1 EXHIBIT 3 FORM OF RECAPITALIZATION AGREEMENT This RECAPITALIZATION AGREEMENT (this "Agreement") is entered into as of June ___, 1998 by and among Citadel Communications Corporation, a Nevada corporation (the "Company"), and the stockholders of the Company and the holders of options and warrants to acquire shares of capital stock of the Company (collectively, the "Stockholders"). RECITALS: WHEREAS, subject to the terms and conditions of this Agreement and formal approval of certain matters by the stockholders of the Company, the Board of Directors of the Company has approved a recapitalization of the Company (the "Recapitalization"), on the terms set forth in this Agreement; and WHEREAS, the Company has filed a registration statement (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") for the purpose of registering shares of its common stock for sale in an underwritten public offering (the "Offering"); and WHEREAS, in furtherance of the Offering and the transactions contemplated herein, the parties hereto desire to enter into this Agreement. NOW, THEREFORE, in consideration of and premised upon the various agreements of the parties contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Stockholders, intending to be legally bound hereby, agree as follows: ARTICLE I - THE RECAPITALIZATION SECTION 1.1. - THE RECAPITALIZATION. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with Nevada's laws on private corporations, Chapter 78 of the Nevada Revised Statutes (the "NGCL"), at the Effective Time (as defined below), the following events constituting the Recapitalization shall occur: SECTION 1.1.1. - CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of the Company shall be amended and restated as set forth in Exhibit A hereto and shall be the Certificate of Incorporation of the Company (the "New Certificate"), unless and until amended as provided in the New Certificate or by law. When used herein, the "Effective Time" shall mean the date and time at which the New Certificate becomes effective under the NGCL. It is the intent of the parties that the New 2 Certificate will be filed and become effective under the NGCL at or about the time the Company seeks to have the Registration Statement declared effective by the SEC. SECTION 1.1.2. - BYLAWS. The Bylaws of the Company shall be amended and restated as set forth in Exhibit B hereto and shall be the Bylaws of the Company (the "New Bylaws"), unless and until amended or repealed as provided in the New Certificate, the New Bylaws or by law. SECTION 1.1.3. - OFFICERS AND DIRECTORS. The officers of the Company immediately prior to the Effective Time shall continue as the officers of the Company until their successors shall have been duly elected and qualified, or as otherwise provided in the New Bylaws. Following the Effective Time, the Class A Directors of the Company contemplated by the New Certificate shall be Lawrence R. Wilson, Scott E. Smith, Ted L. Snider, Sr. and John E. von Schlegell, and the Class B Director contemplated by the New Certificate shall be Patricia Diaz Dennis, until their successors shall have been duly elected and qualified, or as otherwise provided in the New Certificate, the New Bylaws or as otherwise provided by applicable law. SECTION 1.1.4. - STOCK RECLASSIFICATION. (a) Without any action on the part of the holder thereof, each share of Class A Common Stock, Class B Common Stock, Class C Common Stock, Series A Convertible Redeemable Preferred Stock, Series B Convertible Redeemable Preferred Stock, Series E Convertible Redeemable Preferred Stock, Series F Convertible Redeemable Preferred Stock and Series G Convertible Redeemable Preferred Stock of the Company issued and outstanding immediately prior to the Effective Time (collectively, the "Common Conversion Stock") shall be converted into the right to receive three shares of common stock, par value $0.001 per share, of the Company (the "Common Stock") rounded to the nearest whole share, in accordance with the provisions of this Agreement and the New Certificate. From and after the Effective Time, all certificates or other instruments representing shares of Common Conversion Stock issued and outstanding immediately prior to the Effective Time shall thereafter evidence, without further action, Common Stock. Each holder of Common Conversion Stock shall be entitled to receive, upon surrender of his, her or its certificates representing shares of Common Conversion Stock to the Company, share certificates representing that number of shares of Common Stock into which his, her or its shares of Common Conversion Stock is converted in accordance with this Section 1.1.4(a) and the New Certificate. Nevada law may require the Company to issue a full share of Common Stock in lieu of a fractional share of Common Stock resulting from the Recapitalization. To the extent that a holder of Common Conversion Stock would be due a whole share of Common Stock and, under this Agreement, such holder will not receive either a fractional share of Common Stock or a full share of Common Stock in lieu thereof, such holder hereby waives any right to receive such fractional or full share of Common Stock. -2- 3 (b) Without any action on the part of the holder thereof, each share of Series C Convertible Redeemable Preferred Stock and Series D Convertible Redeemable Preferred Stock of the Company issued and outstanding immediately prior to the Effective Time (collectively, the "Preferred Conversion Stock") shall be converted into the right to receive three shares of Series AA Convertible Preferred Stock, par value $0.001 per share, of the Company (the "Convertible Preferred Stock") rounded to the nearest whole share, in accordance with the provisions of this Agreement and the New Certificate. From and after the Effective Time, all certificates or other instruments representing shares of Preferred Conversion Stock of the Company issued and outstanding immediately prior to the Effective Time shall thereafter evidence, without further action, Convertible Preferred Stock. Each holder of Preferred Conversion Stock shall be entitled to receive, upon surrender of his, her or its certificate or certificates representing shares of Preferred Conversion Stock to the Company, share certificates representing that number of shares of Convertible Preferred Stock into which his, her or its shares of Preferred Conversion Stock is converted in accordance with this Section 1.1.4(b) and the New Certificate. Nevada law may require the Company to issue a full share of Convertible Preferred Stock in lieu of a fractional share of Convertible Preferred Stock resulting from the Recapitalization. To the extent that a holder of Preferred Conversion Stock would be due a whole share of Convertible Preferred Stock and, under this Agreement, such holder will not receive either a fractional share of Convertible Preferred Stock or a full share of Convertible Preferred Stock in lieu thereof, such holder hereby waives any right to receive such fractional or full share of Convertible Preferred Stock. SECTION 1.1.5. - STOCK OPTIONS AND WARRANTS. Without any action on the part of the holder thereof, each option or warrant to acquire shares of capital stock of the Company outstanding immediately prior to the Effective Time shall be converted into an option or warrant, as applicable, to acquire three times the same number of shares of Common Stock, and the per share exercise price of each such option or warrant shall be divided by three. ARTICLE II - WAIVERS AND TERMINATIONS SECTION 2.1. - REGISTRATION RIGHTS AGREEMENT. Each Stockholder (other than the holders of Class B Common Stock and the outstanding warrant to acquire shares of Class B Common Stock) who is a party to that certain Third Amended and Restated Registration Rights Agreement dated June 28, 1996 among the Company and certain of its stockholders, as amended (the "Registration Rights Agreement"), hereby waives any and all rights which such Stockholder may have under the Registration Rights Agreement, insofar as such rights relate to "piggy-back" rights to have shares of capital stock of the Company beneficially owned by such Stockholder registered on the Registration Statement or otherwise in connection with the Offering. -3- 4 SECTION 2.2. - STOCKHOLDERS AGREEMENT. Each Stockholder who is a party to that certain Second Amended and Restated Stockholders Agreement dated June 28, 1996 among the Company and certain of its stockholders, as amended (the "Stockholders Agreement"), hereby waives any and all rights which such Stockholder may have under the Stockholders Agreement, insofar as such rights arise from or relate to the Recapitalization. SECTION 2.3. - WAIVER OF VOTING RIGHTS. The Stockholders who will receive shares of Convertible Preferred Stock in the Recapitalization hereby agree that, from the Effective Time until consummation of the Offering, such Stockholders will not vote shares representing more than 49% of the combined voting power of the outstanding capital stock of the Company with respect to any matter submitted to a vote of the stockholders of the Company from the Effective Time until consummation of the Offering. ARTICLE III - ADDITIONAL WAIVERS AND TERMINATIONS; LOCKUP AGREEMENT SECTION 3.1 - EXCEPTIONS TO ARTICLE. This Article III shall not apply to the holders of Preferred Conversion Stock prior to the Effective Time and holders of the Convertible Preferred Stock or Common Stock into which the Convertible Preferred Stock may be converted at and following the Effective Time. SECTION 3.2. - OPTION VESTING. Each Stockholder who holds an option granted under the Company's 1996 Equity Incentive Plan to purchase shares of capital stock of the Company hereby waives any and all rights to have the vesting and exercisability of such option accelerated, insofar as the Recapitalization would otherwise cause such an acceleration of vesting and exercisability of such option under the agreement between the Company and the Stockholder governing the option. SECTION 3.3. - OTHER AGREEMENTS. The Company and the Stockholders acknowledge that each of the following agreements shall terminate and be of no further force or effect upon consummation of the Offering: (i) any Stock Transfer Restriction Agreement entered into with a Stockholder upon the exercise by such Stockholder of an option or options to purchase shares of capital stock of the Company granted in 1994 (collectively, the "Stock Transfer Restriction Agreements"); (ii) that certain Second Amended and Restated Security Holder Agreement dated June 28, 1996 among the Company, Citadel Broadcasting Company, Bank of America National Trust and Savings Association and certain other Stockholders (the "BofA Agreement"); (iii) that certain Security Holder Agreement dated December 31, 1996 among the Company, Endeavour Capital Fund Limited Partnership and certain other Stockholders (the "Endeavour Agreement"); (iv) that certain Security Holder Agreement dated September 26, 1997 among the Company, Philip J. Urso and certain other Stockholders (the "Urso Agreement"); and (v) Section 7 of any Management Team Stock Subscription entered into with a stockholder in connection with the reorganization of the -4- 5 Company into a holding company or otherwise (collectively, the "Management Team Agreements"). SECTION 3.4. - THE OFFERING. Each Stockholder understands that Prudential Securities Incorporated; Donaldson, Lufkin & Jenrette Securities Corporation; Goldman, Sachs & Co.; and NationsBanc Montgomery Securities LLC, as Representatives (the "Representatives") of the several underwriters (the "Underwriters"), propose to enter into an Underwriting Agreement with the Company (the "Underwriting Agreement"), providing for the Offering by the Underwriters, including the Representatives, of Common Stock. SECTION 3.5 - LOCK-UP AGREEMENT. In consideration of the Underwriters' agreement to purchase, and undertake the Offering of, the Common Stock, each Stockholder agrees not to, directly or indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any option to purchase or otherwise sell or dispose (or announce any offer, sale, offer of sale, contract of sale, pledge, grant of an option to purchase or other sale or disposition) of any Common Stock (including, without limitation, shares of Common Stock which may be deemed to be beneficially owned by a Stockholder in accordance with the rules and regulations of the SEC and shares of Common Stock which may be issued upon exercise of a stock option or warrant) or any securities convertible into or exercisable or exchangeable for such Common Stock in any manner, transfer all or a portion of the economic consequences associated with the ownership of the Common Stock, for a period of 180 days after the effective date of the Registration Statement, other than (i) as a gift or gifts, provided the donee or donees thereof agree in writing to be bound by this Article III, (ii) transfers to a transferor's affiliate, as such term is defined in Rule 405 promulgated under the Securities Act of 1933, as amended (the "Securities Act"), provided the transferee or transferees thereof agree in writing to be bound by this Article III, or (iii) with the prior written consent of Prudential Securities Incorporated. Each Stockholder agrees that for a period of 180 days after the effective date of the Registration Statement, such Stockholder will not exercise any rights that such Stockholder may have to cause the Company to register (under the Securities Act or otherwise) any shares of Common Stock or any securities convertible into or exercisable or exchangeable for shares of Common Stock, without the prior written consent of Prudential Securities Incorporated. SECTION 3.6. - TRANSFER OF SHARES. Each Stockholder agrees that the Company may, with respect to any shares of Common Stock for which such Stockholder is the record holder, cause the transfer agent for the Company to note stop transfer instructions with respect to such shares of Common Stock on the transfer books and records of the Company. Each Stockholder further agrees that such Stockholder will, if requested by the Company with respect to any shares of Common Stock for which such Stockholder is the beneficial holder but not the record holder, cause the record holder of such shares of Common Stock to cause the transfer agent for the Company to note stop transfer instructions with respect to such shares of Common Stock on the transfer books and records of the Company. -5- 6 ARTICLE IV - TERMINATION AND AMENDMENT SECTION 4.1. - TERMINATION BY THE COMPANY OR THE STOCKHOLDERS. This Agreement may be terminated at any time prior to the Effective Time by the Company or by Stockholders holding at least 66% of the voting power of the capital stock of the Company. SECTION 4.2. - TERMINATION FOR NONCONSUMMATION OF OFFERING. (a) If the Effective Time has not yet occurred, this Agreement will terminate automatically if the Offering is not consummated on or before August 31, 1998. (b) If the Effective Time has occurred but the Offering is not consummated within ten (10) business days after the Effective Time, the New Certificate will be rescinded and be of no force or effect. Such recision shall be effected by a subsequent amendment adopting the entirety of the Certificate of Seventh Amended and Restated Certificate of Incorporation of the Company as filed with the Nevada Secretary of State on October 16, 1997, with such amendments thereto as may be necessary to reinstate each Stockholder to the position such Stockholder was in vis-a-vis ownership of capital stock (including options and warrants to acquire capital stock) of the Company immediately prior to the Effective Time. SECTION 4.3. - AMENDMENTS. This Agreement may not be amended, altered or modified except by a written instrument executed by the Company and the Stockholders. ARTICLE V - MISCELLANEOUS SECTION 5.1. - ENTIRE AGREEMENT. This Agreement, the New Certificate and the New Bylaws constitute the entire agreement among the parties and supersedes any prior understandings, agreements or representations by or among the parties, written or oral, that may have related to the subject matter hereof; provided, however, that, subject to Article III, each of the Stock Transfer Restriction Agreements, the BofA Agreement, the Endeavour Agreement, the Urso Agreement and the Management Team Agreements shall continue in effect until consummation of the Offering. SECTION 5.2. - POWER AND AUTHORITY. Each Stockholder hereby represents and warrants that such Stockholder has full power and authority to enter into this Agreement. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of any Stockholder and any obligations of any Stockholder shall be binding upon the heirs, personal representatives, successors and assigns of such Stockholder. SECTION 5.3. - BINDING EFFECT; PERSONS BENEFITTING. This Agreement shall inure to the benefit of and be binding on the parties hereto, and the respective successors and assigns of the parties and such persons. Except as set forth in Section 5.4, nothing in this Agreement is intended or shall be construed to confer upon any entity or person other than -6- 7 the parties hereto and their respective successors and assigns any right, remedy or claim under or by reason of this Agreement or any part hereof. SECTION 5.4. - THIRD PARTY BENEFICIARY. The Representatives shall be intended third party beneficiaries of Article III and shall have the right to enforce Article III directly in a court of law or equity or both to protect their rights under Article III. Without limiting the generality of the foregoing, it is the intention of the parties hereto that the provisions of Article III are made for the benefit of the Representatives and to induce the Representatives to purchase, and undertake the Offering of, the Common Stock pursuant to the Underwriting Agreement. SECTION 5.5. - GOVERNING LAW. This Agreement shall be governed by the laws of the State of Nevada, without regard to the application of conflicts of law principles. SECTION 5.6. - COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original and each of which shall constitute one and the same instrument. SECTION 5.7 - EFFECTIVE AGREEMENT. If the New Certificate is approved by the stockholders of the Company in accordance with Nevada law and the Board of Directors of the Company determines to proceed with the Offering, this Agreement shall be effective and binding on the Company and the Stockholders whose signatures appear on the signature pages hereto notwithstanding the fact that less than all of the stockholders of the Company and holders of options and warrants to acquire shares of capital stock of the Company have executed this Agreement. SECTION 5.8. - INTERPRETATION. When reference is made in this Agreement to an Article, Section or Exhibit, such reference shall be to an Article or Section of, or an Exhibit to, this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. (Signatures on following page) -7- 8 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. CITADEL COMMUNICATIONS CORPORATION By:_____________________________ Lawrence R. Wilson, President CLASS A COMMON STOCK HOLDERS: SECURITY INVESTMENT MANAGEMENT & TRUST FUND, as custodian By:_____________________________ Its:____________________________ ________________________________ Michael Ahearn ________________________________ Gayle Ahearn ________________________________ Mike Atterbury ________________________________ Don Becker ________________________________ Fritz Beesemyer ________________________________ Pete Benedetti -8- 9 ________________________________ Ann M. Berg ________________________________ Douglas E. Berg ________________________________ Steve Bertholf ________________________________ Debra Bertholf ________________________________ William C. Betts, Jr. ________________________________ Pamela Moore ________________________________ Joseph M. Biondi ________________________________ Carolyn Bower ________________________________ Ross Stephen Campbell ________________________________ Linda J. Capser ________________________________ Tom Caulkins -9- 10 ________________________________ Charles V. Chackel ________________________________ Dennis Coffman ________________________________ Cynthia A. Dye ________________________________ John L. Dye ________________________________ Donald Edkins ________________________________ Constance Edkins ________________________________ Paul V. Ehlis ________________________________ John R. Forsythe ________________________________ Faith F. Forsythe ________________________________ Bret Fox ________________________________ Edward T. Hardy -10- 11 ________________________________ Donna L. Heffner ________________________________ Tim L. Heffner ________________________________ L. Scott Keller, II ________________________________ LeRoy Scott Keller, Sr. ________________________________ Marlene C. Keller ________________________________ Dennis R. Logsdon ________________________________ Robert B. Lund ________________________________ Michelle M. Lund ________________________________ Scott G. Mahalick ________________________________ Victoria Mann ________________________________ Terry Mathis -11- 12 ________________________________ Joseph D. Norwood ________________________________ Debra Parigian ________________________________ D. Robert Proffitt ________________________________ Lynette Proffitt ________________________________ Debbie Raborn ________________________________ Gerard J. Schlegel ________________________________ Phillip F. Sisneros ________________________________ Leonard Smart ________________________________ Stuart Stanek RUSTY WALKER, PROGRAMMING CONSULTANTS, INC. By:_____________________________ Its:____________________________ -12- 13 \ RIO BRAVO ENTERPRISE ASSOCIATES By: RIO BRAVO, INC., its General Partner By: _____________________________ Lawrence R. Wilson, President HOLDERS OF OPTIONS TO ACQUIRE CLASS A COMMON STOCK (WHO ARE NOT ALSO CLASS A COMMON STOCK HOLDERS): _____________________________________ Patricia Diaz Dennis _____________________________________ Thomas Ehrman _____________________________________ Randy Elison _____________________________________ Brenda Goodrich _____________________________________ Ed Hill _____________________________________ Susan M. Kaiser _____________________________________ Jack Kryer _____________________________________ Ralph W. McKee -13- 14 _________________________________ Fay Mills _________________________________ Mark Moorehead _________________________________ Scott K. Smith _________________________________ Martin Stabbert _________________________________ Lawrence R. Wilson CLASS B COMMON STOCK HOLDERS: _________________________________ Christopher J. Perry _________________________________ Robert F. Perille _________________________________ M. Anne O'Brien _________________________________ Ford S. Bartholow _________________________________ Jeffrey M. Mann -14- 15 _________________________________ Andrea P. Joselit _________________________________ Sheryl E. Bartol _________________________________ Matthew W. Clary HOLDER OF WARRANT TO ACQUIRE CLASS B COMMON STOCK: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By:______________________________ Its:_____________________________ CLASS C COMMON STOCK HOLDER: FINOVA CAPITAL CORPORATION By:______________________________ Its:_____________________________ -15- 16 SERIES A PREFERRED STOCK HOLDER: BAKER, FENTRESS & COMPANY By:______________________________ Its:_____________________________ SERIES B PREFERRED STOCK HOLDER: OPPENHEIMER & CO., INC. By:______________________________ Its:_____________________________ SERIES C PREFERRED STOCK HOLDERS: _________________________________ HARLAN LEVY, as trustee pursuant to that certain Fourth Amended and Restated Voting Agreement dated as of October 15, 1997 ABRY BROADCAST PARTNERS II, L.P. By: ABRY CAPITAL, L.P., its General Partner By: ABRY HOLDINGS, INC., its General Partner By:_____________________________ Its:____________________________ -16- 17 ABRY/CITADEL INVESTMENT PARTNERS, L.P. By: ABRY CAPITAL, L.P., its General Partner By: ABRY HOLDINGS, INC., its General Partner By:______________________ Its:_____________________ SERIES D PREFERRED STOCK HOLDERS: _________________________________ HARLAN LEVY, as trustee pursuant to that certain Fourth Amended and Restated Voting Agreement dated as of October 15, 1997 ABRY BROADCAST PARTNERS II, L.P. By: ABRY CAPITAL, L.P., its General Partner By: ABRY HOLDINGS, INC., its General Partner By:_______________________ Its:______________________ -17- 18 ABRY/CITADEL INVESTMENT PARTNERS, L.P. By: ABRY CAPITAL, L.P., its General Partner By: ABRY HOLDINGS, INC., its General Partner By:_______________________ Its:______________________ SERIES E PREFERRED STOCK HOLDERS: THE ENDEAVOUR CAPITAL FUND LIMITED PARTNERSHIP By: DVS Management, Inc., its General Partner By:_______________________ Its:______________________ _________________________________ Joseph P. Tenant THE SCHAFBUCH FAMILY TRUST u/a/d 2- 15-94 By:_______________________________ Richard M. Schafbuch, Trustee By:_______________________________ Susan P. Schafbuch, Trustee -18- 19 BABSON CAPITAL PARTNERS LIMITED PARTNERSHIP By:______________________________ Its:_____________________________ _________________________________ Tal Johnson _________________________________ Edward T. Hardy _________________________________ Ralph W. McKee SERIES F PREFERRED STOCK HOLDERS: _________________________________ Philip J. Urso _________________________________ Phillip Norton _________________________________ Richard Poholek _________________________________ Karen Kutniewski _________________________________ M. Linda Urso -19- 20 PHILIP J. URSO AND ELISABET URSO NOMINEE TRUST DATED NOVEMBER 17, 1997 By:______________________________ M. Linda Urso, Trustee _________________________________ Mark Urso _________________________________ Juliet Rice _________________________________ Jeffrey M. Thompson _________________________________ Thomas Jenkins _________________________________ Patrick S. Bowen SERIES G PREFERRED STOCK HOLDERS: _________________________________ Ted L. Snider, Sr. _________________________________ Ted L. Snider, Jr. _________________________________ Calvin G. Arnold _________________________________ Jane J. Snider -20- 21 _____________________________________________ Cathron Snider Brewton _____________________________________________ Cathron Snider Brewton, as custodian for Rory Julaine Brewton under the UTMA _____________________________________________ Cathron Snider Brewton, as custodian for Cassandra Leigh Brewton under the UTMA _____________________________________________ Robert L. Brewton _____________________________________________ Jan Green Snider _____________________________________________ George Morgan _____________________________________________ Lee R. Arnold _____________________________________________ Cynthia D. Arnold -21-