UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

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CUMULUS MEDIA INC.

(Name of Registrant as Specified In Its Charter)

N/A

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CUMULUS MEDIA INC.
3280 Peachtree Road, N.W.
Suite 2300
Atlanta, Georgia 30305

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On July 29, 2011

 

 

 

To the Stockholders of Cumulus Media Inc.:

 

The 2011 Annual Meeting of Stockholders of Cumulus Media Inc., a Delaware corporation (“Cumulus Media” or the “Company”), will be held at the Company’s offices, 3280 Peachtree Road, N.W., Atlanta, Georgia 30305, in the Boardroom located on the 23rd floor, on July 29, 2011 at 9:00 a.m., local time, for the following purposes:

 

(1) to approve an amendment and restatement of our Amended and Restated Certificate of Incorporation to, among other things, increase the total number of shares of authorized capital stock from 270,262,000 to 300,000,000, create a new class of non-voting common stock to be designated as the Class D common stock and eliminate certain rights applicable to our existing non-voting Class B common stock (the “Charter Amendment”);

 

(2) to approve the issuance of shares of our common stock pursuant to, and as contemplated by, the Exchange Agreement (defined herein) relating to Cumulus Media Partners, LLC (“CMP”), and the transactions contemplated thereby (collectively, the “CMP Transaction”), pursuant to which we will issue (a) shares of our Class A common stock and Class D common stock in exchange for all of the outstanding equity interests of CMP that we do not currently own (the “CMP Acquisition”), (b) shares of our Class D common stock upon the exercise of certain warrants (the “Warrant Exercise”) and (c) shares of our Class A common stock upon conversion of the shares of Class D common stock issued upon exercise of those warrants (the “Class D Conversions”);

 

(3) to elect Lewis W. Dickey, Jr., Ralph B. Everett, Eric P. Robison and David M. Tolley as directors for a one-year term;

 

(4) to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2011; and

 

(5) to transact such other business as may properly come before the annual meeting or any postponement or adjournment thereof.

 

Only holders of record of shares of the Company’s Class A common stock or Class C common stock at the close of business on June 17, 2011, are entitled to notice of, and to vote at, the annual meeting or any postponement or adjournment thereof. A list of such stockholders will be open for examination by any stockholder at the time and place of the meeting.

 

Holders of a majority of the outstanding voting power represented by the shares of the Company’s Class A common stock and Class C common stock, voting together as a single class, must be present in person or by proxy in order for the meeting to be held. Our Board of Directors recommends that you vote FOR Items 1, 2, 3 and 4. Therefore, we urge you to date, sign and return the accompanying proxy card in the enclosed envelope whether or not you expect to attend the annual meeting in person. If you attend the meeting and wish to vote your shares personally, you may do so by validly revoking your proxy at any time prior to the voting thereof.

 

This notice, the proxy statement and the accompanying proxy card are being distributed to stockholders commencing on or about June 27, 2011.

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on July 29, 2011

 

The proxy statement and the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 are available at www.cumulus.com/investors.aspx.

 

Lewis W. Dickey, Jr.
Chairman, President and Chief Executive Officer

 

June 27, 2011

 

TABLE OF CONTENTS

 

 

Date, Time and Place of Annual Meeting

 

We are furnishing this proxy statement to the holders of our Class A common stock and our Class C common stock who held their shares at the close of business on June 17, 2011 (the “Record Date”), in connection with the solicitation of proxies by our Board of Directors for the annual meeting of stockholders to be held on July 29, 2011, at 9:00 a.m., local time, at our offices, 3280 Peachtree Road, N.W., Atlanta, Georgia 30305, in the Boardroom located on the 23rd floor, or at any adjournment or postponement of that meeting. A proxy statement is a document that regulations of the Securities and Exchange Commission (the “SEC”) require us to give you when we ask you to vote your shares of stock by proxy. At the meeting, stockholders will be asked to consider and vote on the items of business listed and described in this proxy statement. This proxy statement and the accompanying proxy card are being distributed to our stockholders commencing on or about June 27, 2011.

 

Record Date; Quorum; Outstanding Common Stock Entitled to Vote

 

All holders of record of our Class A common stock and our Class C common stock as of the Record Date are entitled to receive notice of, and to vote at, the annual meeting. The presence, in person or by proxy, of holders of a majority of the voting power represented by outstanding shares of our Class A common stock and our Class C common stock, voting together as a single class, is required to constitute a quorum for the transaction of business.

 

Abstentions and “broker non-votes” will be treated as present for purposes of determining a quorum. A “broker non-vote” occurs when a registered holder (such as a bank, broker or other nominee) holding shares in “street name” for a beneficial owner does not vote on a particular proposal because the registered holder does not have discretionary voting power for that particular item and has not received voting instructions from the beneficial owner. Banks, brokers or other nominees that have not received voting instructions from their clients cannot vote on their clients’ behalf on the proposals to approve the Charter Amendment, the issuance of shares of our common stock in connection with the CMP Transaction or the election of directors, but may vote their clients’ shares on the proposal to ratify the appointment of our independent registered public accounting firm.

 

A complete list of stockholders of record will be available for examination during the ten (10) day period prior to the annual meeting as well as at the annual meeting. As of the Record Date, there were 36,103,867 shares of our Class A common stock outstanding and 644,871 shares of our Class C common stock outstanding representing an aggregate of 42,552,577 votes.

 

Voting Rights; Vote Required for Approval

 

Holders of our Class A common stock are entitled to one vote for each share of Class A common stock held as of the Record Date. Holders of our Class C common stock are entitled to ten votes for each share of Class C common stock held as of the Record Date. Holders of shares of our Class A common stock and our Class C common stock will vote together as a single class on the matters to be voted upon at the annual meeting.

 

The approval of the Charter Amendment requires the affirmative vote of the holders of a majority of the votes of the issued and outstanding common stock entitled to vote on the proposal. As a result, abstentions and broker non-votes will have the same effect as a vote against the proposal.

 

The affirmative vote of a majority of the votes cast at the annual meeting is required (i) to approve the issuance of shares of our Class A common stock and Class D common stock in connection with the CMP Transaction, (ii) to elect the directors nominated to serve for a one-year term, and (iii) to ratify the appointment of our independent registered public accounting firm for 2011. Abstentions will have the same effect as a vote against these proposals, but broker non-votes are not considered to be votes cast and therefore will have no effect on the outcome of the vote on these matters.

 

Voting and Revocation of Proxies

 

A proxy card for you to use in voting at the annual meeting accompanies this proxy statement. All properly executed proxies that are received prior to, or at, the annual meeting and not revoked will be voted in the manner specified. If you execute and return a proxy card, and do not specify otherwise, the shares represented by your proxy will be voted FOR approval of the Charter Amendment, FOR approval of the issuance of shares of our Class A common stock and Class D common stock in connection with the CMP Transaction, FOR each of the director nominees for a one-year term, and FOR ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2011.

 

If you have given a proxy pursuant to this solicitation, you may nonetheless revoke it by attending the annual meeting and voting in person. In addition, you may revoke any proxy you give at any time before the annual meeting by delivering a written statement revoking the proxy, or by delivering a duly executed proxy bearing a later date to Richard S. Denning, Corporate Secretary, at our principal executive offices, 3280 Peachtree Road, N.W., Suite 2300, Atlanta, Georgia 30305, so that it is received prior to the annual meeting, or at the annual meeting itself. If you have executed and delivered a proxy to us, your attendance at the annual meeting will not, by itself, constitute a revocation of your proxy.

 

Solicitation of Proxies and Householding

 

We will bear the cost of the solicitation of proxies. We will solicit proxies initially by mail. Further solicitation may be made by our directors, officers and employees personally, by telephone, facsimile, e-mail or otherwise, but they will not be compensated specifically for these services. Upon request, we will reimburse brokers, dealers, banks or similar entities acting as nominees for their reasonable expenses incurred in forwarding copies of the proxy materials to the beneficial owners of the shares of common stock they hold of record.

 

If you hold your shares in street name, your bank, broker or other nominee may participate in the practice of “householding” proxy soliciting material. This means that if you reside in the same household as other stockholders of record or beneficial owners of our common stock, you may not receive your own copy of our proxy materials, even though each stockholder received his or her own proxy card. If your household received one set of proxy materials and you are a stockholder of record who would like to receive additional copies of our proxy materials, you may request a duplicate set or single copy by contacting our Corporate Secretary at our principal executive offices, 3280 Peachtree Road, N.W., Suite 2300, Atlanta, Georgia 30305. If you hold your shares in street name, please contact your bank, broker or other nominee directly to request a duplicate set of our proxy materials or to reduce the number of copies of our proxy materials that will be sent to your household.

 

Other Matters

 

Except for the votes on the proposals described in this proxy statement, no other matter is expected to come before the annual meeting. If any other business properly comes before the annual meeting, the persons named in the proxy will vote in their discretion to the extent permitted by law.

 

QUESTIONS AND ANSWERS ABOUT THE PROPOSALS REGARDING THE CHARTER AMENDMENT AND THE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK

Q.		Why is the Company seeking to issue additional shares of common stock?

A.		On January 31, 2011, we entered into an Exchange Agreement (the “Exchange Agreement”) with affiliates of Bain Capital Partners LLC (“Bain”), The Blackstone Group L.P. (“Blackstone”) and Thomas H. Lee Partners (“THL” and, together with Bain and Blackstone, the “CMP Sellers”). Pursuant to the Exchange Agreement, we agreed to (i) acquire all of the outstanding equity interests of CMP that we currently do not own in exchange for 3,315,238 shares of our Class A common stock and 6,630,476 shares of our Class D common stock and (ii) enter into an agreement with the holders of currently outstanding warrants (the “Radio Holdings Warrants”) to purchase 3,740,893 shares of common stock of CMP Susquehanna Radio Holdings Corp., an indirect wholly-owned subsidiary of CMP (“Radio Holdings”), which would amend the Radio Holdings Warrants to provide that, upon the closing of the CMP Acquisition, in lieu of being exercisable for shares of common stock of Radio Holdings, the Radio Holdings Warrants would instead be exercisable for an aggregate of 8,267,968 shares (subject to adjustment for rounding due to any fractional shares) of our Class D common stock. As a result of the transactions contemplated by the Exchange Agreement, CMP will become our wholly-owned subsidiary, the CMP Sellers will acquire shares of our common stock that are, or are convertible into shares that are, publicly tradeable rather than holding equity interests in a private company, and holders of the Radio Holdings Warrants will be entitled to acquire shares of our publicly-traded common stock rather than shares of our privately-owned subsidiary.

		In accordance with the Exchange Agreement, on June 21, 2011, Radio Holdings, CMP Susquehanna Holdings Corp., a wholly-owned subsidiary of CMP and the parent company of Radio Holdings (“Radio Holdco”), Computershare Trust Company, N.A., as warrant agent (the “Warrant Agent”), and the holders of the requisite majority of the outstanding Radio Holdings Warrants entered into a written consent to an amendment and restatement of the existing warrant agreement governing the Radio Holdings Warrants (the “Radio Holdings Warrant Agreement”), dated as of March 26, 2009, among Radio Holdings, Radio Holdco and the Warrant Agent (as so amended and restated, the “Restated Warrant Agreement”). Pursuant to the Restated Warrant Agreement, which will be entered into and take effect on the date of closing of the CMP Acquisition, the outstanding Radio Holdings Warrants, which were originally exercisable for an aggregate of 3,740,893 shares of common stock of Radio Holdings, will instead become exercisable, commencing on the day following the date that is nine months after the closing of the CMP Acquisition (the “CMI Delivery Date”), for an aggregate of 8,267,968 shares (subject to adjustment for rounding due to any fractional shares) of our Class D common stock on the terms and subject to the conditions set forth in the Restated Warrant Agreement. The Radio Holdings Warrants, as amended and restated pursuant to the Restated Warrant Agreement, are referred to herein as the “CMP Warrants.”

		Following the issuance of shares of our Class D common stock pursuant to the CMP Acquisition or upon a Warrant Exercise, such shares of Class D common stock will be convertible by their terms into shares of our Class A common stock at the times and in the manner described in this proxy statement under the heading “Proposal No. 1 — Description of Class D Common Stock — Convertibility of Class D Common Stock into Class A Common Stock.”
Q.		Where can I find more information about the CMP Transaction?
A.		We are including in this proxy statement a discussion of the material terms of the CMP Transaction, including the business and operations of CMP, because the issuance of our shares of common stock in connection therewith requires the approval of our stockholders. There are no “dissenters” or “appraisal” rights available to our stockholders in connection with CMP Acquisition or the issuance of the shares of our common stock in connection with the CMP Transaction.
Q.		Why is the Company seeking stockholder approval to issue shares of our common stock in connection with the CMP Transaction?

A.		Because our Class A common stock is listed on the NASDAQ Global Market, we are subject to the rules of the NASDAQ Stock Market LLC (the “NASDAQ Marketplace Rules”). Rule 5635 of the NASDAQ Marketplace Rules requires stockholder approval if a listed company issues common stock or securities convertible into or exercisable for common stock in connection with the acquisition of the stock or assets of another company that exceed 20% of the voting power or of the total shares outstanding on a pre-transaction basis. Rule 5635 also requires stockholder approval if a listed company issues common stock or securities convertible into, or exercisable for, common stock equal to 20% or more of the common stock or voting power outstanding before the issuance for less than the greater of book or market value of the stock.

		In the CMP Transaction, we are proposing to issue 3,315,238 shares of our Class A common stock and 6,630,476 shares of our Class D common stock in connection with the CMP Acquisition, and up to 8,267,968 shares (subject to adjustment for rounding due to any fractional shares) of our Class D common stock upon the Warrant Exercise. Following the issuance of shares of Class D common stock in connection with the CMP Acquisition or upon the Warrant Exercise, we would issue shares of our Class A common stock upon any Class D Conversions. The aggregate amount of our common stock that we are proposing to issue in the CMP Transaction exceeds 20% of the number of shares of our common stock currently outstanding. Accordingly, we are asking the holders of shares of our common stock to consider and vote on approval of the issuance of shares of common stock in these transactions.

Q.		What will happen if stockholder approval is not obtained to issue the shares of common stock in connection with the CMP Transaction?
A.		Under the Exchange Agreement, receipt of stockholder approval of the issuance of the shares of common stock to the CMP Sellers pursuant to the CMP Acquisition is a condition to its consummation. If such approval is not obtained, we will not be able to consummate the CMP Acquisition. In addition, if such approval is not obtained, the Restated Warrant Agreement will not become effective, the Radio Holdings Warrants will remain outstanding and the amendments to the Radio Holdings Warrants pursuant to the Restated Warrant Agreement will not occur.
Q.		What will happen if the Company issues the shares of common stock in connection with the CMP Transaction?

A.		If our stockholders approve the issuance of shares of our common stock and the CMP Acquisition is consummated, Blackstone will receive 3,315,238 million shares of our Class A common stock and, in order to ensure compliance with broadcast ownership rules of the U.S. Federal Communications Commission (the “FCC”), Bain and THL will each receive 3,315,238 million shares of Class D common stock, which are non-voting shares. In exchange, each of Blackstone, Bain and THL will transfer to us their equity interests in CMP and CMP will become our wholly-owned subsidiary. In addition, upon the Warrant Exercise and assuming the Restated Warrant Agreement becomes effective, we will issue an aggregate of 8,267,968 shares of our Class D common stock (assuming all CMP Warrants are exercised). Each holder of shares of Class D common stock will be entitled at any time, or from time to time, to convert its shares into shares of Class A common stock on a share-for-share basis so long as at the time of conversion it is not a Disqualified Person (defined herein under “Proposal No. 1 — Description of Class D Common Stock — Convertibility of Class D Common Stock into Class A Common Stock”) and any required consent of any governmental authority has been obtained. As a result of the CMP Acquisition, Warrant Exercise and Class D Conversions (and assuming all CMP Warrants are exercised and shares of Class D common stock are converted in full), we would issue up to a total of 18,213,682 new shares of our Class A common stock, representing approximately 53.1% of the number of shares of our Class A common stock outstanding as of March 31, 2011.

Q.		Why is the Company creating the Class D common stock pursuant to the Charter Amendment?

A.		Certain of the CMP Sellers desired, for FCC regulatory reasons, to receive non-voting shares of our common stock pursuant to the CMP Acquisition. Prior to the Charter Amendment, we have authorized only one class of non-voting common stock, our Class B common stock. The Class B common stock has certain consent and approval rights set forth in our currently effective Amended and Restated Certificate of

		Incorporation (the “Charter”) that we did not wish to extend to the CMP Sellers. As a result, we agreed instead to authorize and create the Class D common stock, which is generally non-voting and does not have voting rights except as provided under Delaware law.
Q.		Under what circumstances will the Company issue shares of Class D common stock?

A.		If our stockholders approve the Charter Amendment and the Charter as so amended and restated is filed with the Secretary of State of the State of Delaware (the “Delaware Secretary of State”) and takes effect, the new Class D common stock will be created. If our stockholders approve the issuance of our common stock and the CMP Acquisition is consummated, we will issue a total of 6,630,476 shares of Class D common stock to Bain and THL. In addition, we may issue a total of 8,267,968 shares (subject to adjustment for rounding due to any fractional shares) of Class D common stock upon the Warrant Exercise. Shares of Class D common stock are convertible at any time, or from time to time, at the option of and without cost to the holder, into shares of Class A common stock on a share-for-share basis so long as the holder is not at the time of conversion a Disqualified Person, which is defined in the Charter as a person that would cause the Company to violate the rules of, or adversely affect the Company’s licenses from, the FCC, and any required consent of any applicable governmental authority has been obtained.

Q.		What will happen if stockholder approval is not obtained for the Charter Amendment?

A.		Pursuant to the Exchange Agreement, receipt of stockholder approval of the Charter Amendment, which is required under Delaware law, is a condition to the consummation of the CMP Acquisition. If such approval is not obtained, we will not be able to consummate the CMP Acquisition, the Restated Warrant Agreement will not become effective, the Radio Holdings Warrants will remain outstanding and the amendments to the Radio Holdings Warrants pursuant to the Restated Warrant Agreement will not occur.

Q.		How does the Board of Directors of Company recommend that I vote on the proposals to approve the Charter Amendment and the issuance of shares of common stock in connection with the CMP Transaction?
A.		Your Board of Directors recommends a vote FOR approval of the Charter Amendment and FOR approval of the issuance of shares of Class A common stock and Class D common stock in connection with the CMP Transaction.

 

SUMMARY OF THE CMP TRANSACTION

	•	by the mutual written consent of us and the specified representative of the CMP Sellers;
	•	by either of us or the representative of the CMP Sellers, if:

	•	stockholder approval of the issuance of shares of common stock in connection with the CMP Acquisition or the Charter Amendments is not obtained at this annual meeting;
	•	the CMP Acquisition is not consummated by December 31, 2011; or
	•	any governmental authority has enacted or issued any final and non-appealable law or order enjoining or otherwise prohibiting the consummation of the CMP Acquisition or transactions related thereto;

	•	by us, upon a breach of any covenant, agreement, representation or warranty by any of the CMP Sellers that is incapable of being cured or, if capable of being cured, has not been cured within thirty days following receipt by the representatives of the CMP Sellers of notice of such breach; and
	•	by the representative of the CMP Sellers, upon a breach of any covenant, agreement, representation or warranty by us that is incapable of being cured or, if capable of being cured, has not been cured within thirty days following receipt by us from the representative of the CMP Sellers of notice of such breach.

	•	A more diversified and strategic national platform;
	•	Anticipated accretion to earnings;

	•	Increased size and scale of operations;
	•	Increased equity market capitalization and liquidity; and
	•	Strengthened capital base to position us for strategic acquisitions.

 

Cumulus Media Inc.

 

Cumulus Media Inc.
3280 Peachtree Road, N.W.
Suite 2300
Atlanta, Georgia 30305
Telephone: (404) 949-0700
http://www.cumulus.com

 

Company Overview

 

We are currently the second largest radio broadcasting company in the United States based on the number of stations owned or managed. As of March 31, 2011, we owned or managed 312 radio stations (including under LMAs) in 60 mid-sized United States media markets and operated 34 radio stations in eight markets, including San Francisco, Dallas, Houston and Atlanta, that are owned by CMP. We also provide sales and marketing services to 12 radio stations in the United States under LMAs. We own and manage, directly or through our investment in CMP, a total of 346 FM and AM radio stations in 68 markets throughout the United States. For the year ended December 31, 2010 and the three months ended March 31, 2011, we had net revenues of $263.3 million and $57.9 million, respectively.

 

Upon consummation of the CMP Acquisition and the Citadel Acquisition, as described below, we expect to be the largest pure-play radio broadcasting company in the United States based on number of stations and revenue. On a pro forma basis as adjusted to reflect the CMP Acquisition and the Citadel Acquisition, we expect to own or manage 567 stations in 120 United States markets and we would have had net revenues of approximately $1.181 billion and $253.2 million for the year ended December 31, 2010 and the three months ended March 31, 2011, respectively.

 

We are a Delaware corporation, organized in 2002, and successor by merger to an Illinois corporation with the same name that had been organized in 1997.

 

Recent Issuance of Senior Notes

 

On May 13, 2011, we issued $610.0 million of 7.75% senior notes due 2019 (the “2019 Notes”) in a private placement not subject to the registration requirements of the Securities Act of 1933 (the “Securities Act”). The 2019 Notes are our senior unsecured obligations and are guaranteed by our subsidiaries. We used the proceeds from the sale of the 2019 Notes to repay all amounts outstanding under the term loan facility of our credit agreement, dated as of June 7, 2006 (the “Existing Credit Agreement”), among Cumulus Media, the lenders party thereto and the administrative agent thereunder.

 

Pending Transactions

 

Our recently announced pending transactions in connection with the proposed expansion of our broadcasting operations include:

 

 

 

 

The Citadel Acquisition

 

On March 9, 2011, we entered into an Agreement and Plan of Merger (the “Citadel Merger Agreement”) with Citadel, Cumulus Media Holdings Inc. (f/k/a Cadet Holding Corporation), a direct wholly-owned subsidiary of the Company (“Holdco”), and Cadet Merger Corporation, an indirect, wholly-owned subsidiary of the Company (“Merger Sub”). Pursuant to the Citadel Merger Agreement, at the closing, Merger Sub will merge with and into Citadel, with Citadel surviving the merger as an indirect, wholly-owned subsidiary of the Company (the “Merger”). At the effective time of the Merger, each outstanding share of common stock and warrant of Citadel will be converted automatically into the right to receive, at the election of the holder (subject to certain limitations set forth in the Citadel Merger Agreement), (i) $37.00 in cash, (ii) 8.525 shares of our Class A common stock (or in certain instances, an equivalent number of shares of our Class B common stock or warrants to purchase an equivalent number of shares of our Class A common stock or Class B common stock), or (iii) a combination thereof (collectively, the “Citadel Acquisition Consideration”). Additionally, in connection with and prior to the Merger, (a) each outstanding unvested option to acquire shares of Citadel common stock issued under Citadel’s equity incentive plan will automatically vest, and all outstanding options at the effective time of the Merger will be deemed exercised pursuant to a cashless exercise, with the resulting net number of Citadel shares to be converted into the right to receive the Citadel Acquisition Consideration, and (b) each outstanding warrant to purchase Citadel common stock will be adjusted to become exercisable for the Citadel Acquisition Consideration, subject to any applicable FCC limitations. Holders of unvested restricted shares of Citadel common stock will be eligible to receive the Citadel Acquisition Consideration for their shares pursuant to the original vesting schedule of such shares. Elections by Citadel stockholders are subject to adjustment so that the maximum number of shares of our Class A common stock that may be issued in the Merger is 151,485,282 (excluding any shares of common stock that may be issued upon the exercise of stock options to purchase shares of Citadel common stock prior to the closing date of the Citadel Acquisition) (the “Maximum Stock Cap”) and the maximum amount of cash payable by us in the Merger is $1,408,728,600 (assuming no shares of common stock are issued upon the exercise of stock options to purchase shares of Citadel common stock prior to the closing of the Citadel Acquisition) (the “Maximum Cash Cap”). If all 151,485,282 shares of Class A common stock had been issued in the Merger as of March 31, 2011, the number of shares of Class A common stock outstanding on that date assuming the issuance of shares of Class A common stock pursuant to the CMP Acquisition, Warrant Exercise and Class D Conversions (and assuming all CMP Warrants are exercised and shares of Class D common stock are converted in full), would have been 205,767,262.

 

Citadel is the third largest radio broadcasting company in the United States based on net radio revenue. Citadel’s primary business segment is the ownership and operation of radio stations, which, as of December 31, 2010, consisted of 225 radio stations located in over 50 markets across the United States. In addition, Citadel owns and operates Citadel Media, one of the largest radio networks in the country, which produces and distributes a variety of radio programming and formats that are syndicated across approximately 4,000 station affiliates and 9,000 program affiliations, including ABC Radio News.

You are not being asked to approve the Citadel Acquisition or the issuance of shares of our common stock in connection therewith, or the related amendment to our Charter. On March 9, 2011, concurrent with the execution of the Citadel Merger Agreement, stockholders holding approximately 54% of the voting power of our outstanding common stock executed written consents approving the issuance of our securities pursuant to the Citadel Acquisition, as well as related amendments to our certificate of incorporation. No further action by our stockholders is required to complete the Citadel Acquisition.

 

The Equity Investment

 

Concurrently with the execution of the Citadel Merger Agreement, we entered into an Investment Agreement (the “Investment Agreement”) with Crestview Radio Investors, LLC, an affiliate of Crestview, MIHI LLC, an affiliate of Macquarie (“MIHI”) and, pursuant to an amendment thereto, UBS Securities (such investors, collectively, the “Investors”), providing for the Equity Investment. Pursuant to the Investment Agreement, the Investors have committed to purchase for cash up to an aggregate of $500.0 million in shares of our stock, or warrants to purchase stock, at a purchase price per share of $4.34. Specifically, Crestview has agreed to purchase up to $250.0 million in shares of our Class A common stock and MIHI and UBS Securities have each agreed to purchase up to $125.0 million in shares of common stock, or warrants that would be immediately exercisable, at an exercise price of $0.01 per share, for shares of a newly created class of our non-voting common stock. MIHI may, at its option, elect to instead receive shares of a newly created class of perpetual redeemable non-convertible preferred stock. MIHI and UBS Securities will also be permitted to syndicate up to $45.0 million and $125.0 million, respectively, of their respective commitments to one or more third party investors, subject to certain limitations set forth in the Investment Agreement. If the Citadel Acquisition Consideration is not paid at the Maximum Cash Cap, the Investors’ commitments will be reduced, subject to a minimum investment of $395.0 million. In connection with the Equity Investment, the Investors will be entitled to receive certain fees from us.

 

You are not being asked to approve the Equity Investment or the issuance of shares of our common stock in connection therewith.

 

The Global Refinancing

 

In connection with the Citadel Merger Agreement and the Investment Agreement, we obtained the Debt Commitment from a group of banks, pursuant to which they have committed to provide financing for us to complete the Citadel Acquisition and the Global Refinancing. In accordance with the Debt Commitment, we expect to enter into the Acquisition Credit Facility with a syndicate of lenders, agents and arrangers, including JPMorgan Chase Bank, N.A. (“JPMCB”), UBS Loan Finance LLC (“UBS Finance”), MIHI, Royal Bank of Canada (“RBC”) and ING Capital LLC (“ING Capital”) as lenders and agents, and J.P. Morgan Securities LLC (“JPMorgan”), UBS Securities, Macquarie and RBC Capital Markets, LLC (“RBC Capital Markets”) as joint lead arrangers and joint book-runners, and ING Capital as co-syndication agent.

 

We expect that the Acquisition Credit Facility will provide senior secured financing of $2.525 billion, consisting of:

 

 

Our expected borrowings under each of the term loan facility and the revolving credit facility at the closing of the Citadel Acquisition will depend upon the aggregate amount of cash the Citadel stockholders elect to receive pursuant to the Citadel Merger Agreement and the amount of indebtedness of CMP and its subsidiaries that will be refinanced at that time, assuming that CMP and its subsidiaries are then designated as a “restricted subsidiaries” under, and become subject to, the documents governing our indebtedness.

 

The Debt Commitment also included commitments from the lenders for $500.0 million in senior unsecured bridge financing (the “Acquisition Bridge Facility”). As a result of the 2019 Notes Offering, we

have eliminated the need to borrow under the Acquisition Bridge Facility, and the lenders’ commitments thereunder have been reduced. The Debt Commitment does, however, provide the lenders with the right to reallocate a portion of the amount expected to be borrowed as part of the term loan under the Acquisition Credit Facility to the Acquisition Bridge Facility.

 

We currently anticipate that, in connection with the consummation of the Citadel Acquisition and the Global Refinancing, and as a result of our use of the proceeds of the 2019 Notes Offering to repay the $575.8 million outstanding as of March 31, 2011, under the term loan facility of our Existing Credit Agreement, and assuming that we complete the CMP Acquisition as planned prior to the Citadel Acquisition, we will utilize proceeds from the Equity Investment and the Global Refinancing as follows:

 

 

 

 

We expect that upon completion of the CMP Refinancing, CMP and its subsidiaries will become restricted subsidiaries and guarantors of our obligations, under the agreements governing the new indebtedness.

 

Consummation of each of the pending transactions, including the CMP Acquisition, the Citadel Acquisition and the Equity Investment, is subject to various customary closing conditions. See “The CMP Transaction” for a description of the material terms and conditions, including closing conditions, relating to the CMP Acquisition. For the Citadel Acquisition, the closing conditions include, but are not limited to (i) regulatory approval by the FCC; (ii) the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (“HSR Act”); and (iii) the absence of any material adverse effect on Citadel or us, as the case may be. The consummation of the Equity Investment is also subject to regulatory approval by the FCC and the expiration or early termination of any waiting period under the HSR Act, as well as our completion of the Citadel Acquisition. Our ability to borrow under the Acquisition Credit Facility and the Acquisition Bridge Facility will be subject to various conditions, including, among others (i) the consummation of the Citadel Acquisition in accordance with the terms of the Citadel Merger Agreement; (ii) the receipt of the net cash proceeds from the Equity Investment; and (iii) the absence of any material adverse effect on our business. We currently anticipate that the CMP Acquisition will be completed in the third quarter of 2011 and the Citadel Acquisition and the related Global Refinancing, including the Equity Investment, will be completed prior to the end of 2011.

 

The actual timing of each of these proposed and pending transactions will depend upon a number of factors, including the various conditions set forth in the respective transaction agreements. There can be no assurance that any of such pending or proposed transactions will be consummated or that, if any of such transactions is consummated, the timing or terms thereof will be as described herein and as presently contemplated.

 

Cumulus Media Partners, LLC

 

Cumulus Media Partners, LLC
3280 Peachtree Road, N.W.
Suite 2300
Atlanta, Georgia 30305

 

CMP, through Radio Holdings, owns 30 radio stations in eight markets, including San Francisco, Dallas, Houston, Atlanta, Cincinnati, Indianapolis, and Kansas City. Separately, through its indirectly wholly-owned subsidiary KC LLC, CMP owns two stations in the Kansas City market and two stations in the Houston market. CMP has entered into an agreement to dispose of KC LLC, although we expect to continue to manage those four stations pursuant to a management agreement.

 

Cumulus Media currently owns 25% of the equity interests of CMP, and the CMP Sellers collectively own 75% of the equity interests of CMP.

 

Cumulus Media has managed CMP’s business pursuant to a management agreement that was entered into with a subsidiary of CMP in May 2006. See “The CMP Transaction — Management Agreement.”

 

The CMP Acquisition

 

In the CMP Acquisition, we have agreed with the CMP Sellers to acquire all of the outstanding equity interests of CMP not already owned by us. Pursuant to the terms of the Exchange Agreement, at the consummation of the CMP Acquisition, we expect to issue 3,315,238 shares of our Class A common stock to Blackstone and 3,315,238 shares of Class D common stock, which would be a new class of non-voting common stock created pursuant to the Charter Amendment, to each of Bain and THL. The shares of Class D common stock may be converted on a share-for-share basis into shares of Class A common stock at the option of the holder (subject to applicable regulatory requirements), and otherwise are treated equally with our Class A common stock.

 

We have entered into the Exchange Agreement with each of the CMP Sellers. The following description of the Exchange Agreement is only a summary of its material terms and is qualified by reference to the actual text of the Exchange Agreement, a copy of which is attached to this proxy statement as Appendix A. We urge you to read the Exchange Agreement carefully, as it is the legal document that governs the CMP Transaction.

 

Conditions to the Completion of the CMP Acquisition

 

The CMP Acquisition will not occur unless the FCC approves the transfer of control of the licenses held by CMP’s subsidiaries to us. We have filed, jointly with CMP and its subsidiaries, applications with the FCC for the transfer of control of CMP’s subsidiaries holding the licenses, permits and authorizations used by CMP’s radio stations. The filing fees and other costs relating to these applications will be shared equally by us and CMP. We have also agreed in the Exchange Agreement to sell any media interest we acquire after the date of the Exchange Agreement if such sale is necessary to obtain FCC approval.

 

The Exchange Agreement provides that the CMP Acquisition cannot be completed unless and until an FCC order approving the transfer of control of the licenses, permits and authorizations used by CMP’s subsidiaries becomes a “final order.” If the FCC has not approved such transfer by issuing a final order by December 31, 2011, either we or the CMP Sellers may terminate the Exchange Agreement. Under applicable law and FCC rules, a preliminary order will become “final” if it has not been challenged by third parties or changed by the FCC itself within certain prescribed time limits. On February 23 and April 26, 2011, we received initial orders from the FCC approving the transfer of control of licenses, permits and authorizations used by CMP’s subsidiaries to us, and by June 6, 2011, all initial orders became final.

 

In addition to receipt of the final FCC order described above and other customary closing conditions, the respective obligations of each party to consummate the CMP Acquisition are subject to:

 

 

 

The Exchange Agreement

 

Representations and Warranties

 

We have made representations and warranties in the Exchange Agreement about us, our material subsidiaries and respective businesses, which representations and warranties are customary for a transaction of this nature. These representations and warranties relate to:

 

 

 

The CMP Sellers, severally and not jointly, have made representations and warranties in the Exchange Agreement about CMP, its material subsidiaries and their respective businesses, which representations and warranties are customary for a transaction of this nature. These representations and warranties relate to:

 

 

Covenants

 

From the date of the Exchange Agreement to the effective date of the CMP Acquisition, we have agreed to conduct our and CMP’s business in all material respects in the ordinary course of business, consistent with past practices and in accordance with the management agreement (described herein) pursuant to which we currently manage the business of CMP. Specifically, we have agreed that we will use commercially reasonable efforts to:

 

 

 

In addition, we have made the following covenants:

 

 

Finally, we and the CMP Sellers mutually agreed, among other things, to:

 

 

Termination

 

The Exchange Agreement may be terminated under the following circumstances:

 

 

 

 

Indemnification

 

We have agreed to indemnify the CMP Sellers (in accordance with their proportionate pro-forma ownership percentage of Cumulus Media determined as set forth in the Exchange Agreement) for losses resulting from a breach or inaccuracy of any representation or warranty we gave or a failure to fulfill any post-closing covenant or agreement that we are obligated to fulfill under the Exchange Agreement.

 

The CMP Sellers have, severally and not jointly, agreed to indemnify us and our subsidiaries for losses resulting from a breach or inaccuracy of a representation or warranty they gave or a failure to fulfill any covenant or agreement that they are obligated to fulfill under the Exchange Agreement.

 

In addition, in the Exchange Agreement we agreed to pay to the CMP Sellers an additional indemnity amount if the fees and other costs incurred in connection with any amendment or waiver to our Existing Credit Agreement in respect of any failure during 2011 to comply with the leverage ratio thereunder were to exceed one percent (1%) of the outstanding principal balance and unpaid interest owed thereunder. In conjunction with the retirement of the term debt under the Existing Credit Agreement with the proceeds from the offering of the 2019 Notes, such agreement was amended to remove the leverage ratio. No fee was paid with respect of this amendment.

 

Generally, each representation, warranty, indemnification, covenant and agreement by the parties to the Exchange Agreement will survive the effective date of the CMP Acquisition and will terminate nine (9) months after such date. However, the representations of us and the CMP Sellers with respect to organization, capitalization, brokers or finders, title to units, authorization and validity of agreement (each, a “Fundamental Representation”) will survive indefinitely, all covenants required to be performed in whole or in

part prior to closing will terminate at closing and all covenants required to be performed in whole or in part following the closing will survive for a period of 90 days following the date on which the performance of such covenants is required to be completed. Any party seeking indemnification must deliver to the applicable indemnifying party a claim notice in writing within the applicable survival period.

 

Claims for indemnification (other than in connection with a breach or inaccuracy of a Fundamental Representation) are subject to a cap of 994,572 shares of our common stock (the “Indemnification Cap”). In addition, we are not subject to any liability arising from or in connection with the Exchange Agreement or transactions contemplated therein which would result in payment to the CMP Sellers a number of shares of our common stock in excess of the number of shares of our common stock issued to the CMP Sellers at the closing of CMP Acquisition. Claims for indemnification (other than in connection with a breach or inaccuracy of a Fundamental Representation) are also subject to a threshold of 99,457 shares of our common stock (the “Indemnification Threshold”), and no party will have any liability arising from or in connection with any breach or inaccuracy of their respective representations and warranties (other than in connection with a breach or inaccuracy of a Fundamental Representation) until the aggregate of all losses for such breaches or inaccuracies exceeds the Indemnification Threshold. After that, the party must reimburse for all amounts in excess of the Indemnification Threshold but only up to the Indemnification Cap.

 

Registration Rights Agreements

 

We have agreed to enter into a registration rights agreement at the closing of the CMP Acquisition in which we will grant specified registration rights to the CMP Sellers with respect to the shares of our common stock being issued in connection with the CMP Transaction.

 

Pursuant to the registration rights agreement, we will agree to prepare and file with the SEC one or more registration statements that will cover the resale, on a continuous basis, of all of the shares of Class A common stock issued in connection with the CMP Acquisition or upon the Class D Conversions. With respect to the shares of our Class A common stock held by the CMP Sellers, we will be required to file the registration statements and to use our reasonable best efforts to cause the registration statements to be declared effective by the SEC within nine months after the closing date of the CMP Acquisition. The registration rights agreement will also provide both the CMP Sellers and the holders of the CMP Warrants with certain demand and piggyback registration rights.

 

Voting Agreements

 

In connection with our entry into the Exchange Agreement, each of the Dickeys executed the Dickey Voting Agreement pursuant to which the Dickeys agreed to vote the shares of our common stock beneficially owned by them in favor of the Charter Amendment and the issuance of shares of our common stock in connection with the CMP Transaction at any meeting of stockholders called on which such matters are presented for approval. The shares of our common stock beneficially owned by the Dickeys represent in the aggregate approximately 50% of the outstanding voting power of our common stock. The Dickeys also agreed in the Dickey Voting Agreement to vote all of their shares in favor of the director nominee designated by Blackstone in accordance with the terms of the Exchange Agreement.

 

In connection with our entry into the Exchange Agreement, each of the BofA Entities, which currently hold shares of our common stock representing approximately 4% of the outstanding voting power of our common stock, executed the BofA Voting Agreement, which is substantially similar to the Dickey Voting Agreement. Pursuant to the BofA Voting Agreement, the BofA Entities also agreed to vote the shares of our common stock beneficially owned by them in favor of the Charter Amendment and the issuance of shares of our common stock in connection with the CMP Transaction at any meeting of stockholders called on which such matters are presented for approval. The BofA Entities also agreed in the BofA Voting Agreement to vote all of their shares in favor of the director nominee designated by Blackstone.

 

Accordingly, pursuant to the Voting Agreements, we have received commitments from holders of approximately 54% of the outstanding voting power of our common stock to vote in favor of Proposal Nos. 1

and 2 and for the election of Mr. David M. Tolley as a director pursuant to Proposal No. 3, and we expect such proposals to be approved.

 

Management Agreement

 

In connection with the formation of CMP in 2006, we entered into a management agreement with a subsidiary of CMP pursuant to which our personnel manage the operations of CMP’s subsidiaries. The agreement provides for us to receive, on a quarterly basis, a management fee equal to the greater of (i) $4.0 million per annum or (ii) 4.0% of the CMP subsidiaries’ annual Adjusted EBITDA (defined as earnings before interest, taxes, depreciation and amortization on a consolidated basis, calculated before deduction of the management fee and a monitoring fee payable to the other members of CMP). We recorded as net revenues approximately $4.0 million in management fees from CMP for each of the years ended December 31, 2010, 2009 and 2008. The management agreement remains in effect, and will be terminated on the earlier of (i) the completion of the CMP Acquisition or (ii) May 3, 2012.

 

The Restated Warrant Agreement

 

Background

 

In March 2009, Radio Holdings, pursuant to an exchange offer made to the holders of the outstanding 9.875% Senior Subordinated Notes due 2014 of CMPSC (the “CMP 9.875% Notes”), issued, among other consideration, the Radio Holdings Warrants, which allow the holders thereof to purchase up to an aggregate of 3,740,893 shares of Radio Holdings’ common stock at a per share purchase price of $0.01 per share, all on the terms and conditions and pursuant to the provisions set forth in the Radio Holdings Warrant Agreement. In connection with the CMP Acquisition, on June 21, 2011, holders of the requisite majority of the outstanding Radio Holdings Warrants entered into a written consent to the Radio Holdings Warrant Agreement pursuant to which the Radio Holdings Warrant Agreement would be amended and restated in its entirety on the closing date of the CMP Acquisition and the Restated Warrant Agreement would thereafter set forth the terms pertaining to the CMP Warrants.

 

Pursuant to the Restated Warrant Agreement, the outstanding CMP Warrants will become exercisable, commencing on the CMI Delivery Date, for an aggregate of 8,267,968 shares of our Class D common stock (subject to adjustments for rounding for fractional shares in respect of warrant holders) on the terms and subject to the conditions set forth in the Restated Warrant Agreement. Following the issuance of shares of our Class D common stock upon a Warrant Exercise, such shares of Class D common stock will be convertible by their terms into shares of our Class A common stock at the times and in the manner discussed under the heading “Proposal No. 1 — Description of Class D Common Stock.”

 

The Restated Warrant Agreement will provide that the CMP Warrants will expire on the earlier to occur of (i) March 26, 2019, and (ii) the later of (A) the 30th day succeeding the redemption in full of all of Radio Holding’s outstanding Series A Preferred Stock, par value $0.01 per share and (B) the 90th day succeeding the CMI Delivery Date. The Restated Warrant Agreement will also remove the pre-emptive and tag-along rights previously included in the Radio Holdings Warrant Agreement, and holders of CMP Warrants will not be entitled to such rights.

 

In connection with their consent to the Restated Warrant Agreement, the holders of the Radio Holdings Warrants have agreed to terminate the existing registration rights agreement covering the resale of shares of Radio Holdings common stock issuable upon exercise of the Radio Holdings Warrants and will enter into a new registration rights agreement that will cover the resale, on a continuous basis, of all of the shares of Class A common stock issuable upon conversion of the Class D common stock received upon exercise of the CMP Warrants. See “— Registration Rights Agreements”

 

Conditions to the Effectiveness of the Restated Warrant Agreement

 

The Restated Warrant Agreement will be entered into on the date of the closing of the CMP Acquisition. The Class D common stock issuable upon exercise of the CMP Warrants will be authorized pursuant to the

Charter Amendment. Receipt of stockholder approval of the Charter Amendment is a condition to the consummation of the CMP Acquisition and, thus, the effectiveness of the Restated Warrant Agreement. Consummation of the CMP Acquisition is also a condition to the effectiveness of the Restated Warrant Agreement. If such approval is not obtained or the CMP Acquisition is not consummated, the Restated Warrant Agreement will not become effective, the Radio Holdings Warrants will remain outstanding and the amendments to the Radio Holdings Warrants pursuant to the Restated Warrant Agreement will not occur.

 

Number of Shares of Class D Common Stock for Which CMP Warrants Will Be Exercisable

 

Subject to adjustments described below, the CMP Warrants will initially be exercisable upon and after the day following the CMI Delivery Date for an aggregate of 8,267,968 shares of our Class D common stock (subject to adjustments for rounding for fractional shares in respect of warrant holders).

 

As described below, holders of CMP Warrants and the CMP Sellers will share proportionately, based on the number of shares of our common stock to be received by each, in the benefits and burdens of the indemnity provided for in the Exchange Agreement, with the number of shares of Class D common stock into which CMP Warrants will be exercisable subject to:

 

 

On the CMI Delivery Date, the number of shares of Class D common stock for which the CMP Warrants will be then exercisable will be reduced as described in the following paragraph, or reduced by a number of shares relating to then pending indemnification claims under the Exchange Agreement which may result in a reduction of the number of shares issuable pursuant to the exercise of the CMP Warrants pursuant to the following paragraph, with such shares for which the CMP Warrants may become exercisable relating to such pending claims to become so exercisable, or the reduction in this regard completed, at the time such pending claims are finally determined under the Exchange Agreement.

 

If the CMP Sellers are determined to be required to indemnify us for a Seller Indemnity Claim, then the number of shares of Class D common stock for which the CMP Warrants held by each holder are otherwise exercisable will be reduced by a number of shares (if including a fraction of a share, rounded down to the closest whole share number) equal to the Holders’ Share Indemnity Total (defined herein) in respect of such Seller Indemnity Claim multiplied by the Holder’s Proportionate Share (defined herein) of such holder.

 

On the CMI Delivery Date (if any CMI Indemnity Claim has been finally determined prior to such date), and upon the final determination of any CMI Indemnity Claim after such date, the number of shares of Class D common stock for which CMP Warrants held by each holder are then exercisable will be increased by a number of shares (if including a fraction of a share, rounded up to the closest whole share number) equal to the Holders’ Share Indemnity Total in respect of such CMI Indemnity Claim multiplied by the Holder’s Proportionate Share of such holder. Should such final determination occur subsequent to the CMI Delivery Date, Radio Holdings will cause us to deliver additional shares of Class D common stock, and the number of shares for which the CMP Warrants are then exercisable will be increased, each to give effect to the foregoing adjustments.

 

For purposes of the adjustments described above:

 

 

 

Radio Holdings will promptly notify each holder and the Warrant Agent of any adjustment in the number of shares of Class D common stock for which such holder’s CMP Warrant is exercisable.

 

Warrant Share Exchange Agreement

 

In connection with the closing of the CMP Transaction, we will enter into an agreement (the “Warrant Share Exchange Agreement”) with Radio Holdings pursuant to which we will agree to issue as directed by Radio Holdings the shares of Class D common stock that Radio Holdings will be required to deliver to holders of the CMP Warrants upon their exercise pursuant to the Restated Warrant Agreement. Pursuant to the Restated Warrant Agreement, Radio Holdings has agreed that it will at all times obtain pursuant to the Warrant Share Exchange Agreement, and keep available for issuance upon the exercise of CMP Warrants, a number of shares of Class D common stock sufficient to permit the exercise in full of all CMP Warrants.

 

Background of the CMP Transaction

 

We regularly review and evaluate our business strategy and strategic options in an effort to enhance stockholder value. As a part of those efforts, in October 2005 we announced the formation of CMP, a private partnership that we formed with affiliates of the CMP Sellers, and in May 2006 CMP completed the acquisition of the radio broadcasting business of Susquehanna Pfaltzgraff Corp. (“Susquehanna”) for approximately $1.2 billion. At the time of its acquisition by CMP, Susquehanna was the largest privately owned radio broadcasting company in the United States and the 11th largest radio station operator in terms of revenue. While our historical focus had been on mid-sized radio markets in the United States, we recognized that large-sized radio markets provided an attractive combination of scale, diversification, and content and distribution opportunities for future growth.

 

In connection with the capitalization of CMP and the consummation of the acquisition of Susquehanna, we and the CMP Sellers, as the equityholders of CMP, entered into an equityholders’ agreement (the “Equityholders Agreement”), which set forth certain transfer restrictions, voting rights and powers of the equityholders of CMP with respect to CMP and its subsidiaries. The Equityholders Agreement provides, among other things, that (i) any significant action taken by CMP or its subsidiaries during the initial three years required the approval of Cumulus Media and the approval of a majority of the CMP Sellers and, thereafter, simply the approval of holders of a majority of the membership interests in CMP, (ii) Cumulus Media and the CMP Sellers have preemptive rights with respect to any new issuance of securities by CMP or its subsidiaries, and (iii) the parties may not transfer their equity interests in CMP, except under certain circumstances. The Equityholders Agreement also sets forth certain rights of first offer, “tag-along” rights and “drag-along” rights in the event of proposed transfers of equity interests in CMP. As part of those rights, in the event that any CMP Seller holding a majority of the voting interests of CMP intended to initiate a sale of CMP, such CMP Seller must first give notice to Cumulus Media and Cumulus Media would be entitled, within 20 business days after receiving that notice, to inform the CMP Seller of the price that Cumulus Media is willing to pay to acquire all equity interests of CMP held by the CMP Sellers, and the CMP Sellers would then have 30 days to accept or reject any such offer by Cumulus Media.

 

In connection with the formation of CMP, CMPSC entered into a $700.0 million senior secured term loan agreement and a $100.0 million revolving credit agreement (together, the “CMPSC Credit Facilities”) and issued $250.0 million in aggregate principal amount of the CMP 9.875% Notes, which are guaranteed by CMPSC’s sole stockholder, Radio Holdings, and by each of CMPSC’s subsidiaries.

 

Also in connection with the completion of the Susquehanna acquisition, we entered into a management agreement with a subsidiary of CMP under which, subject to oversight by the board of directors of CMP, we would manage CMP’s radio broadcasting operations and corporate development, including management at the corporate level of sales, programming, marketing, technical, finance, accounting, legal, human resources, risk management and information technology, as well as evaluation and consummation of divestitures, acquisitions, swaps, signal upgrades, move-ins, and high definition build-out and development. Pursuant to the management agreement, our senior management has served as senior management of the CMP entities owning or operating the managed assets, although Cumulus Media maintained responsibility for all salary, benefits and related employment compensation expenses of Cumulus Media employees providing those management services. In exchange for the management services we provide under the management agreement, we receive an annual management fee equal to the greater of $4.0 million or 4% of CMP’s adjusted earnings, payable on a quarterly basis. During each of 2009 and 2010, we received management fees of $4.0 million.

 

In July 2008, two of the CMP Sellers, Bain and THL, elected to assume non-attributable ownership status for their interests in CMP for regulatory purposes, and therefore waived their rights to designate board members of CMP and its subsidiaries and agreed that their respective board designees to such entities would resign. Consequently, Cumulus Media and Blackstone, as the remaining members of CMP that did not assume non-attributable ownership status of CMP, each have the right to appoint one-half of the number of directors on the boards of CMP and its subsidiaries, and agreed that any significant action taken by the boards of directors of CMP, or its subsidiary Radio Holdco, must be approved by a majority of the directors present at the board meeting and by a majority of the directors designated by Blackstone. In addition, in connection therewith the Equityholders Agreement was amended to provide that Blackstone would have the power and authority to initiate a sale of CMP, and to exercise the rights of the CMP Sellers under the Equityholders Agreement with respect thereto. Consequently, any significant transactions involving CMP, including any sale of CMP or the CMP Sellers’ interests therein, require the approval of Blackstone.

 

In late 2008 and early 2009, as the capital and credit markets, and the economic and business environment generally, worsened, CMP forecasted that its 2009 revenues would decline further and that it would likely face covenant compliance issues under the agreement governing the CMPSC Credit Facilities (the “CMPSC Credit Agreement”) and the CMP 9.875% Notes. Following that assessment, and in an effort to significantly reduce its long-term debt, in March 2009, CMPSC and Radio Holdings completed an exchange offer (the “CMP 2009 Exchange Offer”) pursuant to which approximately $175.5 million of the then-outstanding CMP 9.875% Notes were exchanged for an aggregate of (i) $14.0 million in aggregate principal amount of Variable Rate Senior Secured Notes due 2014 of CMPSC (the “CMP 2014 Notes”), (ii) an aggregate of 3,273,633 shares of preferred stock with a stated value of $10.00 per share of Radio Holdings (the “Radio Holdings Preferred Stock”), and (iii) the Radio Holdings Warrants permitting the holders thereof to purchase an aggregate of 3,740,893 shares, representing approximately 38.1% of the common stock of Radio Holdings and having an exercise price of $0.01 per share. As a result of the successful completion of the exchange offer on March 26, 2009, CMPSC was able to remain in compliance with applicable financial covenants under its credit facility.

 

As the economy in general, and the radio broadcasting industry in particular, began to recover in late 2009 and 2010, consistent with our Board’s regular consideration of strategic actions that could enhance long-term stockholder value, our management and Board of Directors periodically evaluated the potential to combine CMP and Cumulus Media, and the circumstances where such a strategic combination might make sense.

 

At a regularly scheduled meeting of our Board of Directors on July 28, 2010, there was a discussion of the potential benefits of combining CMP with Cumulus Media, and the operational, financial and strategic

objectives that could be achieved from such a combination, as well as the impact of such a combination on each company’s existing credit arrangements.

 

Also in July 2010, we entered into an amendment to our Existing Credit Agreement, which amendment, among other things, provided that we could acquire up to 100% of the equity interests of CMP (or two of its subsidiaries, Radio Holdings or Radio Holdco).

 

At a meeting of our Board of Directors on August 18, 2010, management provided the Board of Directors with a detailed analysis of a potential combination with CMP, and there was extensive discussion regarding whether to commence a dialogue with the CMP Sellers about a possible purchase of their interests in CMP. The Board, together with members of our management, considered various possible advantages and disadvantages of such a transaction, and then determined that Mr. L. Dickey should commence exploratory discussions with representatives of the CMP Sellers.

 

With the continued improvements in the economy, and particularly in advertising spending in the radio broadcasting industry, during 2010, commencing in September 2010, Mr. L. Dickey engaged in various discussions with David M. Tolley, as a representative of Blackstone, which, as described above, was vested with the authority to determine whether to engage in a sale of the CMP Sellers’ interests in CMP under the Equityholders Agreement regarding the possibility of combining CMP with Cumulus Media. In connection with those discussions, UBS Securities was engaged to assist us in evaluating and analyzing such a proposed transaction. In addition, Citadel Securities LLC (“Citadel Securities”) was engaged by CMP to assist it in evaluating such a possible transaction.

 

During October and November 2010, Cumulus Media, with the assistance of UBS Securities, and Blackstone, with the assistance of Citadel Securities, engaged in various financial analyses of a possible combination, and conducted financial due diligence with respect to one another.

 

On October 27, 2010, at a regularly scheduled meeting of our Board of Directors, our management reported to the Board of Directors on the ongoing discussions with representatives of Blackstone, and on the related financial analyses that we were preparing and the impact of such a combination on overall leverage and liquidity for the combined company.

 

On November 10, 2010, Mr. L. Dickey met with Mr. Tolley, on behalf of Blackstone, and with representatives of Citadel Securities, to discuss the possible structure and valuation issues for a potential combination. Following that meeting, there were a series of discussions among representatives of Cumulus Media and Blackstone, and their respective financial advisors, regarding financial and valuation issues, tax issues, operational issues, and structure, pricing and timing considerations.

 

On December 9, 2010, Mr. L. Dickey, Mr. Tolley, and Mr. Robert H. Sheridan III, who is chairman of our Audit Committee and who serves on our Board of Directors as the designee of the BofA Entities, which hold approximately 18% of our outstanding common stock, met to discuss structure, pricing and valuation issues with respect to a possible combination.

 

On December 15, 2010, Blackstone sent to Cumulus Media a Right Of First Offer Notice (the “Offer Notice”), pursuant to the terms of the Equityholders Agreement, in which Blackstone stated its intention to initiate a sale of CMP in accordance with the terms thereof. Pursuant to the terms of the Equityholders Agreement, following receipt of such a notice, Cumulus Media was entitled, no later than 20 business days thereafter, to specify to Blackstone the price that Cumulus Media would pay for all, but not less than all, of the equity interests held by the CMP Sellers, and the material terms of such a transaction upon which Cumulus Media would agree to acquire those equity interests.

 

Based upon the various discussions regarding structure and valuation that had occurred over the prior two months, on December 17, 2010, Cumulus Media, through its legal counsel, Jones Day, submitted a term sheet to Blackstone’s legal counsel, Simpson Thacher & Bartlett LLP, setting forth the principal terms on which Cumulus Media was prepared to acquire the remaining equity interests in CMP, including the proposed issuance of an aggregate of 18,325,000 shares of our common stock in exchange for all of the interests in CMP held by the CMP Sellers, with each CMP Seller receiving 3,762,489 shares, and the conversion of the

Radio Holdings Warrants into warrants to purchase an aggregate of 7,037,533 shares of our common stock, at a nominal exercise price.

 

During the remainder of December and the first two weeks of January, there were various discussions among Cumulus Media, Blackstone, and their respective legal and financial advisors, in which the principal provisions of the term sheet were negotiated, and financial due diligence and valuation issues were discussed. Based upon those discussions, the number of shares of our common stock issuable to each CMP Seller was reduced to 3,315,238, and the number of shares of our common stock issuable upon exercise of the Radio Holdings Warrants reduced to 8,267,968 (subject to adjustments for rounding for fractional shares in respect of the warrant holders), for a total consideration of 18,213,682 shares of our common stock.

 

On January 14, 2011, Jones Day, on behalf of Cumulus Media, distributed a draft of the proposed exchange agreement. Between January 15 and January 28, 2011, our legal advisors and Blackstone’s legal advisors negotiated the terms of the exchange agreement, as well as various related agreements, including the voting agreements, the registration rights agreement and the Charter Amendment, and the financial advisors for each side conducted financial due diligence.

 

On January 28, 2011, our Board of Directors met and reviewed the terms and conditions of the proposed exchange agreement and the transactions contemplated thereby. At that meeting, representatives of Jones Day reviewed the status of the transaction agreements, and the pending legal issues, and our management summarized the pending business issues. Then, representatives of Moelis, which we engaged on January 14, 2011, to render a fairness opinion regarding the CMP Transaction, presented its preliminary financial analysis of the proposed exchange, described the bases on which they would be prepared to render an opinion regarding the fairness of the resulting pro forma ownership of our common stock by the CMP Sellers implied by the shares and warrants of Cumulus Media issued or issuable to the CMP Sellers in the CMP Transaction in exchange for all of their respective outstanding equity interests in CMP (including the Radio Holdings Warrants) contemplated by the Exchange Agreement (referred to as the “exchange ratio”) is fair from a financial point of view to Cumulus Media, and addressed various questions from our Board of Directors.

 

From January 29 through 31, 2011, representatives of Cumulus Media and Blackstone, and their respective legal and financial advisors, continued to negotiate the remaining terms of the agreements related to the exchange. Concurrently, representatives of Blackstone engaged in various discussions and negotiations with representatives of the BofA Entities with respect to terminating certain of the governance rights that the BofA Entities had pursuant to the terms of our Class B common stock.

 

On January 31, 2011, our Board of Directors held another meeting, at which representatives of Jones Day reviewed the final agreed upon terms of the Exchange Agreement, and the principal agreements contemplated thereby, as well as the shares of stock to be issued in the transaction and the proposed changes to the terms of the Class B common stock, which had been agreed to by the BofA Entities. Representatives of Moelis then provided an update of its financial analysis for the benefit of the Board of Directors, taking into account changes in the trading prices of our common stock since their last report and the final terms of the transaction agreements. The representatives of Moelis then reviewed their financial analysis for the Board of Directors and delivered their oral opinion, which was subsequently confirmed in writing, that, based upon the terms and conditions set forth therein, the exchange ratio is fair, from a financial point of view, to Cumulus Media.

 

The Board of Directors then voted unanimously to approve the Exchange Agreement and the transactions contemplated thereby, and the agreement was thereafter executed and delivered. On January 31, 2011, after the closing of trading on the Nasdaq Global Select Market, we issued a press release announcing the CMP Transaction.

 

Between April and June, 2011, we and our legal counsel prepared the form of Restated Warrant Agreement and engaged in discussions with representatives of the holders of the Radio Holdings Warrants. On June 21, 2011, the holders of more than a majority of the outstanding Radio Holdings Warrants consented in writing to the Restated Warrant Agreement, which by its terms will take effect subject to, and conditioned upon, the closing of the CMP Acquisition.

Reasons for the CMP Transaction

 

Our Board of Directors has determined that the CMP Transaction is in the best interests of our stockholders and has recommended that our stockholders approve the issuance of our shares of common stock in connection with the CMP Transaction. In making this determination, our Board of Directors consulted with our management and with our financial and legal advisors, and considered a number of factors in determining that the consideration to be paid in exchange for the equity interests in CMP (including the Radio Holdings Warrants) is fair to, and in the best interests of, our stockholders. The decision of our Board of Directors was based upon a number of potential benefits of the CMP Transaction and other factors that it believes could contribute to the success of our company, and thus inure to the benefit of our stockholders, including the following, the order of which does not necessarily reflect their relative significance:

 

 

In addition, our Board of Directors identified and considered several potentially negative factors to be balanced against the positive factors listed above, including that the trading price of our common stock could be negatively impacted by market overhang relating to the shares of common stock that will be available for resale by the CMP Sellers following the completion of the CMP Acquisition and upon the Warrant Exercise. They also considered the effects of the potential dilution to our equity due to the substantial number of shares of common stock and warrants issuable pursuant to the CMP Transaction.

 

After considering all of the relevant factors, as well as the form and amount of consideration to be paid, our Board of Directors concluded that, on balance, the potential benefits of the CMP Transaction to us and our stockholders outweighed the associated risks.

 

This discussion of the factors considered by our Board of Directors is not intended to be exhaustive. In light of the variety of material factors considered in connection with its evaluation of the CMP Transaction, our Board of Directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination. In addition, our Board of Directors conducted an overall analysis of the factors described above and, in considering these factors, individual members of our Board of Directors may have given different weights to different factors. Our Board of Directors considered all

of these factors as a whole, and ultimately considered the factors to be favorable to, and to support, its determination.

 

Opinion of Cumulus Media’s Financial Advisor

 

On January 31, 2011, at a meeting of the Board of Directors of Cumulus Media held to evaluate the CMP Transaction, Moelis delivered its oral opinion, which was later confirmed in writing, that based upon and subject to the conditions and limitations and qualifications set forth in its written opinion, as of January 31, 2011, the exchange ratio is fair, from a financial point of view, to Cumulus Media.

 

The full text of Moelis’ written opinion dated January 31, 2011, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion is attached as Appendix B to this proxy statement and is incorporated herein by reference. Stockholders are encouraged to read Moelis’ written opinion carefully and in its entirety. The following summary describes the material analyses underlying Moelis’ opinion, but does not purport to be a complete description of the analyses performed by Moelis in connection with its opinion. Moelis’ opinion is limited solely to the fairness of the exchange ratio from a financial point of view as of the date of the opinion and does not address Cumulus Media’s underlying business decision to effect the CMP Transaction or the relative merits of the CMP Transaction as compared to any alternative business strategies or transactions that might be available to Cumulus Media. Moelis’ opinion does not constitute a recommendation to any stockholder of Cumulus Media as to how such stockholder should vote with respect to the CMP Transaction or any other matter. Moelis’ opinion was approved by a Moelis fairness opinion committee.

 

In arriving at the conclusions reached in its opinion, Moelis has, among other things:

 

 

In connection with its review, Moelis did not assume any responsibility for independent verification of any of the information supplied to, discussed with, or reviewed by Moelis for the purpose of its opinion and has, with the consent of the Board of Directors of Cumulus Media, relied on such information being complete and accurate in all material respects. In addition, at the direction of the Board of Directors, Moelis did not make any independent evaluation or appraisal of any of the assets or liabilities (contingent, derivative, off-balance-sheet or otherwise) of CMP, nor was Moelis furnished with any such evaluation or appraisal. With respect to the forecasted financial information referred to above, Moelis assumed, at the direction of the Board

of Directors, that such information was reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Cumulus Media as to the future performance of CMP and Cumulus Media and that such future financial results will be achieved at the times and in the amounts projected by management. Moelis was not requested to, and did not, express any opinion regarding any legal, regulatory, tax, accounting or financial reporting matters, including the tax effect of the CMP Transaction on Cumulus Media or its stockholders.

 

Moelis’ opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Moelis as of, the date of Moelis’ opinion. Subsequent developments may affect Moelis’ opinion and Moelis does not have any obligation to update, revise or reaffirm its opinion. Moelis assumed, with the consent of the Board of Directors, that all governmental, regulatory or other consents and approvals necessary for the consummation of the CMP Transaction will be obtained without the imposition of any delay, limitation, restriction, divestiture or condition that would have any adverse effect on CMP or Cumulus Media or on the expected benefits of the CMP Transaction.

 

Financial Analysis

 

The following is a summary of the material financial analyses presented by Moelis to the Board of Directors at its meeting held on January 31, 2011 in connection with the delivery of the oral opinion of Moelis at such meeting and its subsequent written opinion.

 

Some of the summaries of the financial analyses below include information presented in tabular format. In order to fully understand Moelis’ analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analyses performed by Moelis. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Moelis’ analyses.

 

Transaction Overview/Implied Valuations

 

As described above, for purposes of Moelis’ opinion and the financial analyses described below, the pro forma ownership of Cumulus Media by current CMP stockholders and warrant holders implied by the shares and warrants of Cumulus Media issued or issuable to current CMP stock and warrant holders in the CMP Transaction in exchange for all of the outstanding interests of CMP is referred to as the “exchange ratio.” Specifically, the proposed transaction results in a pro forma equity split of 67.6% and 32.4% to Cumulus Media and CMP (including Cumulus Media’s ownership stake in CMP), respectively.

 

Based on Cumulus Media’s closing share price of $3.80 on January 28, 2011, Moelis calculated that the equity value of Cumulus Media as of such date was $170.3 million, resulting in an implied CMP equity value of $81.8 million based on the exchange ratio. Moelis also calculated Cumulus Media’s enterprise value, adding Cumulus Media’s $581 million of net debt to the $170.3 million of equity value, resulting in a total Cumulus Media enterprise value of $751.4 million. Moelis further calculated an implied enterprise value of $738.8 million for CMP (consisting of CMP’s implied equity value of $81.8 million (including Cumulus Media’s ownership stake in CMP), plus net debt of $619.1 million and preferred stock of $37.9 million). The $751.4 million enterprise value of Cumulus Media implies that Cumulus Media is valued at 8.5x its 2010 estimated EBITDA of $88.2 million and 7.6x its 2011 estimated EBITDA of $99.5 million. The $738.8 million implied enterprise value of CMP implies that CMP is valued at 9.5x CMP’s 2010 estimated EBITDA of $78 million and 8.3x its 2011 estimated EBITDA of $89.5 million.

 

Selected Public Companies Analysis

 

Moelis compared certain financial information of Cumulus Media and CMP with corresponding financial information of certain selected publicly traded companies. Moelis selected publicly traded companies that

shared similar characteristics with the business of Cumulus Media and CMP, operations and size, and for which relevant financial information was publicly available. The list of selected companies is set forth below:

 

 

Moelis also considered and analyzed CBS Corporation, CC Media Holdings, Inc., Emmis Communications Corp., Salem Communications Corp., Westwood One Inc. and Saga Communications Inc., but the table below does not include these companies.

 

As part of its selected public companies analysis, Moelis calculated and analyzed for each company referred to above the company’s ratio of its enterprise value (calculated as fully diluted equity value based on closing stock prices as of January 28, 2011 plus debt, minority interests and preferred stock) to EBITDA and broadcast cash flow (“BCF”) for the most recent reported latest twelve months ending September 30, 2010 (“LTM”) and estimated calendar years 2010 and 2011, each of which is referred to in this section as “E2010” and “E2011.” LTM data was based on public filings and “E2010” and “E2011” estimates were based on consensus public company analyst estimates, except that E2010 and E2011 for Cumulus Media and CMP were provided by Cumulus Media management. The following summarizes the results of these calculations for the Selected Companies and the implied multiples for each of Cumulus Media and CMP based on the exchange ratio:

 

 

Moelis then applied a range of selected multiples of 7.5x to 8.5x to E2011 EBITDA for Cumulus Media and 8.0x to 9.0x for CMP, respectively, to derive an implied equity value of $165.1 million to $264.5 million for Cumulus Media and $59.3 million to $148.8 million for CMP. This analysis indicated an implied range of ownership to CMP of 18.3% to 47.4% compared to the 32.4% contemplated by the exchange ratio.

 

Moelis further applied a range of selected multiples of 6.5x to 8.0x to E2011 BCF for Cumulus Media and 7.5x to 8.5x for CMP, respectively, to derive an implied equity value of $174.1 million to $348.3 million for Cumulus Media and $63.1 million to $159.1 million for CMP. This analysis indicated an implied range of Cumulus Media ownership to CMP of 15.3% to 47.7% compared to the 32.4% contemplated by the exchange ratio.

 

Selected Transactions Analysis

 

Moelis considered recent transactions in the radio broadcasting sector and ultimately concluded that there were no precedent transactions that were relevant as part of its analysis.

 

Discounted Cash Flow Analysis

 

Moelis conducted a discounted cash flow, or DCF, analysis of Cumulus Media to calculate a range of implied equity values for Cumulus Media. A DCF analysis is a method of evaluating a business using estimates of the future unlevered free cash flows generated by the business and taking into consideration the time value of money with respect to those future cash flows by calculating their “present value.” “Present

value” refers to the current value of one or more future cash payments for the business, which Moelis refers to as that business’ free cash flows, and is obtained by discounting those free cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity costs of capital, capitalized returns and other appropriate factors. “Terminal value” refers to the value of all free cash flows from an asset for periods beyond the final forecast period.

 

Using projections provided by Cumulus Media management, Moelis performed a DCF analysis of Cumulus Media utilizing the after-tax unlevered free cash flows for the calendar years 2011 to 2014, using discount rates ranging from 9.0% to 11.0%, which was based upon a number of factors, including the weighted average cost of capital of Cumulus Media. The terminal value was then calculated using a terminal EBITDA multiple range of 7.50x to 8.50x.

 

Based on the foregoing, Moelis derived for Cumulus Media an implied equity value range of $359 million to $495 million and an implied enterprise value range of $940 million to $1,076 million.

 

Using projections provided by Cumulus Media’s management, Moelis performed a DCF analysis for CMP utilizing the after-tax unlevered free cash flows for the calendar years 2011 to 2014, using discount rates ranging from 9.0% to 11.0%, which was based upon a number of factors, including the weighted average cost of capital of CMP. The terminal value was then calculated using a terminal EBITDA multiple range of 8.0x to 9.0x.

 

Based on the foregoing, Moelis derived for CMP an implied equity value range of $103 million to $227 million and an implied enterprise value range of $760 million to $884 million.

 

This analysis indicated an implied range of ownership to CMP of 17.3% to 38.8% compared to the 32.4% contemplated by the exchange ratio.

 

Other Analysis

 

Relative Contribution Analysis

 

Moelis calculated the relative contributions of Cumulus Media and CMP to the combined company of projected BCF and EBITDA for the years 2010 through 2014, and net income for the years 2011 through 2014, based on the Cumulus Media and CMP projections provided by Cumulus Media’s management. Moelis also calculated the relative contribution based on a transaction enterprise value, using Cumulus Media’s share price of $3.80 as of January 28, 2011. This analysis indicated the following relative contribution of Cumulus Media and CMP following the exchange.

 

Pro Forma Financial Analysis

 

Moelis reviewed the potential pro forma financial effect of the CMP Transaction on Cumulus Media’s fiscal years 2011 through 2014 projected earnings per share. Cumulus Media and CMP financial data was based on the Cumulus Media and CMP projections provided by Cumulus Media’s management. This analysis indicated that the transaction could be accretive to Cumulus Media’s projected earnings per share for fiscal years 2011 through 2014. The actual results achieved by Cumulus Media after the completion of the transactions may vary from projected results and the variations may be material.

 

General

 

The preparation of a fairness opinion is a complex analytical process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Moelis’ opinion. In arriving at its fairness determination, Moelis considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis. Rather, Moelis made its fairness determination on the basis of its experience and professional judgment after considering the results of all of its analyses.

 

No company or transaction used in the analyses described above for purposes of comparison is directly comparable to Cumulus Media, CMP or the CMP Transaction. In addition, such analyses do not purport to be appraisals, nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by such analyses. Because the analyses described above are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, neither Cumulus Media, nor Moelis or any other person assumes responsibility if future results are materially different from those forecast.

 

The exchange ratio was determined through negotiations among Cumulus Media and its representatives, on the one hand, and the CMP Sellers and their representatives, on the other hand, and the decision by the Board of Directors to approve, adopt and authorize the Exchange Agreement was solely that of the Board of Directors. Moelis did not recommend any specific exchange ratio to the Board of Directors or suggest that any specific consideration constituted the only appropriate consideration for the CMP Transaction.

 

Moelis’ opinion was prepared for the use and benefit of the Board of Directors in its evaluation of the CMP Transaction. Moelis was not asked to address, and its opinion does not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of Cumulus Media. In addition, Moelis’ opinion does not express any opinion as to the fairness of the amount or nature of any compensation to be received by any of Cumulus Media’s officers, directors or employees, or any class of such persons, relative to the exchange ratio. At the direction of the Board of Directors of Cumulus Media, Moelis was not asked to, nor did it, offer any opinion as to the material terms of the Exchange Agreement, the Restated Warrant Agreement or the form of the CMP Transaction. Moelis also expressed no opinion as to what the value of the Cumulus Media common stock will be when issued pursuant to the Exchange Agreement or the prices at which it will trade in the future. In rendering its opinion, Moelis assumed, with the consent of the Board of Directors, that the final executed form of the Exchange Agreement and the Restated Warrant Agreement would not differ in any material respect from the drafts that Moelis examined, and that CMP and Cumulus Media would comply with all the material terms of such agreements.

 

Pursuant to the terms of Moelis’ engagement, Cumulus Media agreed to pay Moelis a fee of $500,000, payable upon delivery of Moelis’ opinion, regardless of the conclusion reached in such opinion. In addition, Cumulus Media has agreed to indemnify Moelis for certain liabilities arising out of its engagement. In the past, Moelis has provided investment banking and other services to affiliates of the CMP Sellers and received compensation for the rendering of such services. In the ordinary course of business, Moelis, its successors and its affiliates may trade securities of Cumulus Media and CMP for their own accounts and the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities.

The Board of Directors retained Moelis because Moelis has substantial experience in similar transactions. Moelis is engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, strategic transactions, corporate restructurings, and valuations for corporate and other purposes.

 

Interests of Principal Officers/Directors in the CMP Transaction

 

Pursuant to the Exchange Agreement, we agreed to appoint the Blackstone Designee to our Board of Directors, within three business days of signing the Exchange Agreement, and to nominate the Blackstone Designee for election to our Board at each of the next three successive annual meetings of our stockholders following the date of the Exchange Agreement. On January 31, 2011, Mr. David M. Tolley, a Senior Managing Director of Blackstone and a director of CMP, was appointed as the Blackstone Designee to our Board of Directors pursuant to the terms of the Exchange Agreement. Mr. Tolley has agreed to promptly resign from our Board of Directors if the Exchange Agreement is terminated prior to completing the CMP Acquisition. Pursuant to the Exchange Agreement and the Voting Agreements, for each of our next three successive annual meetings of stockholders, including the annual meeting to which this proxy statement relates, our Board of Directors is obligated to nominate Mr. Tolley, or his designated successor, for election as a director unless affiliates of Blackstone as a group cease to beneficially own at least one-half of the aggregate amount of our common stock that they will receive upon consummation of the CMP Acquisition. The Dickeys and the BofA Entities have agreed to vote their shares in favor of the election of Mr. Tolley. Mr. Tolley has served as a member of the board of directors of CMP since 2006.

 

In accordance with the Exchange Agreement, Mr. Tolley is entitled to the same compensation, if any, the same indemnification in connection with his role as a director and the same reimbursement for documented, reasonable out-of-pocket expenses incurred in attending meetings of the Board of Directors (or any committee thereof) as is received by the other non-management members of our Board of Directors.

 

A limited partnership in which Mr. L. Dickey, Jr., Mr. J. Dickey and certain other members of the Dickey family indirectly own a 1/3 equity interest, but that is not otherwise affiliated with us or CMP, is the beneficial holder of Radio Holdings Warrants exercisable for 1,350,707 shares of Radio Holdings common stock. Upon effectiveness of the Restated Warrant Agreement, these Radio Holdings Warrants will initially be exercisable on the day following the CMI Delivery Date for a total of 2,985,278 shares of our Class D common stock. In connection with and as a result of the effectiveness of the Restated Warrant Agreement, these members of the Dickey family may be deemed to beneficially own 995,092 additional shares of our common stock beginning on the date that is 60 days prior to the date on which such CMP Warrants become exercisable.

 

Accounting Treatment of the CMP Transaction

 

We will account for the CMP Transaction using the acquisition method of accounting for a business combination. Under this method of accounting, the assets and liabilities of CMP, including intangible assets, will be recorded at their fair market values and the results of operations and cash flows of CMP will be included in our financial statements in each case, prospectively from the completion of the acquisition.

 

Absence of Appraisal Rights

 

Under Delaware law, our stockholders will not have appraisal or dissenters’ rights in connection with the CMP Transaction or the issuance of shares of our common stock in connection with the CMP Transaction.

 

Overview

 

CMP commenced operations in 2006 and holds its radio broadcasting assets through two indirect wholly-owned subsidiaries, CMPSC and CMP KC LLC (“KC LLC”), both of which CMP owns indirectly through its direct wholly-owned subsidiary, Radio Holdco. On May 5, 2006, CMPSC acquired the radio broadcasting businesses of Susquehanna for approximately $1.2 billion and commenced operations (the “Susquehanna Acquisition”). Following completion of the Susquehanna Acquisition, those radio broadcasting businesses were operated by various subsidiaries of an indirect, wholly-owned subsidiary of CMP, Radio Holdings. In connection with the formation of CMP and the Susquehanna Acquisition, CMP formed KC LLC, a separate indirect wholly-owned subsidiary of CMP that is not a subsidiary of Radio Holdings, and Cumulus Media contributed to KC LLC four radio stations, with two in each of the Kansas City and Houston markets. KC LLC also entered into senior secured credit facilities under which it made term loan borrowings, the proceeds of which were used in part to finance the Susquehanna Acquisition. The radio stations owned by KC LLC are separate from the broadcasting businesses owned by Radio Holdings. KC LLC and its subsidiaries are not borrowers, or guarantors of the obligations, under the bank borrowings or outstanding notes of CMPSC, nor, assuming consummation of the CMP Acquisition, the Citadel Acquisition or the Global Refinancing, the indebtedness incurred in connection therewith. The businesses of both CMPSC and KC LLC are managed by Cumulus Media pursuant to a management agreement with CMP that was entered into in May 2006.

 

For the three months ended March 31, 2011, the Susquehanna and KC LLC businesses had net revenues of $37.4 million and $1.7 million, respectively, and CMP Station Operating Income of $15.1 million and $0.2 million, respectively. In 2010, the Susquehanna and KC LLC businesses had net revenues of $181.7 million and $7.0 million, respectively, and CMP Station Operating Income of $84.7 million and $0.9 million, respectively. For discussion of CMP Station Operating Income, including a reconciliation to operating income (loss), the most directly comparable measure calculated in accordance with accounting principles generally accepted in the United States (“GAAP”), see footnote 1 to CMP’s selected historical financial data under “Selected Historical Consolidated Financial Information.” CMP has entered into an agreement to dispose of KC LLC, as further described herein, although it is intended that Cumulus Media will continue to operate the business of KC LLC subsequent to such disposal.

 

In connection with the formation of CMP, CMPSC entered into the CMPSC Credit Facilities and issued the CMP 9.875% Notes. In March 2009, CMPSC and its sole stockholder, Radio Holdings, completed the CMP 2009 Exchange Offer pursuant to which approximately $175.5 million of the then-outstanding CMP 9.875% Notes were exchanged for an aggregate of (i) $14.0 million in aggregate principal amount of the CMP 2014 Notes, (ii) the Radio Holdings Preferred Stock, and (iii) the Radio Holdings Warrants permitting the holders thereof to purchase an aggregate of 3,740,893 shares, representing approximately 38.1% of the common stock of Radio Holdings and having an exercise price of $0.01 per share. As of March 31, 2011, CMPSC had outstanding approximately (i) $594.8 million in term loans and no revolving loans under the CMPSC Credit Facilities, (ii) $12.1 million in principal amount of the CMP 9.875% Notes, and (iii) $14.0 million in principal amount of the CMP 2014 Notes, and Radio Holdings had outstanding of Radio Holdings Preferred Stock with a redemption value of approximately $38.0 million.

 

Also in connection with the formation of CMP, KC LLC entered into a senior secured credit facility (the “CMP KC Credit Facility”) and pledged the assets of the KC LLC businesses to secure its obligations thereunder. As of March 31, 2011, approximately $86.2 million was outstanding under the CMP KC Credit Facility. As of March 31, 2011, KC LLC was in default under the CMP KC Credit Facility. CMP has entered into a restructuring agreement with the lenders under the CMP KC Credit Facility with respect to that facility, pursuant to which CMP will dispose of its equity interests in KC LLC. See “Item 7. Management’s Discussion of Financial Condition and Results of Operations” of Cumulus Media’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which is incorporated by reference in this proxy statement, for additional detail about this agreement.

CMP, through Radio Holdings, owns 30 radio stations in eight markets including San Francisco, Dallas, Atlanta, Houston, Cincinnati, Indianapolis and Kansas City. Separately, through its indirectly wholly-owned subsidiary KC LLC, CMP owns two stations in the Kansas City market and two in the Houston market.

 

CMP has followed a focused strategy of assembling and operating clusters of stations in some of the nation’s largest markets. According to BIA Financial Network, Inc. (“BIA”), CMP’s cluster rank by revenue is in the top ten in four of the eight markets in which CMP operates. According to the Arbitron Market Report (“Arbitron”), 35 of CMP’s stations have ratings ranking them in the top three within their formats of their targeted demographic in their respective markets, including 20 stations that rank first within their formats and 13 stations that rank second within their formats. The majority of CMP’s stations enjoy strong ratings in their target demographics, reflecting loyal listener bases, which CMP believes are driven by these stations’ long-standing community presences and established brands. In addition, CMP believes its markets have attractive demographics. According to BIA, most of CMP’s markets have per capita and household after-tax disposable income, expected household after-tax disposable income growth and expected population growth in excess of the national average, which CMP believes makes CMP’s stations attractive to a broad base of radio advertisers and reduces its dependence on any one economic sector or specific advertiser.

 

CMP’s stations offer a broad range of programming formats including country, contemporary hit radio/top 40, adult contemporary, oldies, rock and sports and talk radio, each targeted to a specific demographic audience within CMP’s markets. In addition, CMP has affiliations with ten professional sports teams across several of its markets, increasing CMP’s attractiveness to national and local advertisers. CMP believes that its presence in large metropolitan markets, clustering strategy and variety of programming formats make CMP attractive to a diverse base of local and national advertisers, which, together with CMP’s strong ratings, provide CMP the opportunity to generate higher market revenue share.

 

CMP Station Portfolio

 

The following table sets forth the market, call letters, frequency and license expiration date of all CMP owned and/or operated stations as of April 8, 2011.

 

 

 

 

Employees

 

As of March 31, 2011, CMP had approximately 694 full- and part-time employees, of which approximately 632 were employed by Susquehanna with the remainder by KC LLC. None of CMP’s employees are covered by collective bargaining agreements, and CMP believes its relations with its employees are satisfactory.

 

CMP employs several on-air personalities with large audiences in their respective markets. On occasion, CMP enters into employment agreements with these personalities to protect CMP’s interests in those relationships that they believe to be valuable. The loss of one or more of these personalities could result in a loss of audience share, but CMP does not believe that any such loss would have a material adverse effect on CMP’s financial condition or results of operations, taken as a whole.

 

Intellectual Property

 

CMP owns numerous domestic trademark registrations related to the business of CMP’s stations. CMP also licenses certain trademarks related to the business of CMP’s stations, including the license of the “Cumulus” trademark from Cumulus Media. CMP owns no material patents or patent applications. CMP does not believe that any of CMP’s trademarks are material to CMP’s business or operations.

 

Properties

 

CMP leases seven studio facilities for its radio operations. CMP owns broadcast towers for 12 of its radio stations, of which ten are owned by Susquehanna with the remainder owned by KC LLC. CMP leases 31 other main broadcast towers, of which 29 are leased by Susquehanna with the remainder leased by KC LLC. CMP owns the real property under ten of its main broadcast towers and leases the land under its other three main broadcast towers.

Legal Proceedings

 

On March 4, 2011, CMP was substituted for Cumulus Media as named defendant in a purported class action lawsuit filed by Brian Mas, a former employee of a subsidiary of CMP. The lawsuit claims (i) unlawful failure to pay required overtime wages, (ii) late pay and waiting time penalties, (iii) failure to provide accurate itemized wage statements, (iv) failure to indemnify for necessary expenses and losses and (v) unfair trade practices under California’s Unfair Competition Act. The plaintiff is requesting restitution, penalties and injunctive relief, and seeks to represent other California employees fulfilling the same job during the immediately preceding four-year period. CMP is vigorously defending this lawsuit and has not yet determined what effect the lawsuit will have, if any, on its financial position, results of operations or cash flows.

 

CMP currently and from time to time is involved in litigation incidental to the conduct of its business, but CMP is currently not a party to any other lawsuit or proceeding that, in its opinion, is likely to have a material adverse effect on CMP.

 

The following CMP management’s discussion and analysis of financial condition and results of operations is intended to provide the reader with an overall understanding of CMP’s financial condition, changes in financial condition, results of operations, cash flows, sources and uses of cash, contractual obligations and financial position. This CMP management’s discussion and analysis is presented solely on a historical basis for CMP, and does not give effect to the CMP Transaction or the other pending transactions discussed elsewhere in this proxy statement.

 

The following information should be read in conjunction with CMP’s audited consolidated financial statements and accompanying notes and unaudited consolidated interim financial statements and the accompanying notes included elsewhere in this proxy statement.

 

2010 and First Quarter 2011 Operating Overview and Highlights

 

Throughout 2010, the disruption in CMP’s advertisers’ buying patterns and turbulence in the overall advertising industry caused by the economic recession in 2008 and 2009 generally subsided. By the second half of 2010, CMP began to see what it believed to be a much more historically normalized operating cycle, and CMP began to experience improvements in certain key operating and liquidity metrics. As further described below, this more stabilized operating environment continued into the three months ended March 31, 2011.

 

 

Advertising Revenue

 

CMP’s primary source of revenue is the sale of advertising time on its radio stations. CMP’s sales of advertising time are primarily affected by the demand for advertising time from local, regional and national advertisers and the advertising rates charged by CMP’s radio stations. Advertising demand and rates are based primarily on a station’s ability to attract audiences in the demographic groups targeted by its advertisers, as measured principally by Arbitron on a periodic basis, generally two or four times per year. CMP endeavors to develop strong listener loyalty. CMP believes that the diversification of formats on its stations helps to insulate it from the effects of changes in the musical tastes of the public with respect to any particular format.

 

CMP believes the number of advertisements that can be broadcast without jeopardizing listening levels and the resulting ratings is limited in part by the format of a particular station. CMP’s stations strive to maximize revenues by managing their on-air inventory of advertising time and adjusting prices based upon local market conditions. CMP’s advertising contracts are generally short-term. CMP generates most of its revenue from local and regional advertising, which is sold primarily by a station’s sales staff. Local and regional advertising represented approximately 79.3% of CMP’s total revenues in the three months ended March 31, 2011, 77.2% of CMP’s total revenues in 2010, 79.4% of CMP’s total revenues in 2009 and 80.0% of CMP’s total revenue in 2008.

Results of Operations

 

Analysis of Consolidated Statements of Operations

 

The following analysis of selected data from CMP’s consolidated statements of operations should be referred to while reading the results of operations discussion that follows:

 

 

 

 

Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010

 

Net Revenues

 

Net revenues for the three months ended March 31, 2011 increased $1.2 million, or 3.2%, to $39.1 million compared to $37.9 million for the three months ended March 31, 2010, primarily due to increases of $1.6 million in local and regional revenue and $0.5 million in network advertising contracts, offset by a $0.9 million decrease in national revenue.

 

Station Operating Expenses (Excluding Depreciation and Amortization and including LMA Fees)

 

Station operating expenses for the three months ended March 31, 2011 increased $1.0 million, or 4.5%, to $23.7 million compared to $22.7 million for the three months ended March 31, 2010. This increase is primarily due to a $1.0 million increase in legal fees, which includes $0.5 million of out of period costs.

Depreciation and Amortization

 

Depreciation and amortization was $2.1 million for each of the three months ended March 31, 2011 and 2010.

 

Corporate General and Administrative Expenses

 

Corporate general and administrative expenses for the three months ended March 31, 2011, increased $0.7 million, or 40.2%, to $2.5 million compared to $1.8 million for the three months ended March 31, 2010, primarily due to increases of $0.4 million in costs related to the pending acquisition by Cumulus and $0.3 million in professional fees.

 

Interest Expense, net

 

Interest expense, net for the three months ended March 31, 2011 decreased $1.5 million, or 19.8%, to $6.2 million compared to $7.8 million for the three months ended March 31, 2010. Interest expense associated with outstanding debt decreased by $0.3 million to $5.1 million as compared to $5.4 million in the prior year’s period. This decrease was primarily due to a decrease in the borrowing base due to the pay-down of approximately $115.6 million of outstanding debt. Additionally, interest expense decreased by $1.3 million related to the change in fair value of CMP’s interest rate swap (the “2008 Swap”). The following summary details the components of CMP’s interest expense, net of interest income:

 

 

 

 

Income Tax Expense

 

CMP recorded income tax expense of $2.5 million for the three months ended March 31, 2011 and $2.1 million for the three months ended March 31, 2010. The change was primarily due to the increase in pre-tax income of $1.0 million during the three months ended March 31, 2011 as compared to the prior period.

 

CMP Station Operating Income

 

As a result of the factors described above, CMP Station Operating Income for the three months ended March 31, 2011 increased $0.1 million, or 1.1%, to $15.3 million compared to $15.2 million for the three months ended March 31, 2010.

 

For discussion of CMP Station Operating Income, including reconciliation to operating income (loss), the most directly comparable measure calculated in accordance with GAAP, see footnote 1 to CMP’s selected historical financial data under “Selected Historical Consolidated Financial Information” included elsewhere in this proxy statement.

Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009

 

Net Revenues

 

Net revenues for the year ended December 31, 2010 increased $12.8 million, or 7.3%, to $188.7 million compared to $175.9 million for the year ended December 31, 2009, primarily due to increases of $4.8 million in national revenue, $2.1 million in political revenue and $5.9 million in local revenue.

 

Station Operating Expenses (Excluding Depreciation and Amortization and Including LMA Fees)

 

Station operating expenses for the year ended December 31, 2010 increased $2.1 million, or 2.1%, to $103.1 million compared to $101.0 million for the year ended December 31, 2009. This increase is primarily due to a $2.3 million increase in sales commission expense associated with an increase in revenues, offset by a $0.2 million decrease in expenses generally.

 

Depreciation and Amortization

 

Depreciation and amortization for the year ended December 31, 2010 increased $0.3 million, or 4.2%, to $8.5 million compared to $8.2 million for the year ended December 31, 2009, as a result of capital expenditures of $0.8 million and $1.4 million in 2010 and 2009, respectively.

 

Corporate General and Administrative Expenses

 

Corporate general and administrative expenses for the year ended December 31, 2010 decreased $2.3 million, or 21.5%, to $8.4 million compared to $10.7 million for the year ended December 31, 2009, primarily due to a decrease of $3.0 million in franchise tax expense offset by a $0.6 million increase in professional fees and a $0.1 million increase attributable to miscellaneous expenses.

 

Impairment of Intangible Assets and Goodwill

 

CMP recorded approximately $3.3 million and $210.0 million of charges related to the impairment of intangible assets and goodwill for the years ended December 31, 2010 and 2009, respectively. The impairment loss is related to the impairment of broadcast licenses in 2010 and 2009, recorded in conjunction with CMP’s annual and interim impairment testing. See “Critical Accounting Policies and Estimates” and “— Intangible Assets (Including Goodwill)” below, as well as Note 4, “Intangible Assets and Goodwill,” in the notes to CMP’s audited consolidated financial statements included elsewhere in this proxy statement.

 

Interest Expense, Net

 

Interest expense, net for the year ended December 31, 2010 decreased $6.3 million, or 18.3%, to $28.2 million compared to $34.5 million for the year ended December 31, 2009. Interest expense associated with outstanding debt decreased by $0.5 million to $23.2 million as compared to $23.7 million in the prior year’s period. This decrease was primarily due to a decrease in the borrowing base due to the pay-down of approximately $99.0 million of outstanding debt compared to the prior year. Additionally, interest expense decreased by $5.7 million related to the fair value of CMP’s interest rate swap agreement (the “2008 Swap”).

These decreases were offset by a $0.3 million increase in the yield adjustment on the 2008 Swap. The following summary details the components of CMP’s interest expense, net of interest income:

 

 

 

 

CMP Station Operating Income

 

As a result of increased revenue, partially offset by an increase in station operating expense, both as described above, CMP Station Operating Income for the year ended December 31, 2010 increased $10.6 million, or 14.2%, to $85.6 million compared to $74.9 million for the year ended December 31, 2009.

 

Intangible Assets (Including Goodwill)

 

Intangible assets, net of amortization, were $322.9 million and $326.7 million as of December 31, 2010 and 2009, respectively. The intangible asset balances primarily consist of broadcast licenses and goodwill. Intangible assets, net, decreased in 2010 from the prior year primarily due to a $3.3 million impairment charge taken on broadcast licenses during the year ended December 31, 2010, in connection with CMP’s impairment evaluations in the fourth quarter of 2010 and a $0.5 million increase in the amortization of definite-lived assets in 2010.

 

Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008

 

Net Revenues

 

Net revenues for the year ended December 31, 2009 decreased $36.5 million, or 17.2%, to $175.9 million compared to $212.4 million for the year ended December 31, 2008, primarily due to the impact of the economic recession during that period which led to decreases of $29.1 million in local revenue, $4.8 million in national revenue and $2.6 million in political revenue.

 

Station Operating Expenses (Excluding Depreciation and Amortization and Including LMA Fees)

 

Station operating expenses for the year ended December 31, 2009 decreased $27.7 million, or 21.5%, to $101.0 million compared to $128.7 million for the year ended December 31, 2008, primarily due to the impact of CMP’s cost containment initiatives in 2009, including but not limited to, a $17.1 million decrease in salaries and related expenses, a $4.3 million decrease in advertising and promotions, and a reduction of $3.8 million related to broadcast rights, with the remaining $2.5 million attributable to a reduction in other general expenses.

 

Depreciation and Amortization

 

Depreciation and amortization for the year ended December 31, 2009 decreased $0.8 million, or 8.7%, to $8.2 million compared to $9.0 million for the year ended December 31, 2008. This decrease was related to a decrease in the depreciable asset base due to certain assets becoming fully depreciated in 2008.

Corporate General and Administrative Expenses

 

Corporate general and administrative expenses for the year ended December 31, 2009 increased $3.2 million, or 43.3%, to $10.7 million compared to $7.5 million for the year ended December 31, 2008, primarily due to an increase of $3.3 million in franchise tax expense, partially offset by a decrease of $0.1 million attributable to miscellaneous expenses.

 

Gain on Disposals of Assets or Stations

 

During the year ended December 31, 2008, CMP recognized a gain of approximately $0.7 million related to the gain on casualty loss and insurance recoveries from losses associated with Hurricane Ike, which in September 2008 caused damage to certain of CMP’s towers located in Houston, Texas.

 

Impairment of Long-Term Investments

 

During the year ended December 31, 2008, CMP recorded impairment charges of approximately $3.0 million associated with long-term investments that were written off. There were no similar charges incurred in 2009.

 

Impairment of Intangible Assets and Goodwill

 

CMP recorded approximately $209.9 million and $687.8 million of charges related to the impairment of intangible assets and goodwill for the years ended December 31, 2009 and 2008, respectively. The charges are related to the impairment of broadcast licenses in both 2009 and 2008 and the impairment of goodwill in 2008, recorded in conjunction with CMP’s annual and interim impairment testing. See “Critical Accounting Policies and Estimates” and “— Intangible Assets (Including Goodwill)” below, as well as Note 4, “Intangible Assets and Goodwill,” in the notes to CMP’s audited consolidated financial statements included elsewhere in this proxy statement.

 

Interest Expense, Net

 

Interest expense, net for the year ended December 31, 2009 decreased $36.8 million, or 51.7%, to $34.5 million compared to $71.3 million for the year ended December 31, 2008. Interest expense associated with outstanding debt decreased by $36.7 million to $23.7 million as compared to $60.4 million in 2008. This decrease was primarily due to a $161.5 million net decrease in the borrowing base due to the CMP 2009 Exchange Offer and the pay-down of approximately $42.5 million of outstanding debt. See “— CMP 9.875% Notes — Troubled Debt Restructuring — 2009” below, as well as Note 8, “Long-Term Debt,” in the notes to CMP’s audited consolidated financial statements included elsewhere in this proxy statement.

 

The following summary details the components of CMP’s interest expense, net of interest income:

 

 

 

 

CMP Station Operating Income

 

As a result of decreased revenue, partially offset by a decrease in station operating expense, both as described above, CMP Station Operating Income for the year ended December 31, 2009 decreased $8.8 million, or 10.5%, to $74.9 million compared to $83.7 million for the year ended December 31, 2008.

 

Intangible Assets (Including Goodwill)

 

Intangible assets, net of amortization, were $326.7 million and $537.1 million as of December 31, 2009 and 2008, respectively. The intangible asset balances primarily consist of broadcast licenses and goodwill. Intangible assets, net, decreased from 2008 primarily due to a $209.9 million impairment charge taken on broadcast licenses for the year ended December 31, 2009, based on the results of CMP’s impairment evaluations in the third and fourth quarters of 2009 and a $0.7 million increase in the amortization of definite-lived intangible assets, partially offset by the purchase of $0.2 million in intangible assets.

 

Seasonality

 

CMP’s operations and revenues are seasonal in nature, with generally lower revenue generated in the first quarter of the year and generally higher revenue generated in the second and fourth quarters of the year. The seasonality of CMP’s business reflects the adult orientation of CMP’s formats and relationship between advertising purchases on these formats with the retail cycle. This seasonality causes, and will likely continue to cause, a variation in CMP’s quarterly operating results. Such variations could have an effect on the timing of CMP’s cash flows. Historical results of any interim or annual period are not necessarily indicative of results to be expected in any future interim or annual period.

 

Liquidity and Capital Resources

 

Historically, CMP’s principal needs for liquidity have been to fund expenses associated with station and corporate operations, capital expenditures, payment of the management fee and expenses under the Cumulus Media management agreement, interest and debt service payments, as well as acquisitions of radio stations.

 

The following table summarizes CMP’s historical funding needs for the years ended December 31, 2010, 2009 and 2008:

 

 

CMP’s principal sources of funds for these requirements have been, and are expected to continue to be, cash flows from operations and cash flows from financing activities, such as borrowings under the CMPSC Credit Facilities. CMP’s cash flows from operations are subject to such factors as shifts in population, station listenership, demographics, audience tastes and fluctuations in preferred advertising media. In addition, borrowings under financing arrangements are subject to compliance with financial and operational covenants that can restrict our financial flexibility. Further, CMP’s ability to obtain additional equity or debt financing is also subject to market conditions and operating performance. CMP has assessed the implications of these factors on its current business and based on its financial condition as of March 31, 2011 (and after giving effect to the matters described below under “— KC LLC”), CMP determined that cash on hand and cash expected to be generated from operating activities and if necessary, further financing activities should be sufficient to satisfy its anticipated financing needs for working capital, capital expenditures, interest and debt service payments and repurchases of debt obligations through March 31, 2012. However, given the uncertainty of CMP’s markets’ cash flows, there can be no assurance that cash generated from operations will be

sufficient or financing will be available at terms, and on the timetable, that may be necessary to meet its future capital needs.

 

If CMP’s revenues were to be significantly less than planned due to difficult market conditions or for other reasons, CMP’s ability to maintain compliance with the financial covenants in the CMPSC Credit Agreement would become increasingly difficult without remedial measures, such as the implementation of further cost abatement initiatives. If CMP’s remedial measures were not successful in maintaining covenant compliance, then CMP would need to negotiate with its lenders for relief, which could divert management time and attention, result in higher interest expense or other fees or costs, or could result in a default under any applicable agreements. No assurances can be provided that any necessary amendment or waiver could be obtained in a timely manner, or at all, or the costs thereof.

 

Cash Flows Provided by Operating Activities

 

 

For the three months ended March 31, 2011, net cash provided by operating activities increased $5.2 million as compared to the three months ended March 31, 2010. The increase was primarily due to an increase of $6.8 million in accounts payable due to the timing of certain payments partially offset by a $0.4 million decrease in accounts receivable and prepaid expenses. For the year ended December 31, 2010, net cash provided by operating activities increased $5.3 million as compared to the year ended December 31, 2009. The increase was primarily due to a $68.5 million increase in net income, an $86.9 million increase in non-cash gain on extinguishment of debt in 2009 which did not recur and a $67.8 million change in deferred taxes resulting from the impact of then-current and prior period impairment charges and the use of deferred tax assets in 2010. These increases were partially offset by a $206.6 million decline in impairment charges and $11.4 million related to the impact of the change in fair value of the 2008 Swap and other changes in working capital. For the year ended December 31, 2009, net cash provided by operating activities increased $15.6 million as compared to the year ended December 31, 2008. The increase was due to a $496.2 million increase in net income and a $75.4 million change in deferred taxes resulting from the impact of then-current and prior period impairment charges. These increases were partially offset by a $477.9 million decline in impairment charges, a $66.0 million increase in gain on extinguishment of debt and $12.1 million related to the impact of the change in fair value of the 2008 Swap and other changes in working capital.

 

Cash Flows (Used in) Provided by Investing Activities

 

 

For the three months ended March 31, 2011, net cash used in investing activities remained flat at $0.3 million and was for capital expenditures. For the year ended December 31, 2010, net cash used in investing activities decreased $1.1 million, primarily due to a $0.6 million decrease in capital expenditures and $0.4 million in insurance recoveries from losses associated with Hurricane Ike. Net cash used in investing activities increased $2.3 million for the year ended December 31, 2009 compared to the year ended December 31, 2008. The decrease is primarily due to a $1.0 million decrease in insurance recoveries from losses associated with Hurricane Ike and a $2.5 million decrease in proceeds from the sale of assets, partially offset by a $1.3 million decrease in capital expenditures year over year.

Cash Flows (Used in) Provided by Financing Activities

 

 

For the three months ended March 31, 2011, net cash used in financing activities increased $16.6 million as compared to the three months ended March 31, 2010, primarily due to the increased levels of repayment of debt in the three months ended March 31, 2011 as compared to the same period in 2010. For the year ended December 31, 2010, net cash used in financing activities increased $59.4 million, primarily due to repaying an additional $56.5 million of debt in 2010 as compared to 2009 and a decrease of $5.5 million in bank borrowings, partially offset by $2.6 million in costs related to the CMP 2009 Exchange Offer, which did not recur in 2010. For the year ended December 31, 2009, net cash used in financing activities increased $99.6 million compared to the year ended December 31, 2008, primarily due to repayment of borrowings under the senior secured credit facilities of CMPSC and KC LLC in 2009 and proceeds from borrowings received in 2008.

 

CMPSC Credit Facilities and Senior Notes

 

In May 2006, CMPSC entered into a $700.0 million term loan facility and a $100.0 million revolving credit facility, which together comprise the CMPSC Credit Facilities, and issued $250.0 million in CMP 9.875% Notes, as described below. At the closing of these transactions, CMPSC drew on only the $700.0 million term loan, plus $3.3 million in letters of credit to cover workers’ compensation claims from a predecessor entity, reducing availability on the revolving bank facility to $96.7 million. CMPSC is charged a commitment fee of 0.5% on the unused portion of the revolving credit facility. As of March 31, 2011, CMPSC had approximately $95.4 million of remaining availability under its revolving credit facility.

 

Obligations under the CMPSC Credit Agreement are collateralized on a first-priority lien basis by substantially all of CMPSC’s assets in which a security interest may lawfully be granted (including FCC licenses held by its subsidiaries) including, without limitation, intellectual property and all of the capital stock of CMPSC’s direct and indirect subsidiaries. In addition, CMPSC’s obligations under the CMPSC Credit Facilities are guaranteed by its subsidiaries.

 

The term loan has a repayment schedule that has required quarterly principal payments of 0.25% of the original loan since September 30, 2006. Any unpaid balance on the revolving credit facility is due May 2012 and the term loan is due May 2013.

 

The representations, covenants and events of default in the CMPSC Credit Agreement are customary for financing transactions of this nature. Events of default in the CMPSC Credit Agreement include, among others, (i) the failure to pay when due the obligations owing under the CMPSC Credit Facilities; (ii) the failure to comply with (and not timely remedy, if applicable) certain covenants; (iii) cross-defaults and cross-accelerations; (iv) the occurrence of bankruptcy or insolvency events; (v) certain judgments against CMPSC or any of its subsidiaries; (vi) the loss, revocation or suspension of, or any material impairment in the ability to use, any of CMPSC’s material FCC licenses; (vii) any representation or warranty made, or report, certificate or financial statement delivered, to the lenders subsequently proven to have been incorrect in any material respect; (viii) the occurrence of a Change in Control (as defined in the CMPSC Credit Agreement); and (ix) violation of certain financial covenants. Upon the occurrence of an event of default, the lenders may terminate the loan commitments, accelerate all outstanding loans and exercise any of their rights under the CMPSC Credit Agreement and the ancillary loan documents as a secured party.

As mentioned above, the CMPSC Credit Agreement contains certain customary financial covenants, including:

 

 

The maximum total leverage ratio in the CMPSC Credit Agreement becomes more restrictive over the remaining term of the CMPSC Credit Agreement.

 

Management of CMP believes CMP will continue to be in compliance with all of the CMPSC Credit Agreement debt covenants through at least March 31, 2012.

 

In accordance with the terms of the CMPSC Credit Agreement, an excess cash flows payment of $16.6 million was made in the first quarter of 2011.

 

2008 Swap

 

On June 12, 2008, CMP entered into the 2008 Swap which effectively fixed the interest rate, based on LIBOR, on $200.0 million of CMPSC’s floating rate borrowings for a three-year period. For further discussion, see Note 3, “Derivative Financial Instruments,” in the notes to CMP’s unaudited consolidated financial statements included elsewhere in this proxy statement.

 

The interest rate for the term loan is 2.0% above LIBOR or 1.0% above the alternate base rate. The effective interest rate exclusive of the impact of the 2008 Swap on the loan amount outstanding under the CMPSC Credit Facilities was 2.4% as of March 31, 2011 and 2.3% as of December 31, 2010 and 2009. The effective interest rate as of March 31, 2011 and December 31, 2010 and 2009, inclusive of the 2008 Swap, was 3.5%, 3.4% and 3.3%, respectively. The revolving credit facility rate is variable based on the levels of leverage of CMPSC, and ranges from 1.8% to 2.3% above LIBOR and from 0.8% to 1.3% above the alternate base rate.

 

Amendment to CMPSC Credit Agreement

 

On May 11, 2009, in connection with the CMP 2009 Exchange Offer described below, CMPSC entered into an amendment to the CMPSC Credit Agreement. This amendment maintained the preexisting term loan facility under the CMPSC Credit Facilities, but reduced availability under the revolving credit facility thereunder from $100.0 million to $95.4 million (after giving effect to a repayment and permanent reduction in available credit of approximately $4.6 million).

 

The amendment also increased certain pre-existing restrictions, including with respect to acquisitions, which per the amendment are limited to an aggregate of $20.0 million unless such acquired entities are added as loan parties, and the ability to undertake certain corporate transactions.

 

CMP 9.875% Notes

 

In May 2006, CMPSC issued $250.0 million in CMP 9.875% Notes. The CMP 9.875% Notes have an interest rate of 9.875% and mature in May 2014. Radio Holdings and certain of its subsidiaries are guarantors under the CMP 9.875% Notes.

 

Troubled Debt Restructuring — 2009

 

The severe recession experienced in 2008 and 2009, plus a material decline in automotive advertising, had adverse effects on CMPSC’s ability to generate revenues and remain in compliance with its debt covenants. On March 26, 2009, CMPSC completed the CMP 2009 Exchange Offer for $175.5 million aggregate principal amount of CMP 9.875% Notes, which represented 93.5% of the total principal amount outstanding, for $14.0 million aggregate principal amount of CMP 2014 Notes, 3,273,633 shares of Radio Holdings Preferred Stock and 3,740,893 Radio Holdings Warrants.

In conjunction with the CMP 2009 Exchange Offer, Radio Holdings and the subsidiary guarantors named therein, and Wells Fargo Bank, N.A., as trustee, entered into a supplemental indenture to amend the indenture governing the CMP 9.875% Notes, with the requisite consents from eligible holders of the CMP 9.875% Notes. The amendments to the indenture eliminated substantially all of the restrictive covenants (other than, among other covenants, the covenant to pay interest and premium, if any, on, and principal of, the CMP 9.875% Notes when due), certain events of default and other related provisions in the indenture.

 

Early Extinguishment of Debt — 2008

 

In 2008, CMP repurchased and canceled $55.1 million of the CMP 9.875% Notes in open market transactions. The purchase price was $22.6 million less than the face value of the repurchased CMP 9.875% Notes and CMP recognized the $1.7 million charge for unamortized deferred financing costs as a net gain on early extinguishment of debt in 2008.

 

CMP 2014 Notes

 

Interest on the CMP 2014 Notes accrues at a floating rate equal to LIBOR plus 3.0% and is payable semiannually on May 15 and November 15 of each year, beginning on May 15, 2009. The CMP 2014 Notes will mature on May 15, 2014.

 

The CMP 2014 Notes are secured by second-priority liens on tangible and intangible assets of CMPSC and its subsidiaries to the extent they can be perfected by the filing of financing statements or other similar registrations and are permitted under agreements governing CMPSC’s other indebtedness, including the CMPSC Credit Agreement. Pledged assets do not include shares of capital stock of CMPSC or any of its subsidiaries or debt securities held by CMPSC or any of its subsidiaries.

 

The CMP 2014 Notes are (i) general obligations of CMPSC; (ii) secured on a second-priority basis by a security interest in substantially all of CMPSC’s existing and future assets to the extent pledged and assigned to the CMP 2014 Notes trustee pursuant to the security agreement in favor of the holders of the CMP 2014 Notes, subject and subordinate to certain permitted priority liens; (iii) subordinated to all first-priority senior secured indebtedness of CMPSC (including the CMPSC Credit Facilities); (iv) effectively senior to all unsecured indebtedness of CMPSC; and (v) initially guaranteed on a second-priority senior secured subordinated basis by CMPSC’s direct parent Radio Holdings and each subsidiary of CMPSC that guarantees the senior secured credit facilities. Each guarantee of the CMP 2014 Notes is a second-priority senior subordinated secured obligation of the guarantor and is subordinated in right of payment to all existing and future first-priority senior indebtedness of such guarantor, including each guarantor’s guarantee of CMPSC’s obligations under the CMPSC Credit Facilities and structurally subordinated to all existing and future indebtedness of non-guarantor subsidiaries of CMPSC.

 

The indenture governing the CMP 2014 Notes (the “CMP 2014 Notes Indenture”) contains covenants that limit CMPSC’s ability and the ability of its restricted subsidiaries to, among other things, (i) incur additional indebtedness or issue certain preferred shares; (ii) pay dividends on or make distributions in respect of CMPSC’s capital stock or make other restricted payments; (iii) make certain investments; (iv) sell certain assets; (v) create liens on certain assets to secure debt; (vi) consolidate, merge, sell or otherwise dispose of all or substantially all of CMPSC’s assets; and (vii) designate CMPSC’s subsidiaries as unrestricted subsidiaries. The CMP 2014 Notes Indenture also contains a covenant providing that, to the extent required to permit holders of CMP 2014 Notes (other than affiliates of CMPSC) to sell their CMP 2014 Notes without registration under the Securities Act, CMPSC or Radio Holdings will make publicly available the information concerning CMPSC or Radio Holdings as specified in Rule 144(c)(2) under the Securities Act.

 

CMPSC may redeem some or all of the CMP 2014 Notes at any time after the issue date at redemption price equal to 100% of their principal amount, plus any accrued and unpaid interest through the redemption date.

 

Upon the occurrence of a “Change of Control” (as defined in the CMP 2014 Notes Indenture), each holder of the CMP 2014 Notes will have the right to require CMPSC to repurchase all of such holder’s CMP

2014 Notes at a repurchase price equal to 101% of the aggregate principal amount, plus any accrued and unpaid interest through the repurchase date.

 

The CMP 2014 Notes Indenture contains events of default that are customary for agreements of this type, including failure to make required payments, failure to comply with certain agreements or covenants, failure to pay certain other indebtedness and the occurrence of certain events of bankruptcy and insolvency and certain judgment defaults.

 

KC LLC

 

In May 2006, KC LLC entered into a $72.4 million term loan facility and a $26.0 million revolving credit facility under the CMP KC Credit Facility. At the closing of the transactions by which CMP was formed, KC LLC drew on the $72.4 million term loan, plus $5.0 million in letters of credit, reducing availability on the revolving credit facility to $21.0 million. KC LLC is charged a commitment fee of 0.5% on the unused portion of the revolving credit facility.

 

The interest rate on KC LLC’s term loan is 4.0% above LIBOR or 3.0% above the alternate base rate. The revolving credit facility rate was variable based on the levels of leverage of KC LLC, and ranged from 1.75% to 2.25% above LIBOR and from 0.75% to 1.25% above the alternate base rate for all relevant periods.

 

The term loan has a repayment schedule that requires quarterly principal payments payable at the end of each quarter equal to 0.25% of the original loan. The unpaid balance on the revolving credit facility became due in March 2010 and the term loan became due in May 2011.

 

Obligations under the CMP KC Credit Facility are collateralized by substantially all of KC LLC’s assets in which a security interest may lawfully be granted (including FCC licenses held by its subsidiaries), including, without limitation, intellectual property and all of the capital stock of KC LLC’s direct and indirect subsidiaries.

 

The representations, covenants and events of default in the credit agreement governing the CMP KC Credit Facility (the “KC LLC Credit Agreement”) are customary for financing transactions of this nature.

 

On January 21, 2010, KC LLC received a notice of default pertaining to the KC LLC Credit Agreement from the administrative agent thereunder (the “Agent”). The notice of default referenced the failure of KC LLC to make the scheduled principal and interest payments that were due and payable under the KC LLC Credit Agreement on December 31, 2009. Under the notice of default and pursuant to the KC LLC Credit Agreement, the Agent accelerated all obligations under the KC LLC Credit Agreement, declaring the unpaid principal amount of all outstanding loans, accrued and unpaid interest, and all amounts due under the KC LLC Credit Agreement to be immediately due and payable.

 

Accordingly, CMP classified all amounts due under the KC LLC Credit Agreement as current or approximately $85.5 million of debt outstanding thereunder was classified as current on its consolidated balance sheets as of March 31, 2011, and CMP had an approximately $64.4 million working capital deficit as of March 31, 2011. If the KC Restructuring (defined herein) is completed in accordance with the terms and conditions of the KC Restructuring Agreement (as defined in this section below), CMP expects that such outstanding debt will be eliminated from its consolidated balance sheets.

 

Furthermore, under the terms of the KC LLC Credit Agreement, interest on the outstanding loans thereunder, all accrued interest and any other amounts due began to accrue interest on December 31, 2009 at a default rate. Such default rate provides for interest at 2.0% per year in excess of the rate of interest generally provided for in the KC LLC Credit Agreement. Under the terms of the KC LLC Credit Agreement the Agent may, and at the request of a majority of the lenders thereunder shall, exercise all rights and remedies available to the Agent and the lenders under law. These remedies include but are not limited to seeking a judgment from KC LLC for the monies owed and enforcing the liens granted to the lenders, commencing foreclosure proceedings relative to the assets of KC LLC. CMP has held preliminary discussions with the Agent and certain of the lenders, who to date have not commenced any remedial actions.

Neither the default under the KC LLC Credit Agreement, the acceleration of all sums due thereunder, nor the exercise of any of the remedies in respect thereof by the Agent or the lenders, constitute a default under the CMPSC Credit Agreement, nor provide the lenders thereunder any contractual right or remedy. Further, neither CMPSC nor any of its subsidiaries has provided any guarantee with respect to the KC LLC Credit Facilities.

 

On February 4, 2011, CMP entered into a restructuring support agreement (the “KC Restructuring Agreement”) along with Radio Holdco and KC LLC regarding the restructuring of KC LLC’s debt with the lenders under the CMP KC Credit Facility (the “KC Restructuring”). The KC Restructuring is expected to be implemented through a pre-packaged plan of reorganization filed with the United States Bankruptcy Court for the District of Delaware (the “Pre-packaged Bankruptcy Proceeding”). CMP expects that the Pre-packaged Bankruptcy Proceeding will occur, and the KC Restructuring will be completed during the third quarter of 2011. If the KC Restructuring is completed in accordance with the terms and conditions of the KC Restructuring Agreement, among other things: (i) Radio Holdco will distribute all of the outstanding common stock of Radio Holdco to CMP; (ii) KC LLC’s outstanding debt and interest of $94.8 million at March 31, 2011 will be reduced to $20.0 million; (iii) all of the equity of Radio Holdco will be transferred to the lenders under the CMP KC Credit Facility or their nominee; and (iv) Cumulus Media will continue to manage the radio stations of KC LLC in 2011, subject to annual renewal of the management arrangement thereafter. As a result, CMP will no longer have an ownership interest in KC LLC.

 

Critical Accounting Policies and Estimates

 

CMP believes the critical accounting policies and estimates described in “Item 7. Management’s Discussion of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in Cumulus Media’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which is incorporated by reference in this proxy statement, are the critical accounting policies that affect its more significant judgments, with any differences described below.

 

Intangible Assets and Goodwill

 

In conducting the annual impairment test of indefinite-lived intangibles and goodwill, CMP generally used the same approaches and considerations as Cumulus Media, and as described in “Item 7. Management’s Discussion of Financial Condition and Results of Operations — Intangible Assets and Goodwill” in Cumulus Media’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which is incorporated by reference in this proxy statement. For the years ended December 31, 2010, 2009 and 2008, CMP recorded aggregate impairment charges of $3.3 million, $209.9 million and $687.8 million, respectively, to reduce the carrying value of certain broadcast licenses and goodwill to their respective fair market values. As of March 31, 2011, no impairment indicators existed and CMP determined intangible assets and goodwill were appropriately stated. As of March 31, 2011, CMP had $322.7 million in intangible assets and goodwill, which represented approximately 79.1% of its total assets.

 

Indefinite-Lived Intangibles (FCC Licenses)

 

In conducting the annual impairment test of indefinite-lived intangibles (FCC licenses), CMP generally used the same approaches and considerations as Cumulus Media, and as described in “Item 7. Management’s Discussion of Financial Condition and Results of Operations — Indefinite Lived Intangibles (FCC Licenses)” in Cumulus Media’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which is incorporated by reference in this proxy statement. Based on the results of the annual impairment test, CMP determined that the carrying value of certain reporting units’ FCC licenses exceeded its fair values as of December 31, 2010. Accordingly, CMP recorded impairment charges of $3.3 million based on the results of this test to reduce the carrying value of these assets as of such date. Additionally the table below contains

CMP’s reporting units which were not impaired but whose estimated values were close to the carrying value as of December 31, 2010:

 

 

Trade Agreements

 

CMP provides certain of its commercial airtime in exchange for certain goods and services used principally for promotional, sales and other business activities. An asset and liability is recorded at the fair market value of the goods or services received. Trade revenue is recorded and the liability is relieved when commercials are broadcast. Trade expense is recorded and the asset relieved when goods or services are consumed.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, CMP evaluates its estimates, including those related to bad debts, intangible assets, derivative financial instruments, income taxes, and contingencies and litigation. CMP bases its estimates on historical experience and on various assumptions that are believed to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

 

Summary Disclosures About Contractual Obligations and Commercial Commitments

 

The following table reflects a summary of CMP’s contractual cash obligations and other commercial commitments as of December 31, 2010:

 

 

 

 

Off-Balance Sheet Arrangements

 

CMP did not have any off-balance sheet arrangements as of March 31, 2011.

 

Recent Accounting Pronouncements

 

For a discussion of certain recent accounting pronouncements applicable to CMP, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Accounting Pronouncements” in Cumulus Media’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which is incorporated by reference in this proxy statement. None of such pronouncements had a material impact on CMP’s financial position, results of operations or cash flows, although some of those accounting pronouncements did require CMP to make additional disclosures.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

As March 31, 2011, there were no changes in or disagreements with CMP’s accountants on accounting and financial disclosure.

 

Qualitative and Quantitative Disclosures About Market Risk

 

Interest Rate Risk

 

At March 31, 2011, 67.8% of CMP’s long-term debt was bearing interest at variable rates. Accordingly, CMP’s earnings and after-tax cash flow are affected by changes in interest rates. Assuming the current level of borrowings at variable rates and assuming a one percentage point change in the average interest rate under these borrowings for the three months ended March 31, 2011, it is estimated that CMP’s interest expense and net income would have changed by $1.1 million during the three months ended March 31, 2011. In the event of an adverse change in interest rates, CMP’s management would likely take actions, in addition to the interest rate swap agreement discussed above, to mitigate CMP’s exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, additional analysis is not possible at this time. Further, such analysis would not consider the effects of the change in the level of overall economic activity that could exist in such an environment.

 

The following tables present selected historical consolidated financial information for each of Cumulus Media and CMP as of and for the three months ended March 31, 2011 and March 31, 2010 and the fiscal years ended December 31, 2010, 2009, 2008, 2007 and 2006. This information should be read in conjunction with our audited consolidated financial statements and the related notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations” set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, each incorporated by reference herein and “CMP Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes of CMP, each of which is included or incorporated by reference in this proxy statement.