EXHIBIT 99.1

Certain Information Excerpted from the Company’s Preliminary Offering Memorandum and Disclosed Pursuant to Regulation FD

Cautionary statement regarding forward-looking statements

 

In various places herein, we use statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts, and may include statements relating to our future plans, objectives, expectations and intentions regarding industry and general economic trends, our expected financial position, results of operations or market position and business strategy. Such statements can generally be identified by words such as “may”, “target”, “could”, “would”, “will”, “should”, “anticipate”, “believe”, “expect”, “intend”, “estimate”, “seek”, “project”, “plan” and similar expressions. These forward-looking statements involve known and unknown risks and uncertainties, including those discussed under the heading “Risk factors” and as otherwise may be described in our periodic filings with the SEC, that may cause our actual results to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause our actual results to differ materially from those made or implied by forward-looking statements include, but are not limited to:

 

 

Many of these factors are beyond our control or difficult to predict and we cannot be certain that any of the events anticipated by the forward-looking statements will occur or, if any of them do occur, what impact they will have on us. We assume no obligation to update any forward-looking statements as a result of new information or future events or developments.

We caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof.

 

 

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Certain terms used herein

 

Unless the context requires otherwise, or as specifically described below:

 

 

 

 

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Sources and uses

 

The following table summarizes the estimated sources and uses of proceeds in connection with the CMP Acquisition, the Citadel Acquisition and the Global Refinancing, including the Equity Investment. The amounts set out in the table below have been calculated assuming that all outstanding Citadel stock options are exercised and that holders of 50% of Citadel stock elect to receive cash and holders of 50% of Citadel stock elect to receive shares of Cumulus common stock, which results in a payout equal to the Maximum Stock Cap. These amounts are based on estimates and assumptions, which are inherently speculative and subject to change. The estimates and assumptions may not be representative of facts existing at the closing dates of the respective transactions including as a result of, among other things, the amount of cash and stock actually paid by Cumulus in the Citadel Acquisition, changes in our stock price, interest rates on borrowings and the financial condition and results of operations of each of us, CMP and Citadel, and our ability to recognize expected synergies from the Acquisitions. The following information should be read together with the information included under the headings “Risk factors,” “Unaudited pro forma condensed consolidated condensed financial information” and “Use of proceeds” included elsewhere.

 

 

 

Assuming the consummation of each of the CMP Acquisition and the Citadel Acquisition, and the completion of the Global Refinancing, including the Equity Investment, on January 1, 2010, we believe that, as of December 31, 2010 and based on an Overall Pro Forma Basis adjusted EBITDA for 2010, after giving effect to (i) all projected synergies from reductions in corporate overhead, cost of sales, mutual overlays and network operations of approximately $51.9 million in the aggregate (the majority of which we believe can be achieved within one year of the closing of the Citadel Acquisition), and (ii) contractual savings of $6.3 million in 2010 associated with the modification of the terms of our agreement with Nielsen in December 2010, we would have had a total debt to Adjusted EBITDA ratio of approximately 5.7:1.

 

 

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Preliminary financial data for the three months ended March 31, 2011

 

We, CMP and Citadel recently completed our respective three-month fiscal periods ended March 31, 2011.

 

Because the first quarter has only recently ended, the following unaudited financial data is, by necessity, preliminary in nature and based only upon information available to each of Cumulus, CMP and Citadel as of the date hereof. Each of our, CMP’s and Citadel’s financial position and results of operations for our respective three-month periods ended March 31, 2011 could differ materially from these estimates upon completion of our respective normal quarter-end closing procedures due to final adjustments and other developments that may arise prior to financial results for this period being finalized. The following financial data is subject to change:

 

 

 

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You should carefully consider the risks described below and all of the information contained or incorporated by reference herein in connection with a potential evaluation of the Company. The risks and uncertainties described below and in the incorporated documents are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially and adversely affect our business operations. If any of those risks actually occurs, our business, cash flows, financial condition and results of operations could suffer.

In addition, in certain instances, the exposure of our business to certain of these risks could potentially be greater after the consummation of each of the CMP Acquisition and the Citadel Acquisition, and we may become subject to additional risks. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. See “Cautionary statement regarding forward-looking statements”.

 

Risks related to our business

 

Our results of operations have been, and could continue to be, adversely affected by the recent downturn in the U.S. economy and in the local economies of the markets in which we operate.

 

Revenue generated by our radio stations depends primarily upon the sale of advertising. Advertising expenditures, which we believe to be largely a discretionary business expense, generally tend to decline during an economic recession or downturn. Furthermore, because a substantial portion of our revenue is derived from local advertisers, our ability to generate advertising revenue in specific markets is directly affected by local or regional economic conditions. Consequently, the recent recession in the national economy, and the economies of several individual geographic markets in which we own or operate stations, continues to adversely affect our advertising revenue and, therefore, our results of operations.

 

Even as the economy recovers from the recent recession, an individual business sector that tends to spend more on advertising than other sectors might be forced to reduce its advertising expenditures if that sector fails to recover on pace with the overall economy. If that sector’s spending represents a significant portion of our advertising revenues, any reduction in its expenditures may adversely affect our revenue.

 

We operate in a very competitive business environment, and a decrease in our ratings or market share would adversely affect our revenues.

 

The radio broadcasting industry is very competitive. The success of each of our stations depends largely upon rates it can charge for its advertising, the number of local advertising competitors, and the overall demand for advertising within individual markets. These conditions are subject to change and are highly susceptible to microeconomic and macroeconomic conditions. Any adverse change in a particular market affecting advertising expenditures, or any adverse change in the relative market share of the stations located in a particular market, could have a material adverse effect on the revenue of our radio stations located in that market. There can be no assurance that any one or all of our stations will be able to maintain or increase advertising revenue market share.

 

Audience ratings and market shares fluctuate, and any adverse change in a particular market could have a material adverse effect on the revenue of stations located in that market. While we already compete with other stations with comparable programming formats in many of our markets, any one of our stations could suffer a reduction in ratings or revenue and could require increased promotion and other expenses, and, consequently, could have a lower Station Operating Income, if:

 

 

 

The Telecommunications Act of 1996 (the “Telecom Act”) allows for the consolidation of ownership of radio broadcasting stations in the markets in which we operate or may operate in the future. Some competing consolidated owners may be larger and have substantially more financial and other resources than we do. In addition, increased consolidation in our target markets may result in greater competition for acquisition candidates and a corresponding increase in purchase prices we pay for these acquisitions, which could adversely impact our ability to complete or profit from acquisitions.

 

We must respond to the rapid changes in technology, services and standards that characterize our industry in order to remain competitive.

 

The radio broadcasting industry is subject to technological change, evolving industry standards and the emergence of new media technologies and services. In some cases, our ability to compete is dependent on our acquisition of new technologies and our provision of new services, and there can be no assurance that we will have the resources to acquire those new technologies or provide those new services; in other cases, the introduction of new technologies and services, including online music services, could increase competition and have an adverse effect on our revenue. Recent new media technologies and services include the following:

 

 

We also cannot assure that we will continue to have the resources to acquire other new technologies or to introduce new services that could compete with other new technologies. We cannot predict the effect, if any, that competition arising from new technologies may have on the radio broadcasting industry or on our business.

 

We face many unpredictable business risks that could have a material adverse effect on our future operations.

 

Our operations are subject to many business risks, including certain risks that specifically influence the radio broadcasting industry. These include:

 

 

 

Given the inherent unpredictability of these variables, we cannot with any degree of certainty predict what effect, if any, these risks will have on our future operations. Any one or more of these variables may have a material adverse effect on our future operations.

 

There are risks associated with our acquisition strategy.

 

We intend to continue to grow through the pending Acquisitions and by acquiring radio station clusters and individual radio stations in the future. We cannot predict whether we will be successful in pursuing these acquisitions or what the consequences of these acquisitions will be. Consummation of our pending Acquisitions are, and any acquisitions in the future may be, subject to various conditions, such as compliance with FCC and antitrust regulatory requirements. The FCC requirements include:

 

 

The antitrust regulatory requirements include:

 

 

Completion of any acquisition may also only be approved subject to our compliance with certain conditions. These conditions may be onerous, and may include the requirement that we divest certain assets, which may include stations we already own or we propose to acquire. We cannot be certain whether any of these conditions will be satisfied, the timing thereof, or the potential impact on us any such conditions may have. In addition, the FCC has in the past asserted the authority to review levels of local radio market concentration as part of its acquisition approval process, even where proposed assignments would comply with the numerical limits on local radio station ownership in the FCC’s rules and the Communications Act of 1934, as amended (the “Communications Act”).

 

Our acquisition strategy involves numerous other risks, including risks associated with:

 

 

 

We cannot be certain that we will be able to successfully integrate any acquisitions or manage the resulting business effectively, or that any acquisition will achieve the benefits that we anticipate. In addition, we are not certain that we will be able to acquire properties at valuations as favorable as those of previous acquisitions. Depending upon the nature, size and timing of potential future acquisitions, we may be required to raise additional financing in order to consummate additional acquisitions. For example, as described in more detail elsewhere herein, in connection with the Citadel Acquisition, we entered into the Debt Commitment in order to undertake the Global Refinancing to be able to complete that acquisition. We cannot assure you that our debt agreements, as may be in place at any time, will permit us to consummate an acquisition or access the necessary additional financing because of certain covenant restrictions, or that additional financing will be available to us or, if available, that financing would be on terms acceptable to our management.

 

We have written off, and could in the future be required to write off, a significant portion of the fair market value of our FCC broadcast licenses and goodwill, which may adversely affect our financial condition and results of operations.

 

As of December 31, 2010, our FCC licenses and goodwill comprised 67.7% of our assets. Each year, and on an interim basis if appropriate, we are required by ASC 350, Intangibles—Goodwill and Other, to assess the fair market value of our FCC broadcast licenses and goodwill to determine whether the carrying value of those assets is impaired. During the years ended December 31, 2010, 2009 and 2008 we recorded impairment charges of approximately $0.7 million, $175.0 million, and $498.9 million, respectively, in order to reduce the carrying value of certain broadcast licenses and goodwill to their respective fair market values. Our future impairment reviews could result in additional impairment charges. Such additional impairment charges would reduce our reported earnings, possibly materially, for the periods in which they are recorded.

 

Disruptions in the capital and credit markets could restrict our ability to access further financing.

 

We rely in significant part on the capital and credit markets to meet our financial commitments and short-term liquidity needs if internal funds are not available from operations. Disruptions in the capital and credit markets, such as have been experienced over the past several years, could adversely affect our ability to draw on our credit facilities. Access to funds under those credit facilities is dependent on the ability of our lenders to meet their funding commitments. Those lenders may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from their borrowers within a short period of time. Disruptions in the capital and credit markets have also resulted in increased costs associated with bank credit facilities. Continuation of these disruptions could increase our interest expense and adversely affect our results of operations.

Longer term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced alternatives or failures of significant financial institutions, could adversely affect our access to financing. Any such disruption could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding can be arranged. Such measures could include deferring capital expenditures and reducing or eliminating future uses of cash, any of which could materially adversely affect our business and results of operations.

 

We are exposed to credit risk on our accounts receivable. This risk is heightened during periods when economic conditions worsen.

 

Our outstanding trade receivables are not covered by collateral or credit insurance. While we have procedures to monitor and limit exposure to credit risk on our trade receivables, which risk is heightened during periods when economic conditions worsen, there can be no assurance such procedures will effectively limit our credit risk and avoid losses, which could have a material adverse effect on our financial condition and operating results.

 

Counterparties to derivative transactions we enter into may not be able to perform their obligations under such transactions.

 

Although we evaluate the credit quality of potential counterparties to derivative transactions and only enter into agreements with those deemed to have minimal credit risk at the time the agreements are executed, there can be no assurances that such counterparties will be able to perform their obligations under the relevant agreements. If our counterparties fail to perform their obligations, we may not be able to receive the expected benefits from such derivative transactions, which could adversely affect our financial condition and results of operations.

 

We are dependent on key personnel.

 

Our business is managed by a small number of key management and operating personnel, and our loss of one or more of these individuals could have a material adverse effect on our business. We believe that our future success will depend in large part on our ability to attract and retain highly skilled and qualified personnel and to expand, train and manage our employee base. Although we have entered into employment agreements with some of our key management personnel that include provisions restricting their ability to compete with us under specified circumstances we cannot assure you that all of those restrictions would be enforced if challenged in court.

 

We also employ several on-air personalities with large loyal audiences in their individual markets. The loss of one or more of these personalities could result in losses of audience share in that particular market which, in turn, could adversely affect revenues in that particular market.

 

The broadcasting industry is subject to extensive and changing Federal regulation.

 

The radio broadcasting industry is subject to extensive regulation by the FCC under the Communications Act. We are required to obtain licenses from the FCC to operate our stations. Licenses are normally granted for a term of eight years and are renewable. Although the vast majority of FCC radio station licenses are routinely renewed, we cannot assure that the FCC will grant our existing or future renewal applications or that the renewals will not include

conditions out of the ordinary course of our operations. The non-renewal, or renewal with conditions, of one or more of our licenses could have a material adverse effect on us.

 

We must also comply with the extensive FCC regulations and policies in the ownership and operation of our radio stations. FCC regulations limit the number of radio stations that a licensee can own in a market, which could restrict our ability to acquire radio stations that could be material to our overall financial performance or our financial performance in a particular market.

 

The FCC also requires radio stations to comply with certain technical requirements to limit interference between two or more radio stations. Despite those limitations, a dispute could arise whether another station is improperly interfering with the operation of one of our stations or another radio licensee could complain to the FCC that one of our stations is improperly interfering with that licensee’s station. There can be no assurance as to how the FCC might resolve such a dispute. These FCC regulations and others may change over time, and we cannot assure that those changes would not have a material adverse effect on us.

 

The FCC has been vigorous in its enforcement of its indecency rules against the broadcast industry, a violation of which could have a material adverse effect on our business.

 

FCC regulations prohibit the broadcast of “obscene” material at any time, and “indecent” material between the hours of 6:00 a.m. and 10:00 p.m. The FCC has increased its enforcement efforts over the last few years with respect to these regulations. FCC regulatory oversight was augmented by legislation that substantially increased the penalties for broadcasting indecent programming (up to $325,000 for each incident), and subjected broadcasters to license revocation, renewal or qualification proceedings under certain circumstances in the event that they broadcast indecent or obscene material. However, the FCC has refrained from processing and disposing of thousands of complaints that have been filed because of uncertainty concerning the validity of prior FCC rulings, which are now being challenged in various courts. It is impossible to predict when courts will finally resolve outstanding issues and what, if any, impact those judicial decisions will have on any complaints that have been or may be filed against our stations. Whatever the impact of those judicial decisions, we may in the future become subject to new FCC inquiries or proceedings related to our stations’ broadcast of allegedly indecent or obscene material. To the extent that such an inquiry or proceeding results in the imposition of fines, a settlement with the FCC, revocation of any of our station licenses or denials of license renewal applications, our results of operation and business could be materially adversely affected.

 

Proposed legislation requires radio broadcasters to pay royalties to record labels and recording artists.

 

We currently pay royalties to song composers and publishers through Broadcast Music Inc., the American Society of Composers, Authors and Publishers and SESAC, Inc. Congress has been actively considering legislation which would change the copyright fees and the procedures by which the fees are determined. The legislation has been the subject of considerable debate and activity by the broadcast industry and other parties affected by the legislation. It cannot be predicted whether any proposed legislation will become law or what impact it would have on our results from operations, cash flows or financial position.

We are required to obtain prior Federal approval for each radio station acquisition, which approvals may be subject to our compliance with certain conditions, possibly including asset divestitures, which may be material.

 

Acquisitions have been, and may continue to be, a critical component of our overall strategy. The acquisition of a radio station requires the prior approval of the FCC and may require approvals by other governmental agencies, such as the Department of Justice or the Federal Trade Commission. To obtain that approval, a proposed acquirer is required to file a transfer of control or assignment application with the FCC. The Communications Act and FCC rules allow members of the public and other interested parties to file petitions to deny or other objections to the FCC with respect to the grant of any transfer or assignment application. The FCC could rely on those objections or its own initiative to deny a transfer or assignment application or to require changes in the transaction, including the divestiture of radio stations and other assets, as a condition to having the application granted. For example, in connection with the Citadel Acquisition, we have identified radio stations in certain markets that we expect we will be required to divest in order to obtain FCC approval of such transaction. Although we do not currently expect such divestitures to be material to our financial position or results of operations, no assurances can be provided that we would not be required to divest additional radio stations in connection with obtaining such approval, or that any such required divestitures would not be material to our financial position of results of operations. The FCC could also change its existing rules and policies to reduce the number of stations that we would be permitted to acquire in some markets. For these and other reasons, there can be no assurance that the FCC will approve potential future acquisitions that we deem material to our business.

 

Certain stockholders or groups of stockholders have, and will have, the right to appoint members to our board of directors and, consequently, the ability to exert significant influence over us.

 

As of March 4, 2011, and after giving effect to the exercise of all of their respective options exercisable within 60 days of that date, Lewis W. Dickey, Jr., our Chairman, President, Chief Executive Officer and a director, his brother, John W. Dickey, our Executive Vice President, and their father, Lewis W. Dickey, Sr., together with members of their family (collectively, the “Dickeys”), collectively beneficially owned shares representing approximately 50.6% of the outstanding voting power of our common stock.

 

Also as of March 4, 2011, after giving effect to the exercise of all of their options exercisable within 60 days of that date, and the conversion of all of their shares into shares of our class A common stock, BA Capital and its affiliate, Banc of America SBIC, L.P. (together, the “BOA Entities”), together beneficially owned approximately 17.8% of the total voting power of our common stock. Pursuant to a voting agreement, the BOA Entities currently have the right to designate one member of our board of directors, and Mr. Robert Sheridan currently serves on our board of directors as the BOA Entities’ designee.

 

In connection with our entry into the Investment Agreement, we, the Investors and certain other stockholders have agreed to enter into a stockholders agreement, which will provide for, among other things, the obligations of us, the Investors and those stockholders to vote their shares in a certain manner in some instances. Pursuant thereto, from and after the closing of the Equity Investment, the size of our board of directors will be set at seven members, and Crestview, which will be our largest stockholder upon completion of the Equity Investment, will have the right to designate two of those members, and each of the Dickeys, the BOA Entities and Blackstone will

have the right to designate one of those members. In addition, for so long as Crestview remains our largest stockholder, it will have the right to designate one of its board-designees as our “lead director.” These board-designee rights generally continue for each party until it ceases to own a specified number of shares of our stock or upon the occurrence of certain other events. This stockholders agreement is also expected to contain other rights and obligations of the parties thereto with respect to us and our stock. For so long as this stockholders’ agreement is in effect, the stockholder parties may agree to take actions, or refrain from acting, in a manner in which our other stockholders would deem to be not in our best interests.

 

Further, pursuant to a currently effective voting agreement, the Dickeys are required to vote a certain percentage of their shares of stock in accordance with the vote of all other stockholders on any matter submitted to a vote of our stockholders. This voting agreement will terminate upon the consummation of the Citadel Acquisition, at which time there will not be any remaining restrictions on the Dickeys’ right to vote their shares, except as may be described elsewhere in this offering memorandum.

 

As a result of these significant stockholdings, and their right to designate members of our board, these stockholders are expected to be able to exert significant influence over our policies and management, potentially in a manner which may not be in our best interests.

 

Risks related to the Acquisitions

 

In connection with the Acquisitions, we have incurred, and expect to continue to incur, substantial costs. If we are unable to complete the Acquisitions, we may not be able to recover such costs and may incur substantial additional costs.

 

We have incurred and will incur substantial transaction costs and expenses in connection with the proposed Acquisitions. These costs are primarily associated with the fees of attorneys, accountants and our financial advisors. Further, we have diverted significant management resources in an effort to complete the proposed Acquisitions and are subject to certain restrictions contained in the agreement governing the Citadel Acquisition on the conduct of our business. The Acquisitions are subject to a number of significant conditions including, but not limited to: (i) regulatory approval by the FCC, (ii) HSR approval and (iii) approval by the stockholders of Cumulus and Citadel, as applicable, and many of these conditions are outside of our control. If the proposed Acquisitions are not completed, we will have incurred significant costs, including the diversion of management resources, for which we will have received little or no benefit. Additionally, if the proposed Acquisitions are not completed, we may experience negative reactions from the financial markets and our advertisers, stockholders and employees. Finally, if the proposed Citadel Acquisition is not completed under certain circumstances specified in the Citadel Merger Agreement, such as our inability to obtain the necessary financing to complete the Citadel Acquisition, we may be required to pay to Citadel a termination fee of up to $80.0 million. Our inability to recover any of the costs incurred, or expected to be incurred, from the benefits of acquisition synergies, increased revenues or otherwise, or the requirement to pay Citadel the termination fee, could have a material adverse effect on our operating results and financial condition.

We are required to obtain various Federal regulatory approvals for the Citadel Acquisition, including approval of the FCC, which approval may be subject to our compliance with certain conditions.

 

Completion of the Citadel Acquisition requires prior approval of the FCC and the Department of Justice and may require approvals by other governmental agencies as well. As part of the FCC approval process, we have filed transfer of control and assignment applications with the FCC. The Communications Act and FCC rules allow members of the public and other interested parties to file petitions to deny or other objections with the FCC with respect to the grant of those transfer and assignment applications. The FCC could rely on any petitions or other objections that may be filed, or its own initiative, to deny a transfer or assignment application, to require changes in the Citadel transaction documents relating to those applications, including divestiture of radio stations and other assets, or impose other conditions to the grant of any of the applications. For these and other reasons, there can be no assurance that the FCC will approve our applications and, consequently, the related underlying transactions. Any changes necessary to obtain the FCC’s approval may have a material adverse effect on our business, financial condition and results of operations.

 

We are required to obtain FCC approval of the CMP Acquisitions, and have not yet received this approval, a portion of the CMP Acquisition is still subject to FCC review.

 

Completion of the CMP Acquisition requires prior approval of the FCC. A third party filed an objection to the grant of one of the transfer of control applications (relating to translators) filed in conjunction with the CMP Acquisition. The FCC denied that objection in a letter ruling released on April 21, 2011. The party filing the objection has 30 days to seek reconsideration or further review of that decision, and the FCC itself could reverse that decision on its own initiative at any time within 40 days. For those reasons, there can be no assurance that the FCC will not change that decision. If that decision was reversed, no assurances could be provided that we would be able to obtain FCC approval of the CMP Acquisition on a timely basis, on the expected terms, or at all, which could materially adversely effect our business, financial condition and results of operations.

 

We may not realize the expected benefits of either or both of the Acquisitions because of integration difficulties and other challenges.

 

The success of the Acquisitions will depend, in part, on our ability to realize the anticipated synergies and cost savings from integrating each of CMP’s and Citadel’s business with our existing business. The integration process may be complex, costly and time-consuming. The difficulties of integrating the operation of either or both of CMP’s and Citadel’s business include, among others:

 

 

We may not be able to accomplish either or both of these integrations smoothly, successfully or within the anticipated costs or time frame. The diversion of the attention of management from our current operations to the integration effort and any difficulties encountered in combining operations could prevent us from realizing the full benefits anticipated to result from the Acquisitions and could adversely affect our business.

 

The Acquisitions may be completed on different terms from those contained in the agreements relating to the Acquisitions.

 

Prior to the completion of either of the Acquisitions, we may amend or alter the terms thereof, including with respect to, among other things, the purchase prices to be paid thereunder, assets to be acquired or any covenants or agreements with respect to our respective operations during the pendency thereof, among other things. Any such amendments or alterations to the terms of the Exchange Agreement, the Citadel Merger Agreement or related agreements, may have negative consequences to noteholders including, among other things, reducing the cash available for operations or to meet our obligations or restricting or limiting our assets or our operations, any of which could also have a material adverse effect on our business, financial condition and results of operations.

 

If we are unable to finance the Citadel Acquisition, the acquisition will not be completed and we may be obligated to pay a termination fee of up to $80.0 million.

 

We have obtained commitments for up to $500.0 million in equity financing through the Equity Investment and up to $2.5 billion in senior secured debt financing through the Acquisition Credit Facility, as well as additional commitments pursuant to the Acquisition Bridge Facility, the proceeds of which we intend to use, in part, to pay the cash portion of the consideration payable in connection with the Citadel Acquisition. We have not, however, entered into the definitive agreements for this financing. In the event we are unable to enter into such definitive agreements on the proposed terms, alternative financing may not be available on acceptable terms in a timely manner, or at all. If alternative financing becomes necessary and we are unable to secure such alternative financing, the acquisition will not be completed.

 

In the event of a termination of the Citadel Merger Agreement due to our inability to obtain the necessary financing to complete the Citadel Acquisition, we may be obligated to pay Citadel a termination fee of up to $80.0 million, which could have a material adverse effect on our operating results and financial condition.

 

We will take on substantial additional long-term indebtedness in connection with the Citadel Acquisition, which will increase the risks we now face with our current indebtedness.

 

We intend to finance the Citadel Acquisition, and refinance our, CMP’s (assuming the CMP Acquisition has been consummated) and Citadel’s existing indebtedness, with up to $2.5 billion in senior secured debt financing through the Acquisition Credit Facility and potentially additional financing under the Acquisition Bridge Facility. As a result, we will have long-term indebtedness that will be substantially greater than our long-term indebtedness prior to the Acquisitions and related refinancing. This new indebtedness will increase the related risks we now face with our current indebtedness.

We may be required to issue preferred stock in connection with the Equity Investment with terms that could negatively impact our liquidity.

 

Pursuant to the terms of the Investment Agreement, MIHI may, at its option, subscribe to purchase up to $125.0 million in liquidation value of shares of a newly created series of perpetual redeemable non-convertible preferred stock instead of shares of our common stock. Dividends on this preferred stock would accrue at a rate of 10% per annum for the first six months after closing, 14% per annum thereafter until the second anniversary of closing, 17% per annum plus the positive change in LIBOR from the closing of the Equity Investment to each even-numbered anniversary thereof (the “LIBOR Increase Amount”) per annum thereafter until the fourth anniversary of closing, and 20% plus the LIBOR Increase Amount per annum thereafter. If MIHI elects to purchase our preferred stock instead of our common stock, the requirement that we pay dividends, either in cash or through the issuance of additional shares of preferred stock, could materially impact our liquidity position and may require us to dedicate a significant portion of our cash flows to servicing dividend requirements. This would reduce the amount of cash flow available for working capital, capital expenditures and servicing our indebtedness, including the notes.

 

The unaudited pro forma financial information may not be reflective of our operating results and financial condition following the Acquisitions.

 

The unaudited pro forma financial information contained herein is derived from our, CMP’s and Citadel’s separate historical audited consolidated financial statements. The preparation of this pro forma information is based upon available information and certain assumptions and estimates that we currently believe are reasonable, including certain assumptions with respect to our stock price and interest rates at the closing of the Citadel Acquisition, the amount of cash and stock Citadel stockholders will elect to receive in the Citadel Acquisition, whether and to what extent Macquarie elects to invest in warrants exercisable for our non-voting common stock, or our perpetual redeemable non-convertible preferred stock, and the assumption that the radio stations we expect to be required to divest in order to obtain FCC approval of the Citadel Acquisition would not be material to our financial position or results of operations. These assumptions and estimates may not prove to be accurate, and this pro forma information may not necessarily reflect what our results of operations and financial position would have been had the Acquisitions and related transactions been completed if these assumptions were accurate, or occurred during the periods presented, or what our results of operations and financial position will be in the future.

 

If we complete the Citadel Acquisition, the loss of affiliation agreements by Citadel’s Radio Network could materially adversely affect our results of operations on a Citadel Pro Forma Basis or an Overall Pro Forma Basis.

 

Upon consummation of the Citadel Acquisition, we will own Citadel’s Radio Network, which has approximately 4,000 station affiliates and 9,000 program affiliations. The Radio Network receives advertising inventory from its affiliated stations, either in the form of stand-alone advertising time within a specified time period or commercials inserted by the Radio Network into its programming. In addition, primarily with respect to satellite radio providers, Citadel receives a fee for providing such programming. The loss of network affiliation agreements of the Radio Network could adversely affect our results of operations on a Citadel Pro Forma basis or an Overall Pro Forma Basis by reducing the reach of Citadel’s network programming and, therefore, its attractiveness to advertisers. Renewal on less favorable terms may also adversely affect our

results of operations on a Citadel Pro Forma Basis or an Overall Pro Forma Basis through reduction of advertising revenue.

 

Because Citadel’s consolidated financial statements reflect fresh start accounting adjustments made upon emergence from bankruptcy, and because of the effects of the transactions that became effective pursuant to the Citadel’s bankruptcy emergence plan, financial information in the post-emergence financial statements is not comparable to its financial information from prior periods.

 

Upon Citadel’s emergence from bankruptcy, it adopted fresh start accounting pursuant to which its reorganization value, which represents the fair value of the entity before considering liabilities and approximates the amount a willing buyer would pay for the assets of the entity immediately after the reorganization, was allocated to the fair value of assets. The amount remaining after allocation of the reorganization value to the fair value of identified tangible and intangible assets is reflected as goodwill, which is subject to periodic evaluation for impairment. Further, under fresh start accounting, the accumulated losses included in Citadel’s stockholders’ deficit were eliminated. In addition to fresh start accounting, Citadel’s consolidated financial statements reflect all effects of the transactions contemplated by Citadel’s Emergence Plan. Thus, Citadel’s balance sheets and statements of operations data are not comparable in many respects to its consolidated balance sheets and consolidated statements of operations data for prior to its adoption of Fresh Start Accounting and prior to accounting for the effects of the reorganization.

 

Citadel has significant tax assets, usage of which may be subject to limitations in the future.

 

As of December 31, 2010, Citadel had approximately $225.7 million of net operating losses for U.S. federal income tax purposes. However, Citadel’s chapter 11 proceedings (as defined herein) resulted in a change of control for purposes of Section 382 of the U.S. Internal Revenue Code of 1986, limiting its ability to utilize approximately $150.0 million of its net operating losses to offset future federal income tax liabilities. Citadel estimates that the maximum amount of net operating losses that it may use in each year through 2030 to offset federal income tax liabilities is approximately $50.0 million. Citadel expects to increase this amount for certain recognized built-in gains. However, the amount of the increase is uncertain and varies by year.

 

Closing of either Acquisition may trigger change in control provisions in certain agreements to which we, CMP or Citadel are parties.

 

The closing of either Acquisition may trigger change in control provisions in certain agreements to which we, CMP or Citadel are parties. If we, CMP or Citadel are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements (including terminating the agreements or seeking monetary damages). Even if we, CMP or Citadel were able to negotiate waivers, the counterparties may require a fee for such waiver or seek to renegotiate the agreements on materially less favorable terms prior to such change in control.

 

 

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The following unaudited pro forma condensed consolidated financial information is based on our historical audited consolidated financial statements and the historical audited consolidated financial statements of each of CMP and Citadel. The following unaudited pro forma condensed consolidated financial information is intended to provide you with information about how each of the CMP Acquisition and the Citadel Acquisition, and the related refinancing transactions, might have affected our historical consolidated financial statements if such transactions had closed as of January 1, 2010, in the case of the statement of operations information, and December 31, 2010, in the case of the balance sheet information.

 

The unaudited pro forma condensed consolidated financial information is presented on the following bases:

 

 

Furthermore, for purposes of the presentation of this unaudited pro forma condensed consolidated financial information, Cumulus has assumed that the Citadel Acquisition Consideration will consist of $1.2 billion in cash and the issuance of 128,657,000 shares of Cumulus common stock, having an aggregate value of $567.4 million.

 

Each of the Acquisitions will be accounted for as a business combination using the purchase method of accounting and, accordingly, is expected to result in the recognition of assets acquired and liabilities assumed at fair value. However, as of the date of this offering memorandum, we have not performed the valuation studies necessary to estimate the fair values of the assets we expect to acquire and the liabilities we expect to assume to reflect the allocation of purchase price to the fair value of such amounts.

 

For purposes of preparing the following pro forma adjustments to reflect the CMP Acquisition, we have estimated the fair value of the indefinite-lived intangible assets using independent third-party valuations as of December 31, 2010. For purposes of preparing the pro forma adjustments to reflect the Citadel Acquisition, we have carried forward the net book value of the indefinite-lived and definite-lived intangible assets from those appearing in Citadel’s audited consolidated financial statements, as we do not have any independent third-party valuations or other valuation studies estimating the value of these intangible assets. However, due to Citadel’s application of fresh-start accounting upon emergence from bankruptcy, Citadel’s intangible assets were adjusted to fair value during 2010. For each Acquisition, the excess of the consideration expected to be transferred over the fair value of the net assets expected to be acquired has been presented as an adjustment to goodwill. We have not estimated the fair value of other assets expected to be acquired or liabilities expected to be assumed, including, but not limited to, current assets, property and equipment, current liabilities, other miscellaneous liabilities and other finite-lived intangible assets and related deferred tax liabilities. A final determination of these fair values will be based upon appraisals prepared by independent third parties and on the actual tangible and

identifiable intangible assets and liabilities that actually exist as of the closing date of each respective Acquisition. The actual allocations of the consideration transferred may differ materially from the allocations assumed in these unaudited pro forma condensed consolidated financial statements.

 

The presentation of financial statements on a Citadel Pro Forma Basis and on an Overall Pro Forma Basis includes the combined results of operations of Citadel, including its predecessor and successor periods. In connection with the restructuring and reorganization pursuant to the Bankruptcy Code, Citadel adopted fresh-start reporting as of June 1, 2010 (the “Fresh-Start Date”). Citadel adopted these fresh-start reporting provisions in accordance with accounting guidance on reorganizations. Historical financial results of Citadel are presented for the “Predecessor” entity for periods prior to Citadel’s emergence from bankruptcy and for the “Successor” entity for periods after Citadel’s emergence from bankruptcy. As a result, financial results from periods prior to Citadel’s emergence from bankruptcy are not comparable to financial results from periods after that date. The combined operating results for Citadel including the Successor and Predecessor periods in 2010 are not necessarily indicative of the results that may be expected for a full fiscal year. Presentation of the combined financial information of the Predecessor and Successor for the twelve months ended December 31, 2010 is not in accordance with GAAP. However, we believe that the combined financial results are useful for management and investors to assess ongoing financial and operational performance and trends.

 

The unaudited pro forma condensed consolidated financial information below is based upon currently available information and estimates and assumptions that we believe are reasonable as of the date hereof. These estimates and assumptions relate to matters including, but not limited to, Cumulus’ stock price at the date of closing of each of the CMP Acquisition and the Citadel Acquisition (which was assumed to be $4.41 per share, the closing price of Cumulus’ common stock on the Nasdaq Stock Market on March 29, 2011, the most recent practicable date), which will be used to determine the final purchase price consideration, the LIBOR rate in effect for borrowings at the date of closing of the Global Refinancing, which will be used to determine the interest rate on borrowings under the Acquisition Credit Facility, and the form of the investment in our equity securities made by MIHI pursuant to the Investment Agreement which was assumed to be common stock, which will impact, among other things, our available cash, interest expense and stockholders’ equity. We have also assumed that, in connection with obtaining FCC or other federal regulatory approval to complete the Citadel Acquisition, any radio stations that we may be required to divest would not be material to our consolidated financial position or results of operations and, as a result, we have not made provision in this unaudited pro forma condensed consolidated financial information for any such divestitures.

 

Any of the factors underlying these estimates and assumptions may change, and the estimates and assumptions may not be representative of facts existing at the closing date of either of the Acquisitions.

The unaudited pro forma condensed consolidated financial information is presented for illustrative and informational purposes only and is not intended to represent or be indicative of what our financial condition or results of operations would have been had the transactions described above occurred on the dates indicated. The unaudited pro forma condensed consolidated financial information also should not be considered representative of our future financial condition or results of operations. In addition to the pro forma adjustments to our historical audited consolidated financial statements, various other factors will have an effect on our financial condition and results of operations, both before and after the closing of each of the Acquisitions and related financing transactions. You should read the unaudited pro forma condensed consolidated financial information in conjunction with the information under

“Risk factors,” in addition to our audited consolidated financial statements and the related notes and the audited consolidated financial statements and the related notes.

 

Unaudited CMP Pro Forma Basis condensed consolidated statements of operations for year ended December 31, 2010