-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JWO4g1vOl17osbJak0Csyd9rwL0MSVB2SACg4rLsNqV8Pe7S4qpZUmkFXx2bg/t+ W0aLA+QukmkwuTErZ/eZGQ== 0000950128-97-001075.txt : 19971117 0000950128-97-001075.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950128-97-001075 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTINGHOUSE ELECTRIC CORP CENTRAL INDEX KEY: 0000106413 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 250877540 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00977 FILM NUMBER: 97720830 BUSINESS ADDRESS: STREET 1: WESTINGHOUSE BLDG STREET 2: 11 STANWIX STREET CITY: PITTSBURGH STATE: PA ZIP: 15222-1384 BUSINESS PHONE: 4122442000 FORMER COMPANY: FORMER CONFORMED NAME: WESTINGHOUSE ELECTRIC & MANUFACTURING CO DATE OF NAME CHANGE: 19710510 10-Q 1 WESTINGHOUSE ELECTRIC CORP. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549-1004 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 ------------------ OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___ to ___ Commission file number 1-977 ----- WESTINGHOUSE ELECTRIC CORPORATION --------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 25-0877540 ------------ ---------- (State of Incorporation) (I.R.S. Employer Identification No.) Westinghouse Building, 11 Stanwix Street, Pittsburgh, Pa. 15222-1384 -------------------------------------------------------------------- (Address of principal executive offices, zip code) (412) 244-2000 --------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Common stock 711,262,160 shares outstanding at October 31, 1997 --------------------------------------------------------------- -1- 2 WESTINGHOUSE ELECTRIC CORPORATION INDEX -------------------------------- PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statement of Income 3 Condensed Consolidated Balance Sheet 4 Condensed Consolidated Statement of Cash Flows 5 Notes to the Condensed Consolidated Financial Statements 6-16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16-32 PART II. OTHER INFORMATION Item 1. Legal Proceedings 32 Item 6. Exhibits and Reports on Form 8-K 33-35 SIGNATURE 36 -2- 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WESTINGHOUSE ELECTRIC CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME ------------------------------------------ (in millions except per share amounts) (unaudited)
Three Months Ended Nine Months Ended September 30 September 30 ------------------ ----------------- 1997 1996 1997 1996 ---- ---- ---- ---- Sales and operating revenues $ 1,283 $ 910 $ 3,892 $ 3,127 Operating expenses (1,038) (772) (3,316) (2,728) Depreciation and amortization (107) (68) (317) (210) Pension and postretirement benefits of divested businesses (35) (30) (106) (84) ------- ----- ------- ------- Operating profit 103 40 153 105 Other income (expenses), net (note 4) 4 22 61 35 Interest expense (102) (88) (305) (316) ------- ----- ------- ------- Income (loss) from Continuing Operations before income taxes and minority interest in income of consolidated subsidiaries 5 (26) (91) (176) Income tax benefit (expense) (25) 1 (32) 19 Minority interest in income of consolidated subsidiaries 1 (1) 2 (1) ------- ----- ------- ------- Loss from Continuing Operations (19) (26) (121) (158) ------- ----- ------- ------- Discontinued Operations, net of income taxes (note 8): Income (loss) from Discontinued Operations (143) 28 (191) (638) Estimated gain on disposal of Discontinued Operations -- -- -- 1,018 ------- ----- ------- ------- Income (loss) from Discontinued Operations (143) 28 (191) 380 Extraordinary Item: Loss on early extinguishment of debt (note 5) -- (30) -- (93) ------- ----- ------- ------- Net income (loss) $ (162) $ (28) $ (312) $ 129 ======= ====== ======= ======= Earnings (loss) per common share: Continuing Operations $ (0.03) $(0.06) $ (0.19) $ (0.36) Discontinued Operations (0.22) 0.06 (0.29) 0.86 Extraordinary Item -- (0.06) -- (0.21) ------- ------ ------- -------- Earnings (loss) per common share $ (0.25) $(0.06) $ (0.48) $ 0.29 ======= ====== ======= ======= Cash dividends per common share $ 0.05 $ 0.05 $ 0.15 $ 0.15 ======= ====== ======= =======
See Notes to the Condensed Consolidated Financial Statements. -3- 4 WESTINGHOUSE ELECTRIC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET ------------------------------------ (in millions)
September 30, 1997 December 31, 1996 ------------------ ----------------- ASSETS (unaudited) ------ Cash and cash equivalents $ 74 $ 129 Customer receivables 886 783 Program rights 435 431 Deferred income taxes 382 377 Prepaid and other current assets 143 182 ------- ------- Total current assets 1,920 1,902 Plant and equipment, net 1,052 1,017 FCC licenses, net 2,185 2,199 Goodwill, net 9,731 8,721 Net assets of Discontinued Operations (note 8) 2,055 1,646 Other intangible and noncurrent assets (note 6) 1,668 1,567 ------- ------- Total assets $18,611 $17,052 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Short-term debt $ 177 $ 484 Current maturities of long-term debt 63 4 Accounts payable 161 421 Liabilities for talent and program rights 269 308 Other current liabilities (note 7) 894 1,165 ------- ------- Total current liabilities 1,564 2,382 Long-term debt 5,969 5,147 Pension liability 1,284 1,061 Other noncurrent liabilities (note 7) 2,719 2,728 ------- ------- Total liabilities 11,536 11,318 ------- ------- Contingent liabilities and commitments (note 9) Minority interest in equity of consolidated subsidiaries 4 3 Shareholders' equity (note 10): Preferred stock, $1.00 par value (25 million shares authorized): Series C conversion preferred (0 million and 4 million shares issued) - 4 Common stock, $1.00 par value (1,100 million shares authorized, 712 million and 609 million shares issued) 712 609 Capital in excess of par value 7,026 5,376 Common stock held in treasury (530) (546) Minimum pension liability adjustment (796) (796) Cumulative foreign currency translation adjustments (2) - Retained earnings 661 1,084 ------- ------- Total shareholders' equity 7,071 5,731 ------- ------- Total liabilities and shareholders' equity $18,611 $17,052 ======= =======
See Notes to the Condensed Consolidated Financial Statements. -4- 5 WESTINGHOUSE ELECTRIC CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS ---------------------------------------------- (in millions) (unaudited)
Nine Months Ended September 30 ------------------------------ 1997 1996 ---- ---- Cash used for operating activities of Continuing Operations $ (165) $ (327) Cash used for operating activities of Discontinued Operations (677) (552) Cash flows from investing activities: Business acquisitions (50) (115) Business divestitures and other asset liquidations 163 3,735 Capital expenditures (131) (146) ------ ------ Cash (used) provided by investing activities (18) 3,474 ------ ------ Cash flows from financing activities: Bank revolver borrowings 2,690 5,813 Bank revolver repayments (1,550) (3,138) Net change in other short-term debt (314) (336) Repayments of long-term debt (149) (5,012) Stock issued 211 93 Dividends paid (113) (98) Bank fees paid and other (8) (12) ------ ------ Cash provided (used) by financing activities 767 (2,690) ------ ------ Decrease in cash and cash equivalents (93) (95) Cash and cash equivalents at beginning of period 233 226 ------ ------ Cash and cash equivalents at end of period for Continuing and Discontinued Operations $ 140 $ 131 ====== ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid: Continuing Operations $ 290 $ 322 Discontinued Operations 71 82 ------ ------ Total interest paid $ 361 $ 404 ====== ====== Income taxes paid $ 47 $ 64 ====== ======
See Notes to the Condensed Consolidated Financial Statements. See note 2 for a description of noncash transactions. -5- 6 WESTINGHOUSE ELECTRIC CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------- 1. GENERAL The condensed consolidated financial statements include the accounts of Westinghouse Electric Corporation (Westinghouse) and its subsidiary companies (together, the Corporation) after elimination of intercompany accounts and transactions. When reading the financial information contained in this Quarterly Report, reference should be made to the financial statements, schedules, and notes contained in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1996, as amended by Form 10-K/A Amendment No. 1 dated July 14, 1997. Reference also should be made to the Quarterly Reports on Form 10-Q for the quarter ended March 31, 1997, as amended by Form 10-Q/A Amendment No. 1 dated July 14, 1997 and the quarter ended June 30, 1997. However, certain financial information presented in these reports has been subsequently reclassified for comparative purposes as discussed below. During recent years, the Corporation has made several changes to its business portfolio. A number of business segments were identified as non-strategic and were reclassified as Discontinued Operations. When appropriate, financial information previously issued was restated to give effect to the classification of these businesses as Discontinued Operations in accordance with Accounting Principles Board Opinion (APB) No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." See note 8 to the financial statements. In November 1996, Westinghouse announced that its Board of Directors had conditionally approved a plan for a strategic restructuring whereby Westinghouse would separate its media and industrial businesses. Westinghouse planned to separate its industrial businesses by way of a tax-free dividend to shareholders forming a publicly-traded company to be called Westinghouse Electric Company (WELCO). Modifications were made to the restructuring plan in June 1997 such that WELCO would consist primarily of the manufacturing and services businesses for the nuclear and fossil-fueled power generation industry and the government operations business. In addition, WELCO would assume environmental and litigation-related liabilities associated with its current businesses and certain divested businesses. Westinghouse would retain the media businesses, Thermo King, debt, and essentially all pension and postretirement benefit obligations accrued through the date of separation for current and former employees. A registration statement for WELCO was filed with the Securities and Exchange Commission on August 13, 1997. A ruling was received from the Internal Revenue Service that the separation would qualify as a tax free spin-off to Westinghouse and its shareholders. In September 1997, the Corporation reached a definitive agreement to sell Thermo King, its transport temperature control business, for cash proceeds of $2.56 billion. All of the assets and liabilities and the results of operations for WELCO as presented in the registration statement and Thermo King were reclassified as Discontinued Operations as of September 30, 1997 for all periods presented. The sale of Thermo King was completed on October 31, 1997. However, in light of consolidation in the power industry, the Corporation considered offers by various parties to acquire certain of the industrial businesses. On November 14, 1997, the Corporation announced a definitive agreement to sell its Power Generation business for $1.525 billion in cash. The remaining industrial businesses, consisting primarily of Energy Systems and Government Operations, will be divested in the near term. Certain of WELCO's environmental and litigation-related liabilities may not be assumed by other parties in the divestiture transactions and, therefore, have been separately presented as retained liabilities of discontinued businesses. See note 9 to the financial statements. -6- 7 On December 31, 1996, the Corporation acquired Infinity Broadcasting Corporation (Infinity). On September 30, 1997, the Corporation completed the acquisition of Gaylord Entertainment Company's (Gaylord) two major cable networks - The Nashville Network (TNN) and Country Music Television (CMT). See note 2 to the financial statements. On September 19, 1997, the Corporation announced that it had reached a definitive agreement to acquire American Radio Systems' radio broadcasting operations for $1.6 billion of cash plus the assumption of approximately $1 billion of debt. The transaction is expected to close in the second quarter of 1998. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates, including those related to litigation, environmental liabilities, contracts, pensions, and Discontinued Operations, based on current available information. Changes in facts and circumstances may result in revised estimates. In the opinion of management, the Condensed Consolidated Financial Statements include all material adjustments necessary to present fairly the Corporation's financial position, results of operations, and cash flows. Such adjustments are of a normal recurring nature. The results for this interim period are not necessarily indicative of results for the entire year or any other interim period. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which requires the dual presentation of basic and diluted earnings per share. Basic and diluted earnings per share calculated in accordance with this standard would have been losses of $0.26 and $0.10 for the three months ended September 30, 1997 and 1996, respectively, a loss of $0.53 for the nine months ended September 30, 1997, and income of $0.23 for the nine months ended September 30, 1996. The Corporation will adopt this standard as of December 31, 1997, as required. Early adoption is not permitted. In June 1997, SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" were issued. The Corporation will adopt these standards in 1998. 2. ACQUISITIONS On December 31, 1996, the Corporation acquired Infinity for $3.8 billion of equity and $.9 billion of debt. The acquisition, which was accounted for under the purchase method, resulted in an increase in the Corporation's shareholders' equity at year-end 1996 of $3.8 billion from the issuance of 183 million shares of Westinghouse common stock and the conversion of Infinity options into options to acquire approximately 22 million additional shares of Westinghouse common stock. The operating results of Infinity have been included in the consolidated statement of income beginning January 1, 1997. On September 30, 1997, the Corporation acquired Gaylord's two major cable networks, TNN and CMT. The acquisition included the domestic and international operations of TNN and the U.S. and Canadian operations of CMT, and approximately $50 million of working capital. The total purchase price of $1.55 billion was paid through the issuance of 59 million shares of Westinghouse common stock. The acquisition, which was accounted for under the -7- 8 purchase method, is reflected in the September 30, 1997 consolidated balance sheet. Based on preliminary estimates, which may be revised at a later date, the excess of the consideration paid over the estimated fair value of net assets acquired of approximately $1.2 billion was recorded as goodwill and is being amortized on a straight-line basis over 40 years. The operating results of the Gaylord networks will be included in the consolidated statement of income beginning October 1, 1997. Prior to the acquisition, the Corporation provided certain services to TNN and CMT for which it received a commission. Additionally, the Corporation owned a 33% interest in CMT. The following unaudited proforma information combines the consolidated results of operations of the Corporation with those of Infinity and the Gaylord networks as if these acquisitions had occurred at the beginning of 1996. The proforma results give effect to certain purchase accounting adjustments, including additional amortization expense from goodwill and other identified intangible assets, increased interest expense from Infinity acquisition debt, related income tax effects, and the issuance of additional shares in connection with the acquisitions. PROFORMA RESULTS OF OPERATIONS (in millions except per share amounts) (unaudited)
Three Months Ended Nine Months Ended September 30 September 30 ------------------ ----------------- 1997 1996 1997 1996 ---- ---- ---- ---- Sales and operating revenues $1,349 $1,168 $4,094 $3,845 Interest expense (102) (109) (305) (379) Loss from Continuing Operations (19) (27) (119) (183) Loss per common share - Continuing Operations (0.03) (0.04) (0.17) (0.26)
This proforma financial information is presented for comparative purposes only and is not necessarily indicative of the operating results that actually would have occurred had the Infinity and Gaylord acquisitions been consummated on January 1, 1996. In addition, these results are not intended to be a projection of future results and do not reflect any synergies that might be achieved from combined operations. 3. RESTRUCTURING, LITIGATION AND OTHER MATTERS In 1996, the Corporation took several actions to streamline its businesses and resolve various litigation and other matters. Certain of these actions resulted in the recognition of charges to operating profit. Most of these charges related to businesses that subsequently were reclassified as Discontinued Operations. Included in Continuing Operations in the first nine months of 1996 were charges totalling $76 million. The Corporation recognized costs for new restructuring programs of $41 million for Westinghouse's actions to obtain operational synergies between CBS Inc. (CBS) and Westinghouse. An additional $7 million of restructuring costs was recognized for corporate overhead reductions. A charge of $28 million was recognized for pending litigation matters. No such charges were recognized in the first nine months of 1997. Included in Discontinued Operations in the first nine months of 1996 were costs totalling $946 million. The Corporation recognized costs for new restructuring projects of $77 million, primarily for the consolidation of facilities and the separation of employees. A charge of $458 million was recognized for pending litigation matters. Other costs of $30 million were recognized generally for -8- 9 costs associated with previously divested businesses. Following a comprehensive review of its environmental remediation obligations, the Corporation recognized a charge of $175 million for those matters. In 1996, the Corporation also adopted SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 requires that long-lived assets, including related goodwill, be reviewed for impairment and written down to their estimated fair value whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Upon the adoption of SFAS 121, an impairment charge of $54 million was recognized in the first quarter of 1996. In addition, an estimated loss of $152 million resulting from a decision to sell certain miscellaneous non-strategic assets was recognized. These charges were subsequently reclassified to Discontinued Operations. No such charges were recognized in the first nine months of 1997. 4. OTHER INCOME AND EXPENSES, NET (in millions) (unaudited)
Three Months Ended Nine Months Ended September 30 September 30 ------------------ ----------------- 1997 1996 1997 1996 ---- ---- ---- ---- Interest income $ 1 $ 4 $ 7 $ 12 Gain on disposition of assets 1 11 32 11 Operating results - non-consolidated affiliates 3 4 7 7 Other (1) 3 15 5 ----- ----- ----- ----- Other income and expenses, net $ 4 $ 22 $ 61 $ 35 ===== ===== ===== =====
5. EXTRAORDINARY ITEM On March 1, 1996 and August 29, 1996, the Corporation extinguished prior to maturity $3,565 million and $3,195 million of debt, respectively, under the then-existing $7.5 billion credit facility. These repayments represented all outstanding borrowings under that facility. As a result of the early extinguishment of debt and the write-off of related debt issue costs, the Corporation incurred an extraordinary loss of $93 million, net of a tax benefit of $60 million for the nine months ended September 30, 1996. 6. OTHER INTANGIBLE AND NONCURRENT ASSETS (in millions)
September 30, 1997 December 31, 1996 ------------------ ----------------- (unaudited) Deferred income taxes $ - $ 310 Other intangible assets 889 400 Intangible pension asset 40 40 Deferred charges 45 39 Joint ventures and other affiliates 120 142 Recoverable costs of discontinued businesses (note 9) 211 235 Noncurrent receivables 105 91 Program rights 135 142 Other 123 168 ------- ------- Total other intangible and noncurrent assets $ 1,668 $ 1,567 ======= =======
-9- 10 7. OTHER CURRENT AND NONCURRENT LIABILITIES (in millions)
September 30, 1997 December 31, 1996 ------------------ ----------------- (unaudited) Other current liabilities: ------------------------- Accrued employee compensation $ 106 $ 127 Income taxes currently payable 160 163 Accrued interest and insurance 91 75 Accrued restructuring costs 26 64 Accrued liabilities 295 363 Retained liabilities of discontinued businesses (note 9) 114 120 Other 102 253 ------ ------ Total other current liabilities $ 894 $1,165 ====== ====== Other noncurrent liabilities: ---------------------------- Postretirement benefits $1,168 $1,158 Postemployment benefits 29 28 Deferred income taxes 172 - Accrued restructuring costs 13 53 Liabilities for talent and program rights 63 52 Accrued liabilities 232 379 Retained liabilities of discontinued businesses (note 9) 811 806 Other 231 252 ------ ------ Total other noncurrent liabilities $2,719 $2,728 ====== ======
8. DISCONTINUED OPERATIONS As discussed in note 1, as of September 30, 1997, the Corporation reclassified as Discontinued Operations the assets, liabilities, and results of operations for WELCO and Thermo King. The Corporation had previously adopted several other separate plans to dispose of major segments of its business. These businesses have been accounted for as Discontinued Operations in accordance with APB 30. The table below summarizes each of the Corporation's segment disposal plans as well as the assets remaining as of September 30, 1997.
Measurement Date Line of Business Remaining Assets ---------------- ---------------- ---------------- September 1997 WELCO All assets and liabilities September 1997 Thermo King Sold October 31, 1997 November 1996 Communication & Information Systems (CISCO) Several businesses March 1996 Environmental Services Three waste incineration plants December 1995 The Knoll Group (Knoll) - December 1995 Defense and Electronic Systems - July 1995 Land Development (WCI) Mortgage notes receivable and miscellaneous securities November 1992 Financial Services Leasing receivables November 1992 Distribution & Control (DCBU) - November 1992 Westinghouse Electric Supply Company (WESCO) Miscellaneous securities
-10- 11 In December 1995, Knoll and the defense and electronic systems business were reclassified as Discontinued Operations in connection with their planned disposition. Sales of both businesses were completed in the first quarter of 1996 for combined cash proceeds of $3.6 billion plus assumption by the buyer of certain pension and postretirement benefit liabilities associated with the active employees of the business. A combined after-tax gain of $1.2 billion was recognized. Exit plans for the CISCO segment and the environmental services line of business which were adopted later in 1996 reduced the after-tax gain by $.2 billion. Summarized operating results of the WELCO and Thermo King businesses follow: OPERATING RESULTS OF WELCO AND THERMO KING (in millions) (unaudited)
Nine Months Ended September 30 ----------------- 1997 1996 ---------------------- --------------------- Thermo Thermo WELCO King Total WELCO King Total ----- ------ ----- ----- ----- ----- Sales of products and services $2,181 $ 768 $2,949 $2,282 $ 747 $3,029 Operating costs (2,567) (617) (3,184) (3,175) (605) (3,780) ------ ----- ------ ------ ----- ------ Operating profit (loss) (386) 151 (235) (893) 142 (751) Other income (expense) (54) (10) (64) (183) (7) (190) ------ ----- ------ ------ ----- ------ Income (loss) before income taxes (440) 141 (299) (1,076) 135 (941) Income tax benefit (expense) 148 (40) 108 386 (27) 359 ------ ----- ------ ------ ----- ------ Net income (loss) prior to measurement date $ (292) $ 101 $ (191) $ (690) $ 108 $ (582) ====== ===== ====== ====== ===== ======
Summarized operating results of businesses included in Discontinued Operations prior to 1997, grouped by measurement date, follow: OPERATING RESULTS OF PRE-1997 DISCONTINUED OPERATIONS (in millions) (unaudited) For the nine months ended September 30, 1997
Measurement Date --------------------------------------- 1996 1995 1992 Total ---- ---- ---- ----- Sales of products and services $ 233 $ - $ 9 $ 242 Loss before income taxes (30) - (22) (52) Income tax benefit 8 - - 8 Net operating loss after measurement date charged to liability for estimated loss on disposal (22) - (22) (44)
-11- 12 For the nine months ended September 30, 1996
Measurement Date --------------------------------------- 1996 1995 1992 Total ---- ---- ---- ----- Sales of products and services $ 424 $ 352 $ 19 $ 795 Loss before income taxes (121) (78) (13) (212) Income tax benefit (expense) 27 (4) - 23 Net loss prior to measurement date (56) - - (56) Net operating loss after measurement date charged to liability for estimated loss on disposal (38) (82) (13) (133)
The assets and liabilities of Discontinued Operations have been separately classified on the consolidated balance sheet as net assets of Discontinued Operations. A summary of these assets and liabilities follows: NET ASSETS OF DISCONTINUED OPERATIONS (in millions)
September 30, 1997 December 31, 1996 ------------------ ----------------- (unaudited) ASSETS: Cash and cash equivalents $ 66 $ 104 Receivables 772 867 Inventories 739 816 Uncompleted contract costs over related billings 473 677 Plant and equipment, net 787 945 Portfolio investments 803 845 Deferred income taxes 1,013 746 Other assets 549 732 ------ ------ Total assets -- Discontinued Operations 5,202 5,732 ------ ------ LIABILITIES: Accounts payable 393 706 Uncompleted contract billings over related costs 335 335 Short-term debt 17 18 Current maturities of long-term debt 96 2 Liability for estimated loss on disposal 378 829 Long-term debt 433 419 Settlements and environmental liabilities 661 757 Other liabilities 834 1,020 ------ ------ Total liabilities -- Discontinued Operations 3,147 4,086 ------ ------ Net assets of Discontinued Operations $2,055 $1,646 ====== ======
-12- 13 Inventories of Discontinued Operations consist of the following: INVENTORIES (in millions)
September 30, 1997 December 31, 1996 ------------------ ----------------- (unaudited) Raw materials $ 81 $ 130 Work in process 406 518 Finished goods 125 124 ------- ------- 612 772 Long-term contracts in process 997 988 Progress payments to subcontractors 41 48 Recoverable engineering and development costs 76 73 Less: Inventoried costs related to contracts with progress billing terms (987) (1,065) ------- ------- Inventories, net $ 739 $ 816 ======= =======
At September 30, 1997, the assets and liabilities of Discontinued Operations included those related to the operations of WELCO and Thermo King, the remaining operations from both the CISCO segment and the environmental services business, the remaining securities from WCI, other miscellaneous securities, the leasing portfolio, and deferred income taxes. Liabilities also included debt and the estimated losses and divestiture costs associated with Discontinued Operations primarily related to pre-1997 plans, including estimated results of operations of certain businesses through divestiture. Portfolio investments consist primarily of receivables related to the leasing portfolio of Financial Services. Also included are real estate properties and investments in leasing partnerships. The leasing portfolio is expected to liquidate through 2015 in accordance with contractual terms and generally consists of direct financing and leveraged leases. At September 30, 1997 and December 31, 1996, 83% and 84% of the leases, respectively, related to aircraft and 17% and 16%, respectively, related to cogeneration facilities. On October 31, 1997, the Corporation completed the sale of Thermo King for $2.56 billion in cash. The proceeds were used to repay debt of Continuing Operations. On November 14, 1997, the Corporation announced a definitive agreement to sell Power Generation, the largest component of WELCO, for cash proceeds of $1.525 billion. The sale is expected to close in 1998. The remaining businesses of WELCO, consisting primarily of Energy Systems and Government Operations, are expected to be divested in 1998. In the fourth quarter, the Corporation will recognize the net gain on the sale of Thermo King, which is expected to exceed $1 billion and all of the remaining costs or losses associated with WELCO. In the aggregate, these transactions are not expected to result in a net loss. Except for the leasing portfolio, the remaining assets of the businesses discontinued prior to 1997 generally are expected to be divested in early 1998. Net assets of Discontinued Operations at September 30, 1997 also included $1.0 billion of net deferred income tax benefits. This amount included approximately $700 million associated with net operating loss carryforwards for U.S. federal income tax purposes that will be fully utilized by the Corporation with the sale of Thermo King. Deferred income taxes resulting from temporary differences between book and tax bases of the assets and liabilities of Discontinued Operations generally will be included in a divestiture transaction or transferred to Continuing Operations upon reversal and are not expected to result in the receipt or payment of cash by Discontinued Operations. Liabilities associated with divestitures are expected to be satisfied over the next several years. Debt of Discontinued Operations will be repaid using cash proceeds from the liquidation of assets of Discontinued Operations. Cash proceeds in excess of those required to repay the debt and satisfy the divestiture liabilities of Discontinued Operations, if any, will be transferred to Continuing Operations. -13- 14 9. CONTINGENT LIABILITIES AND COMMITMENTS Certain of WELCO's environmental and litigation-related liabilities may not be assumed by other parties in the pending divestiture transactions and, therefore, could be retained by the Corporation. These liabilities include environmental obligations that are not related to active properties of operating businesses, accrued product liability claims for divested businesses, liabilities associated with asbestos claims, and general litigation claims not involving active businesses. Accrued liabilities associated with these matters, which have been separately presented as retained liabilities of discontinued businesses, totalled $925 million at September 30, 1997, including amounts related to previously discontinued businesses of CBS. A separate asset of $248 million has been recorded for amounts recoverable from insurance carriers under previous settlement arrangements. Of this amount, $211 million is classified as noncurrent. Legal Matters ------------- Steam Generators The Corporation has been defending various lawsuits brought by utilities claiming a substantial amount of damages in connection with alleged tube degradation in steam generators sold by the Energy Systems business as components of nuclear steam supply systems. Since 1993, settlement agreements have been entered resolving ten litigation claims. These agreements generally require the Corporation to provide certain products and services at prices discounted at varying rates. Two cases were resolved in favor of the Corporation after trial or arbitration. One active steam generator lawsuit remains. The Corporation is also a party to five tolling agreements with utilities or utility plant owners' groups which have asserted steam generator claims. The tolling agreements delay initiation of any litigation for various specified periods of time and permit the parties time to engage in discussions. Accrued liabilities for previous and potential settlement agreements that provide for costs in excess of discounted prices are included in Discontinued Operations. Securities Class Actions - Financial Services The Corporation has been defending derivative and class action lawsuits alleging federal securities law and common law violations arising out of purported misstatements or omissions contained in the Corporation's public filings concerning the financial condition of the Corporation and certain of its former subsidiaries in connection with charges to earnings of $975 million in 1990 and $1,680 million in 1991 and a public offering of Westinghouse common stock in 1991. The court dismissed both the derivative claim and the class action claims in their entirety. These dismissals were appealed. In July 1996, the United States Court of Appeals for the Third Circuit (the Circuit Court) affirmed the court's dismissal of the derivative claim. The Circuit Court also affirmed in part and reversed in part the dismissal of the class action claims. Those class action claims that were not dismissed by the Circuit Court have been remanded to the lower court for further proceedings. Asbestos The Corporation is a defendant in numerous lawsuits claiming various asbestos-related personal injuries, which allegedly occurred from use or inclusion of asbestos in certain of the Corporation's products, generally in the pre-1970 time period. Typically, these lawsuits are brought against multiple defendants. The Corporation was neither a manufacturer nor a producer of asbestos and is oftentimes dismissed from these lawsuits on the basis that the Corporation has no relationship to the products in question or the claimant did not have exposure to the Corporation's product. At September 30, 1997, the Corporation had approximately 114,000 claims outstanding against it. In court actions which have been resolved, the Corporation has prevailed in the majority of the asbestos claims and has resolved others through settlement. Furthermore, the Corporation has brought suit against certain of its insurance carriers with respect to these asbestos claims. Under the terms of a settlement agreement resulting from this suit, carriers that have agreed to the settlement are now reimbursing the Corporation for a substantial portion of its -14- 15 current costs and settlements associated with asbestos claims. The Corporation has recorded a liability for asbestos-related losses that are deemed probable and can be reasonably estimated, and has separately recorded an asset equal to the amount of such estimated liabilities that will be recovered pursuant to agreements with insurance carriers. The Corporation cannot reasonably estimate costs for unasserted asbestos claims. General Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in the steam generator claims, the securities class action, and certain groupings of asbestos claims; and, although management believes a significant adverse judgment is unlikely, any such judgment could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation described above and that the Corporation has adequately provided for costs arising from potential settlement of these matters when in the best interest of the Corporation. Management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. Environmental Matters --------------------- Compliance with federal, state, and local laws and regulations relating to the discharge of pollutants into the environment, the disposal of hazardous wastes, and other related activities affecting the environment have had and will continue to have an impact on the Corporation. It is difficult to estimate the timing and ultimate costs to be incurred in the future due to uncertainties about the status of laws, regulations, and technology; the adequacy of information available for individual sites; the extended time periods over which site remediation occurs; and the identification of new sites. The Corporation has, however, recognized an estimated liability, measured in current dollars, for those sites where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Corporation recognizes changes in estimates as new remediation requirements are defined or as more information becomes available. With regard to remedial actions under federal and state Superfund laws, the Corporation has been named a potentially responsible party (PRP) at numerous sites located throughout the country. At many of these sites, the Corporation is either not a responsible party or its site involvement is very limited or de minimis. However, the Corporation may have varying degrees of cleanup responsibilities at approximately 90 sites. The Corporation believes that any liability incurred for cleanup at these sites will be satisfied over a number of years, and in many cases, the costs will be shared with other responsible parties. These sites include certain sites for which the Corporation, as part of an agreement for sale, has retained obligations for remediation of environmental contamination and for other Comprehensive Environmental Response Compensation and Liability Act (CERCLA) issues. Based on the costs associated with the most probable alternative remediation strategy for the above mentioned sites, the Corporation has an accrued liability of $442 million. Depending on the remediation alternatives ultimately selected, the costs related to these sites could differ from the amounts currently accrued. The accrued liability includes $321 million for site investigation and remediation and $121 million for post closure and monitoring activities. Management anticipates that the majority of expenditures for site investigation and remediation will occur during the next five to ten years. Expenditures for post-closure and monitoring activities will be made over periods up to 30 years. Approximately $80 million of this accrued liability has been included in the net assets of Discontinued Operations. -15- 16 Commitments ----------- The Corporation routinely enters into commitments to purchase the rights to broadcast programs, including feature films and sporting events. These contracts permit the broadcast of such properties for various periods ending no later than April 2002. As of September 30, 1997, the Corporation was committed to make payments under such broadcasting contracts, along with commitments for talent contracts, totalling $3.4 billion. In the ordinary course of business, standby letters of credit and surety bonds are issued on behalf of the Corporation related primarily to performance obligations under contracts with customers. These commitments generally relate to the operations which have been included as Discontinued Operations. Financial Services commitments at September 30, 1997, consisting primarily of guarantees, totalled $30 million compared to $38 million at year-end 1996. These commitments relate to portfolio investments classified as Discontinued Operations. The remaining commitments have fixed expiration dates from 1997 through 2002. Management expects these commitments to expire unfunded. 10. SHAREHOLDERS' EQUITY In conjunction with the Gaylord acquisition on September 30, 1997, the Corporation issued 59 million shares of Westinghouse common stock. This transaction resulted in an increase in shareholders' equity of $1.5 billion. On May 30, 1997, the Corporation redeemed all outstanding shares of its Series C Conversion Preferred Stock (Series C Preferred). In connection with this redemption, the Corporation issued 32 million shares of Westinghouse common stock. All accrued and unpaid dividends on the redeemed shares of Series C Preferred were paid on May 30, 1997. Prior to its redemption, the Series C Preferred was treated as outstanding common stock for the calculation of earnings per share, which was in accordance with prevalent practice at the time of sale. If the Series C Preferred had been treated as common stock equivalents for the calculation of earnings per share, the Corporation's per-share results for the three months ended September 30, 1997 and 1996 would have been losses of $0.25 and $0.10, respectively, while the per-share results for the nine months ended September 30, 1997 and 1996 would have been a loss of $0.54 and income of $0.23, respectively. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Media Businesses On September 30, 1997, Westinghouse Electric Corporation (Westinghouse or the Corporation) completed the acquisition of Gaylord Entertainment Company's (Gaylord) two major cable networks - The Nashville Network (TNN) and Country Music Television (CMT). The acquisition includes domestic and international operations of TNN, the U.S. and Canadian operations of CMT, and approximately $50 million of working capital. The total purchase price of $1.55 billion was paid through the issuance of 59 million shares of Westinghouse common stock. The assets and liabilities of the cable networks are included in the Corporation's September 30, 1997 balance sheet along with the resulting increase in shareholders' equity. Beginning October 1, 1997, operating results for TNN and CMT will be included as part of the cable segment. -16- 17 On September 19, 1997, the Corporation announced that it had reached a definitive agreement to acquire American Radio Systems' radio broadcasting operations for $1.6 billion of cash plus the assumption of approximately $1 billion of debt. The transaction, which is expected to close in the second quarter of 1998, will add 98 radio stations to the radio group's current portfolio of 77 stations. The $4.7 billion acquisition of Infinity Broadcasting Corporation (Infinity) was completed in December 1996. The acquisition resulted in an increase in the Corporation's year-end 1996 shareholders' equity of $3.8 billion from the issuance of 183 million shares of Westinghouse common stock and the conversion of Infinity options into options to acquire approximately 22 million additional shares of Westinghouse common stock. Beginning January 1, 1997, operating results for Infinity are included as part of the radio segment. Industrial Businesses In November 1996, Westinghouse announced that its Board of Directors had conditionally approved a plan for a strategic restructuring whereby Westinghouse would separate its media and industrial businesses. Westinghouse planned to separate its industrial businesses by way of a tax-free dividend to shareholders forming a publicly-traded company to be called Westinghouse Electric Company (WELCO). Modifications were made to the restructuring plan in June 1997 such that WELCO would consist primarily of the manufacturing and services businesses for the nuclear and fossil-fueled power generation industry and the government operations business. In addition, WELCO would assume environmental and litigation-related liabilities associated with its current businesses and certain divested businesses. Westinghouse would retain the media businesses, Thermo King, debt, and essentially all pension and postretirement benefit obligations accrued through the date of separation for current and former employees. A registration statement for WELCO was filed with the Securities and Exchange Commission on August 13, 1997. A ruling was received from the Internal Revenue Service that the separation would qualify as a tax free spin-off to Westinghouse and its shareholders. In September 1997, the Corporation reached a definitive agreement to sell Thermo King, its transport temperature control business, to Ingersoll-Rand for cash proceeds of $2.56 billion. All of the assets and liabilities and the results of operations for WELCO as presented in the registration statement and Thermo King were reclassified as Discontinued Operations as of September 30, 1997 for all periods presented. The sale of Thermo King was completed on October 31, 1997, and the proceeds were used to repay debt. However, in light of consolidation in the power industry, the Corporation considered offers by various parties to acquire certain of the industrial businesses. On November 14, 1997, the Corporation announced a definitive agreement to sell its Power Generation business to Siemens for $1.525 billion in cash. The remaining industrial businesses, consisting primarily of Energy Systems and Government Operations, will be divested in the near term. Certain environmental and litigation-related liabilities may not be assumed by other parties in any of the divestiture transactions and, therefore, have been separately presented as retained liabilities of discontinued businesses. See note 9 to the financial statements. Management's plan to separate the Corporation's media and industrial businesses has not changed, although the method of separation has changed. Furthermore, with the completion of the sale of Thermo King and the pending sale of Power Generation, the Corporation has made significant progress toward achieving that goal. In the fourth quarter of 1997, the Corporation will recognize the gain on the sale of Thermo King and the remaining costs or losses, if any, related to the industrial businesses. Management expects that the remainder of the plan will be essentially complete by the end of 1998. -17- 18 Summary Results Following the reclassification of Thermo King and WELCO to Discontinued Operations, the major business segments comprising Continuing Operations are radio, television, network and cable. The Corporation is taking steps to change its name to CBS Corporation in recognition of this important strategic redirection and expects the change to be effective December 1, 1997. Summarized below are the Corporation's after-tax results for the three and nine-month periods ended September 30, 1997:
Three Months Ended Nine Months Ended September 30 September 30 ------------------ ----------------- (in millions) (unaudited) 1997 1997 ---- ---- Continuing Operations $ (19) $ (121) Discontinued Operations (143) (191) ------- ------- Net loss $ (162) $ (312) ======= =======
The Corporation's media businesses generally reported strong improvements in their third quarter results led by the radio group as it continued to outpace the industry. After-tax results for Continuing Operations continued to be a loss, however, reflecting the majority of the Corporation's interest expense, which for the 1997 periods approximates $100 million per quarter. The results for Continuing Operations also include approximately $35 million per quarter of costs associated with pension and postretirement benefit obligations retained by the Corporation in previous business divestiture transactions. The after-tax losses for Continuing Operations shown above represent improvements of approximately 25% over the corresponding prior-year periods. The after-tax results for Discontinued Operations were significantly below the corresponding prior-year period, reflecting disappointing results for WELCO. As previously announced, Power Generation incurred unexpected project startup expenses and warranty costs in the third quarter and addressed various other contract issues. Third-quarter charges to earnings associated with these issues totalled approximately $185 million. SPECIAL ITEMS IN 1996 During 1996, several important strategic actions were taken. In early 1996, the Corporation completed the sales of its defense and electronic systems business and Knoll, and recorded a combined after-tax gain of $1.2 billion. The cash proceeds from these divestitures, which totalled nearly $3.6 billion, were used to repay ahead of schedule a significant portion of the debt incurred to finance the 1995 $5.4 billion acquisition of CBS Inc. (CBS). The Corporation further streamlined its businesses in 1996 and adopted plans to exit its Communication & Information Systems (CISCO) segment and its environmental services line of business, resulting in the transfer of these businesses to Discontinued Operations. In connection with these actions, the Corporation recognized an after-tax loss of $.2 billion. Divestitures of the majority of these businesses have now been completed. In the first nine months of 1996, the Corporation recognized costs associated with additional restructuring actions, as well as outstanding litigation, environmental remediation activities, asset impairment, and other matters. The majority of these charges were subsequently reclassified as Discontinued Operations. In addition, during the nine months ended September 30, 1996, an after-tax charge of $93 million was recognized for a loss on the early extinguishment of debt. -18- 19 The special items included in the Corporation's results for the first nine months of 1996 are summarized below. No special items were recognized in the first nine months of 1997. SPECIAL ITEMS INCLUDED IN RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 (in millions except per share amounts) (unaudited)
Pre-Tax After-Tax Per-Share Amount Amount Impact Continuing Operations: ------- --------- --------- Restructuring $ (48) Litigation matters (28) ------- Total impact on Continuing Operations $ (76) $ (58) $ (0.13) ======= Discontinued Operations: Net gain on disposal of businesses 1,018 2.30 WELCO special items: Restructuring $ (75) Litigation matters (458) Impairment of assets (15) Environmental remediation activities (175) Other matters (30) Loss on assets held for sale (152) ------- Total WELCO special items $ (905) (588) (1.33) ======= CISCO special items: Restructuring $ (2) Impairment of assets (39) ------- Total CISCO special items $ (41) (39) (0.09) ======= Extraordinary Item: Loss on early extinguishment of debt (93) (0.21) ------- ------- Net amount of special items $ 240 $ 0.54 ======= =======
RESULTS OF OPERATIONS - CONTINUING OPERATIONS The table below presents the segment results for the Corporation's Continuing Operations, which consist of the media businesses, for the three months and nine months ended September 30, 1997 and 1996. Earnings before interest, taxes, depreciation, and amortization (EBITDA) is presented in the table below because it is a widely accepted financial indicator of a company's ability to incur and service debt. It is commonly used in the media industry as a surrogate for cash flows. EBITDA differs from operating cash flows for the group primarily because it does not consider certain changes in assets and liabilities from period to period. -19- 20 Segment Results (in millions)(unaudited) ----------------------------------------
Operating Profit Sales (Loss) EBITDA ----------------- ---------------- ---------------- Three Months Ended September 30 1997 1996 1997 1996 1997 1996 ----------------- ---- ---- ---- ---- ---- ---- Radio $ 374 $ 136 $ 102 $ 42 $ 147 $ 50 Television 195 169 67 47 78 58 Network 672 560 30 17 47 33 Cable 58 50 (1) 10 2 12 Corporate & Other (16) (5) (95) (76) (64) (45) ------ ------ ------ ------ ----- ------ Total $1,283 $ 910 $ 103 $ 40 $ 210 $ 108 ====== ====== ====== ====== ====== ======
Segment Results (in millions)(unaudited) ----------------------------------------
Operating Profit Sales (Loss) EBITDA ----------------- ---------------- ---------------- Nine Months Ended September 30 1997 1996 1997 1996 1997 1996 ----------------- ---- ---- ---- ---- ---- ---- Radio $1,065 $ 402 $ 262 $ 109 $ 395 $ 135 Television 585 583 210 191 244 227 Network 2,121 2,021 (57) 87 (9) 134 Cable 170 143 2 39 11 45 Corporate & Other (49) (22) (264) (321) (171) (226) ------ ------ ------ ------ ------ ------ Total $3,892 $3,127 $ 153 $ 105 $ 470 $ 315 ====== ====== ====== ====== ====== ======
The Corporation's sales, as reported, increased $373 million or 41% for the third quarter of 1997 compared to the 1996 third quarter. For the first nine months of 1997, sales for the Corporation increased $765 million or 24% compared to the same period last year. Increases in revenues occurred for all media businesses with the radio group continuing to grow at double-digit rates over and above the increased revenues from Infinity acquired in December 1996. The operating profit for the Corporation for the third quarter of 1997 increased significantly from the same period of 1996 to $103 million. The strength of the group's radio business drove the increased profit. The television stations' profit also significantly improved. EBITDA increased nearly 100% for the third quarter of 1997 compared to the same period of 1996 driven by the higher operating profit. For the first nine months of 1997, operating profit increased $48 million compared to the first nine months of 1996. The increase in radio's profit was offset to a large extent by declines in network profit. EBITDA increased nearly 50% for the same period. -20- 21 Radio Sales and operating profit as reported for the radio group, including TDI Worldwide (TDI), its outdoor advertising business, increased dramatically for the three and nine months ended September 30, 1997 compared to the same periods of 1996. The increase was due, in part, to the year-end 1996 acquisition of Infinity because the current year's results include Infinity financial data while 1996 results do not. The discussion below provides a comparison of the actual 1997 current quarter and year-to-date results with the proforma combined CBS and Infinity results for the same periods of 1996. On a proforma combined basis, sales for the radio group continued to outpace the industry increasing $39 million or 12% for the quarter and $126 million or 13% for the first nine months. These results reflect strong markets for radio and outdoor advertising combined with management's continued focus on improving revenue growth. Proforma combined operating profit increased at a greater rate than sales resulting in improved profit of $14 million or 16% for the quarter and $44 million or 20% for the first nine months. Higher revenues from the strong demand for advertising, combined with management's continued cost control efforts, drove the increased profit. Proforma combined EBITDA for the radio group increased 24% for the quarter and 26% for the nine-month period. This increase exceeds the increase in operating profit because it eliminates the amortization of goodwill arising from the Infinity acquisition. Television Revenues for the television stations rebounded during the third quarter as sales improved over 1996 by $26 million or 15%. This strong quarterly increase brought the year-to-date revenues of $585 million in line with 1996. The increase is attributable to broad based improvements across the television station group. The television stations continue to benefit from the momentum of strong advertising markets and a renewed focus on revenue growth. Improvements in operating profit for the quarter and year to date significantly outpaced the revenue growth resulting in profit increases of $20 million or 43% for the quarter and $19 million or 10% for the nine-month period. The strength in the television station group's performance reflects management focus as well as the positive impact of cost reduction initiatives. Consistent with operating profit performance, EBITDA for the television group increased $20 million for the third quarter and $17 million for the nine months ended September 30, 1997. Network The network segment consists of CBS entertainment, news, and sports, as well as CBS Enterprises (including Eyemark Entertainment), which produces and distributes programming and develops and sells certain syndicated programming. The network reported an increase in revenues of $112 million or 20% for the quarter and $100 million or 5% for the year to date. The quarterly and year-to-date results reflect increased program syndication revenues as well as additional revenues generated by special programs such as the Country Music Awards, which were held in the fourth quarter of last year, and the Emmy Awards. While higher ratings and pricing were achieved on certain programs, declines in ratings on other dayparts had an unfavorable effect on year-to-date revenues. Operating profit increased $13 million for the quarter but decreased $144 million for the nine months ended September 30, 1997 as a result of higher programming costs primarily associated with entertainment and sports and higher syndication costs. Lower audience levels in key demographic categories contributed to the decline. Furthermore, results for 1996 were more favorably impacted by purchase accounting adjustments related to program rights acquired in the purchase of CBS. -21- 22 EBITDA for the network increased $14 million for the quarter but decreased $143 million year to date, which is consistent with the operating profit performance. Cable The cable segment primarily includes TeleNoticias, a 24-hour, Spanish-language news service acquired in 1996, Eye on People, which debuted March 31, 1997, two sports programming providers, and a network services provider. Prior to the acquisition of TNN and CMT on September 30, 1997, CBS Cable received a commission to provide the marketing and advertising services to those networks. In addition, the Corporation owned a 33% interest in CMT. Effective October 1, 1997, the results of these networks will be included in full. Revenues for CBS Cable increased $8 million or 16% for the quarter and $27 million or 19% for the nine months ended September 30, 1997. These increases were primarily attributable to the acquisition of TeleNoticias, the increased commissions generated by higher sales levels achieved by TNN, and increased subscriber fees generated by the sports programming providers. Operating profit decreased $11 million to an operating loss of $1 million for the third quarter. Year to date operating profit decreased $37 million to a profit of $2 million. Increased expenses related to TeleNoticias and costs to develop and launch Eye on People precipitated the decline in profit. Those increased costs and expenses caused EBITDA to decline $10 million for the quarter and $34 million for the nine months ended September 30, 1997. Corporate & Other Corporate & Other includes (a) costs related to the media group's headquarters; (b) amortization of all goodwill arising from the CBS acquisition of $30 million per quarter; (c) costs for the Corporation's overhead functions; and (d) pension and postretirement benefit costs associated with obligations retained in prior business divestitures. In addition, results for the nine months ended September 30, 1996 include special charges of $48 million for restructuring programs and $28 million for Westinghouse corporate litigation matters. Of the total restructuring costs of $48 million, $41 million related to Westinghouse actions to obtain operational synergies between Westinghouse and CBS following its acquisition. The remaining $7 million was for corporate restructuring actions. Costs for the Corporation's overhead functions in the 1997 periods include significant expenditures related to the separation of the media and industrial businesses. With the sale of the remaining industrial businesses, further downsizing of the overhead structure in Pittsburgh, Pennsylvania is expected to begin in the fourth quarter of 1997 to combine certain functions with the media group's headquarters. In various business divestiture transactions over the years, the Corporation has retained pension and postretirement benefit obligations as of the date of the divestiture for current and retired employees. Costs associated with these obligations, which consist primarily of interest costs, currently total $35 million per quarter. The level of these costs in the future will depend on a number of factors, including the amount of any obligations retained in future divestiture transactions. RESTRUCTURING AND OTHER ACTIONS In recent years, the Corporation has restructured many businesses and its corporate headquarters in an effort to reduce costs and remain competitive in its markets. Restructuring activities primarily involve the separation of employees, the closing of facilities, the termination of leases, and the exiting of product lines. Costs for restructuring activities are limited to incremental costs that directly result from the restructuring activities and that provide no future benefit to the Corporation. -22- 23 In Continuing Operations during 1996, management approved new restructuring projects with costs totalling $57 million, $48 million in the first quarter and $9 million in the fourth quarter, primarily for consolidation of facilities and the separation of employees. As of September 30, 1997, $37 million had been expended on the 1996 programs, $23 million of which was cash. Future cash expenditures for these programs are estimated to approximate $5 million for the remainder of 1997, and $15 million for 1998 and beyond. In addition, a CBS restructuring plan was adopted in conjunction with the acquisition in November 1995. Implementation of this plan is continuing. Also during 1996, management approved new restructuring projects with costs totalling $218 million for businesses that subsequently were reclassified as Discontinued Operations. Costs of $77 million recognized in the first quarter and $141 million in the fourth quarter were primarily for consolidation of facilities and the separation of employees. As of September 30, 1997, $157 million had been expended on the 1996 programs, $115 million of which was cash. Future cash expenditures for these programs are estimated to approximate $29 million for the remainder of 1997, and $32 million for 1998 and beyond. In addition to the reserves established in 1996, restructuring reserves were also established in 1994 and 1995. The employee separations and restructuring expenditures included in these plans are essentially complete. Annualized savings from the 1994 and 1995 restructuring programs other than the CBS acquisition plan are estimated to total approximately $75 million, of which $15 million relates to Continuing Operations and $60 million relates to Discontinued Operations. However, competitive pressures causing price compression in certain of the Power Systems' markets have absorbed a significant portion of the savings achieved through restructuring actions. Annualized savings from the 1996 plan, which will be gradually achieved over the next two years, are estimated at $100 million, of which $20 million relates to Continuing Operations and $80 million relates to Discontinued Operations. On an ongoing basis, the Corporation expects to review its overall cost structure and, when appropriate, identify restructuring initiatives. Additional restructuring actions related to its Corporate headquarters are expected in the fourth quarter of 1997. In light of the recent change in the disposition strategy for the industrial businesses, the Corporation is reevaluating the previously announced tentative restructuring plans associated with those businesses. DISCONTINUED OPERATIONS As of September 30, 1997, the Corporation reclassified the assets, liabilities, and results of operations for WELCO and Thermo King as Discontinued Operations for all periods presented. The Corporation completed the sale of Thermo King on October 31, 1997 for $2.56 billion in cash and repaid debt of Continuing Operations. On November 14, 1997, the Corporation announced that it had reached a definitive agreement to sell its Power Generation business, the largest component of WELCO, to Siemens for $1.525 billion in cash. The remaining businesses of WELCO, consisting primarily of Energy Systems and Government Operations, are expected to be divested in 1998. In the fourth quarter of 1997, the Corporation will recognize the net gain on the sale of Thermo King, which is expected to exceed $1 billion, and all of the remaining costs and losses associated with WELCO. In the aggregate, these transactions are not expected to result in a net loss. At September 30, 1997, the remaining assets and liabilities of Discontinued Operations included those related to the operations of WELCO and Thermo King, the remaining operations from both the CISCO segment and the environmental services business, the remaining securities from WCI, other miscellaneous securities, the leasing portfolio, and deferred income taxes. Liabilities also included certain debt and the estimated losses and divestiture costs associated with Discontinued Operations primarily related to pre-1997 plans, including estimated results of operations of certain businesses through their estimated divestiture date. -23- 24 Portfolio investments, which totalled $803 million at September 30, 1997, consist primarily of receivables related to the leasing portfolio of Financial Services. Also included are real estate properties and investments in leasing partnerships. The leasing portfolio is expected to liquidate through 2015 in accordance with contractual terms and generally consists of direct financing and leveraged leases. At September 30, 1997 and December 31, 1996, 83% and 84% of the leases, respectively, related to aircraft and 17% and 16%, respectively, related to cogeneration facilities. Except for the leasing portfolio, the remaining assets of the businesses discontinued prior to 1997 generally are expected to be divested in early 1998. Net assets of Discontinued Operations at September 30, 1997 also included $1.0 billion of net deferred income tax benefits. This amount included approximately $700 million associated with net operating loss carryforwards for U.S. federal income tax purposes that will be fully utilized by the Corporation with the sale of Thermo King. Deferred income taxes resulting from temporary differences between book and tax bases of the assets and liabilities of Discontinued Operations generally will be included in a divestiture transaction or transferred to Continuing Operations upon reversal and are not expected to result in the receipt or payment of cash by Discontinued Operations. Liabilities associated with divestitures are expected to be satisfied over the next several years. Debt of Discontinued Operations will be repaid using cash proceeds from the liquidation of assets of Discontinued Operations. Cash proceeds in excess of those required to repay the debt and satisfy the divestiture liabilities of Discontinued Operations, if any, will be transferred to Continuing Operations. Management believes that the net proceeds anticipated from the continued liquidation of assets of Discontinued Operations will be sufficient to fund the liabilities of Discontinued Operations, including the repayment of its debt. Management further believes that the liability for the estimated loss on disposal of Discontinued Operations of $378 million at September 30, 1997 is adequate to cover future operating costs, estimated losses, and the remaining divestiture costs associated with discontinued businesses for pre-1997 plans. Liabilities for divestitures under the 1997 plan will be recognized in the fourth quarter of 1997 in conjunction with the gain on the sale of Thermo King. The following represents the segment results for WELCO and Thermo King for the three months and nine months ended September 30, 1997 and 1996. Segment Results (in millions)(unaudited) ----------------------------------------
Operating Profit (Loss) Sales of Products Operating Profit Excluding & Services (Loss) Special Charges ----------------- ---------------- ---------------- Three Months Ended September 30 1997 1996 1997 1996 1997 1996 ----------------- ---- ---- ---- ---- ---- ---- WELCO: Power Generation $ 405 $ 527 $ (232) $ 5 $ (232) $ 5 Energy Systems 265 280 7 15 7 15 Other Power Systems (48) (38) (21) (20) (21) (20) ------ ------ ------ ------ ------ ------ Power Systems 622 769 (246) - (246) - Government Operations 25 27 13 18 13 18 Corporate & Other 13 28 (21) (17) (21) (17) ------ ------ ------ ------ ------ ------ Total WELCO $ 660 $ 824 $ (254) $ 1 $ (254) $ 1 ====== ====== ====== ====== ====== ====== Thermo King $ 262 $ 234 $ 53 $ 49 $ 53 $ 49 ====== ====== ====== ====== ====== ======
-24- 25 Segment Results (in millions)(unaudited) ----------------------------------------
Operating Profit (Loss) Sales of Products Operating Profit Excluding & Services (Loss) Special Charges ----------------- ---------------- ---------------- Nine Months Ended September 30 1997 1996 1997 1996 1997 1996 ----------------- ---- ---- ---- ---- ---- ---- WELCO: Power Generation $1,464 $1,425 $ (273) $ (132) $ (273) $ (77) Energy Systems 761 815 (36) (9) (36) 23 Other Power Systems (155) (125) (52) (343) (52) (54) ------ ------ ----- ------ ----- ------ Power Systems 2,070 2,115 (361) (484) (361) (108) Government Operations 72 78 42 49 42 49 Corporate & Other 39 89 (67) (458) (67) (81) ------ ------ ------ ------ ------ ------ Total WELCO $2,181 $2,282 $ (386) $ (893) $ (386) $ (140) ====== ====== ====== ====== ====== ====== Thermo King $ 768 $ 747 $ 151 $ 142 $ 151 $ 142 ====== ====== ====== ====== ====== ======
Power Generation Power Generation's orders for the third quarter of 1997 decreased $334 million or 62% compared to the third quarter of 1996, while orders for the first nine months of 1997 declined $673 million compared to the same period last year. Delays in project orders due to timing of financial closings was the primary cause of this decline. Although a high level of negotiation activity continues, orders are expected to trail 1996's volume. Revenues for Power Generation decreased $122 million or 23% for the third quarter of 1997 and were essentially flat for the first nine months of 1997 compared to the same periods last year. A lower volume of orders with short cycle times drove this revenue decline for the quarter. Additional sales from the backlog and increased sales to China offset this sales decline in the nine-month period. The operating loss for the third quarter increased $237 million from a $5 million profit in the third quarter of 1996. Power Generation incurred expenses during the quarter for unexpected startup costs with two combined cycle projects and higher than anticipated warranty expenses. The issues that gave rise to these startup delays have been addressed and the two projects are now in commercial operation. Provisions for delay costs, warranty costs and product modifications, including modifications to backlog units, totalled $111 million. Additional costs of $75 million were recognized to complete various contracts, write down inventory, and resolve commercial issues. For the nine-month period of 1997, the operating loss increased $196 million, excluding a $5 million litigation charge and a $50 million restructuring charge recognized in the first quarter of 1996. The decline in volume and the additional charges described above are the predominant reasons for the increased operating loss. Cost improvements from restructuring programs have partially offset the decline in profit. Energy Systems Energy Systems sales for the third quarter of 1997 were down slightly compared to the third quarter of 1996, with operating profit down $8 million for the same period. Customer delays in fuel shipments were the primary cause of the third quarter decline. For the first nine months of 1997, sales for Energy Systems decreased 7% while the operating loss, excluding special items in the -25- 26 1996 period, increased sharply. The 1996 nine-month period included an $11 million environmental remediation charge and a $21 million restructuring charge. The primary reasons for the decrease in sales and operating profit for the nine-month period were the customer delays in fuel shipments discussed above and a $49 million adjustment to both sales and operating profit following a comprehensive reevaluation of the work scope and costs to complete a complex international nuclear project which originated in 1993. During the first quarter of 1997, management determined that the Corporation's profit on this $352 million contract would be less than originally estimated. Orders for the third quarter of 1997 were up compared to the same period last year despite the customer delays in fuel orders. Increased outage and engineering service work and a higher volume of U.S. Navy orders were the primary reasons for the third quarter improvement. For the first nine months of 1997, orders declined 16% compared to the same period last year, as the increased Navy, outage, and service orders were more than offset by the delay in fuel orders to later in 1997 and 1998. The first nine months of 1996 also had several large fuel reload orders. Other Power Systems The operating loss for the first nine months of 1996 for Other Power Systems, which primarily reflects discounts on prior litigation settlements, included a $289 million special charge taken in the first quarter of 1996 for estimated losses associated with potential litigation settlements. Excluding this charge, the operating losses for the third quarter and first nine months of 1997 were essentially flat from the same periods last year. Government Operations Revenues for the third quarter and first nine months of 1997 were down 7% and 8%, respectively, compared to the same periods of 1996. The loss of the Hanford Department of Energy (DOE) contract in late 1996 was the primary reason for the sales decline. The operating profit for the third quarter and first nine months of 1997 decreased $5 million or 28% and $7 million or 14%, respectively, compared to the same periods of 1996 primarily as a result of the loss of the Hanford contract. The timing of fees from several government contracts during the first nine months of 1997 partially offset the loss of the Hanford contract. Corporate and Other Corporate and Other includes the cost of WELCO's headquarters activities and the results of operations for non-strategic and divested businesses. Sales for the third quarter and first nine months of 1997 were down 54% and 56%, respectively, due primarily to the continuing divestitures of several non-strategic businesses. The operating loss, excluding the first quarter 1996 charge of $213 million for restructuring, litigation, and other matters, and a second quarter 1996 charge of $164 million for environmental remediation activities increased $4 million for the 1997 third quarter and improved 17% for the nine-month period. Cost reductions from restructuring activities is the primary reason for the improvement in operating costs for the first nine months of 1997 excluding special charges. Thermo King Sales and operating profit for the third quarter and the first nine months of 1997 increased compared to the same periods of 1996 reflecting continued strength in bus air conditioning sales and improved conditions in the North American truck and trailer industry. Material cost and productivity improvements also contributed to increased profit. On October 31, 1997, the Corporation completed the sale of Thermo King for $2.56 billion of cash. -26- 27 OTHER INCOME AND EXPENSES Other income and expenses generated income of $4 million in the third quarter of 1997 and $61 million for the first nine months of 1997 compared to income of $22 million and $35 million for the same periods of 1996. The 1997 year-to-date income included the sale of an equity investment in a regional sports network. The 1996 quarter and year-to-date income included the sale of an equity investment in an advertisement tracking service. INTEREST EXPENSE Interest expense for Continuing Operations for the third quarter and first nine months of 1997 was $102 million and $305 million, respectively, compared to $88 million and $316 million, respectively, for the same periods in 1996. The increase in interest expense in the third quarter of 1997 is the result of higher average debt primarily attributable to debt from the December 1996 acquisition of Infinity. Average debt for the first nine months of 1997 was lower than the prior year because of the January and February 1996 impact of the CBS acquisition debt prior to its repayment from the proceeds of major divestitures. In connection with the reclassification of Thermo King and WELCO to Discontinued Operations, interest expense totalling $39 million was reclassified accordingly for the nine months ended September 30, 1997 and the corresponding prior-year period. INCOME TAXES Although the Corporation's pre-tax results for Continuing Operations for the three and nine months ended September 30, 1997 are losses, the results reflect income tax expense primarily because of the amortization of non-deductible goodwill associated with the CBS and Infinity acquisitions. In the aggregate, permanent differences between reported income and taxable income approximate $225 million per year. Depending on the level of the Corporation's income or losses and the effect of any special transactions, these differences can dramatically impact the resulting tax provision or benefit in relation to pre-tax results. At September 30, 1997, the Corporation had recorded net deferred income tax benefits totalling $1.2 billion compared to $1.4 billion at December 31, 1996. Of this amount, $.2 billion at September 30, 1997 and $.7 billion at December 31, 1996 were presented in Continuing Operations, with the remainder in Discontinued Operations. The reduction in the net deferred tax benefit resulted in part from a $.2 billion deferred tax liability that was recorded in connection with the Gaylord acquisition. A significant component of the net deferred income tax benefit is the net operating loss carryforward, which approximated $2.25 billion at September 30, 1997. Because of the Corporation's net operating loss carryforward, cash payments for federal income taxes have been minimal in recent years. However, the sale of Thermo King in October 1997 will result in a substantial taxable gain that will essentially eliminate the Corporation's net operating loss carryforward and reduce the net deferred income tax benefit accordingly. LIQUIDITY AND CAPITAL RESOURCES Overview The Corporation manages its liquidity as a consolidated enterprise without regard to whether assets or debt are classified for balance sheet purposes as part of Continuing Operations or Discontinued Operations. As a result, the discussion below focuses on the Corporation's consolidated cash flows and capital structure. -27- 28 On September 30, 1997, the Corporation completed the acquisition of two cable networks - TNN and CMT. The purchase price of $1.55 billion was paid through the issuance of 59 million shares of Westinghouse common stock, which further increased the Corporation's equity. No debt was assumed in conjunction with this transaction. On September 19, 1997, the Corporation announced that it had reached a definitive agreement to acquire American Radio Systems' radio broadcasting operations for $1.6 billion of cash plus the assumption of approximately $1 billion of debt. The transaction, which is expected to close in the second quarter of 1998, will add 98 radio stations to the radio group's current portfolio of 77 stations. On October 31, 1997, the Corporation completed the sale of Thermo King for $2.56 billion in cash. The proceeds were used to repay debt. As discussed previously, the Corporation has reached an agreement to sell its Power Generation business for $1.525 billion in cash. The sale is expected to be completed in mid-1998. The remaining industrial businesses, consisting primarily of Energy Systems and Government Operations, are expected to be divested in 1998. In general, the Corporation's non-strategic assets are included in Discontinued Operations. In addition to WELCO's major businesses to be divested, other miscellaneous assets await disposition, including surplus properties. Several miscellaneous businesses remain to be divested in the near term under the 1996 plans to exit the environmental services and CISCO businesses. The majority of the proceeds from these sale transactions is expected to be received in 1998. Total debt for the Corporation was $6,755 million at September 30, 1997, of which $546 million was included in Discontinued Operations and will be repaid through the liquidation of those assets. Although the assets and liabilities of WELCO and Thermo King were reclassified to Discontinued Operations, essentially none of the Corporation's debt was reclassified. Debt of Continuing Operations of $6,209 million increased $574 million from December 31, 1996 reflecting higher working capital requirements at several businesses, particularly those now included in Discontinued Operations. Upon the sale of Thermo King on October 31, 1997, debt of Continuing Operations was reduced by $2.56 billion. Management expects that the Corporation will have sufficient liquidity to meet ordinary future short-term and long-term business needs. Sources of liquidity generally available to the Corporation include cash from operations, availability under its credit facility, cash and cash equivalents, proceeds from sales of non-strategic assets, borrowings from other sources, including funds from the capital markets, and the issuance of additional capital stock. Operating Activities The following table provides a reconciliation of net income to cash used by operating activities of Continuing Operations for the nine months ended September 30, 1997 and 1996: -28- 29 CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS (in millions) (unaudited)
Nine Months Ended September 30 ------------------------------ 1997 1996 ---- ---- Loss from Continuing Operations $ (121) $ (158) Adjustments to reconcile loss from Continuing Operations to net cash used for operating activities: Depreciation and amortization 317 210 Gains on asset dispositions (32) (11) Other noncash adjustments (56) (148) Changes in assets and liabilities, net of effects of acquisitions and divestitures of businesses: Receivables, current and noncurrent (25) 28 Accounts payable (261) (168) Deferred and current income taxes (15) (83) Program rights (73) (141) Other assets and liabilities 101 144 ------ ------ Cash used for operating activities of Continuing Operations $ (165) $ (327) ====== ======
The operating activities of Continuing Operations used $165 million of cash during the first nine months of 1997 compared to cash used of $327 million during the first nine months of 1996. The $162 million decrease in the use of cash was primarily due to increased cash flow resulting from the Infinity acquisition. The Corporation's pension contribution level for 1997, which is expected to be approximately $250 million to $300 million, is consistent with the Corporation's goal to fully fund its qualified pension plans over the next several years. In July 1997, the Corporation contributed $55 million to the plan pursuant to certain quarterly minimum funding requirements. The following table provides a reconciliation of net income to cash used by operating activities of Discontinued Operations for the nine months ended September 30, 1997 and 1996: -29- 30 CASH FLOWS FROM OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS (in millions) (unaudited)
Nine Months Ended September 30 ------------------------------ 1997 1996 ---- ---- Income (loss) from Discontinued Operations $ (191) $ 380 Adjustments to reconcile income (loss) from Discontinued Operations to net cash used for operating activities: Depreciation and amortization 97 118 Gain on disposal of Discontinued Operations - (1,018) Losses on asset dispositions - 152 Asset impairment - 54 Changes in assets and liabilities, net of effects of acquisitions and divestitures of businesses: Receivables, current and noncurrent 47 194 Inventories 60 (147) Accounts payable (332) (172) Liabilities for asset dispositions (190) (418) Other assets and liabilities (168) 305 ------ ------ Cash used for operating activities of Discontinued Operations $ (677) $ (552) ====== ======
The operating activities of Discontinued Operations used $677 million of cash during the first nine months of 1997 compared to $552 million of cash used during the same period of 1996. The primary factors contributing to the use of cash in 1997 were a reduction in accounts payable and continued expenditures related to asset dispositions. The use of cash in 1996 primarily relates to the divestiture costs of Knoll and the defense and electronic systems business, as well as the cash used in the operations of those businesses through the date of their disposal. Both the 1997 and the 1996 periods include cash used in the operations of the environmental services businesses, most of which have been sold. In the near term, cash from Continuing Operations may be required to support the WELCO and other miscellaneous businesses of Discontinued Operations until their divestiture. Longer-term cash requirements of Discontinued Operations will consist primarily of interest costs on debt, remaining costs associated with completed divestitures, and disposal costs for the remaining businesses. Management believes that the future cash receipts of Discontinued Operations will be sufficient to satisfy the liabilities of Discontinued Operations and to repay the remaining debt. Any cash in excess of that required to satisfy the liabilities will be transferred to Continuing Operations. Investing Activities Investing activities used $18 million of cash during the first nine months of 1997 compared to $3.5 billion of cash provided during the same period of 1996. In the first nine months of 1997, the Corporation had investing cash outflows related to the acquisition of Buspack, a transit advertising company in the United Kingdom, and a $20 million payment in conjunction with a swap of three radio stations in Orlando for two radio stations in Chicago. Acquisition cash outflows in the first nine months of 1996 included the purchase of two Chicago radio stations and TeleNoticias, a Spanish language, 24-hour news service. Also, the Corporation invested in several joint ventures, primarily in China. -30- 31 In addition to the cash acquisitions discussed above, the Corporation completed two major acquisitions without investing cash. The Corporation acquired Gaylord's two major cable networks, TNN and CMT on September 30, 1997. The total purchase price of $1.55 billion was paid through the issuance of 59 million shares of Westinghouse common stock. In December 1996, the Corporation acquired Infinity for $4.7 billion, including $.9 billion of assumed debt, through the issuance of 183 million shares of Westinghouse common stock and the conversion of Infinity options into options to acquire approximately 22 million of additional shares of stock. Investing cash inflows from business divestitures in the first nine months of 1997 included proceeds from the sales of several radio stations, various operations from the environmental services business, an equity investment in a regional sports network, and other non-strategic assets. In the first nine months of 1996, the Corporation completed the sales of Knoll and the defense and electronic systems business, generating $3.6 billion of cash. Other divestitures included the sales of WPRI, a Providence, Rhode Island television station, and other non-strategic assets. Capital expenditures for both Continuing and Discontinued Operations were $131 million for the first nine months of 1997, a decrease of $15 million from the same period of 1996. Capital spending during 1997 is expected to be slightly higher than 1996 primarily driven by the media group. Financing Activities Cash provided by financing activities during the first nine months of 1997 totalled $767 million compared to cash used of $2.7 billion during the same period of 1996. The cash outflows in the first nine months of 1997 included $149 million to extinguish the long-term debt previously issued by Infinity. The cash outflows in the first nine months of 1996 were primarily attributable to the early extinguishment of $5.0 billion of term loans. Total borrowings under the Corporation's $5.5 billion revolving credit facility were $4.2 billion at September 30, 1997 (see Revolving Credit Facility). These borrowings were subject to a floating interest rate of 6.5% at September 30, 1997, which was based on the London Interbank Offer Rate (LIBOR), plus a margin based on the Corporation's senior unsecured debt rating and leverage. Dividends paid in the first nine months of 1997 and 1996 included $23 million and $35 million, respectively, for the Series C preferred stock, which the Corporation replaced with 32 million shares of Westinghouse common stock on May 30, 1997. Common stock dividends increased $27 million in the first nine months of 1997 compared to 1996 because of additional shares outstanding primarily in connection with the year-end 1996 Infinity acquisition. Revolving Credit Facility On August 29, 1996, the Corporation executed a new five-year revolving credit agreement with total commitments of $5.5 billion. The unused capacity under the facility equaled $1.3 billion as of September 30, 1997. Borrowing availability under the revolver is subject to compliance with certain covenants, representations and warranties, including a no material adverse change provision with respect to the Corporation taken as a whole, and restrictions on liens incurred. During the first quarter of 1997, this agreement was amended twice. The Corporation is subject to financial covenants including a maximum leverage ratio, a minimum interest coverage ratio, and minimum consolidated net worth. These covenants become more restrictive over the remaining term of the agreement. At September 30, 1997, the Corporation was in compliance with these covenants. -31- 32 Legal, Environmental, and Other Matters Over the past several years, the Corporation has addressed a variety of legal, environmental, and other matters related to current operations as well as to previously divested businesses. In 1996, the Corporation recognized special charges for environmental and litigation-related matters totalling $661 million, of which $633 million was subsequently reclassified to Discontinued Operations. Certain of WELCO's environmental and litigation-related liabilities may not be assumed by other parties in pending divestiture transactions and, therefore, could be retained by the Corporation. These liabilities include environmental obligations that are not related to active properties of operating businesses, accrued product liability claims for divested businesses, liabilities associated with asbestos claims, and general litigation claims not involving active businesses. Accrued liabilities associated with these matters, which have been separately presented as retained liabilities of discontinued businesses, totalled $925 million at September 30, 1997, including amounts related to previously discontinued businesses of CBS. A separate asset of $248 million has been recorded for amounts recoverable from insurance carriers under previous settlement arrangements. Of this amount, $211 million is classified as noncurrent. See note 9 to the financial statements. The costs associated with resolving these matters are recognized in the period in which the costs are deemed probable and can be reasonably estimated. Management believes that the Corporation has adequately provided for the estimated costs of resolving these matters. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS (a) In February 1993, the Corporation was sued by 108 former employees who were laid off subsequent to the cancellation by the federal government of all contracts pertaining to the carrier-based A-12 aircraft program. The complaint alleges age discrimination on the part of the Corporation. The suit was filed in the United States District Court (USDC) for the District of Maryland. The plaintiffs seek back pay with benefits and reinstatement of jobs or front pay. In April 1993, the Equal Employment Opportunity Commission (EEOC) filed a class-action, age discrimination suit against Westinghouse in the USDC for the District of Maryland on behalf of 388 former Westinghouse employees (which includes the aforementioned 108 employees) who were laid off or involuntarily terminated from employment subsequent to the federal government's cancellation of all contracts pertaining to the carrier-based A-12 aircraft program. The suit alleges age discrimination and discriminatory employment practices. The suit seeks back pay, interest, liquidated damages, reinstatement of jobs, court costs and other appropriate relief. In May 1993, these two cases were consolidated by the court. The parties agreed to stay the proceedings while they attempted to resolve the claims. On August 14, 1997, the parties entered into a settlement agreement resolving the vast majority of these claims and on October 31, 1997 a final order dismissing the case and finding the settlement fair and reasonable was issued. Nine claims remain outstanding with the parties attempting to reach agreement through mediation. Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in certain of the foregoing matters and although management believes a significant adverse judgment is unlikely, any such judgment could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation described above, and that the Corporation has adequately provided for costs arising from potential settlement of these matters when in the best interest of the Corporation. Management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. -32- 33 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A) EXHIBITS (3) ARTICLES OF INCORPORATION AND BYLAWS (a) The Restated Articles of the Corporation, as amended to July 25, 1997, are incorporated herein by reference to Exhibit 3(a) of Form 10-Q for the quarter ended June 30, 1997. (b) The Bylaws of the Corporation, as amended to September 25, 1996, are incorporated herein by reference to Exhibit 4.2 to the Corporation's Registration Statement No. 333-13219 on Form S-4 filed with the Securities and Exchange Commission on October 22, 1996. (4) RIGHTS OF SECURITY HOLDERS (a) There are no instruments with respect to long-term debt of the Corporation that involve securities authorized thereunder exceeding 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis. The Corporation agrees to provide to the Securities and Exchange Commission, upon request, a copy of instruments defining the rights of holders of long-term debt of the Corporation and its subsidiaries. (b) Rights Agreement is incorporated herein by reference to Exhibit 1 to Form 8-A filed with the Securities and Exchange Commission on January 9, 1996. (10) MATERIAL CONTRACTS (a*) The Annual Performance Plan, as amended to November 1, 1996, is incorporated herein by reference to Exhibit 10(a) to Form 10-Q for the quarter ended September 30, 1996. (b*) The 1993 Long-Term Incentive Plan, as amended to November 1, 1996, is incorporated herein by reference to Exhibit 10(b) to Form 10-Q for the quarter ended September 30, 1996. (c*) The 1984 Long-Term Incentive Plan, as amended to November 1, 1996, is incorporated herein by reference to Exhibit 10(c) to Form 10-Q for the quarter ended September 30, 1996. (d*) The Westinghouse Executive Pension Plan, as amended to September 25, 1996, is incorporated herein by reference to Exhibit 10(d) to Form 10-Q for the quarter ended September 30, 1996. (e*) The Deferred Compensation and Stock Plan for Directors, as amended to July 29, 1997. (f*) The Director's Charitable Giving Program, as amended to April 30, 1996, is incorporated herein by reference to Exhibit 10(g) to Form 10-Q for the quarter ended June 30, 1996. (g*) The 1991 Long-Term Incentive Plan, as amended to January 29, 1997, is incorporated herein by reference to Exhibit 10(g) to Form 10-Q for the quarter ended March 31, 1997. (h*) Advisory Director's Plan Termination Fee Deferral Terms and Conditions, dated April 30, 1996, is incorporated herein by reference to Exhibit 10(i) to Form 10-Q for the quarter ended June 30, 1996. -33- 34 (i*) Employment Agreement between the Corporation and Michael H. Jordan is hereby incorporated by reference to Exhibit 10 to the Corporation's Form 8-K, dated September 1, 1993. (j*) Employment Agreement between the Corporation and Fredric G. Reynolds is incorporated herein by reference to Exhibit 10(j) to Form 10-K for the year ended December 31, 1994. (k) $5.5 billion Credit Agreement among Westinghouse Electric Corporation, the Lenders parties thereto, Nationsbank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guaranty Trust Company of New York as Administrative Agent, dated August 29, 1996, is incorporated herein by reference to Exhibit 10(l) to Form 10-Q for the quarter ended September 30, 1996. (l*) CBS Supplemental Executive Retirement Plan, as amended to November 15, 1995, is incorporated herein by reference to Exhibit 10(n) to Form 10-K for the year ended December 31, 1996. (m*) CBS Bonus Supplemental Executive Retirement Plan, as amended to November 15, 1995, is incorporated herein by reference to Exhibit 10(o) to Form 10-K for the year ended December 31, 1996. (n) First Amendment, dated as of January 29, 1997 to the Credit Agreement, dated as of August 29, 1996, among Westinghouse Electric Corporation, the Lenders parties thereto, Nationsbank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guarantee Trust Company of New York as Administrative Agent, is hereby incorporated by reference to Exhibit 10(p) to Form 10-Q for the quarter ended March 31, 1997. (o) Second Amendment, dated as of March 21, 1997, to the Credit Agreement, dated as of August 29, 1996, as amended by the First Amendment thereto dated as of January 29, 1997, among Westinghouse Electric Corporation, the Subsidiary Borrowers parties thereto, the Lenders parties thereto, Nationsbank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guarantee Trust Company of New York as Administrative Agent, is hereby incorporated by reference to Exhibit 10(q) to Form 10-Q for the quarter ended March 31, 1997. (p) Agreement and Plan of Merger, dated as of September 19, 1997, by and among American Radio Systems Corporation, Westinghouse Electric Corporation and R Acquisition Corp. (q*) Employment Agreement between the Corporation and Mel Karmazin, made as of June 20, 1996 and effective as of December 31, 1996, is hereby incorporated by reference to Exhibit 10(s) to Form 10-Q for the quarter ended March 31, 1997. (r*) Amended and restated Infinity Broadcasting Corporation Stock Option Plan is incorporated herein by reference to Exhibit 4.4 to the Corporation's Registration Statement No. 333-13219 on Post-Effective Amendment No. 1 on Form S-8 to Form S-4 filed with the Securities and Exchange Commission on January 2, 1997. (s*) The WCK Acquisition Corp. Stock Option Plan is incorporated herein by reference to Exhibit 4.5 to the Corporation's Registration Statement No. 333-13219 on Post-Effective Amendment No. 1 on Form S-8 to Form S-4 filed with the Securities and Exchange Commission on January 2, 1997. -34- 35 (t*) Infinity Broadcasting Corporation Warrant Certificate No. 3 to Mel Karmazin is incorporated herein by reference to Exhibit 4.6 to the Corporation's Registration Statement No. 333-13219 on Post-Effective Amendment No. 1 on Form S-8 to Form S-4 filed with the Securities and Exchange Commission on January 2, 1997. * Identifies management contract or compensatory plan or arrangement. (11) Computation of Per Share Earnings (12)(a) Computation of Ratio of Earnings to Fixed Charges (12)(b) Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (27) Financial Data Schedule B) REPORTS ON FORM 8-K: A Current Report on Form 8-K (Items 5 and 7) dated July 28, 1997, filing financial information for the three months ended June 30, 1997. A Current Report on Form 8-K (Items 5 and 7) dated September 15, 1997, announcing an agreement to sell Thermo King Corporation's transport temperature control business. A Current Report on Form 8-K (Items 5 and 7) dated September 19, 1997, announcing an agreement to acquire American Radio Systems' radio broadcasting operations. -35- 36 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of November 1997. WESTINGHOUSE ELECTRIC CORPORATION /s/ Carol V. Savage --------------------------------- Vice President and Chief Accounting Officer -36- EX-10.E 2 WESTINGHOUSE ELECTRIC CORP. 1 Exhibit 10(e) DEFERRED COMPENSATION AND STOCK PLAN FOR DIRECTORS (AS AMENDED AS OF JULY 29, 1997) SECTION 1. INTRODUCTION 1.1 Establishment. Westinghouse Electric Corporation, a Pennsylvania corporation (the "Company"), has established the Deferred Compensation and Stock Plan for Directors as amended as of April 24, 1996 (the "Plan") for those directors of the Company who are neither officers nor employees of the Company. The Plan provides, among other things, for the payment of specified portions of the Annual Director's Fee in the form of Stock Options and Restricted Stock and for the payment of the Annual Committee Chair's Fee in the form of Restricted Stock, and the opportunity for the Directors to defer receipt of all or a part of their cash compensation. Unless otherwise provided for herein, the term Company includes Westinghouse Electric Corporation and its subsidiaries. 1.2 Purposes. The purposes of the Plan are to encourage the Directors to own shares of the Company's stock and thereby to align their interests more closely with the interests of the other shareholders of the Company, to encourage the highest level of Director performance, and to provide a financial incentive that will help attract and retain the most qualified Directors. SECTION 2. DEFINITIONS 2.1 Definitions. The following terms shall have the meanings set forth below: (a) "Annual Committee Chair's Fee" means the annual amount established from time to time by the Board as the annual fee to be paid to Directors for their services as chairs of standing committees of the Board. (b) "Annual Director's Fee" means the annual amount (which may be prorated for a Director serving less than a full calendar year, as in the case of a Director who will be retiring or not standing for reelection at the annual meeting of shareholders or a Director joining the Board after the beginning of the year) established from time to time by the Board as the annual fee to be paid to Directors for their services as directors. (c) "Attendance Percentage" for a Director with respect to a particular Grant Year means the percentage of the aggregate of all meetings of the Board and committees of which the Director was a member held during the Grant Year (or, for Directors who are elected after the beginning of the Grant Year, Directors who retire at the annual meeting of shareholders (as described in the Company's By-laws) held during the Grant Year, Directors who do not stand for reelection at the annual meeting of shareholders held during the Grant Year, or Directors who die during the Grant Year, the aggregate of all such meetings held for the portion of the Grant -1- 2 Year during which the Director served as a director), excluding any meeting not attended because of illness, which were attended by the Director. Except as otherwise provided below, in the event that a Director ceases to be a director at any time during the Grant Year for any reason other than retirement at the annual meeting of shareholders, not standing for reelection at the annual meeting of shareholders, or death, all meetings held during the Grant Year of the Board and committees of which he was a member at the time of termination of service will continue to be included as meetings when calculating the Attendance Percentage. In the event that the Company completes the Company Separation, when calculating the Attendance Percentage for the Grant Year in which the Company Separation is completed for a Director who ceases to be a director of the Company at the time of the Company Separation but becomes a director of WELCO, all meetings of the Company board and committees of which such Director was a member held during the Grant Year and prior to the time of the Company Separation and all meetings of the WELCO board and committees of which such person was a member held during the Grant Year and after the time of the Company Separation will be considered. (d) "Board" means the Board of Directors of the Company. (e) "Cash Account" means the account established by the Company in respect of each Director pursuant to Section 6.3(a) hereof and to which deferred cash compensation has been or will be credited pursuant to the Plan. (f) "Cause" means any act of (a) fraud or intentional misrepresentation or (b) embezzlement, misappropriation or conversion of assets or opportunities of the Company or any of its direct or indirect majority-owned subsidiaries. (g) "Change in Control" shall have the meaning assigned to it in Section 9.2 hereof. (h) "Committee" means the Compensation Committee of the Board or any successor established by the Board, or any subcommittee thereof established by the Board and consisting of two or more members each of whom is a "non-employee director" as that term is defined by Rule 16b-3 under the Exchange Act, as such rule may be amended, or any successor rule. (i) "Common Stock Equivalent" means a hypothetical share of Stock which shall have a value on any date equal to the mean of the high and low prices of the Stock as reported by the composite tape of the New York Stock Exchange on that date, except as otherwise provided under Section 9.1. (j) "Common Stock Equivalent Award" means an award of Common Stock Equivalents granted to a Director pursuant to Section 5 of the Plan prior to its amendment as of April 26, 1995. (k) "Company Separation" means the planned separation of the Company's power-related businesses from its media businesses by way of a tax-free dividend to shareholders of the Company forming a publicly traded company holding the power-related businesses. (l) "Debenture" means a hypothetical debenture of the Company that has a face value of $100, bears interest at a rate equal to the ten-year U.S. Treasury Bond rate (prior to January 1, 1995, the seven-year U.S. Treasury Bond rate) in effect the week prior to the regular January meeting of the Board (or, if no such meeting is held, the week prior to the first trading day of the New York Stock Exchange in February) in the year in respect of which deferred amounts are earned, and is convertible into Stock at a conversion rate determined by dividing $100 by the mean of the high and low prices of the Stock as reported by the composite tape of the New York Stock Exchange on the date the Debenture is credited to the Deferred Debenture Account pursuant to Section 6.3 hereof. -2- 3 (m) "Deferred Debenture Account" means the account established by the Company pursuant to Section 6.3(c) hereof in respect of each Director electing to defer cash compensation under the Plan for 1997 and/or for an earlier year or years and to which has been or will be credited Debentures and other amounts pursuant to the Plan. (n) "Deferred Stock Account" means the account established by the Company in respect of each Director pursuant to Section 5.2 hereof and to which has been or will be credited Common Stock Equivalents pursuant to the Plan. (o) "Director" means a member of the Board who is neither an officer nor an employee of the Company. For purposes of the Plan, an employee is an individual whose wages are subject to the withholding of federal income tax under Section 3401 of the Internal Revenue Code, and an officer is an individual elected or appointed by the Board or chosen in such other manner as may be prescribed in the By-laws of the Company to serve as such. (p) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. (q) "Fair Market Value" means the mean of the high and low prices of the Stock as reported by the composite tape of the New York Stock Exchange (or such successor reporting system as shall be selected by the Committee) on the relevant date or, if no sale of the Stock shall have been reported for that day, the average of such prices on the next preceding day and the next following day for which there were reported sales. (r) "Grant Date" means, as to a Stock Option Award, the date of grant pursuant to Section 7.1 and as to a Restricted Stock Award, the date of grant pursuant to Section 8.1. (s) "Grant Year" means, as to a particular award, the calendar year in which the award was granted. (t) "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time. (u) "Restricted Stock" means shares of Stock awarded to a Director pursuant to Section 8 and subject to certain restrictions in accordance with the Plan. -3- 4 (v) "Restricted Stock Award" means an award of shares of Restricted Stock granted to a Director pursuant to Section 8 of the Plan. (w) "Stock" means the common stock, $1.00 par value, of the Company. (x) "Stock Option" means a non-statutory stock option to purchase shares of Stock for a purchase price per share equal to the Exercise Price (as defined in Section 7.2(a)) in accordance with the provisions of the Plan. (y) "Stock Option Award" means an award of Stock Options granted to a Director pursuant to Section 7 of the Plan. (z) "Stock Option Value" means the value of a Stock Option for one share of Stock on the relevant date as determined by an outside firm selected by the Company. (aa) "WELCO" means the publicly traded company holding power-related businesses to be formed by completion of the planned Company Separation. 2.2 Gender and Number. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. SECTION 3. PLAN ADMINISTRATION (a) The Plan shall be administered by the Committee. The members of the Committee shall be members of the Board appointed by the Board, and any vacancy on the Committee shall be filled by the Board. The Committee shall keep minutes of its meetings and of any action taken by it without a meeting. A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present shall be the acts of the Committee. Any action that may be taken at a meeting of the Committee may be taken without a meeting if a consent or consents in writing setting forth the action so taken shall be signed by all of the members of the Committee. The Committee shall make appropriate reports to the Board concerning the operations of the Plan. (b) Subject to the limitations of the Plan, the Committee shall have the sole and complete authority: (i) to impose such limitations, restrictions and conditions upon such awards as it shall deem appropriate; (ii) to interpret the Plan and to adopt, amend and rescind administrative guidelines and other rules and regulations relating to the Plan; and (iii) to make all other determinations and to take all other actions necessary or advisable for the implementation and administration of the Plan. Notwithstanding the foregoing, the Committee shall have no authority, discretion or power to select the Directors who will receive awards pursuant to the Plan, determine the awards to -4- 5 be granted pursuant to the Plan, the number of shares of Stock to be issued thereunder or the price thereof or the time at which such awards are to be granted, establish the duration and nature of awards or alter any other terms or conditions specified in the Plan, except in the sense of administering the Plan subject to the provisions of the Plan. The Committee's determinations on matters within its authority shall be conclusive and binding upon the Company and all other persons. (c) The Company shall be the sponsor of the Plan. All expenses associated with the Plan shall be borne by the Company. SECTION 4. STOCK SUBJECT TO THE PLAN 4.1 Number of Shares. 600,000 shares of Stock are authorized for issuance under the Plan in accordance with the provisions of the Plan, subject to adjustment and substitution as set forth in this Section 4. This authorization may be increased from time to time by approval of the Board and, if such approval is required, by the shareholders of the Company. The Company shall at all times during the term of the Plan retain as authorized and unissued Stock at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4.2 Other Shares of Stock. Any shares of Stock that are subject to a Common Stock Equivalent Award, a Stock Option Award, a Restricted Stock Award or a Debenture and which are forfeited, any shares of Stock that for any other reason are not issued to a Director, and any shares of Stock tendered by a Director to pay the Exercise Price of a Stock Option shall automatically become available again for use under the Plan if Rule 16b-3 under the Exchange Act, as such rule may be amended, or any successor rule, and interpretations thereof by the Securities and Exchange Commission or its staff permit such share replenishment. 4.3 Adjustments Upon Changes in Stock. If there shall be any change in the Stock of the Company, through merger, consolidation, division, share exchange, combination, reorganization, recapitalization, stock dividend, stock split, spin-off, split up, dividend in kind or other change in the corporate structure or distribution to the shareholders, appropriate adjustments may be made by the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) in the aggregate number and kind of shares subject to the Plan, and the number and kind of shares which may be issued under the Plan. Appropriate adjustments may also be made by the Committee in the terms of any awards or Debentures under the Plan to reflect such changes and to modify any other terms of outstanding awards on an equitable basis as the Committee in its discretion determines. SECTION 5. COMMON STOCK EQUIVALENT AWARDS 5.1 Grants of Common Stock Equivalent Awards. Common Stock Equivalents equal to a fixed number of shares of Stock were granted automatically to Directors on a formula basis under Section 5.1 of the Plan prior to its amendment as of April 26, 1995. All Common Stock Equivalents granted pursuant to Section 5.1 prior to its amendment as of April 26, 1995 shall be subject to adjustment as provided in Section 4.3. -5- 6 5.2 Deferred Stock Account. A Deferred Stock Account has been established for each Director elected prior to the annual meeting of shareholders held in 1995. The Deferred Stock Account shall consist of compensation in the form of Common Stock Equivalents which have been awarded to the Director hereunder by the Company plus Common Stock Equivalents credited to the Deferred Stock Account in respect of dividends and other distributions on the Stock pursuant to Sections 5.3 and 5.4. 5.3 Hypothetical Investment. Compensation awarded hereunder in the form of Common Stock Equivalents is assumed to be a hypothetical investment in shares of Stock, and will be subject to adjustment to reflect stock dividends, splits and reclassifications and as otherwise set forth in Section 4.3. 5.4 Hypothetical Dividends. Dividends and other distributions on Common Stock Equivalents shall be deemed to have been paid as if such Common Stock Equivalents were actual shares of Stock issued and outstanding on the respective record or distribution dates. Common Stock Equivalents shall be credited to the Deferred Stock Account in respect of cash dividends and any other securities or property issued on the Stock in connection with reclassifications, spin-offs and the like on the basis of the value of the dividend or other asset distributed and the value of the Common Stock Equivalents on the date of the announcement of the dividend or asset distribution, all at the same time and in the same amount as dividends or other distributions are paid or issued on the Stock. Such Common Stock Equivalents shall be subject to adjustment as provided in Section 4.3. Fractional shares shall be credited to a Director's Deferred Stock Account cumulatively but the balance of shares of Common Stock Equivalents in a Director's Deferred Stock Account shall be rounded to the next highest whole share for any payment to such Director pursuant to Section 5.6. 5.5 Statement of Account. A statement will be sent to each Director as to the balance of his Deferred Stock Account at least once each calendar year. 5.6 Payment of Deferred Stock. Upon termination of services as a Director, the balance of the Director's Deferred Stock Account shall be paid to such Director in Stock in January of the year following the year of termination of services as a director on the basis of one share of Stock for each Common Stock Equivalent in such Director's Deferred Stock Account. 5.7 Payments to a Deceased Director's Estate. In the event of a Director's death before the balance of his Deferred Stock Account is fully paid to him, payment of the balance of the Director's Deferred Stock Account shall then be made to the beneficiary designated by the Director pursuant to Section 5.8, or to his estate in the absence of such a beneficiary designation, in the time and manner selected by the Committee. The Committee may take into account the application of any duly appointed administrator or executor of a Director's estate and direct that the balance of the Director's Deferred Stock Account be paid to his estate in the manner requested by such application. -6- 7 5.8 Designation of Beneficiary. A Director may designate a beneficiary in a form approved by the Committee. SECTION 6. DEFERRAL OF COMPENSATION 6.1 Amount of Deferral. A Director may elect to defer receipt of all or a specified portion of the cash compensation otherwise payable to the Director for services rendered to the Company as a director. 6.2 Manner of Electing Deferral. A Director shall make elections permitted hereunder by giving written notice to the Company in a form approved by the Committee and in compliance with Section 6.4. The notice shall include: (i) the percentage of cash compensation to be deferred; which amount must be stated in whole increments of five percent; and (ii) the time as of which deferral is to commence. 6.3 Accounts. (a) Cash Account. A Cash Account has been or shall be established for each Director electing to defer hereunder. Each Cash Account shall be credited with the amounts deferred on the date such compensation is otherwise payable and shall be debited with the amount of any such compensation forfeited in accordance with applicable Board policy. (b) Interest. Deferred amounts in the Cash Account shall accrue interest from time to time as follows: (1) For deferred amounts credited to the Cash Account prior to January 1, 1998 (including but not limited to Annual Director's Fees for 1997), such deferred amounts shall accrue interest from time to time at a rate equal to the ten-year U.S. Treasury Bond rate (prior to January 1, 1995, the seven-year U.S. Treasury Bond rate) in effect the week prior to the regular January meeting of the Board (or, if no such meeting is held, the week prior to the first trading day of the New York Stock Exchange in February) in the year in respect of which such deferred amounts are earned until the last trading day of the New York Stock Exchange prior to the regular January meeting of the Board (or, if no such meeting is held, until the first trading day of February) in the year following the year in respect of which deferred amounts are earned, at which time such deferred amounts, including interest, shall be invested in Debentures and credited to the Deferred Debenture Account. Deferred amounts shall be credited to the Deferred Debenture Account only in $100 amounts. Fractional amounts of $100 shall remain in the Cash Account and continue to accrue interest. (2) For deferred amounts credited to the Cash Account on or after January 1, 1998 (and any fractional amounts remaining in the Cash Account from prior deferrals), such deferred amounts shall accrue interest from time to time at the Interest Credit Rate then in effect, compounded annually. The "Interest Credit Rate" will be reset by the Company on an annual basis in January -7- 8 of the year, and will equal the then current one-year U.S. Treasury Bill rate or such other fixed rate as the Committee may from time to time determine. (c) Deferred Debenture Account. A Deferred Debenture Account has been established for each Director electing to defer cash compensation hereunder for 1997 and/or for an earlier year or years. Deferred amounts credited to the Cash Account prior to January 1, 1998 will be invested in Debentures and credited to the Deferred Debenture Account at the time and in the manner set forth in Section 6.3(b)(1). Deferred amounts credited to the Cash Account on or after January 1, 1998 will not be invested in Debentures but will remain in the Cash Account and accrue interest until payment hereunder. 6.4 Time for Electing Deferral. Any election to (i) defer cash compensation, (ii) alter the portion of such amounts deferred, or (iii) revoke an election to defer such amounts, must be made prior to the time such compensation is earned by the Director and otherwise in compliance with any deadline which the Company may from time to time impose and in the manner set forth in Section 6.2. 6.5 Payment of Deferred Amounts. Payments from a Deferred Debenture Account and/or from a Cash Account shall be made in five consecutive annual installments beginning in the January following the Director's termination of service. Payments from a Deferred Debenture Account shall consist of accumulated interest on the Debentures (which amount shall only be payable in cash) plus the greater value of (i) the face value of the Debentures or (ii) the shares of Stock into which the Debentures are convertible. In the event the value of the payment is determined by the amount referred to in clause (i), payment shall be made in cash. In the event such value is determined by clause (ii), such payment shall be made in Stock, other than the value of fractional shares which will be paid in cash. Payments from a Cash Account will consist of the deferred cash compensation and accumulated interest in said account and shall be made in cash. 6.6 Payments to a Deceased Director's Estate. In the event of a Director's death before the balance of his Cash Account or Deferred Debenture Account is fully paid to him, payment of the balance of the Cash Account or Deferred Debenture Account shall then be made to the beneficiary designated by the Director pursuant to Section 6.7, or to his estate in the absence of such beneficiary designation, in the time and manner selected by the Committee. The Committee may take into account the application of any duly appointed administrator or executor of a Director's estate and direct that the balance of the Director's Cash Account or Deferred Debenture Account be paid to his estate in the manner requested by such application. 6.7 Designation of Beneficiary. A Director may designate a beneficiary in a form approved by the Committee. -8- 9 SECTION 7. STOCK OPTION AWARDS 7.1 Grants of Stock Option Awards. (a) Stock Options for a fixed number of shares of Stock were granted automatically to Directors on a formula basis under Section 7.1(a) of the Plan prior to its amendment as of April 24, 1996. (b) Prior to the amendment of the Plan as of April 24, 1996, Stock Options for a fixed number of shares of Stock were granted automatically on a formula basis under Section 7.1(b) of the Plan to Directors serving as chairs of standing committees of the Board. (c) Beginning with the calendar year 1996, each Director will receive one-fourth of the value of his Annual Director's Fee in the form of a Stock Option Award. Such Stock Options shall be granted automatically each year on the last Wednesday in January of such year to each Director in office on such Grant Date. If a person is elected to the Board at any time after the last Wednesday in January of a given calendar year (beginning with 1996) but before the end of that calendar year, whether by action of the shareholders of the Company or the Board, such person upon becoming a Director shall be granted automatically one-fourth of the value of his Annual Director's Fee for that calendar year in the form of a Stock Option Award on the last Wednesday of the calendar month in which such person becomes a Director (or in the next following calendar month if such election occurs after the last Wednesday of the month). The total number of shares of Stock subject to any such Stock Option Award will be the number of shares determined by dividing the amount of the Annual Director's Fee to be paid in the form of a Stock Option Award by the Stock Option Value on the Grant Date, rounded up to the nearest whole share. (d) All Stock Options granted pursuant to Section 7.1 (whether before or after amendment of the Plan as of April 24, 1996) shall be subject to adjustment as provided in Section 4.3. 7.2 Terms and Conditions of Stock Options. Stock Options granted under the Plan shall be subject to the following terms and conditions: (a) Exercise Price. The purchase price per share at which a Stock Option may be exercised ("Exercise Price") shall be determined as follows: on any Grant Date, (1) Stock Options for two-thirds of the option shares granted on the Grant Date shall have an Exercise Price per share equal to 100% of Fair Market Value on the Grant Date, and (2) Stock Options for the remaining one-third of the option shares granted on the Grant Date shall have an Exercise Price per share equal to 125% of Fair Market Value on the Grant Date. (b) Exercisability. Subject to the terms and conditions of the Plan and of the agreement referred to in Section 7.2(j), a Stock Option may be exercised in whole or in part upon notice of exercise to the Company, (1) as to any Stock Option granted on or prior to January 1, 1996, commencing on the first day after the Grant Date and until it terminates, and (2) as to any Stock Option granted after January 1, 1996 that vests as provided in Section 7.2(c), commencing -9- 10 on January 1 of the calendar year next following the Grant Year. During a Director's lifetime, a Stock Option may be exercised only by the Director or the Director's guardian or legal representative. (c) Vesting of Stock Option Awards. Stock Options granted on or prior to January 1, 1996 vest immediately on grant. Stock Options granted after January 1, 1996 will vest on January 1 of the calendar year next following the Grant Year (the "Option Vesting Date") if the Director has an Attendance Percentage of at least seventy-five percent (75%) for the Grant Year. In the event that a Director has an Attendance Percentage of less than seventy-five percent (75%) for a Grant Year, Stock Options granted in that Grant Year for a number of shares equal to the Director's Attendance Percentage for that year multiplied by the total number of option shares granted for that year (rounded up to the nearest whole share) will vest on the Option Vesting Date, and Stock Options granted in that Grant Year as to the remaining option shares will be forfeited and will terminate as of the Option Vesting Date. Notwithstanding anything to the contrary herein, (1) in the event that a director is removed from office for Cause, all outstanding Stock Options will be forfeited immediately as of the time the grantee is so removed from office, and (2) upon the occurrence of a Change in Control, all outstanding Stock Options will vest and become immediately exercisable. (d) Mandatory Holding of Stock. Except as otherwise provided in Section 7.5 or Section 10, any Stock acquired on exercise of a Stock Option must be held by the grantee for a minimum of (1) three years from the date of exercise, (2) two years from the date the grantee ceases to be a director of the Company, or (3) until the occurrence of a Change in Control, whichever first occurs (the "Option Shares Holding Period"). (e) Option Term. The term of a Stock Option (the "Option Term") shall be the period of (1) ten years from its Grant Date, or (2) until the Option Vesting Date for a Stock Option that does not vest as provided in Section 7.2(c), or (3) until the time the Stock Option is forfeited as provided in Section 7.2(c)(1) in the event a director is removed from office for Cause, or (4) until the date the Stock Option ceases to be exercisable as provided in Section 7.2(h), whichever is earlier. (f) Payment of Exercise Price. Stock purchased on exercise of a Stock Option must be paid for as follows: (1) in cash or by check (acceptable to the Company), bank draft or money order payable to the order of the Company, (2) through the delivery of shares of Stock which are then outstanding and which have a Fair Market Value on the date of exercise equal to the Exercise Price per share multiplied by the number of shares as to which the Stock Option is being exercised (the "Aggregate Exercise Price"); (3) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the Aggregate Exercise Price, or (4) by a combination of the permissible forms of payment; provided, however, that any portion of the Exercise Price representing a fraction of a share must be paid in cash and no share of Stock held for less than six months may be delivered in payment of the Aggregate Exercise Price. -10- 11 (g) Rights as a Shareholder. The holder of a Stock Option will not have any of the rights of a shareholder with respect to any shares of Stock subject to the Stock Option until such shares are issued by the Company following the exercise of the Stock Option. (h) Termination of Eligibility. If a grantee ceases to be a Director for any reason, any outstanding Stock Options shall be exercisable according to the following provisions: (1) If a grantee ceases to be a director for any reason other than removal for Cause or death, any outstanding Stock Options held by such grantee which are vested or which thereafter vest shall be exercisable by the grantee in accordance with their terms at any time prior to the expiration of the Option Term; (2) If a grantee is removed from office as a director of the Company for Cause, any outstanding vested Stock Options held by such grantee shall be exercisable by the grantee in accordance with their terms at any time prior to the earlier of (a) the time the grantee is so removed from office and (b) the expiration of the Option Term; and (3) Following the death of a grantee while a director or after the grantee ceased to be a director for any reason other than removal for Cause, any Stock Options that are outstanding and exercisable by such grantee at the time of death or which thereafter vest shall be exercisable in accordance with their terms by the person or persons entitled to do so under the grantee's will, by a properly designated beneficiary in the event of death, or by the person or persons entitled to do so under the applicable laws of descent and distribution at any time prior to the earlier of (a) the expiration of the Option Term and (b) two years after the date of death. (i) Termination of Stock Option. A Stock Option shall terminate on the earlier of (1) exercise of the Stock Option in accordance with the terms of the Plan, and (2) expiration of the Option Term as specified in Sections 7.2(e) and 7.2(h). (j) Stock Option Agreement. All Stock Options will be confirmed by an agreement, or an amendment thereto, which shall be executed on behalf of the Company by the Chief Executive Officer, the President or any Vice President and by the grantee. (k) General Restrictions. (1) The obligation of the Company to issue Stock pursuant to Stock Options under the Plan shall be subject to the condition that, if at any time the Company shall determine that (a) the listing, registration or qualification of shares of Stock upon any securities exchange or under any state or federal law, or (b) the consent or approval of any government or regulatory body is necessary or desirable, then such Stock shall not be issued unless such listing, registration, qualification, consent or approval shall have been effected or obtained free from any conditions not acceptable to the Company. (2) Shares of Stock for use under the provisions of this Section 7 shall not be issued until they have been duly listed, upon official notice of issuance, upon the New York Stock Exchange and such other exchanges, if any, as the Board shall determine, and a -11- 12 registration statement under the Securities Act of 1933 with respect to such shares shall have become, and be, effective. Subject to the foregoing provisions of this Section 7.2 and the other provisions of the Plan, any Stock Option granted under the Plan shall be subject to such restrictions and other terms and conditions, if any, as shall be determined by the Committee, in its discretion, and set forth in the agreement referred to in Section 7.2(j), or an amendment thereto; provided, however, that in no event shall the Committee or the Board have any power or authority which would cause transactions pursuant to the Plan to cease to be exempt from the provisions of Section 16(b) of the Exchange Act pursuant to Rule 16b-3, as such rule may be amended, or any successor rule. 7.3 Annual Statement. A statement will be sent to each Director as to the status of his Stock Options at least once each calendar year. 7.4 Designation of a Beneficiary. A Director may designate a beneficiary to hold and exercise outstanding Stock Options in accordance with the Plan in the event of the Director's death. 7.5 Holding Period Applicable to a Deceased Grantee's Estate. As long as at least six months have elapsed since the Grant Date, a properly designated beneficiary, or a person holding a Stock Option under a deceased grantee's will or under the applicable laws of descent or distribution, exercising a Stock Option in accordance with Section 7.2(h) will not be subject to the Holding Period with respect to shares of Stock received on exercise of a Stock Option. 7.6 WELCO Stock Options. Any WELCO stock option that a Director may receive as a result of the adjustment of a Stock Option pursuant to Section 4.3 upon completion of the Company Separation shall be subject to the same terms and conditions as Stock Options, including but not limited to vesting and restrictions on transfer, and any stock acquired on exercise of any such WELCO stock option shall be subject to the same Option Shares Holding Period as Stock acquired on exercise of a Stock Option. SECTION 8. RESTRICTED STOCK AWARDS. 8.1 Grants of Restricted Stock Awards. (a) Beginning with the calendar year 1996, each Director will receive one-fourth of the value of his Annual Director's Fee in the form of a Restricted Stock Award. Such Restricted Stock shall be granted automatically each year on the last Wednesday in January of such year to each Director in office on such Grant Date. If a person is elected to the Board at any time after the last Wednesday in January of a given calendar year (beginning with 1996) but before the end of that calendar year, whether by action of the shareholders of the Company or the Board, such person upon becoming a Director shall be granted automatically one-fourth of the value of his Annual Director's Fee for that calendar year in the form of a Restricted Stock Award on the last Wednesday in the calendar month in which such person becomes a Director (or in the next following calendar month if said election occurs after the last Wednesday of the month). -12- 13 (b) Beginning with the calendar year 1996, each Director who is the chair of a standing committee of the Board will receive the full value of his Annual Committee Chair's Fee in the form of a Restricted Stock Award. Such Restricted Stock shall be granted automatically each year immediately following the annual meeting of shareholders and the organization meeting of the Board related to such annual meeting of shareholders, beginning with the annual meeting of shareholders and related organization meeting held in 1996, to each Director who is elected at such organization meeting to serve as the chair of a standing committee of the Board. (c) The total number of shares of Stock representing any such Restricted Stock Award will be the number of shares determined by dividing the amount of the Annual Director's Fee or the Annual Committee Chair's Fee, as the case may be, to be paid in the form of a Restricted Stock Award by the Fair Market Value of a share of Stock on the Grant Date, rounded up to the nearest whole share. (d) Restricted Stock granted pursuant to Section 8.1 shall be subject to adjustment as provided in Section 4.3. 8.2 Terms and Conditions of Restricted Stock. Restricted Stock granted under the Plan shall be subject to the following terms and conditions: (a) Restriction Period. Restricted Stock will be subject to a Restriction Period ("Restriction Period") beginning on the Grant Date and continuing through December 31 of the Grant Year. (b) Vesting. (1) Except as set forth in Section 8.2(b)(3), a Director's right to ownership in shares of Restricted Stock granted to a Director pursuant to Section 8.1(a) will vest on the January 1 immediately following the expiration of the Restriction Period for such shares (the "Restricted Stock Vesting Date") if the Director has an Attendance Percentage of at least seventy-five percent (75%) for the Grant Year. In the event that a Director has an Attendance Percentage of less than seventy-five percent (75%) for a Grant Year, a number of shares of Restricted Stock equal to the Director's Attendance Percentage for the Grant Year multiplied by the total number of shares of Restricted Stock granted pursuant to Section 8.1(a) during the Grant Year (rounded up to the nearest whole share) will vest on the Restricted Stock Vesting Date and the remaining shares of Restricted Stock granted pursuant to Section 8.1(a) during the Grant Year will be forfeited as of the Restricted Stock Vesting Date. (2) Except as set forth in Section 8.2(b)(3) below, a Director's right to ownership in shares of Restricted Stock granted to a committee chair pursuant to Section 8.1(b) will vest on the Restricted Stock Vesting Date. (3) Notwithstanding anything to the contrary herein, (i) in the event that a director is removed from office for Cause prior to the Restricted Stock Vesting Date, all of said -13- 14 Director's shares of Restricted Stock that have not yet vested will be forfeited immediately as of the time the grantee is so removed from office and the Company will have the right to complete the blank stock power described below with respect to such shares, and (ii) upon the occurrence of a Change in Control, all shares of Restricted Stock that have not yet vested will immediately vest. (c) Issuance of Shares. On the Grant Date, a certificate representing the shares of Restricted Stock will be registered in the Director's name and deposited by the Director, together with a stock power endorsed in blank, with the Company. Subject to the transfer restrictions set forth in Section 8.2(d) and to the last sentence of this Section 8.2(c), the Director as owner of shares of Restricted Stock will have the rights of the holder of such Restricted Stock during the Restriction Period. Following expiration of the Restriction Period, on the Restricted Stock Vesting Date, vested shares of Restricted Stock will be redelivered by the Company to the Director and non-vested shares of Restricted Stock will be forfeited and the Company will have the right to complete the blank stock power with respect to such shares. For shares of Restricted Stock granted prior to the effective date of the Plan as set forth in Section 14, no certificate will be issued, such shares will not be issued and outstanding, and the Director will not have any of the rights of an owner of the shares until such effective date has occurred. (d) Transfer Restrictions; Mandatory Holding of Stock. Except as otherwise provided in Section 8.5 or Section 10, shares of Restricted Stock are not transferable during the Restriction Period. Once the Restriction Period lapses and shares vest, except as otherwise provided in Section 8.5 or Section 10, shares acquired as a Restricted Stock Award must be held by the grantee for a minimum of: (1) three years from the Grant Date, (2) two years from the date the grantee ceases to be a director of the Company, or (3) until the occurrence of a Change of Control, whichever first occurs (the "Restricted Shares Holding Period"). (e) Restricted Stock Agreement. All Restricted Stock Awards will be confirmed by an agreement, or an amendment thereto, which will be executed on behalf of the Company by the Chief Executive Officer, the President or any Vice President and by the grantee. (f) General Restriction. (1) The obligation of the Company to issue shares of Restricted Stock under the Plan shall be subject to the condition that, if at any time the Committee shall determine that (a) the listing, registration or qualification of shares of Restricted Stock upon any securities exchange or under any state or federal law, or (b) the consent or approval of any government or regulatory body is necessary or desirable, then such Restricted Stock shall not be issued unless such listing, registration, qualification, consent or approval shall have been effected or obtained free from any conditions not acceptable to the Company. (2) Shares of Stock for use under the provisions of this Section 8 shall not be issued until they have been duly listed, upon official notice of issuance, upon the New York Stock Exchange and such other exchanges, if any, as the Board shall determine, and a registration statement under the Securities Act of 1933 with respect to such shares shall have become, and be, effective. -14- 15 Subject to the foregoing provisions of this Section 8.2 and the other provisions of the Plan, any shares of Restricted Stock granted under the Plan shall be subject to such restrictions and other terms and conditions, if any, as shall be determined by the Committee, in its discretion, and set forth in the agreement referred to in Section 8.2(e), or an amendment thereto; provided, however, that in no event shall the Committee or the Board have any power or authority which would cause transactions pursuant to the Plan to cease to be exempt from the provisions of Section 16(b) of the Exchange Act under Rule 16b-3, as such rule may be amended, or any successor rule. 8.3 Annual Statement. A statement will be sent to each Director as to the status of his Restricted Stock at least once each calendar year. 8.4 Designation of a Beneficiary. A Director may designate a beneficiary to hold shares of Restricted Stock in accordance with the Plan in the event of the Director's death. 8.5 Holding Period Applicable to a Deceased Grantee's Estate. As long as at least six months have elapsed since the Grant Date, a properly designated beneficiary, or a person holding shares of Restricted Stock under a deceased grantee's will or under the applicable laws of descent or distribution, will not be subject to the Restricted Shares Holding Period with respect to such shares of Restricted Stock. 8.6 WELCO Stock. Any shares of WELCO stock distributed upon completion of the Company Separation with respect to Restricted Stock shall be subject to the same terms and conditions, including but not limited to vesting, transfer restrictions and mandatory holding, as the shares of Restricted Stock to which they relate. SECTION 9. CHANGE IN CONTROL 9.1 Settlement of Compensation. In the event of a Change in Control of the Company as defined herein, (a) to the extent not already vested, all Stock Option Awards, Restricted Stock Awards and other benefits hereunder shall be vested immediately; and (b) the value of all unpaid benefits and deferred amounts shall be paid in cash to PNC Bank, National Association, the trustee pursuant to a trust agreement dated as of June 22, 1995, as amended from time to time, or any successor trustee, or otherwise on such terms as the Committee may prescribe or permit. For purposes of this Section 9.1, the value of deferred amounts shall be equal to the sum of (i) the value of all Common Stock Equivalent Awards then held in such Director's Deferred Stock Account (the value of which shall be based upon the highest price of the Stock as reported by the composite tape of the New York Stock Exchange during the 30 days immediately preceding the Change in Control), (ii) the value of the Director's Cash Account, and (iii) the greater value of (x) the cash amount equal to the face value of the Debentures in the Director's Deferred Debenture Account plus cash equal to accrued interest on the Debentures or (y) the number of shares of Stock into which the Debentures in the Director's Deferred Debenture Account are convertible (the value of which shall be based upon the highest price of the Stock as reported by the composite tape of the New York Stock Exchange during the 30 days immediately preceding the Change in Control), plus cash equal to accrued interest on the Debentures. -15- 16 9.2 Definition of Change in Control. A Change in Control shall mean the occurrence of one or more of the following events: (a) there shall be consummated (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company; or (b) the shareholders of the Company shall approve of any plan or proposal for the liquidation or dissolution of the Company; or (c) (i) any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity shall purchase any Stock of the Company (or securities convertible into the Company's Stock) for cash, securities or any other consideration pursuant to a tender offer or exchange offer, unless, prior to the making of such purchase of Stock (or securities convertible into Stock), the Board shall determine that the making of such purchase shall not constitute a Change in Control, or (ii) any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity (other than the Company or any benefit plan sponsored by the Company or any of its subsidiaries) shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from any rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in Rule 13d-3(d) in the case of rights to acquire any such securities), unless, prior to such person so becoming such beneficial owner, the Board shall determine that such person so becoming such beneficial owner shall not constitute a Change in Control; or (d) at any time during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board shall cease for any reason to constitute at least a majority thereof, unless the election or nomination for election of each new director during such two-year period is approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such two-year period. SECTION 10. ASSIGNABILITY The right to receive payments or distributions hereunder (including any "derivative security" issued pursuant to the Plan, as such term is defined by the rules promulgated under Section 16 of the Exchange Act), any shares of Restricted Stock granted hereunder during the Restriction Period, and any Stock Options granted hereunder shall not be transferable or assignable by a Director other than by will, by the laws of descent and distribution, to a properly designated beneficiary in the event of death, or pursuant to a domestic relations order as defined -16- 17 by Section 414(p)(1)(B) of the Internal Revenue Code or the rules thereunder that satisfies Section 414(p)(1)(A) of the Internal Revenue Code or the rules thereunder. In addition, Stock acquired on exercise of a Stock Option shall not be transferable prior to the end of the applicable Option Shares Holding Period, if any, set forth in Sections 7.2(d) and 7.5, and Stock acquired as Restricted Stock shall not be transferable prior to the end of the applicable Restricted Shares Holding Period, if any, set forth in Sections 8.2(d) and 8.5, in either case other than by will, by transfer to a properly designated beneficiary in the event of death, by the applicable laws of descent and distribution or pursuant to a domestic relations order as defined by Section 414(p)(1)(B) of the Internal Revenue Code or the rules thereunder that satisfies Section 414(p)(1)(A) of the Internal Revenue Code or the rules thereunder. SECTION 11. RETENTION; WITHHOLDING OF TAX 11.1 Retention. Nothing contained in the Plan or in any Stock Option Award or Restricted Stock Award granted under the Plan shall interfere with or limit in any way the right of the Company to remove any Director from the Board pursuant to the Restated Articles of Incorporation and the By-laws of the Company, nor confer upon any Director any right to continue in the service of the Company. 11.2 Withholding of Tax. To the extent required by applicable law and regulation, each Director must arrange with the Company for the payment of any federal, state or local income or other tax applicable to any payment or any delivery of Stock hereunder before the Company shall be required to make such payment or issue (or, in the case of Restricted Stock, deliver) such shares under the Plan. SECTION 12. PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may at any time terminate, and from time to time may amend or modify the Plan, provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the shareholders if shareholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements and provided further, that, unless otherwise permitted by the rules under Section 16 of the Exchange Act, no amendment or modification shall be made more than once every six months that would change the amount, price, or timing of the Common Stock Equivalent Awards, Stock Option Awards or Restricted Stock Awards hereunder, other than to comport with changes in the Internal Revenue Code, the Employment Retirement Income Security Act of 1974, as amended, or the rules promulgated thereunder. SECTION 13. REQUIREMENTS OF LAW 13.1 Federal Securities Law Requirements. Implementation and interpretations of, transactions pursuant to, the Plan shall be subject to all conditions required under Rule 16b-3, as such rule may be amended, or any successor rule, to qualify such transactions for any exemption from the provisions of Section 16(b) of the Exchange Act available under that rule, or any successor rule. -17- 18 13.2 Governing Law. The Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. SECTION 14. EFFECTIVE DATE OF APRIL 24, 1996 AMENDMENT. This Plan shall be effective on the date on which the April 24, 1996 amendment to the Deferred Compensation and Stock Plan for Directors is approved by the common shareholders of the Company. Automatic grants of Stock Options and Restricted Stock to Directors for Annual Director's Fees will begin on January 31, 1996 but are subject to such shareholder approval, and, in the case of Restricted Stock Awards, said shares shall not be issued and outstanding until such approval is obtained. In the event that the April 24, 1996 amendment is not so approved, the Deferred Compensation and Stock Plan for Directors as in effect prior to the amendment shall remain in full force and effect, and the automatic grants made on January 31, 1996 shall be null and void. This Plan shall not preclude the adoption by appropriate means of any other compensation or deferral plan for directors. -18- EX-10.P 3 WESTINGHOUSE ELECTRIC CORP. 1 Exhibit 10(p) AGREEMENT AND PLAN OF MERGER By and Among AMERICAN RADIO SYSTEMS CORPORATION, WESTINGHOUSE ELECTRIC CORPORATION and R ACQUISITION CORP. Dated as of September 19, 1997 2 TABLE OF CONTENTS Page ARTICLE 1 DEFINED. TERMS.............................................................2 ARTICLE 2 THE MERGER.................................................................2 2.1 The Merger................................................................2 2.2 Closing...................................................................2 2.3 Effective Time............................................................2 2.4 Effect of the Merger......................................................2 2.5 Certificate of Incorporation..............................................2 2.6 Bylaws....................................................................3 2.7 Directors and Officers....................................................3 2.8 Tower Distribution/Tower Merger...........................................3 ARTICLE 3 CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES.............................3 3.1 Conversion of Capital Stock...............................................3 3.2 Exchange of Certificates. ...............................................4 3.3 Closing of American's Transfer Books......................................5 3.4 Dissenting Shares.........................................................5 3.5 Tower Common Stock........................................................6 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF AMERICAN.................................6 4.1 Organization and Business; Power and Authority; Effect of Transaction.....6 4.2 Financial and Other Information. ........................................8 4.3 Changes in Condition......................................................8 4.4 Properties................................................................9 4.5 Compliance with Private Authorizations....................................9 4.6 Compliance with Governmental Authorizations and Applicable Law; Litigation..........................................................9 4.7 Related Transactions.....................................................11 4.8 Taxes and Tax Matters....................................................11 4.9 Employee Retirement Income Security Act of 1974..........................12 4.10 Insurance................................................................14 4.11 Authorized Capital Stock.................................................15 4.12 Employment Arrangements..................................................15 4.13 Voting Requirements......................................................15 4.14 Brokers..................................................................16 4.15 Information Supplied.....................................................16 4.16 Ordinary Course of Business..............................................16 4.17 Environmental Matters....................................................17 4.18 State Takeover Statutes..................................................17 4.19 Opinion of Financial Advisor.............................................17 4.20 Contracts; Debt Instruments..............................................17 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF MERGEPARTY..............................18 5.1 Organization and Business; Power and Authority; Effect of Transaction....18 5.2 Compliance with Governmental Authorizations and Applicable Law; Litigation.........................................................19 5.3 Opinion of Financial Advisor.............................................20
3 5.4 Mergeparty Financing.....................................................20 ARTICLE 6 COVENANTS.................................................................20 6.1 Access to Information; Confidentiality...................................20 6.2 Agreement to Cooperate...................................................21 6.3 Public Announcements.....................................................23 6.4 Notification of Certain Matters..........................................23 6.5 Stockholder Approval. ..................................................23 6.6 Information Statement. .................................................24 6.7 Miscellaneous............................................................24 6.8 Option Plans.............................................................24 6.9 Conduct of Business by Mergeparty Pending the Merger.....................26 6.10 Conduct of Business by American Pending the Merger.......................26 6.11 Control of Operations....................................................28 6.12 Directors', Officers' and Employees' Indemnification and Insurance.......28 6.13 Solicitation of Employees................................................30 6.14 Change of Name...........................................................30 6.15 Benefit Plans............................................................30 6.16 American Cumulative Preferred Stock......................................30 6.17 American Tower Transaction...............................................31 6.18 Purchase Price Adjustment................................................36 6.19 Tower Leases.............................................................39 ARTICLE 7 CLOSING CONDITIONS........................................................40 7.1 Conditions to Obligations of Each Party to Effect the Merger.............40 7.2 Conditions to Obligations of Mergeparty..................................41 7.3 Conditions to Obligations of American....................................42 ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER.........................................42 8.1 Termination..............................................................42 8.2 Effect of Termination. ...............................................43 ARTICLE 9 GENERAL PROVISIONS........................................................44 9.1 Amendment................................................................44 9.2 Waiver...................................................................44 9.3 Fees, Expenses and Other Payments........................................44 9.4 Notices..................................................................44 9.5 Specific Performance; Other Rights and Remedies..........................45 9.6 Survival of Representations, Warranties, Covenants and Agreements........46 9.7 Severability.............................................................46 9.8 Counterparts.............................................................46 9.9 Section Headings.........................................................46 9.10 Governing Law............................................................46 9.11 Further Acts.............................................................46 9.12 Entire Agreement; No Other Representations or Agreements.................47 9.13 Assignment...............................................................47 9.14 Parties in Interest......................................................47 9.15 Mutual Drafting..........................................................47 9.16 Obligations of American and of Mergeparty................................47 9.17 Mergeparty Agent for Mergeparty Subsidiary...............................48
4 APPENDIX A: Definitions EXHIBITS: EXHIBIT A: Restated Certificate of Incorporation (Section 2.5) EXHIBIT B: Market Fee Schedule EXHIBIT C: Form of Opinion of FCC Counsel to American 5 AGREEMENT AND PLAN OF MERGER Agreement and Plan of Merger, dated as of September 19, 1997, by and among American Radio Systems Corporation, a Delaware corporation ("American"), Westinghouse Electric Corporation, a Pennsylvania corporation ("Mergeparty"), and R Acquisition Corp., a Delaware corporation ("Mergeparty Subsidiary"). W I T N E S S E T H: WHEREAS, the respective Boards of Directors of American, Mergeparty and Mergeparty Subsidiary have approved the merger (the "Merger") of Mergeparty Subsidiary into American on the terms and conditions set forth in this Agreement and Plan of Merger (this "Agreement") and have approved this Agreement; and WHEREAS, the Board of Directors of American has determined that the sale of American Tower Systems Holding Corporation ("American Tower") at this time is not in the best interest of American and its stockholders, and that the distribution of all of the common stock of American Tower through a pro rata distribution of the common stock of American Tower to the holders of American common stock (the "Tower Distribution"), on the terms and conditions set forth in this Agreement, is fair to and in the best interests of, American and its stockholders, the Board of Directors of American has approved the Tower Distribution and has directed that the Tower Distribution be submitted to the stockholders of American for their approval; and WHEREAS, the Board of Directors of Mergeparty has approved and adopted this Agreement as the sole stockholder of Mergeparty Subsidiary, and the Board of Directors of American has directed that this Agreement be submitted to the stockholders of American for their approval and adoption; and WHEREAS, this Agreement provides that Mergeparty Subsidiary shall be merged into American, and American shall be the surviving corporation; and WHEREAS, the parties agree that, subject to certain conditions contained in this Agreement, the consummation of the Tower Distribution is a condition of the consummation of the Merger; and WHEREAS, as a condition of the willingness of Mergeparty to enter into this Agreement, and as an inducement thereto Mergeparty and certain of the stockholders of American who are entitled to cast votes in favor of approval and adoption of the Merger Agreement sufficient to constitute the Required Vote are delivering written consents of stockholders approving and adopting the Merger Agreement and approving the Tower Distribution. NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements herein contained and other valuable consideration, the receipt and adequacy whereof are hereby acknowledged, the parties hereto hereby, intending to be legally bound, represent, warrant, covenant and agree as follows: 6 ARTICLE 1 DEFINED TERMS As used herein, unless the context otherwise requires, the terms defined in Appendix A shall have the respective meanings set forth therein. Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa, and the reference to any gender shall be deemed to include all genders. Unless otherwise defined or the context otherwise clearly requires, terms for which meanings are provided in this Agreement shall have such meanings when used in either Disclosure Schedule and each Collateral Document executed or required to be executed pursuant hereto or thereto or otherwise delivered, from time to time, pursuant hereto or thereto. References to "hereof," "herein" or similar terms are intended to refer to the Agreement as a whole and not a particular section, and references to "this Section" or "this Article" are intended to refer to the entire section or article and not a particular subsection thereof. The term "either party" shall, unless the context otherwise requires, refer to American, on the one hand, and Mergeparty and Mergeparty Subsidiary, on the other hand. ARTICLE 2 THE MERGER 2.1 The Merger. (a) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware General Corporation Law (the "DCL"), at the Effective Time, Mergeparty Subsidiary shall be merged with and into American. As a result of the Merger, the separate corporate existence of Mergeparty Subsidiary shall cease and American shall continue as the surviving corporation in the Merger (sometimes referred to, as such, as the "Surviving Corporation"). 2.2 Closing. Unless this Agreement shall have been terminated pursuant to Section 8.1 and subject to the satisfaction or, to the extent permitted by Applicable Law, waiver of the conditions set forth in Article 7, the closing of the Merger (the "Closing") will take place, at 10:00 a.m., on the Closing Date, at the offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York 10019, on the date that is the second (2nd) day after the date on which all of the conditions set forth in Article 7 (other than those which require delivery of opinions or documents at the Closing) shall have been satisfied or waived, unless another date, time or place is agreed to in writing by the parties. The date on which the Closing occurs is herein referred to as the "Closing Date." 2.3 Effective Time. Subject to the provisions of this Agreement, as promptly as practicable after the Closing, the parties hereto shall cause the Merger to be consummated by filing a Certificate of Merger and any related filings required under the DCL with the Secretary of State of the State of Delaware. The Merger shall become effective at such time as such documents are duly filed with the Secretary of State of the State of Delaware, or at such later time as is specified in such documents (the "Effective Time"). 2.4 Effect of the Merger. The Merger shall have the effects provided for under the DCL. 2.5 Certificate of Incorporation. The Certificate of Incorporation of American, as in effect immediately prior to the Effective Time, shall be amended as of the Effective Time as described in - 2 - 7 Exhibit A and, as so amended, such Certificate of Incorporation, together with the certificates of designation for the American Cumulative Preferred Stock and the American Convertible Preferred Stock, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by Applicable Law. Such amendment shall not be deemed to affect in any manner the Certificates of Designation of (i) the 11_% Series B Cumulative Exchangeable Preferred Stock, par value $.01 per share, of American (the "American Cumulative Preferred Stock") or (ii) the 7% Convertible Exchangeable Preferred Stock, par value $.01 per share, of American (the "American Convertible Preferred Stock" and, collectively with the American Cumulative Preferred Stock, the "American Preferred Stock"). 2.6 Bylaws. The bylaws of American in effect at the Effective Time shall be the bylaws of the Surviving Corporation until amended in accordance with Applicable Law and the Organic Documents of American. 2.7 Directors and Officers. From and after the Effective Time, until successors are duly elected or appointed and qualified, or upon their earlier resignation or removal, in accordance with Applicable Law and the Organic Documents of Mergeparty Subsidiary and American, as applicable, (a) the directors of Mergeparty Subsidiary at the Effective Time shall be the directors of the Surviving Corporation, and (b) the officers of American at the Effective Time shall be the officers of the Surviving Corporation. 2.8 Tower Distribution/Tower Merger. The Board of Directors of American in its sole and absolute discretion may abandon the Tower Distribution and, in lieu thereof, effect the distribution of all of the common stock of American Tower Sub to the holders of American Common Stock through a merger of American Tower with and into American (the "Tower Merger"); provided that the Tower Distribution shall not be abandoned unless an agreement of merger relating to the Tower Merger shall be approved by the Board of Directors of American and approved and adopted by the stockholders of American; provided further, that the Board of Directors of American in its sole and absolute discretion may abandon the Tower Distribution and the Tower Merger by delivering written notice to such effect to Mergeparty (the "Notice of Abandonment"). ARTICLE 3 CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES 3.1 Conversion of Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Mergeparty, Mergeparty Subsidiary or American or their respective stockholders: (a) Each share of Common Stock, par value $1.00 per share, of Mergeparty Subsidiary issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of Common Stock, par value $.01 per share, of the Surviving Corporation; (b) Each share of the American Cumulative Preferred Stock issued and outstanding immediately prior to the Effective Time shall remain outstanding; - 3 - 8 (c) Each share of the American Convertible Preferred Stock issued and outstanding immediately prior to the Effective Time shall remain outstanding; (d) Subject to paragraph (e) below, each share of Class A Common Stock, par value $.01 per share ("Class A Common"), each share of Class B Common Stock, par value $.01 per share ("Class B Common"), and each share of Class C Common Stock, par value $.01 per share, of American (collectively, the "American Common Stock") issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive $44.00 (the "Merger Consideration"); and (e) Each share of American Common Stock owned by American or any of its Subsidiaries or Mergeparty or any of its Subsidiaries immediately prior to the Effective Time shall automatically be canceled and extinguished without any conversion thereof and no payment shall be made with respect thereto. As a result of the Merger and without any action on the part of the holder thereof, at the Effective Time all shares of American Common Stock shall cease to be outstanding and shall be canceled and retired and shall cease to exist, and each holder of any certificates formerly representing such shares shall thereafter cease to have any rights with respect to such shares, except, subject to paragraph (e) above, the right to receive, without interest, the Merger Consideration, or, in the case of a holder of Dissenting Shares, the right to perfect the right to receive payment for Dissenting Shares pursuant to Section 262 of the DCL. 3.2 Exchange of Certificates. (a) From time to time, on or prior to or after the Effective Time, Mergeparty shall deposit or cause to be deposited with an exchange agent selected by Mergeparty and not reasonably disapproved of by American (the "Exchange Agent") in trust for the benefit of the American stockholders cash in amounts and at times necessary for the prompt payment of the Merger Consideration upon the surrender of Certificates. (b) Not more than five (5) business days subsequent to the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates that immediately prior to the Effective Time represented outstanding shares of American Common Stock (the "Certificates") (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon actual delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as American and Mergeparty may agree) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of Certificates for cancellation to the Exchange Agent, together with a duly executed letter of transmittal and such other documents as the Exchange Agent shall reasonably require, the holder of such Certificate shall receive in exchange therefor the Merger Consideration multiplied by the number of shares of American Common Stock formerly represented by such Certificates. The amount paid to the holder of Certificates shall be in the form of a wire transfer of immediately available funds if so requested by any holder entitled to receive not less than $500,000 in cash, and the cost of such wire transfers shall be borne by the Surviving Corporation. Such letter of transmittal and instructions shall be available at the Closing for holders of American Common Stock. Notwithstanding the foregoing, neither the Exchange - 4 - 9 Agent nor any party hereto shall be liable to a holder of shares of American Common Stock for any Merger Consideration delivered to a public official pursuant to applicable abandoned property, escheat or similar Laws. (c) Promptly following the date which is six (6) months after the Closing Date, the Exchange Agent shall deliver to Mergeparty all cash in its possession relating to the transactions described in this Agreement that remain unclaimed, and the Exchange Agent's duties shall terminate. Thereafter, each holder of a Certificate may surrender such Certificate to the Surviving Corporation and (subject to applicable abandoned property, escheat and similar Laws) receive in exchange therefor the aggregate Merger Consideration to which such holder is entitled, without any interest thereon. (d) If the Merger Consideration (or any portion thereof) is to be paid to a Person other than the Person in whose name the Certificate surrendered in exchange therefor is registered, it shall be a condition to the payment of the Merger Consideration that the Certificate so surrendered shall be properly endorsed or accompanied by appropriate stock powers (with signatures guaranteed in accordance with the transmittal letter) and otherwise in proper form for transfer, that such transfer otherwise be proper and that the Person requesting such transfer pay to the Exchange Agent any transfer or other Taxes payable by reason of the foregoing or establish to the satisfaction of the Exchange Agent that such Taxes have been paid or are not required to be paid. (e) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and subject to such other reasonable conditions as the Exchange Agent may impose, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration (to the extent applicable) deliverable in respect thereof as determined in accordance with this Article. When authorizing such issue of the Merger Consideration in exchange therefor, the Exchange Agent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificate (if other than a recognized financial institution) to give the Exchange Agent a bond or other surety in such sum as it may reasonably direct as indemnity against any Claim that may be made against the Exchange Agent with respect to the Certificate alleged to have been lost, stolen or destroyed. (f) At and after the Effective Time, the holder of a Certificate shall cease to have any rights as an American stockholder, except for the right to surrender Certificates in the manner prescribed by Section 3.2 in exchange for payment of the Merger Consideration, or, in the case of a holder of Dissenting Shares, the right to perfect the right to receive payment for Dissenting Shares pursuant to Section 262 of the DCL. (g) The Surviving Corporation shall be entitled to, or shall be entitled to cause the Exchange Agent to, deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of American Common Stock such amounts as are required to be deducted and withheld with respect to the making of such payment under the Code, or any provision of state, local or foreign Tax Law. To the extent that amounts are so withheld by the Surviving Corporation or the Exchange Agent, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of American Common Stock in respect of which such deduction and withholding was made by the Surviving Corporation or the Exchange Agent. - 5 - 10 (h) The Exchange Agent shall invest any funds held by it for purposes of this Section 3.2 as directed by Mergeparty, on a daily basis. Any interest and other income resulting from such investments shall be paid to Mergeparty and any risk of loss resulting from such investments shall be borne by Mergeparty. 3.3 Closing of American's Transfer Books. At the Effective Time, the stock transfer books of American shall be closed and no transfer of shares of American Common Stock which were outstanding immediately prior to the Effective Time shall thereafter be made. If, after the Effective Time, subject to the terms and conditions of this Agreement, Certificates formerly representing American Common Stock are presented to the Surviving Corporation, they shall be canceled and exchanged for the Merger Consideration in accordance with the provisions of this Article. 3.4 Dissenting Shares. (a) Notwithstanding any other provision of this Agreement to the contrary, shares of American Common Stock that are outstanding immediately prior to the Effective Time and which are held by American stockholders who shall have not voted in favor of the Merger or consented thereto in writing and who shall be entitled to and shall have demanded properly in writing appraisal rights for such shares of American Common Stock in accordance with Section 262 of the DCL and who shall not have withdrawn such demand or otherwise have forfeited appraisal rights (collectively, the "Dissenting Shares"), shall not be converted into or represent the right to receive the Merger Consideration payable in respect of each share of American Common Stock represented thereby. Such American stockholders shall be entitled to receive payment of the appraised value of such shares of American Common Stock held by them in accordance with the provisions of the DCL; provided, however, that all Dissenting Shares held by American stockholders who shall have failed to perfect or who effectively shall have withdrawn, forfeited or lost their appraisal rights with respect to such shares of American Common Stock under the DCL shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive, without any interest thereon, the Merger Consideration upon surrender, in the manner provided in Section 3.2, of the Certificates with respect to such shares. (b) American shall give Mergeparty prompt notice of any demands for appraisal rights received by it, withdrawals of such demands, and any other instruments served pursuant to the DCL and received by American and relating thereto. American shall give Mergeparty the opportunity to direct all negotiations and proceedings with respect to demands for appraisal rights under the provisions of the DCL. American shall not, except with the prior written consent of Mergeparty, make any payment with respect to any demands for appraisal rights, or offer to settle, or settle, any such demands. 3.5 Tower Common Stock. In the event that prior to the Effective Time, the Tower Common Stock distributable upon the Tower Distribution or issuable in the Tower Merger shall not have been distributed or issued, American and Mergeparty shall cooperate with each other so that the Exchange Agent may effect such issuance or distribution simultaneously with the exchange of Certificates for Merger Consideration as provided in this Article 3, together with any cash in lieu of a fractional share and any dividends or other distributions which may be payable to a holder of Tower Common Stock following the Effective Time. - 6 - 11 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF AMERICAN Except as set forth with respect to specifically identified representations and warranties in the American Disclosure Schedule, American hereby represents and warrants to Mergeparty and Mergeparty Subsidiary as follows: 4.1 Organization and Business; Power and Authority; Effect of Transaction. (a) American is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority (corporate and other) to own or hold under lease its properties and to conduct its business as now conducted and as presently proposed to be conducted. American is duly qualified and in good standing as a foreign corporation in each other jurisdiction (as shown on Section 4.1(a) of the American Disclosure Schedule) in which the character of the property owned or leased by it or the nature of its business or operations requires such qualification, with full power and authority (corporate and other) to carry on the business in which it is engaged, except in such jurisdictions where the failure to be so qualified or in good standing, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect on American. (b) Each of American and its Subsidiaries has all requisite power and authority (corporate and other) to execute, deliver and perform its obligations under this Agreement and each Collateral Document executed or required to be executed by such party pursuant hereto or thereto and to consummate the Merger and the other transactions contemplated hereby and thereby, and the execution, delivery and performance of this Agreement and each Collateral Document executed or required to be executed pursuant hereto or thereto have been duly authorized by all requisite corporate or other action on the part of American and its Subsidiaries, other than the approval of the American stockholders contemplated by Section 4.13 of this Agreement, and no other corporate proceedings on the part of American or any of its Subsidiaries are necessary to authorize this Agreement or the transactions contemplated hereby or to consummate the Merger or the other transactions so contemplated (other than, with respect to the Merger, the Required Vote). This Agreement has been duly executed and delivered by American and constitutes, and each Collateral Document executed or required to be executed by American and its Subsidiaries pursuant hereto or to consummate the Merger when executed and delivered by American and its Subsidiaries, as applicable, will constitute, a valid and binding obligation of American and its Subsidiaries, as applicable, enforceable in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, moratorium, insolvency and similar laws affecting the rights and remedies of creditors and obligations of debtors generally and by general principles of equity. The provisions of Section 203 of the DCL will not apply to this Agreement or the Merger. As of the date hereof, the Board of Directors of American, at a meeting duly called and held at which a quorum was present throughout, has approved the Merger and this Agreement, and has recommended that the American stockholders approve and adopt this Agreement and the transactions contemplated hereby, including without limitation the Merger. (c) The execution, delivery and performance by American and its Subsidiaries, as applicable, of this Agreement and any Collateral Document executed or required to be executed by such parties pursuant hereto or thereto do not, and the consummation by American of the Merger and the other - 7 - 12 transactions contemplated hereby and thereby, and compliance with the terms, conditions and provisions hereof or thereof by such parties will not: (i) (A) Except as set forth in Section 4.1(c) of the American Disclosure Schedule, conflict with, or result in a breach or violation of, or constitute a default under, any Organic Document of American or its Subsidiaries, as applicable, or (B) conflict with, or result in a breach or violation of, or constitute a default under, or permit the termination, cancellation or acceleration of any obligation or liability in, or but for any requirement of the giving of notice or passage of time or both would constitute such a conflict with, breach or violation of, or default under, or permit any such termination, cancellation or acceleration of, any agreement, arrangement, contract, undertaking, understanding, Applicable Law or other obligation or Private Authorization of American or its Subsidiaries, as applicable, except, in the case of clause (B), for such conflicts, breaches, violations, terminations, cancellations, defaults or accelerations that would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect on American; or (ii) result in or permit the creation or imposition of any Lien upon any property now owned or leased by American except for such Liens that would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect on American; or (iii) require any Governmental Authorization or Governmental Filing except for (A) the FCC Consents, (B) filings under the Hart-Scott-Rodino Act, (C) the filing with the Commission of (I) the Information Statement and (II) such reports under Section 13(a) or 15(d) of the Exchange Act as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (D) the filing of the Certificate of Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which American is qualified to do business and (E) such other Governmental Authorizations and Governmental Filings the failure of which to be made or obtained would not be individually or in the aggregate, reasonably likely to have a Material Adverse Effect on American. (d) American does not have any direct or indirect Subsidiaries other than those set forth on Section 4.1(d) of the American Disclosure Schedule; each of such Subsidiaries is (i) wholly-owned unless noted otherwise in Section 4.1(d) of the American Disclosure Schedule, (ii) a corporation which is duly organized, validly existing and in good standing under the laws of the respective state of incorporation set forth opposite its name on Section 4.1(d) of the American Disclosure Schedule, and (iii) duly qualified and in good standing as a foreign corporation in each other jurisdiction (as shown on Section 4.1(d) of the American Disclosure Schedule) in which the character of the property owned or leased by it or the nature of its business or operations requires such qualification, with full power and authority (corporate and other) to carry on the business in which it is engaged, except where the failure to be so qualified or in good standing, individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect on American. As of the date hereof, American owns, directly or indirectly, all of the outstanding capital stock and equity interests (as shown in Section 4.1(d) of the American Disclosure Schedule) of such Subsidiaries, free and clear of all Liens (except as set forth in the American Financial Statements or Section 4.1(d) of the American Disclosure Schedule), and all such stock has been duly authorized and validly issued and is fully paid and nonassessable. There are no outstanding Option Securities or Convertible Securities, or agreements or understandings of any nature whatsoever, relating to - 8 - 13 the authorized and unissued or outstanding capital stock of such Subsidiaries (except as set forth in the American Financial Statements or Section 4.1(d) of the American Disclosure Schedule). 4.2 Financial and Other Information. American has heretofore furnished to Mergeparty copies of the audited consolidated financial statements of American and its Subsidiaries set forth in its Annual Report on Form 10-K (the "American 10-K") for the fiscal year ended December 31, 1996 and the unaudited consolidated financial statements of American and its Subsidiaries set forth in its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997 (collectively, the "American Financial Statements"). The American Financial Statements, including in each case the notes thereto, comply as to form, in all material respects, with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, except as otherwise noted therein, and fairly present in all material respects the financial condition, results of operations and cash flows of American and its Subsidiaries on the bases therein stated, as of the respective dates thereof, and for the respective periods covered thereby subject, in the case of unaudited financial statements, to normal year-end audit adjustments and accruals. American has filed all required reports and other documents with the Commission since July 1, 1995 (the "American SEC Documents"). Except as set forth in the American SEC Documents filed and publicly available prior to the date hereof (the "Filed American SEC Documents"), neither American nor any of its Subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) which, individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect on American. None of the American Disclosure Schedule or the American SEC Documents contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact required to be stated herein or therein or necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. 4.3 Changes in Condition. Except as set forth in Section 4.3 of the American Disclosure Schedule, between June 30, 1997 and the date hereof, there has been no Material Adverse Change in American. 4.4 Properties. (a) American and each of its Subsidiaries (other than the Tower Subsidiaries) has good and marketable title to all material parcels of real property owned by it and good and merchantable title to all material items of property and assets, tangible and intangible, (i) reflected in the financial statements of American as of June 30, 1997, and (ii) acquired after June 30, 1997, except in each case for those sold or otherwise disposed of since June 30, 1997, in each case free and clear of all Liens, except (x) Permitted Liens and (y) Liens set forth in the American Financial Statements or Section 4.4 of the American Disclosure Schedule. (b) All of the assets of American and its Subsidiaries material to the continued operation of their respective businesses are in good operating condition, reasonable wear and tear excepted, and usable in the ordinary course of business, except where the failure to be in such condition or so usable would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect on American. 4.5 Compliance with Private Authorizations. American and each of its Subsidiaries (other than the Tower Subsidiaries) has obtained all Private Authorizations which are necessary for the ownership and operation by American or its Subsidiaries of the business of American and its Subsidiaries, taken as a whole, and the conduct of business thereof as now conducted and which, if not - 9 - 14 obtained and maintained, would, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect on American. All such Private Authorizations are, to American's knowledge, in full force and effect, and neither American nor any of its Subsidiaries (other than the Tower Subsidiaries) is, to American's knowledge, in breach or violation of, or in default in the performance, observance or fulfillment of, any such Private Authorization, and, to American's knowledge, no Event exists or has occurred, which constitutes, or but for any requirement of the giving of notice or passage of time or both would constitute, such a breach, violation or default, under any such Private Authorization, except for such defaults, breaches or violations as would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect on American. 4.6 Compliance with Governmental Authorizations and Applicable Law; Litigation. (a) Section 4.6(a) of the American Disclosure Schedule contains a list of each material Governmental Authorization (including without limitation all material American FCC Licenses) required under Applicable Laws to own and operate the business of American and its Subsidiaries (other than the Tower Subsidiaries), including without limitation each of the American Stations, as currently operated, all of which are in full force and effect, subject to such qualifications and exceptions as may be set forth in Section 4.6(a) of the American Disclosure Schedule. Certain of the Subsidiaries of American (other than any of the Tower Subsidiaries) are the authorized legal holders of the American FCC Licenses listed in Section 4.6(a) of the American Disclosure Schedule, none of which is subject to any restriction or condition which would limit in any material respect the operations of any of the American Stations as currently conducted except as noted in Section 4.6(a) of the American Disclosure Schedule. The American FCC Licenses listed in Section 4.6(a) of the American Disclosure Schedule are valid and in full force and effect and are not impaired in any material respect by any act or omission of American or any of its Subsidiaries, subject to such qualifications and exceptions as may be set forth in Section 4.6(a) of the American Disclosure Schedule; and the operation of each of the American Stations is in accordance with such American FCC Licenses in all material respects, except to the extent so listed in Sections 4.6(a) and (b) of the American Disclosure Schedule. American is fully qualified to be the transferor of control of the American FCC Licenses. All material reports, forms and statements required to be filed by American or any of its Subsidiaries with the FCC with respect to each of the American Stations have been filed and are true, complete and accurate in all material respects. American or one of its Subsidiaries (other than the Tower Subsidiaries) has obtained all Governmental Authorizations in addition to the American FCC Licenses listed in Section 4.6(a) of the American Disclosure Schedule which are necessary for the ownership or operations or the conduct of the business of American and its Subsidiaries, taken as a whole (except with respect to the American Brokered Stations), as now conducted and which, if not obtained and maintained, would, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect on American and American's performance with respect thereto, and the operation of the American Brokered Stations is in accordance with all applicable Governmental Authorizations except where the failure to be so in accordance would not be reasonably likely to have a Material Adverse Effect on American. As of the date hereof, except as noted in Section 4.6(a) of the American Disclosure Schedule, no application, action or proceeding is pending for the renewal or material modification of any of the American FCC Licenses and, to American's knowledge, except as noted in Section 4.6(b) of the American Disclosure Schedule, there is not now before the FCC any material investigation, proceeding, notice of violation, order of forfeiture or complaint against American or any of its Subsidiaries relating to any of the American Stations or other FCC licensed facilities that, if adversely decided, would be reasonably likely to have a Material Adverse Effect on American (and as of the date hereof American does not have knowledge of any basis that would - 10 - 15 cause the FCC not to renew any of the American FCC Licenses). Except as noted in Schedule 4.6(b) of the American Disclosure Schedule, as of the date hereof, there is not now pending and, to American's knowledge, there is not threatened, any action by or before the FCC to revoke, suspend, cancel, rescind or modify in any material respect any of the American FCC Licenses that, if adversely decided, would be reasonably likely to have a Material Adverse Effect on American (other than proceedings to amend FCC rules of general applicability to the radio industry). (b) Except as otherwise specifically set forth in Section 4.6(b) of the American Disclosure Schedule, since January 1, 1996, American and its Subsidiaries (other than the Tower Subsidiaries) have conducted its and each of their respective businesses and owned and operated its and each of their respective properties in accordance with all Applicable Laws (excluding Environmental Laws) and Governmental Authorizations, except for such breaches, violations and defaults as, individually or in the aggregate, have not had and are not reasonably likely to have a Material Adverse Effect on American. Except as otherwise specifically described in Section 4.6(b) of the American Disclosure Schedule and except with respect to Environmental Laws, neither American nor any of its Subsidiaries is in or is charged in writing by any Authority with, or, to American's knowledge, is threatened or under investigation by any Authority with respect to, any breach or violation of, or default in the performance, observance or fulfillment of, any Applicable Law relating to the ownership and operation of American's and its Subsidiaries' properties or the conduct of American's and its Subsidiaries' business which will, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect on American. Except as otherwise specifically described in Section 4.6(b) of the American Disclosure Schedule and except with respect to Environmental Laws, no Event exists or has occurred, which constitutes, or but for any requirement of giving of notice or passage of time or both would constitute, such a breach, violation or default, under any Governmental Authorization or any Applicable Law, except for such breaches, violations or defaults as, individually or in the aggregate, have not had and would not be reasonably likely to have a Material Adverse Effect on American. With respect to matters, if any, of a nature referred to in Section 4.6(b) of the American Disclosure Schedule, except as otherwise specifically described in Section 4.6(b) of the American Disclosure Schedule, all such information and matters set forth in the American Disclosure Schedule, if adversely determined against American or one of its Subsidiaries (other than the Tower Subsidiaries), individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect on American. (c) Except as disclosed in the Filed American SEC Documents or in Section 4.6(c) of the American Disclosure Schedule, there are no Legal Actions pending or, to the knowledge of American, threatened against or affecting American or any of its Subsidiaries (other than the Tower Subsidiaries) including any action by or before the FCC to revoke, suspend, cancel, rescind or modify in any material respect any of the American FCC Licenses, except for Legal Actions that, individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect on American. 4.7 Related Transactions. Except as set forth in Section 4.7 of the American Disclosure Schedule, as contemplated herein or as disclosed in the Filed American SEC Documents, no director, officer, Affiliate or "associate" (as such term is defined in Rule 12b-2 under the Exchange Act) of American or any of its Subsidiaries is currently a party to any transaction which would be required to be disclosed under Item 404 of Regulation S-K of the Securities Act. 4.8 Taxes and Tax Matters. Except as provided in Section 4.8 of the American Disclosure Schedule: - 11 - 16 (a) American has filed completely and correctly in all material respects all Tax Returns which are required by all Applicable Laws to be filed by it, and has paid, or made adequate provision for the payment of, all material Taxes which have or may become due and payable pursuant to said Tax Returns and all other Taxes, governmental charges and assessments received to date other than those Taxes being contested in good faith for which adequate provision has been made on the most recent balance sheet forming part of the American Financial Statements. The Tax Returns of American have been prepared, in all material respects, in accordance with all Applicable Laws and generally accepted principles applicable to taxation consistently applied; (b) all material Taxes which American is required by law to withhold and collect have been duly withheld and collected, and have been paid over, in a timely manner, to the proper Taxing Authorities to the extent due and payable; (c) American has not executed any waiver to extend, or otherwise taken or failed to take any action that would have the effect of extending, the applicable statute of limitations in respect of any Tax liabilities of American for the fiscal years prior to and including the most recent fiscal year; (d) American is not a "consenting corporation" within the meaning of Section 341(f) of the Code. American has at all times been taxable as a Subchapter C corporation under the Code; (e) American has never been a member of any consolidated group (other than with American and its Subsidiaries) for Tax purposes. American is not a party to any tax sharing agreement or arrangement, other than with its Subsidiaries; (f) no Liens for Taxes exist with respect to any of the assets or properties of American, except for statutory Liens for Taxes not yet due or payable or that are being contested in good faith; (g) all of the U.S. Federal income Tax Returns filed by or on behalf of each of American and its Subsidiaries have been examined by and settled with the Internal Revenue Service, or the statute of limitations with respect to the relevant Tax liability expired, for all taxable periods through and including the period ending on the date on which the Effective Time occurs; (h) all Taxes due with respect to any completed and settled audit, examination or deficiency litigation with any Taxing Authority have been paid in full; (i) there is no audit, examination, deficiency, or refund litigation pending with respect to any Taxes and during the past three years no Taxing Authority has given written notice of the commencement of any audit, examination or deficiency litigation, with respect to any Taxes; (j) American is not bound by any currently effective private ruling, closing agreement or similar agreement with any Taxing Authority relating to a material amount of Taxes; (k) Except with respect to like-kind exchanges pursuant to Section 1031 of the Code, American shall not be required to include in a taxable period ending after the Effective Time, any taxable income attributable to income that economically accrued in a prior taxable period as a result of Section - 12 - 17 481 of the Code, the installment method of accounting or any comparable provision of state or local Tax law; (l) (A) no material amount of property of American is "tax exempt property" within the meaning of Section 168(h) of the Code, (B) no material amount of assets of American is subject to a lease under Section 7701(h) of the Code, and (C) American is not a party to any material lease made pursuant to Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect prior to the date of enactment of the Tax Equity and Fiscal Responsibility Act of 1982; and (m) immediately following the Merger, American will not have any material amount of income or gain that has been deferred under Treasury Regulation Section 1.1502-13, or any material excess loss account in a Subsidiary under Treasury Regulation Section 1.1502-19. 4.9 Employee Retirement Income Security Act of 1974. (a) American (which for purposes of this Section 4.9 shall include any ERISA Affiliate) currently sponsors, maintains and contributes only to the Plans and Benefit Arrangements set forth in Section 4.9(a) of the American Disclosure Schedule. American has delivered or made available to Mergeparty true, complete and correct copies of (1) each Plan and Benefit Arrangement (or, in the case of any unwritten Plans or Benefit Arrangements, reasonable descriptions thereof), (2) the two most recent annual reports on Form 5500 (including all schedules and attachments thereto) filed with the Internal Revenue Service with respect to each Plan (if any such report was required by Applicable Law), (3) the most recent summary plan description (or similar document) for each Plan for which such a summary plan description is required by Applicable Law or was otherwise provided to plan participants or beneficiaries and (4) each trust agreement and insurance or annuity contract or other funding or financing arrangement relating to any Plan. To the knowledge of American, each such Form 5500 and each such summary plan description (or similar document) does not, as of the date hereof, contain any material misstatements. Except as set forth in Section 4.9(a) of the American Disclosure Schedule, as to all Plans and Benefit Arrangements listed in Section 4.9(a) of the American Disclosure Schedule: (i) all such Plans and Benefit Arrangements comply and have been administered in form and in operation in accordance with their respective terms, and with all Applicable Laws, in all material respects, and American has not received any notice from any Authority disputing or investigating such compliance; (ii) all such Plans maintained by American that are intended to comply with Sections 401 and 501 of the Code comply in all material respects with all applicable requirements of such sections, and no Event has occurred which is known to American which will give rise to disqualification of any such Plan under such sections or to a tax under Section 511 of the Code and each such Plan has been the subject of a determination letter from the Internal Revenue Service to the effect that such Plan and related trust is qualified and exempt from Federal income Taxes under Sections 401(a) and 501(a), respectively, of the Code; no such determination letter has been revoked, and, to the knowledge of American, revocation has not been threatened. American has delivered or made available to Mergeparty a copy of the most recent determination letter received with respect to each Plan for which such a letter has been issued, as well as a copy of any pending application for a determination letter. American has also provided or made - 13 - 18 available to Mergeparty a list of all Plan amendments as to which a favorable determination letter has not yet been received; (iii) none of the assets of any such Plan are invested in employer securities or employer real property; (iv) there are no Claims (other than routine Claims for benefits or actions seeking qualified domestic relations orders) pending or, to American's knowledge, threatened involving such Plans or the assets of such Plans, and, to American's knowledge, no facts exist which are reasonably likely to give rise to any such Claims (other than routine Claims for benefits or actions seeking qualified domestic relations orders); (v) no such Plan is subject to Title IV of ERISA, and American has no actual or potential liability thereunder; (vi) all group health Plans of American have been operated in compliance in all material respects with the group health plan continuation coverage requirements of COBRA; (vii) neither American nor, to its knowledge, any of its directors, officers, employees or any other fiduciary has committed any breach of fiduciary responsibility imposed by ERISA or any similar Applicable Law that would subject American or any of its respective directors, officers or employees to liability under ERISA or any similar Applicable Law; (viii) American is not and never has been a party to any Multiemployer Plan or made contributions to any such Plan; (ix) except as set forth in the American Financial Statements and pursuant to the provisions of COBRA, American does not maintain any Plan that provides for post-retirement medical or life insurance benefits, and American does not have any obligation or liability with respect to any such Plan previously maintained by it, except as the provisions of COBRA may apply to any former employees or retirees of American; (x) all material contributions to, and material payments from, the Plans and Benefit Arrangements that may have been required to be made in accordance with the terms of the Plans and Benefit Arrangements, and any applicable collective bargaining agreement, have been made. All such contributions to, and payments from, the Plans and Benefit Arrangements, except those payments to be made from a trust qualified under Section 401(a) of the Code, for any period ending before the Closing Date that are not yet, but will be, required to be made, will be properly accrued and reflected in the Closing Balance Sheet; (xi) (1) no "prohibited transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA) has occurred that involves the assets of any Plan; (2) no prohibited transaction has occurred that could subject American, any of its employees, or, to the knowledge of American, a trustee, administrator or other fiduciary of any trust created under any Plan to the tax or sanctions on prohibited transactions imposed by Section 4975 of the Code or Title I of ERISA; (3) none of American, any of its ERISA Affiliates or, to the knowledge of American, any trustee, administrator or other fiduciary of any Plan or any agent of any of the foregoing has - 14 - 19 engaged in any transaction or acted in a manner that could, or has failed to act so as to, subject American or any trustee, administrator or other fiduciary to any liability for breach of fiduciary duty under ERISA or any other Applicable Law; (xii) American has not incurred any material liability to a Plan (other than for contributions not yet due) which liability has not been fully paid or accrued for payment as of the date hereof; (xiii) except as otherwise contemplated by this Agreement, no current or former employee of American will be entitled to any additional benefits or any acceleration of the time of payment or vesting of any benefits under any Plan or Benefit Arrangement as a result of the transactions contemplated by this Agreement; (xiv) no compensation payable by American to any of its employees under any existing Plan, Benefit Arrangement (including by reason of the transactions contemplated hereby) will be subject to disallowance under Section 162(m) of the Code; (xv) any amount that could be received (whether in cash or property or the vesting of property) as a result of any of the transactions contemplated by this Agreement by any employee, officer, director or independent contractor of American who is a "disqualified individual" (as such term is defined in proposed Treasury Regulation Section 1.280G-1) under any employment arrangement would not be characterized as an "excess parachute payment" (as such term is defined in Section 280G(b)(1) of the Code); (xvi) no Plan which is an employee stock ownership plan (an "ESOP") constitutes a leveraged employee stock ownership plan within the meaning of Section 4975(e)(7) of the Code and there are no unallocated shares of stock of American currently held under any such ESOP in a suspense account; and (xvii) there are no outstanding options (or contractual obligations to issue options) to acquire American Common Stock or other American securities other than options held by employees or directors of American and issued under Benefit Arrangements (the aggregate number of which are as set forth in Section 4.11 of the American Disclosure Schedule). (b) The execution, delivery and performance by American of this Agreement and the Collateral Documents executed or required to be executed by American pursuant hereto and thereto will not involve any prohibited transaction within the meaning of ERISA or Section 4975 of the Code. 4.10 Insurance. All material fire and casualty, general liability, business interruption, product liability, and sprinkler and water damage insurance policies maintained by American or any of its Subsidiaries (other than the Tower Subsidiaries) are with reputable insurance carriers, provide full and adequate coverage, for American and such Subsidiaries (other than the Tower Subsidiaries) and their respective properties and assets, and are in character and amount at least equivalent to that carried by Persons engaged in similar businesses and subject to the same or similar perils or hazards, except where the failure to maintain such insurance policies, either individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect on American. - 15 - 20 4.11 Authorized Capital Stock. The authorized and outstanding capital stock, Option Securities and Convertible Securities of American, as of September 18, 1997, are as set forth in Section 4.11 of the American Disclosure Schedule. Except as set forth in Section 4.11 of the American Disclosure Schedule, since September 18, 1997, American has not issued any shares of capital stock of any class, any Option Securities or any Convertible Securities, except for the issue of American Common Stock pursuant to the conversion of Convertible Securities or the exercise of Option Securities outstanding on September 18, 1997 and in each case in accordance with their present terms or as otherwise described or contemplated by the Filed American SEC Documents. All of such outstanding capital stock has been duly authorized and validly issued, is fully paid and nonassessable and is not subject to any preemptive or similar rights. American has, prior to the date hereof, made available to Mergeparty a true and correct copy of the Restated Certificate of Incorporation of American (the "Restated Certificate") as in effect on the date hereof. Except as set forth in Section 4.11 of the American Disclosure Schedule, there are no bonds, debentures, notes or other indebtedness of American outstanding having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of American may vote. Except as set forth in Section 4.11 of the American Disclosure Schedule, or, except as set forth in the Restated Certificate, there are no contractual obligations of American or any of its Subsidiaries outstanding to repurchase, redeem or otherwise acquire any shares of capital stock of American or any of its Subsidiaries. Except as contemplated by the provisions of Section 6.20 hereof or as set forth in Section 4.11 of the American Disclosure Schedule, there are no contractual obligations of American to vote or to dispose of any shares of the capital stock of any of its Subsidiaries. 4.12 Employment Arrangements. Except as described in the Filed American SEC Documents or in Section 4.12 of the American Disclosure Schedule, as of the date hereof (i) none of the employees of American or any of its Subsidiaries (other than the Tower Subsidiaries) is now, or, to American's knowledge, since November 1, 1993 and while an employee of American or any of its Subsidiaries has been, represented by any labor union or other employee collective bargaining organization, or are now, or, to American's knowledge, since November 1, 1993 have been, parties to any labor or other collective bargaining agreement, (ii) there are, to American's knowledge, no pending labor strikes, work stoppages, lockouts, slow downs, grievances (including unfair labor charges), disputes or controversies with any union or any other employee or collective bargaining organization of such employees, or threats of such labor strikes, work stoppages, lockouts or slowdowns or any pending demands for collective bargaining by any union or other such organization, and (iii) neither American nor any of its Subsidiaries (other than the Tower Subsidiaries) nor any of its or any of their employees is now, or, to American's knowledge, since November 1, 1993 has been, subject to or involved in or, to American's knowledge, threatened with, any union elections, petitions therefor or other organizational or recruiting activities. American and its Subsidiaries (other than the Tower Subsidiaries) have performed all obligations required to be performed under all Employment Arrangements and none of them is in breach or violation of or in default or arrears under any of the terms, provisions or conditions thereof, except for such breaches, violations, defaults and arrears, which either individually or in the aggregate, have not had and are not reasonably likely to have a Material Adverse Effect on American. 4.13 Voting Requirements. Section 4.13 of the American Disclosure Schedule sets forth a list of certain stockholders of American and the number of shares of Class A Common and Class B Common owned of record by each such stockholder as of the date hereof and the number of outstanding shares of Class A Common Stock and/or of Class B Common Stock as of September 18, 1997. The affirmative vote of the holders of shares of American Common Stock, representing a majority of the outstanding - 16 - 21 voting power of American Common Stock, voting as a single class (the "Required Vote"), is the only vote necessary to approve and adopt this Agreement and the transactions contemplated by this Agreement. As of September 18, 1997, 31,408,544 votes constituted a majority of the outstanding voting power of American Common Stock. 4.14 Brokers. No broker, investment banker, financial advisor or other person, other than Credit Suisse First Boston Corporation ("CSFB"), the fees and expenses of which will be paid by American, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement. American has furnished to Mergeparty true and complete copies of all agreements under which any such fees or expenses may be payable and all indemnification and other agreements related to the engagement of the persons to whom such fees may be payable. 4.15 Information Supplied. The Information Statement will not, at the date it is first mailed to the American stockholders (and, in the event American shall prepare a Proxy Statement pursuant to Section 6.6 hereof, at the time of the American Stockholders Meeting, the Proxy Statement will not) contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. For purposes of the foregoing, the truth of any information or the existence of any omissions at the time of any American Stockholders Meeting shall be determined with reference to the Proxy Statement as then amended or supplemented. The Information Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder. Notwithstanding the foregoing, no representation or warranty is made by American with respect to statements made or incorporated by reference therein based on information supplied by Mergeparty or Mergeparty Subsidiary including materials of Mergeparty and Mergeparty Subsidiaries incorporated by reference in the Information Statement. 4.16 Ordinary Course of Business. Except as may be described in the Filed American SEC Documents or in Section 4.9(a) or Section 4.16 of the American Disclosure Schedule and except for the Tower Merger or Tower Distribution, as the case may be, since June 30, 1997 to the date hereof, (i) each of American and its Subsidiaries (other than the Tower Subsidiaries) has operated its business in the normal, usual and customary manner in the ordinary and regular course of business, consistent with prior practice (it being understood and agreed for purposes of this Section 4.16 by the parties that the acquisition, disposition and exchange of radio stations is in the ordinary course of business) and (ii) there has not been by American and its Subsidiaries (other than the Tower Subsidiaries) (a) any declaration, setting aside or payment of any dividend or other distribution payable in cash, stock, property or otherwise except for (x) the payment of dividends or the making of distributions by a direct or indirect wholly-owned Subsidiary of American and (y) the payment of dividends on shares of American Preferred Stock in accordance with their terms, (b) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (c) (I) any granting to any executive officer or other key employee of American or any of its Subsidiaries of any increase in compensation, except for normal increases in the ordinary course of business consistent with past practice or as required under Benefit Arrangements, (II) any granting to any such executive officer of any increase in severance or termination pay, except as was required under any Benefit Arrangement, (III) except in the ordinary course, any entering into, amendment in any material respect or termination of any Governmental Authorization, Private Authorization or material agreement, arrangement, contract, undertaking, understanding or other - 17 - 22 obligation, or (IV) any adoption or amendment of any Plan or Benefit Arrangement (including changing any actuarial or other assumption used to calculate funding obligations with respect to any Plan, or changing the manner in which contributions to any Plan are made or the basis on which such contributions are determined) except as required to comply with changes in Applicable Law, (d) except insofar as may have been disclosed in the Filed American SEC Documents or required by a change in GAAP, any change in accounting methods, principles or practices by American materially affecting its assets, liabilities or business, (e) any sale, disposition or contract to dispose of any of its properties or assets having a value in excess of $1,000,000 other than in the ordinary course, and (f) any damage, destruction or loss, whether or not covered by insurance, that has had a Material Adverse Effect on American. 4.17 Environmental Matters. Except as set forth in the American SEC Documents or Section 4.17 of the American Disclosure Schedule, American: (a) (i) has not been notified in writing that it is potentially liable and, has not received any written request for information or other correspondence concerning its potential liability with respect to any site or facility, under or pursuant to any Environmental Law, (ii) to the knowledge of American, is not a potentially responsible party" under, the Comprehensive Environmental Response, Compensation and "Liability Act of 1980, as amended, the Resource Conservation and Recovery Act, as amended, or any similar state Law, and (iii) to the knowledge of American, is not the subject of or, to the knowledge of American, threatened with any Legal Action involving a demand for damages or other potential liability, including any Lien, with respect to violations or breaches of any Environmental Law; (b) to the knowledge of American, is in compliance with all Environmental Laws and has obtained all Environmental Permits required under Environmental Laws, except for such noncompliances and failures to obtain Environmental Permits as, individually or in the aggregate, have not had and would not be reasonably likely to have a Material Adverse Affect on American; (c) (i) has not entered into or received any consent decree, compliance order or administrative order issued pursuant to any Environmental Law, and (ii) is not a party in interest or in default under any judgment, order, writ, injunction or decree of any Final Order issued pursuant to any Environmental Law; and (d) to the knowledge of American, there have not been any releases, spills or disposal activities of or involving Hazardous Materials, including without limitation from underground storage tanks, on or from any property owned, operated or leased by American which releases, spills or disposal activities resulted or could reasonably be expected to result in investigation and cleanup expenditures which upon payment of such expenditures would be reasonably likely to have a Material Adverse Effect on American. Notwithstanding anything to the contrary contained in this Agreement, American makes no representation or warranty with respect to its compliance with Environmental Laws or environmental matters generally, except as specifically set forth in this Section 4.17. 4.18 State Takeover Statutes. Except for Section 203 of the DCL, to American's knowledge, no other state takeover Law, statute or similar statute or regulation applies or purports to apply to the Merger, this Agreement or any of the transactions contemplated by this Agreement. - 18 - 23 4.19 Opinion of Financial Advisor. American has received the opinion of CSFB, dated the date of this Agreement, to the effect that, as of such date, the Merger Consideration to be received by the holders of American Common Stock in the Merger is fair from a financial point of view to the holders of American Common Stock. 4.20 Contracts; Debt Instruments. (a) Except as set forth in Section 4.20 of the American Disclosure Schedule, neither American nor any of its Subsidiaries is in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice, or both, would cause such a violation of or default under) any material agreement, arrangement, contract, undertaking, understanding or other obligation, including the American Preferred Stock ("Contracts"), to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults, that individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect on American, and none of the Contracts prohibits American from incurring an additional $1.00 of indebtedness. (b) American has made available to Mergeparty (i) true and correct copies of all Contracts to which any indebtedness of American or any of its Subsidiaries (other than the Tower Subsidiaries) in an aggregate principal amount in excess of $1,000,000 is outstanding or may be incurred and (ii) accurate information regarding the respective principal amounts currently outstanding as of the date hereof thereunder. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF MERGEPARTY Except as set forth with respect to specifically identified representations and warranties in the Mergeparty Disclosure Schedule, Mergeparty represents and warrants to American as follows: 5.1 Organization and Business; Power and Authority; Effect of Transaction. (a) Each of Mergeparty and Mergeparty Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of organization and has all requisite power and authority (corporate and other) to own or hold under lease its properties and to conduct its business as now conducted and as presently proposed to be conducted. Each of Mergeparty and Mergeparty Subsidiary is duly qualified and in good standing as a foreign corporation in each other jurisdiction (as shown on Section 5.1(a) of the Mergeparty Disclosure Schedule) in which the character of the property owned or leased by it or the nature of its business or operations requires such qualification, with full power and authority (corporate and other) to carry on the business in which it is engaged, except in such jurisdictions where the failure to be so qualified and in good standing, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect on Mergeparty. (b) Each of Mergeparty and Mergeparty Subsidiary has all requisite power and authority (corporate and other) to execute, deliver and perform its obligations under this Agreement and each Collateral Document executed or required to be executed by Mergeparty and/or Mergeparty Subsidiary pursuant hereto or thereto or to consummate the Merger and the other transactions contemplated hereby - 19 - 24 and thereby, and the execution, delivery and performance of this Agreement and each Collateral Document executed or required to be executed pursuant hereto have been duly authorized by all requisite corporate or other action on the part of Mergeparty and/or Mergeparty Subsidiary, and no other corporate proceedings on the part of Mergeparty and/or Mergeparty Subsidiary are necessary to authorize this Agreement or the transactions contemplated hereby or to consummate the Merger or the other transactions so contemplated. This Agreement has been duly executed and delivered by each of Mergeparty and Mergeparty Subsidiary and constitutes, and each Collateral Document executed or required to be executed pursuant hereto or to consummate the Merger when executed and delivered by Mergeparty and/or Mergeparty Subsidiary will constitute, a valid and binding obligation of Mergeparty and/or Mergeparty Subsidiary, enforceable in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, moratorium, insolvency and similar laws affecting the rights and remedies of creditors and obligations of debtors generally and by general principles of equity. As of the date hereof, the Boards of Directors of each of Mergeparty and Mergeparty Subsidiary, at meetings duly called and held at which a quorum was present throughout, have unanimously approved the Merger and this Agreement. The Board of Directors of Mergeparty has, as the sole stockholder of Mergeparty Subsidiary, approved and adopted this Agreement and the Merger, and the transactions contemplated hereby. (c) At the time of execution of this Agreement, Mergeparty and all of its Affiliates or "associates" (as defined in the Exchange Act) collectively beneficially own less than 5% of the outstanding shares of American Common Stock. (d) The execution, delivery and performance by each of Mergeparty and/or Mergeparty Subsidiary of this Agreement and any Collateral Document executed or required to be executed by such party pursuant hereto or thereto, do not, and the consummation by Mergeparty Subsidiary of the Merger and the other transactions hereby and thereby and compliance with the terms, conditions and provisions hereof or thereof by Mergeparty and/or Mergeparty Subsidiary will not: (i) (A) conflict with, or result in a breach or violation of, or constitute a default under, any Organic Document of Mergeparty or Mergeparty Subsidiary or (B) any Applicable Law applicable to Mergeparty or Mergeparty Subsidiary, or conflict with, or result in a breach or violation of, or constitute a default under, or permit the termination, cancellation or acceleration of any obligation or liability in, or but for any requirement of the giving of notice or passage of time or both would constitute such a conflict with, breach or violation of, or default under, or permit any such termination, cancellation or acceleration of, any Contract or Private Authorization of Mergeparty or Mergeparty Subsidiary, except, in the case of clause (B), for such conflicts, breaches, violations, terminations, cancellations or accelerations that would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect on Mergeparty; or (ii) result in or permit the creation or imposition of any Lien upon any property now owned or leased by Mergeparty or Mergeparty Subsidiary except for such Liens that would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect on Mergeparty or Mergeparty Subsidiary; or (iii) require any Governmental Authorization or Governmental Filing except for (A) the FCC Consents, (B) filings under the Hart-Scott-Rodino Act, (C) the filing with the - 20 - 25 Commission of such reports under Section 13(a) or 15(d) of the Exchange Act as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (D) the filing of the Certificate of Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which American is qualified to do business and (E) such other Governmental Authorizations and Governmental Filings the failure of which to be made or obtained would, individually or in the aggregate, not be reasonably likely to have a Material Adverse Effect on American. (e) Mergeparty Subsidiary was formed solely for the purpose of engaging in the transactions contemplated by this Agreement and has not engaged in any business activities or conducted any operations other than in connection with the transactions contemplated by this Agreement. 5.2 Compliance with Governmental Authorizations and Applicable Law; Litigation. Except as disclosed in any report or other document filed by Mergeparty with the SEC prior to the date hereof or in Section 5.2 of the Mergeparty Disclosure Schedule, there are no Legal Actions pending or, to the knowledge of Mergeparty, threatened against Mergeparty or any of its Subsidiaries, except for Legal Actions that, individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect on Mergeparty or prevent or materially burden or materially impair the ability of Mergeparty to consummate the transactions contemplated by this Agreement. Except as set forth in Section 5.2 of the Mergeparty Disclosure Schedule, there are not facts relating to Mergeparty (or any Affiliate thereof) under the FCA that would disqualify it (or any Affiliate or assignee) from obtaining control of the American FCC Licenses or that would prevent it (or any Affiliate or assignee) from consummating the transactions contemplated by this Agreement or, to Mergeparty's knowledge, materially delay the grant of the FCC Consents. Except as may be set forth in Section 5.2 of the Mergeparty Disclosure Schedule, it is not necessary for Mergeparty or any of its Subsidiaries or other Affiliates (or assigns) to (a) seek or obtain any waiver from the FCC, (b) dispose of any interest in any media or communications property or interest (including without limitation any of the American Stations or the American Brokered Stations), (c) terminate any venture or arrangement, or (d) effectuate any change or restructuring of ownership (including without limitation the removal or withdrawal of officers or directors or the conversion or repurchase of equity securities in Mergeparty or any Affiliate) to obtain, or to avoid any delay in obtaining, the FCC Consents. Mergeparty is able to certify on an FCC Form 315 that it is financially qualified. 5.3 Opinion of Financial Advisor. The Board of Directors of Mergeparty has received the opinion of Chase Securities Inc., dated the date of this Agreement, to the effect that, as of such date, the aggregate Merger Consideration to be paid by Mergeparty is fair to Mergeparty from a financial point of view. 5.4 Mergeparty Financing. On the Closing Date, Mergeparty will have sufficient funds to consummate the transactions contemplated by this Agreement, including without limitation the Merger, and to pay all related fees and expenses. - 21 - 26 ARTICLE 6 COVENANTS 6.1 Access to Information; Confidentiality. American shall afford to Mergeparty and its accountants, counsel, investment bankers, financial advisors and other agents and representatives (the "Representatives") full access during normal business hours throughout the period prior to the Closing Date to all of its (and its Subsidiaries', other than those of the Tower Subsidiaries) properties, books, contracts, commitments and records (including without limitation Tax Returns) and, during such period, shall furnish promptly upon request (i) a copy of each report, schedule and other document filed or received by it pursuant to the requirements of any Applicable Law (including without limitation the FCA) or filed by it or any of its Subsidiaries (other than the Tower Subsidiaries) with any Authority in connection with the Merger or which may have a material effect on it or its business, financial condition or results of operations, and (ii) such other information concerning any of the foregoing as Mergeparty shall reasonably request; provided, however, that the foregoing shall not require American to permit any disclosure or to disclose any information, that in the reasonable judgment of American would result in the disclosure of any trade secrets of third parties or violate any of its obligations with respect to confidentiality if American shall have used its best efforts to obtain the consent of such third party to such inspections or disclosure. All requests for information shall be directed to an executive officer of American or such other Persons as may be designated by American. All information disclosed pursuant to this Section or otherwise shall be governed by the terms of the Confidentiality Agreement, the terms and provisions of which are incorporated herein by reference with the same force and effect as though set forth here in their entirety. No investigation pursuant to this Section or otherwise shall affect any representation or warranty of American in this Agreement or any condition to the obligations of Mergeparty hereto. 6.2 Agreement to Cooperate. (a) Upon the terms and subject to the conditions set forth in this Agreement, each of the parties hereto shall use best efforts (x) to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate the Merger and the Tower Merger or Tower Disposition, as the case may be, and (y) to refrain from taking, or cause to be taken, any action and to refrain from doing or causing to be done, any thing which could impede or impair the consummation of the Merger and the Tower Merger or Tower Distribution, as the case may be, including, in all cases, without limitation using its best efforts (i) to prepare and file with the applicable Authorities as promptly as practicable after the execution of this Agreement all requisite applications and amendments thereto, together with related information, data and exhibits, necessary to request issuance of orders approving the Merger by all such applicable Authorities, (ii) to obtain all necessary or appropriate waivers, consents and approvals, (iii) to effect all necessary registrations, filings and submissions, (iv) to defend any suit, action or proceeding, whether judicial or administrative, challenging the Merger or any of the transactions contemplated by the Merger Agreement, including seeking to lift any injunction or other legal bar to the Merger (and, in such case, to proceed with the Merger as expeditiously as possible), and (v) to obtain the satisfaction of the conditions specified in Article 7, including without limitation the securing of all authorizations, consents, waivers, modifications, order or approvals referred to in Sections 7.1(b) and 7.1(d). - 22 - 27 (b) Without limiting the generality of the foregoing, the parties acknowledge and agree that the transfer of control of the American FCC Licenses as contemplated by this Agreement is subject to the prior consent and approval of the FCC. Within twenty (20) business days following the date of this Agreement, American and Mergeparty shall file with the FCC appropriate applications requesting the FCC's written consent to the transfer of control of the American FCC Licenses pursuant to this Agreement and have caused all necessary persons to join in one or more such applications filed with the FCC (the "Applications"). American and Mergeparty will use their best efforts to take such steps as may be necessary (i) diligently to prosecute the Applications and to prepare and file any further Applications or amendments as may be necessary to obtain the consent for the transfer of control to Mergeparty of the licenses held by the American Brokered Stations to be acquired by American and (ii) to obtain the FCC Consents, including action by Mergeparty, at its sole cost and expense (except as provided elsewhere in this Agreement), to satisfy or cause to be removed all Divestiture Conditions, if any. The failure by American or Mergeparty to use its best efforts to timely file or diligently prosecute its portion of any Application or, in the case of Mergeparty, the failure to use its best efforts to make any Required Divestiture or otherwise satisfy or cause to be removed all Divestiture Conditions on or before the Termination Date, shall be a material breach by American or Mergeparty, as the case may be, of this Agreement. American agrees that any delay in prosecuting the Applications or obtaining the FCC Consents resulting from Mergeparty's good faith negotiations, subject to Applicable Law, with the FCC, Antitrust Division or FTC with respect to the imposition of a Divestiture Condition shall not constitute a failure by Mergeparty to use its best efforts diligently to prosecute the Applications or obtain the FCC Consents and so long as such negotiations do not interfere with satisfaction of all conditions to Closing prior to the Termination Date. If reconsideration or judicial review is sought with respect to any FCC Consent, American and Mergeparty shall (promptly and with all due efforts) oppose such efforts to obtain reconsideration or judicial review. (c) Without limiting the generality of Section 6.2(a), the parties undertake and agree to file as soon as practicable after the date hereof, and in any event within ten (10) business days hereof, a Notification and Report Form under the Hart-Scott-Rodino Act with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division"). Each of the parties shall (i) use its best efforts to comply as expeditiously as possible with all lawful requests of the FTC or the Antitrust Division for additional information and documents and (ii) not extend any waiting period under the Hart-Scott-Rodino Act or enter into any agreement with the FTC or the Antitrust Division not to consummate the transactions contemplated by this Agreement, except with the prior written consent of the other party hereto; provided, however, that nothing shall limit the ability of Mergeparty to extend the 20-day waiting period under the Hart-Scott-Rodino Act following substantial compliance with any request for additional information that may be forthcoming, if such extension is reasonably necessary to allow the continuation of good-faith negotiations intended to remove any objection to the transaction that the FTC or Antitrust Division may have asserted, and if such extension will expire not less than 30 days prior to the Termination Date. (d) Anything in this Agreement, including without limitation Section 6.2(b), to the contrary notwithstanding, Mergeparty shall obtain the FCC Consents and clearances under the Hart-Scott-Rodino Act and the grant of any waivers in connection therewith prior to the Termination Date in accordance with this Agreement unless the failure to obtain such FCC Consents, clearances and waivers is primarily the result of one or more Uncontrollable Events. For purposes of this Agreement, the term "Uncontrollable Events" shall mean (i) acts or omissions on the part of American or any of its Subsidiaries in conducting its respective operations other than those relating to the number of American - 23 - 28 FCC Licenses or amount of revenues in a particular market, (ii) an unremedied or unwaived material breach by American of its obligations under this Agreement, or (iii) any change in or enactment of Applicable Law by Congress and signed by the President and which (A) has the effect of decreasing the number of radio licenses which a Person may own nationally or locally or (B) materially and adversely relates to the concentration of radio licenses which a Person may own in a market, and as a result of the change or enactment referred to in either clause (A) or (B) above, Mergeparty's performance of its obligations under this Agreement would have a Material Adverse Effect on Mergeparty's radio and television broadcasting business. Mergeparty shall file with the FCC, within sufficient time to permit timely grant of the Applications, applications for consent to assign or transfer, pursuant to trust arrangements satisfying the FCC's local multiple ownership rules and policies, such radio broadcast stations as Mergeparty may designate, so that the radio broadcast stations of Mergeparty and American not designated for such trust arrangements may be held by the Surviving Corporation in compliance with the FCC's local multiple ownership rules and policies. Mergeparty shall, to the extent necessary to obtain grant of the trust applications, thereafter promptly file or cause to be filed any further applications (including applications to assign radio broadcast stations to third party purchasers for value) that may be required by the FCC. Notwithstanding the two preceding sentences, with regard to stations located in the San Jose market, the obligations of Mergeparty to submit trust or sale applications shall be excused for such stations to the extent and for the duration of the period that Mergeparty is unable to identify the stations to be placed in trust or sold because of the failure of American to notify Mergeparty of the resolution of the Antitrust Division impediment impacting the American transactions pending in the San Jose market. (e) If Mergeparty or any of its Affiliates receives an administrative or other order or notification relating to any violation or claimed violation of the rules and regulations of the FCC, or of any other Authority (including without limitation seeking or relating to a Divestiture Condition), that could affect Mergeparty's or Mergeparty Subsidiary's ability to consummate the transactions contemplated hereby, or if Mergeparty or any other Affiliate of Mergeparty should become aware of any fact relating to the qualifications of Mergeparty or any of its Affiliates that reasonably could be expected to cause the FCC to withhold its consent to the assignment of the American FCC Licenses, Mergeparty shall promptly notify American thereof and American shall do likewise with Mergeparty and Mergeparty shall use its best efforts, and take such steps as are necessary, in order to satisfy or remove the Divestiture Conditions to enable the Closing to occur prior to the Termination Date. Mergeparty covenants and agrees to keep American fully informed as to all matters concerning all Required Divestitures and shall promptly notify American in writing of any and all significant developments relating thereto and American agrees to do likewise with Mergeparty. (f) Mergeparty acknowledges and agrees that certain of the American Stations and American Brokered Stations may file applications for renewal of license during the time that an application for the FCC Consents is pending before the FCC. To the extent any such application for renewal may be filed, Mergeparty agrees to amend the transferee's portion of any application for the FCC Consents and, as may be required, to amend any license renewal applications for all of the American Stations or American Brokered Stations, to confirm Mergeparty's intention to consummate this Agreement during the pendency of such license renewal application, and to agree to assume the consequences associated with succeeding to the place of American in such license renewal applications. The making of this statement shall not be deemed to limit or waive any other rights that Mergeparty may otherwise have under this Agreement. - 24 - 29 (g) The parties shall cooperate with one another in the preparation, execution and filing of all Tax Returns, questionnaires, applications, or other documents regarding any real property transfer or gains, sales, use, transfer, value added, stock transfer and stamp Taxes, any transfer, recording, registration and other fees, and any similar Taxes which become payable in connection with the Merger that are required or permitted to be filed on or before the Closing Date. (h) Subject to Applicable Laws relating to the exchange of information, American, on the one hand, and Mergeparty, on the other hand, shall have the right to review in advance, and to the extent practicable each will consult the other with respect to, all the information relating to American or Mergeparty, as the case may be, and any of their respective Subsidiaries, that appear in any filing made with, or written materials submitted to, any Authority and/or other Person in connection with the Merger and the other transactions contemplated by this Agreement. In exercising the foregoing right, each of American and Mergeparty shall act reasonably and as promptly as practicable. 6.3 Public Announcements. Until the Closing, or in the event of termination of this Agreement, each party shall consult with the other before issuing any press release or otherwise making any public statements with respect to this Agreement or the Merger and shall not issue any such press release or make any such public statement without the prior consent of the other. Notwithstanding the foregoing, the parties acknowledge and agree that they may, without each other's prior consent, issue such press releases or make such public statements as may be required by Applicable Law, in which case, to the extent practicable, they will consult with the other regarding the nature, content and form of such press release or public statement. 6.4 Notification of Certain Matters. Each party shall give prompt notice to the other, of the occurrence or non-occurrence of any Event the occurrence or non-occurrence of which would be reasonably likely to cause (i) any representation or warranty made by it contained in this Agreement to be untrue or inaccurate in any material respect or (ii) any failure made by it to comply with or satisfy, or be able to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by it under this Agreement in any material respect, such that, in any such case, one or more of the conditions of Closing would not be satisfied; provided, however, that the delivery of any notice pursuant to this Section shall not limit or otherwise affect the rights and remedies available hereunder to the party receiving such notice or the obligations of the party delivering such notice and shall not, in any event, affect the representations, warranties, covenants and agreements of the parties or the conditions to their respective obligations under this Agreement. 6.5 Stockholder Approval. If, after the date hereof, approval and adoption of this Agreement shall be required by the American stockholders under Applicable Law (the "American Stockholder Approval"), American will, as soon as practicable following the date thereof, establish a record date (which will be as soon as practicable following the date hereof) for, duly call, give notice of, convene and hold a meeting of its stockholders (the "American Stockholders Meeting") for the purpose of obtaining the American Stockholder Approval. American will, through its Board of Directors, recommend to its stockholders approval and adoption of this Agreement, subject to the fiduciary duties of the Board of Directors of American under Applicable Law. American shall, if it desires in its sole and absolute discretion, also submit for the approval of its stockholders at the meeting of stockholders referred to in this Section 6.5, the Tower Merger, the Tower Distribution or an Alternative Transaction, as the case may be, and, through its Board of Directors, recommend to its stockholders approval of an agreement - 25 - 30 contemplating the Tower Merger, the Tower Distribution or an Alternative Transaction, as the case may be, and approval of such transaction. 6.6 Information Statement. (a) In the event the American Stockholders Meeting is not required because Mergeparty shall have delivered to American valid written consents of stockholders constituting the Required Vote, then American shall prepare and file with the Commission as soon as is reasonably practicable after the date hereof an information statement (the "Information Statement") complying with applicable rules and regulations of the Commission and the DCL. Mergeparty and American shall promptly furnish to the other all information, and take such other actions, as may reasonably be requested in connection with any action taken to comply with the provisions of this Section 6.6. (b) Each of American and Mergeparty shall correct promptly any information provided by it to be used specifically in the Information Statement that shall have become false or misleading in any material respect and shall take all steps necessary to file with the Commission and have cleared by the Commission any amendment or supplement to the Information Statement so as to correct such Information Statement and cause it to be disseminated to the stockholders of American, to the extent required by Applicable Law. Without limiting the generality of the foregoing, American shall notify Mergeparty promptly of the receipt of the comments of the Commission and of any request by the Commission for amendments or supplements to the Information Statement, or for additional information, and shall supply Mergeparty with copies of all correspondence between it or its representatives, on the one hand, and the Commission or members of its staff, on the other hand, with respect to the Information Statement. Whenever any event occurs which should be described in an amendment or a supplement to the Information Statement, American shall, upon learning of such event, promptly prepare, file and clear with the Commission and mail to the stockholders of American such amendment or supplement; provided, however, that, prior to such mailing, (i) American shall consult with Mergeparty with respect to such amendment or supplement, (ii) shall afford Mergeparty reasonable opportunity to comment thereon, and (iii) each such amendment or supplement shall be reasonably satisfactory to Mergeparty. (c) In the event American shall be required to call the American Stockholders Meeting pursuant to Section 6.5 hereof, all references to the Information Statement in this Agreement shall be deemed to be references to the Proxy Statement. 6.7 Miscellaneous. Nothing contained in this Agreement shall prohibit American from (a) taking and disclosing to its stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or (b) making any disclosure to American's stockholders if, in the good faith judgment of the majority of the members of the Board of Directors of American, after consultation with independent counsel, failure to so disclose would be inconsistent with Applicable Laws. 6.8 Option Plans. (a) With respect to each unexpired option to purchase American Common Stock that is outstanding immediately prior to the Tower Merger or Tower Distribution, as applicable (each, an "American Option") which is held by employees or directors of American or any of its Subsidiaries (each, an "Optionholder") immediately prior to the Tower Merger or the Tower Distribution, as the case may be, American shall, or shall cause American Tower to, hold in escrow the consideration that the - 26 - 31 Optionholder would have received in connection with the Tower Merger or the Tower Distribution, as applicable, had the Optionholder exercised such American Option and held the American Common Stock received upon exercise thereof through the record date of the Tower Merger or Tower Distribution, as applicable (the "Tower Consideration"). The Tower Consideration shall be held in escrow by American or, in its sole and absolute discretion, a reputable financial institution, pending the consummation of the Merger. Notwithstanding the terms of any Benefit Arrangement or any agreement evidencing the grant of an American Option to the contrary, no adjustment will be made to the American Options (including, but not limited to, the exercise price or number of shares of American Common Stock subject to an American Option) in respect of the Tower Merger or Tower Distribution, as applicable, except as provided in this Section 6.8. (b) All American Options outstanding immediately prior to the Effective Time, except as provided otherwise in this Section 6.8, will be canceled by American and will be converted into the right to receive the Merger Consideration. At the Effective Time, each Optionholder shall receive, with respect to each unexpired American Option of the Optionholder so canceled by American, solely (x) the Tower Consideration held in escrow pursuant to Section 6.8(a) above, plus (y) an amount in cash equal to the Merger Consideration reduced by the exercise price of the American Option. Except as provided in the preceding sentence, no other consideration will be paid by American to an Optionholder in respect of his or her canceled American Options. If the Merger is not consummated, the cancellation of the Optionholder's American Options shall be rescinded and the Optionholder shall continue to hold such American Options upon their original terms and conditions. At the election of any Optionholder who is a "disqualified individual" (as such term is defined in proposed Treasury Regulation Section 1.280G-1), this Section 6.8(b) will be inoperative with respect to such American Options as he or she may specify to the extent that the acceleration, vesting cancellation and cash-out of American Options at the Effective Time as provided herein would constitute an "excess parachute payment" (as such term is defined in Section 280G(b)(1) of the Code). Any Optionholder who makes such election shall forfeit the American Options which are subject to such election and shall receive no consideration therefor. (c) With respect to American Options held by Tower Employees, notwithstanding the foregoing provisions of this Section 6.8 and in lieu thereof, and subject to the approval of the provisions of this Section 6.8 by the Board of Directors of American and the Compensation Committee thereof, such Tower Employees may elect to have their American Options assumed by American Tower and converted into options to acquire Tower Common Stock as of the effective time of the Tower Merger or Tower Distribution, as the case may be, such conversion to be effectuated in a manner that will preserve the spread in such American Options between the option exercise price and the fair market value of American Common Stock and the ratio of the spread to the exercise price prior to such conversion and, to the extent applicable, otherwise in conformity with the rules under Section 424(a) of the Code and the regulations promulgated thereunder. (d) American will use its best efforts (including best efforts to obtain any consents of Optionholders, if required) to cause the cancellation of all of the American Options immediately prior to the Effective Time. (e) Notwithstanding the foregoing provisions of this Section 6.8, in the event that any amount payable under Section 6.8(b) to an Optionholder in respect of his American Options would fail to be deductible by American (or any successor thereto) solely by reason of Section 162(m) of the Code (after taking into account all amounts paid or reasonably expected to be payable to the Optionholder in the same - 27 - 32 taxable year in which the payments under Section 6.8(b) are made to the Optionholder and which are not otherwise exempt from Code Section 162(m) in determining whether any amount payable to the Optionholder will fail to be deductible thereunder), then, with respect to such portion of the Optionholder's American Options the cancellation and cash-out of which would be nondeductible under said Section 162(m) (the "Section 162(m) Options"), such Section 162(m) Options shall be canceled in accordance with the foregoing provisions of this Section 6.8, but the payments of the Tower Consideration and other cash consideration contemplated in Section 6.8(b) hereof in respect of the Optionholder's Section 162(m) Options shall be made to the Optionholder on the 110th day following the Effective Time. American shall use its best efforts to obtain the written consent of each Optionholder affected by this Section 6.8(e) to the foregoing provisions hereof. (f) All amounts payable hereunder to an Optionholder shall be reduced by any applicable withholding taxes. Notwithstanding anything to the contrary in this Agreement, American shall have the right, in its sole and absolute discretion, to accelerate, on such terms and conditions as it shall determine, in whole or in part, the vesting of any or all of the American Options outstanding on the date hereof so that such American Options are exercisable in full prior to the Effective Date. 6.9 Conduct of Business by Mergeparty Pending the Merger. Except as otherwise contemplated by this Agreement, or as has been publicly disclosed prior to the date hereof, after the date hereof and prior to the Closing Date or earlier termination of this Agreement unless American shall otherwise agree in writing, with respect to Mergeparty's media business, Mergeparty shall, and shall cause its Subsidiaries, to: (i) conduct their respective businesses in the ordinary and usual course of business and consistent with past practice, which includes the acquisition of other radio broadcasting stations; (ii) not amend or propose to amend its Organic Documents in any manner materially adverse to the holders of the American Preferred Stock; (iii) use all best efforts to preserve intact their respective business organizations and goodwill, keep available the services of their respective present officers and key employees, and preserve the goodwill and business relationships with customers and others having business relationships with them and not engage in any action, directly or indirectly, with the intent to adversely affect the transactions contemplated by this Agreement; and (iv) not authorize or enter into any agreement that would violate any of the foregoing. 6.10 Conduct of Business by American Pending the Merger. Except as set forth in Section 6.10 of the American Disclosure Schedule or as otherwise contemplated by this Agreement, including without limitation the transactions contemplated by the Tower Documentation and Section 6.19 hereof, after the date hereof and prior to the Closing Date or earlier termination of this Agreement, unless Mergeparty shall otherwise consent in writing, American shall, and shall cause its Subsidiaries, to: - 28 - 33 (i) conduct their respective businesses in the ordinary and usual course of business and consistent with past practice; (ii) not (A) amend or propose to amend their respective Organic Documents, (B) split, combine or reclassify (whether by stock dividend or otherwise) their outstanding capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of, or in substitution for shares of its capital stock, or (C) declare, set aside or pay any dividend or distribution payable in cash, stock, property or otherwise, except for (x) the payment of dividends or the making of distributions by a direct or indirect wholly-owned Subsidiary of American and (y) the payment of dividends on shares of the American Preferred Stock in accordance with their terms; (iii) not issue, sell, pledge or dispose of, or agree to issue, sell, pledge or dispose of, any shares of American Stock, Convertible Securities or Option Securities, except that American may issue shares of American Common Stock upon conversion of Convertible Securities and exercise of Option Securities outstanding on the date hereof and in accordance with their present terms, including any adjustment to the conversion price of Convertible Securities as a result of the Tower Distribution or Tower Merger; (iv) not (A) incur or become contingently liable with respect to any indebtedness other than (x) short-term borrowings not to exceed $25 million in the aggregate outstanding at any one time, (y) borrowings to finance pending acquisitions of radio stations set forth in Section 6.10 of the American Disclosure Schedule and, pursuant to agreements in effect on the date hereof and (z) borrowings not to exceed $120 million to finance a capital contribution by American to Tower, (B) redeem, purchase, acquire or offer to purchase or acquire any shares of its capital stock, Convertible Securities or Option Securities, except pursuant to the conversion or exercise thereof, as the case may be, or except to the extent required by the present terms thereof, (C) sell, lease, license, pledge, dispose of or encumber any properties or assets or sell any businesses other than pursuant to agreements in effect on the date hereof and set forth in Section 6.10 of the American Disclosure Schedule or Liens arising in accordance with the provisions of indebtedness in effect on the date hereof and in accordance with their present terms, or (D) make any loans, advances or capital contributions to, or investments in, any other Person, other than to any direct or indirect wholly owned Subsidiary of American (other than the Tower Subsidiaries) and, except as provided in clause (z) above, or to officers and employees of American or any of its Subsidiaries for travel, business or relocation expenses in the ordinary course of business; (v) use all reasonable efforts to preserve intact their respective business organizations and goodwill, keep available the services of their respective present officers and key employees, and preserve the goodwill and business relationships with customers and others having business relationships with them and not engage in any action, directly or indirectly, with the intent to adversely impact the transactions contemplated by this Agreement; (vi) confer on a regular and frequent basis with one or more representatives of Mergeparty to report material operational matters and the general status of ongoing operations; - 29 - 34 (vii) not adopt, enter into, amend or terminate any employment, severance, special pay arrangement with respect to termination of employment or other similar arrangements or agreements with any directors, officers or key employees; (viii) maintain with financially responsible insurance companies insurance on their respective tangible assets and their respective businesses in such amounts and against such risks and losses as are consistent with past practice; (ix) not make any Tax election that could reasonably be likely to have a Material Adverse Effect on American or settle or compromise any material income Tax liability; (x) except in the ordinary course of business or except as would not reasonably be likely to have a Material Adverse Effect on American, not modify, amend or terminate any Material Agreement to which American or any Subsidiary is a party or waive, release or assign any material rights or claims thereunder; (xi) not make any material change to its accounting methods, principles or practices, except as may be required by GAAP; (xii) not acquire or agree to acquire (x) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any Person or other business organization or division thereof or (y) any assets that, individually or in the aggregate, are material to American and its Subsidiaries taken as a whole, in each case, other than pursuant to agreements in effect on the date hereof and set forth in the Section 6.10 of the American Disclosure Schedule (Mergeparty agrees not to unreasonably withhold, delay or condition a consent to any matters described in this paragraph); (xiii) except as set forth in Section 4.9(a) or Section 4.16 of the American Disclosure Schedule, (a) not grant to any executive officer or other key employee of American or any of its Subsidiaries any increase in compensation, except for normal increases in the ordinary course of business consistent with past practice or as required under Benefit Arrangements in effect as of June 30, 1997, (b) not grant to any such executive officer any increase in severance or termination pay, except as was required under any Benefit Arrangements in effect as of June 30, 1997, or (c) not adopt or amend any Plan or Benefit Arrangement (including change any actuarial or other assumption used to calculate funding obligations with respect to any Plan, or change the manner in which contributions to any Plan are made or the basis on which such contributions are determined) and (d) except in the ordinary course, not enter into, amend in any material respect or terminate any Governmental Authorization (except as would not be reasonably likely to have a Material Adverse Effect on American), material Private Authorization or Contract; and (xiv) not authorize or enter into any agreement that would violate any of the foregoing. Anything in this Section to the contrary notwithstanding, the provisions of this Section shall not apply to any of the Tower Subsidiaries. 6.11 Control of Operations. Nothing contained in this Agreement shall give to Mergeparty, directly or indirectly, rights to control or direct American's operations prior to the Effective Time. Prior - 30 - 35 to the Effective Time, American shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision of its operations. Nothing contained in this Agreement shall give to American, directly or indirectly, rights to control or direct Mergeparty's operations prior to the Effective Time. Prior to the Effective Time, Mergeparty shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision of its operations. 6.12 Directors', Officers' and Employees' Indemnification and Insurance. (a) The Organic Documents of the Surviving Corporation shall contain provisions no less favorable with respect to indemnification than are set forth in the Organic Documents of American, as in effect on the date hereof, which provisions shall not be amended, repealed or otherwise modified for a period of six (6) years from the Effective Time in any manner that would affect adversely the rights thereunder of individuals who at any time prior to the Effective Time were directors, officers or employees of American or any of its Subsidiaries, unless such modification shall be required by Applicable Law. (b) From and after the Effective Time, Mergeparty shall indemnify, defend and hold harmless the present and former officers, directors and employees of American or any of its Subsidiaries (collectively, the "Indemnified Parties") against all losses, expenses, claims, damages, liabilities or amounts that are paid in settlement of, or otherwise in connection with any claim, action, suit, proceeding or investigation (as used in this Section, a "claim"), based in whole or in part on the fact that the Indemnified Party (or the Person controlled by the Indemnified Party) is or was a director, officer or employee of American or any of its Subsidiaries and arising out of actions or omissions occurring at or prior to the Effective Time (including, without limitation, in connection with this Agreement, the Merger, the Tower Merger or Tower Distribution, as the case may be, and the transactions contemplated hereby), whether asserted or claimed prior to, at or after the Effective Time, in each case to the fullest extent permitted under the DCL (and shall pay any expenses, as incurred, in advance of the final disposition of any such action or proceeding to each Indemnified Party to the fullest extent permitted under the DCL). Without limiting the foregoing, in the event any such claim is brought against any of the Indemnified Parties, (i) such Indemnified Parties may retain counsel (including local counsel) satisfactory to them and which shall be reasonably satisfactory to Mergeparty and they shall pay all reasonable fees and expenses of such counsel for such Indemnified Parties; and (ii) Mergeparty shall use its best efforts to assist in the defense of any such claim; provided, however, that Mergeparty shall not be liable for any settlement effected without its written consent, which consent shall not be unreasonably withheld, delayed or conditioned. Notwithstanding the foregoing, nothing contained in this Section shall be deemed to grant any right to any Indemnified Party which is not permitted to be granted to an officer, director or employee of Mergeparty under the DCL, assuming for such purposes that Mergeparty's Organic Documents provide for the maximum indemnification permitted by the DCL. (c) Mergeparty will cause to be maintained for a period of not less than six (6) years from the Effective Time American's current directors' and officers' insurance and indemnification policy to the extent that it provides coverage for events occurring prior to the Effective Time ("D&O Insurance") for all Persons who are directors and officers of American on the date of this Agreement, so long as the annual premium therefor would not be in excess of 200% of the last annual premium therefor paid prior to the date of this Agreement (the "Maximum Premium"); provided, however, that if the annual premiums of such insurance coverage exceed such amount, Mergeparty shall only be obligated to obtain the greatest coverage available under such policy for a cost not exceeding such amount, provided further, - 31 - 36 however, that Mergeparty may, in lieu of maintaining such existing D&O Insurance as provided above, cause coverage to be provided under any policy maintained for the benefit of Mergeparty or any of its Subsidiaries, so long as the terms thereof are no less advantageous to the intended beneficiaries thereof than the existing D&O Insurance. If the existing D&O Insurance expires, is terminated or canceled during such six-year period, Mergeparty will use its best efforts to cause to be obtained as much D&O Insurance as can be obtained for the remainder of such period for an annualized premium not in excess of the Maximum Premium, on terms and conditions no less advantageous to the covered Persons than the existing D&O Insurance. American represents to Mergeparty that the Maximum Premium is not greater than $500,000. (d) In the event Mergeparty or Mergeparty Subsidiary or any of their respective successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person, then and in each such case, proper provisions shall be made so that the successors and assigns of Mergeparty or Mergeparty Subsidiary, as the case may be, shall assume the obligations set forth in this Section. (e) This Section is intended to be for the benefit of, and shall be enforceable by, the Indemnified Parties, their heirs and personal representatives and shall be binding on Mergeparty, Mergeparty Subsidiary and their respective successors and assigns. 6.13 Solicitation of Employees. If this Agreement is terminated, Mergeparty agrees that neither it nor any of its Subsidiaries or other Affiliates will, for a period of eighteen (18) months from the date of such termination, solicit or actively seek to hire any key employees (including without limitation any station manager, sales manager, program director or any individual senior to any of such individuals) who during such period is employed by American or any of its Subsidiaries, whether or not such individual would commit breach of such individual's employment agreement or contact in leaving such employment; provided, however, that the foregoing shall not prevent Mergeparty from taking any action permitted by the Confidentiality Agreement. 6.14 Change of Name. Within ten (10) days after the Closing, Mergeparty shall cause each of its Subsidiaries, if necessary, to file certificates of amendment with the appropriate Secretary of State, amending such company's Organic Documents to change the name of such company to any name which does not include the words "American Radio". Immediately prior to the Closing, American will assign to American Tower or its designee all right, title and interest, including all the good will related thereto, in and for past infringements of the name "American Radio" and related trademarks, service marks, logos and the like. As soon as commercially practicable, but in no event later than six (6) months from the Closing Date, Mergeparty Subsidiary and its Subsidiaries shall cease all use of the name "American Radio" in all modes. 6.15 Benefit Plans. Mergeparty shall take such action as may be necessary so that on and after the Effective Time and for one (1) year thereafter, officers and employees of American and its Subsidiaries (other than Tower Employees) shall be provided employee benefits, plans and programs (excluding equity incentive arrangements) which are no less favorable in the aggregate than those generally available to those employee benefit plans and programs in effect for such officers and employees immediately prior to the Effective Time; it being understood that Mergeparty shall determine the types and levels of specific benefits to be so provided. For purposes of eligibility to participate and - 32 - 37 vesting in all benefits provided to directors, officers and employees of American and its Subsidiaries (other than Tower Employees), such directors, officers and employees of American and its Subsidiaries will be credited with their years of service with American and its Subsidiaries and prior employers to the extent service with American and its Subsidiaries and prior employers is taken into account under the applicable plans of American and its Subsidiaries as in effect as of the date hereof. Upon termination of any health plan of American or any of its Subsidiaries, individuals who were directors, officers or employees of American or its Subsidiaries at the Effective Time (other than Tower Employees) shall if employed by Mergeparty or its Subsidiaries become eligible to participate in such health plans as may be established or maintained by Mergeparty or its Subsidiaries to the extent that such individuals were eligible to participate in the applicable health plan of American or its Subsidiaries immediately prior to the Effective Time. Amounts paid during the calendar year in which the Effective Time occurs, but before the Effective Time, by directors, officers and employees of American and its Subsidiaries (other than Tower Employees) under any health plans of American shall after the Effective Time be taken into account in applying deductible and out-of-pocket limits applicable under the health plans of Mergeparty or its Subsidiaries provided during such calendar year to the same extent as if such amounts had been paid under such health plans of Mergeparty or its Subsidiaries and Mergeparty shall cause to be waived under its health plans any pre-existing conditions as of the date of termination of the American health plan and eligibility to participate in such health plan to the extent such conditions would be waived under the applicable plans of American and its Subsidiaries as in effect on the date hereof. Nothing in this Agreement shall be construed as granting to any employee of American or its Subsidiaries any rights of continuing employment. 6.16 American Cumulative Preferred Stock. To the extent permitted under Contracts, pursuant to which any indebtedness for money borrowed of American or any of its Subsidiaries is outstanding as of the date hereof and by the American Preferred Stock, American shall pay all interest in respect of the American Cumulative Preferred Stock in cash. 6.17 American Tower Transaction. Prior to the Closing and subject to Section 2.8 hereof, American shall consummate the Tower Merger or the Tower Distribution pursuant to the Tower Documentation or, to the extent contemplated hereby, the Alternative Transaction. As soon as practicable following the execution of this Agreement and in any event prior to the consummation of the Tower Merger or the Tower Distribution, as the case may be, American shall prepare, in consultation with Mergeparty and its counsel, the definitive documentation to be executed by American and American Tower to effect the Tower Merger or the Tower Distribution, as the case may be; and submit such documentation to Mergeparty for its approval, which approval shall not be unreasonably withheld, delayed or conditioned (as approved, the "Tower Documentation"), and American and American Tower shall execute and deliver the Tower Documentation in the form so approved. Mergeparty and American agree that the Tower Documentation shall include or be prepared on a basis consistent with the following: (a) American Tower or American Tower Sub, as applicable, shall indemnify, defend and hold American and its Subsidiaries (other than the Tower Subsidiaries, collectively in this Section the "American Tower Group") harmless from and against any liabilities (other than income tax liabilities) to which American or any of its Subsidiaries (other than the American Tower Group) may be or become subject that relate to or arise from the assets, business, operations, debts or liabilities of the American Tower Group, including without limitation (i) the assets to be transferred to American Tower pursuant to Section 6.17(g), (ii) liabilities to be assumed by any member of the American Tower Group as contemplated herein, whether arising prior to, concurrent with or after the Tower Merger or the Tower - 33 - 38 Distribution, as the case may be, (iii) liabilities relating to or arising from any untrue statement or alleged untrue statements of a material fact contained in the Information Statement or in any document filed or required to be filed in connection with the Tower Merger or the Tower Distribution, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, but in each case only with respect to information provided by or relating to the American Tower Group, (iv) any economic impact related to or arising from the failure to obtain any Governmental Authorizations, Private Authorizations or other third party consents, or to make any Governmental Filings, necessary to consummate the Tower Merger or the Tower Distribution, as the case may be, and (v) the rental and related expenses for the relevant portion of the leased premises located at 116 Huntington Avenue, Boston, Massachusetts in the event of the failure to obtain the landlord's consent to the assignment of the obligations relating to, or sublease of, such relevant portion of such premises. (b) American shall indemnify, defend and hold the American Tower Group harmless from and against any liabilities (other than income tax liabilities) to which the American Tower Group may be or become subject that relate to or arise from the assets, business, operations, debts or liabilities of American or its Subsidiaries (other than the American Tower Group) whether arising prior to, concurrent with or after the Tower Merger or the Tower Distribution, as the case may be. (c) The Tower Documentation shall include an agreement that addresses issues of the allocation of Tax liabilities and deconsolidation of American and the American Tower Group which shall contain principles to the following effect: (i) The tax sharing agreement among members of the American Tower Group and American and its other Subsidiaries shall be terminated as of the effective date of the Tower Merger (the "Tower Merger Date") or of the Tower Distribution (the "Tower Distribution Date"), as the case may be, and will have no further effect for any taxable year (whether the current year, a future year, or a past year). (ii) American shall include the income of the American Tower Group (including any deferred income triggered into income by Reg. Section .1.1502-13 and Reg. Section .1.1502-14 and any excess loss accounts taken into income under Reg. Section .1.1502-19) on American's consolidated federal income Tax returns and consolidated or combined state and local income Tax returns to the extent such income is properly includible thereon for all periods through the Tower Merger Date or the Tower Distribution Date, as the case may be, and pay any income Taxes attributable to such income. American Tower shall reimburse American for any such federal, state and local income Taxes payable by the American Tax Group attributable to such income, as determined on a separate company basis; provided, however, that American Tower shall have no reimbursement obligation if American has no income Tax liability on a consolidated basis as a result of a net operating loss or to the extent that the income of the American Tower Group is offset by a net operating loss under the principles of clause 6.17(c)(v). The American Tower Group will furnish Tax information to American for inclusion in American's federal consolidated income Tax return for the period which includes the Tower Merger Date or the Tower Distribution Date, as the case may be, in accordance with American Tower's past custom and practice. The income of the American Tower Group will be apportioned to the period up to and including the Tower Merger Date or the Tower Distribution Date, as the case may be, and the period after the Tower Merger - 34 - 39 Date or the Tower Distribution Date, as the case may be, by closing the books of the American Tower Group as of the end of such date. (iii) American Tower shall indemnify the American Tax Group and Mergeparty for all Taxes imposed by any Taxing Authority on any member of the American Tax Group or on Mergeparty (or on any member of its consolidated tax group) as a result of or in connection with the sale or transfer of assets to the American Tower Group pursuant to Section 6.17(g) (or between members of the American Tax Group prior to the final transfer to a member of the American Tower Group), and the Tower Merger or the Tower Distribution, as the case may be, including without limitation any Taxes on any gain to any member of the American Tax Group arising under Section 311 of the Code, any Taxes on any deferred gain to any member of the American Tax Group triggered as a result of or upon any such event, any gain attributable to any excess loss account triggered upon any such event, any taxes arising as a result of an election under Section 336(e) of the Code made at the request of the American Tower Group as provided in clause 6.17(c)(xii), and any transfer Taxes arising from any such event; provided that such indemnity shall only apply to the extent that the additional liability for such Taxes payable by the American Tax Group as a consequence of such events (on a "but for" basis) exceeds $20,000,000. (iv) If as a result of any payment by American Tower to any member of the American Tax Group or to Mergeparty pursuant to this Section 6.17(c) (including this clause (iv)) Mergeparty (or any member of its consolidated group for Federal income tax purposes) or any member of the American Tax Group becomes liable in any taxable year to pay any Taxes in excess of the Taxes they would have owed in the absence of any such payment by American Tower, American Tower will indemnify such Person for such Tax liability and make such Person whole on an after-tax basis for such Tax liability. (v) For the purposes of clauses 6.17(c)(ii) and (iii), net operating losses of the American Tax Group shall be reduced and deemed absorbed in the following order for each taxable year of the American Tax Group: first, by all income unrelated to the transactions contemplated by this Agreement of members of the American Tax Group other than members of the American Tower Group for the entire applicable taxable year of the American Tax Group; second, by income of the American Tower Group described in clause 6.17(c)(ii); and third, by income of the American Tax Group described in Section 6.17(c)(iii). Mergeparty shall have no claim under either Section 6.17(c)(ii) or (iii) for additional Tax liability arising in subsequent taxable years solely as a result of the absorption of net operating losses of the American Tax Group in this manner. (vi) American shall control any audit or contest relating to Taxes attributable to the American Tax Group. To the extent such audit or contest relates to Taxes that American Tower is obligated to reimburse or indemnify American under this agreement, American shall (x) regularly consult with American Tower in connection with such audit or contest; (y) provide American Tower with periodic reports on the status of such audit or contest; and (z) not enter into a settlement agreement relating to such audit or contest that materially prejudices American Tower without American Tower's consent. (vii) If pursuant to any Tax audit or contest there is an adjustment to any Taxes that are reimbursable or indemnifiable by the American Tower Group to any member of the American - 35 - 40 Tax Group under this Agreement, including clauses 6.17(c)(ii), (iii) and (iv), then (x) any additional Taxes imposed on the American Tax Group as a result of such adjustment shall be indemnified by the American Tower Group; and (y) any refund of Taxes paid to the American Tax Group as a result of such adjustment of amounts previously indemnified by American Tower shall be promptly paid over to American Tower (including additional amounts to make American Tower whole on an after-Tax basis, not exceeding amounts previously paid by American Tower Group with regard to such Taxes). (viii) American Tower shall not have the right to any refund, credit (or other reduction) of Taxes realized by the American Tax Group resulting from a carry back of a post-acquisition Tax attribute of any of the American Tower Group into a Tax Return filed by the American Tax Group. (ix) American Tower, American and Mergeparty agree to attempt in good faith to mutually agree on such terms as promptly as practicable after the date hereof. If American Tower, American and Mergeparty cannot agree on such terms, then any disagreement shall be resolved by an arbitrator jointly selected by American Tower, American and Mergeparty. The arbitrator shall be a law or accounting firm nationally recognized in tax matters. The costs of such arbitration shall be shared equally by American Tower and American. The decision of the arbitrator shall be binding on all parties. (x) American shall not elect to retain any net operating loss carryovers or capital loss carryovers of the American Tower Group. (xi) The indemnities of the American Tower Group described in this Section 6.17(c) shall apply to all applicable Taxes whenever they shall arise. (xii) At the request of any member of the American Tower Group, American agrees that it shall, and shall cause its Subsidiaries or other appropriate Affiliates to, make and/or cooperate with members of the American Tower Group in making an election under Section 336(e) of the Code with respect to the Tower Merger or the Tower Distribution, as the case may be. (d) The Tower Documentation shall provide for the registration under applicable federal and state securities laws of the securities of American Tower Sub to be issued in the Tower Merger or the securities of American Tower to be issued in the Tower Distribution, as the case may be, and upon the exercise of the American Options if such registration is either required under Applicable Law or would otherwise be required to cause such securities to be freely transferable by Persons not Affiliates of American Tower, and customary representations and warranties regarding information contained in filings made with the Commission or any other Authority in connection with the Tower Merger or the Tower Distribution, as the case may be. The Tower Documentation shall provide for an amendment to the American Tower or American Tower Subsidiary certificate of incorporation to establish an authorized capitalization and other terms similar to American's and the authority of the Board of Directors of American Tower or American Tower Subsidiary, as the case may be, to establish stock plans or issue stock or other securities of such entities or rights thereto. (e) The Tower Documentation shall provide that American shall obtain all Governmental Authorizations, Private Authorizations or other third party consents, and make any necessary - 36 - 41 Governmental Filings, necessary to consummate the Tower Merger or Tower Distribution, as the case may be, except where the failure to obtain such consents, in the aggregate, would not (i) be reasonably likely to have any adverse effect on American, (ii) materially impair the ability of American to perform its obligations under this Agreement or the Tower Documentation, or (iii) materially delay or prevent the consummation of the Merger or the Tower Merger or the Tower Distribution, as the case may be. The Tower Documentation shall provide that the Tower Merger or the Tower Distribution, as the case may be, shall be done in compliance with American's certificate of incorporation and by-laws and in material compliance with all Applicable Laws. (f) At the time of the Tower Merger or the Tower Distribution, as the case may be, a member of the American Tower Group shall assume (i) to the extent permitted by the landlord, the obligations under the lease of 116 Huntington Avenue, Boston, Massachusetts, with respect to the relevant portion of such leased premises or, if such permission is not obtained, sublease such relevant portion, and (ii) all liabilities with respect to which indemnification is provided under Section 6.17(a). American shall cause all members of the American Tower Group to be released from all other liabilities; provided, that, American Tower agrees to reimburse American for any expenses incurred in obtaining such Release. American and its Subsidiaries (other than the American Tower Group) shall release the American Tower Group from all Claims by American or its Subsidiaries (other than the American Tower Group), and the American Tower Group shall release American and its other Subsidiaries from all Claims by the American Tower Group, in each case except for Claims arising from or attributable to the transactions contemplated by this Agreement or any Collateral Document or otherwise asserted prior to the Effective Time. (g) Except as otherwise provided by Section 6.19, American shall, or shall cause its Subsidiaries to, as applicable, contribute, transfer or convey to American Tower the assets described in Section 6.17 of the American Disclosure Schedule, and American Tower shall assume all of American's and such Subsidiaries' obligations with respect to such assets to the extent so set forth. (h) The Tower Documentation shall not include any representations or warranties by American or American Tower relating to the business, operations, assets, debts or liabilities of American and its Subsidiaries (other than the American Tower Group) or the American Tower Group. (i) On the Closing Date, the employees of American listed in Section 6.17 of the American Disclosure Schedule (the "Tower Employees") shall be offered full-time employment by American Tower or one of its Subsidiaries. If the Tower Merger or Tower Distribution occurs prior to the Closing Date, such employees shall continue to be employed by American (at American's expense), but shall devote such time as deemed reasonably necessary, consistent with their obligations to American, in support of the conduct of the Tower Business by the American Tower Group on a basis consistent with the time and scope of services that such employees devoted and provided to the Tower Business prior to the Tower Merger or Tower Distribution, as the case may be. Effective immediately prior to the Effective Time, American Tower shall assume all obligations arising under any Plan or Benefit Arrangement between American or any of its Subsidiaries and the Tower Employees other than the rights, if any, of the Tower Employees with respect to the American Options (which are being satisfied by American as provided in Section 6.8) and all existing rights to indemnification. Such assumption agreement shall provide that American and its Subsidiaries, effective as of the Effective Time (or effective as of the Tower Merger Date or the Tower Distribution Date, as the case may be, as to any member of the Tower Employees that devotes substantially all of his or her business time to the Tower Business) shall be - 37 - 42 indemnified by American Tower from all obligations arising under such employment agreements or arrangements (except in respect of the American Options and all existing rights to indemnification). For a period of eighteen (18) months following the consummation of the Tower Merger or the Tower Distribution, as the case may be, members of the American Tower Group shall not actively solicit or seek to hire any employees of American or its Subsidiaries not currently engaged in the Tower Business, other than the Tower Employees, it being understood and agreed that such agreement shall not be deemed to prevent members of the American Tower Group from placing general advertisements in publications or on the Internet or soliciting any such employee who (i) initiates employment discussions with a member of the American Tower Group or (ii) is not employed by American or Mergeparty or any of their respective Subsidiaries on the date such a member first solicits such employee. (j) Anything in this Section or elsewhere in this Agreement to the contrary notwithstanding, (i) any references in this Section or elsewhere in this Agreement to Tower Merger shall in the event American elects to pursue the Tower Distribution be deemed to refer to the Tower Distribution, and (ii) any references in this Section or elsewhere in this Agreement to Tower Distribution shall in the event American elects to pursue the Tower Merger be deemed to refer to the Tower Merger. (k) In the event that at any time prior to the Effective Time American desires to effect a disposition of the American Tower Group (or all or substantially all its assets), other than pursuant to the Tower Merger or the Tower Distribution (an "Alternative Transaction"), Mergeparty agrees to cooperate with American with respect thereto and to make any appropriate modifications to this Agreement and any Collateral Documents relating to such transaction, provided that such transaction does not adversely affect the net economic benefits of the transactions contemplated hereby or by the Collateral Documents to Mergeparty (or, if it does, the American Tower Group or the Entity acquiring it (or all or substantially all its assets) indemnifies American with respect thereto) and provided further that the American Tower Group or the Entity acquiring the American Tower Group (or all or substantially all its assets) will have substantially the same obligations to Mergeparty as American Tower Group would have pursuant to the Merger Agreement and the Collateral Documents and that such Entity shall be no less financially able to meet such obligations than American Tower. (l) At the request of American Tower and subject to the requirements and restrictions imposed on American by any of its financing documents (as from time to time amended), American shall, from time to time after the date hereof and prior to the Tower Merger Date or the Tower Distribution Date, as the case may be, permit American Tower to (i) acquire (whether by merger, stock or asset acquisition or otherwise) additional businesses engaged in the business in which American Tower is engaged, (ii) construct additional communication towers, or (iii) make other capital improvements on assets owned or leased by American Tower or its Subsidiaries, and in each such case make additional capital contributions in American Tower, or make loan to American Tower, of the funds. (m) Notwithstanding anything in this Agreement to the contrary, the consummation of the transactions contemplated by this Section and in the Tower Documentation or any action or inaction taken in furtherance thereof shall not be deemed to be a breach of any covenant, agreement, warrant or representation of American contained in this Agreement. (n) The indemnification obligations referred to in this Section shall survive the Tower Merger Date or the Tower Distribution Date, as the case may be. - 38 - 43 (o) The Tower Documentation shall provide that prior to the Tower Merger Date or the Tower Distribution Date, as the case may be, American shall amend (i) its Section 401(k) Plan to permit a transfer of the assets held thereunder for the benefit of the Tower Employees to a Section 401(k) Plan to be established by American Tower and, prior to the Tower Merger or Tower Distribution Date, as the case may be, such assets will be so transferred (along with any outstanding qualified domestic relations orders and loans) and (ii) any other Benefit Plan arrangements with respect to Tower Employees to reflect the Tower Merger or the Tower Distribution, as the case may be. (p) The Tower Documentation shall provide that prior to the Effective Time American shall, to the extent requested by Mergeparty, cause the American Tower Group to perform its obligations under the Tower Documentation. (q) In the event the Tower Merger or Tower Distribution, as the case may be, is to be consummated within 24 hours prior to the Effective Time, Mergeparty shall, at the written request of American in its sole and absolute discretion, immediately prior to the Tower Merger or Tower Distribution, as the case may be, and subject to the satisfaction of all of the conditions to the consummation of the transactions contemplated hereby, purchase, at their then fair market value, shares of a new class of American preferred stock that constitutes "Junior Securities" (as defined in the American Cumulative Preferred Stock) in an amount (which shall not in the aggregate exceed $200,000,000) necessary to enable American to consummate the Tower Merger or Tower Distribution, as the case may be, without causing any conflict with, or breach or violation of, or default under, or creating any right to accelerate any obligation or liability in, or causing or creating any of the foregoing after the giving of notice or passage of time or both with, of, under or in any indebtedness of American or the American Cumulative Preferred Stock; provided, however, that anything in this Section or elsewhere in this Agreement to the contrary notwithstanding, in such event such preferred stock shall remain outstanding immediately following the Effective Time. In the event American desires, in its sole and absolute discretion, to consummate the Tower Merger or Tower Distribution, as the case may be, more than twenty-four (24) hours prior to the Effective Time, American shall be free to sell preferred stock to a third party to enable it to consummate the Tower Merger or the Tower Distribution, provided that the terms of such preferred stock shall provide that it is redeemable, at the option of American, at par immediately following the Effective Time and provided further that American Tower shall hold American harmless against the net expenses incurred by it in connection with such sale and issuance of preferred stock. Notwithstanding anything to the contrary in this Agreement, American will not consummate the Tower Merger or Tower Distribution if, on a pro forma basis after giving effect thereto, the fair value and present fair saleable value of American's assets would not exceed American's stated liabilities and identified contingent liabilities, American would not be able to pay its debts as they become absolute and mature, or American's remaining capital would be unreasonably small for the business in which it is engaged. 6.18 Purchase Price Adjustment. (a) Within 90 days after the Closing Date, Mergeparty shall prepare and deliver to American Tower (in the event that the Tower Distribution has been consummated) or American Tower Sub (in the event that Tower Merger has been consummated), as applicable (the "Tower Entity") (i) a consolidated balance sheet (the "Closing Balance Sheet") of American and its Subsidiaries (other than the Tower Subsidiaries) (the "Post-Closing American Group"), prepared from the - 39 - 44 books and records of the Post-Closing American Group, and (ii) a statement (the "Closing Statement") setting forth (A) Working Capital (as defined below) as of the Effective Time ("Closing Working Capital") and (B) Net Debt (as defined below) as of the Effective Time ("Closing Net Debt"), together with a certificate of Mergeparty's chief financial officer that the Closing Statement has been prepared in accordance with this Section 6.18. During the 45-day period following the Tower Entity's receipt of the Closing Statement, the Tower Entity shall be permitted to review (and make copies of) the working papers of Mergeparty relating to the Closing Statement. The Closing Statement shall become final and binding upon the parties on the forty-sixth day following delivery thereof, unless the Tower Entity gives written notice of its disagreement with the Closing Statement ("Notice of Disagreement") to Mergeparty prior to such date. Any Notice of Disagreement shall (i) specify in reasonable detail the nature of any disagreement so asserted, (ii) only include disagreements based on Closing Working Capital or Closing Net Debt (or the components thereof) not being calculated in accordance with this Section 6.18 and (iii) be accompanied by a certificate of the Tower Entity's chief financial officer that he or she concurs with each of the positions taken by the Tower Entity in the Notice of Disagreement. If a Notice of Disagreement is received by Mergeparty in a timely manner, then the Closing Statement (as revised in accordance with clause (A) or (B) below) shall become final and binding on the earlier of (A) the date Mergeparty and the Tower Entity resolve in writing any differences they have with respect to the matters specified in the Notice of Disagreement or (B) the date any disputed matters are finally resolved in writing by the Accounting Firm (as defined below). During the 30-day period following delivery of a Notice of Disagreement, Mergeparty and the Tower Entity shall seek in good faith to resolve in writing any differences which they may have with respect to the matters specified in the Notice of Disagreement. During such period Mergeparty shall have access to (and shall be permitted to make copies of) the working papers of the Tower Entity prepared in connection with the Notice of Disagreement. At the end of such 30-day period, Mergeparty and the Tower Entity shall submit to an independent accounting firm (the "Accounting Firm") for review and resolution any and all matters which remain in dispute and which were properly included in the Notice of Disagreement and each of Mergeparty and Tower Entity shall submit a memorandum setting forth in reasonable detail the basis for its positions. The Accounting Firm shall be a nationally recognized independent public accounting firm agreed upon by Mergeparty and the Tower Entity in writing. Mergeparty and the Tower Entity shall jointly use all reasonable efforts to cause the Accounting Firm to render a decision within thirty (30) days following submission or as promptly thereafter as is practicable. Mergeparty and the Tower Entity agree that judgment may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the party against which such determination is to be enforced. The cost of any dispute resolution (including the fees and expenses of the Accounting Firm and reasonable attorney fees and expenses of the parties) pursuant to this Section 6.18 shall be borne by Mergeparty and the Tower Entity in inverse proportion as they may prevail on matters resolved by the Accounting Firm, which proportionate allocations shall also be determined by the Accounting Firm at the time the determination of the Accounting Firm is rendered on the merits of the matters submitted. (b) Subject to Section 6.18(d), if Closing Working Capital is less than (i) $60,000,000 in the event the Closing Date is on or prior to March 31, 1998 or (ii) $70,000,000 in the event the Closing Date is after March 31, 1998 (the "WC Amount"), the Tower Entity shall, and if Closing Working Capital is greater than the WC Amount, Mergeparty shall, owe the other the amount of such difference. The term "Working Capital" shall mean Current Assets minus Liabilities (in each case as defined below). The - 40 - 45 terms "Current Assets" and "Liabilities" shall mean the current assets and liabilities of the Post-Closing American Group calculated in accordance with GAAP except that (i) outstanding principal amount of indebtedness and liquidation preference of preferred stock shall be excluded, (ii) cash shall be excluded, (iii) accruals for Taxes shall be included except that (A) Tax liabilities relating to the Tower Merger or Tower Distribution, Tax benefits arising from the exercise or cancellation of options between the date of this Agreement and the Effective Time and deferred income Tax assets and liabilities that exist or arise from differences in basis for Tax and financial reporting purposes attributable to acquisitions, exchanges and dispositions or attributable to depreciation and amortization shall not be taken into account and (B) accruals for Taxes relating to acquisitions, exchanges or dispositions shall be determined in accordance with American's past accounting practices, (iv) Current Assets shall be increased by an amount equal to the sum of (x) the amount derived by multiplying $44.00 by the number of shares of American Common Stock held in its treasury as of the Effective Date and (y) the aggregate amount of the spread of $44.00 over the exercise price of each American Option outstanding on the date hereof terminated or cancelled prior to the Effective Time or for which the holder has elected to receive an option to acquire Tower Common Stock in lieu thereof, less the Tax benefit that would have been received with respect to the exercise of such options, (v) Current Assets shall be (A) increased (if the number of shares of American Common Stock issuable upon conversion of the American Convertible Preferred Stock is fewer than 3,750,000) by an amount equal to the amount derived by multiplying $44.00 by the excess of (I) 3,750,000 less (II) the number of shares of American Common Stock issuable upon conversion of the American Convertible Preferred Stock or (B) decreased (if the number of shares of American Common Stock issuable upon conversion of the American Convertible Preferred Stock is greater than 3,750,000) by an amount equal to the amount derived by multiplying $44.00 by the excess of (I) the number of shares of American Common Stock issuable upon conversion of the American Convertible Preferred Stock less (II) 3,750,000 and (vi) liabilities from the radio broadcasting rights contracts for St. Louis Rams games shall be limited to $3,300,000. (c) Subject to Section 6.18(d), if Closing Net Debt is greater than the Debt Amount (as defined below) minus $50,419,000, minus cash received by the Post-Closing American Group in respect of options exercised between the date of this Agreement and the Effective Time (the "CD Amount"), the Tower Entity shall, and if Closing Net Debt is less than the CD Amount, Mergeparty shall, owe the other the amount of such difference. "Debt Amount" shall mean $1,066,721,000, minus the consideration that was expected to be paid (as set forth on Section 6.10(a) of the American Disclosure Schedule) with respect to all acquisitions set forth in Section 6.10(a) of the American Disclosure Schedule which were not consummated prior to the Closing Date, plus the consideration that was expected to be received (as set forth in Section 6.10(a) of the American Disclosure Schedule) with respect to all dispositions set forth in Section 6.10(a) of the American Disclosure Schedule which were not consummated prior to the Closing Date, plus the consideration paid in connection with acquisitions consummated prior to the Closing Date which were not listed in Section 6.10(a) of the American Disclosure Schedule, minus the consideration received in connection with dispositions consummated prior to the Closing Date which were not listed in Section 6.10(a) of the American Disclosure Schedule. The term "Net Debt" shall mean outstanding principal amount of indebtedness (including, without duplication, guarantees of indebtedness) plus outstanding liquidation preference of all preferred stock (other than the American Convertible Preferred Stock) minus cash. (d) Amounts owed pursuant to the first sentence of Section 6.18(c) and the first sentence of 6.18(c) shall be aggregated or netted, as appropriate (the resulting amount, the "Adjustment Amount"). In the event that the Adjustment Amount minus $10,000,000 is greater than $0 (the "Final Adjustment - 41 - 46 Amount"), the party that owes the Final Adjustment Amount shall make payment by wire transfer of immediately available funds of the Final Adjustment Amount together with interest thereon at a rate of interest equal to the lesser of (i) 10% per annum and (ii) if the Tower Entity is being charged a rate of interest by a financial institution, such rate, but in not event lower than the prime rate as reported in the Wall Street Journal on the date the Closing Statement becomes final and binding on the parties, calculated on the basis of the actual number of days elapsed divided by 365, from the date of the Effective Time to the date of actual payment. (e) The scope of the disputes to be resolved by the Accounting Firm is limited to whether the Closing Statement was prepared in compliance with the requirements of this Section 6.18 and the allocation of the costs of dispute resolution, and the Accounting Firm is not to make any other determination. (f) During the period of time from and after the delivery of the Closing Statement to the Tower Entity through the date the Closing Statement becomes final and binding on Mergeparty, American and the Tower Entity, Mergeparty shall cause the Post-Closing American Group to afford to the Tower Entity and any accountants, counsel or financial advisors retained by the Tower Entity in connection with the adjustment contemplated by this Section 6.18 reasonable access (with the right to make copies) during normal business hours to the books and records of the Post-Closing American Group to the extent relevant to the adjustment contemplated by this Section 6.18. (g) Any adjustment pursuant to this Section 6.18 shall be taken into account in the calculation of Tax liability pursuant to clause 6.17(c)(iii), and any increase or decrease in the amount of Taxes that are reimbursable or indemnifiable by the American Tower Group as a result of any such adjustment shall be treated as an adjustment to Taxes for purposes of clause 6.17(c)(vii) 6.19 Tower Leases. In connection with the Tower Merger, Tower Distribution or any Alternative Transaction, as the case may be, Mergeparty and American shall agree on the definitive documentation ("Tower Leases") to be executed by American and American Tower with respect to certain broadcasting towers set forth in Section 6.17(i) the American Disclosure Schedules ("Towers"). The markets in which such Towers, are located and the annual "market price" for each antenna are set forth in Exhibit "B." Except as set forth in Section 6.17(I) of the American Disclosure Schedule, such Towers are now owned or leased by American and shall become the property of American Tower. Each of the Tower Leases shall contain standard and customary terms and conditions and Mergeparty and American specifically agree to the inclusion of the following in each of the Tower Leases: (a) except as provided in clause (b) below with respect to those Tower Leases set forth in Section 6.19 of the American Disclosure Schedule, each Tower Lease shall be for a term of twenty (20) years with four (4) renewal periods of five (5) years each; each such renewal to be upon the same terms and conditions as the original Tower Lease. (b) Prior to the Effective time, American shall use its best efforts to extend the term of each lease set forth in Section 6.19 of the American Disclosure Schedule ("Land Leases") to a minimum duration of twenty (20) years, inclusive of renewal periods, if any, and provide Mergeparty with respect to the Towers subject to the extended Land Leases, tower leases with the equivalent benefits set forth in clauses (c), (d) and (e) and for a minimum duration of twenty (20) years ("Extended Tower Leases"). With respect to any such Land Lease that is not so extended (except with respect to the Land Lease for - 42 - 47 KUFX(FM), which present term of approximately eighteen (18) remaining years shall be deemed to satisfy the foregoing requirement of a minimum duration of twenty (20) years), American, American Tower and Mergeparty shall negotiate in good faith to agree upon definitive documentation to provide Mergeparty with respect to the Towers subject to such Land Leases, tower leases with the benefits equivalent of such Extended Tower Leases or mutually agreed to alternative arrangements providing equivalent value to Mergeparty. (c) each Tower Lease shall provide that no payments shall be payable by Mergeparty for a period of three (3) years from the Effective Time; for the next three (3) years the payments shall be as follows: one-third (1/3) of the market price as set forth in Exhibit B corresponding to each FM antenna (or AM/FM antenna) for year four (4); two-thirds (2/3) for year five (5) and full market price for year six (6); thereafter, for the balance of the term and any renewals thereof, the payments shall be the market price, together with an annual increase every year, beginning for year seven (7), of the lesser of five percent (5%) or the Consumer Price Index for all Urban Consumers over the previous year's payments (except with respect to San Jose (KUFX) and Boston (WNFT) which such payments shall begin at the Effective Time, with respect to Mergeparty, and will begin on January 1, 1998 as between American and American Tower). Notwithstanding the foregoing, Mergeparty acknowledges that Tower Lease payments at the full "market price" indicated on Exhibit B by American to American tower may commence upon such leases becoming the property of American Tower and shall continue until the Effective Time. (d) all expenses for taxes, insurance, maintenance and utilities in respect of each Tower shall be paid by American Tower. (e) American Tower will assume the obligation and responsibility for complying with all Applicable Law with respect to the Towers. ARTICLE 7 CLOSING CONDITIONS 7.1 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of each party to effect the Merger shall, except as hereinafter provided in this Section, be subject to the satisfaction at or prior to the Closing Date of the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by Applicable Law: (a) in the event American shall be required to call the American Stockholders Meeting pursuant to Section 6.5 hereof, the American Stockholder Approval shall have been obtained; (b) the FCC shall have issued the FCC Order (as defined below) approving the applications for transfer of control of American's FCC Licenses in connection with the transactions contemplated herein, and the FCC Order shall have been obtained without the imposition of conditions that would have a Material Adverse Effect on Mergeparty's television and radio broadcasting business; provided that without triggering Mergeparty's right to approve such conditions or restrictions, the FCC Order (i) may condition consummation of the Merger on Mergeparty complying with the numerical limits on local multiple radio ownership imposed by 47 C.F.R. Section 73.3555(a) by affording Mergeparty a period of at least - 43 - 48 six (6) months following the Effective Time within which to comply with such rule through the use of divestiture trusts on terms and conditions required by the FCC, provided further, however, that to the extent that the FCC authority for such divestiture trusts provides for a period of less than six (6) months, (A) American has the right to postpone the Effective Time (and, to the extent necessary, the Termination Date), so that Mergeparty is afforded the six (6) month divestiture period, whether before or after the Effective Time and (B) if American exercises such right, Mergeparty's right to approve such condition shall not be triggered, and (ii) may grant Mergeparty temporary, rather than permanent, waivers of the "one-to-a-market" rule, 47 C.F.R. Section 73.3555(c), so long as such temporary waivers shall remain in effect until at least six (6) months following the effective date of FCC action concluding the ongoing rulemaking proceeding in MM Docket Nos. 91-221, 87-8 (FCC 94-322) or a successor rulemaking proceeding pending at the time of the grant of the FCC Order, that considers the "one-to-a-market" rule. The "FCC Order" shall be an action by the FCC approving the transfer of the American FCC Licenses with respect to which, except as may be waived in writing by Mergeparty in its sole discretion, (i) no timely request for stay, petition for reconsideration or appeal or sua sponte action of the FCC with comparable effect is pending, or (ii) if any of the foregoing is pending, in the judgment of Mergeparty it lacks any substantial merit or is contrary to established FCC precedent, or (iii) if it were to be so granted, it would not have a Material Adverse Effect on Mergeparty's television and radio broadcasting business; and as to which the thirty (30) day time period specified in 47 U.S.C. Section 405(a) for initiating a petition for reconsideration of the grant of the FCC Order has expired; (c) no Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law (whether temporary, preliminary or permanent) that remains in effect and restrains, enjoins or otherwise prohibits consummation of the Merger; and (d) the waiting period applicable to the consummation of the Merger under the Hart-Scott-Rodino Act shall have expired or been terminated. 7.2 Conditions to Obligations of Mergeparty. The obligation of Mergeparty and Mergeparty Subsidiary to effect the Merger shall be subject to the satisfaction of the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by Applicable Law: (a) American shall have furnished Mergeparty, with an opinion, dated the Closing Date of Dow, Lohnes & Albertson, FCC counsel for American, substantially in the form attached hereto as Exhibit C; (b) (i) the representations and warranties of American set forth in this Agreement (other than in Sections 4.11 and 4.13) shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date except (x) to the extent such representations and warranties expressly speak as of an earlier date (in which case such representations and warranties shall be true and correct as of such earlier date) and (y) to the extent that the failure of such representations and warranties to be true and correct, individually or in the aggregate, would not have a Material Adverse Effect on American; provided, however, that for the purpose of this clause (y), representations and warranties that are qualified as to materiality (including by reference to "Material Adverse Effect") shall not be deemed to be so qualified, and (ii) the representations and warranties of American set forth in Sections 4.11 and 4.13 of this Agreement shall be true and correct in all material respects; - 44 - 49 (c) American shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date; (d) between the date of this Agreement and the Closing Date, except as contemplated by this Agreement, including without limitation the Tower Merger or the Tower Distribution or an Alternative Transaction, as the case may be, and except as set forth in Section 4.3 of the American Disclosure Schedule, there shall not have occurred and be continuing any Material Adverse Change in American; and (e) the Tower Merger, the Tower Distribution or an Alternative Transaction shall have been consummated. 7.3 Conditions to Obligations of American. The obligation of American to effect the Merger shall be subject to the satisfaction of the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by Applicable Law: (a) the representations and warranties of Mergeparty set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date except (x) to the extent such representations and warranties expressly speak as of an earlier date (in which case such representations and warranties shall be true and correct as of such earlier date) and (y) to the extent that the failure of such representations and warranties to be true and correct, individually or in the aggregate, would not have a Material Adverse Effect on Mergeparty; provided, however, that for the purpose of this clause (y), representations and warranties that are qualified as to materiality (including by reference to "Material Adverse Effect") shall not be deemed to be so qualified.; (b) Mergeparty shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date; and (c) the Tower Merger, Tower Distribution or an Alternative Transaction shall have been consummated or a Notice of Abandonment shall have been received by Mergeparty. ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER 8.1 Termination. This Agreement may be terminated at any time prior to the Closing Date, whether before or after approval by the stockholders of American: (a) by mutual written consent of American, Mergeparty and Mergeparty Subsidiary; (b) by either Mergeparty or American if any Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law that shall have become final and nonappealable and that restrains, enjoins or otherwise prohibits consummation of the Merger, unless the party seeking such restraint injunction or prohibition or any Affiliate thereof was the terminating party; - 45 - 50 (c) by either Mergeparty or American if the Merger shall not have been consummated by the Termination Date for any reason; provided, however, that the right to terminate this Agreement under this Section 8.1(c) shall not be available to any party whose action or failure to act (or the action or failure to act of any Affiliate) has been a principal cause of or resulted in the failure of the Merger to occur on or before such date and such action or failure to act constitutes a breach of this Agreement; (d) by either Mergeparty or American if the American Stockholder Approval shall not have been obtained at the American Stockholders Meeting duly convened therefor or at any adjournment or postponement thereof or by written consent; (e) by American in the event (i) American is not in material breach of this Agreement and none of its representations or warranties shall have been or become and continue to be untrue in any material respect, and (ii) Mergeparty is in material breach of this Agreement or any of its representations or warranties shall have become and continue to be untrue in any manner that would cause the condition in Section 7.3(a) not to be satisfied, and such a breach or untruth exists and is not capable of being cured by and will prevent or delay consummation of the Merger by or beyond the Termination Date; or (f) by Mergeparty in the event (i) Mergeparty is not in material breach of this Agreement and none of its representations or warranties shall have been or become and continue to be untrue in any material respect, and (ii) American is in material breach of this Agreement or any of its representations or warranties shall have become and continue to be untrue in any manner that would cause the condition in Section 7.2(b) not to be satisfied, and such a breach or untruth exists and is not capable of being cured by and will prevent or delay consummation of the Merger by or beyond the Termination Date. The term "Termination Date" shall mean September 30, 1998, as such date may from time to time be extended pursuant to the provisions of Section 7.1(b) or by mutual agreement of the parties. The right of Mergeparty or American to terminate this Agreement pursuant to this Section shall remain operative and in full force and effect regardless of any investigation made by or on behalf of either party, any Person controlling any such party or any of their respective Representatives, whether prior to or after the execution of this Agreement. 8.2 Effect of Termination. Except as provided in Sections 6.1 (Access to Information; Confidentiality), 6.3 (Public Announcements), and 9.3 (Fees, Expenses and other Payments) and this Section, in the event of the termination of this Agreement pursuant to Section 8.1, or in the event the Merger shall not have become effective prior to the end of business on the day prior to the Termination Date, this Agreement shall forthwith become void and have no effect, without any liability on the part of any party, or any of its respective stockholders, officers or directors, to the other; provided, however, that such termination shall not relieve any party from liability for any breach of any of its warranties, covenants or agreements set forth in this Agreement and, provided, however that such termination will not terminate the Confidentiality Agreement. - 46 - 51 ARTICLE 9 GENERAL PROVISIONS 9.1 Amendment. This Agreement may be amended from time to time by the parties hereto at any time prior to the Closing Date but only by an instrument in writing signed by the parties hereto and, after receipt of the Required Vote or the American Stockholder Approval, subject, in the case of American, to Applicable Law. 9.2 Waiver. At any time prior to the Closing Date, except to the extent not permitted by Applicable Law, Mergeparty or American may, either generally or in a particular instance and either retroactively or prospectively, extend the time for the performance of any of the obligations or other acts of the other, subject, however, to the provisions of Section 8.1, waive any inaccuracies in the representations and warranties of the other contained herein or in any document delivered pursuant hereto, and waive compliance by the other with any of the agreements, covenants, conditions or other provision contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby. 9.3 Fees, Expenses and Other Payments. (a) All costs and expenses incurred in connection with any filing fees (including without limitation Hart-Scott-Rodino Act filings and FCC filing fees), transfer Taxes, sales Taxes, document stamps or other charges levied by any Authority in connection with this Agreement and the Merger shall be borne equally by Mergeparty and American. All other costs and expenses incurred in connection with the negotiation, preparation, performance and enforcement of this Agreement (including all fees and expenses of counsel, financial advisors, accountants, and other consultants, advisors and representatives for all activities of such persons undertaken pursuant to this Agreement) incurred by the parties hereto, shall be borne solely and entirely by the party which has incurred such costs and expenses, except to the extent, if any, otherwise specifically set forth in this Agreement. (b) In the event that this Agreement is terminated by any party pursuant to 8.1(d), American shall promptly, but in no event later than two (2) days after the date of such termination, pay Mergeparty a fee equal to $35 million in immediately available funds plus Expenses. "Expenses" shall mean reasonable and reasonably documented out-of-pocket fees and expenses incurred or paid by or on behalf of Mergeparty in connection with the Merger or the consummation of any of the transactions contemplated by this Agreement, including all fees and expenses of counsel, commercial banks, investment banking firms, accountants, experts and consultants to Mergeparty in an aggregate amount not to exceed $5 million. 9.4 Notices. All notices and other communications which by any provision of this Agreement are required or permitted to be given shall be given in writing and shall be (a) mailed by first-class or express mail, postage prepaid, or by recognized courier service, (b) sent by telecopy or other form of rapid transmission, confirmed by mailing (by first class or express mail, postage prepaid, or by recognized courier service) written confirmation at substantially the same time as such rapid transmission, or (c) personally delivered to the receiving party (which if, other than an individual, shall be an officer or other responsible party of the receiving party). All such notices and communications shall be mailed, sent or delivered as follows: - 47 - 52 a) If to Mergeparty: Westinghouse Electric Corporation 11 Stanwix Street Pittsburgh, Pennsylvania 15222 Attention: Louis J. Briskman, Esq. Telecopier No.: (412) 642-5224 with a copy to: Cravath, Swaine & Moore 825 Eighth Avenue New York, New York 10019 Attention: Allen Finkelson, Esq. Telecopier No.: (212) 474-3700 b) If to American: American Radio Systems Corporation 116 Huntington Avenue Boston, Massachusetts 02116 Attention: Steven B. Dodge, President and Chief Executive Officer Telecopier No.: (617) 375-7575 with a copy to: Sullivan & Worcester LLP One Post Office Square Boston, Massachusetts 02109 Attention: Norman A. Bikales, Esq. Telecopier No.: (617) 338-2880 or to such other person(s), telex or facsimile number(s) or address(es) as the party to receive any such communication or notice may have designated by written notice to the other party. 9.5 Specific Performance; Other Rights and Remedies. Each party recognizes and agrees that in the event the other party should refuse to perform any of its obligations under this Agreement or any Collateral Document, the remedy at law would be inadequate and agrees that for breach of such provisions, each party shall, in addition to such other remedies as may be available to it at law or in equity or as provided in Article 8, be entitled to injunctive relief and to enforce its rights by an action for specific performance to the extent permitted by Applicable Law. Each party hereby waives any requirement for security or the posting of any bond or other surety in connection with any temporary or permanent award of injunctive, mandatory or other equitable relief. Nothing herein contained shall be construed as prohibiting each party from pursuing any other remedies available to it under Applicable Law or pursuant to the provisions of this Agreement for such breach or threatened breach, including without limitation the recovery of damages, including, to the extent awarded in any Legal Action, - 48 - 53 punitive, incidental and consequential damages (including without limitation damages for diminution in value and loss of anticipated profits) or any other measure of damages permitted by Applicable Law. 9.6 Survival of Representations, Warranties, Covenants and Agreements. None of the representations and warranties in this Agreement shall survive the Merger, and after effectiveness of the Merger neither Mergeparty, American or their respective officers, directors or shareholders shall have any further obligation with respect thereto. This Section 9.6 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time. 9.7 Severability. If any term or provision of this Agreement shall be held or deemed to be, or shall in fact be, invalid, inoperative, illegal or unenforceable as applied to any particular case in any jurisdiction or jurisdictions, or in all jurisdictions or in all cases, because of the conflicting of any provision with any constitution or statute or rule of public policy or for any other reason, such circumstance shall not have the effect of rendering the provision or provisions in question invalid, inoperative, illegal or unenforceable in any other jurisdiction or in any other case or circumstance or of rendering any other provision or provisions herein contained invalid, inoperative, illegal or unenforceable to the extent that such other provisions are not themselves actually in conflict with such constitution, statute or rule of public policy, but this Agreement shall be reformed and construed in any such jurisdiction or case as if such invalid, inoperative, illegal or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted in such jurisdiction or in such case. Notwithstanding the foregoing, in the event of any such determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by Applicable Law in an acceptable manner to the end that the Merger is fulfilled and consummated to the maximum extent possible. 9.8 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, binding upon all of the parties. In pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one of such counterparts. 9.9 Section Headings. 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. 9.10 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by, and construed in accordance with, the Applicable Laws of the United States of America and the laws of the State of New York applicable to contracts made and performed in such State and, in any event, without giving effect to any choice or conflict of laws provision or rule that would cause the application of domestic substantive laws of any other jurisdiction, except to the extent the corporate laws of the State of Delaware are applicable. Anything in this Agreement to the contrary notwithstanding, in the event of any dispute between the parties which results in a Legal Action, the prevailing party shall be entitled to receive from the non-prevailing party reimbursement for reasonable legal fees and expenses incurred by such prevailing party in such Legal Action. 9.11 Further Acts. Each party agrees that at any time, and from time to time, before and after the consummation of the transactions contemplated by this Agreement, it will do all such things and execute and deliver all such Collateral Documents and other assurances, as the other party or its counsel - 49 - 54 reasonably deems necessary or desirable in order to carry out the terms and conditions of this Agreement and the transactions contemplated hereby or to facilitate the enjoyment of any of the rights created hereby or to be created hereunder. 9.12 Entire Agreement; No Other Representations or Agreements. This Agreement (together with the Disclosure Schedules and the Exhibits and the other Collateral Documents delivered or to be delivered in connection herewith) constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements, covenants, promises, conditions, undertakings, inducements, representations, warranties and negotiations, expressed or implied, oral or written, between the parties, with respect to the subject matter hereof. Each of the parties is a sophisticated legal entity that was advised by experienced counsel and, to the extent it deemed necessary, other advisors in connection with this Agreement. Each of the parties hereby acknowledges that (a) neither party has relied or will rely in respect of this Agreement or the transactions contemplated hereby upon any document or written or oral information previously furnished to or discovered by it or its representatives, other than this Agreement (including the Exhibits and the Disclosure Schedules and the other Collateral Documents) or such of the foregoing as are delivered at the Closing, (b) there are no covenants or agreements by or on behalf of either party hereto or any of its respective Affiliates or representatives other than those expressly set forth in this Agreement and the Collateral Documents, and (c) the parties' respective rights and obligations with respect to this Agreement and the events giving rise thereto will be solely as set forth in this Agreement and the Collateral Documents. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER AMERICAN NOR MERGEPARTY MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER REPRESENTATIVES, WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER OR THE OTHER'S REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING. 9.13 Assignment. This Agreement shall not be assignable by any party and any such assignment shall be null and void, except that it shall inure to the benefit of and be binding upon any successor to each party by operation of Law, including by way of merger, consolidation or sale of all or substantially all of its assets, and each party may assign its rights and remedies hereunder to any bank or other financial institution which has loaned funds or otherwise extended credit to it. 9.14 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party and their permitted successors and assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, except as otherwise provided in Articles 2 and 3 and Sections 6.8(e), 6.12 and 9.13. 9.15 Mutual Drafting. This Agreement is the result of the joint efforts of Mergeparty and American, and each provision hereof has been subject to the mutual consultation, negotiation and - 50 - 55 agreement of the parties and there shall be no construction against either party based on any presumption of that party's involvement in the drafting thereof. 9.16 Obligations of American and of Mergeparty. Whenever this Agreement requires a Subsidiary of American to take any action, such requirement shall be deemed to include an undertaking on the part of American to cause such Subsidiary to take such action. Whenever this Agreement requires a Subsidiary of Mergeparty to take any action, such requirement shall be deemed to include an undertaking on the part of Mergeparty to cause such Subsidiary to take such action and, after the Effective Time, on the part of the Surviving Corporation to cause such Subsidiary to take such action. 9.17 Mergeparty Agent for Mergeparty Subsidiary. Anything in this Agreement to the contrary notwithstanding, Mergeparty Subsidiary hereby grants Mergeparty an irrevocably power of attorney and hereby irrevocably appoints Mergeparty its agent for all purposes of this Agreement, including without limitation for the purpose of executing and delivering extensions of the time for the performance of any of the obligations or other acts of Mergeparty, waivers, terminations or amendments, and any action taken by Mergeparty pursuant to such power of attorney and agency, and any such extension, waiver, termination or amendment executed and delivered by Mergeparty, shall be binding upon Mergeparty Subsidiary whether or not it has specifically approved such action or executed such extension, waiver, termination or amendment. [SIGNATURE PAGE FOLLOWS] - 51 - 56 IN WITNESS WHEREOF, American, Mergeparty and Mergeparty Subsidiary have caused this Agreement and Plan of Merger to be executed, pursuant to the authority and approval of each of their respective Boards of Directors, as of the date first written above by their respective officers thereunto duly authorized. American Radio Systems Corporation By: __________________________________ Name: Steven B. Dodge Title: Chairman of the Board, President and Chief Executive Officer Westinghouse Electric Corporation By: __________________________________ Name: Title: R Acquisition Corp. By: __________________________________ Name: Title: - 52 - 57 APPENDIX A DEFINITIONS ACCOUNTING FIRM shall have the meaning given to it in Section 6.18. ADJUSTMENT AMOUNT shall have the meaning given to it in Section 6.18(d). ADVERSE, ADVERSELY, when used alone or in conjunction with other terms (including without limitation "Affect," "Change" and "Effect") shall mean any Event that has adversely affected or is reasonably likely to adversely affect (a) the validity or enforceability of this Agreement or the likelihood of consummation of the Merger, (b) the business, properties, financial condition or results of operations of American and its Subsidiaries, taken as a whole, or the Mergeparty and its Subsidiaries, taken as a whole, as the case may be, or (c) American's or Mergeparty's, as the case may be, ability to fulfill its obligations under the terms of this Agreement. Notwithstanding the foregoing, and anything in this Agreement to the contrary notwithstanding, neither (i) any Event affecting the radio broadcasting industry or the national or any regional or market economy generally nor (ii) the Tower Merger or Tower Distribution, as the case may be, shall be deemed to constitute an Adverse Change, have an Adverse Effect or to Adversely Affect within the meaning of any of the foregoing clauses (a) through (c). AFFILIATE, AFFILIATED shall mean, with respect to any Person, (a) any other Person at the time directly or indirectly controlling, controlled by or under direct or indirect common control with such Person, any other Person of which such Person at the time owns, or has the right to acquire, directly or indirectly, twenty percent (20%) or more of any class of the capital stock or beneficial interest, (c) any other Person which at the time owns, or has the right to acquire, directly or indirectly, twenty percent (20%) or more of any class of the capital stock or beneficial interest of such Person, (d) any executive officer or director of such Person, (e) with respect to any partnership, joint venture or similar Entity, any general partner thereof, and (f) when used with respect to an individual, shall include any member of such individual's immediate family or a family trust. AGREEMENT shall have the meaning given to it in the first "Whereas" paragraph and shall include any amendments executed and delivered by the parties pursuant to the provisions of Section 9.1. ALTERNATIVE TRANSACTION shall have the meaning given to it in Section 6.17(k). AMERICAN shall have the meaning given to it in the Preamble. AMERICAN BROKERED STATIONS shall mean the radio broadcast stations which American has the right to acquire, but which as of the date of this Agreement it is operating pursuant to time brokerage, local marketing or other similar agreements. AMERICAN COMMON STOCK shall have the meaning given to it in Section 3.1(d). AMERICAN CONVERTIBLE PREFERRED STOCK shall have the meaning given to it in Section 3.1(c). AMERICAN CUMULATIVE PREFERRED STOCK shall have the meaning given to it in Section 3.1(b). 58 AMERICAN DISCLOSURE SCHEDULE shall mean the American Disclosure Schedule dated as of the date of this Agreement delivered by American to Mergeparty simultaneously with the execution and delivery of this Agreement. AMERICAN FINANCIAL STATEMENTS shall have the meaning given to it in Section 4.2. AMERICAN OPTIONS shall have the meaning given to it in Section 6.8. AMERICAN PREFERRED STOCK shall have the meaning given to it in Section 3.1(c). AMERICAN FCC LICENSES means all FCC Licenses issued to American or any of its Subsidiaries and used in the business or operations of any of the American Stations, including those listed on Section 4.6(a) of the American Disclosure Schedule (other than those relating to the American Brokered Stations, which shall be deemed American FCC Licenses only upon consummation of the acquisition of the applicable American Brokered Station), and any additions thereto between the date hereof and the Closing Date. Auxiliary broadcast licenses issued pursuant to 47 C.F.R. Part 74 shall not be deemed to be material American FCC Licenses. AMERICAN SEC DOCUMENTS shall have the meaning given to it in Section 4.2. AMERICAN STATIONS means the radio broadcast stations owned by American, or which it has the right to acquire (and acquires prior to the Closing Date but only from and after such acquisition) as of the date of this Agreement; provided, however, that American Stations shall not include any American Station disposed of by American subsequent to the date of this Agreement not in violation of the provisions of this Agreement; further, provided, that American Stations shall include American Brokered Stations if the context so requires. AMERICAN STOCK means the American Common Stock and the American Preferred stock. AMERICAN STOCKHOLDER APPROVAL shall have the meaning given to it in Section 6.5. AMERICAN STOCKHOLDERS MEETING shall have the meaning given to it in Section 6.5. AMERICAN 10-K shall have the meaning given to it in Section 4.2. AMERICAN TAX GROUP shall mean American and those of its Subsidiaries as are included in the consolidated Federal Income Tax Returns of American. AMERICAN TOWER shall have the meaning given to it in the second "Whereas" paragraph. AMERICAN TOWER GROUP shall have the meaning given to it in Section 6.17. AMERICAN TOWER SUB shall mean American Radio and Tower Corporation, Delaware corporation to be organized in the event of the Tower Merger which will be a wholly-owned subsidiary of American Tower. AMERICAN'S KNOWLEDGE (including the term "to the knowledge of American") means the actual knowledge of the Chief Executive Officer or the Chief Financial Officer of American, and that such 59 Officer shall have reason to believe and shall believe that the subject representation or warranty is true and accurate as stated. ANTITRUST DIVISION shall have the meaning given to it in Section 6.2(c). APPLICABLE LAW shall mean, with respect to any Person, any Law of any Authority, whether domestic or foreign, to which such Person is subject or by which it or any of its business or operations is subject or any of its property or assets is bound. APPLICATIONS shall have the meaning given to it in Section 6.2(b). AUTHORITY shall mean any governmental or quasi-governmental authority, whether administrative, executive, judicial, legislative or other, or any combination thereof, including without limitation any federal, state, territorial, county, municipal or other government or governmental or quasi-governmental agency, arbitrator, authority, board, body, branch, bureau, central bank or comparable agency or Entity, commission, corporation, court, department, instrumentality, master, mediator, panel, referee, system or other political unit or subdivision or other Entity of any of the foregoing, whether domestic or foreign. BENEFIT ARRANGEMENT shall mean, with respect to any Person, any benefit arrangement that is not a Plan, including (a) any employment, severance or consulting agreement, (b) any arrangement providing for insurance coverage or workers' compensation benefits, (c) any incentive bonus or deferred bonus arrangement, (d) any arrangement providing termination allowance, severance or similar benefits, (e) any equity compensation plan, and (f) any deferred compensation plan which American or any ERISA Affiliate maintains, contributes to or is required to contribute to for the benefit of any current or former officers, employees, agents, directors or independent contractors of American or any of its ERISA Affiliates. CERTIFICATES shall have the meaning given to it in Section 3.2(b). CD AMOUNT shall have the meaning given to it in Section 6.18(c). CLAIMS shall mean any and all debts, liabilities, obligations, losses, damages, deficiencies, assessments and penalties, together with all Legal Actions, pending or threatened, claims and judgments of whatever kind and nature relating thereto, and all fees, costs, expenses and disbursements (including without limitation reasonable attorneys' and other legal fees, costs and expenses) relating to any of the foregoing. CLASS A COMMON shall have the meaning given to it in Section 3.1(d). CLASS B COMMON shall have the meaning given to it in Section 3.1(d). CLOSING shall have the meaning given to it in Section 2.2. CLOSING BALANCE SHEET shall have the meaning given to it in Section 6.18. CLOSING DATE shall have the meaning given to it in Section 2.2. CLOSING NET DEBT shall have the meaning given to it in Section 6.18. 60 CLOSING STATEMENT shall have the meaning given to it in Section 6.18. CLOSING WORKING CAPITAL shall have the meaning given to it in Section 6.18. COBRA shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, as set forth in Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA. CODE shall mean the Internal Revenue Code of 1986, and the rules and regulations thereunder, all as from time to time in effect, or any successor law, rules or regulations, and any reference to any statutory or regulatory provision shall be deemed to be a reference to any successor statutory or regulatory provision. COLLATERAL DOCUMENT shall mean any agreement, certificate, contract, instrument, notice, opinion or other document delivered pursuant to the provisions of this Agreement, including without limitation, the Confidentiality Agreement and the Tower Documentation. COMMISSION or SEC shall mean the Securities and Exchange Commission and shall include any successor Authority. CONTRACTS shall have the meaning given to it in Section 4.20(a). CONFIDENTIALITY AGREEMENT shall mean the letter agreement, dated August 21, 1997 between American and Mergeparty. CONTROL (including the terms "controlled," "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, or the disposition of such Person's assets or properties, whether through the ownership of stock, equity or other ownership, by contract, arrangement or understanding, or as trustee or executor, by contract or credit arrangement or otherwise. CONVERTIBLE SECURITIES shall mean any evidences of indebtedness, shares of capital stock (other than common stock) or other securities directly or indirectly convertible into or exchangeable for shares of capital stock, whether or not the right to convert or exchange thereunder is immediately exercisable or is conditioned upon the passage of time, the occurrence or non-occurrence or existence or non-existence of some other Event, or both. CSFB shall have the meaning given to it in Section 4.14. CURRENT ASSETS shall have the meaning given to it in Section 6.18(b). DCL shall have the meaning given to it in Section 2.1. DEBT AMOUNT shall have the meaning given to it in Section 6.18(c). DISCLOSURE SCHEDULE shall mean the Mergeparty Disclosure Schedule, if any, or the American Disclosure Schedule, as the case may be. DISSENTING SHARES shall have the meaning given to it in Section 3.4(a). 61 DIVESTITURE CONDITION means any condition imposed or required by the FCC (including conditions required by the FCC's multiple ownership rules or policies), the Antitrust Division or the FTC as a condition to its consent to or approval of the transfer of control of any of the American FCC Licenses or otherwise to the transactions (or any of them) contemplated by this Agreement, including without limitation the Merger, or as a condition to its agreement not to institute any Legal Action to prevent the transfer of control of any of the American FCC Licenses or otherwise to prevent any of the transactions contemplated hereby, which would require Mergeparty or any of its Subsidiaries or any of its other Affiliates to dispose of one or more of the American Stations or American Brokered Stations, or in Mergeparty's sole discretion, one or more of the radio broadcast stations owned by Mergeparty and operating in the same Arbitron Survey area as any of the American Stations or American Brokered Stations; provided, however, that with respect to compliance with any condition imposed by the FCC, Mergeparty shall have been afforded a period of six months, from Closing, through the use of trusts or otherwise, within which to comply with the radio duopoly overlap rule, 47 C.F.R. Section 73.3555(a), and Mergeparty shall have been afforded temporary, rather than permanent, waivers of the one-to-a-market rule, 47 C.F.R. Section 73.3555(c), so long as such temporary waivers shall remain in effect until at least 6 months following the effective date of FCC action concluding the ongoing proceeding in MM Docket Nos. 91-221, 87-8 (FCC 94-322) or a successor rulemaking proceeding pending at the time of the grant of the FCC Order, that considers the one-to-a-market rule. D&O INSURANCE shall have the meaning given to it in Section 6.12(c). EFFECTIVE TIME shall have the meaning given to it in Section 2.3. ENTITY shall mean any corporation, firm, unincorporated organization, association, partnership, limited liability company, trust (inter vivos or testamentary), estate of a deceased, insane or incompetent individual, business trust, joint stock company, joint venture or other organization, entity or business, whether acting in an individual, fiduciary or other capacity, or any Authority. ENVIRONMENTAL LAW excluding any regulations issued by the FCC shall mean any Law relating to or otherwise imposing liability or standards of conduct concerning pollution or protection of the environment, including without limitation, Laws relating to emissions, discharges, releases or threatened releases of Hazardous Materials into the environment (including, without limitation, ambient air, surface water, ground water, mining or reclamation of mined land, land surface or subsurface strata) or otherwise that relate to the manufacture, processing, generation, distribution, use, treatment, storage, disposal, cleanup, transport or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances, materials or wastes. Environmental Laws shall include without limitation the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 6901 et seq.), the Hazardous Material Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 et seq.), and the Surface Mining Control and Reclamation Act of 1977 (30 U.S.C. Section 1201 et seq.), and any analogous federal, state, local or foreign Laws, and the rules and regulations promulgated thereunder, all as from time to time in effect, and any reference to any such statutory or regulatory provision shall be deemed to be a reference to any successor statutory or regulatory provision. 62 ENVIRONMENTAL PERMIT shall mean, with respect to any Person, any Governmental Authorization required by or pursuant to any Environmental Law. ERISA shall mean the Employee Retirement Income Security Act of 1974, and the rules and regulations thereunder, all as from time to time in effect, or any successor law, rules or regulations, and any reference to any such statutory or regulatory provision shall be deemed to be a reference to any successor statutory or regulatory provision. ERISA AFFILIATE shall mean any Person that is treated as a single employer with American under Sections 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA. ESOP shall have the meaning given to it in Section 4.9(a)(xvi). EVENT shall mean the existence or occurrence of any act, action, activity, circumstance, condition, event, fact, failure to act, omission, incident or practice, or any set or combination of any of the foregoing. EXCHANGE ACT shall mean the Securities Exchange Act of 1934, and the rules and regulations thereunder, all as from time to time in effect, or any successor law, rules or regulations, and any reference to any such statutory or regulatory provision shall be deemed to be a reference to any successor statutory or regulatory provision. EXCHANGE AGENT shall have the meaning given to it in Section 3.2(a). EXPENSES shall have the meaning given to it in Section 9.3. FCA shall mean the Communication Act of 1934, and the rules and regulations thereunder, all as from time to time in effect, or any successor law, rules or regulations, and any reference to any such statutory or regulatory provision shall be deemed to be a reference to any successor statutory or regulatory provision. FCC shall mean the Federal Communications Commission and shall include any successor Authority. FCC CONSENTS means actions by the FCC (including the Chief, Mass Media Bureau, acting under delegated authority) granting its consent to the transfer of control of the American FCC Licenses for each of the American Stations to Mergeparty as contemplated by this Agreement whether or not such consent has become a Final Order. FCC LICENSES means all of the licenses, permits and other authorizations issued by the FCC to an owner and operator of radio broadcast stations. FCC ORDER shall have the meaning given to it in Section 7.1(b). FILED AMERICAN SEC DOCUMENTS shall have the meaning given to it in Section 4.2. FINAL ADJUSTMENT AMOUNT shall have the meaning given to it in Section 6.18(d). 63 FINAL ORDER shall mean, with respect to any Authority, including without limitation the FCC, a consent or approval with respect to which no appeal, no stay, no petition or application for rehearing, reconsideration, review or stay, whether on motion of the applicable Authority or other Person or otherwise, and no other Legal Action contesting such consent or approval, is in effect or pending and as to which the time or deadline for filing any such appeal, petition or application or other Legal Action has expired or, if filed, has been denied, dismissed or withdrawn, and the time or deadline for instituting any further Legal Action has expired. FTC shall have the meaning given to it in Section 6.2(c). GAAP shall mean generally accepted accounting principles as in effect from time to time in the United States of America. GOVERNMENTAL AUTHORIZATIONS shall mean all approvals, concessions, consents, franchises, licenses, permits, plans, registrations and other authorizations of all Authorities, including the FCC Licenses, issued by the FCC, the Federal Aviation Administration and any other Authority in connection with the conduct of business or operations of any of the Stations. GOVERNMENTAL FILINGS shall mean all filings, including franchise and similar Tax filings, and the payment of all fees, assessments, interest and penalties associated with such filings, with all Authorities. HART-SCOTT-RODINO ACT shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the rules and regulations thereunder, all as from time to time in effect, or any successor law, rules or regulations, and any reference to any such statutory or regulatory provision shall be deemed to be a reference to any successor statutory or regulatory provision. HAZARDOUS MATERIALS shall mean and include any substance, material, waste, constituent, compound, chemical, natural or man-made element or force (in whatever state of matter): (a) the presence of which requires investigation or remediation under any Environmental Law; or (b) that is defined as a "hazardous waste" or "hazardous substance" under any Environmental Law; or (c) that is toxic, explosive, corrosive, etiologic, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is regulated by any applicable Authority or subject to any Environmental Law; or (d) that poses or threatens to pose a hazard to the health or safety of persons; or (e) that contains gasoline, diesel fuel or other petroleum hydrocarbons, or any by-products or fractions thereof, natural gas, polychlorinated biphenyls ("PCBs") and PCB-containing equipment, radon or other radioactive elements, ionizing radiation, lead, asbestos or asbestos-containing materials, or urea formaldehyde foam insulation. INDEBTEDNESS shall mean, with respect to any Person, without duplication, (A) all obligations of such Person for borrowed money, or with respect to deposits or advances of any kind to such Person, (B) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (C) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person, (D) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding obligations of such Person to creditors for raw materials, inventory, services and supplies incurred in the ordinary course of such Person's business), (E) all capitalized lease obligations of such Person, (F) all obligations of others secured by any Lien on property or assets owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (G) all obligations of such Person under interest rate or currency hedging transactions (valued at the termination value thereof), (H) all letters of credit issued for the account of such Person and (I) all 64 guarantees and arrangements having the economic effect of a guarantee of such Person or any indebtedness of any other Person. INDEMNIFIED PARTIES shall have the meaning given to it in Section 6.12(b). INFORMATION STATEMENT shall have the meaning given to it in Section 6.6(a). LAW shall mean any (a) administrative, judicial, legislative or other action, code, consent decree, constitution, decree, directive, enactment, finding, guideline, law, injunction, interpretation, judgment, order, ordinance, proclamation, promulgation, regulation, requirement, rule, rule of law, rule of public policy, settlement agreement, statute, or writ of any Authority, domestic or foreign; (b) the common law, or other legal or quasi-legal precedent; or (c) arbitrator's, mediator's or referee's award, decision, finding or recommendation. LEGAL ACTION shall mean, with respect to any Person, any and all litigation or legal or other actions, arbitrations, counterclaims, hearings, investigations, proceedings or suits, at law or in arbitration, equity or admiralty, whether or not purported to be brought on behalf of such Person, by or before any Authority, against such Person or involving any of such Person's business or assets. LIABILITIES shall have the meaning given to it in Section 6.18(b). LIEN shall mean any of the following: mortgage; lien (statutory or other) or other security agreement, arrangement or interest; hypothecation, pledge or other deposit arrangement; assignment; charge; levy; executory seizure; attachment; garnishment; encumbrance (including any easement, exception, reservation or limitation, right of way, and the like); conditional sale, title retention or other similar agreement, arrangement, device or restriction; any financing lease involving substantially the same economic effect as any of the foregoing; the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction; or restriction on sale, transfer, assignment, disposition or other alienation. MATERIAL, MATERIALLY OR MATERIALITY for the purposes of this Agreement, shall, unless specifically stated to the contrary, be determined without regard to the fact that various provisions of this Agreement set forth specific dollar amounts. MATERIAL AGREEMENT shall mean, with respect to any Person, any agreement, arrangement, contract, undertaking, understanding or other obligation or liability which (a) was not entered into in the ordinary course of business, it being understood and agreed by the parties that the acquisition, disposition or exchange of radio stations is in the ordinary course of business, (b) was entered into in the ordinary course of business which (i) involved the purchase, sale or lease of goods or materials, or purchase of services, aggregating more than $10,000,000 during any of the last three fiscal years of such Person, (ii) extends for more than six (6) months from the date of this Agreement, or (iii) is not terminable on thirty (30) days or less notice without material penalty or other payment, (c) involves indebtedness aggregating more than $10,000,000, (d) is or otherwise constitutes a written agency, broker, dealer, license, distributorship, sales representative or similar written agreement, or (e) accounted for more than ten percent (10%) of the revenues of Mergeparty or American Stations, as the case may be, in the last fiscal year of such Person or is likely to account for more than ten percent (10%) of revenues of Mergeparty or American, as the case may be, during the current fiscal year of such Person. 65 MAXIMUM PREMIUM shall have the meaning given to it in Section 6.12(c). MERGER CONSIDERATION shall have the meaning given to it in Section 3.1(d). MERGEPARTY shall have the meaning given to it in the Preamble. MERGEPARTY BROKERED STATIONS shall mean the radio broadcast stations which Mergeparty has the right to acquire but which as of the date of this Agreement it is operating pursuant to time brokerage, local marketing or other similar agreements. MERGEPARTY DISCLOSURE SCHEDULE shall mean the Mergeparty Disclosure Schedule dated as of the date of this Agreement delivered by Mergeparty to American simultaneously with the execution and delivery of this Agreement. MERGEPARTY STATIONS means the radio broadcast stations owned by Mergeparty, or which it has the right to acquire (and acquires prior to the Closing Date but only from and after such acquisition) as of the date of this Agreement; provided, however, that Mergeparty Stations shall not include any Mergeparty Station disposed of by Mergeparty subsequent to the date of this Agreement not in violation of the provisions of this Agreement; further, provided, that the term Mergeparty Stations shall include Mergeparty Brokered Stations if the context so requires. MERGEPARTY SUBSIDIARY shall have the meaning given to it in the Preamble. MERGEPARTY'S KNOWLEDGE (including the term "to the knowledge of Mergeparty") means the actual knowledge of the Chief Executive Officer or the Chief Financial Officer of Mergeparty, and that such Officer shall have reason to believe and shall believe that the subject representation or warranty is true and accurate as stated. MERGER shall have the meaning given to it in the first "Whereas" paragraph. MERGER CONSIDERATION shall have the meaning given to it in Section 3.1(d). MULTIEMPLOYER PLAN shall mean a Plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA. NET DEBT shall have the meaning given to it in Section 6.18(c). NOTICE OF ABANDONMENT shall have the meaning given to it in Section 2.8. NOTICE OF DISAGREEMENT shall have the meaning given to it in Section 6.18. NYSE shall mean the New York Stock Exchange. OPTION SECURITIES shall mean all rights, options, calls, contracts, agreements, warrants, understandings, restrictions, arrangements or commitments, including without limitation, any rights plan or other anti-takeover agreement or arrangement, evidencing the right to subscribe for, purchase or otherwise acquire, or otherwise providing for the issuance of shares of capital stock, voting securities or Convertible Securities, whether or not the right to subscribe for, purchase or otherwise acquire, or 66 otherwise providing for the issuance, is immediately exercisable or is conditioned upon the passage of time, the occurrence or non-occurrence or the existence or non-existence of some other Event. OPTIONHOLDER shall have the meaning given to it in Section 6.8. ORGANIC DOCUMENT shall mean, with respect to a Person which is a corporation, its charter, its by-laws and all stockholder agreements, voting trusts and similar arrangements applicable to any of its capital stock and, with respect to a Person which is a partnership, its agreement and certificate of partnership, any agreements among partners, and any management and similar agreements between the partnership and any general partners (or any Affiliate thereof). PERMITTED LIENS shall mean (a) Liens for current Taxes not yet due and payable, and (b) such imperfections of title, easements, encumbrances and mortgages or other Liens, if any, as are not, individually or in the aggregate, substantial in character, amount or extent and do not materially detract from the value, or materially interfere with the present use, of the property subject thereto or affected thereby, or otherwise materially impair the business or operations of the American Stations or the Mergeparty Stations, as the case may be. PERSON shall mean any natural individual or any Entity. PLAN shall mean, with respect to any Person and at a particular time, any employee benefit plan which is covered by ERISA and in respect of which such Person or an ERISA Affiliate is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA, which American or any ERISA Affiliate maintains, contributes to or is required to contribute to for the benefit of any current or former officers, employees, agents, directors or independent contractors of American or any of its ERISA Affiliates. POST-CLOSING AMERICAN GROUP shall have the meaning given to it in Section 6.18 PRIVATE AUTHORIZATIONS shall mean all approvals, concessions, consents, franchises, licenses, permits, and other authorizations of all Persons (other than Authorities) including without limitation those with respect to copyrights, computer software programs, patents, service marks, trademarks, trade names, technology and know-how. PROXY STATEMENT shall mean the proxy statement to be filed with the Commission by American in connection with the American Shareholders Meeting, if any. REGULATIONS shall mean the federal income tax regulations promulgated under the Code, as such Regulations may be amended from time to time. All references herein to specific sections of the Regulations shall be deemed also to refer to any corresponding provisions of succeeding Regulations, and all references to temporary Regulations shall be deemed also to refer to any corresponding provisions of final Regulations. REPRESENTATIVES shall have the meaning given to it in Section 6.1. REQUIRED VOTE shall have the meaning given to it in Section 4.13. REQUIRED DIVESTITURES means all divestitures, terminations, arrangements and restructurings identified in Section 5.2c) of the Mergeparty Disclosure Schedule, if any, and all other divestitures, 67 terminations, arrangements or restructurings, if any, arising after the date of this Agreement that would have been required to be listed on Section 5.2c) of the Mergeparty Disclosure Schedule if known to be in existence as of such date or that are necessary to satisfy any and all Divestiture Conditions. RESTATED CERTIFICATE shall have the meaning given to it in Section 4.11. Section 162(M) OPTIONS shall have the meaning given to it in Section 6.8(e). SECURITIES ACT shall mean the Securities Act of 1933, and the rules and regulations of the Commission thereunder, all as from time to time in effect, or any successor law, rules or regulations, and any reference to any such statutory or regulatory provision shall be deemed to be a reference to any successor statutory or regulatory provision. STATIONS shall mean, collectively, the American Stations and the Mergeparty Stations. SUBSIDIARY shall mean, with respect to a Person, any Entity a majority of the capital stock ordinarily entitled to vote for the election of directors of which, or if no such voting stock is outstanding, a majority of the equity interests of which, is owned directly or indirectly, legally or beneficially, by such Person or any other Person controlled by such Person. SURVIVING CORPORATION shall have the meaning given to it in Section 2.1. TAX (and "Taxable," which shall mean subject to Tax), shall mean, with respect to any Person, (a) all taxes (domestic or foreign), including without limitation any income (net, gross or other, including recapture of any tax items such as investment tax credits), alternative or add-on minimum tax, gross income, gross receipts, gains, sales, use, leasing, lease, user, ad valorem, transfer, recording, franchise, profits, property (real or personal, tangible or intangible), fuel, license, withholding on amounts paid to or by such Person, payroll, employment, unemployment, social security, excise, severance, stamp, occupation, premium, environmental or windfall profit tax, custom, duty or other tax, or other like assessment or charge of any kind whatsoever, together with any interest, levies, assessments, charges, penalties, additions to tax or additional amounts imposed by any Taxing Authority, (b) any joint or several liability of such Person with any other Person for the payment of any amounts of the type described in (a) of this definition, and (c) any liability of such Person for the payment of any amounts of the type described in (a) as a result of any express or implied obligation to indemnify any other Person. TAX CLAIM shall mean any Claim which relates to Taxes. TAX RETURN OR RETURNS shall mean all returns, consolidated or otherwise (including without limitation information returns), required to be filed with any Authority with respect to Taxes. TAXING AUTHORITY shall mean any Authority responsible for the imposition of any Tax. TERMINATION DATE shall have the meaning given to it in Section 8.1. TOWER BUSINESS shall mean the business conducted by the Tower Subsidiaries. TOWER COMMON STOCK shall mean, collectively, the Class A Common Stock, par value $.01 per share (the "Tower Class A"), the Class B Common Stock, par value $.01 per share (the "Tower Class 68 B"), and the Class C Common Stock, par value $.01 per share (the "Tower Class C"), of American Tower or American Tower Sub, as applicable, or, where the context requires, one or more of such classes, or, if the common stock of American Tower or American Tower Sub is not classified, the common stock, par value $.01 per share, of American Tower or American Tower Sub, as applicable. TOWER CONSIDERATION shall have the meaning given to it in Section 6.8. TOWER DISTRIBUTION shall have the meaning given to it in the second "Whereas" paragraph. TOWER DISTRIBUTION DATE shall have the meaning given to it in Section 6.17. TOWER DOCUMENTATION shall have the meaning given to it in Section 6.17. TOWER EMPLOYEES shall have the meaning given to it in Section 6.17. TOWER ENTITY shall have the meaning given to it in Section 6.17. TOWER LEASES shall have the meaning given to it in Section 6.19. TOWER MERGER shall have the meaning given to it in Section 2.8. TOWER MERGER DATE shall have the meaning given to it in Section 6.17. TOWERS shall have the meaning given to it in Section 6.19. TOWER SUBSIDIARIES shall mean American Tower and its Subsidiaries. UNCONTROLLABLE EVENTS shall have the meaning given to it in Section 6.2(d). WC AMOUNT shall have the meaning given to it in Section 6.18(b). WORKING CAPITAL shall have the meaning given to it in Section 6.18(b). EX-11 4 WESTINGHOUSE ELECTRIC CORP. 1 EXHIBIT (11) COMPUTATION OF PER SHARE EARNINGS (unaudited)
Three Months Ended Nine Months Ended September 30 September 30 ------------------ ----------------- 1997 1996 1997 1996 ---- ---- ---- ---- EQUIVALENT SHARES: Average shares outstanding 629,949,828 401,055,603 605,792,583 399,229,558 Additional Shares due to: Stock options 17,867,287 7,236,866 17,274,008 6,750,057 Series C Preferred Shares - 36,000,000 21,600,000 36,000,000 ---------- ---------- ----------- ----------- Total equivalent shares 647,817,115 444,292,469 644,666,591 441,979,615 =========== =========== =========== =========== EARNINGS (in millions): Loss from Continuing Operations $ (19) $ (26) $ (121) $ (158) Income (loss) from Discontinued Operations (143) 28 (191) 380 Extraordinary Item - (30) - (93) -------- -------- -------- ------- Net income (loss) $ (162) $ (28) $ (312) $ 129 ======== ======== ======== ======== EARNINGS (LOSS) PER SHARE: From Continuing Operations $ (0.03) $ (0.06) $ (0.19) $ (0.36) From Discontinued Operations (0.22) 0.06 (0.29) 0.86 From Extraordinary Item - (0.06) - (0.21) -------- -------- --------- -------- Earnings (loss) per share (a) $ (0.25) $ (0.06) $ (0.48) $ 0.29 ======== ======== ========= =========
(a) For earnings per share using an alternative treatment for the Series C Preferred Shares, see note 10 to the condensed consolidated financial statements included in Part I of this report. -37- EX-12.A 5 WESTINGHOUSE ELECTRIC CORP. 1 EXHIBIT (12)(a) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (in millions) (unaudited)
Nine Months Ended Year Ended September 30 December 31 ----------------- ----------- 1997 1996 1996 ---- ---- ---- Loss before income taxes and minority interest $ (91) $ (176) $ (292) Less: Equity in income of 50 percent or less owned affiliates 3 6 9 Add: Fixed charges 323 331 421 ------- ------- ------- Earnings as adjusted $ 229 $ 149 $ 120 ======= ======= ======= Fixed charges: Interest expense $ 305 $ 316 $ 401 Rental expense 18 15 20 ------- ------- ------- Total fixed charges $ 323 $ 331 $ 421 ======= ======= ======= Ratio of earnings to fixed charges (a) (a) (a) ======= ======= =======
(a) Additional income before income taxes and minority interest necessary to attain a ratio of 1.00x for the nine months ended September 30, 1997, September 30, 1996, and the year ended December 31, 1996 would be $94 million, $182 million, and $301 million, respectively. -38- EX-12.B 6 WESTINGHOUSE ELECTRIC CORP. 1 EXHIBIT (12)(b) COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (in millions) (unaudited)
Nine Months Ended Year Ended September 30 December 31 ----------------- ----------- 1997 1996 1996 ---- ---- ---- Loss before income taxes and minority interest $ (91) $ (176) $ (292) Less: Equity in income of 50 percent or less owned affiliates 3 6 9 Add: Combined fixed charges and preferred stock dividends 340 370 483 ------- ------- ------- Earnings as adjusted $ 246 $ 188 $ 182 ======= ======= ======= Combined fixed charges and preferred stock dividends: Interest expense $ 305 $ 316 $ 401 Rental expense 18 15 20 Pre-tax earnings required to cover preferred stock dividend requirements (b) 17 39 62 ------- ------- ------- Total combined fixed charges and preferred stock dividends $ 340 $ 370 $ 483 ======= ======= ======= Ratio of earnings to combined fixed charges and preferred stock dividends (a) (a) (a) ======= ======= =======
(a) Additional income before income taxes and minority interest necessary to attain a ratio of 1.00x for the nine months ended September 30, 1997, September 30, 1996, and the year ended December 31, 1996 would be $94 million, $182 million, and $301 million, respectively. (b) Dividend requirement divided by 100% minus the effective income tax rate or the statutory rate, whichever is more appropriate. -39- EX-27 7 WESTINGHOUSE ELECTRIC CORP.
5 1,000,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 74 0 907 21 0 1,920 1,430 378 18,611 1,564 5,969 0 0 712 6,359 18,611 3,892 3,892 0 3,316 423 0 305 (91) 32 (121) (191) 0 0 (312) (.48) (.48)
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