UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14C INFORMATION

Information Statement Pursuant to Section 14(c) of the

Securities Exchange Act of 1934

 

 

 

Check the appropriate box:
☐		Preliminary Information Statement
☒		Definitive Information Statement
☐		Confidential, for use of the Commission Only (as permitted by Rule 14c-5(d)(2)))

CLEAR CHANNEL OUTDOOR HOLDINGS, INC.

(Name of Registrant as Specified In Its Charter)

 

Payment of Filing Fee (Check the appropriate box):
☒		No fee required.
☐		Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
		(1)		Title of each class of securities to which transaction applies:
		(2)		Aggregate number of securities to which transaction applies:
		(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
		(4)		Proposed maximum aggregate value of transaction:
		(5)		Total fee paid:
☐		Fee paid previously with preliminary materials.
☐		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
		(1)		Amount Previously Paid:
		(2)		Form, Schedule or Registration Statement No.:
		(3)		Filing Party:
		(4)		Date Filed:

 

 

 

 

April 2, 2019

Dear Clear Channel Outdoor Holdings, Inc. Stockholder:

On March 27, 2019, Clear Channel Outdoor Holdings, Inc. (“CCOH”) and its immediate parent company, Clear Channel Holdings, Inc. (“CCH”), entered into a merger agreement (the “Merger Agreement”) providing for the merger (the “Merger”) of CCOH with and into CCH as part of a series of transactions to separate the business of CCOH from its ultimate parent company, iHeartMedia, Inc. (“iHeartMedia”). The separation will occur in conjunction with iHeartMedia’s emergence from bankruptcy proceedings under Chapter 11 of the United States Bankruptcy Code. The separation is expected to be effected pursuant to the separation agreement described in the enclosed information statement/prospectus.

Before the Merger, CCH will transfer all of its subsidiaries that operate the iHeartMedia radio businesses to iHeart Operations, Inc., a newly formed subsidiary of CCH, and distribute the common stock of that subsidiary to iHeartCommunications, Inc. (“iHeartCommunications”), all shares of Class A Common Stock of CCOH (the “CCOH Class A Common Stock”) and Class B Common Stock of CCOH (the “CCOH Class B Common Stock” and together with the CCOH Class A Common Stock, the “CCOH Common Stock”) held by any subsidiary of CCH will be transferred to CCH and all outstanding shares of CCOH Class B Common Stock will be converted into CCOH Class A Common Stock pursuant to the provisions of CCOH’s certificate of incorporation. In the Merger, CCOH will merge with and into CCH, with CCH surviving the Merger and changing its name to Clear Channel Outdoor Holdings, Inc. (the “Surviving Corporation” or “New CCOH”), and shares of CCOH Class A Common Stock (other than shares of CCOH Class A Common Stock held by CCH or any direct or indirect wholly-owned subsidiary of CCH) will be converted into an equal number of shares of common stock of New CCOH (“New CCOH Common Stock”). The shares of CCOH Class A Common Stock held by CCH and its subsidiaries will be canceled and retired, and no shares of New CCOH Common Stock will be exchanged for such shares. The outstanding shares of CCH immediately before the Merger will convert into a number of shares of New CCOH Common Stock equal to the number of shares of CCOH Common Stock held by CCH immediately before the Merger. As a result, immediately after the Merger, New CCOH will have a single class of common stock, the pre-Merger CCOH Class A common stockholders (other than CCH and its subsidiaries) will own the same percentage of New CCOH that they owned of CCOH immediately before the Merger and all of the remaining 325,726,917 outstanding shares of New CCOH Common Stock will be held by iHeartCommunications. The New CCOH Common Stock held by iHeartCommunications will be transferred by iHeartCommunications to certain holders of claims under the plan of reorganization in the iHeartMedia bankruptcy case (the “Separation”). CCH intends to apply to list the New CCOH Common Stock on the New York Stock Exchange under the symbol “CCO” prior to the effective date of the Merger.

On March 25, 2019, a special committee of CCOH’s board of directors and the CCOH board of directors approved the Separation and the Merger Agreement. A copy of the Merger Agreement is included with the attached information statement/prospectus as Annex A.

In addition, on March 25, 2019, the CCOH board of directors approved the nomination of the individuals named in this information statement/prospectus for election to the New CCOH board of directors, subject to and effective upon the completion of the Merger, and recommended the election of these nominees to the stockholders of CCOH.

Please note that NO action is needed on your part in connection with these transactions. We are not asking you for a proxy and you are requested not to send us a proxy. This is not a notice of a meeting of stockholders and no annual or special stockholder meeting will be held to consider any matter described herein.

On March 27, 2019, the subsidiaries of iHeartCommunications, which at that time beneficially owned 100% of the CCOH Class B Common Stock and 10,726,917 shares of CCOH Class A Common Stock, which collectively represented approximately 99% of the voting power of CCOH’s stockholders, approved the following actions by written consent in lieu of a stockholder meeting pursuant to Section 228 of the General Corporation Law of the State of Delaware and Section 2.11 of CCOH’s bylaws: (1) the adoption of the Merger Agreement, the approval of the Merger and the approval of the transactions contemplated thereby, and (2) the election of the nine (9) nominees named in this information statement/prospectus to the New CCOH board of directors to take office upon completion of the Merger, subject to the completion of

the Merger. These actions by written consent are sufficient to approve the transactions and elections without any further action by CCOH’s stockholders. As a result, no other votes are necessary with respect to the matters described in this letter and your approval is not required and is not being requested. As required by Section 228(e) of the DGCL, this information statement/prospectus is being furnished to our stockholders of record as of March 27, 2019, as notice of the action taken by written consent.

The accompanying information statement/prospectus will provide you with information regarding the transactions, including details about the Merger and the Separation from iHeartMedia. We urge you to read the accompanying information statement/prospectus carefully.

The Merger involves risks, some of which may be significant, and its completion is subject to several conditions that either must be satisfied or waived. We discuss these risks and conditions in greater detail in the accompanying information statement/prospectus and urge you to read the sections entitled “Risk Factors—Risks Relating to the Transactions” beginning on page 18 and “The Merger Agreement—Conditions to the Merger” beginning on page 85.

Under applicable securities regulations, the Merger may not be completed until 20 calendar days after the date of mailing of the attached information statement/prospectus to holders of the CCOH Class A Common Stock. Therefore, notwithstanding the execution and delivery of the written consents by the holders of the shares of CCOH Common Stock representing the majority of the voting power of the CCOH Common Stock, the Merger may not be completed until that time has elapsed, and therefore, the earliest possible date on which the Merger can be completed is April 25, 2019, subject to the satisfaction or waiver of all other conditions to the Merger contained in the Merger Agreement described in the enclosed document.

Thank you for your continued support.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS INFORMATION STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This information statement/prospectus is dated April 2, 2019 and is first being mailed to holders of the CCOH Class A Common Stock on or about April 5, 2019.

ADDITIONAL INFORMATION

The accompanying document is the information statement of CCOH for use in providing information about the actions taken by the Principal CCOH Stockholders (as defined below) and a prospectus of CCH relating to the conversion of shares of CCOH Class A Common Stock into shares of New CCOH Common Stock in connection with the Merger. This information statement/prospectus does not contain all of the information included in the registration statement or in the exhibits to the registration statement to which the accompanying information statement/prospectus relates. This information is available to you without charge upon your written or oral request. You can obtain documents filed as exhibits to the registration statement and the accompanying information statement/prospectus (other than certain exhibits or schedules to these documents) by requesting them in writing or by telephone from CCOH at the following address and telephone number:

Clear Channel Outdoor Holdings, Inc.

20880 Stone Oak Parkway

San Antonio, Texas 78258

Attention: General Counsel

Telephone: (210) 822-2828

A copy of CCOH’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 accompanies this information statement/prospectus.

If you would like to request any documents, please do so by April 24, 2019. See “Where You Can Find More Information” in the accompanying information statement/prospectus for further information regarding how you may obtain additional information.

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS			i
SUMMARY			1
SUMMARY HISTORICAL FINANCIAL DATA OF THE OUTDOOR BUSINESS OF CCH			13
SUMMARY UNAUDITED PRO FORMA CARVE-OUT FINANCIAL DATA			17
RISK FACTORS			18
Risks Relating to the Transactions			18
Risks Relating to the Business			26
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			34
SELECTED HISTORICAL FINANCIAL DATA OF THE OUTDOOR BUSINESS OF CLEAR CHANNEL HOLDINGS, INC.			36
CAPITALIZATION			38
UNAUDITED PRO FORMA CARVE-OUT FINANCIAL STATEMENTS OF THE OUTDOOR BUSINESS OF CLEAR CHANNEL HOLDINGS, INC.			39
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA			45
MARKET PRICE AND DIVIDEND INFORMATION			46
CCOH’s Stock Information			46
CCH’s Stock Information			46
CCOH Dividend Policy			46
CCH Dividend Policy			47
THE IHEARTMEDIA RESTRUCTURING			48
INFORMATION ABOUT THE TRANSACTIONS			51
Overview			51
Background of the Merger and the Separation			51
Reasons for the Separation and Merger; Reasons for the CCOH Board Approval of the Settlement Agreement			62
Interests of Certain Persons in the Merger			67
Corporate Name Following the Merger			70
Procedures for Surrender of Certificates			70
Book-Entry Shares			70
Accounting Treatment			71
Regulatory Approvals			71
Listing of Common Stock on the NYSE			71
Consequences under the Securities Act			71
Governance of New CCOH Following the Merger			71
No Appraisal or Dissenters’ Rights			72
THE SETTLEMENT AND SEPARATION AGREEMENT			73
Restructuring Steps			73
Merger Agreement			73
Transfer of Assets			73
Assumption of Liabilities			74
Delayed Transfer of Assets and Liabilities; Subsequent Transfers			75
Settlement of Intercompany Notes; Treatment of Intercompany Accounts and Agreements			76
Issuance of Preferred Stock			77
Treatment of Shared Contracts			77
Bank Accounts; Cash Balances			77
Insurance			77
Guarantees, Letters of Credit, Surety Bonds and Other Obligations			77
Litigation			78
2020 Notes			78
Certain Employee Benefit Matters			78
Intellectual Property Licenses			79
Conditions to the Completion of the Separation			79

Release of Pre-Closing Claims			79
Indemnification			79
Non-Solicitation and Non-Competition Covenants			80
Termination of the Separation Agreement			80
THE MERGER AGREEMENT			81
The Merger			81
Closing and Merger Effective Time			81
Effect on CCOH Common Stock			81
Effect on CCH Common Stock			81
No Appraisal Rights			81
Surrender of Certificates; Book-Entry Shares			81
Treatment of CCOH Equity Incentive Plans			82
Certificate of Incorporation and Bylaws of the Surviving Corporation			82
Board of Directors and Executive Officers of New CCOH Following the Merger			83
Representations and Warranties			83
Legal Opinions			83
Preparation of the S-4			84
Stock Exchange Listing; Delisting			84
Broader Media and CC Finco Distributions			84
Stockholder Litigation			84
Efforts			84
Conditions to the Merger			85
Termination of the Merger Agreement			86
Amendment of the Merger Agreement; Waiver			86
Specific Performance			86
ADDITIONAL AGREEMENTS			87
Settlement Agreement			87
Transition Services Agreement			87
New Tax Matters Agreement			88
New EBIT Agreement			89
iHeartCommunications Line of Credit			89
DESCRIPTION OF NEW CCOH CAPITAL STOCK			91
COMPARISON OF RIGHTS OF CCOH STOCKHOLDERS BEFORE AND AFTER THE TRANSACTIONS			96
ELECTION OF DIRECTORS OF NEW CCOH			104
WRITTEN CONSENT OF THE PRINCIPAL CCOH STOCKHOLDERS			110
DESCRIPTION OF NEW CCOH PREFERRED STOCK			111
DESCRIPTION OF CERTAIN INDEBTEDNESS			114
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER			119
INFORMATION ABOUT CCOH			122
Business			122
Properties			138
Legal Proceedings			138
INFORMATION ABOUT CCH			141
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE OUTDOOR BUSINESS OF CCH			142
MANAGEMENT OF NEW CCOH AFTER THE TRANSACTIONS			180
EXECUTIVE COMPENSATION OF NEW CCOH			184
EXECUTIVE COMPENSATION OF CCOH			214
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			259
Beneficial Ownership of CCOH Common Stock			259
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			262
Certain Relationships and Related Party Transactions of New CCOH			262
Certain Relationships and Related Party Transactions of CCOH in 2018			263
Policy on Review, Approval or Ratification of Transactions with Related Persons			271
AUDIT COMMITTEE REPORT			272
AUDITOR FEES			274
OTHER			275

LEGAL MATTERS			276
EXPERTS			277
WHERE YOU CAN FIND MORE INFORMATION			278
HOUSEHOLDING			279
INDEX TO FINANCIAL STATEMENTS			F-1
Annex A—Merger Agreement			A-1
Annex B—Separation Agreement.			B-1
Annex C—Amended Certificate of Incorporation of Clear Channel Outdoor Holdings, Inc.			C-1

QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US ONE.

 

Q:	What is the Merger?

 

A:

CCH and CCOH has entered into an agreement and plan of merger (the “Merger Agreement”) pursuant to which CCOH will merge with and into CCH (the “Merger”) with CCH being the surviving corporation. The Merger is one step in a series of transactions (the “Transactions”) to effect the separation of CCOH from iHeartMedia, Inc. (“iHeartMedia”) in conjunction with iHeartMedia’s emergence from bankruptcy proceedings under Chapter 11 of the United States Bankruptcy Code filed in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”).

 

Q:	How will the Separation from iHeartMedia occur?

 

A:

First, Broader Media, LLC (“Broader Media”), a wholly-owned subsidiary of CCH, will distribute the 100,000,000 shares of Class B common stock of CCOH (the “CCOH Class B Common Stock”) it holds to CCH (the “Broader Media Distribution”) and CC Finco, LLC (“CC Finco”), a wholly-owned subsidiary of CCH, will distribute the 10,726,917 shares of Class A common stock of CCOH (the “CCOH Class A Common Stock” and together with the CCOH Class B Common Stock, the “CCOH Common Stock”) it holds to CCH (the “CC Finco Distribution”), and all of the shares of CCOH Class B Common Stock then held by CCH will be converted into CCOH Class A Common Stock pursuant to the provisions of CCOH’s certificate of incorporation prior to the Merger. As a result, all of iHeartMedia’s ownership of CCOH will be held directly by CCH. Second, CCH will separate its ownership of the businesses that comprise the iHeartMedia radio businesses (the “Radio Distribution”) by (i) transferring assets and liabilities of the respective businesses as described in this information statement/prospectus under “The Separation Agreement,” (ii) transferring its interest in all of its subsidiaries other than CCOH to iHeart Operations, Inc., a newly formed corporation (“Radio Newco”), in exchange for newly-issued common stock and preferred stock of Radio Newco, (iii) selling Radio Newco preferred stock to one or more third parties for cash and (iv) distributing the common stock of Radio Newco and the proceeds of the sale of Radio Newco preferred stock to iHeartCommunications, Inc., the current indirect parent company of CCH and CCOH and an indirect, wholly-owned subsidiary of iHeartMedia (“iHeartCommunications”). Following the Radio Distribution, the iHeartMedia radio business will be operated by certain subsidiaries of Radio Newco as well as other subsidiaries of iHeartCommunications, and not by CCH, and CCH will have no material assets other than the stock of CCOH. Third, pursuant to the Merger Agreement by and between CCH and CCOH, CCOH will merge with and into CCH, with CCH surviving the Merger and changing its name to Clear Channel Outdoor Holdings, Inc. (the “Surviving Corporation” or “New CCOH”), and shares of CCOH Class A Common Stock (other than shares of CCOH Class A Common Stock held by CCH or any direct or indirect wholly-owned subsidiary of CCH) will be converted into an equal number of shares of common stock of New CCOH (“New CCOH Common Stock”). The shares of CCOH Common Stock held by CCH will be canceled and retired, and no shares of New CCOH Common Stock will be exchanged for such shares. The shares of CCH common stock outstanding immediately before the Merger, all held by iHeartCommunications, will convert into a number of shares of New CCOH Common Stock equal to the number of shares of CCOH Common Stock held by CCH immediately before the Merger. As a result, immediately after the Merger, New CCOH will have a single class of common stock, the pre-Merger CCOH Class A common stockholders (other than CCH and its subsidiaries) will own the same percentage of New CCOH that they owned of CCOH immediately before the Merger, which is approximately 10.9% as of the date of this information statement/prospectus, and all of the remaining 325,726,917 outstanding shares of New CCOH Common Stock will be held directly by iHeartCommunications. Fourth, New CCOH will sell preferred stock (the “New CCOH Preferred Stock”) to third parties for cash. Fifth, the New CCOH Common Stock held by iHeartCommunications will be transferred by iHeartCommunications to certain holders of claims in the iHeart Chapter 11 Cases pursuant to the plan of reorganization in the iHeartMedia bankruptcy

 

i

case (the “iHeartMedia Plan of Reorganization”), and New CCOH will become an independent public company no longer controlled by iHeartCommunications (the “Separation”). For a more complete description of the transaction steps, please see the Restructuring Transactions Memorandum to be attached as Exhibit A to the Separation Agreement, which is attached as Annex B to this information statement/prospectus.

 

Q:	What will holders of CCOH Class A Common Stock receive in the Transactions?

 

A:

The holders of CCOH Class A Common Stock (other than CCH or any direct or indirect wholly-owned subsidiary of CCH) will be entitled to receive one share of New CCOH Common Stock for each share of CCOH Class A Common Stock they own at the effective time of the Merger (the “Effective Time”). CCH intends to apply to list the shares of New CCOH Common Stock on the New York Stock Exchange (“NYSE”) under the symbol “CCO.”

 

Q:	What are the material United States Federal income tax consequences to holders of CCOH Class A Common Stock resulting from the Merger?

 

A:

The Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and, as to CCH, as a complete liquidation of CCOH to which Section 332 of the Code applies, and it is a condition to CCH’s and CCOH’s obligations to complete the Merger that each of them receives a legal opinion from its tax counsel or another tax advisor that the Merger will be treated as a reorganization within the meaning of Section 368(a) of the Code. However, neither CCH nor CCOH has requested or received a ruling from the Internal Revenue Service the (“IRS”) that the Merger will qualify as a reorganization. U.S. holders of CCOH Common Stock generally are not expected to recognize any gain or loss upon the exchange of CCOH Common Stock for New CCOH Common Stock pursuant to the Merger. We urge you to consult with your tax advisor regarding the specific tax consequences of the Merger to you.

 

See “Material United States Federal Income Tax Consequences of the Merger” beginning on page 119.

The Separation will not be a taxable event for the holders of the New CCOH Common Stock following the Merger, other than iHeartCommunications.

 

Q:	Why have I received this information statement/prospectus?

 

A:

This information statement/prospectus is an information statement of CCOH for use in providing information about the actions taken by three subsidiaries of iHeartCommunications, which at the time of such actions beneficially owned 100% of the CCOH Class B Common Stock and 10,726,917 shares of CCOH Class A Common Stock (the “Principal CCOH Stockholders”), which collectively represented approximately 99% of the voting power of CCOH’s stockholders, and a prospectus of CCH relating to the conversion of shares of CCOH Class A Common Stock into shares of New CCOH Common Stock in connection with the Merger. Pursuant to Section 14(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 228 of the General Corporation Law of the State of Delaware (the “DGCL”), CCOH is required to provide an information statement to all of its stockholders, as of the close of business on the March 27, 2019 (the “Record Date”), to notify them that on March 27, 2019, the Principal CCOH Stockholders took certain actions that would normally require a meeting of the stockholders, by written consent in lieu of a stockholder meeting, as permitted under the bylaws of CCOH and the DGCL.

 

Q:	What actions did the Principal CCOH Stockholders approve?

 

A:	The Principal CCOH Stockholders, acting by written consent in lieu of a stockholder meeting, approved the following actions (together, the “Stockholder Actions”):

 

(1)

the adoption of the Merger Agreement, the approval of the Merger and the approval of the transactions contemplated thereby, and

 

ii

(2)

the election of C. William Eccleshare, John Dionne, Lisa Hammitt, Andrew Hobson, Thomas C. King, Joe Marchese, W. Benjamin Moreland, Mary Teresa Rainey and Jinhy Yoon as directors of New CCOH to take office upon completion of the Merger, subject to the completion of the Merger (the “New CCOH Board Nominees”).

 

Q:	How many votes were needed for the approval or authorization of the Stockholder Actions?

 

A:

Under Section 228 of the DGCL, action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting upon the written consent of the holders of outstanding shares of voting capital stock, having not less than the minimum number of votes which would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

Under the DGCL and CCOH’s organizational documents, the approval of the holders of a majority of the voting power of the outstanding shares of CCOH’s common stock, voting (or consenting in writing in lieu thereof) together as a single class, is required to adopt the Merger Agreement, approve the Merger and approve the transactions contemplated thereby. Under CCOH’s organizational documents, directors are elected by a plurality of votes cast, which means that if a board consists of nine (9) directorships such as the New CCOH board, the nine (9) nominees who receive the highest number of votes will be elected.

Each share of CCOH Class A Common Stock is entitled to one vote, and each share of CCOH Class B Common Stock is entitled to 20 votes, on matters submitted to a vote of stockholders. As of the Record Date, 50,581,618 shares of CCOH Class A Common Stock were issued and outstanding, 315,000,000 shares of CCOH Class B Common Stock were issued and outstanding and no shares of preferred stock were issued or outstanding. As of the Record Date, the Principal CCOH Stockholders held 10,726,917 shares of CCOH Class A Common Stock and 315,000,000 shares of Class B Common Stock. Accordingly, the vote of the Principal CCOH Stockholders was sufficient to approve the Stockholder Actions.

 

Q:	Will there be an annual meeting of stockholders in 2019?

 

A:

No. The CCOH board of directors (the “CCOH Board”) believes it would not be in the best interest of CCOH and its stockholders to incur the costs of holding an annual meeting or of soliciting proxies from additional stockholders in connection with these actions. Based on the foregoing, the CCOH Board has determined not to call an in-person annual meeting of stockholders, and none will be held during 2019 and in lieu thereof, the Principal CCOH Stockholders adopted the Stockholder Actions by written consent. New CCOH plans to convene an annual meeting of stockholders following the conclusion of the fiscal year ending December 31, 2019.

 

Q:	Is there anything that holders of CCOH Class A Common Stock need to do now?

 

A:

No. Since the subsidiaries of iHeartCommunications that own a majority of the voting power of the outstanding CCOH Common Stock have already approved the Stockholder Actions by written consent in lieu of a stockholder meeting, no other votes are necessary to approve the Stockholder Actions, and your approval is not required and is not being requested. However, holders of the CCOH Class A Common Stock are urged to read this information statement/prospectus carefully and in its entirety, which contains important information about the Merger, the Separation, the CCOH business and New CCOH.

 

Q:	Can CCOH stockholders dissent and require appraisal of their shares?

 

A:	No. CCOH stockholders do not and will not have dissenters’ or appraisal rights under Delaware law in connection with the Merger.

 

Q:	Are there any conditions to consummation of the Merger?

 

A:	Yes. Consummation of the Merger (the “Closing”) is subject to the satisfaction or waiver of certain conditions that are contained in the Merger Agreement. These include: (i) (x) the affirmative vote or written consent of

 

iii

the holders of the shares representing the majority of the voting power of the CCOH Common Stock to adopt the Merger Agreement, to approve the Merger and to approve the consummation of the transactions contemplated thereby (the “CCOH Stockholder Approval”) and (y) the affirmative vote or written consent of the holders of shares of CCH common stock entitled to vote to adopt the Merger Agreement, to approve the Merger and to approve the consummation of the transactions contemplated thereby (the “CCH Stockholder Approval”), which conditions have been satisfied, (ii) no order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any governmental authority or other legal restraint or prohibition preventing the Merger or the transactions contemplated by the Merger Agreement will be in effect, (iii) the effectiveness of the registration statement of which this information statement/prospectus is a part, covering the shares of New CCOH Common Stock to be issued in the Merger, (iv) a period of at least 20 calendar days will have elapsed from the date this information statement/prospectus was first mailed to CCOH’s stockholders, (v) the approval of the Merger Agreement by the Bankruptcy Court, which condition has been satisfied, (vi) the Radio Distribution, the Broader Media Distribution and the CC Finco Distribution will have occurred, (vii) the conversion of all outstanding shares of CCOH Class B Common Stock into shares of CCOH Class A Common Stock will have occurred, (viii) that, as a condition to CCH’s obligation to consummate the Merger, CCH will have received a tax opinion issued by its tax counsel or another tax advisor, (ix) that, as a condition to CCOH’s obligation to consummate the Merger, CCOH will have received a tax opinion issued by its tax counsel or another tax advisor, (x) the approval by the NYSE for listing of the New CCOH Common Stock (xi) all conditions precedent to the effectiveness of the iHeartMedia Plan of Reorganization will have been satisfied prior to or contemporaneously with the closing of the Merger, and (xii) other customary conditions.

 

See “The Merger Agreement—Conditions to the Merger” beginning on page 85.

 

Q:	When will the Transactions be completed?

 

A:	We expect to complete the Transactions in the second quarter of 2019.

 

Q:	Are there risks associated with the Merger?

 

A:	Yes. You should read the section entitled “Risk Factors” beginning on page 18 carefully and in its entirety.

 

Q:	Should I send in my CCOH stock certificate now?

 

A:

No. Holders of CCOH Class A Common Stock in certificated form (a “Certificate”) should not send in their Certificates at this time. After the Effective Time, Computershare Trust Company, N.A. (the “Transfer Agent”) will mail to each holder of record holding a Certificate a customary letter of transmittal (a “Letter of Transmittal”) and instructions for surrendering the Certificates in exchange for shares of New CCOH Common Stock. Upon surrender of Certificates for cancellation to the Transfer Agent, and upon delivery of a Letter of Transmittal, duly executed and in proper form with respect to such Certificates, and such other documents as may reasonably be required by the Transfer Agent, the holder of such Certificates will receive shares of New CCOH Common Stock in book-entry form.

 

See “Information about the Transactions—Procedures for Surrender of Certificates” beginning on page 70.

 

Q:	How will the Merger affect my options to purchase CCOH Class A Common Stock?

 

A:

Prior to the Closing, CCH and CCOH will each adopt resolutions and take all necessary actions such that the Surviving Corporation will adopt the (i) Clear Channel Outdoor Holdings, Inc. 2005 Stock Incentive Plan, and (ii) Clear Channel Outdoor Holdings, Inc. 2012 Amended and Restated Stock Incentive Plan (each such plan as amended or amended and restated through the Effective Time, a “CCOH Equity Incentive Plan”). At the Effective Time, each option to purchase shares of CCOH Class A Common Stock granted pursuant to a

 

iv

CCOH Equity Incentive Plan (a “CCOH Stock Option”) that is outstanding and unexercised as of immediately prior to the Effective Time will be converted into and become an option to purchase shares of New CCOH Common Stock (a “New CCOH Stock Option”). Each New CCOH Stock Option will continue to have, and be subject to, the same terms and conditions applied to the CCOH Stock Option immediately prior to the Effective Time. The Compensation Committee of the CCOH Board has not made a determination that a change in control (for purposes of the CCOH Stock Option agreements) will occur as a result of the Separation.

 

See “The Merger Agreement—Treatment of CCOH Equity Incentive Plans” beginning on page 82.

 

Q:	How will the Merger affect my restricted stock units in CCOH?

 

A:

At the Effective Time, each right or award to receive a share of CCOH Class A Common Stock or benefits measured by the value of such share pursuant to any CCOH Equity Incentive Plan (a “CCOH Restricted Stock Unit”) that is outstanding as of immediately prior to the Effective Time (but excluding any CCOH Restricted Stock Unit or portion thereof that becomes vested as a result of the consummation of the Merger and is settled in shares of CCOH Class A Common Stock that, in turn, convert into the right to receive New CCOH Common Stock) will be assumed by the Surviving Corporation and will be converted into a right or award to acquire or receive a share of New CCOH Common Stock or benefits measured by the value of such share of New CCOH Common Stock pursuant to any CCOH Equity Incentive Plan (a “New CCOH Restricted Stock Unit”). Each New CCOH Restricted Stock Unit as so assumed and converted will continue to have, and will be subject to, the same terms and conditions as applied to the CCOH Restricted Stock Unit immediately prior to the Effective Time. As of the Effective Time, each such New CCOH Restricted Stock Unit as so assumed and converted will represent the right to receive a corresponding number of shares of New CCOH Common Stock. The Compensation Committee of the CCOH Board has not made a determination that a change in control (for purposes of the CCOH Restricted Stock Unit agreements) will occur as a result of the Separation.

 

See “The Merger Agreement—Treatment of CCOH Equity Incentive Plans” beginning on page 82.

 

Q:	How will the Merger affect my CCOH restricted stock awards?

 

A:

At the Effective Time, each restricted share of CCOH Class A Common Stock granted pursuant to a CCOH Equity Incentive Plan (a “CCOH Restricted Stock Award”) that is outstanding immediately prior to the Effective Time will be assumed by the Surviving Corporation and will be converted into the right to receive a corresponding number of shares of restricted New CCOH Common Stock (a “New CCOH Restricted Stock Award”). Each unvested converted CCOH Restricted Stock Award so assumed and converted will continue to have, and will be subject to, the same terms and conditions as applied to the CCOH Restricted Stock Award immediately prior to the Effective Time. The Compensation Committee of the CCOH Board has not made a determination that a change in control (for purposes of the CCOH Restricted Stock Award agreements) will occur as a result of the Separation.

 

See “The Merger Agreement—Treatment of CCOH Equity Incentive Plans” beginning on page 82.

 

Q:	Who Can Answer My Questions?

 

A:	If you have any questions about the Transactions or desire additional copies of the information statement/prospectus, please contact:

Clear Channel Outdoor Holdings, Inc.

20880 Stone Oak Parkway

San Antonio, Texas 78258

Attention: General Counsel

Telephone: (210) 822-2828

 

v

Q:	Where Can I Find More Information About CCH and CCOH?

 

A:	You can find more information about CCOH in the section entitled “Information About CCOH” beginning on page 122 and “Information about CCH” on page 141 of this information/prospectus statement and from the various sources described under “Where You Can Find More Information” beginning on page 278.

 

vi

 

1

 

2

 

3

 

4

 

5

 

6

 

7

 

8

 

9

 

10

 

11

 

12

 

13

 

14

 

15

 

16

 

17

RISK FACTORS

You should carefully consider the following risks, together with the other information contained in this information statement/prospectus and the annexes hereto. The risks described below are not the only risks facing CCH and CCOH, and following completion of the Transactions, New CCOH. Additional risks and uncertainties not currently known or that are currently deemed to be immaterial may also materially and adversely affect the company’s business operations or the price of New CCOH Common Stock following completion of the Transactions.

Risks Relating to the Transactions

The Transactions could result in significant tax liability to New CCOH.

The Radio Distribution and the Separation are intended to be taxable transactions. The gain or loss recognized with respect to these transactions will depend on, among other things, (a) the value and tax basis of the assets transferred in the Radio Distribution and the value and tax basis of the New CCOH Common Stock on the Effective Date (such values will be determined by reference to, among other things, the trading value of the iHeartMedia equity and New CCOH Common Stock following the Effective Date); (b) complex modeling considerations under certain U.S. Department of Treasury regulations; (c) the amount of cancellation of indebtedness income realized in connection with the iHeart Chapter 11 Cases; and (d) the extent to which any “excess loss accounts” (as defined under applicable Treasury regulations) are taken into account. The extent to which any related taxable gain or loss will result in any cash tax liabilities will depend on whether the tax attributes of iHeartMedia and its subsidiaries, including the net operating losses (“NOLs”) of iHeartMedia and its subsidiaries (including CCOH and its subsidiaries), are sufficient to offset any net taxable gain attributable to the transactions.

Because certain of the factors that will determine whether the Transactions will give rise to any cash tax liability cannot be known until the Effective Date, we cannot say with certainty whether any such cash tax liability will be owed. To the extent the Transactions do give rise to any cash tax liability, New CCOH, iHeartCommunications, iHeartMedia and various other entities would be jointly and severally liable under applicable law for any such amounts. The parties intend that the allocation of such liabilities among the various members of the iHeartMedia Group and New CCOH will be addressed by the New Tax Matters Agreement. See “Additional Agreements—New Tax Matters Agreement.”

The Merger is expected to, but may not, qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

The parties expect the Merger to be treated as a “reorganization” within the meaning of Section 368(a) of the Code, and the obligation of each of CCH and CCOH to effect the Merger is conditioned upon the receipt of U.S. federal income tax opinions to that effect from their respective tax counsels or accounting advisors. These tax opinions represent the legal judgment of counsel or the relevant accounting advisor rendering the opinion and are not binding on the IRS or the courts. If the Merger does not qualify as a “reorganization,” then a holder of CCOH Class A Common Stock may be required to recognize any gain or loss with respect to the receipt of New CCOH Common Stock in the Merger. Tax matters are very complicated and the consequences of the Merger to any particular CCOH stockholder will depend on that stockholder’s particular facts and circumstances. For further information, please refer to “Material United States Federal Income Tax Consequences of the Merger.” We urge you to consult your own tax advisor to determine the particular tax consequences of the Merger to you.

The iHeart Chapter 11 Cases may give rise to unfavorable tax consequences for New CCOH.

Although CCOH and its direct and indirect subsidiaries did not file Chapter 11 cases as part of the iHeart Chapter 11 Cases, the consummation of the iHeart Chapter 11 Cases may have an adverse impact on New CCOH

 

18

and its subsidiaries. The Radio Distribution and the Separation are intended to be taxable transactions and the Merger is expected to, but may not, qualify as a “reorganization” within the meaning of Section 368(a) of the Code. There is a risk that the Radio Distribution and Separation will give rise to a U.S. federal income tax liability to one or more members of iHeartMedia or its subsidiaries after the Separation (collectively, the “iHeartMedia Group”). If such liability were to arise, New CCOH, iHeartCommunications, iHeartMedia and various other entities would be jointly liable under applicable law for such tax liability and, while we would not anticipate that any such tax liability would be asserted against us in the first instance, we may ultimately be liable for such liability if iHeartMedia and its subsidiaries fail to satisfy such liability. Similar principles may apply for foreign, state and local income tax purposes where CCOH filed combined, consolidated or unitary returns with iHeartMedia or its subsidiaries for federal, foreign, state and local income tax purposes. In addition, the iHeartMedia Group and New CCOH and its subsidiaries may be required to reduce certain of their tax attributes, including their NOLs, as a result of any cancellation of indebtedness income realized by the Debtors in connection with the iHeart Chapter 11 Cases.

Transfers of equity, issuances of equity in connection with the iHeart Chapter 11 Cases and cancellation of indebtedness income realized by the Debtors in the iHeart Chapter 11 Cases may impair New CCOH’s and its subsidiaries’ ability to utilize their federal income tax NOL carryforwards in future years.

Under federal income tax law, a corporation is generally permitted to deduct from taxable income NOLs carried forward from prior years. We are attributed a portion of the U.S. federal NOL carryforward of the iHeartMedia consolidated group. Our ability to utilize these NOL carryforwards to offset future taxable income and to reduce federal income tax liability is subject to certain requirements and restrictions. If CCOH and its subsidiaries experience an “ownership change,” as defined in section 382 of the Code, then their ability to use their NOL carryforwards may be substantially limited, which could have a negative impact on their financial position and results of operations. Generally, there is an “ownership change” if one or more shareholders owning 5% or more of a corporation’s common stock have aggregate increases in their ownership of such stock of more than 50 percentage points over the prior three-year period. Following the implementation of the iHeartMedia Plan of Reorganization in the iHeart Chapter 11 Cases, it is expected that CCOH and its subsidiaries will experience an “ownership change.” Under section 382 of the Code, absent an applicable exception, if a corporation undergoes an “ownership change,” the amount of federal income tax NOL carryforwards existing prior to the change that it could utilize to offset its taxable income in future taxable years generally is subject to an annual limitation to an amount equal to the value of its stock immediately prior to the ownership change multiplied by the long-term tax-exempt rate, subject to adjustments to reflect the differences between the fair market value of the corporation’s assets and the tax basis in such assets and various other complex rules and adjustments. Because the value of CCOH’s stock can fluctuate materially, it is possible an ownership change would materially limit New CCOH’s ability to utilize CCOH’s substantial federal income tax NOL carryforwards in the future. In addition, CCOH’s and New CCOH’s NOLs may be subject to reduction as a result of any cancellation of indebtedness income realized by the Debtors in connection with the iHeart Chapter 11 Cases. Accordingly, there can be no assurance that New CCOH and its subsidiaries will be able to utilize their federal income tax NOL carryforwards to offset future taxable income.

New CCOH may be more susceptible to adverse events as a result of the Separation.

New CCOH may be unable to achieve some or all of the benefits that New CCOH expects to achieve as an independent company in the time New CCOH expects, if at all. By separating from iHeartMedia, New CCOH may be more susceptible to market fluctuations and have less leverage with suppliers, and New CCOH may experience other adverse events. The completion of the Separation will also require significant amounts of New CCOH’s management’s time and effort, which may divert management’s attention from operating and growing our business.

 

19

New CCOH may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent publicly-traded company, and New CCOH may experience increased costs after the Separation.

iHeartMedia currently provides CCOH with various corporate services. The Transition Services Agreement will provide that iHM Management Services will provide, or will cause other members of the iHeart Group to provide, certain administrative and support services and other assistance to the Outdoor Group, which the Outdoor Group will utilize in the conduct of their businesses as such business was conducted prior to the Separation generally for one year (subject to certain rights of New CCOH to extend for up to an additional year). Following the Separation and the expiration of the Transition Services Agreement, New CCOH will need to provide internally or obtain from unaffiliated third parties the services CCOH currently receives from Management Services and the iHeart Group. CCOH negotiated its arrangements with iHeartCommunications in the context of a parent-subsidiary relationship prior to the IPO and CCOH is negotiating the terms of the Transition Services Agreement in the context of iHeart Chapter 11 Cases. New CCOH may be unable to replace these services in a timely manner or on terms and conditions as favorable as those CCOH currently receives from Management Services and the iHeart Group. New CCOH may be unable to successfully establish the infrastructure or implement the changes necessary to operate independently or may incur additional costs. If New CCOH fails to obtain the services necessary to operate effectively or if New CCOH incurs greater costs in obtaining these services, its business, financial condition and results of operations may be adversely affected.

The Separation will result in changes in CCOH’s management team and may result in the loss of other key employees.

CCOH’s business is dependent upon the performance of its management team and other key individuals. Five of CCOH’s executive officers currently serve as executive officers of iHeartMedia, including our CEO and CFO, who serve as the CEO and CFO of iHeartMedia, respectively. These executive officers have historically provided services to CCOH pursuant to the Corporate Services Agreement, which will be terminated upon consummation of the Separation. We expect that Mr. Eccleshare will serve as the Chief Executive Officer of New CCOH, Brian Coleman will serve as the Chief Financial Officer of New CCOH and Lynn Feldman will serve as the Executive Vice President, General Counsel and Secretary of New CCOH following the Separation. Mr. Eccleshare currently serves as Chairman and Chief Executive Officer of Clear Channel International, Mr. Coleman currently serves as iHeartMedia’s and CCOH’s Senior Vice President and Treasurer and Ms. Feldman currently serves as Executive Vice President, General Counsel and Corporate Secretary for Clear Channel Outdoor Americas. Even though CCH has been able to identify these individuals, New CCOH will need to identify replacements for other key positions. Competition for these key individuals is intense. In addition, many of CCOH’s key employees are at-will employees who are under no obligation to remain with us, and may decide to leave as a result of the uncertainty surrounding the business following the Separation or for a variety of personal or other reasons beyond our control. If members of CCOH’s management or key individuals decide to leave in the future, if New CCOH decides to make further changes to the composition of, or the roles and responsibilities of, these individuals, or if New CCOH is not successful in attracting, motivating and retaining other key employees, New CCOH’s business could be adversely affected.

Upon completion of the Separation, the composition of our board of directors will be different than the current composition of our board of directors.

In connection with the Separation, members of our board of directors will be replaced with new directors who have been selected by a committee consisting of certain holders of interests and creditors in the iHeart Chapter 11 Cases. New CCOH’s new board of directors will not have the same level of experience with our historical operations as our current board. New CCOH’s new board of directors may pursue business plans and growth strategies that differ from our existing business plans and growth strategies. Any new business plans or growth strategies implemented by the new board of directors, including plans to address our capital structure and reduce our leverage, if unsuccessful, may lead to material unanticipated problems, expenses, liabilities, competitive responses, loss of customer and other business relationships, and an adverse impact on operations and financial results.

 

20

CCOH’s historical financial information is not necessarily representative of the results we would have achieved as an independent public company and may not be a reliable indicator of our future results.

The historical financial information included in this information statement/prospectus does not necessarily reflect the results of operations and financial position we would have achieved as an independent public company not controlled by iHeartMedia during the periods presented, or those that we will achieve in the future.

Prior to the Separation, CCOH operates as part of iHeartMedia’s broader corporate organization, and subsidiaries of iHeartMedia perform various corporate functions for CCOH. CCOH’s historical financial information reflects allocations of corporate expenses from iHeartMedia for these and similar functions. These allocations may not reflect the costs we will incur for similar services in the future as an independent publicly-traded company.

CCOH’s historical financial information does not reflect changes that we expect to experience in the future as a result of the Separation from iHeartMedia, including changes in our capital structure, tax structure and new personnel needs. As part of iHeartMedia, CCOH enjoyed certain benefits from iHeartMedia’s operating diversity, size and purchasing power and we will lose these benefits after the Separation. As an independent entity, we may be unable to purchase goods or services and technologies, such as insurance and health care benefits and computer software licenses, on terms as favorable to us as those we obtained as part of iHeartMedia prior to the Separation.

Following the Separation, we will also be responsible for the additional costs associated with being an independent publicly-traded company, including costs related to corporate governance, investor and public relations and public reporting. In addition, certain costs incurred by subsidiaries of iHeartMedia, including executive oversight, accounting, treasury, tax, legal, human resources, occupancy, procurement, information technology and other shared services, have historically been allocated to CCOH by iHeartMedia; but these allocations may not reflect the future level of these costs to us as we begin to provide these services ourselves. Therefore, CCOH’s historical financial statements may not be indicative of our future performance as an independent publicly-traded company. We cannot assure you that our operating results will continue at a similar level when we are an independent publicly-traded company. For additional information about our past financial performance and the basis of presentation of CCOH’s financial statements, see “Selected Historical Financial Data of the Outdoor Business of Clear Channel Holdings, Inc.” “Unaudited Pro Forma Carve-Out Financial Statements of the Outdoor Business of Clear Channel Holdings, Inc.,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Outdoor Business of CCH” and the historical financial statements of the Outdoor Business of CCH and the notes thereto included elsewhere in this information statement/prospectus.

To service our debt obligations and to fund our operations and our capital expenditures, we require a significant amount of cash to meet our needs, which depends on many factors beyond our control.

Our ability to service our debt obligations and to fund our operations and our capital expenditures for display construction, renovation or maintenance requires a significant amount of cash. Our primary sources of liquidity are currently cash on hand, cash flow from operations, the intercompany arrangements provided for in the cash management order approved in the iHeart Chapter 11 Cases and our receivables-based credit facility. Following the Transactions, the intercompany arrangements with iHeartCommunications will cease, and we expect to have the iHeartCommunications Line of Credit and the proceeds from the issuance of the New CCOH Preferred Stock as sources of liquidity.

Our primary uses of liquidity are for our working capital, capital expenditure, debt service and other funding requirements. A substantial amount of our cash requirements are for debt service obligations. During 2018, we spent $375.5 million of cash on interest on our debt. We anticipate having approximately $346.3 million of cash interest payment obligations in 2018. Our significant interest payment obligations reduce our financial flexibility, make us more vulnerable to changes in operating performance and economic downturns generally, reduce our liquidity over time and could negatively affect our ability to obtain additional financing in the future.

 

21

Our ability to fund our working capital, capital expenditures, debt service and other obligations depends on our future operating performance and cash from operations and our ability to manage our liquidity following the Separation, which are in turn subject to prevailing economic conditions and other factors, many of which are beyond our control. In addition, the purchase price of possible acquisitions, capital expenditures for deployment of digital billboards and/or other strategic initiatives could require additional indebtedness or equity financing. Historically, our cash management arrangement with iHeartCommunications has been our only committed external source of liquidity. Following the Separation, we will be dependent upon our ability to generate cash or obtain additional financing to meet our liquidity needs. If we are unable to obtain adequate financial support following the Separation, we will likely need to obtain additional financing from banks or other lenders, or through public offerings or private placements of debt or equity, strategic relationships or other arrangements, or from a combination of these sources. There can be no assurance that financing alternatives will be available to us in sufficient amounts or on terms acceptable to us in the future due to market conditions, our financial condition, our liquidity constraints, our lack of history operating as a company independent from iHeartCommunications or other factors, many of which are beyond our control. Even if financing alternatives are available to us, we may not find them suitable or at comparable interest rates to the indebtedness being refinanced, and our annual cash interest payment obligations could increase further. In addition, the terms of our existing or future debt agreements may restrict us from securing financing on terms that are available to us at that time. Consequently, there can be no assurance that such financing, if permitted under the terms of our financing agreements, will be available on terms acceptable to us or at all. The inability to obtain additional financing in such circumstances could have a material adverse effect on our financial condition and on our ability to meet our obligations or pursue strategic initiatives. Additional indebtedness could increase our leverage and make us more vulnerable to economic downturns and may limit our ability to withstand competitive pressures.

In addition to the need to refinance our various indebtedness at or before maturity, if we are unable to generate sufficient cash through our operations, we could face substantial liquidity problems, which could have a material adverse effect on our financial condition, on our ability to meet our obligations and on the value of our company following the Separation.

Some of our contracts contain provisions requiring the consent of third parties in connection with the Merger or the Separation. If these consents are not obtained, the contracts could be terminated, which could have a material adverse impact on our financial results.

Some of our contracts, including certain contracts with municipalities and transit authorities, contain provisions that require the consent of certain third parties to the Merger or the Separation. Failure to obtain consents on commercially reasonable and satisfactory terms may result in the termination of the contracts, the need to renegotiate or amend the contracts or legal action to determine the obligations of the parties. We may not be able to replace some or all of the revenue lost upon the termination of a contract, which could have a material adverse impact on our financial results.

Substantial sales of New CCOH Common Stock may occur following the Separation, which could cause the market price of the New CCOH Common Stock to decline.

Holders of claims in the iHeart Chapter 11 Cases receiving New CCOH Common Stock pursuant to the iHeartMedia Plan of Reorganization (other than recipients that are affiliates of New CCOH) generally may sell those shares immediately in the public market. It is likely that some holders of claims receiving New CCOH Common Stock pursuant to the iHeartMedia Plan of Reorganization will sell such New CCOH Common Stock if, for reasons such as its business profile or market capitalization as an independent company, stock of New CCOH does not fit their investment objectives, or, in the case of index funds, New CCOH is not a participant in the index in which they are investing. The sales of significant amounts of New CCOH Common Stock or the perception in the market that this will occur may decrease the market price of the New CCOH Common Stock.

 

22

The market price of the New CCOH Common Stock may decline compared to the historical market price of CCOH’s common stock as a result of the Transactions.

The market price of the New CCOH Common Stock may decline compared to the historical market price of CCOH’s common stock as a result of the Transactions if New CCOH does not achieve the perceived benefits of the Transactions as rapidly or to the extent anticipated by financial or industry analysts, or the effect of the Transactions on New CCOH’s financial results is not consistent with the expectations of financial or industry analysts.

CCOH is currently a “controlled company” within the meaning of the NYSE Listing Rules, but New CCOH is not expected to retain that status following the Separation. However, during the phase-in period New CCOH may continue to rely on exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.

Because iHeartMedia currently controls a majority of the combined voting power of all classes of CCOH’s outstanding voting stock, CCOH has been a “controlled company” under NYSE corporate governance listing standards. Under the NYSE Listing Rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a controlled company and may elect not to comply with certain NYSE corporate governance requirements, including the requirements that:

 

•

a majority of the board of directors consist of independent directors;

 

•

the nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

•

the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

Following the Separation, iHeartMedia will cease to control a majority of the combined voting power of all classes of New CCOH’s outstanding voting stock. Accordingly, we are not expected to continue to be a “controlled company” within the meaning of the rules of the NYSE Listing Rules. Under NYSE Listing Rules, a company that ceases to be a controlled company must comply with the independent board committee requirements as they relate to the nominating and corporate governance and compensation committees on the following phase-in schedule: (1) one independent committee member at the time it ceases to be a controlled company; (2) a majority of independent committee members within 90 days of the date it ceases to be a controlled company; and (3) all independent committee members within one year of the date it ceases to be a controlled company. Additionally, the NYSE Listing Rules provide a 12-month phase-in period from the date a company ceases to be a controlled company to comply with the majority independent board requirement. During these phase-in periods, holders of New CCOH Common Stock will not have the same protections afforded to stockholders of companies of which the majority of directors are independent. Additionally, if, within the phase-in periods, we are not able to recruit additional directors who would qualify as independent, or otherwise comply with NYSE Listing Rules, we may be subject to delisting procedures by the NYSE. Furthermore, a change in the board of directors and committee membership may result in a change in corporate strategy and operation philosophies, and may result in deviations from CCOH’s current strategies or the strategies established by our board of directors following the Separation.

The holders of New CCOH Preferred Stock will have rights that are senior to the rights of a holder of New CCOH Common Stock.

As part of the Transactions, New CCOH will issue the New CCOH Preferred Stock to third party investors. Although the terms of the New CCOH Preferred Stock have yet to be fully negotiated, the New CCOH Preferred Stock is expected to provide that, in the event of New CCOH’s bankruptcy, dissolution or liquidation, the holders of New CCOH Preferred Stock must be satisfied before any distributions can be made to the holders of New CCOH Common Stock. As a result of the New CCOH Preferred Stock’s superior rights relative to the New

 

23

CCOH Common Stock, the right of holders of New CCOH Common Stock to receive distributions from New CCOH may be diluted and may be limited by such rights. Should New CCOH default or fail to pay dividends, in cash, on the New CCOH Preferred Stock for twelve consecutive quarters, the holders of the New CCOH Preferred Stock will have the right to appoint one director to the New CCOH Board.

While the Transactions are pending, CCOH is subject to business uncertainties and contractual restrictions that could disrupt CCOH’s business.

Although CCOH and its subsidiaries are not Debtors in the iHeart Chapter 11 Cases, CCOH has experienced and may continue to experience disruption of its current plans and operations due to the iHeart Chapter 11 Cases and the Transactions, which could have an adverse effect on CCOH’s business and financial results. Employees and other key personnel may have uncertainties about the effect of the proposed Transactions, and those uncertainties may impact the ability to retain, recruit and hire key personnel to manage and run the business while the Transactions are pending or if they are not completed. Furthermore, some of our customers and vendors may be hesitant to transact with the business of New CCOH following the Transactions in light of uncertainties about the ability of New CCOH’s businesses to perform following the Separation. If New CCOH is unable to reassure customers and vendors to continue transacting with the New CCOH following the Separation, New CCOH’s financial results may be adversely affected.

The proposed Transactions may also prevent CCOH from pursuing otherwise attractive business opportunities, result in CCOH’s inability to respond effectively to competitive pressures, industry developments and future opportunities and may otherwise harm CCOH’s business, financial results and operations.

The Merger is subject to various closing conditions and there can be no assurances as to whether and when it may be completed.

The Closing of the Merger is subject to a number of conditions, many of which are not within CCH’s or CCOH’s control, and failure to satisfy such conditions may prevent, delay or otherwise materially adversely affect the completion of the Transactions. The conditions include (i) (x) the affirmative vote or written consent of the holders of the shares representing the majority of the voting power of the CCOH Common Stock to adopt the Merger Agreement, to approve the Merger and to approve the consummation of the transactions contemplated thereby (the “CCOH Stockholder Approval”) and (y) the affirmative vote or written consent of the holders of shares of CCH common stock entitled to vote to adopt the Merger Agreement, to approve the Merger and to approve the consummation of the transactions contemplated thereby (the “CCH Stockholder Approval”), which conditions have been satisfied, (ii) no order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any governmental authority or other legal restraint or prohibition preventing the Merger or the transactions contemplated by the Merger Agreement will be in effect, (iii) the effectiveness of the registration statement of which this information statement/prospectus is a part, covering the shares of New CCOH Common Stock to be issued in the Merger, (iv) a period of at least 20 calendar days will have elapsed from the date this information statement/prospectus was first mailed to CCOH’s stockholders, (v) the approval of the Merger by the Bankruptcy Court, which condition has been satisfied, (vi) the Radio Distribution, the Broader Media Distribution and the CC Finco Distribution will have occurred, (vii) the conversion of all outstanding shares of CCOH Class B Common Stock held by CCH into shares of CCOH Class A Common Stock will have occurred, (viii) that, as a condition to CCH’s obligation to consummate the Merger, CCH will have received a tax opinion issued by its tax counsel or another tax advisor, (ix) that, as a condition to CCOH’s obligation to consummate the Merger, CCOH will have received a tax opinion issued by its tax counsel or another tax advisor, (x) the approval by the NYSE for listing of the New CCOH Common Stock, (xi) all conditions precedent to the effectiveness of the iHeartMedia Plan of Reorganization will have been satisfied prior to or contemporaneously with the closing of the Merger and (xii) other customary conditions.

CCH and CCOH cannot predict with certainty whether and when any of the required conditions to the Closing will be satisfied. If any event occurs delaying or preventing the Transactions, such delay or failure to complete the Transactions may cause uncertainty or other negative consequences that may materially and

 

24

adversely affect CCOH’s business, financial performance and operating results and the price per share for CCOH’s Common Stock. There can be no assurance that the conditions to the Merger will be satisfied or waived in a timely manner or at all.

CCOH directors and officers may have interests in the Merger different from the interests of CCOH stockholders.

CCOH directors and executive officers may have interests in the Merger that are different from, or are in addition to, those of the CCOH stockholders. These interests may include, but are not limited to, the interests of certain directors of CCOH in the iHeart Chapter 11 Cases and in the releases of claims pursuant to the Settlement Agreement, the continued employment of certain executive officers of CCOH by New CCOH, the treatment in the Merger of equity awards held by CCOH directors and executive officers, and provisions in the Separation Agreement regarding continued insurance to CCOH directors and officers.

CCH may be subject to claims that will not be discharged in the iHeart Chapter 11 Cases.

The Bankruptcy Code provides that the confirmation of a plan of reorganization discharges a debtor from substantially all debts arising prior to commencement of Chapter 11 proceedings. With few exceptions, all claims that arose prior to the filing of the iHeart Chapter 11 Cases (i) will be subject to compromise and/or treatment under the iHeartMedia Plan of Reorganization or (ii) will be discharged in accordance with the Bankruptcy Code and the terms of the iHeartMedia Plan of Reorganization. However, there can be no assurance that the aggregate amount of such claims that are not subject to treatment under the iHeartMedia Plan of Reorganization or that are not discharged will not be material. CCOH is not a Debtor in the iHeart Chapter 11 Cases and its debts will not be discharged pursuant to the iHeartMedia Plan of Reorganization.

In connection with the Separation, the iHeart Group will indemnify us and we will indemnify the iHeart Group for certain liabilities. There can be no assurance that the indemnities from the iHeart Group will be sufficient to insure us against the full amount of such liabilities.

Pursuant to agreements that we entered into with the iHeart Group in connection with the Separation, the iHeart Group agreed to indemnify us for certain liabilities, and we agreed to indemnify the iHeart Group for certain liabilities. For example, we will indemnify the iHeart Group for liabilities arising from or accruing prior to the Closing Date to the extent such liabilities related to the business, assets and liabilities of the Outdoor Group as well as liabilities relating to a breach of the Separation Agreement. However, third parties might seek to hold us responsible for liabilities that the iHeart Group agreed to retain, and there can be no assurance that the iHeart Group will be able to fully satisfy their respective indemnification obligations under these agreements. In addition, indemnities that we may be required to provide to the iHeart Group could be significant and could adversely affect our business.

If the Separation is deemed to indirectly trigger a change of control of Clear Media Limited, CCOH’s subsidiary which is listed on the Hong Kong stock exchange, the persons who acquire control of CCOH in the Separation would be required to make a mandatory offer for 49.58% of the shares of Clear Media Limited, which could have a negative impact on the value of CCOH’s investment in Clear Media Limited.

An indirect wholly-owned subsidiary of CCOH owns 50.42% of the issued share capital of Clear Media Limited (“Clear Media”), a company whose shares are listed on The Stock Exchange of Hong Kong. Pursuant to the iHeartMedia Plan of Reorganization, the shares of New CCOH that will be held by subsidiaries of iHeartCommunications immediately following completion of the Merger will be transferred to certain holders of claims in the iHeart Chapter 11 Cases in the Separation.

Pursuant to the mandatory offer and “chain principle” provisions under the Hong Kong Code on Takeovers and Mergers, if a person or group of persons acting in concert acquires or consolidates control of a listed

 

25

company, directly or indirectly, then the person or group of persons acquiring control is required to make a mandatory offer to acquire shares from all other shareholders of the listed company, unless certain exceptions apply. Although we believe that such a mandatory offer should not be required on the basis that (i) CCOH’s ownership interest in Clear Media is not significant in relation to CCOH, (ii) the main purpose of the acquisition of New CCOH Common Stock under the iHeartMedia Plan of Reorganization is not to secure control of Clear Media and (iii) no holders of claims who will receive shares of New CCOH Common Stock have been identified to us as acting in concert to obtain control of CCOH, if it should later be determined that the Separation does trigger a change in control under the “chain principle” provisions and the indirect holding of CCOH in Clear Media is significant to CCOH or the main purpose of the acquisition of New CCOH Common Stock under the iHeartMedia Plan of Reorganization is to secure control of Clear Media, the person or group of persons that acquired control would be required to make a mandatory offer for 49.58% of shares of Clear Media. A mandatory offer may result in the reduction or loss of Clear Media’s public float. There is the possibility that after any such mandatory offer, trading in Clear Media’s public shares may be suspended due to insufficient publicly held shares, which could negatively affect the price of Clear Media’s shares and, in turn, the value of New CCOH’s investment in Clear Media.

Risks Relating to the Business

Our results have been in the past, and could be in the future, adversely affected by economic uncertainty or deteriorations in economic conditions.

We derive revenues from the sale of advertising. Expenditures by advertisers tend to be cyclical, reflecting economic conditions and budgeting and buying patterns. Periods of a slowing economy or recession, or periods of economic uncertainty, may be accompanied by a decrease in advertising. For example, the global economic downturn that began in 2008 resulted in a decline in advertising and marketing by our customers, which resulted in a decline in advertising revenues across our businesses. This reduction in advertising revenues had an adverse effect on our revenue, profit margins, cash flow and liquidity. Global economic conditions have been slow to recover and remain uncertain. If economic conditions do not continue to improve, economic uncertainty increases or economic conditions deteriorate again, global economic conditions may once again adversely impact our revenue, profit margins, cash flow and liquidity. Furthermore, because a significant portion of our revenue is derived from local advertisers, our ability to generate revenues in specific markets is directly affected by local and regional conditions, and unfavorable regional economic conditions also may adversely impact our results. In addition, even in the absence of a downturn in general economic conditions, an individual business sector or market may experience a downturn, causing it to reduce its advertising expenditures, which also may adversely impact our results.

We face intense competition in the outdoor advertising business.

We operate in a highly competitive industry, and we may not be able to maintain or increase our current advertising revenues. We compete for advertising revenue with other outdoor advertising businesses, as well as with other media, such as radio, newspapers, magazines, television, direct mail, mobile devices, satellite radio and Internet-based services, within their respective markets. Market shares are subject to change for various reasons including through consolidation of our competitors through processes such as mergers and acquisitions, which could have the effect of reducing our revenue in a specific market. Our competitors may develop technology, services or advertising media that are equal or superior to those we provide or that achieve greater market acceptance and brand recognition than we achieve. It also is possible that new competitors may emerge and rapidly acquire significant market share in any of our business segments. The advertiser/agency ecosystem is diverse and dynamic, with advertiser/agency relationships subject to change. This could have an adverse effect on us if an advertiser client shifts its relationship to an agency with whom we do not have as good a relationship. An increased level of competition for advertising dollars may lead to lower advertising rates as we attempt to retain customers or may cause us to lose customers to our competitors who offer lower rates that we are unable or unwilling to match.

 

26

The success of our street furniture and transit products businesses is dependent on our obtaining key municipal concessions, which we may not be able to obtain on favorable terms.

Our street furniture and transit products businesses require us to obtain and renew contracts with municipalities and transit authorities. Many of these contracts, which require us to participate in competitive bidding processes at each renewal, typically have terms ranging up to 15 years and have revenue share, capital expenditure requirements and/or fixed payment components. Competitive bidding processes are complex and sometimes lengthy and substantial costs may be incurred in connection with preparing bids.

Our competitors, individually or through relationships with third parties, may be able to provide different or greater capabilities or prices or benefits than we can provide. In the past we have not been, and most likely in the future will not be, awarded all of the contracts on which we bid. The success of our business also depends generally on our ability to obtain and renew contracts with private landlords. There can be no assurance that we will win any particular bid, be able to renew existing contracts (on the same or better terms, or at all) or be able to replace any revenue lost upon expiration or completion of a contract. Our inability to renew existing contracts may also result in significant expenses from the removal of our displays. Furthermore, if and when we do obtain a contract, we are generally required to incur significant start-up expenses. The costs of bidding on contracts and the start-up costs associated with new contracts we may obtain may significantly reduce our cash flow and liquidity.

This competitive bidding process presents a number of risks, including the following:

 

•

we expend substantial cost and managerial time and effort to prepare bids and proposals for contracts that we may not win;

 

•

we may be unable to estimate accurately the revenue derived from and the resources and cost structure that will be required to service any contract we win or anticipate changes in the operating environment on which our financial proposal was based; and

 

•

we may encounter expenses and delays if our competitors challenge awards of contracts to us in competitive bidding, and any such challenge could result in the resubmission of bids on modified specifications, or in the termination, reduction or modification of the awarded contract.

Our inability to successfully negotiate, renew or complete these contracts due to third-party or governmental demands and delay and the highly competitive bidding processes for these contracts could affect our ability to offer these products to our clients, or to offer them to our clients at rates that are competitive to other forms of advertising, without adversely affecting our financial results.

Our financial performance may be adversely affected by many factors beyond our control.

Certain factors that could adversely affect our financial performance by, among other things, decreasing overall revenues, the numbers of advertising customers, advertising fees or profit margins include:

 

•

unfavorable fluctuations in operating costs, which we may be unwilling or unable to pass through to our customers;

 

•

our inability to successfully adopt or our being late in adopting technological changes and innovations that offer more attractive advertising alternatives than what we offer, which could result in a loss of advertising customers or lower advertising rates, which could have a material adverse effect on our operating results and financial performance;

 

•

unfavorable shifts in population and other demographics, which may cause us to lose advertising customers as people migrate to markets where we have a smaller presence or which may cause advertisers to be willing to pay less in advertising fees if the general population shifts into a less desirable age or geographical demographic from an advertising perspective;

 

27

•

adverse political effects and acts or threats of terrorism or military conflicts; and

 

•

unfavorable changes in labor conditions, which may impair our ability to operate or require us to spend more to retain and attract key employees.

In addition, on June 23, 2016, the United Kingdom (the “U.K.”) held a referendum in which voters approved an exit of the U.K. from the European Union (the “E.U.”), commonly referred to as “Brexit”. International outdoor is currently headquartered in the U.K. and transacts business in many key European markets. The U.K. is currently negotiating the terms of its exit from the E.U. In November 2018, the U.K. and the E.U. agreed upon a draft Withdrawal Agreement that sets out the terms of the U.K.’s departure. Significant uncertainty, however, continues to surround the terms (and timing) under which the U.K. will leave the E.U. and the consequent impact on the economies of the U.K., the E.U. and other countries. This uncertainty may cause our customers to closely monitor their costs and reduce the amount they spend on advertising. Any of these or similar effects of Brexit could adversely impact our business, operating results, cash flows and financial condition.

Future dispositions, acquisitions and other strategic transactions could pose risks.

We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue strategic dispositions of certain businesses, as well as acquisitions. These dispositions or acquisitions could be material. Dispositions and acquisitions involve numerous risks, including:

 

•

our dispositions may negatively impact revenues from our national, regional and other sales networks;

 

•

our dispositions may make it difficult to generate cash flows from operations sufficient to meet our anticipated cash requirements, including our debt service requirements;

 

•

our acquisitions may prove unprofitable and fail to generate anticipated cash flows;

 

•

to successfully manage our large portfolio of outdoor advertising and other businesses, we may need to:

 

•

recruit additional senior management as we cannot be assured that senior management of acquired businesses will continue to work for us and we cannot be certain that our recruiting efforts will succeed, and

 

•

expand corporate infrastructure to facilitate the integration of our operations with those of acquired businesses, because failure to do so may cause us to lose the benefits of any expansion that we decide to undertake by leading to disruptions in our ongoing businesses or by distracting our management;

 

•

we may enter into markets and geographic areas where we have limited or no experience;

 

•

we may encounter difficulties in the integration of operations and systems; and

 

•

our management’s attention may be diverted from other business concerns.

Dispositions and acquisitions of outdoor advertising businesses may require antitrust review by U.S. federal antitrust agencies and may require review by foreign antitrust agencies under the antitrust laws of foreign jurisdictions. We can give no assurances that the DOJ, the FTC or foreign antitrust agencies will not seek to bar us from disposing of or acquiring outdoor advertising businesses or impose stringent undertaking on our business as a condition to the completion of an acquisition in any market where we already have a significant position.

Government regulation of outdoor advertising may restrict our outdoor advertising operations.

U.S. federal, state and local regulations have a significant impact on the outdoor advertising industry and our business. One of the seminal laws is the Highway Beautification Act (“HBA”), which regulates outdoor advertising on controlled roads in the United States. The HBA regulates the size and location of billboards, mandates a state compliance program, requires the development of state standards, promotes the expeditious

 

28

removal of illegal signs and requires just compensation for takings. Construction, repair, maintenance, lighting, upgrading, height, size, spacing, the location and permitting of billboards and the use of new technologies for changing displays, such as digital displays, are regulated by federal, state and local governments. From time to time, states and municipalities have prohibited or significantly limited the construction of new outdoor advertising structures. Changes in laws and regulations affecting outdoor advertising, or changes in the interpretation of those laws and regulations, at any level of government, including the foreign jurisdictions in which we operate, could have a significant financial impact on us by requiring us to make significant expenditures or otherwise limiting or restricting some of our operations. Due to such regulations, it has become increasingly difficult to develop new outdoor advertising locations.

From time to time, certain state and local governments and third parties have attempted to force the removal of our displays under various state and local laws, including zoning ordinances, permit enforcement and condemnation. Similar risks also arise in certain of our international jurisdictions. Certain zoning ordinances provide for amortization which is the required removal of legal non-conforming billboards (billboards which conformed with applicable laws and regulations when built, but which do not conform to current laws and regulations) or the commercial advertising placed on such billboards after a period of years. Pursuant to this concept, the governmental body asserts that just compensation is earned by continued operation of the billboard over that period of time. Although amortization is prohibited along all controlled roads, amortization has been upheld along non-controlled roads in limited instances where permitted by state and local law. Other regulations limit our ability to rebuild, replace, repair, maintain and upgrade non-conforming displays. In addition, from time to time third parties or local governments assert that we own or operate displays that either are not properly permitted or otherwise are not in strict compliance with applicable law. If we are increasingly unable to resolve such allegations or obtain acceptable arrangements in circumstances in which our displays are subject to removal, modification or amortization, or if there occurs an increase in such regulations or their enforcement, our operating results could suffer.

A number of state and local governments have implemented or initiated taxes, fees and registration requirements in an effort to decrease or restrict the number of outdoor signs and/or to raise revenue. From time to time, legislation also has been introduced in international jurisdictions attempting to impose taxes on revenue from outdoor advertising or for the right to use outdoor advertising assets. In addition, a number of jurisdictions have implemented legislation or interpreted existing legislation to restrict or prohibit the installation of digital billboards, and we expect these efforts to continue. The increased imposition of these measures, and our inability to overcome any such measures, could reduce our operating income if those outcomes require removal or restrictions on the use of preexisting displays or limit growth of digital displays. In addition, if we are unable to pass on the cost of these items to our clients, our operating income could be adversely affected.

International regulation of the outdoor advertising industry can vary by municipality, region and country, but generally limits the size, placement, nature and density of out-of-home displays. Other regulations limit the subject matter, animation and language of out-of-home displays. Our failure to comply with these or any future international regulations could have an adverse impact on the effectiveness of our displays or their attractiveness to clients as an advertising medium and may require us to make significant expenditures to ensure compliance and avoid certain penalties or contractual breaches. As a result, we may experience a significant impact on our operations, revenue, international client base and overall financial condition.

Regulations and consumer concerns regarding privacy and data protection, or any failure to comply with these regulations, could hinder our operations.

We utilize demographic and other information from and about consumers, business partners and advertisers that we collect directly or receive from third-party vendors. We are subject to numerous federal, state and foreign laws and regulations relating to consumer protection, information security, data protection and privacy, among other things. Many of these laws are still evolving, new laws may be enacted and any of these laws could be amended or interpreted in ways that could adversely affect our business. In addition, changes in consumer expectations and demands regarding privacy and data protection could restrict our ability to receive, collect, use,

 

29

disclose and derive economic value from demographic and other information related to our consumers, business partners and advertisers, or to transfer employee data within the corporate group. Such restrictions could limit our ability to offer tailored advertising opportunities to our business partners and advertisers. Although we have implemented and are implementing policies and procedures designed to comply with these laws and regulations, any failure or perceived failure by us to comply with our policies or applicable regulatory requirements related to consumer protection, information security, data protection and privacy could result in a loss of confidence in us, damage to our brands, the loss of consumers, business partners and advertisers, as well as proceedings against us by governmental authorities or others, which could hinder our operations and adversely affect our business.

We are subject to numerous federal, state and foreign laws and regulations relating to consumer protection, information security, data protection and privacy, among other things. Many of these laws are still evolving, new laws may be enacted and any of these laws could be amended or interpreted by the courts or regulators in ways that could harm our business. For example, any efforts required to comply with the European General Data Protection Regulation (the “GDPR”), effective as of May 2018, or the new California Consumer Privacy Act (the “CCPA”), which is effective as of January 2020, may entail substantial expenses, may divert resources from other initiatives and projects, and could limit the services we are able to offer. In addition, changes in consumer expectations and demands regarding privacy and data protection could restrict our ability to use, disclose and derive economic value from demographic and other information related to our consumers, business partners and advertisers, or to transfer employee data within the corporate group. Such restrictions could limit our ability to offer targeted advertising opportunities to our business partners and advertisers. Although we have implemented and are implementing policies and procedures designed to comply with these laws and regulations, any failure or perceived failure by us to comply with our policies or applicable regulatory requirements related to consumer protection, information security, data protection and privacy could result in a loss of confidence in us, damage to our brands, consumers, business partners and advertisers, as well as proceedings against us by governmental authorities or others, which could hinder our operations and adversely affect our business.

If our security measures are breached, we could lose valuable information, suffer disruptions to our business, and incur expenses and liabilities including damages to our relationships with business partners and advertisers.

Although we have implemented physical and electronic security measures that are designed to protect against the loss, misuse and alteration of our websites, digital assets and proprietary business information as well as, consumer, business partner and advertiser personally identifiable information, no security measures are perfect and impenetrable and we may be unable to anticipate or prevent unauthorized access. A security breach could occur due to the actions of outside parties, employee error, malfeasance or a combination of these or other actions. If an actual or perceived breach of our security occurs, we could lose competitively sensitive business information or suffer disruptions to our business operations, information processes or internal controls. In addition, the public perception of the effectiveness of our security measures or services could be harmed; we could lose consumers, business partners and advertisers. In the event of a security breach, we could suffer financial exposure in connection with penalties, remediation efforts, investigations and legal proceedings and changes in our security and system protection measures. Currently, not all of our systems are fully compliant with the new GDPR standards and, as a result, we may face additional liability in the event of a security breach. The scope of many of the requirements under the GDPR remain unclear. Future case law may determine that the steps we are taking to comply with the GDPR may not be sufficient.

Restrictions on outdoor advertising of certain products may restrict the categories of clients that can advertise using our products.

Out-of-court settlements between the major U.S. tobacco companies and all 50 states, the District of Columbia, the Commonwealth of Puerto Rico and other U.S. territories include a ban on the outdoor advertising of tobacco products. Other products and services may be targeted in the U.S. in the future, including alcohol products. Most E.U. countries, among other nations, also have banned outdoor advertisements for tobacco products and regulate alcohol advertising. Localized restrictions on the location of advertising for High Fat, Salt

 

30

and Sugar (“HFSS”) foods have been implemented in the U.K. Regulations vary across the countries in which we conduct business. Any significant reduction in advertising of products due to content-related restrictions could cause a reduction in our direct revenues from such advertisements and an increase in the available space on the existing inventory of billboards in the outdoor advertising industry.

Environmental, health, safety and land use laws and regulations may limit or restrict some of our operations.

As the owner or operator of various real properties and facilities, we must comply with various foreign, federal, state and local environmental, health, safety and land use laws and regulations. We and our properties are subject to such laws and regulations relating to the use, storage, disposal, emission and release of hazardous and non-hazardous substances and employee health and safety as well as zoning restrictions. Historically, we have not incurred significant expenditures to comply with these laws. However, additional laws which may be passed in the future, or a finding of a violation of or liability under existing laws, could require us to make significant expenditures and otherwise limit or restrict some of our operations.

We are exposed to foreign currency exchange risks because a portion of our revenue is received in foreign currencies and translated to U.S. dollars for reporting purposes.

We generate a portion of our revenues in currencies other than U.S. dollars. Changes in economic or political conditions, including Brexit, in any of the foreign countries in which we operate could result in exchange rate movement, new currency or exchange controls or other currency restrictions being imposed. Because we receive a portion of our revenues in currencies from the countries in which we operate, exchange rate fluctuations in any such currency could have an adverse effect on our profitability. A portion of our cash flows are generated in foreign currencies and translated to U.S. dollars for reporting purposes, and certain of the indebtedness held by our international subsidiaries is denominated in U.S. dollars, and, therefore, significant changes in the value of such foreign currencies relative to the U.S. dollar could have a material adverse effect on our financial condition and our ability to meet interest and principal payments on our indebtedness.

Given the volatility of exchange rates, we cannot assure you that we will be able to effectively manage our currency transaction and/or translation risks. It is possible that volatility in currency exchange rates will have a material adverse effect on our financial condition or results of operations. We expect to experience economic losses and gains and negative and positive impacts on our operating income as a result of foreign currency exchange rate fluctuations.

Doing business in foreign countries exposes us to certain risks not expected to occur when doing business in the United States.

Doing business in foreign countries carries with it certain risks that are not found when doing business in the United States. These risks could result in losses against which we are not insured. Examples of these risks include:

 

•

potential adverse changes in the diplomatic relations of foreign countries with the United States;

 

•

new or increased tariffs or unfavorable changes in trade policy;

 

•

hostility from local populations;

 

•

the adverse effect of foreign exchange controls;

 

•

government policies against businesses owned by foreigners;

 

•

investment restrictions or requirements;

 

•

expropriations of property without adequate compensation;

 

•

the potential instability of foreign governments;

 

31

•

the risk of insurrections;

 

•

risks of renegotiation or modification of existing agreements with governmental authorities;

 

•

difficulties collecting receivables and otherwise enforcing contracts with governmental agencies and others in some foreign legal systems;

 

•

withholding and other taxes on remittances and other payments by subsidiaries;

 

•

changes in tax structure and level; and

 

•

changes in laws or regulations or the interpretation or application of laws or regulations.

Our International operations involve contracts with, and regulation by, foreign governments. We operate in many parts of the world that experience corruption to some degree. Although we have policies and procedures in place that are designed to promote legal and regulatory compliance (including with respect to the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act), our employees, subcontractors and agents could take actions that violate applicable anti-corruption laws or regulations. Violations of these laws, or allegations of such violations, could have a material adverse effect on our business, financial position and results of operations.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful

We have a substantial amount of indebtedness. At December 31, 2018, we had $5.3 billion of total indebtedness outstanding, including: (1) $2.7 billion aggregate principal amount of CCWH Senior Notes, net of unamortized discounts of $3.4 million, which mature in November 2022; (2) $2.2 billion aggregate principal amount of CCWH Subordinated Notes, which were scheduled to mature in March 2020 prior to their redemption in 2019; (3) $377.7 million aggregate principal amount outstanding of international subsidiary senior notes, net of unamortized premiums of $2.7 million, which mature in December 2020; and (4) $3.9 million of other debt. On February 12, 2019, CCWH refinanced its CCWH Subordinated Notes, which were scheduled to mature in March 2020, with an aggregate principal amount of $2,235 million of New CCWH Subordinated Notes, which mature in February 2024.

This large amount of indebtedness could have negative consequences for us, including, without limitation:

 

•

requiring us to dedicate a substantial portion of our cash flow to the payment of principal and interest on indebtedness, thereby reducing cash available for other purposes, including to fund operations and capital expenditures, invest in new technology and pursue other business opportunities;

 

•

limiting our liquidity and operational flexibility and limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;

 

•

limiting our ability to adjust to changing economic, business and competitive conditions;

 

•

requiring us to defer planned capital expenditures, reduce discretionary spending, sell assets, restructure existing indebtedness or defer acquisitions or other strategic opportunities;

 

•

limiting our ability to refinance any of the indebtedness or increasing the cost of any such financing;

 

•

making us more vulnerable to an increase in interest rates, a downturn in our operating performance, a decline in general economic or industry conditions or a disruption in the credit markets; and

 

•

making us more susceptible to negative changes in credit ratings, which could impact our ability to obtain financing in the future and increase the cost of such financing.

If compliance with the debt obligations materially hinders our ability to operate our business and adapt to changing industry conditions, we may lose market share, our revenue may decline and our operating results may suffer.

 

32

Our ability to make scheduled payments on our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or refinance our indebtedness. We may not be able to take any of these actions, and these actions may not be successful or permit us to meet our scheduled debt service obligations. Furthermore, these actions may not be permitted under the terms of our existing or future debt agreements.

Our ability to refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and increase our debt service obligations and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our operations and our ability to successfully refinance or extend our debt may also be negatively affected by the iHeart Chapter 11 Cases and the Separation. If we cannot make scheduled payments on our indebtedness we will be in default under one or more of our debt agreements and, as a result we could be forced into bankruptcy or liquidation.

The documents governing our indebtedness contain restrictions that limit our flexibility in operating our business

Our material financing agreements contain various covenants restricting, among other things, our ability to:

 

•

make acquisitions or investments;

 

•

make loans or otherwise extend credit to others;

 

•

incur indebtedness or issue shares or guarantees;

 

•

redeem, repurchase or retire our subordinated debt;

 

•

create liens;

 

•

enter into transactions with affiliates;

 

•

sell, lease, transfer or dispose of assets;

 

•

merge or consolidate with other companies; and

 

•

make a substantial change to the general nature of our business.

These restrictions could affect our ability to operate our business and may limit our ability to react to market conditions or take advantage of potential business opportunities as they arise. For example, such restrictions could adversely affect our ability to finance our operations, make strategic acquisitions, investments or alliances, restructure our organization or finance our capital needs. Additionally, our ability to comply with these covenants and restrictions may be affected by events beyond our control. These include prevailing economic, financial and industry conditions. If we breach any of these covenants or restrictions, we could be in default under the agreements governing our indebtedness and, as a result, we would be forced into bankruptcy or liquidation.

 

33

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. Except for the historical information, this information statement/prospectus contains various forward-looking statements which represent our expectations or beliefs concerning future events, including, without limitation, our future operating and financial performance, our ability to comply with the covenants in the agreements governing our indebtedness, the availability of capital and the impact of the proposed Separation from iHeartMedia. Statements expressing expectations and projections with respect to future matters are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution that these forward-looking statements involve a number of risks and uncertainties and are subject to many variables which could impact our future performance. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and performance. There can be no assurance, however, that management’s expectations will necessarily come to pass. Actual future events and performance may differ materially from the expectations reflected in our forward-looking statements. We do not intend, nor do we undertake any duty, to update any forward-looking statements.

A wide range of factors could materially affect future developments and performance, including but not limited to:

 

•

the risk that the iHeart Chapter 11 Cases and the Separation may result in unfavorable tax consequences for New CCOH and impair its ability to utilize federal income tax net operating loss carryforwards in future years;

 

•

the risk that New CCOH may be more susceptible to adverse events as a result of the Separation;

 

•

the risk that New CCOH may be unable to make, on a timely or cost effective basis, the changes necessary to operate as an independent publicly-traded company, and New CCOH may experience increased costs after Separation;

 

•

the risk that the Separation will result in changes in New CCOH’s management team and the loss of other key employees, the composition of the board of directors will be different than the current composition of the board of directors;

 

•

the risk that substantial sales of New CCOH Common Stock may occur following the Separation, which could cause the market price of the New CCOH Common Stock to decline;

 

•

risks associated with New CCOH’s ability to service its debt obligations and to fund its operations and capital expenditures;

 

•

risks associated with weak or uncertain global economic conditions and their impact on the level of expenditures on advertising, including the effects of Brexit;

 

•

industry conditions, including competition;

 

•

our ability to obtain key municipal concessions for our street furniture and transit products;

 

•

fluctuations in operating costs;

 

•

technological changes and innovations;

 

•

shifts in population and other demographics;

 

•

other general economic and political conditions in the United States and in other countries in which we currently do business, including those resulting from recessions, political events and acts or threats of terrorism or military conflicts;

 

•

changes in labor conditions and management;

 

•

the impact of future dispositions, acquisitions and other strategic transactions;

 

34

•

legislative or regulatory requirements;

 

•

regulations and consumer concerns regarding privacy and data protection, and breaches of information security measures;

 

•

increases in tax laws or regulations;

 

•

a breach of security measures;

 

•

restrictions on outdoor advertising of certain products;

 

•

capital expenditure requirements;

 

•

fluctuations in exchange rates and currency values;

 

•

risks of doing business in foreign countries;

 

•

new or increased tariffs or unfavorable changes in trade policy;

 

•

the impact of our substantial indebtedness, including the effect of our leverage on our financial position and earnings;

 

•

the restrictions contained in the agreements governing our indebtedness limiting our flexibility in operating our business; and

 

•

certain other factors set forth under “Risk Factors” in this information statement/prospectus.

This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative and is not intended to be exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

 

35

SELECTED HISTORICAL FINANCIAL DATA OF THE OUTDOOR BUSINESS OF CLEAR CHANNEL HOLDINGS, INC.

The following table sets forth selected historical financial data of the Outdoor Business of CCH for the periods indicated. We have derived the selected financial data for the years ended December 31, 2014 and 2015 from the unaudited carve-out financial statements of the Outdoor Business of CCH for such years. We have derived the selected financial data for the years ended December 31, 2016, 2017 and 2018 from the audited carve-out financial statements of the Outdoor Business of CCH for such years.

The financial statements of the Outdoor Business of CCH consist of a carve-out of the financial statements of the entities and businesses of CCH that operate in the Outdoor Business. After the subsidiaries of CCH (other than CCOH and its subsidiaries) are distributed to a wholly-owned subsidiary of iHeartMedia, CCOH will be merged with and into CCH and CCH will change its name to Clear Channel Outdoor Holdings, Inc. (“New CCOH”). By the time the shares of New CCOH are distributed to certain creditors of iHeartMedia and to the public stockholders of CCOH, the only assets, liabilities and operations of New CCOH will be those of the Outdoor Business. There will be no remaining assets or obligations, either recognized or unrecognized, within New CCOH that are unrelated to the Outdoor Business after the Merger and Separation. Accordingly, these carve-out financial statements include the operations, assets and liabilities of the Outdoor Business of CCH, and exclude the radio businesses that have historically been reported as part of iHeartMedia’s IHM segment (the “Radio Businesses”) and the subsidiaries of CCH (other than CCOH) prior to the Merger and the Separation. In addition, the carve-out financial statements exclude amounts attributable to CCH, which is a holding company with no independent assets or operations.

CCH believes that carve-out financial statements of the Outdoor Business of CCH would be more useful to users compared to financial statements of CCH that include the Radio Business and other non-Outdoor subsidiaries. This conclusion was based on the fact that investors would not receive shares in New CCOH until after the Radio Businesses have been distributed. Accordingly, the Radio Businesses are not relevant to their investment decisions.

The preparation of carve-out financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported in the carve-out financial statements and accompanying notes. CCH bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

In addition, the carve-out financial statements of the Outdoor Business of CCH may not be indicative of New CCOH’s future performance and do not necessarily reflect what its consolidated results of operations, financial position and cash flows would have been had CCH consisted only of the Outdoor Business and operated as a separate, stand-alone public company for which a controlling interest was not held by iHeartCommunications during the periods presented. These carve-out financial statements of the Outdoor Business of CCH give effect to allocations of expenses from iHeartCommunications. These allocations were made on a specifically identifiable basis or using relative percentages of headcount or other methods management considered to be a reasonable reflection of the utilization of services provided, however, they may not be indicative of the actual results of the Outdoor Business of CCH had CCH consisted only of the Outdoor Business of CCH and had been operating as a separate, stand-alone public company for the periods presented.

The audited carve-out financial statements of the Outdoor Business of CCH as of December 31, 2017 and 2018 and for each of the three years in the period ended December 31, 2018 have been included elsewhere in this information statement/prospectus.

The selected historical data presented below should be read in conjunction with the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the

 

36

Outdoor Business of CCH” and the carve-out financial statements of the Outdoor Business of CCH and related notes and other financial data included elsewhere in this information statement/prospectus.

 

(Dollars in thousands)		Years Ended December 31,
		2014				2015				2016				2017				2018
		(unaudited)				(unaudited)
Results of Operations Data:
Revenue		$	2,961,107			$	2,806,204			$	2,679,822			$	2,588,702			$	2,721,705
Operating expenses:
Direct operating expenses			1,600,602				1,485,835				1,418,319				1,409,767				1,470,668
Selling, general and administrative expenses			551,107				527,821				515,421				499,213				522,918
Corporate expenses(1)			131,008				116,523				117,436				143,678				152,090
Depreciation and amortization			406,243				375,962				344,124				325,991				318,952
Impairment charges(2)			3,530				21,631				7,274				4,159				7,772
Other operating income (expense), net			7,259				(4,824	)			354,688				26,391				2,498
Operating income			275,876				273,608				631,936				232,285				251,803
Interest expense, net			353,563				355,917				375,029				379,701				388,133
Interest income on Due from iHeartCommunications, net			60,179				61,439				50,309				68,871				393
Loss on Due from iHeartCommunications			—				—				—				(855,648	)			—
Equity in earnings (loss) of nonconsolidated affiliates			3,789				(289	)			(1,689	)			(990	)			904
Other income (expense), net			15,185				12,387				(70,151	)			28,755				(35,297	)
Income (loss) before income taxes			1,466				(8,772	)			235,376				(906,428	)			(170,330	)
Income tax benefit (expense)			8,967				(49,943	)			(77,499	)			280,218				(32,515	)
Net income (loss)			10,433				(58,715	)			157,877				(626,210	)			(202,845	)
Amount attributable to noncontrolling interest			26,864				24,629				22,807				18,138				15,395
Net income (loss) attributable to the majority owners of the Outdoor Business of CCH		$	(16,431	)		$	(83,344	)		$	135,070			$	(644,348	)		$	(218,240	)
Balance Sheet Data:
Current assets		$	1,038,411			$	1,556,884			$	1,330,977			$	974,172				1,015,800
Property, plant and equipment, net			1,905,651				1,627,986				1,412,833				1,395,029				1,288,938
Total assets			6,279,011				6,295,975				5,708,370				4,670,782				4,522,028
Current liabilities			723,472				920,613				641,718				657,512				729,816
Long-term debt, net of current maturities			4,880,526				5,106,513				5,110,020				5,266,153				5,277,108
Total company deficit			(162,594	)			(578,637	)			(947,312	)			(1,858,294	)			(2,101,652	)

 

(1)	Includes non-cash compensation expense.

(2)	We recorded non-cash impairment charges of $3.5 million, $21.6 million, $7.3 million, $4.2 million and $7.8 million during the years ended December 31, 2014, 2015, 2016, 2017 and 2018, respectively.

 

37

CAPITALIZATION

The following table sets forth our cash and cash equivalents, total debt, total company deficit and total capitalization as of December 31, 2018 on an actual basis and on a pro forma basis to give effect to the CCWH Refinancing and the Transactions as if they had occurred as of such date. You should read this table in conjunction with the information contained in “Risk Factors” and “Unaudited Pro Forma Carve-Out Financial Statements of the Outdoor Business of Clear Channel Holdings, Inc.” included in this information statement/prospectus and the carve-out financial statements of the Outdoor Business of CCH and the related notes thereto, which are included in this information statement/prospectus.

 

		As of December 31, 2018
(in thousands)		The Outdoor Business of CCH Actual				New CCOH Pro Forma
Cash and cash equivalents		$	182,456			$	392,987
Debt:
Clear Channel Worldwide Holdings Senior Notes:
6.50% Series A Senior Notes due 2022			735,750				735,750
6.50% Series B Senior Notes due 2022			1,989,250				1,989,250
Clear Channel Worldwide Holdings Senior Subordinated Notes:
7.625% Series A Senior Subordinated Notes due 2020 (1)			275,000				—
7.625% Series B Senior Subordinated Notes due 2020 (1)			1,925,000				—
9.25% Senior Subordinated Notes due 2024 (1)			—				2,235,000
Receivables-based credit facility due 2023 (2)			—				—
Clear Channel International B.V. Senior Notes due 2020			375,000				375,000
Other debt			3,882				3,882
Original issue discount			(739	)			(739	)
Long-term debt fees			(25,808	)			(46,574	)
Total Debt			5,277,335				5,291,569
Preferred stock, par value $.01 per share			—				45,000
Company Deficit:
Noncontrolling interest			160,362				160,362
Majority owner’s net investment			(1,917,525	)			—
New CCOH common stock, par value $.01 per share			—				3,655
Additional paid-in capital			—				3,079,740
Accumulated deficit			—				(4,981,256	)
Accumulated other comprehensive income			(344,489	)			(344,489	)
Total Company Deficit			(2,101,652	)			(2,081,988	)
Total Capitalization		$	3,175,683			$	3,209,581

 

(1)	In February 2019, CCWH refinanced its $275.0 million aggregate principal amount of Series A CCWH Subordinated Notes and $1,925.0 million aggregate principal amount of Series B CCWH Subordinated Notes with the proceeds of $2,235.0 million aggregate principal amount of New CCWH Subordinated Notes.

(2)	The receivables-based credit facility provides for borrowings up to $125.0 million. As of December 31, 2018, we had $94.4 million of letters of credit outstanding, and a borrowing limit of $125.0 million, resulting in $30.6 million of excess availability under the receivables-based credit facility.

 

38

UNAUDITED PRO FORMA CARVE-OUT FINANCIAL STATEMENTS OF THE OUTDOOR

BUSINESS OF CLEAR CHANNEL HOLDINGS, INC.

The following unaudited pro forma carve-out financial statements have been developed by applying pro forma adjustments to the historical carve-out financial statements of the Outdoor Business of CCH included in this information statement/prospectus. The unaudited pro forma carve-out balance sheet as of December 31, 2018 gives effect to the CCWH Refinancing and the Transactions as if they had occurred on December 31, 2018. The unaudited pro forma carve-out statement of operations for the year ended December 31, 2018 gives effect to the CCWH Refinancing and the Transactions as if they had occurred on January 1, 2018. All pro forma adjustments and underlying assumptions are described more fully in the notes to the unaudited pro forma carve-out financial statements.

The unaudited pro forma carve-out financial information presented in this information statement/prospectus is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the CCWH Refinancing and the Transactions were completed on the dates indicated, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon available information and certain assumptions that management believes to be reasonable. Because the Transactions have not been completed as of the date of this information statement/prospectus, the estimates and assumptions regarding the impact of the Transactions are preliminary. The actual impact of the Transactions will be determined when effectuated, and management expects the actual impacts to differ from the estimates and assumptions used in these unaudited pro forma carve-out financial statements and these differences could be material. Furthermore, the ability of New CCOH to realize the benefits of the Transactions remains subject to a number of risks and uncertainties. See “Risk Factors.”

The unaudited pro forma carve-out statement of operations does not include the effects of nonrecurring impacts arising directly as a result of the Transactions. The unaudited pro forma carve-out balance sheet as of December 31, 2018 and the unaudited pro forma carve-out statement of operations for the year ended December 31, 2018 have been derived from the audited historical carve-out financial statements of the Outdoor Business of CCH included in this information statement/prospectus. The amounts in the tables may not add due to rounding.

You should read these unaudited pro forma carve-out financial statements in conjunction with:

 

•

the accompanying notes to the unaudited pro forma carve-out financial statements;

 

•

the audited historical carve-out financial statements of the Outdoor Business of CCH as of and for the year ended December 31, 2018 included in this information statement/prospectus; and

 

•

Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Outdoor Business of CCH included in this information statement/prospectus.

 

39

OUTDOOR BUSINESS OF CLEAR CHANNEL HOLDINGS, INC.

UNAUDITED PRO FORMA CARVE-OUT BALANCE SHEET

As of December 31, 2018

(dollars in thousands)

 

		Historical				Transaction Adjustments								Pro Forma
ASSETS
Cash and cash equivalents		$	182,456			$	210,531				A, B, C, F			$	392,987
Accounts receivable, net of allowance			706,309				—								706,309
Prepaid expenses			95,734				—								95,734
Other current assets			31,301				—								31,301
Total Current Assets			1,015,800				210,531								1,226,331
PROPERTY, PLANT AND EQUIPMENT
Structures, net			1,053,016				—								1,053,016
Other property, plant and equipment, net			235,922				—								235,922
INTANGIBLE ASSETS AND GOODWILL
Indefinite-lived intangibles—permits			971,163				—								971,163
Other intangible assets, net			252,862				86,156				D				339,018
Goodwill			706,003				—								706,003
OTHER ASSETS
Due from iHeartCommunications			154,758				(154,758	)			B				—
Other assets			132,504				—								132,504
Total Assets		$	4,522,028			$	141,929							$	4,663,957
CURRENT LIABILITIES
Accounts payable		$	113,714			$	—								113,714
Accrued expenses			530,823				(1,004	)			F				529,819
Deferred income			85,052				—								85,052
Current portion of long-term debt			227				—								227
Total Current Liabilities			729,816				(1,004	)							728,812
Long-term debt			5,277,108				14,234				F				5,291,342
Due to iHeartCommunications—post-petition			21,591				(21,591	)			C				—
Deferred income taxes			335,015				85,626				H				420,641
Other long-term liabilities			260,150				—								260,150
Commitments and contingent liabilities
Preferred stock, par value $.01 per share			—				45,000				A				45,000
COMPANY DEFICIT
Noncontrolling interest			160,362				—								160,362
Majority owner’s net investment			(1,917,525	)			1,917,525				E, G				—
New CCOH common stock, par value $.01 per share			—				3,655				E				3,655
Additional paid-in capital			—				3,079,740				E, G				3,079,740
Accumulated deficit			—				(4,981,256	)			B, C, D, F, G				(4,981,256	)
Accumulated other comprehensive income			(344,489	)			—								(344,489	)
Total Company Deficit			(2,101,652	)			19,664								(2,081,988	)
Total Liabilities and Company Deficit		$	4,522,028			$	141,929							$	4,663,957

 

40

OUTDOOR BUSINESS OF CLEAR CHANNEL HOLDINGS, INC.

UNAUDITED PRO FORMA CARVE-OUT STATEMENT OF OPERATIONS

For the Year Ended December 31, 2018

(dollars in thousands)

 

		Historical				Transaction Adjustments								Pro Forma
Revenue		$	2,721,705			$	—							$	2,721,705
Operating expenses:
Direct operating expenses (excludes depreciation and amortization)			1,470,668				—								1,470,668
Selling, general and administrative expenses (excludes depreciation and amortization)			522,918				—								522,918
Corporate expenses (excludes depreciation and amortization)			152,090				(38,571	)			J				113,519
Depreciation and amortization			318,952				8,990				K				327,942
Impairment charges			7,772				—								7,772
Other operating income, net			2,498				—								2,498
Operating income			251,803				29,581								281,384
Interest expense, net			388,133				40,225				L				428,358
Interest income on Due from iHeartCommunications Note			393				(393	)			I				—
Equity in earnings of nonconsolidated affiliates			904				—								904
Other expense, net			(35,297	)			—								(35,297	)
Loss before income taxes			(170,330	)			(11,037	)							(181,367	)
Income tax expense			(32,515	)			2,759				M				(29,756	)
Net loss			(202,845	)			(8,278	)							(211,123	)
Less amount attributable to noncontrolling interest			15,395				—								15,395
Net loss to the Outdoor Business of Clear Channel Holdings, Inc.		$	(218,240	)		$	(8,278	)						$	(226,518	)

 

41

NOTES TO UNAUDITED PRO FORMA CARVE-OUT FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

The unaudited pro forma carve-out financial statements have been developed by applying pro forma adjustments to the historical carve-out financial statements of the Outdoor Business of CCH included in this information statement/prospectus. The unaudited pro forma carve-out balance sheet as of December 31, 2018 gives effect to the Transactions as if they occurred on December 31, 2018. The unaudited pro forma carve-out statement of operations for the year ended December 31, 2018 gives effect to the Transactions as if they occurred on January 1, 2018.

As more fully discussed elsewhere in this information statement/prospectus, the Separation of the Outdoor Business of CCH will be effectuated through the following series of transactions:

 

•

CCH will be released from its guarantees of all of iHeartCommunications’ pre-petition indebtedness and its guarantee of the iHeartCommunications debtor-in-possession credit facility.

 

•

The equity interests of the all subsidiaries of CCH, other than CCOH, will be transferred to Radio Newco in exchange for common stock and preferred stock of Radio Newco, and CCH will sell preferred stock of Radio Newco to third parties for cash.

 

•

CCH will distribute the common stock of Radio Newco, and the proceeds of the sale of the Radio Newco preferred stock, to iHeartCommunications.

 

•

The outstanding shares of CCOH Class B Common Stock will be converted into shares of CCOH Class A Common Stock.

 

•

CCOH will merge with and into CCH with CCH surviving and changing its name to Clear Channel Outdoor Holdings, Inc. (“New CCOH”).

 

•

The outstanding shares of CCOH Class A Common Stock held by the public stockholders of CCOH will be converted in the Merger into an equal number of shares of New CCOH Common Stock.

 

•

New CCOH will sell New CCOH Preferred Stock to third parties for cash.

 

•

iHeartCommunications will transfer the shares of New CCOH Common Stock it owns to holders of claims pursuant to the iHeartMedia Plan of Reorganization.

In addition, as part of the Settlement Agreement more fully discussed elsewhere in this information statement/prospectus, iHeartCommunications, CCH and CCOH agreed to the following:

 

•

The termination of the cash sweep agreement under the Corporate Services Agreement and any agreements or licenses requiring royalty payments to the Debtors by CCOH for trademarks or other intellectual property (“Trademark License Fees”).

 

•

The entry into a new Transition Services Agreement to provide administrative services currently and historically provided to CCOH by iHeartCommunications.

 

•

The waiver by the Debtors of any Trademark License Fees charged during the post-petition period.

 

•

The repayment of the post-petition intercompany balance due to CCOH, after being adjusted for the Trademark License Fees charged to CCOH during the post-petition period.

 

•

The contribution by iHeartMedia of the rights, title and interest in and to all tradenames, trademarks, service marks, common law marks and other rights related to the Clear Channel tradename (the “CC Intellectual Property”).

 

•

The payment by the Debtors to CCOH of $149.0 million as CCOH’s recovery of its claim under the Due from iHeartCommunications Note.

 

•

An unsecured line of credit to be provided by iHeartCommunications to CCOL in an aggregate amount not to exceed $200 million at the Prime rate of interest.

 

42

In addition, in February 2019, CCWH, a wholly-owned subsidiary of CCOH, refinanced its $275.0 million aggregate principal amount of Series A CCWH Subordinated Notes and $1,925.0 million aggregate principal amount of Series B CCWH Subordinated Notes with the proceeds from the issuance of $2,235.0 million aggregate principal amount of New CCWH Subordinated Notes.

NOTE 2: PRO FORMA ADJUSTMENTS FOR THE SEPARATION

Pro Forma Balance Sheet Adjustments

In order to reflect the pro forma capital structure of the Outdoor Business of CCH, the unaudited pro forma carve-out balance sheet as of December 31, 2018 includes the following adjustments related to the Transactions:

 

A.

The issuance by New CCOH of 45,000 shares of New CCOH Preferred Stock for cash in an aggregate amount equal to $44.1 million, net of issuance costs. The New CCOH Preferred Stock includes repurchase rights, pursuant to which the holders of New CCOH Preferred Shares may require a designated subsidiary of New CCOH to purchase the shares after the fifth anniversary of issuance. As a result, the New CCOH Preferred Shares will be considered mandatorily redeemable and are therefore being classified in the mezzanine section between Other long-term liabilities and Company deficit on the unaudited pro forma carve-out balance sheet.

 

B.

The payment by iHeartCommunications to CCOH of $149.0 million as CCOH’s recovery of its claims under the Due from iHeartCommunications Note.

 

C.

The payment by the Debtors of $10.2 million in settlement of the intercompany balance of $21.6 million as of December 31, 2018, after adjusting for the waiver and repayment of post-petition royalties license fees for the year ended December 31, 2018 of $31.8 million. In addition, any intercompany balance that accrues under the existing Corporate Services Agreement (after the termination of royalties and license fees on intellectual property) in favor of iHeartCommunications or CCOH from January 1, 2019 through the Effective Date will be paid by CCOH or iHeartCommunications, as applicable, within five business days of the Effective Date.

 

D.

The contribution of the CC Intellectual Property at its historical book value of $86.2 million.

 

E.

The issuance and conversion of shares of CCOH Common Stock in the Merger. Each share of CCOH Class A Common Stock (other than shares of CCOH Class A Common Stock held by CCH and its subsidiaries) (approximately 39,724,178 shares as of December 31, 2018) issued and outstanding immediately prior the the Merger will be cancelled and converted into the right to receive one share of New CCOH Common Stock. Each share of CCOH Class A Common Stock held by its subsidiaries will be cancelled and retired, and no shares of New CCOH Common Stock will be exchanged for such shares. The outstanding shares of CCH common stock immediately before the Merger will convert into a number of shares of New CCOH Common Stock equal to the number of shares of CCH Common Stock held by CCH immediately before the Merger (325,726,917 shares). As a result, based on the number of shares outstanding on the Record Date, New CCOH is expected to have approximately 365,581,618 shares outstanding upon consummation of the Transactions.

 

F.

The refinancing of $2,200.0 million aggregate principal amount of CCWH Subordinated Notes with the proceeds from the issuance of $2,235.0 million aggregate principal amount of New CCWH Subordinated Notes. As part of the refinancing, CCOH wrote-off $6.0 million in unamortized debt issuance costs related to the CCWH Subordinated Notes and incurred $26.8 million in debt issuance costs related to the issuance of New CCWH Subordinated Notes. In addition, accrued interest of $1.0 million on the CCWH Subordinated Notes as of December 31, 2018 was paid. The refinancing resulted in net cash proceeds of $7.2 million.

 

G.

The re-designation of majority owner’s net investment in CCH as stockholders’ deficit. As a result of the Separation, (i) the majority owner’s net investment in CCH will be re-designated as stockholders’ deficit, (ii) New CCOH’s additional paid-in capital will reflect CCOH’s additional paid-in capital, as

 

43

adjusted for the elimination of CCOH’s treasury stock, and (iii) New CCOH’s accumulated deficit will reflect CCOH’s accumulated deficit, less the write-off of $6.0 million in unamortized debt issuance costs related to the CCWH Subordinated Notes as described in adjustment F, plus the $90.6 million gain on the settlement of the Due from iHeartCommunications Note (which gain includes the historical book value of the CC Intellectual Property), plus the forgiveness of the $21.6 million intercompany balance that accrued from the petition date through December 31, 2018.

 

H.

The reduction of deferred tax assets for federal and state net operating loss carryforwards of $85.6 million that will occur at the time of Separation, which is offset in part by a reduction in valuation allowance. Upon completion of the Separation and in connection with iHeartMedia’s emergence from bankruptcy proceedings under Chapter 11 of the Bankruptcy Code, the Company’s federal and state net operating loss carryforwards will be reduced in accordance with Code Section 108 due to cancellation of debt income, which is not includable in U.S. federal taxable income. The estimated remaining federal and state net operating loss carryforwards upon Separation is zero. Additionally, as a result of the series of transactions to effect the Separation, the Company expects to generate a federal capital loss carryforward which will be available to offset capital gains that may arise in future periods. The resulting deferred tax asset of $120 million is fully offset by valuation allowance in the pro forma adjustment to deferred income taxes.

Pro Forma Statement of Operations Adjustments

The unaudited pro forma carve-out statement of operations for the year ended December 31, 2018 includes the following adjustments related to the Transactions:

 

I.

Elimination of interest income of $0.4 million recognized on the Due to iHeartCommunications post-petition balance.

 

J.

Elimination of trademark license fees of $38.6 million for the year ended December 31, 2018 charged to CCOH under any agreements or licenses requiring royalty payments to the Debtors by CCOH for trademarks or other intellectual property.

 

K.

Increase in amortization expense of $9.0 million for the year ended December 31, 2018 as a result of the contribution of the CC Intellectual Property to New CCOH with a remaining useful life of 9.6 years as of December 31, 2018.

 

L.

Net increase in interest expense of $40.2 million, resulting from the elimination of interest recognized in relation to the CCWH Subordinated Notes of $171.9 million in the year ended December 31, 2018 and the addition of interest expense of $212.1 million in relation to the New CCWH Subordinated Notes.

 

M.

The adjustments to income tax expense have been calculated assuming a 25% statutory tax rate for the year ended December 31, 2018, which is comprised of the U.S. federal tax rate of 21% and a blended 4% rate to account for the various state and local tax jurisdictions in which the Company operates for the year ended December 31, 2018. The effects on income tax expense attributed to the reduction in the deferred tax assets for net operating loss carryforwards and the adjustments to the opening balance of valuation allowance are not included in the unaudited proforma carve-out statement of operations because the items are non-recurring in nature.

The pro forma statement of operations assumes that the costs to be incurred under the new Transition Services Agreement are equivalent to the costs of the services charged to CCOH historically under the Corporate Services Agreement. These pro forma financial statements do not adjust for the one-time costs incurred by CCOH in connection with the Transactions, some but not all of which will be reimbursed under the Settlement Agreement.

 

44

COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA

The following table sets forth, for the year ended December 31, 2018, certain per share financial information on a historical and pro forma basis. Except for the historical information as of and for the year ended December 31, 2018, the information in the table is unaudited. You should read the data with the historical carve-out financial statements and related notes of the Outdoor Business of CCH included elsewhere in this information statement/prospectus.

Because CCH is currently a wholly-owned subsidiary of iHeartCommunications and historically has not had a meaningful number of shares outstanding, the historical per share data is calculated using the number of shares of CCOH Common Stock outstanding. The pro forma earnings per share data was calculated by dividing pro forma net loss attributable to the majority owners of the Outdoor business of CCH per the pro forma carve-out statements of operations by the weighted average number of shares of CCOH Common Stock outstanding for the period. The pro forma book value per share information was calculated by dividing total pro forma Accumulated deficit of the Outdoor business of CCH by the number of shares of CCOH Common Stock outstanding at the end of the period. The number of New CCOH shares outstanding after the Merger will be the same as the number of CCOH shares outstanding immediately prior to the Merger.

The pro forma amounts in the table below are presented for illustrative purposes only and do not indicate what the financial position or the results of operations of the combined company would have been had the Transactions occurred as of the date or for the period presented. The pro forma amounts also do not indicate what the financial position or future results of operations of the combined company will be. You should not rely on the pro forma information as being indicative of the historical results that would have occurred or the future results that the combined company will experience after the Transactions.

 

		Historical				New CCOH Pro Forma
Basic loss per common share from continuing operations
Year ended December 31, 2018			$(0.60	)		$	(0.63	)
Diluted loss per common share from continuing operations
Year ended December 31, 2018			(0.60	)			(0.63	)
Cash dividends declared per common share
Year ended December 31, 2018			(0.08	)			(0.08	)
Book value per common share
As of December 31, 2018			(13.68	)			(13.63	)

 

45

MARKET PRICE AND DIVIDEND INFORMATION

CCOH’s Stock Information

Shares of CCOH’s Class A Common Stock trade on the NYSE under the symbol “CCO.” On December 14, 2018, the last trading day before announcement of the Settlement Agreement, the last sale price of CCOH Class A Common Stock reported by the NYSE was $5.79. On March 27, 2019, the last practicable trading day for which information is available as of the date of this information statement/prospectus, the last sale price of CCOH Class A Common Stock reported by the NYSE was $5.12. There were 157 stockholders of record as of March 27, 2019. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies.

There is no established public trading market for CCOH Class B Common Stock. There were 315,000,000 shares of CCOH Class B Common Stock outstanding on December 1, 2018. iHeartCommunications, indirectly through its subsidiaries CCH, Broader Media, LLC and CC Finco, LLC, holds all of the shares of CCOH Class B Common Stock outstanding and 10,726,917 shares of CCOH Class A Common Stock, representing 89.1% of the shares outstanding and approximately 99% of the voting power. The holders of CCOH Class A Common Stock and CCOH Class B Common Stock have identical rights, except holders of CCOH Class A Common Stock are entitled to one vote per share while holders of CCOH Class B Common Stock are entitled to 20 votes per share. The shares of CCOH Class B Common Stock are convertible, at the option of the holder at any time or upon any transfer, into shares of Class A Common Stock on a one-for-one basis, subject to certain limited exceptions. Pursuant to the Merger Agreement, CCH will agree to convert, and to cause Broader Media, LLC to convert, all of their CCOH Class B Common Stock into CCOH Class A Common Stock prior to the Merger.

CCH’s Stock Information

CCH is not currently traded on any stock exchange or quoted on any market.

CCOH Dividend Policy

CCOH does not pay regularly scheduled dividends, and its ability to pay dividends on its common stock is subject to restrictions should it seek to do so at any time prior to the Effective Time of the Merger. On January 7, 2016, CCOH paid a special dividend in an amount equal to $0.6026 per share to the holders of record of its Class A and Class B common stock at the close of business on January 4, 2016. On February 4, 2016, CCOH paid a special dividend in an amount equal to $1.4937 per share to the holders of record of its Class A and Class B common stock at the close of business on February 1, 2016. On February 23, 2017, CCOH paid a special dividend in an amount equal to $0.7797 per share to the holders of its Class A and Class B common stock at the close of business on February 20, 2017. On October 5, 2017, CCOH paid a special dividend in an amount equal to $0.0687 per share to the holders of its Class A and Class B common stock at the close of business on October 2, 2017. On October 31, 2017, CCOH paid a special dividend in an amount equal to $0.0687 per share to the holders of its Class A and Class B common stock at the close of business on October 26, 2017. On January 24, 2018, CCOH paid a special dividend in an amount equal to $0.0824 per share to the holders of its Class A and Class B common stock at the close of business on January 19, 2018.

CCOH is a holding company with no independent operations and no significant assets other than the stock of its subsidiaries and the Due from iHeartCommunications Note. CCOH, therefore, is dependent on the receipt of dividends or other distributions from its subsidiaries or repayment by iHeartCommunications of amounts outstanding under the Due from iHeartCommunications Note to pay dividends. Pursuant to an order entered by the Bankruptcy Court, as of March 14, 2018, the balance of the Due from iHeartCommunications Note was frozen.

In addition, the agreements governing CCOH’s indebtedness contain restrictions on its ability to pay dividends. If CCOH were to declare and pay cash dividends prior to the Merger, holders of CCOH Class A

 

46

Common Stock and CCOH Class B Common Stock would share equally, on a per share basis, in any such cash dividend. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Outdoor Business of CCH—Liquidity and Capital Resources—Sources of Capital”.

CCH Dividend Policy

CCH has not historically had a dividend policy. As a holder of CCOH’s common stock, CCH received the special dividends from CCOH described above, directly and indirectly through its subsidiaries. CCH used the proceeds of these dividends to pay dividends in the same amount to iHeartCommunications.

CCH currently does not intend to pay regular quarterly dividends on the shares of New CCOH common stock. New CCOH will be a holding company with no independent operations and no significant assets other than the stock of its subsidiaries. New CCOH, therefore, is dependent on the receipt of dividends or other distributions from its subsidiaries to pay dividends. In addition, the agreements governing CCOH’s indebtedness, which New CCOH will assume in connection with the Merger, will restrict New CCOH’s ability to pay dividends.

 

47

THE IHEARTMEDIA RESTRUCTURING

Overview

On March 14, 2018, iHeartMedia and the other Debtors (including CCH) filed the iHeart Chapter 11 Cases under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. CCOH and its direct and indirect subsidiaries did not file voluntary petitions for relief under the Bankruptcy Code and are not Debtors in the iHeart Chapter 11 Cases. The Debtors commenced the iHeart Chapter 11 Cases with a balance sheet that carried approximately $16 billion of indebtedness. In 2017, this indebtedness required payment of approximately $1.4 billion of cash interest.

The Debtors engaged in numerous negotiations starting in 2016 with certain holders of the Debtors’ indebtedness in an effort to reach an agreement regarding a restructuring of the Debtors’ debt. These negotiations led to the entry into a Restructuring Support Agreement on March 16, 2018 (“iHeart RSA”). Pursuant to the iHeart RSA, the transactions embodied by the iHeartMedia Plan of Reorganization enjoy the support of holders of nearly $12 billion of outstanding debt obligations across the Debtors’ capital structure (including outstanding indebtedness held by the Debtors and their affiliates), as well as the Debtors’ equity sponsors (who also hold a significant amount of the Debtors’ outstanding indebtedness).

The iHeartMedia Plan of Reorganization

On April 28, 2018, the Debtors filed the iHeartMedia Plan of Reorganization and the related Disclosure Statement with the Bankruptcy Court. Thereafter, the Debtors filed a second, third and fourth amended Plan of Reorganization and amended versions of the Disclosure Statement. On September 20, 2018, the Bankruptcy Court entered an order approving the Disclosure Statement and related solicitation and notice procedures for voting on the iHeartMedia Plan of Reorganization. On October 10, 2018, the Debtors filed a fifth amended Plan of Reorganization and the Disclosure Statement Supplement. On October 18, 2018, the Bankruptcy Court entered an order approving the Disclosure Statement Supplement and the continued solicitation of holders of general unsecured claims for voting on the iHeartMedia Plan of Reorganization. The deadline for holders of claims and interests to vote on the iHeartMedia Plan of Reorganization was November 16, 2018. More than 90% of the votes cast by holders of claims and interests entitled to vote thereon accepted the iHeartMedia Plan of Reorganization.

On January 22, 2019, the Debtors filed a modified fifth amended Plan of Reorganization and the Bankruptcy Court entered an order confirming the iHeartMedia Plan of Reorganization. The iHeartMedia Plan of Reorganization is subject to certain conditions to its effectiveness, including the receipt of certain governmental approvals. Although the timing of when and if all such conditions will be satisfied or otherwise waived is inherently uncertain, iHeartMedia currently anticipates the iHeartMedia Plan of Reorganization will become effective and iHeartMedia will emerge from Chapter 11 during the second quarter of 2019.

The iHeartMedia Plan of Reorganization contemplates that the iHeart business and CCOH outdoor businesses will be separated through a taxable separation as described elsewhere in this information statement/prospectus. The iHeartMedia Plan of Reorganization also contemplates that the business that results following the restructuring of iHeartMedia after the Radio Distribution and the Separation (“Reorganized iHeartMedia”) will emerge from Chapter 11 with new debt of $5.75 billion. In addition, Reorganized iHeartMedia will have access to a new ABL facility that will, among other things, provide working capital and fund distributions under the iHeartMedia Plan of Reorganization.

The effectiveness of iHeartMedia Plan of Reorganization is subject to the satisfaction or waiver of a number of conditions, including the following, among others:

 

•

the entry by the Bankruptcy Court of an order confirming the iHeartMedia Plan of Reorganization pursuant to section 1129 of the Bankruptcy Code;

 

•

Reorganized iHeartMedia shall have entered into a new ABL credit agreement;

 

48

•

all claims under the DIP Facility shall have been repaid or converted into indebtedness under the new ABL credit agreement;

 

•

new debt, common stock and special warrants shall have been issued by Reorganized iHeartMedia to holders of claims in the iHeart Chapter 11 Cases;

 

•

the Separation is effected pursuant to the terms of the iHeartMedia Plan of Reorganization and the preferred stock shall have been issued by New CCOH;

 

•

the approval of the Federal Communications Commission of the transfer of control of iHeartMedia and any other authorizations, consents, regulatory approvals, rulings or documents required to implement the iHeartMedia Plan of Reorganization shall have been obtained;

 

•

a professional fee escrow account shall have been established and funded;

 

•

the reorganized Debtors shall have entered into all documents effectuating the Separation; and

 

•

the iHeart RSA shall not have been terminated.

On December 16, 2018, CCOH, GAMCO Asset Management Inc. (“GAMCO”), Norfolk County Retirement System (“Norfolk”), Bain Capital Partners, LLC, Bain Capital LP and Thomas H. Lee Partners, L.P. (together, the “Sponsor Entities”), as the private equity sponsors and majority owners of iHeartMedia, the Debtors, the members of the CCOH Board, and the members of the committee appointed by the CCOH Board (the “Delaware Settlement Parties”), through their respective counsel, entered into a settlement agreement (the “Settlement Agreement”) that embodies the terms of (i) a global settlement of all direct or derivative claims by or on behalf of GAMCO and Norfolk, both individually and on behalf of the putative class of public shareholders of CCOH, against certain members of the CCOH Board, the Sponsor Entities, iHeartCommunications, iHeartMedia, CCOH and the Debtors, including in the derivative lawsuit in the Court of Chancery of the State of Delaware, captioned Norfolk County Retirement System, v. Hendrix, et al., C.A. No. 2017-0930-JRS (Del. Ch) (the “Norfolk Action”), the putative class action lawsuit in the Court of Chancery of the State of Delaware, captioned GAMCO Asset Management, Inc. v. Hendrix, et al., C.A. No. 2018-0633-JRS (Del. Ch) (the “GAMCO Action” and together with the Norfolk Action, the “Delaware Actions”) and the iHeart Chapter 11 Cases, and (ii) the Separation in accordance with the iHeartMedia Plan of Reorganization.

The Settlement Agreement contemplates that in connection with the Separation (i) the cash sweep arrangement under the Corporate Services Agreement between CCOH and iHeartCommunications will terminate, (ii) any agreements or licenses requiring royalty payments to the Debtors by the Company for trademarks or other intellectual property will terminate, which aggregated to $38.6 million for the year ended December 31, 2018, and (iii) the new Transition Services Agreement will supersede and replace the existing Corporate Services Agreement. In exchange, the Debtors agreed to waive (i) the set-off for the value of the intellectual property transferred, including royalties incurred through December 31, 2018, which aggregated to $31.8 million on a post-petition basis through December 31, 2018 and (ii) the repayment of the post-petition intercompany balance outstanding in favor of the Debtors as of December 31, 2018, which was equal to $21.6 million as of December 31, 2018. As a result, iHeartMedia will make a net payment to CCOH of $10.2 million promptly after the Effective Date. In addition, the Settlement Agreement provides that after the Separation, (i) iHeartCommunications will provide the iHeartCommunications Line of Credit for a period of no more than three years following the Effective Date, (ii) iHeartMedia will indemnify CCOH for 50% of certain tax liabilities imposed on CCOH in connection with the Separation on or prior to the third anniversary of the Separation in excess of $5.0 million, with iHeartMedia’s aggregate liability limited to $15.0 million, and (iii) iHeartMedia will reimburse CCOH for one-third of potential costs relating to certain agreements between CCOH and third parties in excess of $10.0 million up to the first $35.0 million of such costs such that iHeartMedia will not bear more than $8.33 million of such costs. The parties agreed that CCOH will recover 14.44%, or approximately $149.0 million, in cash on its allowed claim of $1,031.7 million under Due from iHeartCommunications Notes, and to mutual releases, including a release of all claims that have been asserted, could have been asserted or ever could be asserted with respect to the iHeart Chapter 11 Cases and the actions brought by or on behalf of GAMCO and Norfolk, both individually and on behalf of the putative class of public shareholders of CCOH.

 

49