realized or recovered before the Indemnity Payment was made.
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(b) An insurer who would otherwise be obligated to pay any claim shall not be relieved of the
responsibility with respect thereto or, solely by virtue of the indemnification and contribution
provisions hereof, have any subrogation rights with respect thereto. The Indemnified Party shall
use commercially reasonable efforts to seek to collect or recover any third-party Insurance
Proceeds (other than Insurance Proceeds under an arrangement where future premiums are adjusted to
reflect prior claims in excess of prior premiums) to which the Indemnified Party is entitled in
connection with any Liability for which the Indemnified Party seeks contribution or indemnification
pursuant to this
Article V
;
provided
that
, the Indemnified Party’s
inability to collect or recover any such Insurance Proceeds shall not limit the Indemnifying
Party’s obligations hereunder.
(c) The term “
After-Tax Basis
” as used in this
Article V
means that, in
determining the amount of the payment necessary to indemnify any party against, or reimburse any
party for, Liabilities, the amount of such Liabilities will be determined net of any reduction in
Tax derived by the Indemnified Party as the result of sustaining or paying such Liabilities, and
the amount of such Indemnity Payment will be increased (
i.e
., “grossed up”) by the amount necessary
to satisfy any income or franchise Tax liabilities incurred by the Indemnified Party as a result of
its receipt of, or right to receive, such Indemnity Payment (as so increased), so that the
Indemnified Party is put in the same net after-Tax economic position as if it had not incurred such
Liabilities, in each case without taking into account any impact on the tax basis that an
Indemnified Party has in its assets.
5.7
Procedures for Indemnification of Third Party Claims
.
(a) If an Indemnified Party shall receive notice or otherwise learn of the assertion by a
Person (including any Governmental Authority) who is not a member of the CCU Group or the Outdoor
Group of any claim or of the commencement by any such Person of any Action (collectively, a
“
Third Party Claim
”) with respect to which an Indemnifying Party may be obligated to
provide indemnification to such Indemnified Party pursuant to
Section 5.2
,
Section
5.3
or
Section 5.4
, or any other Section of this Agreement or any Transaction Document,
such Indemnified Party shall give such Indemnifying Party written notice thereof within 20 days
after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party
Claim in reasonable detail. Notwithstanding the foregoing, the failure of any Indemnified Party or
other Person to give notice as provided in this
Section 5.7(a)
shall not relieve the
Indemnifying Party of its obligations under this
Article V
, except to the extent that such
Indemnifying Party is actually prejudiced by such failure to give notice.
(b) An Indemnifying Party may elect to defend (and to seek to settle or compromise), at such
Indemnifying Party’s own expense and by such Indemnifying Party’s own counsel, any Third Party
Claim. Within 30 days after receipt of notice from an Indemnified Party in accordance with
Section 5.7(a)
(or sooner, if the nature of such Third Party Claim so requires), an
Indemnifying Party electing to defend a Third Party Claim shall notify the Indemnified Party of its
election to assume responsibility for defending such Third Party Claim and shall acknowledge and
agree in writing that if such Third Party Claim is adversely determined, such Indemnifying Party
will have the obligation to indemnify the Indemnified Party in respect of all liabilities relating
to, arising out of or resulting from such Third Party Claim and that such Indemnifying Party
irrevocably waives in full all defenses it may have to contest such
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obligation. After such notice and acknowledgment from an Indemnifying Party to an Indemnified
Party of its election to assume the defense of a Third Party Claim, such Indemnified Party shall
have the right to employ separate counsel and to participate in (but not control) the defense,
compromise, or settlement thereof, but the fees and expenses of such counsel shall be the expense
of such Indemnified Party.
(c) If an Indemnifying Party elects not to assume responsibility for defending a Third Party
Claim, or fails to notify an Indemnified Party of its election as provided in
Section
5.7(b)
, such Indemnified Party may defend such Third Party Claim at the cost and expense of the
Indemnifying Party.
(d) Unless the Indemnifying Party has failed to assume the defense of the Third Party Claim in
accordance with the terms of this Agreement, no Indemnified Party may settle or compromise any
Third Party Claim without the consent of the Indemnifying Party. No Indemnifying Party shall
consent to entry of any judgment or enter into any settlement of any pending or threatened Third
Party Claim in respect of which any Indemnified Party is or could have been a party and indemnity
could have been sought hereunder by such Indemnified Party without the consent of the Indemnified
Party if (i) the effect thereof is to permit any injunction, declaratory judgment, other order or
other nonmonetary relief to be entered, directly or indirectly against such Indemnified Party and
(ii) such settlement does not include a full, complete and unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of such Third Party
Claim.
5.8
Additional Matters
.
(a) Indemnification or contribution payments in respect of any Liabilities for which an
Indemnified Party is entitled to indemnification or contribution under this
Article V
shall
be paid by the Indemnifying Party to the Indemnified Party as such Liabilities are incurred upon
demand by the Indemnified Party, including reasonably satisfactory documentation setting forth the
basis for the amount of such indemnification or contribution payment, including documentation with
respect to calculations made on an After-Tax Basis and consideration of any Insurance Proceeds that
actually reduce the amount of such Liabilities. The indemnity and contribution agreements
contained in this
Article V
shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Indemnified Party; (ii) the knowledge by the
Indemnified Party of Liabilities for which it might be entitled to indemnification or contribution
hereunder; and (iii) any termination of this Agreement.
(b) Any claim on account of a Liability which does not result from a Third Party Claim shall
be asserted by written notice given by the Indemnified Party to the applicable Indemnifying Party.
Such Indemnifying Party shall have a period of 30 days after the receipt of such notice within
which to respond thereto. If such Indemnifying Party does not respond within such 30-day period,
such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment.
If such Indemnifying Party does not respond within such 30-day period or rejects such claim in
whole or in part, such Indemnified Party shall be free to pursue such remedies as may be available
to such party as contemplated by this Agreement and the Transaction Documents without prejudice to
its continuing rights to pursue indemnification or contribution hereunder.
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(c) If payment is made by or on behalf of any Indemnifying Party to any Indemnified Party in
connection with any Third Party Claim, such Indemnifying Party shall be subrogated to and shall
stand in the place of such Indemnified Party as to any events or circumstances in respect of which
such Indemnified Party may have any right, defense or claim relating to such Third Party Claim
against any claimant or plaintiff asserting such Third Party Claim or against any other Person.
Such Indemnified Party shall cooperate with such Indemnifying Party in a reasonable manner, and at
the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or
claim.
(d) In an Action in which the Indemnifying Party is not a named defendant, if either the
Indemnified Party or Indemnifying Party shall so request, the parties shall endeavor to substitute
the Indemnifying Party for the named defendant if they conclude that substitution is desirable and
practical. If such substitution or addition cannot be achieved for any reason or is not requested,
the named defendant shall allow the Indemnifying Party to manage the Action as set forth in this
Article V, and the Indemnifying Party shall fully indemnify the named defendant against all costs
of defending the Action (including court costs, sanctions imposed by a court, attorneys’ fees,
experts fees and all other external expenses), the costs of any judgment or settlement, and the
costs of any interest or penalties relating to any judgment or settlement.
5.9
Remedies Cumulative; Limitations of Liability
.
The rights provided in this
Article V
shall be cumulative and, subject to the
provisions of
Article VII
, shall not preclude assertion by any Indemnified Party of any
other rights or the seeking of any and all other remedies against any Indemnifying Party.
NOTWITHSTANDING THE FOREGOING, NO INDEMNIFYING PARTY, SHALL BE LIABLE TO AN INDEMNIFIED PARTY FOR
ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, CONSEQUENTIAL, EXEMPLARY, STATUTORILY-ENHANCED OR
SIMILAR DAMAGES IN EXCESS OF COMPENSATORY DAMAGES (PROVIDED THAT ANY SUCH LIABILITY WITH RESPECT TO
A THIRD PARTY CLAIM SHALL BE CONSIDERED DIRECT DAMAGES) ARISING IN CONNECTION WITH THE
TRANSACTIONS.
5.10
Survival of Indemnities
.
The rights and obligations of each of CCU and Outdoor and their respective Indemnified Parties
under this
Article V
shall survive the sale or other transfer by any party of any Assets or
businesses or the assignment by it of any Liabilities.
ARTICLE VI
OTHER AGREEMENTS
6.1
Further Assurances
.
(a) In addition to the actions specifically provided for elsewhere in this Agreement, each of
the parties will cooperate with each other and use (and will cause their respective Subsidiaries
and Affiliates to use) commercially reasonable efforts, prior to, on and after the Closing Date, to
take, or to cause to be taken, all actions, and to do, or to cause to be done, all things
reasonably necessary on its part under applicable Law or contractual obligations to
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consummate and make effective the transactions contemplated by this Agreement and the
Transaction Documents.
(b) Without limiting the foregoing, prior to, on and after the Closing Date, each party hereto
shall cooperate with the other parties, and without any further consideration, but at the expense
of the requesting party from and after the Closing Date, to execute and deliver, or use
commercially reasonable efforts to cause to be executed and delivered, all instruments, including
instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all
consents, approvals or authorizations of, any Governmental Authority or any other Person under any
permit, license, agreement, indenture or other instrument (including any Consents or Governmental
Approvals), and to take all such other actions as such party may reasonably be requested to take by
any other party hereto from time to time, consistent with the terms of this Agreement and the
Transaction Documents, in order to effectuate the provisions and purposes of this Agreement and the
Transaction Documents and the transfers of the Outdoor Assets and the assignment and assumption of
the Outdoor Liabilities and the other transactions contemplated hereby and thereby. Without
limiting the foregoing, each party will, at the reasonable request, cost and expense of any other
party, take such other actions as may be reasonably necessary to vest in such other party good and
marketable title to the Assets allocated to such party under this Agreement or any of the
Transaction Documents, free and clear of any Security Interest, if and to the extent it is
practicable to do so.
(c) On or prior to the Closing Date, CCU and Outdoor in their respective capacities as direct
and indirect shareholders of their respective Subsidiaries, shall each ratify any actions that are
reasonably necessary or desirable to be taken by CCU, Outdoor or any other Subsidiary of CCU or
Outdoor, as the case may be, to effectuate the transactions contemplated by this Agreement.
(d) On or prior to the Closing Date, CCU and Outdoor shall take all actions as may be
necessary to approve the stock-based employee benefit plans of Outdoor in order to satisfy the
requirements of Rule 16b-3 under the Exchange Act and the applicable rules and regulations of the
New York Stock Exchange.
6.2
Confidentiality
.
(a) From and after the Closing, subject to
Section 6.2(c)
and except as contemplated
by this Agreement or any Transaction Document, CCU shall not, and shall cause the other members of
the CCU Group and all of such parties’ respective officers, directors, employees, and other agents
and representatives, including attorneys, agents, customers, suppliers, contractors, consultants
and other representatives of any Person providing financing (collectively,
“
Representatives
”), not to, directly or indirectly, disclose, reveal, divulge or
communicate to any Person (other than Representatives of such party or of its Affiliates who
reasonably need to know such information in providing services to any member of the CCU Group) or
use or otherwise exploit for its own benefit or for the benefit of any third party, any Outdoor
Confidential Information. If any disclosures are made by a member of the CCU Group to its
Representatives in connection with such Representatives providing services to any member of the CCU
Group under this Agreement or any Transaction Document, then the Outdoor Confidential Information
so disclosed shall be used only as required to perform the services.
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CCU shall, and shall cause the other members of the CCU Group to, use the same degree of care
to prevent and restrain the unauthorized use or disclosure of the Outdoor Confidential Information
by any of their Representatives as they currently use for their own confidential information of a
like nature, but in no event less than a reasonable standard of care. Any information, material or
documents relating to the Outdoor Business currently or formerly conducted, or proposed to be
conducted, by any member of the Outdoor Group furnished to or in possession of any member of the
CCU Group, irrespective of the form of communication, and all notes, analyses, compilations,
forecasts, data, translations, studies, memoranda or other documents prepared by or on behalf of
any member of the CCU Group that contain or otherwise reflect such information, material or
documents is referred to herein as “
Outdoor Confidential Information
.” “Outdoor
Confidential Information” does not include, and there shall be no obligation hereunder with respect
to, information that (i) is or becomes generally available to the public, other than as a result of
a disclosure by any member of the CCU Group or any of their Representatives not otherwise
permissible hereunder, (ii) such member of the CCU Group can demonstrate was or became available to
such member of the CCU Group from a source other than Outdoor or its Affiliates, or (iii) is
developed independently by such member of the CCU Group without reference to the Outdoor
Confidential Information;
provided
,
however
, that, in the case of
clause
(ii)
, the source of such information was not known by such member of the CCU Group to be bound
by a confidentiality agreement with, or other contractual, legal or fiduciary obligation of
confidentiality to, Outdoor or any member of the Outdoor Group with respect to such information.
(b) From and after the Closing, subject to
Section 6.2(c)
and except as contemplated
by this Agreement or any Transaction Document, Outdoor shall not, and shall cause the other members
of the Outdoor Group and all of such parties’ respective Representatives not to, directly or
indirectly, disclose, reveal, divulge or communicate to any Person (other than Representatives of
such party or of its Affiliates who reasonably need to know such information in providing services
to any member of the Outdoor Group), or use or otherwise exploit for its own benefit or for the
benefit of any third party, any CCU Confidential Information. If any disclosures are made by a
member of the Outdoor Group to its Representatives in connection with such Representatives
providing services to any member of the Outdoor Group under this Agreement or any Transaction
Document, then the CCU Confidential Information so disclosed shall be used only as required to
perform the services. Outdoor shall, and shall cause other members of the Outdoor Group to, use
the same degree of care to prevent and restrain the unauthorized use or disclosure of the CCU
Confidential Information by any of their Representatives as they currently use for their own
confidential information of a like nature, but in no event less than a reasonable standard of care.
Any information, material or documents relating to the businesses currently or formerly conducted,
or proposed to be conducted, by any member of the CCU Group furnished to or in possession of any
member of the Outdoor Group, irrespective of the form of communication, and all notes, analyses,
compilations, forecasts, data, translations, studies, memoranda or other documents prepared by or
on behalf of any member of the Outdoor Group that contain or otherwise reflect such information,
material or documents is referred to herein as “
CCU Confidential Information
.” “CCU
Confidential Information” does not include, and there shall be no obligation hereunder with respect
to, information that (i) is or becomes generally available to the public, other than as a result of
a disclosure by any member of the Outdoor Group or any of their Representatives not otherwise
permissible hereunder, (ii) such member of the Outdoor Group can demonstrate was or became
available to such member of the Outdoor
-42-
Group from a source other than CCU or its Affiliates, or (iii) is developed independently by
such member of the Outdoor Group without reference to the CCU Confidential Information;
provided
,
however
, that, in the case of
clause (ii)
, the source of such
information was not known by such member of the Outdoor Group to be bound by a confidentiality
agreement with, or other contractual, legal or fiduciary obligation of confidentiality to, CCU or
any other member of the CCU Group with respect to such information.
(c) If any member of the CCU Group or their respective Representatives, on the one hand, or
any member of the Outdoor Group or their respective Representatives, on the other hand, are
requested or required (by oral question, interrogatories, requests for information or documents,
subpoena, civil investigative demand or similar process) by any Governmental Authority or pursuant
to applicable Law to disclose or provide any Outdoor Confidential Information or CCU Confidential
Information (other than with respect to any such information furnished pursuant to the provisions
of
Article IV
of this Agreement), as applicable, the entity or person receiving such
request or demand shall use all commercially reasonable efforts to provide the other party with
written notice of such request or demand as promptly as practicable under the circumstances so that
such other party shall have an opportunity to seek an appropriate protective order. The party
receiving such request or demand agrees to take, and cause its representatives to take, at the
requesting party’s expense, all other commercially reasonable steps necessary to obtain
confidential treatment by the recipient. Subject to the foregoing, the party that received such
request or demand may thereafter disclose or provide any Outdoor Confidential Information or CCU
Confidential Information, as the case may be, to the extent required by such Law (as so advised by
counsel) or by lawful process of such Governmental Authority.
6.3
Insurance Matters
.
(a) Members of the Outdoor Group will continue to have coverage under CCU’s insurance program
until the Trigger Date. Members of the Outdoor Group will pay retrospective premium adjustments
under each such Insurance Policy based on their loss experience under the Insurance Policy and in
accordance with CCU’s pricing methodologies. The members of the Outdoor Group will have coverage
under all Insurance Policies with respect to periods prior to the Trigger Date in accordance with
the terms of each such Insurance Policy. CCU and Outdoor agree to cooperate in good faith to
provide for an orderly transition of insurance coverage leading up to the Trigger Date, and for the
treatment of any Insurance Policies that will remain in effect following the Trigger Date on a
mutually agreeable basis. Outdoor may cancel coverage under any Insurance Policy by written notice
to CCU at least sixty (60) days prior to such cancellation. In no event shall CCU, any other
member of the CCU Group or any CCU Indemnified Party have liability or obligation whatsoever to any
member of the Outdoor Group if any Insurance Policy or other contract or policy of insurance shall
be terminated or otherwise cease to be in effect or for any reason shall be unavailable or
inadequate to cover any Liability of any member of the Outdoor Group for any reason whatsoever or
shall not be renewed or extended beyond the current expiration date. CCU shall provide notice to
Outdoor promptly upon its becoming aware that any Insurance Policy has been terminated or is
otherwise no longer in effect or is reasonably likely to be terminated or otherwise cease to be in
effect.
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(b) (i) Except as otherwise provided in any Transaction Document, the parties intend by this
Agreement that Outdoor and each other member of the Outdoor Group be successors-in-interest to all
rights that any member of the Outdoor Group may have as of the Closing Date as a subsidiary,
affiliate, division or department of CCU prior to the Closing Date under any policy of insurance
issued to CCU by any insurance carrier or under any agreements related to such policies executed
and delivered prior to the Closing Date, including any rights such member of the Outdoor Group may
have, as an insured or additional named insured, subsidiary, affiliate, division or department, to
avail itself of any such policy of insurance or any such agreements related to such policies as in
effect prior to the Closing Date. At the request of Outdoor, CCU shall take all commercially
reasonable steps, including the execution and delivery of any instruments, to effect the foregoing;
provided
,
however
, that CCU shall not be required to pay any amounts, waive any
rights or incur any Liabilities in connection therewith.
(i) Except as otherwise contemplated by any Transaction Document, after the Closing Date, none
of CCU or Outdoor or any member of their respective Groups shall, without the consent of the other,
provide any such insurance carrier with a release, or amend, modify or waive any rights under any
such policy or agreement, if such release, amendment, modification or waiver would adversely affect
any rights or potential rights of any member of the other Group thereunder;
provided
,
however
, that the foregoing shall not (A) preclude any member of any Group from presenting
any claim or from exhausting any policy limit, (B) require any member of any Group to pay any
premium or other amount or to incur any Liability, or (C) require any member of any Group to renew,
extend or continue any policy in force. Each of Outdoor and CCU will share such information as is
reasonably necessary in order to permit the other to manage and conduct its insurance matters in an
orderly fashion.
(c) This Agreement shall not be considered as an attempted assignment of any policy of
insurance or as a contract of insurance and shall not be construed to waive any right or remedy of
any member of the CCU Group in respect of any Insurance Policy or any other contract or policy of
insurance.
(d) Outdoor does hereby, for itself and each other member of the Outdoor Group, agree that no
member of the CCU Group or any CCU Indemnified Party shall have any Liability whatsoever to Outdoor
or any other member of the Outdoor Group as a result of the insurance policies and practices of CCU
and its Affiliates as in effect at any time prior to the Closing Date, including as a result of the
level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and
conditions of any policy, the adequacy or timeliness of any notice to any insurance carrier with
respect to any claim or potential claim or otherwise.
(e) Nothing in this Agreement shall be deemed to restrict any member of the Outdoor Group from
acquiring at its own expense any other insurance policy in respect of any Liabilities or covering
any period;
provided
that
, Outdoor shall give CCU prompt written notice of any such
insurance policy acquired prior to the Trigger Date.
6.4
Allocation of Costs and Expenses
.
(a) CCU shall pay (or, to the extent incurred by and paid for by any member of the Outdoor
Group, will promptly reimburse such party for any and all amounts so paid) for all out-
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of-pocket fees, costs and expenses incurred by CCU or Outdoor, or any member of their
respective Groups, on or prior to the Closing Date in connection with the Separation, including (i)
the preparation and negotiation of this Agreement, each Transfer Document (unless otherwise
expressly provided therein), and all other documentation related to the Separation, (ii) accounting
and legal costs incurred in association with all domestic and international internal restructuring
undertaken as part of the Separation, (iii) the preparation and execution or filing of any and all
other documents, certificates, deeds, titles, agreements, forms, applications or contracts
associated with the Separation, and (iv) the preparation and filing of Outdoor’s and its
Subsidiaries’ organizational documents.
(b) Outdoor shall pay (or, to the extent incurred by and paid or by any member of the CCU
Group, will promptly reimburse such party for any and all amounts so paid) for all out-of-pocket
fees, costs and expenses incurred by CCU or Outdoor, or any member of their respective Groups, in
connection with the Initial Public Offering and the other Transactions, except as otherwise
provided in
Section 6.4(a)
, including (i) the preparation, printing and filing of the IPO
Registration Statement, (ii) compliance with applicable federal, state or foreign securities Laws
and domestic or foreign securities exchange rules and regulations, together with fees and expenses
of counsel retained to effect such compliance, (iii) the preparation, printing and distribution of
the Prospectus, (iv) the initial listing of the Class A Common Stock on the New York Stock
Exchange, (v) the fees and expenses of Ernst & Young LLP incurred in connection with the IPO
Registration Statement and the Initial Public Offering, and (vi) the preparation (including, but
not limited to, the printing of documents) and implementation of Outdoor’s and its Subsidiaries’
employee benefit plans, retirement plans and equity-based plans, and (vii) the preparation and
implementation of Outdoor’s and its Subsidiaries corporate governance programs and policies,
financial reporting and internal controls and all other reporting requirements, programs, policies
and functions required to be implemented by the Outdoor Group as a result of being a public company
reporting to the SEC with equity securities listed on a national stock exchange.
6.5
Covenants Against Taking Certain Actions Affecting CCU
.
(a) Outdoor hereby acknowledges and agrees that it shall not, without the prior written
consent of CCU (which it may withhold in its sole and absolute discretion), take, or cause to be
taken, directly or indirectly, any action, including making or failing to make any election under
the Law of any state, which has the effect, directly or indirectly, of restricting or limiting the
ability of CCU or any of its Affiliates to freely sell, transfer, assign, pledge or otherwise
dispose of Outdoor Capital Stock. Without limiting the generality of the foregoing, Outdoor shall
not, without the prior written consent of CCU (which it may withhold in its sole and absolute
discretion), take any action, or recommend to its stockholders any action, which would among other
things, limit the legal rights of, or deny any benefit to, CCU as an Outdoor stockholder in a
manner not applicable to Outdoor stockholders generally.
(b) Prior to the Trigger Date, to the extent that any member of the CCU Group is a party to
any contract or agreement with a third party (i) that provides that certain actions of CCU’s
Subsidiaries may result in CCU being in breach of or in default under such agreement and CCU has
advised Outdoor, or Outdoor is otherwise aware, of the existence of such contract or agreement (or
the relevant portions thereof), (ii) to which any member of the Outdoor Group
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is a party or (iii) under which any member of the Outdoor Group has performed any obligations
on or before the date hereof, Outdoor shall not take, and shall cause each other member of the
Outdoor Group not to take, any actions that reasonably could result in any member of the CCU Group
being in breach of or in default under any such contract or agreement. Outdoor hereby acknowledges
and agrees that CCU has made available to Outdoor copies of each such contract or agreement (or the
relevant portion thereof) in effect on the date hereof. The parties acknowledge and agree that,
after the date hereof, CCU may in good faith (and not solely with the intention of imposing
restrictions on Outdoor pursuant to this covenant) amend the referenced agreements or enter into
additional contracts or agreements that provide that certain actions of any member of the Outdoor
Group may result in CCU being in breach of or in default under such agreements;
provided
that
, CCU shall notify and consult with Outdoor prior to entering into any such amendments
or additional contracts or agreements to the extent that compliance therewith (x) could reasonably
be expected to have a material adverse effect on any member of the Outdoor Group or (y) would
discriminate in an adverse way in the treatment of members of the Outdoor Group as compared with
CCU and its other Affiliates, and shall make available to Outdoor copies of such amendments or
additional contracts or agreements.
(c) Prior to the Trigger Date, without the prior written consent or affirmative vote of CCU
(either of which it may withhold in its sole and absolute discretion), Outdoor shall not, and shall
cause the other members of the Outdoor Group not to:
(i) issue any shares of capital stock or any rights, warrants, options or other rights or
securities convertible into or exercisable for capital stock; except for (A) the issuance of shares
of stock of a wholly-owned Subsidiary of Outdoor to Outdoor or another wholly-owned Subsidiary of
Outdoor, (B) pursuant to the Transactions, and (C) the issuance of shares of Class A Common Stock
or options to purchase Class A Common Stock pursuant to employee benefit plans or dividend
reinvestment plans approved by the Board of Directors of Outdoor;
(ii) consolidate or merge with or into any Person, except for (A) a consolidation or merger of
a wholly-owned Subsidiary of Outdoor into Outdoor or with or into another wholly-owned Subsidiary
of Outdoor, or (B) in connection with an acquisition permitted by the Charter and this Agreement;
(iii) directly or indirectly acquire stock, stock equivalents or assets (including, without
limitation, any business or operating unit) of any Person, in each case in a single transaction, or
series of related transactions, involving consideration (whether in cash, securities, assets or
otherwise, and including indebtedness assumed by any member of the Outdoor Group and indebtedness
of any entity so acquired) paid or delivered by the Outdoor Group in excess of $5,000,000, other
than transactions to which Outdoor and one or more wholly-owned Subsidiaries of Outdoor are the
only parties;
(iv) directly or indirectly sell, convey, transfer, lease, pledge, grant a security interest
in or lien on, or otherwise dispose of Outdoor Assets (including stock and stock equivalents) or
any interest therein to any other Person, or permit any other Person to acquire any interest in any
Outdoor Assets (including stock and stock equivalents), in each case in a single transaction, or
series of related transactions, involving consideration (whether in cash, securities, assets or
otherwise, and including indebtedness assumed by any other Person and indebtedness
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of any entity acquired by such other Person) paid to or received by the Outdoor Group in
excess of $5,000,000, other than transactions to which Outdoor and one or more wholly-owned
Subsidiaries of Outdoor are the only parties;
(v) directly or indirectly create, incur, assume, guarantee or otherwise be or become liable
with respect to Outdoor Indebtedness, including indebtedness of any entity acquired by any member
of the Outdoor Group, whether or not such indebtedness is expressly assumed or guaranteed by any
member of the Outdoor Group, (A) in excess of $400 million outstanding at any one time, or (B) that
could reasonably be expected to result in a negative change in any credit ratings of Outdoor,
except for (1) indebtedness determined to constitute “operating leverage” by any “nationally
recognized statistical rating organization” (as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act), (2) the Existing CCU Indebtedness, and (3) indebtedness between any
members of the Outdoor Group (but only to the extent such indebtedness does not increase the
consolidated Outdoor Indebtedness in accordance with GAAP);
(vi) alter, amend, terminate or repeal, or adopt any provision inconsistent with, in each case
whether directly or indirectly, or by merger, consolidation or otherwise, the provisions of the
Charter or Bylaws relating to any of (A) authorized capital stock, (B) rights granted to the
holders of the Class B Common Stock, (C) amendments to the Bylaws, (D) shareholder action by
written consent, (E) shareholder proposals and meetings, (F) limitation of liability of and
indemnification of officers and directors, (G) the size and classes of the board of directors, (H)
corporate opportunities and conflicts of interest between the Outdoor Group and the CCU Group, and
(I) the business combination statute set forth in Section 203 of the Delaware General Corporation
Law;
(vii) purchase, redeem or otherwise acquire or retire for value any shares of Class A Common
Stock or any warrants, options or other rights or securities convertible into or exercisable for to
acquire Class A Common Stock, except for (A) the repurchase of Class A Common Stock deemed to occur
upon exercise of stock options to the extent shares of Class A Common Stock represent a portion of
the exercise price of the stock options or are withheld by Outdoor to pay applicable withholding
taxes; (B) the repurchase of Class A Common Stock deemed to occur to the extent shares of Class A
Common Stock are withheld by Outdoor to pay applicable withholding taxes in connection with any
grant or vesting of restricted stock; and (C) the repurchase of stock of terminated employees as
provided in any employee benefits plan or in a stock purchase or other agreement;
(viii) enter into any agreement that restricts, directly or indirectly, any member of the
Outdoor Group’s ability to (A) pay dividends or make other distributions, (B) borrow from or repay
amounts, (C) make loans or advances, or (D) transfer any Outdoor Assets, in each of the foregoing
cases, directly or indirectly to Outdoor or CCU;
(ix) adopt a shareholder rights agreement; or
(x) dissolve, liquidate or wind up.
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6.6
No Violations
.
(a) Outdoor acknowledges and agrees that it shall not, and shall cause the other members of
the Outdoor Group not to, take any action or enter into any commitment or agreement that may
reasonably be anticipated to result, with or without notice and with or without lapse of time or
otherwise, in a contravention or event of default by any member of the CCU Group of: (i) any
provisions of applicable Law; (ii) any provision of the organizational documents of any member of
the CCU Group; (iii) any credit agreement or other material instrument binding upon any member of
the CCU Group; or (iv) any judgment, order or decree of any Governmental Authority having
jurisdiction over any member of the CCU Group or any of its respective assets.
(b) CCU acknowledges and agrees that it shall not, and shall cause the other members of the
CCU Group not to, take any action or enter into any commitment or agreement that may reasonably be
anticipated to result, with or without notice and with or without lapse of time or otherwise, in a
contravention or event of default by any member of the Outdoor Group of: (i) any provisions of
applicable Law; (ii) any provision of the organizational documents of Outdoor; (iii) the Existing
CCU Indebtedness, any credit agreement or any other material instrument binding upon Outdoor; or
(iv) any judgment, order or decree of any Governmental Authority having jurisdiction over any
member of the Outdoor Group or any of the Outdoor Assets.
(c) Nothing in this Agreement is intended to limit or restrict in any way CCU’s or its
Affiliates’ rights as stockholders of Outdoor.
6.7
Registration Statements
.
To the extent necessary to enable the unrestricted transfer of the applicable shares of
Outdoor Common Stock, upon consummation of the Initial Public Offering, Outdoor shall file and
cause to remain effective a registration statement with the SEC to register Outdoor Common Stock
that may be acquired by employees of any member of the Outdoor Group as contemplated by CCU’s or
any other member of the CCU Group’s employee stock or option plans.
6.8
Compliance with Charter Provisions
.
Outdoor shall, and shall cause each of its Subsidiaries to, take any and all actions necessary
to ensure continued compliance by Outdoor and its Subsidiaries with the provisions of their
certificate or articles of incorporation, bylaws, limited liability company agreement, partnership
agreement or other applicable organizational documents. Outdoor shall notify CCU in writing
promptly after becoming aware of any act or activity taken or proposed to be taken by Outdoor or
any of its Subsidiaries or any of their equity holders which resulted or would result in
non-compliance with any such organizational document provisions and, so long as any member of the
CCU Group owns any Outdoor Capital Stock, Outdoor shall take or refrain from taking all such
actions as CCU shall in its sole discretion determine necessary or desirable to prevent or remedy
any such non-compliance.
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6.9
Future Intercompany Transactions
.
All proposed intercompany transactions between Outdoor and CCU after the Closing Date,
including any material amendments to the Transaction Documents, and any consent or approval
proposed to be granted by Outdoor for CCU’s benefit, in each case that would ordinarily be
submitted for approval by the board of directors of Outdoor, will be subject to the approval of a
majority of the independent directors (as defined under the applicable rules of any securities
exchange on which shares of Outdoor Common Stock are listed) of the board of directors of Outdoor.
6.10
Board of Directors
.
CCU and Outdoor acknowledge and agree that prior to the Trigger Date, Outdoor may qualify as a
“controlled company” under the New York Stock Exchange corporate governance standards because more
than fifty percent (50%) of the voting power of Outdoor is held by an individual, a group or
another company. With respect to composition of Outdoor’s board of directors and committees
thereof, to the extent available, Outdoor shall utilize the exemptions for compliance with certain
New York Stock Exchange corporate governance rules afforded a “controlled company,” including the
requirements of Sections 303A.01, .04 and .05 of the New York Exchange corporate governance rules,
or any successor rules, requiring (a) that a majority of the board of directors consist of
independent directors, (b) that the board of directors have a nominating and corporate governance
committee comprised entirely of independent directors with a written charter setting forth the
committee’s purpose and responsibilities, (c) that the board of directors have a compensation
committee comprised entirely of independent directors with a written charter setting forth the
committee’s purpose and responsibilities, and (d) an annual performance evaluation of the
nominating and corporate governance and compensation committees. Outdoor shall disclose its
utilization of such exemptions and the basis for its determination that is a “controlled company”
under Section 303A of the New York Stock Exchange corporate governance rules, or any successor
rule, in its annual proxy statement to shareholders.
6.11
CCU Policies
.
If a provision of Outdoor’s Charter or Amended and Restated Bylaws or of any Transaction
Document contradicts a policy of CCU or a member of the CCU Group, (the “
CCU Policies
”)
that applies to Subsidiaries of CCU, such provision in Outdoor’s Charter or Bylaws or Transaction
Document shall control. In any other case, and except as otherwise agreed or unless superseded by
any policies adopted by the board of directors of Outdoor, the CCU Policies that apply to
Subsidiaries of CCU shall apply to Outdoor and its Subsidiaries until the Trigger Date.
6.12
Operations
.
Prior to the Closing Date, members of the Outdoor Group provided to members of the CCU Group
advertising time and space for promotional purposes without charge in circumstances where Outdoor
determined that providing such advertising time or space would not significantly affect such
servicer’s potential net income. On and after the Closing Date, until the Trigger Date, Outdoor
agrees to make available, and to cause the other members of the
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Outdoor Group to make available, to the members of the CCU Group advertising time and space
for promotional purposes without charge or at rates that are more favorable to the recipient of
such service than those that would have been obtained in a comparable transaction by either party
with a non-affiliated Person;
provided
,
however
, that the Outdoor Group shall not
be required to provide such advertising time or space if to do so would significantly affect its
potential net income;
provided
,
further
,
however
, that if the Outdoor Group
determines that providing such advertising time and space would significantly affect its potential
net income, it shall be required following such determination to continue to make available to the
recipient of such services only the advertising time and space that it had agreed to provide to
such party prior to the date of any such determination. Notwithstanding the foregoing, each of CCU
and Outdoor agrees that nothing in this Agreement shall relieve any member of the Outdoor Group of
its obligation to comply with any arrangement, agreement, contract or other commitment in writing
that requires it to provide any member of the CCU Group with advertising time and space on terms no
less favorable than those that would be provided to an unaffiliated third party.
6.13
Distribution of Outdoor Common Stock by CCU
.
Outdoor acknowledges and agrees that (a) at any time after the Closing, CCU may elect, in its
sole and absolute discretion, to divest all or part of its indirect ownership interest in Outdoor
through a distribution of Outdoor Common Stock owned by the CCU Group to the shareholders of CCU
(the “
Distribution
”), and (b) CCU may desire to effect the Distribution in a manner that
qualifies as a tax-free distribution under Section 355 of the Code, or any corresponding provision
of any successor statute, so that no gain or loss will be recognized by CCU or its shareholders as
a result of the Distribution (a “
Tax-Free Spin-Off
”). Outdoor and CCU acknowledge and
agree that the Charter provides that each share of Class B Common Stock will be convertible at the
option of the holder thereof into one share of Class A Common Stock (the “
Optional Conversion
Right
”), and the Charter further provides that any shares of Class B Common Stock transferred
to a Person, other than in connection with a Tax-Free Spin-Off and certain other permitted
transfers specified in the Charter, will automatically be converted into shares of Class A Common
Stock on a one-for-one basis (the “
Conversion Upon Transfer Provision
”). The Charter also
provides that, in the event of a Distribution intended to qualify as a Tax-Free Spin-Off, CCU has
the option (which may be exercised or not exercised in CCU’s sole and absolute discretion) to cause
the Optional Conversion Right and the Conversion Upon Transfer Provision to terminate upon the
effectiveness of such Tax-Free Spin-Off (the “
Termination Option
”). Outdoor covenants and
agrees that in the event that CCU notifies Outdoor of CCU’s determination (which may be made in its
absolute and sole discretion) to exercise the Termination Option, Outdoor shall take all necessary
or appropriate action to implement the Termination Option and shall, from and after the
effectiveness of such Tax-Free Spin-Off, no longer permit the exercise of the Optional Conversion
Right, implement the Conversion Upon Transfer Provision or enforce the restrictions on transfer of
the Class B Common Stock that terminate upon such exercise by CCU of the Termination Option.
Outdoor further covenants and agrees that in such a case, Outdoor shall use commercially reasonable
efforts to list the Class B Common Stock on the New York Stock Exchange, or other national
securities exchange as directed by CCU. In the event that CCU intends to consummate the
Distribution, Outdoor shall, and shall cause the other members of the Outdoor Group to, cooperate
in all respects with CCU to accomplish the Distribution in the manner that CCU determines and shall
at CCU’s direction, promptly take any and all commercially reasonable
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actions to effect the Distribution, including, without limitation, (i) filing with the SEC any
registration statements, including prospectuses and information statements, or other documentation
that CCU determines are necessary or desirable, (ii) mailing to the shareholders of CCU a
prospectus or information statement as well as any other information as CCU reasonably determines
necessary or desirable, (iii) obtaining all necessary consents and approvals as soon as
practicable, (iv) filing an application for the listing of the Outdoor Common Stock to be
distributed on the New York Stock Exchange, or other national securities exchange as directed by
CCU, and (v) taking all such other actions as may be necessary or appropriate under securities or
other laws.
6.14
Tax Matters
.
Notwithstanding any provision in this Agreement to the contrary, to the extent that any
representations, warranties, covenants and agreements between CCU and Outdoor, and their respective
Groups, with respect to Tax matters are set forth in the Tax Matters Agreement, including
indemnification agreements and any tax sharing agreements and arrangements specifically identified
in such agreements, such Tax matters shall be governed exclusively by such Tax agreements and not
by this Agreement.
6.15
Litigation
.
(a) Subject to
Section 3.7
, immediately following the execution and delivery of the
Underwriting Agreement by each of the parties thereto, Outdoor shall, and shall cause the other
members of the Outdoor Group to assume those Actions relating in any material respect to the
Outdoor Business in which one or more members of the CCU Group is a defendant or the party against
whom any claim or investigation is directed (collectively, the “
Assumed Actions
”).
(b) Subject to
Section 3.7
, immediately following the execution and delivery of the
Underwriting Agreement by each of the parties thereto, Outdoor shall, and shall cause the other
members of the Outdoor Group to, (i) diligently conduct, at its sole cost and expense, the defense
of all Assumed Actions and all Existing Actions, (ii) except as may be provided in
Section
6.3
, pay all Liabilities that may result from the Assumed Actions and the Existing Actions, and
(iii) pay all fees and costs relating to the defense of the Assumed Actions and the Existing
Actions, including attorneys’ fees and costs incurred after the Closing Date. “
Existing
Actions
” means those Actions (other than Assumed Actions) in which Outdoor or any other member
of the Outdoor Group has been named as a defendant or is the party against whom any claim or
investigation is directed, including those listed on
Schedule 6.15(b)
.
(c) Notwithstanding anything in this
Section 6.15
to the contrary, CCU shall have the
right to participate in the defense of any Assumed Action and to be represented by attorneys of its
own choosing and at its sole cost and expense. In no event shall Outdoor (or any other member of
the Outdoor Group) settle or compromise any Assumed Action or Transferred Action without the
express prior written consent of CCU unless (i) there is no finding or admission of any violation
of any law or any violation of the rights of any Person by CCU or any other member of the CCU
Group, (ii) there is no relief (either monetary or non-monetary) binding upon CCU or any other
member of the CCU Group, and (iii) neither CCU nor any other member of the CCU Group has any
Liability with respect to any such settlement or compromise.
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(d) Subject to
Section 3.7
, each of CCU and Outdoor agrees that at all times from and
after the execution and delivery of the Underwriting Agreement by each of the parties thereto, if
an Action is commenced by a third party naming both parties (or any member of its respective Group)
as defendants thereto and with respect to which one party (or any member of its respective Group)
is a nominal defendant, then the other party shall use commercially reasonable efforts to cause
such nominal defendant to be removed from such Action.
ARTICLE VII
DISPUTE RESOLUTION
7.1
General Provisions.
(a) Any dispute, controversy or claim arising out of or relating to this Agreement or the
Transaction Documents, or the validity, interpretation, breach or termination thereof (a
“
Dispute
”), shall be resolved in accordance with the procedures set forth in this
Article VII
, which shall be the sole and exclusive procedures for the resolution of any
such Dispute unless otherwise specified below.
(b) Commencing with a request contemplated by
Section 7.2
, all communications between
the parties or their representatives in connection with the attempted resolution of any Dispute,
including any mediator’s evaluation referred to in
Section 7.3
, shall be deemed to have
been delivered in furtherance of a Dispute settlement and shall be exempt from discovery and
production, and shall not be admissible in evidence for any reason (whether as an admission or
otherwise), in any arbitral or other proceeding for the resolution of the Dispute.
(c) IN CONNECTION WITH ANY DISPUTE, THE PARTIES EXPRESSLY WAIVE AND FORGO ANY RIGHT TO (I)
SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, CONSEQUENTIAL, EXEMPLARY, STATUTORILY ENHANCED OR SIMILAR
DAMAGES IN EXCESS OF COMPENSATORY DAMAGES (PROVIDED THAT LIABILITY FOR ANY SUCH DAMAGES WITH
RESPECT TO A THIRD PARTY CLAIM SHALL BE CONSIDERED DIRECT DAMAGES), AND (II) TRIAL BY JURY.
(d) The specific procedures set forth below, including but not limited to the time limits
referenced therein, may be modified by agreement of the parties in writing.
(e) All applicable statutes of limitations and defenses based upon the passage of time shall
be tolled while the procedures specified in this
Article VII
are pending. The parties will
take such action, if any, required to effectuate such tolling.
(f) THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE COURT
LOCATED WITHIN THE STATE OF TEXAS OVER ANY SUCH DISPUTE AND EACH PARTY HEREBY IRREVOCABLY AGREES
THAT ALL CLAIMS IN RESPECT OF ANY SUCH DISPUTE OR ANY ACTION RELATED THERETO MAY BE HEARD AND
DETERMINED IN SUCH COURTS. THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUCH DISPUTE BROUGHT IN SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE MAINTENANCE OF
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SUCH DISPUTE. EACH OF THE PARTIES AGREES THAT A JUDGMENT IN ANY SUCH DISPUTE MAY BE ENFORCED
IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
(g) Notwithstanding anything to the contrary contained in this
Article VII
, any
Dispute relating to CCU’s rights as a stockholder of Outdoor pursuant to applicable Law or the
organizational documents of Outdoor will not be governed by or subject to the procedures set forth
in this
Article VII
.
7.2
Consideration by Senior Executives
.
If a Dispute is not resolved in the normal course of business at the operational level, the
parties first shall attempt in good faith to resolve such Dispute by negotiation between executives
who hold, at a minimum, the office of President and Chief Executive Officer of the respective
business entities involved in such Dispute prior to exercising remedies pursuant to
Section
7.3
or
7.4
. Either party may initiate the executive negotiation process by providing a
written notice to the other (the “
Initial Notice
”). Within fifteen (15) days after
delivery of the Initial Notice, the receiving party shall submit to the other a written response
(the “
Response
”). The Initial Notice and the Response shall include (i) a statement of the
Dispute and of each party’s position, and (ii) the name and title of the executive who will
represent that party and of any other person who will accompany the executive. Such executives
will meet in person or by telephone within thirty (30) days of the date of the Initial Notice to
seek a resolution of the Dispute.
7.3
Mediation
.
If a Dispute is not resolved by negotiation as provided in
Section 7.2
within
forty-five (45) days from the delivery of the Initial Notice, then either party may submit the
Dispute for resolution by mediation pursuant to the CPR Institute for Dispute Resolution (the
“
CPR
”) Model Mediation Procedure as then in effect prior to exercising remedies pursuant to
Section 7.4
. The parties will select a mediator from the CPR Panels of Distinguished
Neutrals. Either party at commencement of the mediation may ask the mediator to provide an
evaluation of the Dispute and the parties’ relative positions.
7.4
Arbitration
.
(a) If a Dispute is not resolved by mediation as provided in
Section 7.3
within thirty
(30) days of the selection of a mediator (unless the mediator chooses to withdraw sooner), either
party may submit the Dispute to be finally resolved by arbitration pursuant to the CPR Rules for
Non-Administered Arbitration as then in effect (the “
CPR Arbitration Rules
”). The parties
hereby consent to a single, consolidated arbitration for all known Disputes existing at the time of
the arbitration and for which arbitration is permitted.
(b) The neutral organization for purposes of the CPR Arbitration Rules will be the CPR. The
arbitral tribunal shall be composed of three arbitrators, of whom each party shall appoint one in
accordance with the “screened” appointment procedure provided in Rule 5.4 of the CPR Arbitration
Rules. The arbitration shall be conducted in San Antonio, Texas. Each party shall be permitted to
present its case, witnesses and evidence, if any, in the presence of the other party. A written
transcript of the proceedings shall be made and furnished to the parties.
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The arbitrators shall determine the Dispute in accordance with the law of the State of Texas,
without giving effect to any conflict of law rules or other rules that might render such law
inapplicable or unavailable, and shall apply this Agreement and the Transaction Documents according
to their respective terms;
provided
,
however
, that any Dispute in respect of a
Transaction Document which by its terms is governed by the law of a jurisdiction other than the
State of Texas shall be determined by the law of such other jurisdiction and;
provided
,
further
,
however
, that the provisions of this Agreement relating to arbitration
shall in any event be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.
(c) The parties agree to be bound by any award or order resulting from any arbitration
conducted in accordance with this
Section 7.4
and further agree that judgment on any award
or order resulting from an arbitration conducted under this
Section 7.4
may be entered and
enforced in a court having jurisdiction thereof.
(d) Except as expressly permitted by this Agreement, no party will commence or voluntarily
participate in any court action or proceeding concerning a Dispute, except (i) for enforcement as
contemplated by
Section 7.4(c)
, (ii) to restrict or vacate an arbitral decision based on
the grounds specified under applicable law, or (iii) for interim relief as provided in
Section
7.4(e)
. For purposes of the foregoing and as provided in
Section 7.1(g)
, the parties
submit to the exclusive jurisdiction of the courts of the State of Texas.
(e) In addition to the authority otherwise conferred on the arbitral tribunal, the tribunal
shall have the authority to make such orders for interim relief, including injunctive relief, as it
may deem just and equitable. Notwithstanding
Section 7.4(d)
, each party acknowledges that
in the event of any actual or threatened breach of the provisions of (i)
Section 6.2
,
Section 6.5
,
Section 6.6
,
Section 6.8
,
Section 6.10
and
Section
6.13
, (ii) the Employee Matters Agreement, (iii) the Tax Matters Agreement
,
(iv) the Trademark
License Agreement or (v) the Registration Rights Agreement, the remedy at law would not be
adequate, and therefore injunctive or other interim relief may be sought immediately to restrain
such breach. If the tribunal shall not have been appointed, either party may seek interim relief
from a court having jurisdiction if the award to which the applicant may be entitled may be
rendered ineffectual without such interim relief. Upon appointment of the tribunal following any
grant of interim relief by a court, the tribunal may affirm or disaffirm such relief, and the
parties will seek modification or rescission of the court action as necessary to accord with the
tribunal’s decision.
(f) Each party will bear its own attorneys’ fees and costs incurred in connection with the
resolution of any Dispute in accordance with this
Article VII
.
ARTICLE VIII
MISCELLANEOUS
8.1
Corporate Power; Fiduciary Duty
.
(a) Each of CCU and Outdoor represents as follows:
(i) each such Person has the requisite corporate or other power and authority and has taken
all corporate or other action necessary in order to execute, deliver and perform
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each of this Agreement and each other Transaction Document to which it is a party and to
consummate the transactions contemplated hereby and thereby; and
(ii) this Agreement has been duly executed and delivered by each such Person and each
Transaction Document to which such Person is a party has been, or will be on or prior to the
Closing Date, duly executed and delivered by it and upon execution and delivery, this Agreement and
the other Transaction Documents will constitute a valid and binding agreement of such Person
enforceable in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance or similar laws affecting the enforcement
of creditors’ rights generally and subject to general principles of equity (regardless of whether
enforcement is sought in a proceeding of law or in equity).
(b) Notwithstanding any provision of this Agreement or any Transaction Document, no member of
the CCU Group and no member of the Outdoor Group shall be required to take or omit to take any act
that would violate its fiduciary duties to any minority shareholders of Outdoor or any non-wholly
owned Subsidiary of CCU or Outdoor, as the case may be (it being understood that directors’
qualifying shares or similar interests will be disregarded for purposes of determining whether a
Subsidiary is wholly owned).
8.2
Governing Law
.
This Agreement (other than the provisions relating to CCU’s rights as a stockholder, which
shall be governed by the laws of the State of Delaware) and, unless expressly provided therein,
each other Transaction Document, shall be governed by, and construed and interpreted in accordance
with, the laws of the State of Texas, without giving effect to any conflicts of law rule or
principle that might require the application of the laws of another jurisdiction.
8.3
Survival of Covenants
.
Except as expressly set forth in any Transaction Document, the covenants and other agreements
contained in this Agreement and each Transaction Document, and liability for the breach of any
obligations contained herein or therein, shall survive each of the Separation and the Initial
Public Offering and shall remain in full force and effect.
8.4
Force Majeure
.
No party hereto (or any Person acting on its behalf) shall have any liability or
responsibility for failure to fulfill any obligation (other than a payment obligation) under this
Agreement or, unless otherwise expressly provided therein, any Transaction Document, so long as and
to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or
delayed as a consequence of circumstances of Force Majeure. A party claiming the benefit of this
provision shall, as soon as reasonably practicable after the occurrence of any such event: (i)
notify the other parties of the nature and extent of any such Force Majeure condition and (ii) use
due diligence to remove any such causes and resume performance under this Agreement as soon as
feasible.
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8.5
Notices
.
All notices, requests, claims, demands and other communications under this Agreement and, to
the extent applicable and unless otherwise provided therein, under each of the Transaction
Documents shall be in writing and shall be given or made (and shall be deemed to have been duly
given or made upon receipt) by delivery in person, by overnight courier service, by facsimile with
receipt confirmed (followed by delivery of an original via overnight courier service) or by
registered or certified mail (postage prepaid, return receipt requested) to the respective parties
at the following addresses (or at such other address for a party as shall be specified in a notice
given in accordance with this
Section 8.5
):
If to any member of the CCU Group, to:
Clear Channel Communications, Inc.
200 E. Basse Road
San Antonio, Texas 78209
Attn: Chief Executive Officer
Fax: (210) 822-2299
If to any member of the Outdoor Group, to:
Clear Channel Outdoor Holdings, Inc.
2850 E. Camelback Road
Phoenix, Arizona 85016
Attention: President
Fax: (602) 957-8602
8.6
Severability
.
If any term or other provision of this Agreement is invalid, illegal or incapable of being
enforced under any Law or as a matter of public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the parties to this
Agreement shall negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated by this Agreement be consummated as originally contemplated to the
greatest extent possible.
8.7
Entire Agreement
.
Except as otherwise expressly provided in this Agreement, this Agreement (including the
Schedules and Exhibits hereto) constitutes the entire agreement of the parties with respect to the
subject matter of this Agreement and supersedes all prior agreements and undertakings, both written
and oral, between or on behalf of the parties with respect to the subject matter of this Agreement.
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8.8
Assignment; No Third-Party Beneficiaries
.
This Agreement shall not be assigned by any party hereto without the prior written consent of
the other party hereto. Except as provided in
Article V
with respect to Indemnified
Parties, this Agreement is for the sole benefit of the parties to this Agreement and members of
their respective Group and their permitted successors and assigns and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other Person or entity any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
8.9
Public Announcements
.
CCU and Outdoor shall consult with each other before issuing, and give each other the
opportunity to review and comment upon, any press release or other public statements with respect
to the transactions contemplated by this Agreement and the Transaction Documents, and shall not
issue any such press release or make any such public statement prior to such consultation, except
as may be required by applicable Law, court process or by obligations pursuant to any listing
agreement with any national securities exchange or national securities quotation system.
8.10
Amendment
.
No provision of this Agreement may be amended or modified except by a written instrument
signed by both parties. No waiver by any party of any provision hereof shall be effective unless
explicitly set forth in writing and executed by the party so waiving. The waiver by either party
of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any
other subsequent breach.
8.11
Rules of Construction
.
Interpretation of this Agreement shall be governed by the following rules of construction:
(a) words in the singular shall be held to include the plural and vice versa and words of one
gender shall be held to include the other gender as the context requires, (b) references to the
terms Article, Section, paragraph, and Schedule are references to the Articles, Sections,
paragraphs, and Schedules to this Agreement unless otherwise specified, (c) the word “including”
and words of similar import shall mean “including, without limitation,” (d) provisions shall apply,
when appropriate, to successive events and transactions, (e) the table of contents and headings
contained herein are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement, and (f) this Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the party drafting or causing
any instrument to be drafted.
8.12
Counterparts
.
This Agreement may be executed in one or more counterparts, and by each party in separate
counterparts, each of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement. Delivery of an executed
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counterpart of a signature page to this Agreement by facsimile or electronic mail shall be as
effective as delivery of a manually executed counterpart of any such Agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have caused this Master Agreement to be executed on the date
first written above by their respective duly authorized officers.
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CLEAR CHANNEL COMMUNICATIONS, INC.
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By:
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/s/ Mark P. Mays
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Name: Mark P. Mays
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Title: President and Chief Executive Officer
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CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
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By:
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/s/ Paul J. Meyer
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Name: Paul J. Meyer
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Title: President and Chief Operating Officer
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S-1
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this “
Agreement
”), dated as of November 16, 2005,
is entered into by and between Clear Channel Outdoor Holdings, Inc., a Delaware corporation
(including its successors, the “
Company
”), and Clear Channel Communications, Inc., a Texas
corporation (“
CCU
”).
RECITALS
WHEREAS, the Company and CCU are parties to that certain Master Agreement dated as of November
16, 2005 (the “
Master Agreement
”);
WHEREAS, pursuant to the Company’s Amended and Restated Certificate of Incorporation, the
Class B common stock, par value $.01 per share (“
Class B Common Stock
”), may be owned only
by CCU, its affiliates and certain other Persons described therein, and any purported sale,
transfer or other disposition of shares of Class B Common Stock to any other Person will result in
the automatic conversion of such transferred shares into shares of the Company’s Class A common
stock, par value $.01 per share (“
Class A Common Stock
” and, together with the Class B
Common Stock, the “
Common Stock
”);
WHEREAS, the Company has filed and obtained the effectiveness of a Registration Statement with
the Securities and Exchange Commission on Form S-1 (the “
Registration Statement
”) in
connection with the initial public offering (the “
IPO
”) of shares of its Class A Common
Stock; and
WHEREAS, the Company has agreed to provide CCU with the registration rights specified in this
Agreement following the IPO with respect to any shares of Common Stock held by CCU or any other
Holder on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained
and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1
Definitions
. Capitalized terms used in this Agreement and not otherwise defined
herein shall have the meanings ascribed to such terms in the Master Agreement. The following terms
shall have the meanings set forth in this
Section 1.1
:
“
Exchange Act
” means the Securities Exchange Act of 1934, as amended, or any similar
federal statute, and the rules and regulations promulgated by the SEC thereunder.
“
Excluded Registration
” means a registration under the Securities Act of (i)
securities pursuant to one or more Demand Registrations pursuant to
Section 2
hereof, (ii)
securities
registered on Form S-8 or any similar successor form, and (iii) securities registered to
effect the acquisition of, or combination with, another Person.
“
Holder
” means (i) CCU and (ii) any direct or indirect transferee of CCU who shall
become a party to this Agreement in accordance with
Section 2.9
and has agreed in writing
to be bound by the terms of this Agreement.
“
Person
” or “
persons
” means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or other agency or political subdivision thereof.
“
Register
,” “
registered
” and “
registration
” refer to a registration
effected by preparing and filing a registration statement in compliance with the Securities Act,
and the declaration or ordering of the effectiveness of such registration statement.
“
Registrable Shares
” means the Common Stock owned by the Holders, whether owned on the
date hereof or acquired hereafter; provided, however, that shares of Common Stock that, pursuant to
Section 3.1
, no longer have registration rights hereunder shall not be considered
Registrable Shares.
“
Requesting Holders
” shall mean any Holder(s) requesting to have its (their)
Registrable Shares included in any Demand Registration or Shelf Registration.
“
SEC
” means the Securities and Exchange Commission or any other federal agency at the
time administering the Securities Act.
“
Securities Act
” means the Securities Act of 1933, as amended, or any similar federal
statute, and the rules and regulations promulgated by the SEC thereunder.
1.2
Other Terms
. For purposes of this Agreement, the following terms have the
meanings set forth in the section or agreement indicated.
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Term
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Section
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Adverse Effect
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Section 2.1.5
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Advice
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Section 2.6
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Affiliate
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Master Agreement
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Agreement
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Introductory Paragraph
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CCU
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Introductory Paragraph
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Class A Common Stock
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Recitals
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Class B Common Stock
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Recitals
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Common Stock
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Recitals
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Company
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Introductory Paragraph
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Demand Registration
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Section 2.1.1(a)
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Demanding Shareholders
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Section 2.1.1(a)
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Demand Request
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Section 2.1.1(a)
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Inspectors
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Section 2.5(xiii)
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IPO
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Recitals
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Master Agreement
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Recitals
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Term
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Section
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NASD
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Section 2.5(q)
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No-Black-Out Period
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Section 2.1.6(b)
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Piggyback Registration
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Section 2.2.1
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Records
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Section 2.5(xiii)
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Registration Statement
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Recitals
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Required Filing Date
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Section 2.1.1(b)
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Seller Affiliates
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Section 2.8.1
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Shelf Registration
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Section 2.1.2
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Suspension Notice
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Section 2.6
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1.3
Rules of Construction
. Unless the context otherwise requires
(1) a term has the meaning assigned to it;
(2) “or” is not exclusive;
(3) words in the singular include the plural, and words in the plural include the
singular;
(4) provisions apply to successive events and transactions; and
(5) “herein,” “hereof” and other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision.
ARTICLE 2
REGISTRATION RIGHTS
2.1
Demand Registration.
2.1.1
Request for Registration.
(a) Commencing on the date hereof, any Holder or Holders of Registrable Shares shall
have the right to require the Company to file a registration statement on Form S-1,
S-2 or S-3 or any similar or successor to such forms under the Securities Act for a
public offering of all or part of its or their Registrable Shares (a “
Demand
Registration
”), by delivering to the Company written notice stating that such
right is being exercised, naming, if applicable, the Holders whose Registrable
Shares are to be included in such registration (collectively, the “
Demanding
Shareholders
”), specifying the number of each such Demanding Shareholder’s
Registrable Shares to be included in such registration and, subject to
Section
2.1.3
hereof, describing the intended method of distribution thereof (a
“
Demand Request
”). The IPO Registration Statement shall not constitute a
Demand Registration for any purpose under this Agreement.
(b) Each Demand Request shall specify the aggregate number of Registrable Shares
proposed to be sold. Subject to
Section 2.1.6
, the Company shall file the
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registration statement in respect of a Demand Registration as soon as practicable
and, in any event, within forty-five (45) days after receiving a Demand Request (the
“
Required Filing Date
”) and shall use reasonable best efforts to cause the
same to be declared effective by the SEC as promptly as practicable after such
filing; provided, however, that:
(i) the Company shall not be obligated to effect a Demand Registration
pursuant to
Section 2.1.1(a)
(A) within 60 days after the effective
date of a previous Demand Registration, other than a Shelf Registration
pursuant to this
Article 2
, or (B) within 180 days after the
effective date of the IPO Registration Statement;
(ii) the Company shall not be obligated to effect a Demand Registration
pursuant to
Section 2.1.1(a
) unless the Demand Request is for a
number of Registrable Shares with a market value that is equal to at least
$150 million as of the date of such Demand Request; and
(iii) the Company shall not be obligated to effect pursuant to
Section
2.1.1(a
) (A) more than two Demand Registrations during the first 12
months following the date hereof or (B) more than three Demand Registrations
during any 12-month period thereafter.
2.1.2
Shelf Registration
. With respect to any Demand Registration, the
Requesting Holders may request the Company to effect a registration of the Common Stock
under a registration statement pursuant to Rule 415 under the Securities Act (or any
successor rule) (a “
Shelf Registration
”).
2.1.3
Selection of Underwriters
. At the request of a majority of the
Requesting Holders, the offering of Registrable Shares pursuant to a Demand Registration
shall be in the form of a “firm commitment” underwritten offering. The Holders of a
majority of the Registrable Shares to be registered in a Demand Registration shall select
the investment banking firm or firms to manage the underwritten offering, provided that such
selection shall be subject to the consent of the Company, which consent shall not be
unreasonably withheld or delayed. No Holder may participate in any registration pursuant to
Section 2.1.1
unless such Holder (x) agrees to sell such Holder’s Registrable Shares
on the basis provided in any underwriting arrangements described above and (y) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting arrangements;
provided, however, that no such Holder shall be required to make any representations or
warranties in connection with any such registration other than representations and
warranties as to (a) such Holder’s ownership of his or its Registrable Shares to be
transferred free and clear of all liens, claims, and encumbrances, (b) such Holder’s power
and authority to effect such transfer, and (c) such matters pertaining to compliance with
securities laws as may be reasonably requested; provided, further, however, that the
obligation of such Holder to indemnify pursuant to any such underwriting arrangements shall
be several, not joint and several, among such Holders selling Registrable Shares, and the
liability of each such Holder will be in proportion
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thereto, and provided, further, that such liability will be limited to the net amount
received by such Holder from the sale of his or its Registrable Shares pursuant to such
registration.
2.1.4
Rights of Nonrequesting Holders
. Upon receipt of any Demand Request, the
Company shall promptly (but in any event within ten (10) days) give written notice of such
proposed Demand Registration to all other Holders, who shall have the right, exercisable by
written notice to the Company within twenty (20) days of their receipt of the Company’s
notice, to elect to include in such Demand Registration such portion of their Registrable
Shares as they may request. All Holders requesting to have their Registrable Shares
included in a Demand Registration in accordance with the preceding sentence shall be deemed
to be “
Requesting Holders
” for purposes of this
Section 2.1
.
2.1.5
Priority on Demand Registrations
. No securities to be sold for the
account of any Person (including the Company) other than a Requesting Holder shall be
included in a Demand Registration unless the managing underwriter or underwriters shall
advise the Requesting Holders in writing that the inclusion of such securities will not
adversely affect the price, timing or distribution of the offering or otherwise adversely
affect its success (an “
Adverse Effect
”). Furthermore, if the managing underwriter
or underwriters shall advise the Requesting Holders that, even after exclusion of all
securities of other Persons pursuant to the immediately preceding sentence, the amount of
Registrable Shares proposed to be included in such Demand Registration by Requesting Holders
is sufficiently large to cause an Adverse Effect, the Registrable Shares of the Requesting
Holders to be included in such Demand Registration shall equal the number of shares which
the Requesting Holders are so advised can be sold in such offering without an Adverse Effect
and such shares shall be allocated pro rata among the Requesting Holders on the basis of the
number of Registrable Shares requested to be included in such registration by each such
Requesting Holder.
2.1.6
Deferral of Filing
.
(a) The Company may defer the filing (but not the preparation) of a registration
statement required by
Section 2.1
until a date not later than ninety (90)
days after the Required Filing Date if (i) at the time the Company receives the
Demand Request, the Company or any of its Subsidiaries are engaged in confidential
negotiations or other confidential business activities, disclosure of which would be
required in such registration statement (but would not be required if such
registration statement were not filed), and the board of directors of the Company or
a committee of the board of directors of the Company determines in good faith that
such disclosure would be materially detrimental to the Company and its shareholders,
or (ii) prior to receiving the Demand Request, the Company had determined to effect
a registered underwritten public offering of the Company’s securities for the
Company’s account and the Company had taken substantial steps (including, but not
limited to, selecting a managing underwriter for such offering) and is proceeding
with reasonable diligence to effect such offering. A deferral of the filing of a
registration statement pursuant to this
Section 2.1.6
shall be lifted, and
the requested registration statement shall be filed
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immediately, if, in the case of a deferral pursuant to clause (i) of the preceding
sentence, the negotiations or other activities are disclosed or terminated, or, in
the case of a deferral pursuant to clause (ii) of the preceding sentence, the
proposed registration for the Company’s account is abandoned. In order to defer the
filing of a registration statement pursuant to this
Section 2.1.6
, the
Company shall promptly (but in any event within ten (10) days), upon determining to
seek such deferral, deliver to each Requesting Holder a certificate signed by an
executive officer of the Company stating that the Company is deferring such filing
pursuant to this
Section 2.1.6
and a general statement of the reason for
such deferral and an approximation of the anticipated delay. Within twenty (20)
days after receiving such certificate, the holders of a majority of the Registrable
Shares held by the Requesting Holders and for which registration was previously
requested may withdraw such Demand Request by giving notice to the Company; if
withdrawn, the Demand Request shall be deemed not to have been made for all purposes
of this Agreement. The Company may defer the filing of a particular registration
statement pursuant to this
Section 2.1.6(a)
only once.
(b) Notwithstanding
Section 2.1.6(a),
with respect to two Demand
Registrations only, if CCU or any Affiliate thereof makes a request for any such
Demand Registration, the Company shall not have the right under
Section
2.1.6(a)
to defer the filing of such registration or to not file such
registration statement during the period from and including the date of this
Agreement through and including the second anniversary thereof (the
“
No-Black-Out Period
”).
2.2
Piggyback Registrations
.
2.2.1
Right to Piggyback
. Each time the Company proposes to register any of
its equity securities (other than pursuant to an Excluded Registration or the IPO
Registration) under the Securities Act for sale to the public (whether for the account of
the Company or the account of any security holder of the Company) (a “
Piggyback
Registration
”), the Company shall give prompt written notice to each Holder of
Registrable Shares (which notice shall be given not less than twenty (20) days prior to the
anticipated filing date of the Company’s registration statement), which notice shall offer
each such Holder the opportunity to include any or all of its Registrable Shares in such
registration statement, subject to the limitations contained in
Section 2.2.2
hereof. Each Holder who desires to have its Registrable Shares included in such
registration statement shall so advise the Company in writing (stating the number of shares
desired to be registered) within ten (10) days after the date of such notice from the
Company. Any Holder shall have the right to withdraw such Holder’s request for inclusion of
such Holder’s Registrable Shares in any registration statement pursuant to this
Section
2.2.1
by giving written notice to the Company of such withdrawal. Subject to
Section 2.2.2
below, the Company shall include in such registration statement all
such Registrable Shares so requested to be included therein; provided, however, that the
Company may at any time withdraw or cease proceeding with any such registration if it shall
at the same time withdraw or cease proceeding with the registration of all other equity
securities originally proposed to be registered.
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2.2.2
Priority on Piggyback Registrations
.
(a) If a Piggyback Registration is an underwritten offering and was initiated by the
Company, and if the managing underwriter advises the Company that the inclusion of
Registrable Shares requested to be included in the Registration Statement would
cause an Adverse Effect, the Company shall include in such registration statement
(i) first, the securities the Company proposes to sell, (ii) second, the Registrable
Shares requested to be included in such registration, pro rata among the Holders of
such Registrable Shares on the basis of the number of Registrable Shares owned by
each such Holder, and (iii) third, any other securities requested to be included in
such registration. If as a result of the provisions of this
Section
2.2.2(a)
any Holder shall not be entitled to include all Registrable Shares in a
registration that such Holder has requested to be so included, such Holder may
withdraw such Holder’s request to include Registrable Shares in such registration
statement.
(b) If a Piggyback Registration is an underwritten offering and was initiated by a
security holder of the Company, and if the managing underwriter advises the Company
that the inclusion of Registrable Shares requested to be included in the
Registration Statement would cause an Adverse Effect, the Company shall include in
such registration statement (i) first, the securities requested to be included
therein by the security holders requesting such registration and the Registrable
Shares requested to be included in such registration, pro rata among the holders of
such securities on the basis of the number of securities owned by each such holder,
and (ii) second, any other securities requested to be included in such registration
(including securities to be sold for the account of the Company). If as a result of
the provisions of this
Section 2.2.2(b)
any Holder shall not be entitled to
include all Registrable Shares in a registration that such Holder has requested to
be so included, such Holder may withdraw such Holder’s request to include
Registrable Shares in such registration statement.
(c) No Holder may participate in any registration statement in respect of a
Piggyback Registration hereunder unless such Holder (x) agrees to sell such Holder’s
Registrable Shares on the basis provided in any underwriting arrangements approved
by the Company and (y) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents, each in
customary form, reasonably required under the terms of such underwriting
arrangements; provided, however, that no such Holder shall be required to make any
representations or warranties in connection with any such registration other than
representations and warranties as to (i) such Holder’s ownership of his or its
Registrable Shares to be sold or transferred free and clear of all liens, claims,
and encumbrances, (ii) such Holder’s power and authority to effect such transfer,
and (iii) such matters pertaining to compliance with securities laws as may be
reasonably requested; provided, further, however, that the obligation of such Holder
to indemnify pursuant to any such underwriting arrangements shall be several, not
joint and several, among such Holders selling Registrable Shares, and the liability
of each such Holder will be in proportion to,
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and provided, further, that such liability will be limited to, the net amount
received by such Holder from the sale of his or its Registrable Shares pursuant to
such registration.
2.2.3
Selection of Underwriters
. If any Piggyback Registration is an
underwritten offering and any of the investment banking firms selected to manage the
offering was not one of the managers of the IPO, any such investment banking firm shall not
administer such offering if the Holders of a majority of the Registrable Shares included in
such Piggyback Registration are CCU or Affiliates thereof and such Holders reasonably object
thereto.
2.3
SEC Form S-3
. The Company shall use its commercially reasonable best efforts to
cause Demand Registrations to be registered on Form S-3 (or any successor form) once the Company
becomes eligible to use Form S-3, and if the Company is not then eligible under the Securities Act
to use Form S-3, Demand Registrations shall be registered on the form for which the Company then
qualifies. The Company shall use its commercially reasonable best efforts to become eligible to
use Form S-3 and, after becoming eligible to use Form S-3, shall use its commercially reasonable
best efforts to remain so eligible.
2.4
Holdback Agreements
.
2.4.1 The Company shall not effect any public sale or distribution of its equity
securities, or any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and during the 90-day period beginning on the
effective date of any registration statement in connection with a Demand Registration (other
than a Shelf Registration) or a Piggyback Registration, except pursuant to registrations on
Form S-4 or Form S-8 or any successor form or unless the underwriters managing any such
public offering otherwise agree.
2.4.2 Except with the prior written consent of the Holders of a majority of the
Registrable Shares, such consent not to be withheld unless any such Holder intends to, or in
good faith believes that it is reasonably likely to, request a Demand Registration that
could reasonably be expected to be in registration or become effective during the
No-Black-Out Period, the Company shall not file during the No-Black-Out Period any
registration statement (except as part of a Demand Registration or pursuant to registrations
on Forms S-4 or S-8 or any successor forms) relating to the public sale or distribution of
its equity securities, or any securities convertible into or exchangeable or exercisable for
such securities.
2.4.3 If any Holders of Registrable Shares notify the Company in writing that they
intend to effect an underwritten sale of Common Stock registered pursuant to a Shelf
Registration pursuant to
Article 2
hereof, the Company shall not effect any public
sale or distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for its equity securities, during the seven days prior to and
during the 90-day period beginning on the date such notice is received, except pursuant to
registrations on Form S-4 or Form S-8 or any successor form or unless the underwriters
managing any such public offering otherwise agree.
-8-
2.4.4 Each Holder agrees, in the event of an underwritten offering by the Company
(whether for the account of the Company or otherwise), not to offer, sell, contract to sell
or otherwise dispose of any Registrable Securities, or any securities convertible into or
exchangeable or exercisable for such securities, including any sale pursuant to Rule 144
under the Securities Act (except as part of such underwritten offering), during the seven
days prior to, and during the 90-day period (or such lesser period as the lead or managing
underwriters may require) beginning on, the effective date of the registration statement for
such underwritten offering (or, in the case of an offering pursuant to an effective shelf
registration statement pursuant to Rule 415, the pricing date for such underwritten
offering).
2.5
Registration Procedures
. Whenever any Holder has requested that any Registrable
Shares be registered pursuant to this Agreement, the Company will use its commercially reasonable
best efforts to effect the registration and the sale of such Registrable Shares in accordance with
the intended method of disposition thereof as promptly as is practicable, and pursuant thereto the
Company will as expeditiously as possible:
(a) prepare and file with the SEC, pursuant to
Section 2.1.1(b)
with respect
to any Demand Registration, a registration statement on any appropriate form under
the Securities Act with respect to such Registrable Shares and use its commercially
reasonable best efforts to cause such registration statement to become effective,
provided that as far in advance as practicable before filing such registration
statement or any amendment thereto, the Company will furnish to the selling Holders
copies of reasonably complete drafts of all such documents prepared to be filed
(including exhibits), and any such Holder shall have the opportunity to object to
any information contained therein and the Company will make corrections reasonably
requested by such Holder with respect to such information prior to filing any such
registration statement or amendment;
(b) except in the case of a Shelf Registration, prepare and file with the SEC such
amendments, post-effective amendments, and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for a period of not less than one hundred
eighty (180) days (or such lesser period as is necessary for the underwriters in an
underwritten offering to sell unsold allotments) and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement;
(c) in the case of a Shelf Registration, prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect to
the disposition of all Registrable Shares subject thereto for a period ending on the
earlier of (x) 24 months after the effective date of such registration
-9-
statement and (y) the date on which all the Registrable Shares subject thereto have
been sold pursuant to such registration statement;
(d) furnish to each seller of Registrable Shares and the underwriters of the
securities being registered such number of copies of such registration statement,
each amendment and supplement thereto, the prospectus included in such registration
statement (including each preliminary prospectus), any documents incorporated by
reference therein and such other documents as such seller or underwriters may
reasonably request in order to facilitate the disposition of the Registrable Shares
owned by such seller or the sale of such securities by such underwriters (it being
understood that, subject to
Section 2.6
and the requirements of the
Securities Act and applicable state securities laws, the Company consents to the use
of the prospectus and any amendment or supplement thereto by each seller and the
underwriters in connection with the offering and sale of the Registrable Shares
covered by the registration statement of which such prospectus, amendment or
supplement is a part);
(e) use its commercially reasonable best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as the managing underwriter reasonably requests (or, in the event the
registration statement does not relate to an underwritten offering, as the holders
of a majority of such Registrable Shares may reasonably request); use its
commercially reasonable best efforts to keep each such registration or qualification
(or exemption therefrom) effective during the period in which such registration
statement is required to be kept effective; and do any and all other acts and things
which may be reasonably necessary or advisable to enable each seller to consummate
the disposition of the Registrable Shares owned by such seller in such jurisdictions
(provided, however, that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph or (ii) consent to general service of process in
any such jurisdiction);
(f) promptly notify each seller and each underwriter and (if requested by any such
Person) confirm such notice in writing (i) when a prospectus or any prospectus
supplement or post-effective amendment has been filed and, with respect to a
registration statement or any post-effective amendment, when the same has become
effective, (ii) of the issuance by any state securities or other regulatory
authority of any order suspending the qualification or exemption from qualification
of any of the Registrable Shares under state securities or “blue sky” laws or the
initiation of any proceedings for that purpose, and (iii) of the happening of any
event which makes any statement made in a registration statement or related
prospectus untrue or which requires the making of any changes in such registration
statement, prospectus or documents so that they will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and, as
promptly as practicable thereafter, prepare and file with the SEC and furnish a
supplement or amendment to such prospectus so that, as
-10-
thereafter deliverable to the purchasers of such Registrable Shares, such prospectus
will not contain any untrue statement of a material fact or omit a material fact
necessary to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(g) permit any selling Holder, which in such Holder’s sole and exclusive judgment,
might reasonably be deemed to be an underwriter or a controlling person of the
Company, to participate in the preparation of such registration or comparable
statement and to require the insertion therein of material, furnished to the Company
in writing, which in the reasonable judgment of such Holder and its counsel should
be included;
(h) make reasonably available members of management of the Company, as selected by
the Holders of a majority of the Registrable Shares included in such registration,
for assistance in the selling effort relating to the Registrable Shares covered by
such registration, including, but not limited to, the participation of such members
of the Company’s management in road show presentations;
(i) otherwise use its commercially reasonable best efforts to comply with all
applicable rules and regulations of the SEC, including the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder, and make
generally available to the Company’s security holders an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act no later than
thirty (30) days after the end of the twelve (12) month period beginning with the
first day of the Company’s first fiscal quarter commencing after the effective date
of a registration statement, which earnings statement shall cover said twelve (12)
month period, and which requirement will be deemed to be satisfied if the Company
timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the
Exchange Act and otherwise complies with Rule 158 under the Securities Act;
(j) if requested by the managing underwriter or any seller, promptly incorporate in
a prospectus supplement or post-effective amendment such information as the managing
underwriter or any seller reasonably requests to be included therein, including,
without limitation, with respect to the Registrable Shares being sold by such
seller, the purchase price being paid therefor by the underwriters and with respect
to any other terms of the underwritten offering of the Registrable Shares to be sold
in such offering, and promptly make all required filings of such prospectus
supplement or post-effective amendment;
(k) as promptly as practicable after filing with the SEC of any document which is
incorporated by reference into a registration statement (in the form in which it was
incorporated), deliver a copy of each such document to each seller;
(l) cooperate with the sellers and the managing underwriter to facilitate the timely
preparation and delivery of certificates (which shall not bear any restrictive
legends unless required under applicable law) representing securities sold under
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any registration statement, and enable such securities to be in such denominations
and registered in such names as the managing underwriter or such sellers may request
and keep available and make available to the Company’s transfer agent prior to the
effectiveness of such registration statement a supply of such certificates;
(m) promptly make available for inspection by any seller, any underwriter
participating in any disposition pursuant to any registration statement, and any
attorney, accountant or other agent or representative retained by any such seller or
underwriter (collectively, the “
Inspectors
”), all financial and other
records, pertinent corporate documents and properties of the Company (collectively,
the “
Records
”), as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Company’s officers, directors and
employees to supply all information requested by any such Inspector in connection
with such registration statement; provided, however, that, unless the disclosure of
such Records is necessary to avoid or correct a misstatement or omission in the
registration statement or the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction, the Company shall
not be required to provide any information under this subparagraph if (i) the
Company believes, after consultation with counsel for the Company, that to do so
would cause the Company to forfeit an attorney-client privilege that was applicable
to such information or (ii) if either (A) the Company has requested and been granted
from the SEC confidential treatment of such information contained in any filing with
the SEC or documents provided supplementally or otherwise or (B) the Company
reasonably determines in good faith that such Records are confidential and so
notifies the Inspectors in writing, unless prior to furnishing any such information
with respect to clause (ii) such Holder of Registrable Shares requesting such
information agrees to enter into a confidentiality agreement in customary form and
subject to customary exceptions; and provided, further, that each Holder of
Registrable Shares agrees that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to the Company
and allow the Company, at its expense, to undertake appropriate action and to
prevent disclosure of the Records deemed confidential;
(n) furnish to each seller and underwriter a signed counterpart of (i) an opinion or
opinions of counsel to the Company, and (ii) a comfort letter or comfort letters
from the Company’s independent public accountants, each in customary form and
covering such matters of the type customarily covered by opinions or comfort
letters, as the case may be, as the sellers or managing underwriter reasonably
requests;
(o) cause the Registrable Shares included in any registration statement to be (i)
listed on each securities exchange, if any, on which similar securities issued by
the Company are then listed, or (ii) quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System or the Nasdaq National Market if
similar securities issued by the Company are quoted thereon;
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(p) provide a transfer agent and registrar for all Registrable Securities registered
hereunder;
(q) cooperate with each seller and each underwriter participating in the disposition
of such Registrable Shares and their respective counsel in connection with any
filings required to be made with the National Association of Securities Dealers,
Inc. (“
NASD
”);
(r) during the period when the prospectus is required to be delivered under the
Securities Act, promptly file all documents required to be filed with the SEC
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act;
(s) notify each seller of Registrable Shares promptly of any request by the SEC for
the amending or supplementing of such registration statement or prospectus or for
additional information;
(t) enter into such agreements (including underwriting agreements in the managing
underwriter’s customary form) as are customary in connection with an underwritten
registration; and
(u) advise each seller of such Registrable Shares, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for such purpose and promptly use its commercially
reasonable best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
2.6
Suspension of Dispositions
. Each Holder agrees by acquisition of any Registrable
Shares that, upon receipt of any notice (a “
Suspension Notice
”) from the Company of the
happening of any event of the kind described in
Section 2.5(f)(iii)
such Holder will
forthwith discontinue disposition of Registrable Shares until such Holder’s receipt of the copies
of the supplemented or amended prospectus, or until it is advised in writing (the “
Advice
”)
by the Company that the use of the prospectus may be resumed, and has received copies of any
additional or supplemental filings which are incorporated by reference in the prospectus, and, if
so directed by the Company, such Holder will deliver to the Company all copies, other than
permanent file copies then in such Holder’s possession, of the prospectus covering such Registrable
Shares current at the time of receipt of such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of registration statements set forth in
Sections 2.5(b) and 2.5(c)
hereof shall be extended by the number of days during the period
from and including the date of the giving of the Suspension Notice to and including the date when
each seller of Registrable Shares covered by such registration statement shall have received the
copies of the supplemented or amended prospectus or the Advice. The Company shall use its
commercially reasonable best efforts and take such actions as are reasonably necessary to render
the Advice as promptly as practicable.
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2.7
Registration Expenses
.
2.7.1
Demand Registrations
. All reasonable, out-of-pocket fees and expenses
incident to any Demand Registration including, without limitation, the Company’s performance
of or compliance with this
Article 2
, all registration and filing fees, all fees and
expenses associated with filings required to be made with the NASD (including, if
applicable, the reasonable fees and expenses of any “qualified independent underwriter” as
such term is defined in Schedule E of the Bylaws of the NASD, and of its counsel), as may be
required by the rules and regulations of the NASD, fees and expenses of compliance with
securities or “blue sky” laws (including reasonable fees and disbursements of counsel in
connection with “blue sky” qualifications of the Registrable Shares), rating agency fees,
printing expenses (including expenses of printing certificates for the Registrable Shares in
a form eligible for deposit with Depository Trust Company and of printing prospectuses if
the printing of prospectuses is requested by a Holder of Registrable Shares), messenger and
delivery expenses, the fees and expenses incurred in connection with any listing or
quotation of the Registrable Shares, fees and expenses of counsel for the Company and its
independent certified public accountants (including the expenses of any special audit or
“cold comfort” letters required by or incident to such performance), and the fees and
expenses of any special experts retained by the Company in connection with such
registration, will be borne by the Company whether or not any registration statement becomes
effective, and any underwriting discounts, commissions, or fees attributable to the sale of
the Registrable Shares, will be borne by the Holders pro rata on the basis of the number of
shares so registered and the fees and expenses of any counsel, accountants, or other persons
retained or employed by any Holder will be borne by such Holder.
2.7.2
Piggyback Registrations
. All fees and expenses incident to any Piggyback
Registration including, without limitation, the Company’s performance of or compliance with
this
Article 2
, all registration and filing fees, all fees and expenses associated
with filings required to be made with the NASD (including, if applicable, the reasonable
fees and expenses of any “qualified independent underwriter” as such term is defined in
Schedule E of the Bylaws of the NASD, and of its counsel), as may be required by the rules
and regulations of the NASD, fees and expenses of compliance with securities or “blue sky”
laws (including reasonable fees and disbursements of counsel in connection with “blue sky”
qualifications of the Registrable Shares), rating agency fees, printing expenses (including
expenses of printing certificates for the Registrable Shares in a form eligible for deposit
with Depository Trust Company and of printing prospectuses), messenger and delivery
expenses, the fees and expenses incurred in connection with any listing or quotation of the
Registrable Shares, fees and expenses of counsel for the Company and its independent
certified public accountants (including the expenses of any special audit or “cold comfort”
letters required by or incident to such performance), the fees and expenses of any special
experts retained by the Company in connection with such registration, and the fees and
expenses of other persons retained by the Company, will be borne by the Company (unless paid
by a security holder that is not a Holder for whose account the registration is being
effected) whether or not any registration statement becomes effective; provided, however,
that any underwriting discounts, commissions, or fees attributable to the sale of the
Registrable Shares will be borne by
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the Holders pro rata on the basis of the number of shares so registered and the fees
and expenses of any counsel, accountants, or other persons retained or employed by any
Holder will be borne by such Holder.
2.8
Indemnification
.
2.8.1 The Company agrees to indemnify and reimburse, to the fullest extent permitted by
law, each seller of Registrable Shares, and each of its employees, advisors, agents,
representatives, partners, officers, and directors and each Person who controls such seller
(within the meaning of the Securities Act or the Exchange Act) and any agent or investment
advisor thereof (collectively, the “
Seller Affiliates
”) (a) against any and all
losses, claims, damages, liabilities, and expenses, joint or several (including, without
limitation, attorneys’ fees and disbursements except as limited by
Section 2.8.3
)
based upon, arising out of, related to or resulting from any untrue or alleged untrue
statement of a material fact contained in any registration statement, prospectus, or
preliminary prospectus or any amendment thereof or supplement thereto, or any omission or
alleged omission of a material fact required to be stated therein or necessary to make the
statements therein not misleading, (b) against any and all loss, liability, claim, damage,
and expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation or investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever based upon, arising out of,
related to or resulting from any such untrue statement or omission or alleged untrue
statement or omission, and (c) against any and all costs and expenses (including reasonable
fees and disbursements of counsel) as may be reasonably incurred in investigating,
preparing, or defending against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever based upon,
arising out of, related to or resulting from any such untrue statement or omission or
alleged untrue statement or omission, or such violation of the Securities Act or Exchange
Act, to the extent that any such expense or cost is not paid under subparagraph (a) or (b)
above; except insofar as any such statements are made in reliance upon and in strict
conformity with information furnished in writing to the Company by such seller or any Seller
Affiliate for use therein or arise from such seller’s or any Seller Affiliate’s failure to
deliver a copy of the registration statement or prospectus or any amendments or supplements
thereto after the Company has furnished such seller or Seller Affiliate with a sufficient
number of copies of the same. The reimbursements required by this
Section 2.8.1
will be made by periodic payments during the course of the investigation or defense, as and
when bills are received or expenses incurred.
2.8.2 In connection with any registration statement in which a seller of Registrable
Shares is participating, each such seller will furnish to the Company in writing such
information and affidavits as the Company reasonably requests for use in connection with any
such registration statement or prospectus and, to the fullest extent permitted by law, each
such seller will indemnify the Company and each of its employees, advisors, agents,
representatives, partners, officers and directors and each Person who controls the Company
(within the meaning of the Securities Act or the Exchange Act) and any agent or investment
advisor thereof against any and all losses,
-15-
claims, damages, liabilities, and expenses (including, without limitation, reasonable
attorneys’ fees and disbursements except as limited by
Section 2.8.3
) resulting from
any untrue statement or alleged untrue statement of a material fact contained in the
registration statement, prospectus, or any preliminary prospectus or any amendment thereof
or supplement thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading, but only to the
extent that such untrue statement or alleged untrue statement or omission or alleged
omission is contained in any information or affidavit so furnished in writing by such seller
or any of its Seller Affiliates specifically for inclusion in the registration statement;
provided that the obligation to indemnify will be several, not joint and several, among such
sellers of Registrable Shares, and the liability of each such seller of Registrable Shares
will be in proportion to, and will be limited to, the net amount received by such seller
from the sale of Registrable Shares pursuant to such registration statement; provided,
however, that such seller of Registrable Shares shall not be liable in any such case to the
extent that prior to the filing of any such registration statement or prospectus or
amendment thereof or supplement thereto, such seller has furnished in writing to the Company
information expressly for use in such registration statement or prospectus or any amendment
thereof or supplement thereto which corrected or made not misleading information previously
furnished to the Company.
2.8.3 Any Person entitled to indemnification hereunder will (a) give prompt written
notice to the indemnifying party of any claim with respect to which it seeks indemnification
(provided that the failure to give such notice shall not limit the rights of such Person)
and (b) unless in such indemnified party’s reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any person entitled to
indemnification hereunder shall have the right to employ separate counsel and to participate
in the defense of such claim, but the fees and expenses of such counsel shall be at the
expense of such person unless (x) the indemnifying party has agreed to pay such fees or
expenses, or (y) the indemnifying party shall have failed to assume the defense of such
claim and employ counsel reasonably satisfactory to such person. If such defense is not
assumed by the indemnifying party as permitted hereunder, the indemnifying party will not be
subject to any liability for any settlement made by the indemnified party without its
consent (but such consent will not be unreasonably withheld). If such defense is assumed by
the indemnifying party pursuant to the provisions hereof, such indemnifying party shall not
settle or otherwise compromise the applicable claim unless (1) such settlement or compromise
contains a full and unconditional release of the indemnified party or (2) the indemnified
party otherwise consents in writing. An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the reasonable judgment of any indemnified party, a
conflict of interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the indemnifying party shall
be obligated to pay the reasonable fees and disbursements of such additional counsel or
counsels.
-16-
2.8.4 Each party hereto agrees that, if for any reason the indemnification provisions
contemplated by
Section 2.8.1
or
Section 2.8.2
are unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses, claims,
damages, liabilities, or expenses (or actions in respect thereof) referred to therein, then
each indemnifying party shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, liabilities, or expenses (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified party in connection with the actions which resulted
in the losses, claims, damages, liabilities or expenses as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and indemnified
party shall be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a material fact
relates to information supplied by such indemnifying party or indemnified party, and the
parties’ relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this
Section 2.8.4
were determined by pro rata
allocation (even if the Holders or any underwriters or all of them were treated as one
entity for such purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to in this
Section 2.8.4
. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages, liabilities, or
expenses (or actions in respect thereof) referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such indemnified party in connection
with investigating or, except as provided in
Section 2.8.3
, defending any such
action or claim. Notwithstanding the provisions of this
Section 2.8.4
, no Holder
shall be required to contribute an amount greater than the dollar amount by which the net
proceeds received by such Holder with respect to the sale of any Registrable Shares exceeds
the amount of damages which such Holder has otherwise been required to pay by reason of any
and all untrue or alleged untrue statements of material fact or omissions or alleged
omissions of material fact made in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto related to such sale of
Registrable Shares. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Holders’ obligations in this
Section 2.8.4
to contribute shall be several in proportion to the amount of
Registrable Shares registered by them and not joint.
If indemnification is available under this
Section 2.8
, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
Section
2.8.1
and
Section 2.8.2
without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration provided for in
this
Section 2.8.4
subject, in the case of the Holders, to the limited dollar
amounts set forth in
Section 2.8.2
.
2.8.5 The indemnification and contribution provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on behalf of the
indemnified party or any officer, director, or controlling Person of such indemnified party
and will survive the transfer of securities.
-17-
2.9
Transfer of Registration Rights
. The rights of each Holder under this Agreement
may be assigned to any direct or indirect transferee of a Holder who agrees in writing to be
subject to and bound by all the terms and conditions of this Agreement.
2.10
Rule 144
. The Company will file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder
(or, if the Company is not required to file such reports, will, upon the request of the Holders,
make publicly available other information) and will take such further action as the Holders may
reasonably request, all to the extent required from time to time to enable the Holders to sell
Common Stock without registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time or
(ii) any similar rule or regulation hereafter adopted by the SEC. Upon the reasonable request of
any Holder, the Company will deliver to such parties a written statement as to whether it has
complied with such requirements and will, at its expense, immediately upon the request of any such
Holder, deliver to such Holder a certificate, signed by the Company’s principal financial officer,
stating (a) the Company’s name, address and telephone number (including area code), (b) the
Company’s Internal Revenue Service identification number, (c) the Company’s SEC file number, (d)
the number of shares of each class of capital stock outstanding as shown by the most recent report
or statement published by the Company, and (e) whether the Company has filed the reports required
to be filed under the Exchange Act for a period of at least ninety (90) days prior to the date of
such certificate and in addition has filed the most recent annual report required to be filed
thereunder.
2.11
Preservation of Rights
. The Company will not (a) grant any registration rights
to third parties which are more favorable than or inconsistent with the rights granted hereunder or
(b) enter into any agreement, take any action, or permit any change to occur, with respect to its
securities that violates or subordinates the rights expressly granted to the Holders in this
Agreement.
ARTICLE 3
TERMINATION
3.1
Termination
. The Holders may exercise the registration rights granted hereunder
in such manner and proportions as they shall agree among themselves. The registration rights
hereunder shall cease to apply to any particular Registrable Share when: (a) a registration
statement with respect to the sale of such shares of Common Stock shall have become effective under
the Securities Act and such shares of Common Stock shall have been disposed of in accordance with
such registration statement; (b) such shares of Common Stock shall have been sold to the public
pursuant to Rule 144 under the Securities Act (or any successor provision); (c) such shares of
Common Stock shall have been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and subsequent public
distribution of them shall not require registration or qualification of them under the Securities
Act or any similar state law then in force; (d) such shares shall have ceased to be outstanding or
(e) in the case of Registrable Shares held by a Holder that is not CCU or any Affiliate thereof,
such Holder holds less than three percent (3%) of the then outstanding Registrable Shares and such
Registrable Shares are eligible for sale pursuant to Rule 144(k) under the Securities Act (or any
successor provision). The Company shall promptly upon the
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request of any Holder furnish to such Holder evidence of the number of Registrable Shares then
outstanding.
ARTICLE 4
MISCELLANEOUS
4.1
Notices
. All notices, requests, claims, demands and other communications under
this Agreement shall be in writing and shall be given or made (and shall be deemed to have been
duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile
with receipt confirmed (followed by delivery of an original via overnight courier service) or by
registered or certified mail (postage prepaid, return receipt requested) to the respective parties
at the following addresses (or at such other address for a party as shall be specified in a notice
given in accordance with this
Section 4.1
):
If to the Company:
|
Clear Channel Outdoor Holdings, Inc.
|
2850 E. Camelback Road
|
Phoenix, Arizona 85016
|
Attention: President
|
Fax: (602) 957-8602
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If to CCU:
|
Clear Channel Communications, Inc.
|
200 E. Basse Road
|
San Antonio, Texas 78209
|
Attn: Chief Executive Officer
|
Fax: (210) 822-2299
|
If to any other Holder:
|
The address indicated for such Holder in the Company’s stock transfer
records with copies, so long as CCU owns any Registrable Shares, to CCU as
provided above.
|
Any notice or communication hereunder shall be deemed to have been given or made as of the
date so delivered if personally delivered; when answered back, if telexed; when receipt is
acknowledged, if telecopied; and five (5) calendar days after mailing if sent by registered or
certified mail (except that a notice of change of address shall not be deemed to have been given
until actually received by the addressee).
Failure to mail a notice or communication to a Holder or any defect in it shall not affect its
sufficiency with respect to other Holders. If a notice or communication is mailed in the manner
provided above, it is duly given, whether or not the addressee receives it.
4.2
Authority
. Each of the parties hereto represents to the other that (a) it has the
corporate power and authority to execute, deliver and perform this Agreement, (b) the execution,
delivery and performance of this Agreement by it has been duly authorized by all necessary
corporate action and no such further action is required, (c) it has duly and validly executed and
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delivered this Agreement, and (d) this Agreement is a legal, valid and binding obligation,
enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors’ rights generally and general
equity principles.
4.3
Governing Law
. This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the State of New York irrespective of the choice of laws principles
of the State of New York other than Section 5-1401 of the General Obligations Law of the State of
New York.
4.4
Successors and Assigns
. Except as otherwise expressly provided herein, this
Agreement shall be binding upon and benefit the Company, each Holder, and their respective
successors and assigns.
4.5
Severability
. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced under any Law or as a matter of public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full force and effect.
Upon such determination that any term or other provision is invalid, illegal or incapable of being
enforced, the parties to this Agreement shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated by this Agreement be consummated as originally
contemplated to the greatest extent possible.
4.6
Remedies
. Any dispute, controversy or claim arising out of, or relating to, the
transactions contemplated by this Agreement, or the validity, interpretation, breach or termination
of any provision of this Agreement shall be resolved in accordance with Article VII of the Master
Agreement.
4.7
Waivers
. The observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively) by the party
entitled to enforce such term, but such waiver shall be effective only if it is in a writing signed
by the party against whom the existence of such waiver is asserted. Unless otherwise expressly
provided in this Agreement, no delay or omission on the part of any party in exercising any right
or privilege under this Agreement shall operate as a waiver thereof, nor shall any waiver on the
part of any party of any right or privilege under this Agreement operate as a waiver of any other
right or privilege under this Agreement nor shall any single or partial exercise of any right or
privilege preclude any other or further exercise thereof or the exercise of any other right or
privilege under this Agreement. No failure by either party to take any action or assert any right
or privilege hereunder shall be deemed to be a waiver of such right or privilege in the event of
the continuation or repetition of the circumstances giving rise to such right unless expressly
waived in writing by the party against whom the existence of such waiver is asserted.
4.8
Amendment
. This Agreement may not be amended or modified in any respect except by
a written agreement signed by the Company, CCU (so long as CCU owns any Common Stock) and the
Holders of a majority of the then outstanding Registrable Shares.
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4.9
Counterparts
. This Agreement may be executed in one or more counterparts, and by
the different parties to each such agreement in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile
or electronic mail shall be as effective as delivery of a manually executed counterpart of any such
Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be
duly executed as of the date first written above.
|
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|
|
|
|
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
|
|
|
By:
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/s/Paul J. Meyer
|
|
|
|
Name:
|
Paul J. Meyer
|
|
|
|
Title:
|
President and Chief Operating Officer
|
|
|
|
CLEAR CHANNEL COMMUNICATIONS, INC.
|
|
|
By:
|
/s/ Mark P. Mays
|
|
|
|
Name:
|
Mark P. Mays
|
|
|
|
Title:
|
President and Chief Executive Officer
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S-1
Exhibit 10.3
CORPORATE SERVICES AGREEMENT
DATED NOVEMBER 16, 2005
BETWEEN
CLEAR CHANNEL MANAGEMENT SERVICES, L.P.
AND
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
CORPORATE SERVICES AGREEMENT
This CORPORATE SERVICES AGREEMENT, dated to be effective as of November 16, 2005 (this
“
Agreement
”), is made by and between Clear Channel Management Services, L.P., a Texas
limited partnership (“
Management Services
”), and Clear Channel Outdoor Holdings, Inc., a
Delaware corporation (“
Outdoor
”). Management Services is indirectly wholly-owned by Clear
Channel Communications, Inc., a Texas corporation (“
CCU
”), and prior to the initial public
offering described below, Outdoor was an indirect, wholly-owned subsidiary of CCU. Certain
capitalized terms used in this Agreement are defined in
Section 1.1
and the definitions of
the other capitalized terms used in this Agreement are cross-referenced in
Section 1.2
.
W I T N E S S E T H:
WHEREAS, CCU and Outdoor have entered into a Master Agreement, dated as of November 16, 2005
(the “
Master Agreement
”), pursuant to which, among other things, CCU will separate its
outdoor advertising and related businesses and operations from the other businesses and operations
of CCU by contributing, assigning and transferring such businesses, operations and related assets
and liabilities to Outdoor and its Subsidiaries, as set forth in the Master Agreement;
WHEREAS, after the separation of the outdoor advertising and related businesses and operations
from CCU by contribution, transfer and assignment to the Outdoor Group, it is contemplated that an
initial public offering will be made of the class A common stock of Outdoor, resulting in partial
public ownership of Outdoor;
WHEREAS, after such separation and the initial public offering, both Outdoor and CCU desire
for Management Services to provide certain administrative and support services and other assistance
to the Outdoor Group in accordance with the terms and subject to the conditions set forth herein,
and Management Services desires to provide, or cause to be provided by other members of the CCU
Group, such services and assistance to the Outdoor Group;
WHEREAS, because of the parent-subsidiary relationships among CCU, Outdoor and Management
Services, the terms and conditions set forth herein have not resulted from arms length negotiations
between the parties, and accordingly, such terms may be in some respects less favorable to Outdoor
than those it could obtain from unaffiliated third parties;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein
and for other good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1
Certain Defined Terms
.
The following capitalized terms used in this Agreement will have the meanings set forth below:
-1-
“
Information Systems
” means computing, telecommunications or other digital operating
or processing systems or environments, including, without limitation, computer programs, data,
databases, computers, computer libraries, communications equipment, networks and systems. When
referenced in connection with Services, Information Systems will mean the Information Systems
accessed and/or used in connection with the Services.
“
Intellectual Property
” means all of the following, whether protected, created or
arising under the laws of the United States or any other foreign jurisdiction: (i) patents, patent
applications (along with all patents issuing thereon), statutory invention registrations,
divisions, continuations, continuations-in-part, substitute applications of the foregoing and any
extensions, reissues, restorations and reexaminations thereof, and all rights therein provided by
international treaties or conventions; (ii) copyrights, mask work rights, database rights and
design rights, whether or not registered, published or unpublished, and registrations and
applications for registration thereof, and all rights therein whether provided by international
treaties or conventions or otherwise; (iii) trademarks, service marks, trade dress, logos and other
identifiers of source, including all goodwill associated therewith and all common law rights,
registrations and applications for registration thereof, and all rights therein provided by
international treaties or conventions, and all reissues, extensions and renewals of any of the
foregoing; (iv) intellectual property rights arising from or in respect of domain names, domain
name registrations and reservations and URLs; (v) trade secrets; (vi) intellectual property rights
arising from or in respect of Technology; and (vii) all other applications and registrations
related to any of the intellectual property rights set forth in the foregoing
clauses (i)
through
(vi)
above.
“
Provider
” means Management Services or another member of the CCU Group that is
providing a Service pursuant to this Agreement.
“
Recipient
” means Outdoor or another member of the Outdoor Group to whom a Service
pursuant to this Agreement is being provided.
“
Representative
” of a Person means any director, officer, employee, agent, consultant,
accountant, auditor, financing source, attorney, investment banker or other representative of such
Person.
“
Service Termination Date
” means the effective date of the termination of this
Agreement pursuant to
Section 9.1(a)
or such earlier termination date as may be determined
in accordance with
Section 9.1(a)
in respect of any specified Service.
“
Software
” means the object and source code versions of computer programs and any
associated documentation therefor.
“
Tax Matters Agreement
” means the Tax Matters Agreement entered into pursuant to the
Master Agreement and in substantially the form of Exhibit C to the Master Agreement.
“
Technology
” means, collectively, all designs, formulas, algorithms, procedures,
techniques, ideas, know-how, software, programs, models, routines, confidential and proprietary
information, databases, tools, inventions, invention disclosures, creations, improvements, works of
authorship, and all recordings, graphs, drawings, reports, analyses, other writings, and any other
embodiment of the above, in any form, whether or not specifically listed herein.
-2-
“
Trademark License
” means the Amended and Restated Trademark License Agreement entered
into pursuant to the Master Agreement and in substantially the form of Exhibit E to the Master
Agreement.
“
Trigger Date
” means the first date on which members of the CCU Group cease to
beneficially own more than fifty percent (50%) of the total voting power of Outdoor Common Stock.
“
Undertakings
” means the obligations of the respective CCU and Outdoor Groups set
forth in
Article III
.
Section 1.2
Other Terms
.
For purposes of this Agreement, the following terms have the meanings set forth in the
sections or agreements indicated.
|
|
|
Term
|
|
Section
|
Affiliate
|
|
Master Agreement
|
After-Tax Basis
|
|
Master Agreement
|
Agreement
|
|
Preamble
|
Breaching Party
|
|
Section 9.1(a)
|
CCU
|
|
Preamble
|
CCU Confidential Information
|
|
Master Agreement
|
CCU Executives
|
|
Section 2.2
|
CCU Group
|
|
Master Agreement
|
CCU Indemnified Parties
|
|
Section 3.1(c)
|
CCU Services Manager
|
|
Section 2.3
|
CCU Vendor Agreements
|
|
Section 3.1(a)
|
Closing
|
|
Master Agreement
|
Closing Date
|
|
Master Agreement
|
Consents
|
|
Section 5.2
|
Conversion Costs
|
|
Section 5.3
|
Force Majeure
|
|
Master Agreement
|
Group
|
|
Master Agreement
|
Laws
|
|
Master Agreement
|
Liabilities
|
|
Master Agreement
|
Management Services
|
|
Preamble
|
Master Agreement
|
|
Recitals
|
Non-Breaching Party
|
|
Section 9.1(a)
|
Other Costs
|
|
Section 5.1(a)
|
Outdoor
|
|
Preamble
|
Outdoor Business
|
|
Master Agreement
|
Outdoor Common Stock
|
|
Master Agreement
|
Outdoor Confidential Information
|
|
Master Agreement
|
Outdoor Group
|
|
Master Agreement
|
Outdoor Indemnified Parties
|
|
Section 3.1(d)
|
Outdoor Services Manager
|
|
Section 2.3
|
Outdoor Vendor Agreements
|
|
Section 3.1(b)
|
Services
|
|
Section 2.1(a)
|
Service Charges
|
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Section 5.1(a)
|
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Term
|
|
Section
|
Standard for Services
|
|
Section 6.1
|
Substitute Service
|
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Section 2.1(a)
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Taxes
|
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Master Agreement
|
ARTICLE II
SERVICES AND TERMS
Section 2.1
Services; Scope
.
(a) During the period commencing on the Closing Date and continuing until the earlier of the
termination of this Agreement or an individual Service pursuant to
Section 9.1
, subject to
the terms and conditions set forth in this Agreement, Management Services will provide, or will
cause to be provided to the Outdoor Group, finance, information technology, human resources, legal
services, management oversight and other general services of an administrative and/or advisory
nature with respect to the Outdoor Business, as set forth on
Schedule A
and
Schedule
C
(the “
Services
”), and Outdoor will, and will cause the other members of the Outdoor
Group to, utilize such Services in the conduct of their respective businesses. The “Services” also
will include (1) any Services to be provided by the CCU Group to the Outdoor Group as agreed
pursuant to
Section 10.3(a)
, and (2) any Substitute Service;
provided
,
however
, that (i) the scope of each Service will be substantially the same as the scope of
such service provided by the CCU Group to the Outdoor Group on the last day prior to the Closing in
the ordinary course; (ii) the use of each Service by the Outdoor Group will include use by the
Outdoor Group’s contractors in substantially the same manner as used by the contractors of the
Outdoor Group prior to the Closing; and (iii) nothing in this Agreement will require that any
Service be provided other than for use in, or in connection with, the Outdoor Business. Nothing in
the preceding sentence or elsewhere in this Agreement will be deemed to restrict or otherwise limit
the volume or quantity of any Service;
provided
,
that
, certain volume or quantity
changes with respect to a Service may require the parties to negotiate in good faith and use their
commercially reasonable efforts to agree upon a price change with respect to such Service. If, for
any reason, Management Services is unable to provide any Service pursuant to the terms of this
Agreement, Management Services will provide to the Outdoor Group a substantially equivalent service
(a “
Substitute Service
”) at or below the cost for the substituted Service as set forth on
Schedule A
or
Schedule C
, as applicable, and otherwise in accordance with the terms
of this Agreement, including the Standard for Services.
(b) The Services will include, and the Service Charges reflect charges for, such maintenance,
support, error correction, training, updates and enhancements normally and customarily provided by
members of the CCU Group to other CCU Group members that receive such services. If Outdoor
requests that Management Services provides a custom modification in connection with any Service,
Outdoor will be responsible for the cost of such custom modification. The Services will include
all functions, responsibilities, activities and tasks, and the materials, documentation, resources,
rights and licenses to be used, granted or provided by the CCU Group that are not specifically
described in this Agreement as a part of the Services, but are incidental to, and would normally be
considered an inherent part of, or necessary subpart included within, the Services or are otherwise
necessary for the CCU Group to provide, or the Outdoor Group to receive, the Services.
-4-
(c) This Agreement will not assign any rights to Technology or Intellectual Property between
the parties, other than as specifically set forth herein or in the Trademark License. Any
upgrades, updates or other modifications to Software or other electronic content made available or
delivered to the Outdoor Group pursuant to this Agreement will be deemed to be Intellectual
Property of the CCU Group and licensed to the Outdoor Group, notwithstanding that such upgrades,
updates or other modifications (i) were not used, held for use or contemplated to be used by the
Outdoor Group as of the Closing Date, (ii) were not controlled by any member of the CCU Group as of
the Closing Date, or (iii) may constitute improvements made after the Closing Date.
(d) Throughout the term of this Agreement, the Provider and the Recipient of any Service will
cooperate with one another and use their good faith, commercially reasonable efforts to effect the
efficient, timely and seamless provision and receipt of such Service.
(e) Any Software delivered by a Provider hereunder will be delivered, at the election of the
Provider, either (i) with the assistance of the Provider, through electronic transmission or
downloaded by the Recipient from the applicable intranet, or (ii) by installation by the Provider
on the relevant equipment, with retention by the Provider of all tangible media on which such
Software resides. The Provider and the Recipient acknowledge and agree that no tangible medium
containing such Software (including any enhancements, upgrades or updates) will be transferred to
the Recipient at any time for any reason under the terms of this Agreement, and that the Provider
will, at all times, retain possession and control of any such tangible medium used or consumed by
the Provider in the performance of this Agreement. Each party will comply with all reasonable
security measures implemented by the other party in connection with the delivery of Software.
Section 2.2
Executive Services
.
Until the earlier of the Trigger Date or termination of this Agreement in accordance with
Section 9.1
, in conjunction with the provision of the Services, Management Services will
make available to Outdoor, and Outdoor will utilize, the management oversight services of the
executive officers of CCU referenced on
Schedule A
and from time to time as mutually agreed
to by the parties, certain other officers of CCU (collectively, “
CCU Executives
”);
provided
,
however
, that Outdoor may terminate the provision of management oversight
services by any particular executive officer of CCU at any time by providing notice of such
termination to CCU, such termination to be effective on the later of the date specified in the
notice, if any, or the date that is six months after delivery of such notice. In rendering such
services, until their resignation or the termination of Services as otherwise provided in this
Section 2.2
, the Chief Executive Officer of CCU shall serve as the Chief Executive Officer
of Outdoor, and the Chief Financial Officer of CCU shall serve as the Chief Financial Officer of
Outdoor. The obligations of Management Services pursuant to this
Section 2.2
will be
subject to the reasonable demands imposed by, and the reasonable requirements of, the on-going
operations of the CCU Group and the Outdoor Group, respectively.
-5-
Section 2.3
Services Managers
.
Management Services will designate a dedicated services account manager (the “
CCU Services
Manager
”) who will be directly responsible for coordinating and managing the delivery of the
Services and will have authority to act on the CCU Group’s behalf with respect to the Services.
Outdoor will designate a dedicated services account manager (the “
Outdoor Services
Manager
”) who will be directly responsible for coordinating and managing the delivery of the
Services and will have authority to act on the Outdoor Group’s behalf with respect to the Services.
The CCU Services Manager and the Outdoor Services Manager will work together to address the
Outdoor Group’s issues and the parties’ relationship under this Agreement.
Section 2.4
Performance and Receipt of Services
.
Each of Management Services and Outdoor will, and will cause its respective Groups to, comply
with the following provisions with respect to the Services:
(a) Each Provider and Recipient will at all times comply with its own then in-force security
guidelines and policies applicable to the performance, access and/or use of the Services and
Information Systems.
(b) Each Provider and Recipient will take commercially reasonable measures to ensure that no
computer viruses or similar items are coded or introduced into the Services or Information Systems.
If a computer virus is found to have been introduced into the Services or Information Systems, the
parties hereto will use their commercially reasonable efforts to cooperate and to diligently work
together to eliminate the effects of such computer virus.
(c) Each Provider and Recipient will exercise reasonable care in providing and receiving the
Services to (i) prevent access to the Services or Information Systems by unauthorized Persons, and
(ii) not damage, disrupt or interrupt the Services or Information Systems.
Section 2.5
WARRANTIES
.
THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, THERE ARE NO
EXPRESS WARRANTIES OR GUARANTIES, AND THERE ARE NO IMPLIED WARRANTIES OR GUARANTIES, INCLUDING, BUT
NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE AND FITNESS FOR A PARTICULAR
PURPOSE.
ARTICLE III
OTHER ARRANGEMENTS
Section 3.1
Vendor Agreements
.
(a) A member of the CCU Group is or may become a party to certain corporate purchasing
contracts, master services agreements, vendor contracts, software and other Intellectual Property
licenses or similar agreements unrelated to the Services (the “
CCU Vendor Agreements
”)
under which (or under open work orders thereunder) the Outdoor Group purchases
-6-
goods or services, licenses rights to use Intellectual Property and realizes certain other
benefits and rights. Management Services agrees that prior to the Trigger Date, the Outdoor Group
will continue to retain the right to purchase goods or services and continue to realize such other
benefits and rights under each CCU Vendor Agreement to the extent allowed by such CCU Vendor
Agreement until the expiration or termination date of such rights or benefits pursuant to the terms
of such CCU Vendor Agreement (including, without limitation, any voluntary termination of such CCU
Vendor Agreement by the CCU Group).
(b) A member of the Outdoor Group is or may become a party to certain corporate purchasing
contracts, master services agreements, vendor contracts, software and other Intellectual Property
licenses or similar agreements unrelated to the Outdoor Services (the “
Outdoor Vendor
Agreements
”) under which (or under open work orders thereunder) the CCU Group purchases goods
or services, licenses rights to use Intellectual Property and realizes certain other benefits and
rights. Outdoor agrees that prior to the Trigger Date, the CCU Group will continue to retain the
right to purchase goods or services and continue to realize such other benefits and rights under
each Outdoor Vendor Agreement to the extent allowed by such Outdoor Vendor Agreement until the
expiration or termination date of such rights or benefits pursuant to the terms of such Outdoor
Vendor Agreement (including, without limitation, any voluntary termination of such Outdoor Vendor
Agreements by the Outdoor Group).
(c) The Outdoor Group will indemnify, defend and hold harmless on an After-Tax Basis the CCU
Group and each of their respective directors, officers and employees, and each of the heirs,
executors, successors and assigns of any of the foregoing (collectively, the “
CCU Indemnified
Parties
”), from and against any and all Liabilities of the CCU Indemnified Parties relating to,
arising out of or resulting from the Outdoor Group purchasing goods or services, licensing rights
to use Intellectual Property or otherwise realizing benefits and rights under any CCU Vendor
Agreements.
(d) The CCU Group will indemnify, defend and hold harmless on an After-Tax Basis the Outdoor
Group and each of their respective directors, officers and employees, and each of the heirs,
executors, successors and assigns of any of the foregoing (collectively, the “
Outdoor
Indemnified Parties
”), from and against any and all Liabilities of the Outdoor Indemnified
Parties relating to, arising out of or resulting from the CCU Group purchasing goods or services,
licensing rights to use Intellectual Property or otherwise realizing benefits and rights under any
Outdoor Vendor Agreements.
ARTICLE IV
ADDITIONAL AGREEMENTS
Section 4.1
Leases
.
Management Services and Outdoor agree that each lease or sublease listed on
Schedule
B
, pursuant to which any member of the Outdoor Group leases or subleases real property from any
member of the CCU Group, will remain in full force and effect pursuant to its terms unless
otherwise agreed to in writing by the parties.
-7-
Section 4.2
Computer-Based Resources
.
(a) Management Services and Outdoor agree that (i) prior to the Trigger Date, the Outdoor
Group will continue to have access to the Information Systems of the CCU Group, and (ii) on and
after the Trigger Date, the Outdoor Group will not have access to all or any part of the
Information Systems of the CCU Group, except to the extent necessary for the Outdoor Group to
receive the Services (subject to the Outdoor Group complying with all reasonable security measures
implemented by the CCU Group as deemed necessary by the CCU Group to protect its Information
Systems;
provided
,
that
, the Outdoor Group has had a commercially reasonable period
of time in which to comply with such security measures).
(b) Management Services and Outdoor agree that (i) prior to the Trigger Date, the CCU Group
will continue to have access to the Information Systems of the Outdoor Group, and (ii) on and after
the Trigger Date, the CCU Group will not have access to all or any part of the Information Systems
of the Outdoor Group, except to the extent necessary for the CCU Group to perform the Services
(subject to the CCU Group complying with all reasonable security measures implemented by the
Outdoor Group as deemed necessary by the Outdoor Group to protect its Information Systems;
provided
,
that
, the CCU Group has had a commercially reasonable period of time in
which to comply with such security measures).
Section 4.3
Access
.
Outdoor will allow the CCU Group and its Representatives reasonable access to the facilities
of the Outdoor Group necessary for the performance of the Services and to enable the CCU Group and
to fulfill its obligations under this Agreement.
ARTICLE V
COSTS AND DISBURSEMENTS; PAYMENTS
Section 5.1
Service Charges
.
(a)
Schedule A
or
Schedule C
, as applicable, sets forth with respect to each
Service a description of the charges for such Service or the basis for the determination thereof
(the “
Service Charges
”). Further, in connection with performance of the Services and in
connection with the Undertakings, the Provider will make payments for the benefit of and on behalf
of the Recipient and will incur out-of-pocket costs and expenses (collectively, the “
Other
Costs
”), which will be reimbursed to the Provider by the Recipient;
provided
,
that
, any Other Costs will only be payable by the Recipient if it receives from the
Provider reasonably detailed data and other documentation sufficient to support the calculation of
amounts due to the Provider as a result of such Other Costs.
(b) (i) Prior to the Trigger Date, Management Services and Outdoor will arrange for the
payment of all Service Costs and Other Charges in a manner consistent with past practices for
similar services provided by the CCU Group to the Outdoor Group prior to the date hereof. The
Recipient will have the right to dispute any Service Charges and Other Costs by delivering written
notice of such dispute, setting forth in reasonable detail the basis therefor, to the Provider
within, and no later than, 60 days after notice of billing. As soon as practicable after receipt
of any such notice, the Provider will provide the Recipient with reasonably detailed
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data and documentation sufficient to support the calculation of any Service Charges and Other
Costs that are the subject of the dispute. If the Provider’s furnishing of such information does
not promptly resolve such dispute, the dispute will be resolved pursuant to
Section 8.2
.
(i) From and after the Trigger Date, the Provider will deliver an invoice to the Recipient on
a monthly basis (or at such other frequency as is set forth on
Schedule A
or
Schedule
C
, as applicable) in arrears for the Service Charges and any Other Costs. The Recipient will
pay the amount of such invoice to the Provider in U.S. dollars within 30 days of the date of such
invoice,
provided
,
that
, to the extent consistent with past practice with respect
to Services rendered outside the United States, payments may be made in local currency. If the
Recipient fails to pay such amount (excluding any amount contested in good faith) by such date, the
Recipient will be obligated to pay to the Provider, in addition to the amount due, interest on such
amount at the lesser of (i) the three month London Interbank Offered Rate (LIBOR) plus 100 basis
points or (ii) the maximum rate of interest allowed by applicable law, from the date the payment
was due through the date of payment. As soon as practicable after receipt by the Provider of any
reasonable written request by the Recipient, the Provider will provide the Recipient with
reasonably detailed data and documentation sufficient to support the calculation of any amount due
to the Provider under this Agreement for the purpose of verifying the accuracy of such calculation.
If, after reviewing such data and documentation, the Recipient disputes the Provider’s calculation
of any amount due to the Provider, then the dispute will be resolved pursuant to
Section
8.2
.
Section 5.2
Consents
.
Management Services and Outdoor acknowledge and agree that certain Software and other
licenses, consents, approvals, notices, registrations, recordings, filings and other actions
(collectively, “
Consents
”) may be required by Management Services, Outdoor or members of
their respective Groups in connection with the provision of the Services. With respect to each
Service, the Recipient will, after consultation with the Provider, either directly pay the
out-of-pocket expenses incurred to obtain, perform or otherwise satisfy each such Consent or after
any such Consent is obtained, performed or otherwise satisfied, reimburse the Provider for all
actual, out-of-pocket costs incurred by the Provider and related to such Consent. Prior to payment
of, or reimbursement for, such out-of-pocket expenses, the Provider will provide the Recipient with
an invoice accompanied by reasonably detailed data and documentation sufficient to evidence the
out-of-pocket expenses for which the Provider is seeking payment or reimbursement. Upon receipt of
such invoice and data and documentation, the Recipient will either pay the amount of such invoice
directly in accordance with its general payment terms with vendors or reimburse the Provider for
its payment of the invoice within 30 days of the date of its receipt of such invoice. If the
Recipient disputes the invoiced amount, then the parties will work together to resolve such
dispute. If the parties are unable to resolve such dispute, the dispute will be resolved pursuant
to
Section 8.2
. Management Services and Outdoor acknowledge and agree that no prior
approval of the Recipient will be required for the Provider to seek any reimbursement pursuant to
this
Section 5.2
.
-9-
Section 5.3
Conversion Costs
.
Management Services and Outdoor acknowledge and agree that in connection with the
implementation, provision, receipt and transition of the Services, there will be certain
nonrecurring, out-of-pocket conversion costs incurred by Management Services, Outdoor and their
respective Groups (“
Conversion Costs
”). With respect to each Service, the Recipient of the
Service will either reimburse the Provider as incurred for all actual, out-of-pocket Conversion
Costs incurred by the Provider and related to such Service or, after consultation with the
Provider, pay such Conversion Costs directly on an as-incurred basis, in either case regardless of
whether the Recipient replaces such Service with the same application, system, vendor or other
means of effecting the Service. Prior to payment of, or reimbursement for, such actual
out-of-pocket Conversion Costs, the Provider will provide the Recipient with an invoice accompanied
by reasonably detailed data and documentation sufficient to evidence the out-of-pocket expenses for
which the Provider is seeking payment or reimbursement. Upon receipt of such invoice and data and
documentation, the Recipient will either pay the amount of such invoice directly in accordance with
its general payment terms with vendors or reimburse the Provider for its payment of the invoice
within 30 days of the date of its receipt of such invoice. If the Recipient disputes the invoiced
amount, then the dispute will be resolved pursuant to
Section 8.2
. Management Services and
Outdoor acknowledge and agree that no prior approval will be required from the Recipient for the
Provider to seek any reimbursement for Conversion Costs pursuant to this
Section 5.3
.
ARTICLE VI
STANDARD FOR SERVICE; COMPLIANCE WITH LAWS
Section 6.1
Standard for Service
.
Except as otherwise provided in this Agreement (including in
Schedule A
and
Schedule C
), Management Services agrees that the Provider will perform the Services such
that the nature, quality, standard of care and the service levels at which such Services are
performed are no less than the nature, quality, standard of care and service levels at which the
substantially same services were provided to the members of the Outdoor Group by or on behalf of
the Provider on the last day prior to the Closing Date in the ordinary course (the “
Standard
for Services
”).
Section 6.2
Compliance with Laws
.
Each of Management Services and Outdoor will be responsible for its, and its respective
Group’s, compliance with any and all Laws applicable to its performance under this Agreement;
provided
,
however
, that each of Management Services and Outdoor will, subject to
reimbursement of out-of-pocket expenses by the requesting party, use commercially reasonable
efforts to cooperate and provide the other party with all reasonably requested assistance
(including, without limitation, the execution of documents and the provision of relevant
information) to ensure compliance with all applicable Laws in connection with any regulatory
action, requirement, inquiry or examination related to this Agreement or the Services.
-10-
ARTICLE VII
INDEMNIFICATION; LIMITATION ON LIABILITY
Section 7.1
Limited Liability of a Provider
.
Notwithstanding the provisions of
Section 6.1
, none of Management Services, any other
members of the CCU Group, their respective Affiliates or any of their respective directors,
officers or employees, or any of the heirs, executors, successors or assigns of any of the
foregoing (each, a “
Provider Indemnified Party
”), will have any liability in contract, tort
or otherwise, including for any such party’s ordinary or contributory negligence, to the Recipient
or its Affiliates or Representatives for or in connection with (i) any Services rendered or to be
rendered by any Provider Indemnified Party pursuant to this Agreement, (ii) the transactions
contemplated by this Agreement, or (iii) any Provider Indemnified Party’s actions or inactions in
connection with any such Services or transactions;
provided
,
however
, that such
limitation on liability will not extend to or otherwise limit any Liabilities that have resulted
directly from such Provider Indemnified Party’s (a) gross negligence or willful misconduct, (b)
improper use or disclosure of information of, or regarding, a customer or potential customer of a
Recipient Indemnified Party or (c) violation of applicable Law.
Section 7.2
Indemnification by Each Provider
.
Management Services will, and will cause each Provider to indemnify, defend and hold harmless
each relevant Recipient and each of its Subsidiaries and each of their respective directors,
officers and employees, and each of the heirs, executors, successors and assigns of any of the
foregoing (each, a “
Recipient Indemnified Party
”), from and against any and all Liabilities
of the Recipient Indemnified Parties relating to, arising out of, or resulting from (a) the gross
negligence or willful misconduct of a Provider Indemnified Party in connection with such Provider
Indemnified Party’s provision of the Services, (b) the improper use or improper disclosure of
information of, or regarding, a customer or potential customer of a Recipient Indemnified Party in
connection with the transactions contemplated by this Agreement or such Provider Indemnified
Party’s provision of the Services, or (c) any violation of applicable Law by a Provider Indemnified
Party in connection with the transactions contemplated by this Agreement or such Provider
Indemnified Party’s provision of the Services;
provided
,
that
, the aggregate
liability of the CCU Group as Providers pursuant to this
Article VII
will in no event
exceed an amount equal to the aggregate payments made by the Recipients to the Providers for
Services pursuant to this Agreement for the 12 month period preceding the date of such event giving
rise to indemnification hereunder.
Section 7.3
Indemnification by Each Recipient
.
Outdoor will, and will cause each member of the Outdoor Group to, indemnify, defend and hold
harmless each relevant Provider Indemnified Party from and against any and all Liabilities of the
Provider Indemnified Parties relating to, arising out of, or resulting from the provision of the
Services by any Provider or any of its Affiliates, except for (a) any Liabilities that result from
a Provider Indemnified Party’s gross negligence in connection with the provision of the Services,
and (b) any Liabilities that result from a Provider Indemnified Party’s material breach of this
Agreement.
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Section 7.4
Indemnification Matters; Exclusivity
.
The indemnification provisions set forth in Sections 5.6 through 5.8 of the Master Agreement
are hereby incorporated into, and made a part of, this
Article VII
,
Sections 3.1(c)
and
3.1(d)
and as otherwise applicable to this Agreement. The provisions of this
Article VII
will constitute the sole and exclusive remedy for Liabilities arising under
this Agreement, other than Liabilities arising under
Sections 3.1(c)
and
3.1(d)
.
Section 7.5
Limitation on Liability
.
Notwithstanding any other provision contained in this Agreement, Management Services and
Outdoor agree on their behalf, and on behalf of their respective Groups, that no member of the CCU
Group on the one hand, and no member of the Outdoor Group, on the other hand, will be liable to any
member of the other Group, whether based on contract, tort (including negligence), warranty or any
other legal or equitable grounds, for any special, indirect, punitive, incidental or consequential
losses, damages or expenses of the other Group, including, without limitation, loss of data, loss
of profits, interest or revenue, or use or interruption of business, arising from any claim
relating to breach of this Agreement or otherwise relating to any of the Services or Undertakings
provided hereunder
. For clarification purposes only, the parties hereto agree that the limitation
on liability contained in this
Section 7.5
will not apply to (a) damages awarded to a third
party pursuant to a third party claim for which a Provider is required to indemnify, defend and
hold harmless any Recipient Indemnified Party under
Section 7.2
; (b) damages awarded to a
third party pursuant to a third party claim for which a Recipient is required to indemnify, defend
and hold harmless any Provider Indemnified Party under
Section 7.3
; (c) damages awarded to
a third party pursuant to a third party claim for which the Outdoor Group is required to indemnify,
defend and hold harmless any CCU Indemnified Party under
Section 3.1(c)
; and (d) damages
awarded to a third party pursuant to a third party claim for which the CCU Group is required to
indemnify, defend and hold harmless any Outdoor Indemnified Party under
Section 3.1(d)
.
Section 7.6
Liability for Payment Obligations
.
Nothing in this
Article VII
will be deemed to eliminate or limit, in any respect, any
member of the CCU Group’s or any member of the Outdoor Group’s express obligation in this Agreement
to pay or reimburse, as applicable, for (a) Service Charges; (b) Other Costs; (c) amounts payable
or reimbursable with respect to any custom modification provided pursuant to
Section
2.1(b)
; (d) any amounts payable or reimbursable pursuant to the terms of the leases referred to
in
Section 4.1
; (e) any amounts payable or reimbursable pursuant in respect of the Consents
pursuant to
Section 5.2
; (f) amounts payable or reimbursable in respect of Conversion Costs
pursuant to
Section 5.3
; (g) amounts payable or reimbursable pursuant to
Section
6.2
with respect to compliance with Laws; (h) amounts payable or reimbursable pursuant to
Section 10.3(b)
with respect to books and records; and (i) amounts payable or reimbursable
pursuant to
0
with respect to Taxes.
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ARTICLE VIII
DISPUTE RESOLUTION
Section 8.1
Applicable Law
.
This Agreement will be governed by, and construed and interpreted in accordance with, the laws
of the State of Texas, without giving effect to any conflicts of law rule or principle that might
require the application of the laws of another jurisdiction.
Section 8.2
Dispute Resolution
.
To the extent not resolved through discussions between the CCU Services Manager and the
Outdoor Services Manager, any dispute, controversy or claim arising out of, or relating to, this
Agreement will be resolved in accordance with Article VII of the Master Agreement, which dispute
resolution provisions are hereby incorporated into, and made a part of, this
Section 8.2
.
ARTICLE IX
TERMINATION
Section 9.1
Termination
.
(a) This Agreement may be terminated (1) after the Trigger Date by either Management Services
or Outdoor upon no less than six months’ prior written notice;
provided,
however
,
after the Trigger Date, Management Services will continue to provide, and Outdoor will utilize, and
will cause the other members of the Outdoor Group to utilize, the Services identified on
Schedule C
for the applicable time periods after the Trigger Date set forth in
Schedule
C
, and therefore (A) the effective date of such termination of this Agreement must be no
earlier than the latest date provided on
Schedule C
for the provision of Services, (B) the
effective date of termination of individual Services specified on
Schedule C
must be no
earlier than the date provided on
Schedule C
for such individual Service, and (C) all other
Services that are not specified on
Schedule C
will terminate upon the effective termination
date provided in such written notice, or (2) at any time upon mutual agreement of Management
Services and Outdoor. Notwithstanding the foregoing, with respect to specific Services provided
hereunder, (i) either party hereto (the “
Non-Breaching Party
”) may terminate this Agreement
with respect to any individual Service, in whole but not in part, at any time upon prior written
notice by the Non-Breaching Party to the other party (the “
Breaching Party
”) if the
Breaching Party (including any member of its respective Group) has failed to perform any of its
material obligations under this Agreement relating to such Service, and such failure will have
continued without cure for a period of 60 days after receipt by the Breaching Party of a written
notice of such failure from the Non-Breaching Party seeking to terminate such Service;
provided
,
however
, that no Service may be terminated pursuant to this
clause
(i)
until the parties have completed the dispute resolution process set forth in
Section
8.2
with respect to such Service; (ii) Management Services and Outdoor may from time to time
mutually agree to terminate any individual Service, in whole but not in part,
provided
,
that
, any such agreement to terminate a Service will comply with
Section 10.10
and
include all terms and conditions applicable to termination of the Service to be terminated and
(iii) as provided in
Section 2.2
, Outdoor may terminate the provision of management
oversight services by any particular executive officer of CCU at any time by
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providing notice of such termination to CCU, such termination to be effective on the later of
the date specified in the notice, if any, or the date that is six months after delivery of such
notice. Any such termination of an individual Service will not in any way affect the obligations
of the party terminating such Service to continue to receive all other Services not so terminated
and to continue to provide Services as required by this Agreement.
(b) In addition to and not in limitation of the rights and obligations set forth in
Section 2.1(d)
, upon the request of the Recipient of a Service, (i) the Provider of such
Service will cooperate with the Recipient and use its good faith, commercially reasonable efforts
to assist the transition of such Service to the Recipient (or Affiliate of the Recipient or such
third-party vendor designated by the Recipient) by the Service Termination Date for such Service.
Section 9.2
Effect of Termination
.
Upon termination or expiration of any Service or Undertaking pursuant to this Agreement, the
relevant Provider will have no further obligation to provide the terminated Service or expired
Undertaking, and the relevant Recipient will have no obligation to pay any future Service Charges
or Other Costs relating to any such Service or Undertaking (other than for or in respect of
Services or Undertakings provided in accordance with the terms of this Agreement and received by
such Recipient prior to such termination). Upon termination of this Agreement in accordance with
its terms, no Provider will have any further obligation to provide any Service or Undertaking, and
no Recipient will have any obligation to pay any Service Charges or Other Costs relating to any
Service or Undertaking or make any other payments under this Agreement (other than for or in
respect of Services or Undertakings received by such Recipient prior to such termination).
Section 9.3
Survival
.
Each of
Section 4.1
(Leases),
Section 4.2
(Computer-Based Resources),
Article V
(Costs and Disbursements),
Article VII
(Indemnification; Limitation on
Liability),
Article VIII
(Dispute Resolution),
Section 9.2
(Effect of Termination),
this
Section 9.3
(Survival), and
Article X
(General Provisions) will survive the
expiration or other termination of this Agreement and remain in full force and effect.
Section 9.4
Force Majeure
.
No party hereto (or any member of its Group or any other Person acting on its behalf) will
have any liability or responsibility for failure to fulfill any obligation (other than a payment
obligation) under this Agreement so long as and to the extent to which the fulfillment of such
obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force
Majeure. A party claiming the benefit of this provision will, as soon as reasonably practicable
after the occurrence of any such event: (a) notify the other party of the nature and extent of any
such Force Majeure condition and (b) use commercially reasonable efforts to remove any such causes
and resume performance under this Agreement as soon as feasible.
-14-
ARTICLE X
GENERAL PROVISIONS
Section 10.1
Independent Contractors
.
In providing Services hereunder, the Provider will act solely as independent contractor and
nothing in this Agreement will constitute or be construed to be or create a partnership, joint
venture, or principal/agent relationship between the Provider, on the one hand, and the Recipient,
on the other. All Persons employed by the Provider in the performance of its obligations under
this Agreement will be the sole responsibility of the Provider.
Section 10.2
Subcontractors
.
Any Provider may hire or engage one or more subcontractors to perform any or all of its
Services;
provided
,
that
, Management Services will in all cases remain responsible
for all its obligations under this Agreement, including, without limitation, with respect to the
scope of the Services, the Standard for Services and the content of the Services provided to the
Recipient. Under no circumstances will any Recipient be responsible for making any payments
directly to any subcontractor engaged by a Provider.
Section 10.3
Additional Services; Books and Records
.
(a) If, during the term of this Agreement, a party hereto identifies a need for additional or
other corporate services to be provided by or on behalf of Management Services, the parties hereto
agree to negotiate in good faith to provide such requested services (provided that such services
are of a type generally provided by the CCU Group at such time) and the applicable service fees,
payment procedures, and other rights and obligations with respect thereto. To the extent
practicable, such additional or other services will be provided on terms substantially similar to
those applicable to Services of similar types and otherwise on terms consistent with those
contained in this Agreement.
(b) All books, records and data maintained by a Provider for a Recipient with respect to the
provision of a Service will be the exclusive property of such Recipient. The Recipient, at its
sole cost and expense, will have the right to inspect, and make copies of, any such books, records
and data during regular business hours upon reasonable advance notice to the Provider. At the sole
cost and expense of the Provider, upon termination of the provision of any Service, the relevant
books, records and data relating to such terminated Service will be delivered by the Provider to
the Recipient in a mutually agreed upon format to the address of Outdoor set forth in
Section
10.5
or any other mutually agreed upon location;
provided
,
however
, that the
Provider will be entitled to retain one copy of all such books, records and data relating to such
terminated Service for archival purposes and for purposes of responding to any dispute that may
arise with respect thereto.
Section 10.4
Confidential Information
.
Outdoor agrees to, and will cause the other members of the Outdoor Group to, maintain and
safeguard all the Information pursuant to Section 6.2 of the Master Agreement and Management
Services agrees to, and will cause the other members of the CCU Group to,
-15-
maintain and safeguard all Outdoor Confidential Information pursuant to Section 6.2 of the
Master Agreement, and each party hereto agrees that Section 6.2 of the Master Agreement is hereby
incorporated by reference into, and made a part of, this Agreement.
Section 10.5
Notices
.
All notices, requests, claims, demands and other communications under this Agreement will be
in writing and will be given or made (and will be deemed to have been duly given or made upon
receipt) by delivery in person, by overnight courier service, by facsimile with receipt confirmed
(followed by delivery of an original via overnight courier service) or by registered or certified
mail (postage prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as will be specified in a notice given in
accordance with this
Section 10.5
):
If to Management Services:
Clear Channel Management Services, L.P.
200 E. Basse Road
San Antonio, Texas 78209
Attn: President of Clear Channel GP, LLC
Fax: (210) 822-2299
If to any other member of the CCU Group:
Clear Channel Communications, Inc.
200 E. Basse Road
San Antonio, Texas 78209
Attn: Chief Executive Officer
Fax: (210) 822-2299
If to any member of the Outdoor Group:
Clear Channel Outdoor Holdings, Inc.
2850 E. Camelback Road
Phoenix, Arizona 85016
Attention: President
Fax: (602) 957-8602
Section 10.6
Taxes
.
Except as otherwise specifically provided for in the Tax Matters
Agreement:
(a) Each party will be responsible for any personal property Taxes on property it owns or
leases, for franchise and privilege Taxes on its business, and for Taxes based on its net income or
gross receipts.
(b) Each Recipient may report and (as appropriate) pay any sales, use, excise, value-added,
services, consumption, and other Taxes directly if the Recipient provides the applicable Provider
with a direct pay or exemption certificate.
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(c) A Provider will promptly notify the applicable Recipient of, and coordinate with the
Recipient the response to and settlement of, any claim for Taxes asserted by applicable taxing
authorities for which the Recipient is alleged to be financially responsible hereunder.
(d) Each Recipient will be entitled to receive and to retain any refund of Taxes paid to a
Provider pursuant to this Agreement. In the event a Provider receives a refund of any Taxes paid
by a Recipient to the Provider, the Provider will promptly pay, or cause the payment of, such
refund to the Recipient.
(e) Each of the parties hereto agrees that if reasonably requested by the other party, it will
cooperate with such other party to enable the accurate determination of such other party’s Tax
liability and assist such other party in minimizing its Tax liability to the extent legally
permissible. The Provider’s invoices will separately state the amounts of any Taxes the Provider
is proposing to collect from the Recipient.
Section 10.7
Severability
.
If any term or other provision of this Agreement is invalid, illegal or incapable of being
enforced under any Law or as a matter of public policy, all other conditions and provisions of this
Agreement will nevertheless remain in full force and effect. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original intent of the parties
hereto as closely as possible in a mutually acceptable manner in order that the transactions
contemplated by this Agreement be consummated as originally contemplated to the greatest extent
possible.
Section 10.8
Entire Agreement
.
Except as otherwise expressly provided in this Agreement, this Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter of this Agreement and
supersedes all prior agreements and undertakings, both written and oral, between or on behalf of
the parties hereto with respect to the subject matter of this Agreement. The Schedules and
Recitals to this Agreement are hereby incorporated by reference into and made part of this
Agreement for all purposes.
Section 10.9
Assignment; No Third-Party Beneficiaries
.
This Agreement will not be assigned by any party hereto without the prior written consent of
the other party hereto;
provided
,
however
, Management Services may assign this
Agreement in connection with a merger, consolidation, reorganization, sale of all or substantially
all of its assets or similar transaction within the CCU Group whether or not Management Services is
the surviving entity. Except as provided in
Article III
and
Article VII
with
respect to indemnified parties, this Agreement is for the sole benefit of the parties to this
Agreement, the members of their respective Group and their permitted successors and assigns and
nothing in this Agreement, express or implied, is intended to or will confer upon any other Person
any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement. Outdoor will cause each member of the Outdoor Group receiving Services hereunder as a
Recipient to abide by the terms and conditions of this Agreement, and
-17-
Management Services will cause each member of the CCU Group providing Services hereunder as a
Provider to abide by the terms and conditions of this Agreement.
Section 10.10
Amendment
.
No provision of this Agreement may be amended or modified except by a written instrument
signed by all the parties to such agreement. No waiver by any party of any provision hereof will
be effective unless explicitly set forth in writing and executed by the party so waiving. The
waiver by either party hereto of a breach of any provision of this Agreement will not operate or be
construed as a waiver of any other subsequent breach.
Section 10.11
Rules of Construction
.
(a) Interpretation of this Agreement will be governed by the following rules of construction:
(i) words in the singular will be held to include the plural and vice versa and words of one gender
will be held to include the other gender as the context requires, (ii) references to the terms
Article, Section, paragraph, and Schedule are references to the Articles, Sections, paragraphs, and
Schedules to this Agreement unless otherwise specified, (iii) the word “including” and words of
similar import will mean “including, without limitation,” (iv) provisions will apply, when
appropriate, to successive events and transactions, (v) the headings contained herein are for
reference purposes only and will not affect in any way the meaning or interpretation of this
Agreement, (vi) the recitals are and (vii) this Agreement will be construed without regard to any
presumption or rule requiring construction or interpretation against the party drafting or causing
any instrument to be drafted.
(b) Unless specifically stated in the Master Agreement that a particular provision of the
Master Agreement should be given effect in lieu of a conflicting provision in this Agreement, to
the extent that any provision contained in this Agreement conflicts with, or cannot logically be
read in accordance with, any provision of the Master Agreement, the provision contained in this
Agreement will prevail.
(c) Unless specifically stated in the Schedules to this Agreement, to the extent that any
provision contained in this Agreement conflicts with, or cannot logically be read in accordance
with, any provision of a Schedule to this Agreement the provision contained in such Schedule will
prevail.
Section 10.12
Counterparts
.
This Agreement may be executed in one or more counterparts, and by the different parties to
each such agreement in separate counterparts, each of which when executed will be deemed to be an
original but all of which taken together will constitute one and the same agreement. Delivery of
an executed counterpart of a signature page to this Agreement by facsimile or electronic mail will
be as effective as delivery of a manually executed counterpart of any such Agreement.
-18-
Section 10.13
No Right to Set-Off.
Outdoor will, and will cause each other Recipient to, pay the full amount of costs and
disbursements, including Other Costs, incurred under this Agreement, and will not set-off,
counterclaim or otherwise withhold any other amount owed to a Provider on account of any obligation
owed by a Provider to a Recipient.
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SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the parties have caused this Corporate Services Agreement to be executed
to be effective on the date first written above by their respective duly authorized officers.
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CLEAR CHANNEL MANAGEMENT SERVICES, L.P.
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By: Clear Channel GP, LLC, its general partner
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By:
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/s/ Mark P. Mays
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Name: Mark P. Mays
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Title: President
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CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
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By:
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/s/ Paul J. Meyer
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Name: Paul J. Meyer
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Title: President and Chief Operating Officer
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