-----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, H7rGxM5c7lRWEl53nGZwTkI84hpaiEm4xR6L3AeZLNNqWuQu099gEF7zV2/Tmp+h DK7kl7ICFrWIvd2AbMVaZA== 0000950124-98-002627.txt : 19980519 0000950124-98-002627.hdr.sgml : 19980519 ACCESSION NUMBER: 0000950124-98-002627 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980507 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMMIS BROADCASTING CORPORATION CENTRAL INDEX KEY: 0000783005 STANDARD INDUSTRIAL CLASSIFICATION: 4832 IRS NUMBER: 351542018 STATE OF INCORPORATION: IN FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-23264 FILM NUMBER: 98612296 BUSINESS ADDRESS: STREET 1: 950 NORTH MERIDIAN STREET STE 1200 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 BUSINESS PHONE: 3172660100 MAIL ADDRESS: STREET 1: EMMIS BROADCASTING CORP STREET 2: 950 N MERIDAN STREET CITY: INDIAPOLIS STATE: IN ZIP: 46204 10-K 1 FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998 [ ] 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 0-23264 EMMIS BROADCASTING CORPORATION (Exact name of registrant as specified in its charter) INDIANA (State or other jurisdiction of incorporation or organization) 950 NORTH MERIDIAN STREET, SUITE 1200 INDIANAPOLIS, INDIANA (Address of principal executive offices) 35-1542018 (I.R.S. Employer Identification No.) 46204 (Zip Code) 317/266-0100 Registrant's Telephone Number SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Class A Common Stock, $.01 par value Title of Class Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's Knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant (1) has filed all documents and 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 [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant, as of April 22, 1998, was approximately $420,963,138. The number of shares outstanding of each of the registrant's classes of common stock, as of April 22, 1998, was: 8,452,694 Class A Common Shares, $.01 par value 2,560,894 Class B Common Shares, $.01 par value Documents Incorporated by Reference: See Page 2 ================================================================================ 2 DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS FORM 10-K REFERENCE --------- ------------------- Proxy Statement Dated May 21, 1998 Part III
2 3 EMMIS BROADCASTING CORPORATION FORM 10-K TABLE OF CONTENTS
PAGE ---- PART I...................................................... 4 Item 1. Business....................................... 4 Item 2. Properties..................................... 22 Item 3. Legal Proceedings.............................. 24 Item 4. Submission of Matters to a Vote of Security Holders........................................ 24 PART II..................................................... 25 Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.................... 25 Item 6. Selected Financial Data........................ 26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation... 26 Item 8. Financial Statements and Supplementary Data.... 32 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure......... 54 PART III.................................................... 55 Item 10. Directors and Executive Officers of the Registrant.................................... 55 Item 11. Executive Compensation........................ 55 Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 55 Item 13. Certain Relationships and Related Transactions.................................. 55 PART IV..................................................... 56 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................... 56 Signatures.................................................. 58
3 4 PART I ITEM 1. BUSINESS. GENERAL Emmis Broadcasting Corporation (the "Company" or "Emmis") is a diversified media company with radio broadcasting and magazine publishing operations and, following the consummation of two pending acquisitions, television broadcasting operations. In 1997 the Company ranked as the eighth largest radio broadcaster in the United States based on total number of listeners and the ninth largest radio broadcaster in the United States based on total revenue. The eleven FM radio stations and two AM radio stations owned or operated by the Company in the United States (collectively, the "Radio Stations") serve the nation's three largest radio markets of New York City, Los Angeles and Chicago, as well as St. Louis and Indianapolis. These markets accounted for approximately $1.7 billion in radio advertising revenues in calendar year 1997 as reported in Duncan's Radio Market Guide (1998 ed.). The Company has entered into agreements to purchase six network-affiliated television stations (collectively, the "Television Stations") located in New Orleans, Louisiana, Mobile, Alabama, Green Bay, Wisconsin, and Honolulu, Hawaii (the "SF TV Stations"), and in Fort Myers, Florida and Terre Haute, Indiana (the "Wabash Valley TV Stations"). All of the Television Stations are VHF stations except the Fort Myers station, which is a UHF station. The markets served by the Television Stations accounted for approximately $360 million in television advertising revenue in calendar year 1997 as reported in BIA's Investing in Television Market Report (1998 ed.) (the "1998 BIA Report"). The Company expects to complete the purchase of the Television Stations in late 1998. Through a combination of acquisitions and internal growth, the Company's broadcast cash flow has grown from $15.3 million (when the Company owned five radio stations) in fiscal 1993 to $81.4 million in fiscal 1998 (on a pro forma basis after giving effect to the Acquisition Transactions, as defined below, and the radio stations acquired by the Company during fiscal 1998). The Company has successfully created top-performing radio stations that are ranked, in terms of primary demographic target audience share, among the top ten stations in the New York City, Los Angeles, Chicago, St. Louis and Indianapolis radio markets according to the Winter 1998 Ratings (the "Winter 1998 Arbitron Survey") published by The Arbitron Company ("Arbitron"). This success, along with awards from organizations such as the National Association of Broadcasters and Billboard and Rolling Stone magazines, has come primarily as a result of the Company's ability to attract and retain an experienced team of broadcast professionals who have focused on creating innovative programming and developing effective marketing and advertising sales programs. In addition, the Company believes that the location of its Radio Stations in large markets makes it attractive to radio advertisers and that the diversity of its radio markets reduces its dependence on any one economic sector or specific advertiser. The Company's overall strategy is to acquire underdeveloped media properties in desirable markets and then to create value for the Company's shareholders by developing those properties to enhance their cash flow. The Company has successfully implemented this strategy with radio broadcasting stations and with city magazines. The Company believes that it will be able to utilize its expertise in broadcast operations, programming and advertising sales in applying this strategy to the Television Stations which, like the radio stations previously acquired by the Company, are underdeveloped properties located in desirable markets, which can benefit from innovative, research-based programming and the Company's experienced management team. Each of the SF TV Stations experienced ratings declines following a change in affiliation to the Fox television network from affiliation with other networks. The Company believes that the ratings and broadcast cash flow of the Television Stations can be improved with a more market-focused, research-based programming approach and other related strategies. PENDING TRANSACTIONS Effective March 30, 1998, the Company entered into a definitive agreement to acquire the SF TV Stations, consisting of WVUE-TV, New Orleans, Louisiana; WALA-TV, Mobile, Alabama; WLUK-TV, Green Bay, Wisconsin; and KHON-TV, Honolulu, Hawaii, for approximately $307 million, with $257 million 4 5 payable in cash at closing, $25 million payable at closing in either cash or Class A Common Stock at the Company's option, and $25 million with interest at 8% per annum payable one year after closing in either cash or Class A Common Stock at the Company's option (the "SF Acquisition"). The Company currently anticipates that it will pay all of the purchase price in cash. Effective March 20, 1998, the Company entered into a definitive agreement to acquire the Wabash Valley TV Stations, consisting of WFTX-TV, Fort Myers, Florida and WTHI-TV, Terre Haute, Indiana, as well as radio stations WTHI-FM, WTHI-AM and WWVR-FM in Terre Haute, Indiana, for approximately $90 million in cash (the "Wabash Valley Acquisition"). Upon consummation of the purchase of the Television Stations, the Company plans to create a separate television division. The Company has signed a letter of intent with Greg Nathanson, President of Programming and Development at Twentieth Television, to manage the Company's television division. On May 15, 1997, the Company entered into an agreement to acquire radio station WQCD-FM in New York City (the "WQCD Acquisition" and, together with the SF Acquisition and the Wabash Valley Acquisition, the "Acquisition Transactions"). Starting in July 1997 and until the purchase of the station is completed, the Company has operated and will continue to operate the station pursuant to a time brokerage agreement under which the Company pays the current owner a monthly fee of approximately $700,000. As a result, the operating results of WQCD-FM are included in the Company's operating results beginning July 1, 1997. Under the acquisition agreement, the current owner had the option to require the Company to purchase the station, which it exercised in December 1997. The current WQCD-FM owner also exercised its right under the acquisition agreement to require the Company to purchase certain TV stations that are to be transferred by the Company to the current WQCD-FM owner in exchange for WQCD-FM. The purchase price for the WQCD Acquisition will be approximately $141 million after adjustments. The Company anticipates that it will complete the acquisition in mid-1998. There can be no assurance, however, with respect to the timing or completion of the WQCD Acquisition, which is subject to certain conditions, including the concurrent acquisition and exchange of the TV stations specified by the current WQCD-FM owner and obtaining the necessary regulatory approvals. RADIO STATIONS The following table sets forth certain information regarding the Radio Stations operated by the Company and their broadcast markets:
RANKING IN STATION MARKET STATION PRIMARY PRIMARY AND RANK BY AUDIENCE DEMOGRAPHIC DEMOGRAPHIC MARKET REVENUE(1) SHARE(2) TARGET AGES FORMAT TARGET(3) ------- ---------- -------- ----------- ------ ----------- Los Angeles.................. 1 KPWR-FM................. 4.0 12-24 Dance/Contemporary Hit 1 New York..................... 2 WQHT-FM................. 5.5 12-24 Dance/Contemporary Hit 1 WRKS-FM................. 4.2 25-54 Classic Soul/Smooth R&B 3 WQCD-FM(4).............. 3.2 25-54 Contemporary Jazz 6t Chicago...................... 3 WKQX-FM................. 3.0 18-34 New Rock 4 St Louis..................... 18 KSHE-FM................. 5.0 18-34 Album Oriented Rock 4 WKKX-FM................. 4.2 18-34 Country 5 WALC-FM................. 2.9 18-44 Modern Adult Contemporary 7t
5 6
RANKING IN STATION MARKET STATION PRIMARY PRIMARY AND RANK BY AUDIENCE DEMOGRAPHIC DEMOGRAPHIC MARKET REVENUE(1) SHARE(2) TARGET AGES FORMAT TARGET(3) ------- ---------- -------- ----------- ------ ----------- Indianapolis................. 30 WENS-FM................. 5.5 25-54 Adult Contemporary 4 WIBC-AM................. 8.5 35-64 News/Talk 3 WNAP-FM................. 4.7 25-54 Classic Rock 5 WTLC-FM................. 5.5 25-34 Urban Contemporary 2 WTLC-AM................. 1.2 25-54 Solid Gold Soul, Gospel 18 and Talk
- - ------------------------- (1) "Market Rank by Revenue" is the ranking of the market revenue size of the principal radio market served by the station among all radio markets in the United States. Market revenue and ranking figures are from Duncan's Radio Market Guide (1998 ed.). The Company owns a 40% equity interest in the publisher of Duncan's Radio Market Guide. (2) "Station Audience Share" is from the Winter 1998 Arbitron Survey. The generally accepted method of measuring the relative size of a radio station's audience is by reference to total persons, age 12 and older, Monday -- Sunday, 6 a.m. -- Midnight Average Quarter Hour ("AQH") shares as published by Arbitron. Arbitron periodically samples radio listeners in defined market areas, principally through the use of diaries returned by selected listeners. A station's AQH share is a percentage computed by dividing the average number of persons listening to a particular station for at least five minutes during an average quarter hour in a given time period by the average number of such persons for all stations in the market area. Arbitron compiles ratings data for various demographic groups as well as for total persons age 12 and older. (3) "Ranking in Primary Demographic Target" is the ranking of the station among all radio stations in its market and is based on the station's AQH share in the primary demographic target according to the Winter 1998 Arbitron Survey. A "t" indicates the station tied with another station for the stated ranking. (4) This station is currently being operated by the Company under a time brokerage agreement pending its purchase by the Company. 6 7 TELEVISION STATIONS The following table sets forth certain information regarding the SF TV Stations and the markets in which they operate:
NUMBER OF STATION LICENSE TELEVISION METROPOLITAN AFFILIATION/ HOUSEHOLDS DMA STATIONS STATION AUDIENCE EXPIRATION STATION AREA SERVED CHANNEL IN DMA(1) RANK(1) IN MARKET(2) RANK(3) SHARE(4) DATE - - ---------- ------------ ------------ ---------- ------- ------------ ------- -------- ---------- WVUE-TV New Orleans, LA Fox/8 623,000 41 6 4 8 6/1/05 WALA-TV Mobile, AL-Pensacola, FL Fox/10 450,000 62 5 3 10 4/1/05 WLUK-TV(5) Green Bay, WI Fox/11 381,000 70 5 4 9 12/1/05 KHON-TV(5) Honolulu, HI Fox/2 380,000 71 6 2 15 2/1/99
- - ------------------------- (1) Estimated by the A. C. Nielsen Company ("Nielsen") as of January 1998. Rankings are based on the relative size of a station's market among the 211 generally recognized Designated Market Areas ("DMAs"), as defined by Nielsen. (2) Represents the number of television stations ("Reportable Stations") designated by Nielsen as "local" to the DMA, excluding public television stations and stations which do not meet minimum Nielsen reporting standards (i.e., a weekly cumulative audience of less than 2.5%) for reporting in the Sunday through Saturday, 9:00 a.m. to midnight time period. (3) Reflects the station's rank relative to other Reportable Stations based upon the DMA rating as reported by Nielsen from 9:00 a.m. to midnight, Sunday through Saturday during February 1998. (4) Reflects an estimate of the share of DMA households viewing television received by a local commercial station in comparison to other local commercial stations in the market as measured from 9:00 a.m. to midnight, Sunday through Saturday. (5) As part of the SF Acquisition, the Company will also acquire KAII-TV and KHAW-TV, which operate as satellite stations of KHON-TV and primarily re-broadcast the signal of KHON-TV. The stations are considered one station for FCC multiple ownership purposes. Low power television translators W40AN and K55D2 retransmit stations WLUK-TV and KHON-TV, respectively. The following table sets forth certain information regarding the Wabash Valley TV Stations and the markets in which they operate:
HOUSEHOLDS NUMBER OF STATION LICENSE TELEVISION METROPOLITAN AFFILIATION/ IN DMA DMA STATIONS STATION AUDIENCE EXPIRATION STATION AREA SERVED CHANNEL (1) BANK(1) IN MARKET(2) BANK(3) SHARE(4) DATE ---------- ------------ ------------ ---------- ------- ------------ ------- -------- ---------- Fort Myers, WFTX-TV FL............. Fox/36 320,000 83 5 4 7 2/1/05 Terre Haute, WTHI-TV IN............. CBS/10 157,000 140 3 1 29 8/1/05
- - ------------------------- (1) Estimated by Nielsen as of January 1998. Rankings are based on the relative size of a station's market among the 211 generally recognized DMAs. (2) Represents the number of television stations designated by Nielsen as "local" to the DMA, excluding public television stations and stations which do not meet minimum Nielsen reporting standards (i.e., a weekly cumulative audience of less than 2.5%) for reporting in the Sunday through Saturday, 9:00 a.m. to midnight time period. (3) Reflects the station's rank relative to other Reportable Stations based upon the DMA rating as reported by Nielsen from 9:00 a.m. to midnight, Sunday through Saturday during February 1998. (4) Reflects an estimate of the share of DMA households viewing television received by a local commercial station in comparison to other local commercial stations in the market as measured from 9:00 a.m. to midnight, Sunday through Saturday. Wabash Valley Radio Stations. The three radio stations included in the Wabash Valley Acquisition are WTHI-FM, WTHI-AM and WWVR-FM in Terre Haute, Indiana. WTHI-FM currently operates in a Country format and was the number one station in the Terre Haute market, according to the Fall 1997 7 8 Ratings published by Arbitron (the "Fall 1997 Arbitron Survey"), which is the most recent ratings information available for this market. WTHI-AM currently operates in a Talk format and was tied for the number eight station overall in the Terre Haute market according to the Fall 1997 Arbitron Survey. The combined broadcast cash flow for WTHI-FM and WTHI-AM was approximately $555,000 in 1997. WWVR-FM (which is now in the process of being acquired by the seller under the Wabash Valley Acquisition agreement) currently operates in a Religious format and was the number seven station overall in the Terre Haute market according to the Fall 1997 Arbitron Survey. The Company does not expect WWVR-FM to have a material effect on the Company's broadcast cash flow or net income in the near term. The Company's ownership of these Terre Haute radio stations together with television station WTHI-TV, will require a waiver of the FCC's multiple ownership rules. The Company has applied for the waiver, but if not granted by the FCC, the Company may be required to divest its ownership of one or more of the Terre Haute radio stations. Terre Haute ranks 172nd by radio advertising revenue according to Duncan's Radio Market Guide (1998 ed.). BUSINESS STRATEGY The Company is committed to maintaining its leadership positions in broadcasting, enhancing the performance of its broadcast properties, and distinguishing itself through the quality of its operations. The Company intends to selectively grow through acquisition. The Company has a successful track record of acquiring underperforming radio stations in attractive markets and improving their ratings, revenues and broadcast cash flow by utilizing its programming and marketing skills. The Company believes that its strategy of acquiring underperforming radio broadcast properties and improving their operational and financial performance is also applicable to television broadcast properties. RADIO BROADCASTING STRATEGY. The key components of the Company's radio broadcasting strategy include the following: Pursuit of Strategic Acquisitions. The Company believes that continued consolidation in the broadcasting industry will result in attractive acquisition opportunities as the number of potential buyers for radio assets declines. The Company also expects additional stations to become available as larger consolidators either sell broadcasting assets or are not able to bid for properties due to in-market ownership limitations. The Company will consider acquisitions of individual radio stations or groups of radio stations in new markets where it expects that it can ultimately achieve a leadership position. In addition, the Company intends to pursue acquisitions of radio stations in those of its current markets where it believes increases in broadcast cash flow are attainable. Generally, the Company has targeted markets that feature both large revenue pools and a relatively small number of stations with competitive signals, a combination which allows the Company greater operating leverage to achieve high margins. The Company believes that historically under-serviced markets, such as the Indianapolis radio market, provide vehicles for the Company's sustained future growth. In analyzing potential acquisitions in new markets, the Company generally considers (i) the amount of money generated through radio advertising each year in the relevant market and the growth rate for this pool of revenue, (ii) the number of competitive stations in the market, including whether there is a niche or whether one of the competitors has a perceived vulnerability, (iii) whether the station proposed to be acquired has a competitive signal, (iv) whether value can be achieved through ownership of multiple stations in that market, and (v) the minimum level of performance which can be expected from the station under the Company's management. Strategic Grouping of Stations. Emmis organizes its operations within each market to optimize operational performance and best position the properties within that market to establish and maintain leadership positions. Management concentrates on providing a focused programming format tailored to its advertisers and the audiences they seek. This focus has resulted in Emmis operating more than one radio station in certain markets so that complementary programming formats may be offered to advertisers. In other markets, management considers various opportunities to increase the number of radio stations owned, and will only acquire other radio stations if they are deemed appropriate for Emmis and its goals in that market at that time. 8 9 Innovative Programming. Historically, Emmis has been able to improve the ratings, revenue and cash flow of its developing properties with increased marketing and innovative programming. For example, in New York City Emmis acquired WRKS-FM in 1994, the direct competitor of WQHT-FM, a station it already owned. By changing the format of WRKS-FM to appeal to an older demographic target and refocusing WQHT-FM to target the younger end of the Contemporary Hit spectrum, the Company allowed the stations to complement one another, captured a larger audience share and increased the combined cash flow of the stations by approximately 133% over the three years ended February 28, 1997. The Company expects its acquisition of WQCD-FM to round out this group of stations in New York City by adding a third complementary music format. The Company believes it can achieve similar success with its television properties. Focused Marketing Strategy. Emmis designs its local and national sales efforts based on advertiser demand and the competitive formats within each market. Since radio advertising revenues have generally grown at a more rapid rate than total advertising sales, the Company has tailored its programming in each market to appeal to specific demographic groups. For example, in 1984 Emmis took over KPWR-FM in Los Angeles and changed its format from adult contemporary to the nation's first Rhythmic Top 40's station. This format appealed directly to the Latino population (the fastest-growing segment of the population in Los Angeles) and made the station an overnight success. KPWR-FM has been the number one station for 12 to 24 year old listeners for the past 10 years. Entrepreneurial Management Approach. Each of the Company's stations is managed by a team of experienced broadcasters who understand the musical tastes, demographics and competitive opportunities of their particular market. The Company uses an entrepreneurial management approach involving decentralized station operations by local management which oversees and controls station spending, long-range planning, company policies and resource allocation at its individual station and is rewarded based on that station's performance. In addition, the Company encourages its managers and employees to own a stake in the Company, and over 79% of all full-time employees own Emmis shares (or options to purchase shares), except for full-time employees hired in connection with acquisitions since October 1997. The Company believes that this entrepreneurial management approach has given Emmis a distinctive corporate culture, making it a highly desirable employer in the broadcasting industry and significantly enhancing the Company's ability to attract and retain experienced and highly motivated employees and management. TELEVISION BROADCASTING STRATEGY. The key components of the Company's television broadcasting strategy include the following: Pursuit of Strategic Acquisitions. The Company believes that attractive acquisition opportunities are becoming increasingly available in the television broadcasting industry, particularly in mid-sized markets. In many cases, such television stations have suffered ratings and revenue declines due to management inattention, improper programming strategies or inadequate sales and marketing efforts. The Company intends to pursue acquisitions of underperforming television stations which offer the potential for significant improvement in ratings and broadcast cash flow from more focused, research-based programming and application of the Company's sales and marketing experience. Programming Strategy. Emmis believes that innovative programming and knowledge of local markets are the most important determinants of individual station success. Familiarity with the local market is particularly important to the Fox stations to be acquired by the Company because of the significant programming flexibility resulting from relatively low levels of network-originated programming. While major networks may provide as much as 70% of the total programming aired by their affiliated stations, Fox generally provides closer to 30%. Therefore, in order to develop the Television Stations successfully, the Company has identified television veteran Greg Nathanson to head its television division. Mr. Nathanson has over 30 years of television broadcasting experience and has had extensive independent programming experience as President of Programming and Development for Twentieth Television and President of Fox Television Stations. In addition, the Company expects to conduct specific market research in order to effectively target the local audience. 9 10 Maximize Advertising Inventory Value. Emmis intends to develop complementary programming and organize the programming schedule at its television stations to maximize the value of its advertizing spot inventory by scheduling complementary programming around its most successful programs. For example, the Company intends to leverage the popularity of football programming in a market such as Green Bay or New Orleans by developing and scheduling football-related programming for which higher advertising revenue can be obtained. Entrepreneurial Management Approach. The Company intends to extend its successful entrepreneurial management approach to its television stations through decentralized station operations by experienced local managers at each station who understand the programming tastes, demographics and competitive opportunities of their particular market and will be rewarded based on their station's performance. Senior management of the Company will work closely with local station management to implement the Company's programming and marketing strategies and help enhance each station's ratings and broadcast cash flow. The Company will also encourage the managers and employees of its television stations to own a stake in the Company and will include them in its various option, share purchase and other share ownership programs open to its employees generally. COMMUNITY INVOLVEMENT The Company believes that to be successful, it must be integrally involved in the communities it serves. To that end, each of the Company's stations participates in many community programs, fundraisers and activities that benefit a wide variety of organizations. Charitable organizations that have been the beneficiaries of the Company's marathons, walkathons, dance-a-thons, concerts, fairs and festivals include, among others, The March of Dimes, American Cancer Society, Riley Children's Hospital and research foundations seeking cures for cystic fibrosis, leukemia and AIDS and helping to fight drug abuse. In addition to its planned activities, the Company's stations take leadership roles in community responses to natural disasters. INDUSTRY INVOLVEMENT The Company has an active leadership role in a wide range of industry organizations. The Company's senior managers have served in various capacities with industry associations, including as directors of the National Association of Broadcasters, the Radio Advertising Bureau, the Radio Futures Committee and the Arbitron Advisory Council and as founding members of the Radio Operators Caucus. In addition, managers of the Company have been voted Radio President of the Year and General Manager of the Year, and at various times the Company was voted Most Respected Broadcaster in polls of radio industry chief executive officers and managers. ADVERTISING SALES Virtually all of the revenue of a radio or television station is derived from local, regional and national advertising. In the case of television stations, additional revenue is sometimes derived from fees received from the affiliated television networks in exchange for broadcasting network programming and associated network advertising. Advertising rates charged by a station are a function of the station's ability to attract audiences in the demographic groups which advertisers wish to reach, and the number of stations competing in the market area. A station's audience is reflected in rating service surveys of the size of the audience tuned to the station and the time spent listening or viewing. The Company's stations derive their advertising revenue from local and regional advertising in the marketplaces in which they operate, as well as from the sale of national advertising. Local and most regional sales are made by a station's sales staff. National sales are made by firms specializing in such sales which are compensated on a commission-only basis. The Company believes that the volume of national advertising revenue tends to adjust to shifts in a station's audience share position more rapidly than does the volume of local and regional advertising revenue. The Company has led the industry in developing "vendor co-op" advertising revenue (i.e., revenue from a manufacturer or distributor which is used to promote its particular goods together with local retail outlets for 10 11 those goods). Although this source of advertising revenue is common in the newspaper and magazine industry, the Company was among the first radio broadcasters to recognize, and take advantage of, the potential of vendor co-op advertising. The Company's Revenue Development Systems division has established a network of radio stations which share information about sources of vendor co-op revenue. In addition, each of the Company's stations has a salesperson devoted exclusively to the development of cooperative advertising. The Company intends to expand this approach to the Television Stations. In the broadcasting industry, stations often utilize trade (or barter) agreements to exchange advertising time for goods or services (such as other media advertising, travel or lodging), in lieu of cash. In order to preserve most of its on-air inventory for cash advertising, the Company generally enters into trade agreements only if the goods or services bartered to the Company will be used in the Company's business. The Company has minimized its use of trade agreements and in fiscal 1996, 1997 and 1998 sold approximately 95% of its advertising time for cash. In addition, it is the Company's general policy not to preempt advertising spots paid for in cash with advertising spots paid for in trade. RADIO NETWORKS In addition to its other radio broadcasting operations, the Company owns and operates two radio networks. Network Indiana provides news and other programming to nearly 70 affiliated radio stations in Indiana. AgriAmerica network provides farm news, weather information and market analysis to radio stations across Indiana. PUBLISHING OPERATIONS The Company publishes four magazines which were acquired beginning in 1988. Indianapolis Monthly. The Company has published Indianapolis Monthly magazine since September 1988. Indianapolis Monthly covers local personalities, homes and lifestyles and currently has a paid monthly circulation of approximately 45,000. Despite a nationwide downturn in the city and regional magazine business, Indianapolis Monthly continues to perform well. The Company believes this is due to a large advertising base and a popular editorial focus. Competition comes from other local publications, although Indianapolis Monthly is now the only general interest magazine focusing on the Indianapolis area. Atlanta. The Company acquired and began publishing Atlanta magazine on August 1, 1993. Atlanta covers area personalities, issues and style and currently has a paid monthly circulation of approximately 65,000. The magazine was unprofitable for several years before it was acquired by the Company for a nominal investment. Certain initiatives, including downsizing staff, increasing sales efforts and repositioning editorial focus, have contributed to improving profitability. Cincinnati. The Company acquired Cincinnati magazine in October 1997. Cincinnati magazine was founded by the Greater Cincinnati Chamber of Commerce in 1967 and under its most recent owner before the Company grew to a paid monthly circulation of approximately 22,000. The Company has repositioned the editorial product to an up-to-date city/regional magazine covering people and entertainment in Cincinnati, has doubled the existing sales staff and is marketing the newly designed magazine to the Cincinnati area. Texas Monthly. The Company acquired Texas Monthly magazine in February 1998. The critically acclaimed magazine, which has received eight National Magazine Awards, has a paid monthly circulation of approximately 300,000 and is believed by the Company to be read by more than 2,436,000 people. It marked its 25th anniversary with the publication of the February 1998 issue, which set a single issue advertising record. The Company plans to increase Texas Monthly's operating efficiencies while leaving the highly regarded editorial product intact. COMPETITION Radio and television broadcasting stations compete with the other broadcasting stations in their respective market areas, as well as with other advertising media such as newspapers, magazines, outdoor advertising, transit advertising, compact discs, music videos, the internet and direct mail marketing. Competition within the broadcasting industry occurs primarily in individual market areas, so that a station in one market does not generally compete with stations in other market areas. In each of its markets, the 11 12 Company's stations face competition from other stations with substantial financial resources, including stations targeting the same demographic groups. In addition to management experience, factors which are material to competitive position include the station's rank in its market, authorized power, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other stations in the market area. The Company attempts to improve its competitive position with programming and promotional campaigns aimed at the demographic groups targeted by its stations, and through sales efforts designed to attract advertisers that have done little or no broadcast advertising by emphasizing the effectiveness of radio and television advertising in increasing the advertisers' revenues. Recent changes in the policies and rules of the FCC permit increased joint ownership and joint operation of local stations. Those stations taking advantage of these joint arrangements may in certain circumstances have lower operating costs and may be able to offer advertisers more attractive rates and services. Although the Company believes that each of its stations can compete effectively in its market, there can be no assurance that any of the Company's stations will be able to maintain or increase its current audience ratings or advertising revenue market share. Although the broadcasting industry is highly competitive, some barriers to entry exist. The operation of a broadcasting station in the United States requires a license from the FCC, and the number of stations that can operate in a given market is limited by the availability of the frequencies that the FCC will license in that market, as well as by the FCC's multiple ownership rules regulating the number of stations that may be owned and controlled by a single entity. The FCC's multiple ownership rules have changed significantly as a result of the 1996 Act. The broadcasting industry historically has grown in terms of total revenues despite the introduction of new technology for the delivery of entertainment and information, such as cable television, audio tapes and compact discs. The Company believes that radio's portability in particular makes it less vulnerable than other media to competition from new methods of distribution or other technological advances. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have an adverse effect on the radio or television broadcasting industry. EMPLOYEES As of February 28, 1998 the Company had approximately 663 full-time employees and approximately 237 part-time employees. The Company's on-air employees at its New York and Chicago radio stations, totaling approximately 62 persons, are covered by a union contract with the American Federation of Television and Radio Artists. The Company considers relations with its employees to be excellent. FEDERAL REGULATION Television and radio broadcasting are subject to the jurisdiction and regulation of the Federal Communications Commission ("FCC") under the Communications Act of 1934, as amended (the "Communications Act"). Television or radio broadcasting is prohibited except in accordance with a license issued by the FCC upon a finding that the public interest, convenience and necessity would be served by the grant of such license. The FCC has the power to revoke licenses for, among other things, false statements made in applications or willful or repeated violations of the Communications Act or of FCC rules. In general, the Communications Act provides that the FCC shall allocate television and radio licenses in such manner as will provide a fair, efficient and equitable distribution of service throughout the United States. The FCC determines the location of stations, regulates the apparatus used by stations, and regulates numerous other areas of television and radio broadcasting pursuant to rules, regulations and policies adopted under authority of the Communications Act. The Communications Act, among other things, prohibits the assignment of a broadcast license or the transfer of control of a corporation holding a license without the prior approval of the FCC. Under the Communications Act, the FCC also regulates certain aspects of the operation of cable television systems and other electronic media that compete with broadcast stations. The Telecommunications Act of 1996 (the "1996 Act"), which amended the Communications Act, significantly changed both the process for renewal of broadcast station licenses and the broadcast ownership rules. Among other things, the 1996 Act established a "two-step" renewal process that limits the FCC's discretion to consider applications filed in competition with an incumbent's renewal application. The 1996 Act 12 13 also substantially liberalized broadcast ownership restructure by eliminating the limits on the ownership of radio stations nationally, easing the national restrictions on TV ownership, relaxing local radio ownership restrictions, and requiring periodic review of other FCC broadcast ownership regulations, including local television ownership restrictions. This new regulatory flexibility has engendered aggressive local, regional, and national acquisition campaigns. Removal of previous station ownership limitations on leading incumbents (i.e., existing networks and major station groups) in many instances has increased sharply the competition for and prices of attractive stations. Other legislation has been introduced from time to time which would amend the Communications Act in various respects, and the FCC from time to time considers new regulations or amendments to its existing regulations. The Company cannot predict whether any such legislation will be enacted or new or amended FCC regulations adopted or what their effect would be on the Company. The following is a brief summary of certain provisions of the Communications Act and of specific FCC regulations and policies. Reference should be made to the Communications Act, FCC rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of radio and television stations. Grants and Renewals of Licenses. Radio and television stations operate pursuant to broadcasting licenses that are ordinarily granted by the FCC for maximum terms of eight years and are subject to renewal upon application to the FCC. The Company's licenses currently have the following expiration dates, until renewed: WENS-FM (Indianapolis).................................... August 1, 2004 WKQX-FM (Chicago)......................................... December 1, 2004 KSHE-FM (St. Louis)....................................... February 1, 2005 KPWR-FM (Los Angeles)..................................... December 1, 1997* WQHT-FM (New York)........................................ June 1, 1998* WQCD-FM (New York)........................................ June 1, 1998* WIBC-AM (Indianapolis).................................... August 1, 2004 WNAP-FM (Indianapolis).................................... August 1, 2004 WRKS-FM (New York)........................................ June 1, 1998* WKKX-FM (St. Louis)....................................... December 1, 2004 WALC-FM (St. Louis)....................................... December 1, 2004 WTLC-AM (Indianapolis).................................... August 1, 2004 WTLC-FM (Indianapolis).................................... August 1, 2004 WTHI-AM (Terre Haute)..................................... August 1, 2004 WTHI-AM (Terre Haute)..................................... August 1, 2004 WWVR-FM (Terre Haute)..................................... August 1, 2004 WTHI-TV (Terre Haute)..................................... August 1, 2005 WFTX-TV(Fort Myers)....................................... February 1, 2005 WALA-TV (Mobile).......................................... April 1, 2005 WVUE-TV (New Orleans)..................................... June 1, 2005 WLUK-TV (Green Bay)....................................... December 1, 2005 KHON-TV (Honolulu)........................................ February 1, 1999 KAII-TV (Maui)............................................ February 1, 1999 KHAW-TV (Hawaii).......................................... February 1, 1999
- - ------------------------- * The asterisk denotes a license renewal application pending at the FCC. The Communications Act provides that a broadcast station license with a renewal application pending remains in effect until the FCC acts on the renewal application, notwithstanding the expiration of the stated term. Under the Communications Act, at the time an application is filed for renewal for a station license, parties in interest, which may include members of the public in the station's service area, may apprise the FCC of the service the station has provided during the preceding license term and petition the FCC to deny the renewal. If such a petition to deny presents information from which the FCC concludes (or if the FCC concludes on its own) that there is a "substantial and material" question whether grant of the renewal application would be in the public interest under applicable rules and policy, the FCC may conduct a hearing on specified issues to determine whether renewal should be granted. A competing application for authority to 13 14 operate a station and replace the incumbent licensee may not be filed against a renewal application or considered by the FCC in deciding whether to grant a renewal application. The 1996 Act modified the license renewal process to provide for the grant of a renewal application upon a finding by the FCC that the licensee (i) has served the public interest, convenience and necessity; (ii) has committed no serious violations of the Communications Act or the FCC's rules; and (iii) has committed no other violations of the Communications Act or the FCC's rules which would constitute a pattern of abuse. If the FCC cannot make such a finding, it may deny a renewal application. Only after it has denied the renewal application may the FCC accept other applications to operate the station of the former licensee. Historically, the FCC has renewed most broadcast licenses without a hearing even when petitions to deny have been filed against broadcast license renewal applications. On July 1, 1996, the National Rainbow Coalition and Operation Push filed with the FCC a petition to deny renewal of the licenses of WENS-FM, WNAP-FM and WIBC-AM for alleged deficiencies in minority hiring practices. The Company opposed the petition. The Company and the petitioners subsequently entered into an agreement as a result of which the petition was withdrawn. Notwithstanding the withdrawal of the petition and pursuant to its long-time policy, the FCC considered the allegations of the petition. In August 1997, the FCC renewed the license for each station. The FCC determined that neither WENS-FM nor WNAP-FM had violated its minority hiring practice rules. The FCC concluded that WIBC-AM had not maintained complete minority hiring records, imposed a fine of $10,000, and imposed certain annual reporting conditions. The Company has appealed the imposition of the fine. In response to recent legislation mandating the use of auctions to award commercial broadcast authorizations, the FCC has initiated a rulemaking proceeding to consider the use of competitive bidding procedures (auctions) to award licenses or construction permits for new broadcast stations to the highest bidder, and may also subject to auction certain other pending and future applications by licensees to improve or otherwise modify their existing facilities, where such applications would be mutually exclusive with other licensees' applications. Pending the adoption of new auction rules, the FCC has imposed a temporary freeze on the filing of applications for new facilities or major modifications to existing facilities. Station Classes. The FCC classifies each AM and FM station. An AM station operates on either a clear channel, regional channel or local channel. A clear channel is one on which AM stations are assigned to serve wide areas. AM stations operating on clear channels are classified as follows: Class A stations, which operate on an unlimited time basis and are designated to render primary and secondary service over an extended area; Class B stations, which operate on an unlimited time basis and are designed to render service only over a primary service area; and Class D stations, which operate either during daytime hours only, during limited times only or on an unlimited time basis with low nighttime power. A regional channel is one on which Class B and Class D AM stations may operate and serve primarily a principal center of population and the rural areas contiguous to it. A local channel is one on which AM stations operate on an unlimited time basis and serve primarily a community and the immediately contiguous suburban and rural areas. Class C AM stations operate on a local channel and are designed to render service only over a primary service area that may be reduced as a consequence of interference. The minimum and maximum facilities requirements for an FM station are determined by its class. FM class designations depend upon the geographic zone in which the transmitter of the FM station is located. In general, commercial FM stations are classified as follows, in order of increasing power and antenna height: Class A, B1, C3, B, C2, C1 and C. Local Marketing Agreements. Over the past few years, a number of radio stations, including certain of the Company's stations, have entered into what commonly are referred to as "local marketing agreements" or "time brokerage agreements" (together, "LMAs"). These agreements take various forms. Separately owned and licensed stations may agree to function cooperatively in terms of programming, advertising sales and other matters, subject to compliance with the antitrust laws and the FCC's rules and policies, including the requirement that the licensee of each station maintains independent control over the programming and other operations of its own station. 14 15 A radio station that brokers substantial time on another station in its market or engages in an LMA with a radio station in the same market will be considered to have an attributable ownership interest in the brokered station for purposes of the FCC's ownership rules, discussed below. As a result, a radio broadcast station may not enter into an LMA that allows it to program more than 15% of the broadcast time, on a weekly basis, on another local radio station that it could not own under the FCC's local multiple ownership rules. Under present rules, time brokerage arrangements among television broadcast stations do not create additional attributable interests. FCC rules also prohibit a radio broadcast licensee from simulcasting more than 25% of its programming on another station in the same broadcast service (i.e., AM-AM or FM-FM) where the two stations service substantially the same geographical area, and where the licensee owns those stations or owns one and programs the other through an LMA arrangement. The FCC does not consider LMAs to be contrary to the Communications Act provided that the licensee of the station that is being substantially programmed by another entity maintains complete responsibility for, and control over, programming and operations of its broadcast station and assures compliance with applicable FCC rules and policies. Joint Sales Agreements. Another example of a cooperative agreement between differently owned radio stations in the same market is a joint sales agreement ("JSA"), whereby one station sells advertising time in combination, both on itself and on a station under separate ownership. In the past the FCC has determined that issues concerning joint advertising sales should be left to antitrust enforcement. Currently JSAs are not deemed by the FCC to be attributable. However, the FCC has outstanding a notice of proposed rule making, which, if adopted, could require the Company to terminate any JSA it might have with a radio station with which the Company could not have an LMA. Ownership Matters. The FCC regulates the common ownership of radio, television, cable television, and daily newspaper properties. The FCC generally applies these limitations to so-called "attributable interests" in these media held by an individual, corporation, partnership or other entity. The holder of an attributable interest is generally treated as if it owned the media property in applying the ownership restrictions. In the case of corporations holding broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have a right to vote five percent or more of the corporation's stock are generally treated as attributable, as are positions of an officer or director of a corporate parent of a licensee. The FCC treats all partnership interests as attributable, except for those limited partnership interests that are insulated from material involvement in the partnership under policies specified by the FCC. Insurance companies, certain regulated investment companies, and bank trust departments holding stock only for investment purposes do not acquire attributable interests unless their ownership exceeds a ten percent direct or indirect voting stock interest in a broadcast licensee, cable television system or daily newspaper. The FCC's rules specify several exceptions to the general principles for attribution. To assess whether a voting stock interest in a direct or indirect parent corporation of a broadcast licensee is attributable, the FCC uses a "multiplier" analysis in which non-controlling voting stock interests are deemed proportionally reduced at each non-controlling link in a multi-corporation ownership chain. The Company's Amended and Restated Articles of Incorporation and Code of By-Laws authorize the Board of Directors to prohibit any ownership, voting or transfer of its capital stock which would cause the Company to violate the Communications Act or FCC regulations. In cases where one person or entity (such as Jeffrey H. Smulyan in the case of the Company) holds more than 50% of the combined voting power of the common stock of a broadcasting company, a minority shareholder of the company generally would not acquire an "attributable" interest in the company. However, any attributable interest by any such substantial shareholder in another broadcast station or other media in a market where such company owns, or seeks to acquire, a station could still be subject to review by the FCC under its "cross-interest" policy, discussed below, and could result in the company's being unable to obtain from the FCC one or more authorizations needed to conduct its broadcast business or being unable to obtain FCC consents for future acquisitions. Furthermore, in the event that a majority shareholder of a company (such as Mr. Smulyan in the case of the Company) were no longer to hold more than 50% of the combined voting power of the common stock of the company, the interests of minority shareholders which had theretofore been nonattributable could become attributable, with the result that any other media interests independently held by such shareholders would have to be considered together with the media interests attributed to them by reason of their interest or position in such company for purposes of determining 15 16 compliance with FCC ownership rules. In the case of the Company, Mr. Smulyan's level of voting control could decrease to or below 50% as a result of transfers of Common Stock pursuant to agreement or conversion of the Class B Common Stock into Class A Common Stock. In the event of any noncompliance, steps required to achieve compliance could include divestitures by either the shareholder or the affected company. Furthermore, other media interests of shareholders having or acquiring an attributable interest in such a company could result in the company's being unable to obtain from the FCC one or more authorizations needed to conduct its broadcast station business or being unable to obtain FCC consents for future acquisitions. Conversely, a company's media interests could operate to restrict other media investments by shareholders having or acquiring an interest in the Company. In determining whether the Company is in compliance with the FCC multiple ownership and cross-ownership limits, the FCC will consider both whether the Company's own media holdings comport with the applicable ownership rules and whether media interests independently held by the Company's officers, directors and attributable stockholders would, combined with the interests of the Company attributable to them, place any of them in violation of the FCC's ownership rules. Accordingly, any attributable broadcast or other regulated media interests independently held by the Company's officers and directors also may limit the number of radio or television stations or other media properties the Company may acquire or own. The 1996 Act eliminated restrictions on the number of radio stations that may be owned by one entity nationwide, and relaxed the ceilings for local radio ownership. Under the 1996 Act, with limited exceptions, the number of radio stations that may be owned by one entity in a given radio market is dependent on the number of commercial stations in the "market" that includes the station. For this purpose, the FCC defines "market" based upon the principal community service contours of the stations to be commonly owned. As a result, determining the number of radio broadcast stations in a "market" generally requires an engineering analysis. If the market has 45 or more stations, one entity may own not more than eight stations, of which not more than five may be in one service (AM or FM); if the market has between 30 and 44 stations, one entity may not own more than seven stations, of which not more than four may be in one service; if the market has between 15 and 29 stations, a single entity may own not more than six stations, of which not more than four may be in one service; and if the market has fourteen or fewer stations, one entity may own not more than five stations, of which not more than three may be in one service, except that in such a market one entity may not own more than fifty percent of the stations in the market. Each of the five markets in which the Company's Radio Stations are located has at least 15 commercial radio stations. For purposes of the local radio ownership rules, a radio broadcast licensee also is considered to have an attributable interest in another radio broadcast station in the same market if the first station provides the programming for more than 15% of the broadcast time, on a weekly basis, of a second station. As a result, if a combination of radio broadcast stations may not be commonly owned under FCC rules, they may not enter into such programming arrangements. At present, the FCC's one-to-a-market and cross-ownership rules do not apply to LMAs, and LMA arrangements in television do not create attributable interests. As part of its attribution rulemaking, however, the FCC has proposed to treat LMA arrangements as creating attributable ownership interests under additional rule provisions. If such a rule were adopted, the Company could not provide programming to a radio station pursuant to an LMA if the Company or an individual or an entity holding an attributable ownership interest in the Company already owns a television station or a daily newspaper in the same market. The FCC's rules also impose limits on the number of television broadcast stations that an entity may own nationally. No single entity or person may hold attributable interests in television stations that, in the aggregate, would serve more than 35% of the nation's television households. In addition, the FCC, under its so-called "duopoly" rule for television prohibits a person or entity from holding an attributable interest in televisions stations with overlapping Grade B contours, a standard that prohibits ownership of more than one television station in a local market. The Grade B contour is a predicted signal strength contour that generally approximates the area within which a viewer can receive off-the-air a signal adequate for normal viewing. The FCC is now considering whether to change the rule, and the FCC has granted waivers contingent on the outcome of the rulemaking proceeding to permit greater overlap than the present rule otherwise would permit. The FCC's rules also provide for waivers of the television duopoly rules in certain circumstances for so-called "satellite" stations that rebroadcast a primary television station. In connection with the consideration of the 16 17 application for approval of the SF Acquisition, the FCC must make a specific finding that continued operation of KAII-TV and KHAW-TV as satellite stations of KHON-TV would serve the public interest. The Company believes that the FCC will make such a finding. However, in the event that the FCC were not to make such a finding, the Company's ability to obtain FCC approval to acquire KAII-TV could be adversely affected because of signal overlap with KHON-TV. The FCC's cross-ownership rules prohibit the common ownership of attributable interests in certain combinations of media outlets serving the same geographic area. Under these rules, a single entity may not have an attributable interest in any of the following combinations, absent a waiver or other exception: (i) both a radio station and a television station that serve specified overlapping areas under the FCC's so-called "one-to-a-market" rule; (ii) a daily newspaper and either a radio station or a television station that serve specified overlapping areas; (iii) a television station and a cable television system that serve specified overlapping areas. Although the 1996 Act deleted the statutory prohibition on a single entity owning both a television station and a cable television system in the same market, it did not require the FCC to change its rule that imposes this restriction. In March 1998, the FCC initiated a rulemaking proceeding to determine whether the cable television/broadcast cross-ownership ban is necessary or should be eliminated. The 1996 Act directed the FCC to apply a liberal waiver policy to permit common ownership of a radio station and a television station in any of the nation's 50 largest television markets. Under current policy, the FCC will grant a permanent waiver of the newspaper cross-ownership rule (whether involving radio or television) only in those circumstances where the effects of applying the rule would be "unduly harsh," i.e., the newspaper is unable to sell the commonly owned station or the sale would be at an artificially depressed price, or the local community could not support a separately-owned newspaper and broadcast station. The FCC has pending a notice of inquiry requesting comment on possible changes to its policy for waiving the rule including, among other possible changes: (a) whether waivers should only be available in markets of a particular size; (b) whether any weight should be given to a newspaper's or broadcast station's economic presence or market penetration; and (c) whether there should be limits on the number of broadcast stations or other media outlets that could be co-owned with a newspaper in the same market. The Company has requested a waiver of the one-to-a-market rule to permit its common ownership of WTHI-AM, WTHI-FM, WWVR-FM and WTHI-TV. There is no guarantee that the FCC will waive its rules to permit the Company's common ownership of these stations. If no waiver is granted, the Company will be required to divest itself of the radio stations. Cross-Interest Policy. Under its "cross-interest" policy, the FCC considers certain "meaningful" relationships among competing media outlets in the same market, even if the ownership rules do not specifically prohibit the relationship. Under the cross-interest policy, the FCC in certain instances may prohibit one party from acquiring an attributable interest in one media outlet and a substantial non-attributable economic interest in another media outlet in the same market. Under this policy, the FCC may consider significant equity interests combined with an attributable interest in a media outlet in the same market, joint ventures, and common key employees among competitors. The cross-interest policy does not necessarily prohibit all of these interests, but requires that the FCC consider whether, in a particular market, the "meaningful" relationships between competitors could have a significant adverse effect upon economic competition and program diversity. Heretofore, the FCC has not applied its cross-interest policy to LMAs and JSAs between broadcast stations. In its ongoing rulemaking proceeding concerning the attribution rules described below, the FCC has sought comment on, among other things, (i) whether the cross-interest policy should be applied only in smaller markets and (ii) whether non-equity financial relationships such as debt, when combined with multiple business interrelationships such as LMAs and JSAs, raise concerns under the cross-interest policy. Alien Ownership Restrictions. Under the Communications Act, no FCC license may be held by a corporation of which more than one-fifth of its capital stock is owned of record or voted by aliens or their representatives or by a foreign government or representative thereof, or by any corporation organized under the laws of a foreign country (collectively, "Non-U.S. Persons"). Furthermore, the Communications Act provides that no FCC license may be granted to any corporation directly or indirectly controlled by any other corporation of which more than one-fourth of its capital stock is owned of record or voted by Non-U.S. Persons if the FCC finds the public interest will be served by the refusal of such license. The FCC has interpreted this provision to require an affirmative public interest finding to permit the grant or holding of a 17 18 license, and such a finding has been made only in limited circumstances. The restrictions on alien ownership apply in modified form to other forms of business organization, including partnerships. The Company's Amended and Restated Articles of Incorporation and Code of By-Laws authorize the Board of Directors to prohibit such ownership, voting or transfer of its capital stock as would cause the Company to violate the Communications Act or FCC regulations. Transfers of Control. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant such approval, the FCC considers a number of factors, including compliance with the various rules limiting common ownership of media properties, the "character" of the licensee and those persons holding "attributable" interests therein, and compliance with the Communications Act's limitations on alien ownership as well as compliance with other FCC policies. A transfer of control of a corporation controlling a broadcast license may occur in various ways. For example, a transfer of control occurs if an individual stockholder gains or loses "affirmative" or "negative" control of such corporation through issuance, redemption or conversion of stock. "Affirmative" control would consist of control of more than 50% of such corporation's outstanding voting power and "negative" control would consist of control of exactly 50% of such voting power. To obtain the FCC's prior consent to assign or transfer control of a broadcast license, appropriate applications must be filed with the FCC. If the application involves a "substantial change" in ownership or control, the application must be placed on public notice for a period of 30 days during which petitions to deny the application may be filed by interested parties, including members of the public. If the application does not involve a "substantial change" in ownership or control, it is considered a "pro forma" application and is not subject to the filing of petitions to deny. The "pro forma" application is nevertheless subject to having informal objections filed against it. If the FCC grants an assignment or transfer application, interested parties have 30 days from public notice of the grant to seek reconsideration of that grant. Generally, parties that do not file initial petitions to deny or informal objections against the application face a high hurdle in seeking reconsideration of the grant. When a grant is made by FCC's staff acting under delegated authority the full Commission may set aside such grant on its own motion for a period of forty days after public notice of the grant. (FCC rules for computation of time may cause some more variation in the actual time for action and response.) When passing on an assignment or transfer application, the FCC is prohibited from considering whether the public interest might be served by an assignment or transfer of the broadcast license to any party other than the assignee or transferee specified in the application. Under the 1996 Act, the FCC is required to review all of its broadcast ownership rules every other year to determine whether the public interest dictates that such rules be repealed or modified. The FCC recently initiated a biennial review and is considering a number of changes to its rules, including changes to the newspaper cross-ownership rule, the local radio ownership rules, and certain prohibitions on television/cable cross-ownership, as mentioned above. The Company cannot predict the outcome of these proceedings. The adoption of more restrictive ownership limits could adversely affect the Company's ability to make future acquisitions. Programming and Operation. The Communications Act requires broadcasters to serve the "public interest." Since the late 1970's, the FCC gradually has relaxed or eliminated many of the more formalized procedures it developed to promote the broadcast of certain types of programming responsive to the needs of a station's community of license. Licensees continue, however, to be required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness. Broadcast of obscene or indecent material is regulated by the FCC as well as by state and federal law. Complaints from listeners concerning a station's programming often will be considered by the FCC when it evaluates renewal applications of a licensee, although such complaints may be filed at any time. Stations also must pay regulatory and application fees and follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identifications, the advertisement of contests and lotteries, and technical operations, including limits on radio frequency radiation. In addition, present FCC rules require licensees to develop and implement affirmative action programs designed to promote equal employment opportunities ("EEO"), and to submit reports to the FCC with 18 19 respect to these matters on an annual basis and in connection with renewal applications. The United States Court of Appeals for the District of Columbia Circuit recently held that the FCC's equal employment opportunity policies violate the Fifth Amendment. That decision, however, remains subject to appeal. There are FCC rules and policies, and rules and policies of other federal agencies, that regulate matters such as network-affiliate relations, the ability of stations to obtain exclusive rights to air syndicated programming, cable systems' carriage of syndicated and network programming on distant stations, political advertising practices, application procedures and other areas affecting the business or operations of broadcast stations. Rules adopted by the FCC to implement the Children's Television Act of 1990 (the "Children's Television Act") limit the permissible amount of commercial matter in children's programs and requires each television station to present "educational and informational" children's programming. The FCC's renewal processing guidelines effectively require television stations to broadcast an average of three hours per week of children's educational programming. In addition, the FCC has adopted rules that require television stations to broadcast, over an 8 to 10 year transition period which commenced on January 1, 1998, increasing amounts of closed captioned programming. The closed captioning rules are currently under reconsideration at the FCC. Failure to observe these or other rules and policies can result in the imposition of various sanctions, including monetary fines, the grant of "short" (less than the maximum term) license renewal terms or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license. Digital Television. The FCC has adopted rules that will allow television broadcasters to provide digital television ("DTV") to consumers. The proposed DTV service is intended to provide higher technical quality of television service and to facilitate to provision of other related digital services and even multi-channel services through use of an over-the-air television channel. In April, 1997, the FCC adopted a table of allotments for DTV that provided eligible existing broadcasters with a second channel on which to provide DTV service during a lengthy transition period. On February 23, 1998, in response to numerous petitions for reconsideration, the FCC affirmed, with some modifications, the FCC's April 1997 decisions. The FCC's DTV allotment plan is based on the use of a "core" DTV spectrum between channels 2-51. Ultimately, the FCC plans to recover the channels currently used for analog broadcasting and will decide at a later date the use of the spectrum ultimately recovered. Uses of the DTV channels may include multiple standard definition program channels, data transfer, subscription video, interactive materials, and audio signals, so-called "ancillary services," although broadcasters will be required to provide a free digital video programming service that is at least comparable to today's analog service. The FCC has recently instituted a rulemaking proceeding to determine a formula for assessing fees for television broadcasters' use of DTV spectrum to offer ancillary services (i.e., services other than free, over-the-air, advertiser-supported television). The form and amount of these fees may have a significant effect on the profitability of such services. Broadcasters will not be required to air "high definition" programming or, initially, to simulcast their analog programming on the digital channel. Affiliates of ABC, CBS, NBC and Fox in the top 10 television markets will be required to be on the air with a digital signal by May 1, 1999. Affiliates of those networks in markets 11-30 will be required to be on the air with digital signals by November 1, 1999, and the remaining commercial broadcasters will be required to be on the air with digital signals by May 1, 2002. The cost of conversion to DTV will be high and may require the Company to incur substantial expenses for new equipment and other transition expenses. Furthermore, the Company cannot predict the market response to DTV. The FCC has stated that broadcasters will remain public trustees and that it will issue a notice to determine the extent of broadcasters' future public interest obligations. The Company cannot predict the final determination of the FCC regarding broadcasters' future public interest obligations, nor can it judge in advance what impact, if any, the implementation of these changes might have on business. Must-Carry Provisions. The mandatory signal carriage, or "must carry," provisions of the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act") require cable operators to carry the signals of local commercial and non-commercial television stations and certain low power television 19 20 stations within the same television market as the cable system. Systems with 12 or fewer usable activated channels and more than 300 subscribers must carry the signals of at least three local commercial television stations. A cable system with more than 12 usable activated channels, regardless of the number of subscribers, must carry the signals of all local commercial television stations, up to one-third of the aggregate number of usable activated channels of such a system. The 1992 Cable Act also includes a retransmission consent provision that prohibits cable operators and other multi-channel video programming distributors ("MVPDs") from carrying broadcast signals without obtaining the station's consent in certain circumstances. The "must carry" and retransmission consent provisions are related in that a local television broadcaster, on a cable system-by-cable systems basis, must make a choice once every three years whether to proceed under the "must carry" rules or to waive the right to mandatory but uncompensated carriage and negotiate a grant of retransmission consent to permit the cable system to carry the station's signal, in most cases in exchange for some form of consideration from the cable operator. Cable systems and other MVPDs must obtain retransmission consent to carry all distant commercial stations other than "super stations" delivered via satellite. On March 31, 1997, in a 5-4 decision, the U.S. Supreme Court upheld the constitutionality of the must-carry provisions of the 1992 Cable Act. As a result, the regulatory scheme promulgated by the FCC to implement the must-carry provisions of the 1992 Cable Act will remain in effect. Whether and to what extent such must-carry rights will extend to the new digital television signals (see above) to be broadcast by licensed television stations (including those to be owned by the Company following consummation of the Acquisition Transactions) over the next several years is still a matter to be determined in a rulemaking proceeding that the FCC may initiate later in 1998. Political Broadcasting Requirements. During designated pre-election periods - - -- 45 days before a primary election and 60 days before a general or special election -- broadcast stations may not charge legally qualified candidates who "use" station facilities more than the Lowest Unit Charge for the same class and amount of time for the same time period as its most favored commercial advertisers. In general, if a candidate's identifiable voice or picture appears in a broadcast, the advertisement constitutes a "use," even if the candidate's appearance is limited to giving the sponsorship identification announcement. The FCC requires broadcasters to disclose to candidates complete, detailed information about the rates, discounts and other programming information that are offered to commercial advertisers. In addition, the FCC requires that radio and television broadcasters allow candidates equal opportunity to purchase broadcast time to respond to their election opponents and requires that federal candidates be afforded "reasonable access" to broadcast time. A number of bills have been introduced into the U.S. House of Representatives and the U.S. Senate regarding political advertising. At least one of these bills would require broadcast stations to provide free advertising time to political candidates. The Company cannot predict whether Congress will pass such legislation and what, if any, effect such legislation might have on the Company's broadcasting operations. Recent Developments and Proposed Changes. The FCC in March 1992 initiated an inquiry and rulemaking proceeding in which it solicited comment on whether it should alter its ownership attribution rules, and initiated a further rulemaking proceeding in December 1994 to solicit additional public comment on amending those rules. Among the issues being explored in the proceeding are: (a) whether the FCC should raise the benchmarks for determining voting stock interests to be "attributable" from 5% to 10% for those stockholders other than passive institutional investors, and from 10% to 20% for passive institutional investors; (b) whether to consider non-voting stock interests to be attributable under the multiple ownership rules (at present such interests are not attributable); (c) whether to consider generally attributable voting stock interests which account for a minority of the issued and outstanding shares of voting stock of a corporate licensee, where the majority of the corporation's voting stock is held by a single stockholder; (d) whether to relax, for attribution purposes, the FCC's insulation standards for business development companies and other widely-held limited partnerships; (e) whether to adopt an equity threshold for non-insulated limited partnerships below which a limited partner would not be considered to have an attributable interest in the partnership, regardless of that partner's non-insulation from day-to-day management and operations of the media enterprises of the partnership; (f) how to treat limited liability companies and other new business forms for purposes of the FCC's attribution rules; (g) the impact of limited liability companies on broadcast 20 21 ownership opportunities for women and minorities; and (h) whether to adopt a new attribution policy under which the FCC would scrutinize multiple "cross-interests" or other significant business relationships, which are held in combination among ostensibly arm's-length competing broadcasters in the same market, to determine whether the combined interests, which individually would not raise concerns as to potential diminution of competition and diversity of viewpoints, would nonetheless raise such concerns in light of the totality of the relationships among the parties (including, e.g., LMAs, JSAs, debt relationships, holdings of non-attributable interests, or other relationships among competing broadcasters in the same market). In November 1996, the FCC issued a second further notice of proposed rulemaking in which, in addition to the attribution proposals outlined above, it requested comment on whether the FCC should modify its attribution rules by, among other changes: (a) attributing ownership in situations where an entity (i) holds a non-attributable equity or debt interest in a broadcast licensee that exceeds a minimum threshold and (ii) either supplies programming to the licensee or owns a daily newspaper, cable system or broadcast station in the same market as the licensee ("Equity/Debt Plus Rule"); (b) the attribution of interests in LMAs between television stations in the same market; and (c) the attribution of interests in JSAs, under which a third party purchases the right to sell a licensee's commercial time inventory, but the owner of the license continues to program its station. With respect to application of the Equity/Debt Plus Rule, if adopted, the Commission may grandfather equity/debt plus relationships that were in existence as of December 15, 1994, or require parties to terminate such relationships within a short period of time following the rule's adoption. The Company cannot predict when or whether any of these attribution proposals will ultimately be adopted by the FCC. In April 1997, the FCC adopted rules authorizing delivery of digital audio radio service on a nationwide basis by satellite ("satellite DARS" or "SDARS"); at the same time, the FCC requested comment on a proposal to permit SDARS to be supplemented by terrestrial transmitters designed to fill "gaps" in satellite coverage. The FCC has awarded two nationwide licenses for SDARS. It is anticipated that SDARS, when implemented, will be capable of delivering multiple channels of compact-disc quality sound which will be receivable through the use of special receiving antennas. There is ongoing research exploring the feasibility of additional delivery of digital audio broadcasting ("DAB") on a local basis by terrestrial stations utilizing either existing broadcasting frequencies or other frequencies. In addition, the FCC has authorized an additional 100 kHz of bandwidth for the AM band and has allotted frequencies in this new band to certain existing AM station licensees that applied for migration to the expanded AM band prior to the FCC's cut-off date, subject to the requirement that such licensees apply to the FCC to implement operations on their expanded band frequencies. At the end of a transition period, those licensees will be required to return to the FCC either the license for their existing AM band station or the license for the expanded AM band station. The delivery of information through the Internet also could create a new form of competition. In March, 1998, pursuant to various public proposals, the FCC sought comment on whether it should institute a proceeding to establish a "microradio" service. The service, as proposed, would consist of several classes of low power radio stations licensed by the Commission, with licenses available to small companies or individuals. The Company cannot predict at this time the outcome of this proceeding, or what effect establishing a "microradio" service would have on the Company's radio stations. On March 13, 1998, the FCC approved a television programming rating system developed by the television industry which will allow parents to "black-out" programs that contain material they consider inappropriate for children. On March 13, 1998, the FCC also adopted technical requirements for the implementation of so-called "v-chip technology" which will enable parents to program television sets so that certain programming will be inaccessible to children. The FCC has authorized the provision of video programming directly to home subscribers through high-powered direct broadcast satellites ("DBS"). DBS systems currently are capable of broadcasting as many as 175 channels of digital television service directly to subscribers equipment with 18-inch receiving dishes and decoders. Currently, several entities provide DBS service to consumers throughout the country. Other DBS 21 22 operators hold licenses, but have not yet commenced service. Generally, the signals of local television broadcast stations are not carried on DBS systems. The radio and television broadcasting industries historically have grown despite the introduction of new technologies for the delivery of entertainment and information, such as cable television, audio tapes and compact discs. A growing population and greater availability of radios, particularly car and portable radios, have contributed to this growth. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have an adverse effect on the radio and television broadcasting industries. The Company cannot predict what other matters might be considered in the future by the FCC, nor can it assess in advance what impact, if any, the implementation of any of these proposals or changes might have on its business. The Congress and the FCC have under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation, ownership and profitability of the Company's broadcast stations, result in the loss of audience share and advertising revenues for the Company's broadcast stations and affect the ability of the Company to acquire additional broadcast stations or finance such acquisitions. Such matters include: proposals to impose spectrum use or other fees on FCC licensees; the FCC's equal employment opportunity rules and other matters relating to minority and female involvement in the broadcasting industry; proposals to repeal or modify some or all of the FCC's multiple ownership rules and/or policies; proposals to increase the benchmarks or thresholds for attributing ownership interests in broadcast media; proposals to change rules relating to political broadcasting, including the reinstatement of the so-called "fairness doctrine"; technical and frequency allocation matters; AM stereo broadcasting; proposals to permit expanded use of FM translator stations; proposals to restrict or prohibit the advertising of beer, wine, and other alcoholic beverages on radio; changes in the FCC's alien ownership, cross-interest, multiple ownership and cross-ownership policies; proposals to reimpose holding periods for licenses; changes to broadcast technical requirements, including those relative to the implementation of DAB, SDARS, and AM stereo broadcasting; proposals to permit expanded use of FM translator stations; proposals to tighten safety guidelines relating to radio frequency radiation exposure; proposals to limit the tax deductibility of advertising expenses by advertisers; and proposals to auction the right to use the radio broadcast spectrum to the highest bidder, instead of granting FCC licenses and subsequent license renewals without such bidding. The Company cannot predict whether any proposed changes will be adopted nor can it predict what other matters might be considered in the future, nor can it judge in advance what impact, if any, the implementation of any of these proposals or changes might have on its business. The foregoing is only a brief summary of certain provisions of the Communications Act and of specific FCC regulations. Reference is made to the Communications Act, FCC regulations and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of broadcast stations. ITEM 2. PROPERTIES. The following table sets forth information with respect to the Company's offices and studios and its broadcast tower locations. Management believes that the Company's properties are in good condition and are suitable for the Company's operations.
YEAR PLACED OWNED OR EXPIRATION DATE PROPERTY IN SERVICE LEASED OF LEASE -------- ----------- -------- --------------- WENS-FM/WNAP-FM/Corporate Headquarters............. 1990 Leased February 2000(1)(4) Indianapolis Monthly 950 North Meridian Street Indianapolis, Indiana WENS-FM Tower...................................... 1985 Owned -- WNAP-FM Tower...................................... 1981 Owned --
22 23
YEAR PLACED OWNED OR EXPIRATION DATE PROPERTY IN SERVICE LEASED OF LEASE -------- ----------- -------- --------------- KSHE-FM............................................ 1986 Leased September 2007 700 St. Louis Union Station........................ 1984 Leased May 2000(1) St. Louis, Missouri KSHE-FM Tower KPWR-FM............................................ 1988 Leased February 2003(2) 2600 West Olive Burbank, California KPWR-FM Tower...................................... 1993 Leased March 2003(3) WQHT-FM/WRKS-FM/WQCD-FM............................ 1988 Leased June, 2012(2) 395 Hudson Street New York, New York WQHT-FM Tower...................................... 1988 Leased April 1996(5) WRKS-FM Tower...................................... 1984 Leased November 2005 WQCD-FM Tower...................................... 1992 Leased May 2007 WKQX-FM............................................ 1988 Leased July 1999 Merchandise Mart Plaza Chicago, Illinois WKQX-FM Tower...................................... 1988 Leased September 1999(2) Atlanta Magazine Office............................ 1997 Leased July 2003(2) 1360 Peachtree Street Atlanta, Georgia WIBC-AM............................................ 1983 Leased November 1998(1) 9292 North Meridian Street Indianapolis, Indiana WIBC-AM Tower...................................... 1966 Owned -- WKKX-FM/WALC-FM.................................... 1996 Leased September 2007 800 St. Louis Union Station St. Louis, Missouri WKKX-FM Tower...................................... 1989 Leased September 2009 WALC-FM Tower...................................... 1988 Owned -- WTLC-FM/WTLC-FM.................................... 1975 Owned -- 2126 North Meridian Street Indianapolis, Indiana WTLC-FM Tower...................................... 1988 Leased December 2000 WTLC-AM Tower...................................... 1981 Leased May 2021
- - ------------------------- (1) The lease provides for two renewal options of five years each following the expiration date. (2) The lease provides for one renewal option of five years following the expiration date. (3) The lease provides for one renewal option of ten years following the expiration date. The Company also owns a tower site which it placed in service in 1984 and currently uses as a back-up facility and on which it leases space to other broadcasters. (4) In August 1996, the Company announced its plan to build and own an office building in downtown Indianapolis for its corporate office and its Indianapolis operations. The project is expected to be completed in 1999. (5) The lease expired in 1996 and the station is currently negotiating a new long term lease at the same location. Payments are on a month to month basis. 23 24 ITEM 3. LEGAL PROCEEDINGS. The Company currently and from time to time is involved in litigation incidental to the conduct of its business, but the Company is not a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to shareholders during the Company's fourth quarter. 24 25 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The Company's Class A Common Stock is traded in the over-the-counter market and is quoted on the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market System under the symbol EMMS. The following table sets forth the high and low sale prices of the Class A Common Stock for the periods indicated. No dividends were paid during any such periods.
QUARTER ENDED HIGH LOW ------------- ---- --- May 1996........................................... 46.75 35.00 August 1996........................................ 52.50 41.25 November 1996...................................... 53.50 31.75 February 1997...................................... 39.50 30.00 May 1997........................................... 39.25 33.75 August 1997........................................ 49.75 36.50 November 1997...................................... 47.88 43.25 February 1998...................................... 49.50 44.00
At April 22, 1998, there were approximately 397 record holders of the Class A Common Stock, and there was one holder of the Company's Class B Common Stock. The Company intends to retain future earnings for use in its business and does not anticipate paying any dividends on shares of its common stock in the foreseeable future. 25 26 ITEM 6. SELECTED FINANCIAL DATA. FINANCIAL HIGHLIGHTS
YEAR ENDED FEBRUARY (29) 28, ------------------------------------------------------------ 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING DATA: Net broadcasting revenues............... $50,311 $66,815 $99,830 $103,292 $125,855 Broadcasting operating expenses......... 29,368 38,794 53,948 52,839 67,646 Publication and other revenue, net of operating expenses.................... 657 593 896 834 1,204 International business development expense............................... -- 313 1,264 1,164 999 Corporate expense....................... 2,766 3,700 4,419 5,929 6,846 Time brokerage fee...................... -- -- -- -- 5,667 Depreciation and amortization........... 2,812 3,827 5,677 5,481 7,536 Noncash compensation.................... 1,724 600 3,667 3,465 4,882 Operating income........................ 14,298 20,174 31,751 35,248 33,483 Interest expense........................ 13,588 7,849 13,540 9,633 13,772 Loss on donation of radio station....... -- -- -- -- 4,883 Other income (expense), net............. (367) (170) (303) 325 6 Income before income taxes and extraordinary item.................... 343 12,155 17,908 25,940 14,884 Income (loss) before extraordinary item.................................. (957) 7,627 10,308 15,440 8,984 Net income (loss)....................... (4,365) 7,627 10,308 15,440 8,984 Net income (loss) available to common shareholders.......................... (5,853) 7,627 10,308 15,440 8,984 Basic net income per share.............. $0.72 $0.96 $1.41 $0.82 Weighted average common shares outstanding........................... 10,557,328 10,690,677 10,942,996 10,903,333 OTHER DATA: Broadcast cash flow..................... $20,943 $28,021 $45,882 $ 50,453 $ 58,209 Operating cash flow..................... 18,836 24,601 41,095 44,194 51,568 Capital expenditures.................... 659 1,081 1,396 7,559 16,991 FEBRUARY (29) 28, ------------------------------------------------------------ 1994 1995 1996 1997 1998 -------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) BALANCE SHEET DATA: Cash.................................... $ 1,607 $ 3,205 $ 1,218 $ 1,191 $ 5,785 Working capital......................... 6,210 10,088 14,761 15,463 23,083 Net intangible assets................... 30,751 139,729 135,830 131,743 234,558 Total assets............................ 57,849 183,441 176,566 189,716 333,388 Total debt.............................. 92,345 152,322 124,257 115,172 231,422 Redeemable preferred stock.............. 11,250 -- -- -- -- Shareholders' equity (deficit).......... (54,229) (2,661) 13,884 34,422 45,210
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. GENERAL The performance of a broadcast group, such as Emmis, is customarily measured by the ability of its stations to generate broadcast cash flow. Broadcast cash flow is not a measure of liquidity or of performance calculated in accordance with generally accepted accounting principles, and should be viewed as a supplement to and not as a substitute for the Company's results of operations presented on the basis of generally accepted accounting principles. 26 27 The Company believes that broadcast cash flow is useful because it is generally recognized by the broadcasting industry as a measure of performance and is used by analysts who report on the performance of broadcasting companies. Moreover, broadcast cash flow is not a standardized measure and may be calculated in a number of ways. Emmis defines broadcast cash flow as advertising revenues net of agency commissions and broadcast operating expenses. The primary source of advertising revenues is the sale of advertising time to local and national advertisers. The most significant broadcast operating expenses are employee salaries and commissions, costs associated with programming, advertising and promotion, and station general and administrative costs. The Company's revenues are affected primarily by the advertising rates its radio stations charge. These rates are in large part based on the stations' ability to attract audiences in demographic groups targeted by their advertisers, as measured principally on a quarterly basis by Arbitron Radio Market Reports. Because audience ratings in a station's local market are critical to the station's financial success, the Company's strategy is to use market research and advertising and promotion to attract and retain listeners in each station's chosen demographic target group. In addition to the sale of advertising time for cash, radio stations typically exchange advertising time for goods or services which can be used by the station in its business operations. The Company generally confines the use of such trade transactions to promotional items or services for which the Company would otherwise have paid cash. In addition, it is the Company's general policy not to pre-empt advertising spots paid for in cash with advertising spots paid for in trade. SIGNIFICANT EVENTS Effective March 30, 1998, the Company entered into an agreement to purchase substantially all of the assets of SF Broadcasting of Wisconsin, Inc. and SF Multistations, Inc. and Subsidiaries (collectively the "SF Acquisition") for approximately $307 million. The purchase price will be paid a portion in cash ($257 million), either issuance of shares of Emmis' Class A Common Stock or cash, at Emmis' option ($25 million), and a promissory note ($25 million) bearing interest at 8%, with principal and interest due on the first anniversary of the closing date which, at Emmis' option, may be paid with an equivalent amount of Emmis' Class A Common Stock. In accordance with the asset purchase agreement, Emmis made a $25 million escrow payment. The SF Acquisition consists of four Fox network affiliated television stations: WLUK-TV in Green Bay, Wisconsin, WVUE-TV in New Orleans, Louisiana, WALA-TV in Mobile, Alabama, and KHON-TV in Honolulu, Hawaii (including McHale Videofilm and satellite stations KAII-TV, Wailuku, Hawaii, and KHAW-TV, Hilo, Hawaii). Effective March 20, 1998, the Company entered into an agreement to purchase the majority of the assets of Wabash Valley Broadcasting Corporation, (the "Wabash Valley Acquisition") for approximately $90 million in cash. The acquisition consists of WTHI-TV, a CBS network affiliated television station, WTHI-FM and AM and WWVR-FM, radio stations located in the Terre Haute, Indiana area, and WFTX-TV, a Fox network affiliated television station in Ft. Myers, Florida. The Wabash Valley and SF Acquisitions (collectively the "TV Acquisitions") are awaiting approval by the FCC. The Company will account for the TV Acquisitions under the purchase method of accounting. On February 1, 1998, the Company acquired all of the outstanding capital stock of Mediatex Communications Corporation for approximately $37.4 million in cash (the "Mediatex Acquisition"). Mediatex Communications Corporation owns and operates Texas Monthly, a regional magazine. The acquisition was accounted for as a purchase and was financed through additional bank borrowings. On November 1, 1997, the Company acquired substantially all of the net assets of Cincinnati Magazine from CM Media, Inc. for approximately $2.0 million in cash (the "Cincinnati Acquisition"). Emmis financed the acquisition through additional bank borrowings. The acquisition was accounted for as a purchase. On November 1, 1997, the Company completed its acquisition of substantially all of the assets of WTLC-FM and AM in Indianapolis from Panache Broadcasting, L.P. for approximately $15.3 million in cash (the 27 28 "Indianapolis Acquisition"). Emmis financed the acquisition through additional bank borrowings. The acquisition was accounted for as a purchase. Emmis owns a 54% interest in a Hungarian subsidiary (Radio Hungaria Rt., d/b/a Slager Radio) which was formed in August 1997. In November 1997, Slager Radio acquired a radio broadcasting license from the Hungarian government at a cost of approximately $19.2 million, of which a cash payment of $7.3 million had been made as of February 28, 1998. The broadcast license has an initial term of seven years and is subject to renewal for an additional five years. Slager Radio began broadcasting on February 16, 1998. Slager Radio's operating results included in Emmis' results of operations for the year ended February 28, 1998 were not material. On October 1, 1997, the Company acquired the assets of Network Indiana and AgriAmerica from Wabash Valley Broadcasting Corporation for $.7 million in cash (the "Network Acquisition"). Emmis financed the acquisition through additional bank borrowings. The acquisition was accounted for as a purchase. On May 15, 1997, the Company entered into an agreement to purchase radio station WQCD-FM in New York City. The purchase price, after adjustments, is expected to be approximately $141 million. As part of the transaction therewith, the Company issued an irrevocable letter of credit, to the current owner, totaling $50 million as security for the Company's obligation under this agreement. The acquisition will be financed through additional bank borrowings and will be accounted for as a purchase upon closing. The acquisition is currently awaiting FCC approval. The TV Acquisitions and the acquisition of WQCD-FM are herein referred to as the Pending Acquisitions. In connection with the agreement to acquire WQCD-FM, the Company entered into a time brokerage agreement which permitted Emmis to begin operating the station effective July 1, 1997 (herein referred to as the "Operation of WQCD-FM"). This agreement expires upon the closing of the sale of the station to the Company. In consideration for the time brokerage agreement, the Company pays a monthly fee of approximately $700,000. Operating results of WQCD-FM are reflected in the consolidated statement of operations for the period from July 1, 1997 through February 28, 1998. On March 31, 1997, Emmis completed its acquisition of substantially all of the assets of radio stations WALC-FM (formerly WKBQ-FM), WALC-AM (formerly WKBQ-AM) and WKKX-FM in St. Louis (the "St. Louis Acquisition") from Zimco, Inc. for approximately $43.6 million in cash, plus an agreement to broadcast approximately $1 million in trade spots, for Zimco, Inc., over a period of years. The purchase price was financed through additional bank borrowings and the acquisition was accounted for as a purchase. In February 1998, the Company donated radio station WALC-AM in St. Louis to Northside Seventh Day Adventist Church near St. Louis. The $4.8 million net book value of the station at the time of donation was recognized as a loss on donation of radio station. IMPACT OF THE YEAR 2000 Many computer systems experience problems handling dates beyond the year 1999. Therefore, some computer hardware and software will need to be modified prior to the year 2000 to remain functional. The Company is assessing the internal readiness of its computer systems and the readiness of third parties which interact with the Company's systems. The Company plans to devote the necessary resources to resolve all significant year 2000 issues in a timely manner. Costs associated with the year 2000 assessment and correction of problems noted are expensed as incurred. Based on management's current assessment, it does not believe that the cost of such actions will have a material effect on the Company's results of operations or financial condition. RESULTS OF OPERATIONS YEAR ENDED FEBRUARY 28, 1998 COMPARED TO YEAR ENDED FEBRUARY 28, 1997. Net broadcasting revenues for the year ended February 28, 1998 were $125.9 million compared to $103.3 million for the same period of the prior year, an increase of $22.6 million or 21.8%. This increase was principally due to the St. Louis Acquisition, the Operation of WQCD-FM, and the ability to realize higher advertising rates at the Company's 28 29 broadcasting properties, resulting from higher ratings at certain broadcasting properties, as well as increases in general radio spending in the markets in which the Company operates. On a pro forma basis, net broadcasting revenues would have increased $8.5 million or 6.7% for the year. For purposes herein, pro forma information assumes the Mediatex, Indianapolis, and St. Louis Acquisitions and the Operation of WQCD-FM were effective on the first day of the year ended February 28, 1997. Broadcasting operating expenses for the year ended February 28, 1998 were $67.6 million compared to $52.8 million for the same period of the prior year, an increase of $14.8 million or 28.0%. This increase was principally attributable to the St. Louis Acquisition, the Operation of WQCD-FM and increased promotional spending at the Company's broadcasting properties. On a pro forma basis, broadcasting operating expenses would have increased $4.9 million or 7.2% for the year. Broadcast cash flow for the year ended February 28, 1998 was $58.2 million compared to $50.4 million for the same period of the prior year, an increase of $7.8 million or 15.4%. This increase was due to increased net broadcasting revenues partially offset by increased broadcasting operating expenses as discussed above. On a pro forma basis, broadcast cash flow would have increased $3.6 million or 6.2% for the year. Corporate expenses for the year ended February 28, 1998 were $6.8 million compared to $5.9 million for the same period of the prior year, an increase of $.9 million or 15.5%. This increase was primarily due to increased travel expenses and other expenses related to potential acquisitions that were not finalized and increased professional fees. Operating cash flow consists of operating income, excluding the time brokerage fee, noncash compensation and depreciation and amortization. Operating cash flow for the year ended February 28, 1998 was $51.6 million compared to $44.2 million for the same period of the prior year, an increase of $7.4 million or 16.7%. This increase was principally due to the increase in broadcast cash flow partially offset by an increase in corporate expenses. On a pro forma basis, operating cash flow would have increased $4.0 million or 7.5% for the year. Interest expense was $13.8 million for the year ended February 28, 1998 compared to $9.6 million for the same period of the prior year, an increase of $4.2 million or 43.0%. This increase reflected higher outstanding debt due to the St. Louis Acquisition and the write-off of deferred financing costs associated with refinancing of the Company's bank debt, offset by voluntary repayments made thereunder and a rate decrease associated with the refinancing. On a pro forma basis, interest expense would have increased $.8 million or 4.6% for the year. Publication and other revenues net of operating expenses for the year ended February 28, 1998 were $1.2 million compared to $.8 million for same period of the prior year, an increase of $.4 million or 44.4%. This increase was due to the Mediatex Acquisition and increased tower rental revenue offset by an increase in operating expenses at Atlanta magazine. On a pro forma basis, publication and other revenues would have increased $1.1 million or 43.2%. Depreciation and amortization expense for the year ended February 28, 1998 was $7.5 million compared to $5.5 million for the same period of the prior year, an increase of $2.0 million or 37.5%. This increase was primarily due to the Mediatex, Indianapolis, and St. Louis Acquisitions. On a pro forma basis, depreciation and amortization expense would have increased $.1 million or .9%. Noncash compensation expense for year ended February 28, 1998 was $4.9 million compared to $3.5 million for the same period of the prior year, an increase of $1.4 million or 40.9%. Noncash compensation includes compensation expense associated with stock options granted, restricted common stock issued under employment agreements and common stock contributed to the Company's Profit Sharing Plan. This increase was due primarily to the increase in stock price from the prior year. Accounts receivable at February 28, 1998 were $32.1 million compared to $20.8 million at February 28, 1997, an increase of $11.3 million or 54.2%. This increase in accounts receivable was due primarily to the Mediatex, Cincinnati, Indianapolis, Network, and St. Louis Acquisitions and Operation of WQCD-FM. 29 30 YEAR ENDED FEBRUARY 28, 1997 COMPARED TO YEAR ENDED FEBRUARY 29, 1996. Net broadcasting revenues for the year ended February 28, 1997 were $103.3 million compared to $99.8 million for the same period of the prior year, an increase of $3.5 million or 3.5%. This increase was due to higher advertising rates at the Company's broadcasting properties. Total broadcasting operating expenses for the year ended February 28, 1997 were $52.8 million compared to $53.9 million for the same period of the prior year, a decrease of $1.1 million or 2.1%. This decrease was principally due to decreased promotional spending at the Company's broadcasting properties. Publication and other revenues net of operating expenses for the year ended February 28, 1997 were $.8 million compared to $.9 million for same period of the prior year, a decrease of $.1 million or 6.9%. This decrease was principally a result of an increase in operating expenses at Atlanta magazine. Corporate expenses for the year ended February 28, 1997 were $5.9 million compared to $4.4 million for the same period of the prior year, an increase of $1.5 million or 34.2%. This increase was primarily due to increased compensation. Depreciation and amortization expense for the year ended February 28, 1997 was $5.5 million compared to $5.7 million for the same period of the prior year, a decrease of $.2 million or 3.5%. This decrease was due to fully depreciated assets at the Company's broadcasting properties. Noncash compensation expense for the year ended February 28, 1997 was $3.5 million compared to $3.7 million for the same period of the prior year, a decrease of $.2 million or 5.5%. Noncash compensation includes compensation expense associated with stock options granted, restricted common stock issued under employment agreements and common stock contributed to the Company's Profit Sharing Plan. This decrease was due primarily to the decrease in stock price from a year ago. Interest expense for the fiscal year ended February 28, 1997 was $9.6 million compared to $13.5 million for the same period of the prior year, a decrease of $3.9 million or 28.9%. This decrease reflected lower outstanding debt due to voluntary repayments made under the Company's credit facility. Accounts receivable at February 28, 1997, were $20.8 million compared to $19.2 million at February 29, 1996, an increase of $1.6 million or 8.7%. This increase in accounts receivable was due primarily to increases in net broadcasting revenues at the Company's broadcasting properties. LIQUIDITY AND CAPITAL RESOURCES On July 1, 1997, the Company entered into an amended and restated credit facility comprised of a $250 million revolving credit facility, a $100 million term note and a $150 million revolving credit facility/term note, a portion of the proceeds of which were used to fund the Company's acquisitions and escrow payments for Pending Acquisitions. The amended and restated credit facility is available for general corporate purposes and acquisitions. In the fiscal year ended February 28, 1998, the Company made voluntary payments of $24.3 million under its credit facility. As of February 28, 1998, the Company had $235.0 million available for borrowing, under its credit facility. The Company is negotiating and anticipates receiving a commitment from TD Securities (USA) Inc., First Union Capital Markets and BankBoston, N.A. (together with any additional lending institutions which may later provide a portion of the credit, the "Lenders") for a $750 million credit facility (the "New Credit Facility"), which may be increased up to $1.0 billion, with the consent of the Lenders. The New Credit Facility consists of a $150 million senior secured 8-year revolving credit facility, a $250 million senior secured 8-year amortizing term loan, a $250 million 8.5-year amortizing term loan and a $100 million 8-year senior secured acquisition revolving credit/term loan facility. The acquisition facility commitment will terminate and convert to a term loan one year after closing of the New Credit Facility. The New Credit Facility, which is expected to close in mid-1998, will replace the Company's existing $500 million credit facility and will be available for general corporate purposes and acquisitions. Amounts borrowed under the New Credit Facility are expected to bear interest, at the option of the Company, at a rate equal to the London Interbank Offered Rate or a "base rate" equal to the higher of the Federal Funds rate or the prime rate, plus a margin. The lenders' obligation to fund under the New Credit Facility will be 30 31 subject to various conditions, including completion of an equity offering, completion of loan documentation acceptable to the lenders and other customary conditions for similar lines of credit. In the fiscal years ended February 1998, 1997 and 1996, the Company had capital expenditures of $17.0 million, $7.6 million and $1.4 million, respectively. These capital expenditures primarily consisted of progress payments in connection with the Indianapolis office facility project discussed below, leasehold improvements to office and studio facilities in connection with the consolidation of its New York broadcast properties to a single location, and broadcast equipment purchases and tower upgrades, respectively. The Company expects that cash flow from operating activities and borrowings available under its credit facility will be sufficient to fund all debt service for debt existing at February 28, 1998, working capital, capital expenditure requirements for the next year, and the acquisition of WQCD-FM. To complete the TV Acquisitions, the Company will increase its bank borrowings or issue equity or debt securities, depending on market conditions and other factors. In August 1996, Emmis announced its plan to construct an office building in downtown Indianapolis for its corporate office and its Indianapolis operations. The project is expected to be completed in 1999 for an estimated cost of $30 million, net of reimbursable construction costs of $2 million. This amount reflects an increase over the original amount due to the Indianapolis and Network Acquisitions, as well as an increase in overall staffing. Certain factors such as additional studio costs related to digital technology and historical landmark requirements may cause the cost of this project to increase. The Company is funding this project through cash flow from operating activities and bank borrowings. INFLATION The impact of inflation on the Company's operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse effect on the Company's operating results. 31 32 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES: We have audited the accompanying consolidated balance sheets of EMMIS BROADCASTING CORPORATION (an Indiana corporation) and Subsidiaries as of February 28, 1998 and 1997, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended February 28, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Emmis Broadcasting Corporation and Subsidiaries as of February 28, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 1998 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP -------------------------------------- ARTHUR ANDERSEN LLP Indianapolis, Indiana, March 31, 1998. 32 33 CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, ---------------------- 1997 1998 ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 1,191 $ 5,785 Accounts receivable, net of allowance for doubtful accounts of $820 and $1,346 at February 28, 1997 and 1998, respectively..................................... 20,831 32,120 Prepaid expenses.......................................... 2,376 4,900 Income tax refunds receivable............................. 2,482 4,968 Other..................................................... 1,867 3,379 -------- -------- Total current assets................................. 28,747 51,152 -------- -------- PROPERTY AND EQUIPMENT: Land and buildings........................................ 1,009 2,192 Leasehold improvements.................................... 5,509 8,188 Broadcasting equipment.................................... 14,356 18,800 Furniture and fixtures.................................... 7,154 12,144 Construction in progress.................................. 1,363 13,091 -------- -------- 29,391 54,415 Less-Accumulated depreciation and amortization............ 16,400 20,969 -------- -------- Total property and equipment, net.................... 12,991 33,446 -------- -------- INTANGIBLE ASSETS: Broadcast licenses........................................ 126,116 195,400 Trademarks and organization costs......................... 1,073 1,022 Excess of cost over fair value of net assets of purchased businesses............................................. 20,371 53,297 Other intangibles......................................... 1,277 5,567 -------- -------- 148,837 255,286 Less-Accumulated amortization............................. 17,094 20,728 -------- -------- Total intangible assets, net......................... 131,743 234,558 -------- -------- OTHER ASSETS: Deferred debt issuance costs and cost of interest rate cap agreements, net of accumulated amortization of $3,625 and $692 at February 28, 1997 and 1998, respectively... 1,541 3,806 Investments............................................... 5,470 5,114 Deposits and other........................................ 9,224 5,312 -------- -------- Total other assets, net.............................. 16,235 14,232 -------- -------- Total assets......................................... $189,716 $333,388 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 33 34 CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
FEBRUARY 28, ---------------------- 1997 1998 ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt...................... $ 2,868 $ 51 Book cash overdraft....................................... 1,942 -- Accounts payable.......................................... 3,687 13,140 Accrued salaries and commissions.......................... 1,561 2,893 Accrued interest.......................................... 174 2,421 Deferred revenue.......................................... 1,593 7,985 Other..................................................... 1,459 1,579 -------- -------- Total current liabilities............................ 13,284 28,069 -------- -------- LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 112,304 231,371 OTHER NONCURRENT LIABILITIES................................ 436 604 MINORITY INTEREST........................................... -- 1,875 DEFERRED INCOME TAXES....................................... 29,270 26,259 -------- -------- Total liabilities.................................... 155,294 288,178 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 8) SHAREHOLDERS' EQUITY: Class A common stock, $.01 par value; authorized 34,000,000 shares; issued and outstanding 8,410,956 shares and 8,430,660 shares at February 28, 1997 and 1998, respectively..................................... 84 84 Class B common stock, $.01 par value; authorized 6,000,000 shares; issued and outstanding 2,574,470 shares and 2,560,894 shares at February 28, 1997 and 1998, respectively........................................... 26 26 Additional paid-in capital................................ 70,949 72,753 Accumulated deficit....................................... (36,637) (27,653) -------- -------- Total shareholders' equity........................... 34,422 45,210 -------- -------- Total liabilities and shareholders' equity........... $189,716 $333,388 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 34 35 CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY (29)28, --------------------------------- 1996 1997 1998 ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) GROSS BROADCASTING REVENUES................................. $117,562 $122,739 $149,406 LESS AGENCY COMMISSIONS..................................... 17,732 19,447 23,551 -------- -------- -------- NET BROADCASTING REVENUES................................... 99,830 103,292 125,855 Broadcasting operating expenses........................... 53,948 52,839 67,646 Publication and other revenue, net of operating expenses............................................... 896 834 1,204 International business development expenses............... 1,264 1,164 999 Corporate expenses........................................ 4,419 5,929 6,846 Time brokerage fee........................................ -- -- 5,667 Depreciation and amortization............................. 5,677 5,481 7,536 Noncash compensation...................................... 3,667 3,465 4,882 -------- -------- -------- OPERATING INCOME............................................ 31,751 35,248 33,483 -------- -------- -------- OTHER INCOME (EXPENSE): Interest expense.......................................... (13,540) (9,633) (13,772) Equity in loss of unconsolidated affiliate................ (3,111) -- -- Gain on sale of investment in Talk Radio U.K.............. 2,729 -- -- Loss on donation of radio station......................... -- -- (4,833) Other income, net......................................... 79 325 6 -------- -------- -------- Total other income (expense)........................... (13,843) (9,308) (18,599) -------- -------- -------- INCOME BEFORE INCOME TAXES.................................. 17,908 25,940 14,884 PROVISION FOR INCOME TAXES.................................. 7,600 10,500 5,900 -------- -------- -------- NET INCOME.................................................. $ 10,308 $ 15,440 $ 8,984 ======== ======== ======== Basic net income per share................................ $.96 $1.41 $.82 ======== ======== ======== Diluted net income per share.............................. $.93 $1.37 $.79 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 35 36 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE-YEAR PERIOD ENDED FEBRUARY (29)28, 1998
CLASS A CLASS B COMMON STOCK COMMON STOCK -------------------- -------------------- ADDITIONAL CUMULATIVE TOTAL SHARES SHARES PAID-IN ACCUMULATED TRANSLATION SHAREHOLDERS OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL DEFICIT ADJUSTMENTS EQUITY ----------- ------ ----------- ------ ---------- ----------- ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) BALANCE, FEBRUARY 28, 1995................... 7,997,692 $80 2,655,122 $27 $59,552 $(62,385) $65 $(2,661) Issuance of Class A Common Stock in exchange for Class B Common Stock......... 48,790 1 (48,790) (1) -- -- -- -- Exercise of stock options and related income tax benefits............. 198,850 2 -- -- 2,633 -- -- 2,635 Compensation related to granting of stock and stock options........ -- -- -- -- 2,917 -- -- 2,917 Issuance of Class A Common Stock to profit sharing plan................. 19,608 -- -- -- 750 -- -- 750 Translation adjustments.......... -- -- -- -- -- -- (65) (65) Net income............. -- -- -- -- -- 10,308 -- 10,308 --------- --- --------- --- ------- -------- --- ------- BALANCE, FEBRUARY 29, 1996................... 8,264,940 83 2,606,332 26 65,852 (52,077) -- 13,884 --------- --- --------- --- ------- -------- --- ------- Issuance of Class A Common Stock in exchange for Class B Common Stock......... 31,862 -- (31,862) -- -- -- -- -- Exercise of stock options and related income tax benefits............. 92,415 1 -- -- 1,632 -- -- 1,633 Compensation related to granting of stock and stock options........ -- -- -- -- 2,715 -- -- 2,715 Issuance of Class A Common Stock to profit sharing plan................. 21,739 -- -- -- 750 -- -- 750 Net income............. -- -- -- -- -- 15,440 -- 15,440 --------- --- --------- --- ------- -------- --- ------- BALANCE, FEBRUARY 28, 1997................... 8,410,956 84 2,574,470 26 70,949 (36,637) -- 34,422 --------- --- --------- --- ------- -------- --- ------- Issuance of Class A Common Stock in exchange for Class B Common Stock......... 13,576 -- (13,576) -- -- -- -- -- Exercise of stock options and related income tax benefits............. 106,305 1 -- -- 2,966 -- -- 2,967 Compensation related to granting of stock and stock options........ -- -- -- -- 4,132 -- -- 4,132 Issuance of Class A Common Stock to profit sharing plan................. 15,152 -- -- -- 750 -- -- 750 Issuance of Class A Common Stock to employees and officers and related income tax benefits............. 79,115 1 -- -- 954 -- -- 955 Purchase of Class A Common Stock......... (194,444) (2) -- -- (6,998) -- -- (7,000) Net income............. -- -- -- -- -- 8,984 -- 8,984 --------- --- --------- --- ------- -------- --- ------- BALANCE, FEBRUARY 28, 1998................... 8,430,660 $84 2,560,894 $26 $72,753 $(27,653) $-- $45,210 ========= === ========= === ======= ======== === =======
The accompanying notes to consolidated financial statements are an integral part of these statements. 36 37 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY (29)28, ------------------------------------- 1996 1997 1998 ---- ---- ---- (DOLLARS IN THOUSANDS) OPERATING ACTIVITIES: Net income............................................... $10,308.. $ 15,440 $ 8,984 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization of property and equipment........................................... 1,636 1,639 2,580 Amortization of debt issuance costs and cost of interest rate cap agreements........................ 1,742 1,071 2,183 Amortization of intangible assets..................... 4,041 3,842 4,956 Provision for bad debts............................... 834 726 802 Provision (benefit) for deferred income taxes......... 4,870 1,590 (1,824) Gain on sale of TalkRadio UK.......................... (2,729) -- -- Compensation related to stock and stock options granted............................................. 2,917 2,715 4,132 Contribution to profit sharing plan paid with common stock............................................... 750 750 750 Equity in loss of unconsolidated affiliate............ 3,111 -- -- Loss on donation of radio station..................... -- -- 4,833 Other................................................. -- (195) 357 (Increase) decrease in certain current assets (net of dispositions and acquisitions)-- Accounts receivable................................. (3,175) (2,385) (8,389) Prepaid expenses and other current assets........... (751) (3,041) (4,760) Increase (decrease) in certain current liabilities (net of dispositions and acquisitions)-- Accounts payable and book cash overdraft............ (569) 2,757 5,560 Accrued salaries and commissions.................... 830 (1,999) 1,332 Accrued interest.................................... (1,272) (146) 2,247 Deferred revenue.................................... (349) 395 292 Other current liabilities........................... 390 26 116 (Increase) decrease in deposits and other assets...... (108) (898) (1,832) Increase (decrease) in other noncurrent liabilities... 745 (925) 168 -------- -------- --------- Net cash provided by operating activities........ 23,221 21,362 22,487 -------- -------- --------- INVESTING ACTIVITIES: Costs incurred for WRKS-FM Acquisition................... (131) -- -- Acquisition of WALC-FM, WKBQ-AM and WKKX-FM.............. -- (6,600) (36,964) Acquisition of WTLC-FM and WTLC-AM....................... -- -- (15,336) Acquisition of Texas Monthly............................. -- -- (37,389) Acquisition of Cincinnati Magazine....................... -- -- (1,979) Acquisition of Network Indiana and AgriAmerica........... -- -- (709) Purchases of property and equipment...................... (1,396) (7,559) (16,991) Initial payment for purchase of Hungarian broadcast license............................................... -- -- (7,325) Investment in and advances to TalkRadio UK............... (980) -- -- Net proceeds from disposition of investment in TalkRadio UK.................................................... 2,729 -- -- Other.................................................... -- 240 -- -------- -------- --------- Net cash provided (used) by investing activities..................................... 222 (13,919) (116,693) -------- -------- ---------
37 38 CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY (29)28, ------------------------------------- 1996 1997 1998 ---- ---- ---- (DOLLARS IN THOUSANDS) FINANCING ACTIVITIES: Proceeds of long-term debt............................... 29,518 19,000 288,378 Payments on long-term debt............................... (57,583) (28,102) (183,928) Payment of loan fees..................................... -- -- (4,291) Purchase of the Company's Class A Common Stock........... -- -- (7,000) Proceeds from exercise of stock options and income tax benefits of certain equity transactions............... 2,635 1,632 3,922 Other.................................................... -- -- 1,719 -------- -------- --------- Net cash provided (used) by financing activities.... (25,430) (7,470) 98,800 -------- -------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... (1,987) (27) 4,594 CASH AND CASH EQUIVALENTS: Beginning of year........................................ 3,205 1,218 1,191 -------- -------- --------- End of year.............................................. $ 1,218 $ 1,191 $ 5,785 ======== ======== ========= SUPPLEMENTAL DISCLOSURES: Cash paid for-- Interest.............................................. $ 13,112 $ 8,708 $ 9,655 Income taxes.......................................... 2,931 9,180 8,419 Noncash investing and financing transactions -- Fair value of assets acquired by incurring debt....... 17 17 32 ACQUISITION OF WALC-FM, WKBQ-AM AND WKKX-FM: Fair value of assets acquired......................... -- -- $ 44,564 Cash paid............................................. -- -- 43,564 --------- Liabilities assumed................................... $ 1,000 ACQUISITION OF TEXAS MONTHLY: Fair value of assets acquired......................... -- -- $ 45,421 Cash paid............................................. -- -- 37,389 --------- Liabilities assumed................................... $ 8,032
The accompanying notes to consolidated financial statements are an integral part of these statements. 38 39 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. ORGANIZATION Emmis Broadcasting Corporation owns and operates FM radio stations in Los Angeles, New York City (2 stations owned and operated, 1 station operated), Chicago, St. Louis (3 stations) and Indianapolis (3 stations), two AM radio stations in Indianapolis, and a radio station which broadcasts in Hungary (Slager Radio). Emmis Broadcasting Corporation also publishes Indianapolis Monthly, Texas Monthly, Cincinnati Magazine, and Atlanta magazines, and engages in certain businesses ancillary to its radio businesses, such as advertising, program consulting and broadcast tower leasing. B. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Emmis Broadcasting Corporation and its majority owned Subsidiaries. Unless the content otherwise requires, references to Emmis or the Company in these financial statements mean Emmis Broadcasting Corporation and its Subsidiaries. All significant intercompany balances and transactions have been eliminated. C. REVENUE RECOGNITION Broadcasting revenue is recognized as advertisements are aired. Publication revenue is recognized in the month of issue. D. PUBLICATION AND OTHER REVENUE, NET OF OPERATING EXPENSES Publication revenue of $9,924,000, $10,428,000 and $14,776,000 for the years ended February 1996, 1997 and 1998, respectively, is reflected net of operating expenses in the consolidated statements of operations. Other revenues of $703,000, $935,000 and $1,142,000 for the years ended February 1996, 1997 and 1998, respectively, are also reflected net of operating expenses in the consolidated statements of operations. E. INTERNATIONAL BUSINESS DEVELOPMENT EXPENSES International business development expenses includes the cost of the Company's efforts to identify, investigate and develop international broadcast investments or other international business opportunities. F. NONCASH COMPENSATION Noncash compensation includes compensation expense associated with stock options granted, restricted common stock issued under employment agreements and common stock contributed to the Company's Profit Sharing Plan. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Pro forma disclosure of net income and earnings per share under SFAS No. 123 is presented in Note 7. G. CASH AND CASH EQUIVALENTS Emmis considers time deposits, money market fund shares, and all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. H. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation and amortization are generally computed by the straight-line method over the estimated useful lives of the related assets which are 31.5 years for buildings, not more than 32 years for leasehold improvements, 5 to 7 years for broadcasting equipment and 7 years for furniture and fixtures. Maintenance, repairs and minor renewals are expensed; improvements are capitalized. 39 40 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Interest is being capitalized in connection with the construction of the Indianapolis office facility (Note 8). The capitalized interest is recorded as part of the building cost, which is currently included in construction in progress, and will be amortized over the building's estimated useful life. In fiscal 1998 approximately $312,000 of interest was capitalized. No interest was capitalized in fiscal 1997 and 1996. On a continuing basis, the Company reviews the financial statement carrying value of property and equipment for impairment. If events or changes in circumstances were to indicate that an asset carrying value may not be recoverable, a write-down of the asset would be recorded through a charge to operations. I. INTANGIBLE ASSETS Intangible assets are recorded at cost. Generally, broadcast licenses, trademarks and the excess of cost over fair value of net assets of purchased businesses are being amortized using the straight-line method over 40 years. The cost of the broadcast license for Slager Radio (totaling approximately $20.8 million) is being amortized over the seven year initial term of the license. The approximately $32.4 million of excess of cost over fair value of net assets resulting from the purchase of Texas Monthly is being amortized over 15 years. Other intangibles are amortized using the straight-line method over varying periods, not in excess of 10 years. On a continuing basis, the Company reviews the financial statement carrying value of these assets for impairment. Specifically, this process includes a comparison of the carrying amounts of the operating units to their estimated fair values, an analysis of estimated future operating cash flows and an evaluation as to whether an operating unit might be sold in the near future. If this process were to result in the conclusion that the carrying value of an intangible asset would not be recovered, a write-down of the operating unit's assets would be recorded through a charge to operations. J. INVESTMENTS Emmis has a 50% ownership interest in a partnership in which the sole asset is land on which a transmission tower is located. The other owner has voting control of the partnership. This investment is reflected at cost of $5,114,000, which approximates the equity method of accounting. On November 7, 1995, Emmis sold its 24.5% interest in TalkRadio UK Limited (TRUK) for approximately $3.0 million and recorded a gain on sale of approximately $2.7 million. K. DEPOSITS AND OTHER ASSETS Deposits and other assets includes amounts due from officers, including accrued interest, of $1,570,000 and $1,654,000 at February 28, 1997 and 1998, respectively. Officer loans bear interest at the Company's borrowing rate of approximately 6.625% and 6.60% at February 28, 1997 and 1998, respectively. L. DEFERRED REVENUE AND BARTER TRANSACTIONS Deferred revenue includes deferred magazine subscription revenue and deferred barter revenue. Barter transactions are recorded at the estimated fair value of the product or service received. Broadcast revenue from barter transactions is recognized when commercials are broadcast. The appropriate expense or asset is recognized when merchandise or services are used or received. M. INCOME TAXES Income taxes are provided based on the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The liability method measures the expected tax impact of future taxable income or deductions resulting from differences in the tax and financial reporting bases of assets and liabilities reflected in the consolidated balance sheets and the expected tax impact of carryforwards for tax purposes. 40 41 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) N. FOREIGN CURRENCY TRANSLATION The functional currency of Slager Radio is the Hungarian forint. Slager Radio's balance sheet has been translated from forints to the U.S. dollar using the current exchange rate in effect at the balance sheet date. Slager Radio's results of operations have been translated using an average exchange rate for the period. The translation adjustment resulting from the conversion of Slager Radio's financial statements was not significant for the year ended February 28, 1998. The functional currency of TRUK is the pound sterling. The Company's investment in and advances to TRUK have been translated from the pound sterling to the U.S. dollar using current exchange rates in effect at the balance sheet date. The Company's equity in the loss of TRUK has been translated using an average exchange rate for the period. The applicable gains or losses, net of deferred income taxes, resulting from the translation of the Company's investment in and advances to TRUK is shown as cumulative translation adjustments in shareholders' equity. As indicated above, Emmis sold its investment in TRUK on November 7, 1995. O. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE In February 1997, Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share", was issued. This new statement supersedes APB Opinion No. 15, "Earnings Per Share", and supersedes or amends other related accounting pronouncements. SFAS No. 128 was adopted by the Company effective March 1, 1997 and all prior period earnings per share (EPS) data have been restated. SFAS No. 128 replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures like the Company's. Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period (10,942,996 and 10,903,333 shares for the years ended February 28, 1997 and 1998, respectively). Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Weighted average common equivalent shares outstanding for the period, considering the effect of employee stock options, are 11,291,225 and 11,377,765 for the years ended February 28, 1997 and 1998, respectively. P. ESTIMATES 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, 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. Q. ACCOUNTING PRONOUNCEMENTS In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued. Under this statement, the Company will report in its financial statements, in addition to net income, comprehensive income and its components which includes foreign currency items. The statement must be adopted by the Company in fiscal 1999. Implementation of this disclosure standard will not affect the financial position or results of operations. Management has not yet determined the manner in which comprehensive income will be displayed. In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," was issued. This statement, which must be adopted by the Company for the year ended February 28, 1999, establishes standards for reporting information about operating segments in annual and interim financial statements. Operating segments are determined consistent with the way management organizes and evaluates 41 42 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) financial information internally for making decisions and assessing performance. It also requires related disclosures about the source of revenues for each segment, geographic areas, and major customers. Implementation of this disclosure standard will not affect the Company's financial position or results of operations. Management has not yet determined the manner in which segment information will be displayed. R. RECLASSIFICATIONS Certain reclassifications have been made to the February 28, 1997 financial statements to be consistent with the February 28, 1998 presentation. 2. COMMON STOCK Emmis has authorized 34,000,000 shares of Class A Common Stock, par value $.01 per share, and 6,000,000 shares of Class B Common Stock, par value $.01 per share. The rights of these two classes are essentially identical except that each share of Class B Common Stock has 10 votes with respect to substantially all matters. Class B Common Stock is owned by the principal shareholder (Jeffrey H. Smulyan). All shares of Class B Common Stock convert to Class A Common Stock upon sale or other transfer to a party unaffiliated with the principal shareholder. The financial statements presented reflect the establishment of the two classes of stock. In June 1997, Emmis acquired 194,444 shares of its common stock from Morgan Stanley, Dean Witter, Discover and Co. at $36 per share. The aggregate purchase price of $7.0 million is reflected as a decrease to additional paid in capital in the accompanying financial statements and was financed through additional borrowings under the Company's existing Credit Facility. 3. PREFERRED STOCK Emmis has authorized 10,000,000 shares of preferred stock which may be issued with such designations, preferences, limitations and relative rights as Emmis' Board of Directors may authorize. As of February 28, 1997 and 1998, no shares of preferred stock are issued and outstanding. 4. LONG-TERM DEBT Long-term debt was comprised of the following at February 28, 1997 and 1998 (dollars in thousands):
1997 1998 ---- ---- Credit Facility: Revolving Credit Facility................................. $ 6,000 $115,000 Term Note................................................. 40,000 100,000 Revolving Credit Facility/Term Note....................... 69,000 -- License Obligation -- Hungary............................... -- 11,800 Bonds Payable............................................... -- 2,996 Notes Payable............................................... -- 1,448 Other....................................................... 172 178 -------- -------- Total debt.................................................. 115,172 231,422 Less Current Maturities................................... 2,868 51 -------- -------- $112,304 $231,371 ======== ========
On July 1, 1997, the Company entered into an amended and restated Credit Facility. As a result of the early payoff of the refinanced debt, the Company recorded a loss of approximately $1.3 million, related to unamortized deferred debt issuance costs, which is recorded as interest expense in the accompanying consolidated statement of operations. The amended and restated Credit Facility matures on February 28, 2005 42 43 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and is comprised of (1) a $250 million revolving credit facility which is subject to certain adjustments as defined in the credit facility and includes an additional commitment for $100 million which may be requested by Emmis prior to May 31, 1999, (2) a $100 million term note and (3) a $150 million revolving credit facility/term note. The amended and restated Credit Facility provides for Letters of Credit to be made available to the Company not to exceed $50 million. The aggregate amount of outstanding Letters of Credit and amounts borrowed under the Revolving Credit Facility cannot exceed the Revolving Credit Facility commitment. At February 28, 1998, a $50 million Letter of Credit was outstanding. All outstanding amounts under the Credit Facility bear interest, at the option of Emmis, at a rate equal to the Eurodollar Rate (5.375% and 5.625% at February 28, 1997 and 1998, respectively) or an alternative base rate (as defined in the Credit Facility) plus a margin. The margin over the Eurodollar Rate or the alternative base rate varies from time to time, depending on Emmis' ratio of debt to earnings before interest, taxes, depreciation and amortization (EBITDA), as defined in the agreement. The interest rate on borrowings outstanding under the Credit Facility at February 28, 1997 and 1998 was approximately 6.625% and 6.60%, respectively. Interest is due on a calendar quarter basis under the alternative base rate and at least every three months under the Eurodollar Rate. The Credit Facility requires the Company to maintain interest rate protection agreements through July 2000. The notional amount required varies based upon Emmis' ratio of adjusted debt to EBITDA, as defined in the Credit Facility. The notional amount of the agreements required at February 28, 1998 totaled $109 million. The agreements, which expire at various dates ranging from April 2000 to February 2001, establish various ceilings approximating 8% on the one-month LIBOR interest rate. The cost of these agreements are being amortized over the lives of the agreements and the amortization is included as a component of interest expense. The aggregate amount of the Revolving Credit Facility reduces quarterly beginning May 31, 2000. Amortization of the outstanding principal amount under the Term Note and Revolving Credit Facility/Term Note is payable in quarterly installments beginning May 31, 2000. The annual amortization and reduction schedules as of February 28, 1998, assuming the entire $500 million Credit Facility were outstanding prior to the scheduled amortization payments are as follows: SCHEDULED AMORTIZATION/REDUCTION OF CREDIT FACILITY AVAILABILITY (IN THOUSANDS)
REVOLVING REVOLVING CREDIT FACILITY/ YEAR ENDED CREDIT FACILITY TERM NOTE TERM NOTE FEBRUARY (29)28 AMORTIZATION AMORTIZATION AMORTIZATION TOTAL --------------- --------------- ------------ ---------------- ----- 2001..................................... $ 37,500 $ 15,000 $ 15,000 $ 67,500 2002..................................... 50,000 20,000 22,500 92,500 2003..................................... 50,000 20,000 22,500 92,500 2004..................................... 50,000 20,000 37,500 107,500 2005..................................... 62,500 25,000 52,500 140,000 -------- -------- -------- -------- Total.................................... $250,000 $100,000 $150,000 $500,000 ======== ======== ======== ========
Commencing with the fiscal year ending February 28, 2001 and continuing through February 29, 2004, in addition to the scheduled amortization/reduction of the Credit Facility, within 60 days after the end of each fiscal year, the Credit Facility is permanently reduced by 50% of the Company's excess cash flow if the ratio of adjusted debt (as defined in the Credit Facility) to EBITDA exceeds 5 to 1. Excess cash flow is generally defined as EBITDA reduced by cash taxes, capital expenditures, required debt service, increases in working 43 44 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) capital (net of cash or cash equivalents), the fixed fees paid under the WQCD-FM time brokerage agreement, and $3,000,000. The net proceeds from any sale of certain assets must also be used to permanently reduce borrowings under the Credit Facility. If the ratio of adjusted debt to EBITDA is less than 5.5 to 1 and certain other conditions are met, the Company will be permitted in certain circumstances to reborrow the amount of the net proceeds within nine months solely for the purpose of funding an acquisition. The Credit Facility contains various financial and operating covenants and other restrictions with which Emmis must comply, including, among others, restrictions on additional indebtedness, engaging in businesses other than broadcasting and publishing, paying cash dividends, redeeming or repurchasing capital stock of Emmis and use of borrowings, as well as requirements to maintain certain financial ratios. The Company was in compliance with these covenants at February 28, 1997 and 1998. The Credit Facility also prohibits Emmis, under certain circumstances, from making acquisitions and disposing of certain assets without the prior consent of the lenders, and provides that an event of default will occur if Jeffrey H. Smulyan ceases to maintain (i) a significant equity investment in Emmis (as specified in the Credit Facility), (ii) the ability to elect a majority of Emmis' directors or (iii) control of a majority of shareholder voting power. Substantially all of Emmis' assets, including the stock of Emmis' subsidiaries, are pledged to secure the Credit Facility. The License Obligation -- Hungary is payable, in Hungarian forints, by Emmis' Hungarian subsidiary (see Note 5) to the Hungarian government in four equal annual installments commencing November 2000. The license obligation of $11.8 million, reflected net of unamortized discount of $1.7 million, is non-interest bearing and thus has been discounted at an imputed rate of approximately 3% to reflect the obligation at its fair value. In accordance with the license purchase agreement, a Hungarian cost of living adjustment is calculated annually and is payable, concurrent with the principal payments, on the outstanding obligation. The cost of living adjustment is estimated each reporting period and included in interest expense. The Bonds and Notes Payable are payable by Emmis' Hungarian subsidiary to the minority shareholders of the subsidiary. The Bonds are due on maturity at November 2004 and bear interest at the Hungarian State Bill rate plus 3% (approximately 23% at February 28, 1998). Interest is payable semiannually. The Notes Payable and accrued interest are due on demand and bear interest at prime plus 2% (approximately 10.5% at February 28, 1998). 5. ACQUISITIONS On March 31, 1997, Emmis completed its acquisition of substantially all of the assets of radio stations WALC-FM (formerly WKBQ-FM), WKBQ-AM and WKKX-FM in St. Louis from Zimco, Inc. for approximately $43.6 million in cash, plus an agreement to broadcast approximately $1.0 million in trade spots for Zimco, Inc., over a period of years. In accordance with the asset purchase agreement, Emmis made an escrow payment of $6.0 million and paid $600,000 in non-refundable prepayments in December 1996. These payments are reflected in deposits and other assets in the consolidated balance sheet as of February 28, 1997. Concurrent with the signing of the asset purchase agreement, Emmis entered into a time brokerage agreement which permitted Emmis to operate the acquired stations effective December 1, 1996 through the date of closing. Operating results of these stations are reflected in the consolidated statements of operations commencing December 1, 1996. The purchase price was financed through additional bank borrowings. The acquisition was accounted for as a purchase. In February 1998, the Company donated WKBQ-AM to a church. The $4.8 million net book value of the station at the time of donation was reflected as a loss on donation of radio station in the accompanying consolidated statement of operations. On May 15, 1997, the Company entered into an agreement to purchase radio station WQCD-FM in New York City. The purchase price, after adjustments, is expected to be approximately $141 million. As part of the transaction therewith, the Company issued an irrevocable letter of credit, to the current owner, totaling $50 million as security for the Company's obligations under this agreement. The acquisition will be financed 44 45 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) through additional bank borrowings and will be accounted for as a purchase upon closing. The acquisition is currently awaiting FCC approval. In connection with the above agreement to acquire WQCD-FM, the Company entered into a time brokerage agreement which permitted Emmis to begin operating the station effective July 1, 1997. This agreement expires upon the closing of the sale of the station to the Company. In consideration for the time brokerage agreement, the Company pays a monthly fee of approximately $700,000. Operating results of WQCD-FM are reflected in the consolidated statement of operations for the period from July 1, 1997 through February 28, 1998. On October 1, 1997, the Company acquired the assets of Network Indiana and AgriAmerica from Wabash Valley Broadcast Corporation for $.7 million in cash. Emmis financed the acquisition through additional bank borrowings. The acquisition was accounted for as a purchase. On November 1, 1997, the Company completed its acquisition of substantially all of the assets of WTLC-FM and AM in Indianapolis from Panache Broadcasting, L.P. for approximately $15.3 million in cash. Emmis financed the acquisition through additional bank borrowings. The acquisition was accounted for as a purchase. On November 1, 1997, the Company acquired substantially all of the net assets of Cincinnati Magazine from CM Media, Inc. for approximately $2.0 million in cash. Emmis financed the acquisition through additional bank borrowings. The acquisition was accounted for as a purchase. Emmis owns a 54% interest in a Hungarian subsidiary (Radio Hungaria Rt., d/b/a Slager Radio) which was formed in August 1997. In November 1997, Slager Radio acquired a radio broadcasting license from the Hungarian government at a cost of approximately $19.2 million, of which a cash payment of $7.3 million had been made as of February 28, 1998. The broadcast license has an initial term of seven years and is subject to renewal for an additional five years. Slager Radio began broadcasting on February 16, 1998. Slager Radio's operating results included in Emmis' results of operations for the year ended February 28, 1998 were not material. On February 1, 1998, the Company acquired all of the outstanding capital stock of Mediatex Communications Corporation for approximately $37.4 million in cash. Mediatex Communications Corporation owns and operates Texas Monthly, a regional magazine. The acquisition was accounted for as a purchase and was financed through additional bank borrowings. 6. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) A pro forma condensed consolidated statement of operations is presented below for the years ended February 28, 1997 and 1998, assuming the acquisitions of WALC-FM, WKKX-FM, WTLC-FM and AM, and Texas Monthly and the operation of WQCD-FM, under the Time Brokerage Agreement, all had occurred on the first day of the year ended February 28, 1997. Pro forma results for the year ended February 28, 1997, include pro forma adjustments for March through November, actual revenues and operating expenses from December through February, operating under the time brokerage agreement, and certain pro forma expense adjustments for December through February for the acquisition of WALC-FM and WKKX-FM. In addition, pro forma adjustments for March through February for the operation of WQCD-FM under the time brokerage agreement, and the acquisition of WTLC-FM and AM and Texas Monthly are included in pro forma results for fiscal 1997. Pro forma results for the year ended February 28, 1998, include pro forma adjustments for March and actual results for April through February for the acquisition of WALC-FM and WKKX-FM, pro forma results for March through June and actual results for July through February for the operation of WQCD-FM under the time brokerage agreement, pro forma results for March through October and actual results for November through February for the acquisition of WTLC- FM and AM, and pro forma results for March through January and actual results for February for the acquisition of Texas 45 46 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Monthly. Pro forma results for Cincinnati Magazine, Network Indiana and AgriAmerica have been excluded as they are not significant to the consolidated operating results of the Company. Pro forma interest expense, depreciation of property and equipment and amortization expense related to the intangibles resulting from the allocation of the purchase price for the above acquisitions and pro forma time brokerage fees for the operation of WQCD-FM have been included in the pro forma statements presented below (in thousands, except per share data).
PRO FORMA ---------------------- 1997 1998 ---- ---- NET BROADCASTING REVENUES............................... $126,112 $134,603 Broadcasting operating expenses....................... 67,792 72,646 Publication and other revenue, net of operating expenses........................................... 2,637 3,776 International business development expenses........... 1,164 999 Corporate expenses.................................... 5,929 6,846 Depreciation and amortization......................... 11,164 11,267 Noncash compensation.................................. 3,465 4,882 Time brokerage agreement fees......................... 8,500 8,500 -------- -------- OPERATING INCOME........................................ 30,735 33,239 -------- -------- OTHER INCOME (EXPENSE): Interest expense...................................... (16,713) (17,485) Equity in loss of unconsolidated affiliates........... -- (357) Loss on donation of radio station..................... -- (4,833) Other income (expense), net........................... 333 459 -------- -------- Total other income (expense)..................... (16,380) (22,216) -------- -------- INCOME BEFORE INCOME TAXES.............................. 14,355 11,023 PROVISION FOR INCOME TAXES.............................. 5,740 4,410 -------- -------- NET INCOME.............................................. $ 8,615 $ 6,613 ======== ======== Basic net income per share............................ $0.79 $0.61 ======== ======== Diluted net income per share.......................... $0.76 $0.58 ======== ========
The pro forma condensed consolidated statement of operations presented above does not purport to be indicative of the results that actually would have been obtained if the indicated transactions had been effective at the beginning of the year presented, and is not intended to be a projection of future results or trends. 7. EMPLOYEE BENEFIT PLANS A. 1986 STOCK INCENTIVE PLAN AND 1992 NONQUALIFIED STOCK OPTION PLAN These stock plans provide for incentive stock options, nonqualified stock options and stock appreciation rights equivalent to 1,112,500 shares of common stock. The options and stock appreciation rights are generally exercisable six months after the date of grant and expire not more than 10 years from the date the options or rights are granted. Stock appreciation rights provide for the issuance of stock or the payment of cash equal to the appreciation in market value of the allocated shares from the date of grant to the date of exercise. When rights are issued with options, exercise of either the option or the right results in the surrender of the other. As of February 28, 1997 and 1998, there were no stock appreciation rights outstanding nor were there any stock appreciation rights issued with options outstanding. Certain stock options awarded remain outstanding as of February 28, 1997 and 1998. 46 47 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) B. 1994 EQUITY INCENTIVE PLAN Effective March 1, 1994, the shareholders of Emmis approved the 1994 Equity Incentive Plan (the Plan). Under the Plan, awards equivalent to 1,000,000 shares of common stock may be granted. The awards, which have certain restrictions, may be for incentive stock options, nonqualified stock options, shares of restricted stock, stock appreciation rights, performance units or limited stock appreciation rights. Under this Plan, all awards are granted with an exercise price equal to the fair market value of the stock except for shares of restricted stock which may be granted with an exercise price at amounts greater than or equal to the par value of the underlying stock. No more than 500,000 shares of Class B Common Stock are available for grant and issuance under the Plan. As of February 28, 1997 and 1998, the only awards granted under this Plan were for stock options and restricted shares of stock. Certain stock options awarded remain outstanding as of February 28, 1997 and 1998. The stock options under this Plan are generally exercisable one year after the date of grant and expire not more than 10 years from the date of grant. The exercise price of these options are at the fair market value of the stock on the grant date. C. 1995 EQUITY INCENTIVE PLAN Effective March 1, 1995, the shareholders of Emmis approved the 1995 Equity Incentive Plan (the Plan). Under the Plan, awards equivalent to 650,000 shares of common stock may be granted pursuant to employment agreements discussed in Note 8. D. NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN Effective June 29, 1995, Emmis implemented a Non-Employee Director Stock Option Plan. Under this Plan, each non-employee director, as of January 24, 1995, was granted an option to acquire 5,000 shares of the Company's Class A Common Stock. Thereafter, upon election or appointment of any non-employee director or upon a continuing director becoming a non-employee director, such individual will also become eligible to receive a comparable option. In addition, an equivalent option will be automatically granted on an annual basis to each non-employee director. All awards are granted with an exercise price equal to the fair market value of the stock on the date of grant. Under this Plan, awards equivalent to 85,000 shares of Class A Common Stock are available for grant at February 28, 1998. E. 1997 EQUITY INCENTIVE PLAN Effective March 1, 1997, the shareholders of Emmis approved the 1997 Equity Incentive Plan (the 1997 Plan). Under the 1997 Plan, awards equivalent to 1,000,000 shares of common stock may be granted. The awards, which have certain restrictions, may be for incentive stock options, nonqualified stock options, shares of restricted stock, stock appreciation rights or performance units. Under the 1997 Plan, all awards are granted with an exercise price equal to the fair market value of the stock except for shares of restricted stock which may be granted with an exercise price at amounts greater than or equal to the par value of the underlying stock. No more than 500,000 shares of Class B Common Stock are available for grant and issuance under the 1997 Plan. As of February 28, 1998, there were no awards granted under this Plan. The stock options under this Plan are generally exercisable one year after the date of grant and expire not more than 10 years from the date of grant. F. OTHER DISCLOSURES RELATED TO STOCK OPTION AND EQUITY INCENTIVE PLANS The Company has historically accounted for its Stock Option Plans in accordance with APB Opinion No. 25 ("APB 25"), under which compensation expense is recognized only to the extent the exercise price of the option is less than the fair market value of the share of stock at the date of grant. During 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation (SFAS 123), which considers the stock options as compensation expense to the 47 48 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company, based on their fair value at the date of grant. Under this standard, the Company has the option of accounting for employee stock option plans as it currently does or under the new method. The Company has elected to continue to use the APB 25 method for accounting, but has adopted the disclosure requirements of SFAS 123. Accordingly, compensation expense reflected in noncash compensation in the consolidated statements of operations related to the plans summarized above was $2,917,000, $2,715,000 and $4,132,000 for the years ended February 1996, 1997 and 1998, respectively. Had compensation expense related to these plans been determined based on fair value at date of grant, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
YEAR ENDED FEBRUARY (29)28, ---------------------------------------- 1996 1997 1998 ---- ---- ---- Net Income: As Reported............................ $10,308,000 $15,440,000 $8,984,000 Pro Forma.............................. $ 8,845,000 $11,545,000 $6,871,000 Basic EPS: As Reported............................ $.96 $1.41 $.82 Pro Forma.............................. $.83 $1.06 $.63 Diluted EPS: As Reported............................ $.93 $1.37 $.79 Pro Forma.............................. $.80 $1.02 $.60
Because the fair value method of accounting has not been applied to options granted prior to March 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model utilizing the following weighted average assumptions:
YEAR ENDED FEBRUARY (29)28, ---------------- 1996 1997 1998 ---- ---- ---- Risk Free Interest Rate............................... 6.47% 6.39% 5.78% Expected Life (Years)................................. 6.8 7.1 8.1 Expected Volatility................................... 39.70% 41.56% 38.65%
Expected dividend yields were zero for fiscal 1996, 1997 and 1998. A summary of the status of options at February 1996, 1997 and 1998 and the related activity for the year is as follows:
1996 1997 1998 ------------------- -------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE OF EXERCISE OF EXERCISE OF EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------- -------- ------- -------- ------- -------- Outstanding at Beginning of Year............................ 587,000 $ 9.37 893,888 $15.88 1,232,335 $23.42 Granted........................... 505,738 19.29 439,862 35.54 325,200 35.28 Exercised......................... (198,850) 6.63 (92,415) 10.01 (106,305) 21.09 Expired........................... -- -- (9,000) 33.96 (10,600) 42.47 Outstanding at End of Year........ 893,888 15.88 1,232,335 23.42 1,440,630 26.08 Exercisable at End of Year....................... 517,900 11.99 737,223 16.71 1,155,430 22.14 Available for Grant............... 1,816,012 1,385,150 2,571,350
48 49 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During the years ended February 1996, 1997 and 1998 options were granted with an exercise price equal to or less than fair market value of the stock on the date of grant. A summary of the weighted average fair value and exercise price of options granted during 1996, 1997 and 1998 is as follows:
1996 1997 1998 ------------------- ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE EXERCISE FAIR EXERCISE FAIR EXERCISE FAIR PRICE VALUE PRICE VALUE PRICE VALUE -------- -------- -------- -------- -------- -------- OPTIONS GRANTED WITH AN EXERCISE PRICE: Equal to Fair Market Value of the Stock on the Date of Grant.......... $14.81 $26.03 $24.46 $42.66 $22.85 $41.20 Less Than Fair Market Value of the Stock on the Date of Grant.......... $16.55 $15.50 $24.30 $15.50 $40.48 $15.50
During fiscal 1996 and 1997, 90,000 and 14,800 shares of nonvested stock were granted at a weighted average grant date fair value of $17.36 and $37.20, respectively, under employment agreements discussed in Note 8. No nonvested stock was granted during fiscal 1998. The following information relates to options outstanding and exercisable at February 28, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - - -------------------------------------- ------------------------------------ WEIGHTED WEIGHTED WEIGHTED RANGE OF AVERAGE AVERAGE AVERAGE EXERCISE NUMBER OF EXERCISE REMAINING NUMBER OF EXERCISE PRICES OPTIONS PRICE CONTRACT LIFE OPTIONS PRICE -------- --------- -------- ------------- --------- -------- $3.75 60,375 $ 3.75 4.2 years 60,375 $ 3.75 10.00-13.25 76,450 12.43 5.7 years 76,450 12.43 15.13-17.125 644,393 15.61 8.0 years 644,393 15.61 28.875-42.25 297,362 34.01 8.1 years 206,862 33.42 44.125-48.75 362,050 44.79 9.0 years 167,350 44.40
In addition to the benefit plans noted above, Emmis has the following employee benefit plans: G. PROFIT SHARING PLAN In December 1986, Emmis adopted a profit sharing plan that covers all nonunion employees with one year of service. Contributions to the plan are at the discretion of the Emmis Board of Directors. Contributions to the plan can be made in the form of newly issued Emmis common stock or cash. Historically, all contributions to the plan have been in the form of Emmis common stock. Contributions reflected in noncash compensation in the consolidated statements of operations were $750,000 for each of the years ended February 1996, 1997 and 1998. H. 401(K) RETIREMENT SAVINGS PLAN Emmis sponsors a Section 401(k) retirement savings plan which covers substantially all nonunion employees age 18 years and older who have at least one year of service. Employees may make pretax contributions to the plan up to 10% of their compensation, not to exceed the annual limit prescribed by the Internal Revenue Service. Emmis may make discretionary matching contributions to the plan in the form of shares of the Company's Class A Common Stock. Effective March 1, 1996, Emmis began to match 50% of employee contributions up to $2,000. Emmis' contributions to the plan totaled $129,000, $273,000 and $315,000 for the years ended February 1996, 1997 and 1998, respectively. 49 50 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) I. DEFINED CONTRIBUTION HEALTH AND RETIREMENT PLAN Emmis contributes to a multi-employer defined contribution health and retirement plan for employees who are members of a labor union. Amounts charged to expense related to the multi-employer plan were approximately $276,000, $297,000 and $342,000 for the years ended February 1996, 1997 and 1998, respectively. J. EMPLOYEE STOCK PURCHASE PLAN Effective March 1, 1995, the Company implemented an employee stock purchase plan which permits employees to purchase, via payroll deduction, shares of the Company's Class A Common Stock, at fair market value, up to an amount not to exceed 10% of an employee's annual gross pay. 8. COMMITMENTS AND CONTINGENCIES A. OPERATING LEASES Emmis leases certain office space, tower space, equipment and automobiles under operating leases expiring at various dates through March 2013. Some of the lease agreements contain renewal options and annual rental escalation clauses (generally tied to the Consumer Price Index or increases in the lessor's operating costs), as well as provisions for payment of utilities and maintenance costs. The future minimum rental payments (exclusive of future escalation costs) required by noncancelable operating leases which have remaining terms in excess of one year as of February 28, 1998, are as follows:
PAYABLE IN YEAR ENDING FEBRUARY PAYMENTS --------------- -------- (IN THOUSANDS) 1999.................................................. $ 3,139 2000.................................................. 2,710 2001.................................................. 2,085 2002.................................................. 1,961 2003.................................................. 2,024 Thereafter............................................ 11,618 ------- $23,537 =======
Minimum payments have not been reduced by minimum sublease rentals of approximately $740,000 due in the future under noncancelable subleases. As further discussed in e. below, in 1999 Emmis intends to move its corporate office and Indianapolis operations to an office building being constructed in downtown Indianapolis. Included in future minimum rentals above is approximately $752,000 to be paid through 2000 relating to office space currently being leased in Indianapolis which will no longer be used after the move. At this time Emmis management believes that sublease income will be adequate to offset any rental expense associated with the existing lease. Rent expense totaled $4,437,000, $3,025,000 and $4,512,000 for the years ended February 1996, 1997 and 1998, respectively. Rent expense for the year ended February 1996 includes a loss recognized in connection with a remaining lease obligation related to leased property no longer used for operating purposes. During the year ended February 1997, the Company settled the aforementioned lease obligation which resulted in a reduction to rent expense. Rent expense for the year ended February 1998 is net of sublease income of approximately $86,000. 50 51 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) B. BROADCAST AGREEMENTS Emmis has entered into agreements to broadcast certain syndicated programs and sporting events. Future payments related to these broadcast rights are summarized as follows: Year ended February 1999 -- $1,584,000, 2000 -- $1,074,000, 2001 -- $1,100,000, 2002 -- $1,150,000, and 2003 -- $625,000. Expense related to these broadcast rights totaled $1,260,000, $1,383,000 and $1,400,000 for the years ended February 1996, 1997 and 1998. C. LITIGATION Emmis currently and from time to time is involved in litigation incidental to the conduct of its business, but Emmis is not currently a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on the financial position or results of operations of Emmis. D. EMPLOYMENT AGREEMENTS Effective March 1, 1994, Emmis entered into an employment agreement with its Chief Executive Officer that continues through February 28, 1999 and provides for an annual base salary as specified in the agreement and an annual bonus. In addition, for each year Emmis meets specified financial targets, the Chief Executive Officer will be granted an option to acquire 100,000 shares of Class B Common Stock. The options will have a five-year term and an exercise price of $15.50 per share. The Chief Executive Officer was granted an option to acquire 100,000 shares of Class B Common Stock in accordance with the terms of this agreement for each of the years ended February 1996 and 1997. It is expected that an option to acquire 100,000 shares of Class B Common Stock will also be granted, under this employment agreement, for the year ended February 1998. Upon the termination or disability of the Chief Executive Officer, specified levels of compensation may continue for five years from the date of termination or disability. Upon the death of the Chief Executive Officer, lump sum payments are payable to his estate. Effective March 1, 1995, Emmis entered into employment agreements with two other executive officers of the Company that continued through February 28, 1998 and provided for an annual base salary and certain bonuses as specified in the agreements. Each executive officer received 12,000 shares of the Company's Class A Common Stock for each year of the employment agreements. The shares vested upon completion of the agreements. In addition, each executive officer was granted an option to acquire 25,000 shares of Class A Common Stock during each year of the employment agreements. The options became exercisable at the end of the term of the employment agreements and have an exercise price of $15.50 per share. Effective March 1, 1995 and 1996, Emmis entered into employment agreements with two additional executives of the Company that continue through February 28, 1999 and provide for an annual base salary and certain other bonuses as specified in the agreements. Subject to certain conditions, the executives will receive, in total, 27,000 shares of the Company's Class A Common Stock. Of the total shares to be received 2,000, were awarded as of February 28, 1997 with the remaining 25,000 to be awarded upon completion of the term of the agreements. In addition, subject to certain conditions, during the term of the agreements, the executives will be granted options to acquire shares of Class A Common Stock, with an exercise price equal to the fair market value at the date of grant. Each option becomes exercisable one year from the date of grant. Options to purchase up to 89,806 shares of Class A Common Stock may be granted over the term of the agreements. Through February 28, 1998, options to purchase 65,806 shares have been granted under the agreements. Effective March 1, 1995, Emmis entered into employment agreements with certain station managers that continued through February 28, 1997 and provided for an annual base salary and certain bonuses as specified in the agreements. Effective March 1, 1997 new employment agreements were entered into, with similar provisions, which continue through February 28, 1999. Subject to certain conditions, each station manager will receive a prescribed number of shares, not to exceed 1,500 shares, of the Company's Class A Common Stock 51 52 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) during each year of the employment agreements. Commencing with the initial agreements through February 28, 1998, 10,050 shares have been granted under these agreements. E. CONSTRUCTION OF OFFICE BUILDING In August 1996, Emmis announced its plan to build an office building in downtown Indianapolis for its corporate office and its Indianapolis operations. The project is expected to be completed in 1999 for an estimated cost of $30 million, net of reimbursable construction costs of $2 million. This amount reflects an increase over the original amount due to the acquisition of WTLC-FM, WTLC-AM, Network Indiana and AgriAmerica. Certain factors such as additional studio costs related to digital technology and historical landmark requirements may cause the cost of this project to increase. The Company plans to fund this project through additional borrowings under the Credit Facility. 9. INCOME TAXES The provision for income taxes for the years ended February 1996, 1997 and 1998, consisted of the following:
1996 1997 1998 ---- ---- ---- (IN THOUSANDS) Current: Federal................................................... $2,081 $ 7,535 $ 6,474 State..................................................... 649 1,375 1,250 ------ ------- ------- 2,730 8,910 7,724 ------ ------- ------- Deferred: Federal................................................... 4,572 1,328 (2,059) State..................................................... 298 262 235 ------ ------- ------- 4,870 1,590 (1,824) ------ ------- ------- Provision for income taxes.................................. $7,600 $10,500 $ 5,900 ====== ======= =======
The provision for income taxes for the years ended February 1996, 1997 and 1998, differs from that computed at the Federal statutory corporate tax rate as follows:
1996 1997 1998 ---- ---- ---- (IN THOUSANDS) Computed income taxes at 35%.................... $6,268 $ 9,079 $5,209 State income tax................................ 616 1,064 965 Other........................................... 716 357 (274) ------ ------- ------ $7,600 $10,500 $5,900 ====== ======= ======
52 53 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of deferred tax assets and deferred tax liabilities at February 28, 1997 and 1998, are as follows:
1997 1998 ---- ---- (IN THOUSANDS) Deferred tax assets: Capital loss carryforwards........................... $ 3,208 $ 2,914 Net operating loss carryforwards..................... -- 2,587 Compensation relating to stock options............... 2,435 3,543 Other................................................ 1,221 2,739 Valuation allowance.................................. (3,208) (2,914) -------- -------- Total deferred tax assets......................... 3,656 8,869 -------- -------- Deferred tax liabilities: Intangible assets.................................... (30,714) (33,166) Other................................................ (2,212) (1,962) -------- -------- Total deferred tax liabilities.................... (32,926) (35,128) -------- -------- Net deferred tax liability........................ $(29,270) $(26,259) ======== ========
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. A valuation allowance has been provided for 100% of the capital loss carryforwards available as of February 28, 1997 and 1998, since these loss carryforwards can only be utilized to offset future capital gains with expiration of approximately $6,187,000 in 1999, $730,000 in 2001, and $368,000 in 2002. The expiration of net operating loss carryforwards approximate $458,000 in 1999, $692,000 in 2000, $1,486,000 in 2003, $2,623,000 in 2004, $1,375,000 in 2005, and $758,000 in 2006. 10. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments of Emmis is estimated below based on the methods and assumptions discussed therein. A. CASH AND CASH EQUIVALENTS The carrying amounts approximate fair value because of the short maturity of these instruments. B. LONG-TERM DEBT Based upon borrowing rates currently available to the Company for debt with similar terms and the same remaining maturities, the fair value of long-term debt approximated the carrying value at February 28, 1998. C. INTEREST RATE CAP AGREEMENTS The unamortized cost of interest rate cap agreements included in the February 28, 1998 consolidated balance sheet totals $172,000. The carrying amount of interest rate cap agreements approximate fair value given that the majority of the interest rate caps were purchased in February 1998. D. LETTER OF CREDIT Fees paid for the Company's $50 million letter of credit approximate fair value based on fees currently charged for similar arrangements. 53 54 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. RELATED PARTY TRANSACTIONS Two officers of Emmis are partners in a law firm which provides legal services to Emmis. Legal fees billed by this law firm were approximately $188,000, $296,000 and $512,000 for the years ended February 1996, 1997 and 1998, respectively. Affiliates of Morgan Stanley, Dean Witter, Discover and Co. are shareholders of Emmis. No fees were paid to Morgan Stanley, Dean Witter, Discover & Co. and affiliates for the years ended February 1996, 1997 and 1998. 12. SUBSEQUENT EVENT -- ACQUISITION Effective March 20, 1998, the Company entered into an agreement to purchase the majority of the assets of Wabash Valley Broadcasting Corporation for approximately $90 million in cash. The acquisition consists of WTHI-TV, a CBS network affiliated television station, WTHI-FM and AM and WWVR-FM, radio stations located in the Terre Haute, Indiana area, and WFTX-TV, a Fox network affiliated television station in Ft. Myers, Florida. Effective March 30, 1998, the Company entered into an agreement to purchase substantially all of the assets of SF Broadcasting of Wisconsin, Inc. and SF Multistations, Inc. and Subsidiaries (collectively "the SF Acquisition") for approximately $307 million. The purchase price will be paid a portion in cash ($257 million), either issuance of shares of Emmis' Class A Common Stock or cash, at Emmis' option ($25 million), and a promissory note ($25 million) bearing interest at 8%, with principal and interest due on the first anniversary of the closing date which, at Emmis' option, may be paid with an equivalent amount of Emmis' Class A Common Stock. In accordance with the asset purchase agreement, Emmis made a $25 million escrow payment. The SF Acquisition consists of four Fox network affiliated television stations: WLUK-TV in Green Bay, Wisconsin, WVUE-TV in New Orleans, Louisiana, WALA-TV in Mobile, Alabama, and KHON-TV in Honolulu, Hawaii (including McHale Videofilm and satellite stations KAII-TV, Wailuku, Hawaii, and KHAW-TV, Hilo, Hawaii). These acquisitions are awaiting approval by the FCC. The Company will account for these acquisitions under the purchase method of accounting. 13. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED -------------------------------------------------- FULL MAY 31 AUGUST 31 NOVEMBER 30 FEBRUARY 28 YEAR ------ --------- ----------- ----------- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) Year ended February 28, 1997: Net broadcasting revenues............... $25,350 $28,071 $27,520 $22,351 $103,292 Operating income........................ 8,286 12,342 10,080 4,540 35,248 Net income.............................. 3,505 6,040 4,655 1,240 15,440 Basic net income per share........... $0.32 $0.55 $0.43 $0.11 $1.41 Diluted net income per share......... $0.31 $0.53 $0.41 $0.11 $1.37 Year ended February 28, 1998: Net broadcasting revenues............... $28,562 $33,889 $36,245 $27,159 $125,855 Operating income........................ 8,091 12,002 10,160 3,230 33,483 Net income (loss)....................... 3,368 4,672 4,079 (3,135) 8,984 Basic net income per share........... $0.31 $0.43 $0.38 $(0.29) $0.82 Diluted net income per share......... $0.30 $0.41 $0.36 $(0.29) $0.79
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 54 55 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item with respect to directors of the Company is incorporated by reference from the section entitled "Proposal No. 1: Election of Directors" on pages 4 and 5 of the Company's 1998 Proxy Statement and the section entitled "Compliance with Section 16(a) of the Securities Exchange Act of 1934" on page of the Company's 1998 Proxy Statement. Listed below is certain information about the executive officers of the Company or its affiliates and who are not directors.
AGE AT YEAR FIRST NAME POSITION FEBRUARY 28, 1998 ELECTED OFFICER ---- -------- ----------------- --------------- Richard F. Cummings.................. Executive Vice President 46 1984 Programming Howard L. Schrott.................... Executive Vice President, 43 1991 Treasurer and Chief Financial Officer Norman H. Gurwitz.................... Executive Vice President, 50 1987 Secretary and Corporate Counsel
Set forth below is the principal occupation for the last five years of each executive officer of the Company or its affiliates who is not also a director. RICHARD F. CUMMINGS was the Program Director of WENS from 1981 to March 1984, when he became the National Program Director and a Vice President of the Company. His title was changed to Executive Vice President -- Programming in 1988. HOWARD L. SCHROTT became Vice President, Chief Financial Officer and Treasurer of the Company in 1991. He became an Executive Vice President in 1995. Prior to joining the Company, Mr. Schrott was a Vice President in the Communications Lending Group at First Union National Bank, Charlotte, North Carolina. From 1984 to 1989 Mr. Schrott served as Chief Operating and Executive Officer for a group of radio stations. Mr. Schrott also spent two years practicing law in Washington, D.C. and Indianapolis, Indiana, where he concentrated on matters before the FCC and general business matters relating to broadcasting and media. NORMAN H. GURWITZ was elected Corporate Counsel for the Company in 1987 and a Vice President in 1988. He was elected Secretary of the Company in 1989 and became an Executive Vice President in 1995. Prior to 1987, he was a partner in the Indianapolis law firm of Scott & Gurwitz. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated by reference from the section entitled "Executive Compensation" on pages 5 through 10 of the Company's 1998 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated by reference from the section entitled "Voting Securities and Beneficial Owners" on pages 2 and 3 of the Company's 1998 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is incorporated by reference from the section entitled "Certain Transactions" on page 5 of the Company's 1998 Proxy Statement. 55 56 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. Financial Statements The financial statements filed as a part of this report are set forth under Item 8. Financial Statement Schedules The following financial statement schedule is filed as a part of this report: Report of Independent Public Accountants on Financial Statement Schedule Schedule II Valuation and Qualifying Accounts and Reserves for the fiscal years in the three year period ended February 28, 1998. Reports on Form 8-K The Company filed a report on Form 8-K on April 15, 1997, which was amended on June 16, 1997, to report the acquisition of radio stations in St. Louis, Missouri. All other Schedules are omitted as the required information is inapplicable or is presented in the financial statements or related notes. Exhibits The following exhibits are filed or incorporated by reference as a part of this report: Exhibits The following exhibits are filed or incorporated by reference as a part of this report: 3.1 Amended and Restated Articles of Incorporation of Emmis Broadcasting Corporation, incorporated by reference from Exhibit 3.3 to the Registration Statement, as amended (the "Registration Statement") of the Company on Form S-1, file no. 33-73218.* 3.2 Amended and Restated Bylaws of Emmis Broadcasting Corporation, incorporated by reference from Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1995 (the "1995 10-K").* 3.3 Form of stock certificate for Class A Common Stock, incorporated by reference from Exhibit 3.5 to the Registration Statement.* 10.1 Emmis Broadcasting Corporation 1986 Stock Incentive Plan, as amended, incorporated by reference from Exhibit 10.1 to the Registration Statement.* 10.2 Emmis Broadcasting Corporation 1992 Stock Option Plan, incorporated by reference from Exhibit 10.3 to the Registration Statement.* 10.3 Emmis Broadcasting Corporation Profit Sharing Plan, incorporated by reference from Exhibit 10.4 to the Registration Statement.* 10.4 Emmis Broadcasting Corporation 1994 Equity Incentive Plan, incorporated by reference from Exhibit 10.5 to the Registration Statement.* 10.5 Emmis Broadcasting Corporation 1997 Equity Incentive Plans. 10.6 Amended and Restated Revolving Credit and Term Loan Agreement, incorporated by reference from Exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1997.* 10.7 First, Second and Third Amendments, and Waiver, to Amended and Restated Revolving Credit and Term Loan Agreement.
56 57 10.8 Form of Employment Agreement with Jeffrey H. Smulyan, incorporated by reference from Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1994 (the "1994 10-K").* 10.9 Form of Registration Rights Agreement between Emmis Broadcasting Corporation and Morgan Stanley Group Inc., incorporated by reference from Exhibit 10.17 to the Registration Statement.* 10.10 The Emmis Broadcasting Corporation 1995 Non-Employee Director Stock Option Plan incorporated by reference from Exhibit 10.15 of the 1995 10-K.* 10.11 The Emmis Broadcasting Corporation 1995 Equity Incentive Plan incorporated by reference from Exhibit 10.16 of the 1995 10-K.* 10.12 Employment Agreement with Howard L. Schrott, incorporated by reference from Exhibit 10 to the Company's report on Form 10-Q for the quarter ended May 31, 1996.* 10.13 Asset Purchase Agreement dated October 31, 1997 between the Company and Zimco, Inc. (with exhibits omitted in which the Company agrees to file supplementally upon request), incorporated by reference from Exhibit 2 to the Company's report on Form 8-K filed April 15, 1997.* 10.14 Stock Purchase Agreement Among Emmis Broadcasting Corporation, and Michael R. Levy, Dow Jones & Company, Inc., and Gregory Curtis, dated February 6, 1998. 10.15 Asset Purchase Agreement by and between Emmis Broadcasting Corporation and Wabash Valley Broadcasting Corporation, dated March 20, 1998. 10.16 Asset Purchase Agreement by and among SF Broadcasting of Honolulu, Inc., SF Honolulu License Subsidiary, Inc., SF Broadcasting of New Orleans, Inc., SF New Orleans License Subsidiary, Inc., SF Broadcasting of Mobile, Inc., SF Mobile License Subsidiary, Inc., SF Broadcasting of Green Bay, Inc., SF Green Bay License Subsidiary, Inc. and Emmis Broadcasting Corporation, dated March 30, 1998. 11 Schedules re: Calculation of per share and pro forma per share net income (loss). 21 Subsidiaries of the Company. 23 Consent of Accountants. 24 Powers of Attorney. 27 Financial Data Schedule (EDGAR-filed version only) 99 Proxy Statement.**
- - ------------------------- * Previously Submitted ** To be filed within 120 days of the end of the Company's fiscal year. 57 58 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. EMMIS BROADCASTING CORPORATION Date: May 7, 1998 By: /s/ HOWARD L. SCHROTT ------------------------------------ Howard L. Schrott Executive Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and on the dates indicated.
SIGNATURE TITLE --------- ----- Date: May 7, 1998 JEFFREY H. SMULYAN* President, Chairman of the --------------------------------------------- Board and Director (Principal Jeffrey H. Smulyan Executive Officer) Date: May 7, 1998 /s/ HOWARD L. SCHROTT Executive Vice President, --------------------------------------------- Treasurer and Chief Financial Howard L. Schrott Officer (Principal Financial Officer) Date: May 7, 1998 SUSAN B. BAYH* Director --------------------------------------------- Susan B. Bayh Date: May 7, 1998 GARY L. KASEFF* Director --------------------------------------------- Gary L. Kaseff Date: May 7, 1998 RICHARD A. LEVENTHAL* Director --------------------------------------------- Richard A. Leventhal Date: May 7, 1998 DOYLE L. ROSE* Radio Division President and --------------------------------------------- Director Doyle L. Rose Date: May 7, 1998 LAWRENCE B. SORREL* Director --------------------------------------------- Lawrence B. Sorrel
*By: /s/ HOWARD L. SCHROTT --------------------------- Howard L. Schrott Attorney-in-Fact 58 59 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders of Emmis Broadcasting Corporation and Subsidiaries: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES included in Item 8, in this Form 10-K, and have issued our report thereon dated March 31, 1998. Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in Item 14 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Indianapolis, Indiana, March 31, 1998. 59 60 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE FISCAL YEARS IN THE THREE YEAR PERIOD ENDED FEBRUARY 28, 1998
BALANCE BALANCE AT AT END BEGINNING OF CLASSIFICATION OF YEAR PROVISION WRITE-OFFS OTHER YEAR -------------- ---------- --------- ---------- ----- ------- (DOLLARS IN THOUSANDS) ALLOWANCE FOR DOUBTFUL ACCOUNTS, Year ended February 29, 1996.................. $620 $834 $(655) $ 0 $ 799 Year ended February 28, 1997.................. 799 726 (705)(1) 0 820 Year ended February 28, 1998.................. 820 802 (981) 705 1,346
- - ------------------------- (1) Represents additions to the allowance for doubtful accounts associated with certain acquisitions. 60 EX-10.5 2 1997 EQUITY INCENTIVE PLANS 1 EXHIBIT 10.5 EMMIS BROADCASTING CORPORATION 1997 EQUITY INCENTIVE PLAN 1. PURPOSE. The primary purposes of the Plan are to promote and align the interests of employees of the Company and its shareholders, to reward performance that enhances long term shareholder values, to increase employee stock ownership and to improve the Company's ability to attract and retain a team of outstanding employees and executives. 2. DEFINITIONS. As used in the Plan, terms defined parenthetically immediately after their use have the respective meanings provided by such definitions and the terms set forth below have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Affiliate" means, with respect to a specified person, a person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. "Award" means options, shares of restricted stock, stock appreciation rights or performance units granted under the Plan. "Award Agreement" has the meaning specified in Section 4(b)(vi). "Board" means the Board of Directors of the Company. "Cause" means conviction of the Grantee of any felony or other crime involving dishonesty, fraud or moral turpitude, or the Grantee's habitual neglect of his duties. "Change in Control" means any of the following: (i) any person or group (other than a Subsidiary or any employee benefit plan (or any related trust) of the Company or a Subsidiary) becomes after the Effective Date the beneficial owner of 25% or more of either the then outstanding Stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote in the election of directors, except that (A) no such person or group shall be deemed to own beneficially any securities acquired directly from the Company pursuant to a written agreement with the Company unless such person or group subsequently becomes the beneficial owner of additional Stock or voting securities of the Company other than pursuant to a written agreement with the Company, and (B) no Change in Control shall be deemed to have occurred solely by reason of any such acquisition by a corporation with respect to which, after such acquisition, more than 60% of both the then outstanding common shares of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote in the election of directors are then beneficially owned, directly or indirectly, by the persons who were the beneficial owners of the Stock and voting securities of the Company immediately before such acquisition in substantially the same proportion as their ownership, immediately before such acquisition, of the outstanding Stock and the combined voting power of the then outstanding voting securities of the Company entitled to vote in the election of directors; (ii) individuals who, as of the Effective Date, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; provided that any individual who becomes a director after the Effective Date whose election, or nomination for election by the Company's stockholders, was approved by a vote or written consent of at least two-thirds of the directors then comprising the Incumbent Directors shall be considered as though such individual were an Incumbent Director, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company (as such terms are used in Rule 14a-11 under the Exchange Act); or (iii) approval by the stockholders of the Company of (A) a merger, reorganization or consolidation with respect to which the individuals and entities who were the respective beneficial owners of the Stock and voting securities of the Company immediately before such merger, reorganization or consolidation do not, after such merger, reorg1anization or consolidation, beneficially own, directly A-1 2 or indirectly, more than 60% of, respectively, the then outstanding common shares and the combined voting power of the then outstanding voting securities entitled to vote in the election of directors of the corporation resulting from such merger, reorganization or consolidation, (B) a liquidation or dissolution of the Company or (C) the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing provisions of this definition, a Change in Control of the Company shall be deemed not to have occurred with respect to any Grantee, if such Grantee is, by written agreement executed prior to such Change in Control, a participant on such Grantee's own behalf in a transaction in which the persons (or their affiliates) with whom such Grantee has the written agreement Acquire the Company (as defined below) and, pursuant to the written agreement, the Grantee has an equity interest in the resulting entity or a right to acquire such an equity interest. For the purposes of this definition, "Acquire the Company" means the acquisition of beneficial ownership by purchase, merger, or otherwise, of either more than 50% of the Stock (such percentage to be computed in accordance with Rule 13d-3(d)(1)(i) of the SEC under the Exchange Act) or substantially all of the assets of the Company or its successors; "person" means such term as used in Rule 13d-5 of the SEC under the Exchange Act; "beneficial owner" means such term as defined in Rule 13d-3 of the SEC under the Exchange Act; and "group" means such term as defined in Section 13(d) of the Exchange Act. "Change in Control Value" means, with respect to a Change in Control, the highest Fair Market Value of a share of Stock during the period beginning on the 180th day before such Change in Control and ending on the day preceding the exercise of an LSAR or, if greater, the highest price per share of Stock paid in connection with such Change in Control. "Class A Common Stock" means the Class A Common Stock of the Company, par value $.01 per share. "Class B Common Stock" means the Class B Common Stock of the Company, par value $.01 per share. "Code" means the Internal Revenue Code of 1986, as amended, and regulations and rulings thereunder. References to a particular section of the Code shall include references to successor provisions. "Committee" means the Compensation Committee of the Board constituted as provided in Section 4. "Company" means Emmis Broadcasting Corporation, an Indiana corporation. "Disability" means, with respect to the exercise of an incentive stock option after Termination of Employment, a disability within the meaning of Section 22(e)(3) of the Code, and for all other purposes, a mental or physical condition which, in the opinion of the Committee, renders a Grantee unable or incompetent to carry out the job responsibilities which such Grantee held or the tasks to which such Grantee was assigned at the time disability was incurred, and which is expected to be permanent or for an indefinite duration. "Effective Date" means March 1, 1997. "Exchange Act" means the Securities Exchange Act of 1934, as amended. References to a particular section of, or rule under, the Exchange Act shall include references to successor provisions. "Fair Market Value" of any security of the Company or any other issuer means, as of any applicable date: (i) if the security is listed for trading on the New York Stock Exchange, the closing price, regular way, of the security as reported on the New York Stock Exchange Composite Tape, or if no such reported sale of the security shall have occurred on such date, on the next preceding date on which there was such a reported sale, or (ii) if a security is not so listed, but is listed on another national securities exchange or authorized for quotation on the National Association of Securities Dealers, Inc.'s NASDAQ National Market System ("NASDAQ/NMS"), the closing price, regular way, of the security on such exchange or NASDAQ/NMS, as the case may be, or if no such reported sale of the security shall have occurred on such date, on the next preceding date on which there was such a reported sale, or (iii) if a security A-2 3 is not listed for trading on a national securities exchange or authorized for quotation on NASDAQ/NMS, the average of the closing bid and asked prices as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), or, if no such prices shall have been so reported for such date, on the next preceding date for which such prices were so reported, or (iv) if the security is not listed for trading on a national securities exchange or is not authorized for quotation on NASDAQ/NMS or NASDAQ, the fair market value of the security as determined in good faith by the Committee. "Grant Date" means the date of grant of an Award determined in accordance with Section 6. "Grantee" means an individual who has been granted an Award. "Incentive Stock Option" means an Award under Section 7(b). "including" means "including, without limitation." "Measuring Period" has the meaning specified in Section 10(a)(i)(B). "Option" means an Award under Section 7. "Option Price" means the per share purchase price of (i) Stock subject to an option or (ii) restricted stock subject to an option. "Parent" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if at the time of the granting of an Award under the Plan, each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Performance Goals" has the meaning specified in Section 10(a)(i). "Performance Percentage" has the meaning specified in Section 10(a)(i) (C). "Performance Units" means units established by the Committee for purposes of granting an Award under Section 10. "Plan" means the Emmis Broadcasting Corporation 1997 Equity Incentive Plan. "Prior Plans" means the Emmis Broadcasting Corporation 1986 Stock Incentive Plan and the Emmis Broadcasting Corporation 1992 Stock Option Plan and Emmis Broadcasting Corporation 1994 Equity Incentive Plan. "Reload Option" has the meaning specified in Section 7(c). "Restricted Stock" means Stock awarded pursuant to Section 8. "SEC" means the Securities and Exchange Commission. "Section 16 Person" means a person subject to potential liability under Section 16(b) of the Exchange Act with respect to transactions involving equity securities of the Company. "Stock" means the Class A Common Stock and the Class B Common Stock. "Stock Appreciation Rights" means Awards under Section 9. A-3 4 "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the granting of an Award under the Plan, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "10% Owner" means a person who owns stock (including stock treated as owned under Section 424(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company. "Termination of Employment" occurs the first day an individual is for any reason entitled to severance payments under the Company's or any Subsidiary's personnel policies or is no longer employed by the Company or any of its Subsidiaries, or, with respect to an individual who is an employee of a corporation constituting a Subsidiary, the first day such corporation is no longer a Subsidiary. 3. SCOPE OF THE PLAN. (a) Number of Shares. Subject to Section 3(c), an aggregate of one million (1,000,000) shares of Stock is hereby made available and is reserved for delivery on account of the exercise of Awards and payment of benefits in connection with Awards. Subject to the foregoing limit, shares of Stock held as treasury shares may be used for or in connection with Awards. No more than five hundred thousand (500,000) shares of Class B Common Stock shall be available for grant and issuance under the Plan. Awards of or pertaining to shares of Class B Common Stock may be granted only to Jeffrey H. Smulyan. Issuance of either Class A Common Stock or Class B Common Stock as or pursuant to an Award shall reduce the shares available for grant and issuance under the Plan. (b) Limit on Awards. Subject to Section 3(a) as to the maximum number of shares of Stock available for delivery in connection with Awards and Sections 3(c) and 27, the maximum number of Awards that may be granted to each Grantee in each calendar year during any part of which the Plan is in effect shall be as follows: (i) With respect to Stock subject to Options, 500,000 shares; (ii) With respect to Stock subject to Stock Appreciation Rights, 500,000 shares; (iii)With respect to Restricted Stock (not issued in payment of an Award of Performance Units), that number of shares of Stock whose value equals the lesser of (A) 500% of such Grantee's base salary for such year or (B) $2,000,000 (based on the Fair Market Value of Stock on the date the award is granted, not the date the Award vests or is paid); (iv) With respect to Awards of Performance Units, that number of shares of Stock whose value equals the lesser of (A) 500% of such Grantee's base salary for such year or (B) $2,000,000 (based on the Fair Market Value of Stock on the date the Award is granted, not the date the Award is earned or paid). (c) Re-Use of Shares. If and to the extent an Award shall expire or terminate for any reason without having been exercised in full or shall be forfeited, shares of Stock (including restricted stock) and stock appreciation rights associated with such Award shall become available for other Awards. If a Grantee pays all or part of the exercise price associated with an Award by the transfer of Stock or the surrender (including by attestation) of all or part of an Award (including the Award being exercised), such Stock will also be available for grant under this Plan, without reducing the number of shares of Stock available in any calendar year for grant of Awards. 4. ADMINISTRATION. (a) General. The Plan shall be administered by the Compensation Committee of the Board, which shall consist of persons who are, unless the Board determines otherwise, "outside directors" within the meaning of Section 162(m) of the Code and "non-employee directors" within the meaning of Rule 16b-3 (and any successor regulation thereto) as A-4 5 promulgated by the SEC under Section 16(b) of the Exchange Act, as such rule is amended from time to time and as interpreted by the SEC. Notwithstanding the requirements contained in the immediately preceding sentence, the Board may, in its discretion, delegate to a committee or subcommittee of the Board that does not meet the foregoing requirements any or all of the authority and responsibility of the Committee with respect to Awards to employees who are not Section 16 Persons or "covered employees" for purposes of Section 162(m) of the Code at the time any such delegated authority or responsibility is exercised. Such other committee or subcommittee may consist of two or more directors who may, but need not, be officers or employees of the Company or of any of its Subsidiaries. To the extent that the Board has delegated to such other committee or subcommittee the authority and responsibility of the Committee pursuant to the foregoing, all references to the Committee in the Plan shall be to such other committee or subcommittee. (b) Authority of the Committee. The Committee shall have full power and final authority, in its discretion, but subject to the express provisions of the Plan, as follows: (i) to select Grantees, (ii) to grant Awards, (iii) to determine (A) when Awards may be granted, (B) whether or not specific Stock Appreciation Rights shall be identified with a specific Option, specific shares of Restricted Stock, or specific Performance Units and, if so, whether they shall be exercisable cumulatively with, or alternatively to, such Option, shares of Restricted Stock, or Performance Units, and (C) whether or not specific Performance Units shall be identified with a specific Option, specific shares of Restricted Stock, or specific Stock Appreciation Rights under the Plan or any Prior Plan and, if so, whether they shall be exercisable cumulatively with, or alternatively to, such Option, shares of Restricted Stock, or Stock Appreciation Rights, (iv) to interpret the Plan and to make all determinations necessary or advisable for the administration of the Plan, (v) to prescribe, amend, and rescind rules relating to the Plan, including rules with respect to the exercisability and nonforfeitability of Awards upon the Termination of Employment of a Grantee, (vi) to determine the terms and provisions of the written agreements by which all Awards shall be granted ("Award Agreements") and, with the consent of the Grantee, to modify any such Award Agreement at any time, (vii) to accelerate the exercisability of, and to accelerate or waive any or all of the restrictions and conditions applicable to, any Award, (viii) to make such adjustments or modifications to Awards to Grantees working outside the United States as are necessary and advisable to fulfill the purposes of the Plan, and (ix) to impose such additional conditions, restrictions, and limitations upon the grant, exercise or retention of Awards as the Committee may, before or concurrently with the grant thereof, deem appropriate, including requiring simultaneous exercise of related identified Options, Stock Appreciation Rights, and Performance Units and limiting the percentage of Options, Stock Appreciation Rights, and Performance Units which may from time to time be exercised by a Grantee. (c) Determinations of the Committee; No Liability. The determination of the Committee on all matters relating to the Plan or any Award Agreement shall be conclusive and final. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award. 5. ELIGIBILITY. Awards may be granted to any employee of the Company or any of its Subsidiaries. In selecting the individuals to whom Awards may be granted, as well as in determining the number of shares of Stock subject to and the other terms and conditions applicable to each Award, the Committee shall take into consideration such factors as it deems relevant in promoting the purposes of the Plan. 6. GENERAL TERMS AND CONDITIONS OF GRANTS. (a) Grant Date. The Grant Date of an Award shall be the date on which the Committee grants the Award or such later date as specified in advance by the Committee. (b) Maximum Term. The term of each Award (subject to Section 7(b) and 7(c) with respect to Incentive Stock Options and Reload Options, respectively) shall be a period of not more than ten (10) years from the Grant Date, and shall be subject to earlier termination as herein provided. (c) Tandem Awards. A Grantee may, if otherwise eligible, be granted additional Awards in any combination. A-5 6 7. OPTIONS. (a) Grant of Options and Option Price. No later than the Grant Date of any Option, the Committee shall determine the Option Price of such Option. The Option Price of any Option shall not be less than the Fair Market Value of the Stock on the Grant Date. (b) Grant of Incentive Stock Options. At the time of the grant of any Option, the Committee may designate that such Option shall be made subject to additional restrictions to permit it to qualify as an "incentive stock option" under the requirements of Section 422 of the Code. Any Option designated as an Incentive Stock Option: (i) shall have an Option Price of (A) not less than 100% of the Fair Market Value of the Stock on the Grant Date or (B) in the case of a 10% Owner, not less than 110% of the Fair Market Value of the Stock on the Grant Date; (ii) shall be for a period of not more than 10 years (five years, in the case of a 10% Owner) from the Grant Date, and shall be subject to earlier termination as provided herein or in the applicable Award Agreement; (iii) shall not have an aggregate Fair Market Value of Stock (determined for each Incentive Stock Option on its Grant Date) with respect to which Incentive Stock Options are exercisable for the first time by such Grantee during any calendar year (under the Plan and any other employee stock option plan of the Grantee's employer or any parent or subsidiary thereof ("Other Plans")), determined in accordance with the provisions of Section 422 of the Code, which exceeds $100,000 (the "$100,000 Limit"); (iv) shall, if the aggregate Fair Market Value of Stock (determined on the Grant Date) with respect to all Incentive Stock Options previously granted under the Plan and any Other Plans ("Prior Grants") and any Incentive Stock Options under such grant (the "Current Grant") which are exercisable for the first time during any calendar year would exceed the $100,000 Limit, be exercisable as follows: (A) the portion of the Current Grant exercisable for the first time by the Grantee during any calendar year which would, when added to any portions of any Prior Grants, be exercisable for the first time by the Grantee during such calendar year with respect to stock which would have an aggregate Fair Market Value (determined as of the respective Grant Date for such Options) in excess of the $100,000 Limit shall, notwithstanding the terms of the Current Grant, be exercisable for the first time by the Grantee in the first subsequent calendar year or years in which it could be exercisable for the first time by the Grantee when added to all Prior Grants without exceeding the $100,000 Limit; and (B) if, viewed as of the date of the Current Grant, any portion of a Current Grant could not be exercised under the provisions of the immediately preceding sentence during any calendar year commencing with the calendar year in which it is first exercisable through and including the last calendar year in which it may by its terms be exercised, such portion of the Current Grant shall not be an Incentive Stock Option, but shall be exercisable as a separate Option at such date or dates as are provided in the Current Grant; (v) shall be granted within 10 years after the earlier of the date the Plan is adopted or the date the Plan is approved by the stockholders of the Company; and (vi) shall require the Grantee to notify the Committee of any disposition of any Stock issued pursuant to the exercise of the Incentive Stock Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), within 10 days of such disposition. Notwithstanding the foregoing and Section 4(b)(vi), the Committee may, without the consent of the Grantee, at any time before the exercise of an Option (whether or not an Incentive Stock Option), take any action necessary to prevent such option from being treated as an Incentive Stock Option. (c) Grant of Reload Options. The Committee may from time to time, in its discretion, adopt a policy, which policy shall not remain in effect for longer than 12 months at a time, but which may be adopted for successive 12-month periods, under which each Grantee who exercises while the policy is in effect an Option for shares of Stock which have a Fair Market Value on the date of exercise equal to not less than 100% (or such greater percentage set forth in the policy) of the Option Price for such Options ("Exercised Options") and pays the Option Price with shares of Stock, shall be granted, subject to Section 3, additional Options ("Reload Options") in an amount equal to the sum ("Reload Number") of the number of shares of Stock tendered to exercise the Exercised Options plus, if so provided by the Committee, the number of shares of Stock, if any, retained by the Company in connection with the exercise of the Exercised Options to satisfy any federal, state or local tax withholding requirements. The Committee may, in its discretion, provide that the Reload Option policy shall not apply to Options which would expire within such period as the Committee determines, in its discretion, from the effective date of the policy. A-6 7 (d) Terms and Conditions for Reload Options. Reload Options shall be subject to the following terms and conditions: (i) the Grant Date for each Reload Option shall be the date of exercise of the Exercised Option to which it relates; (ii) the Reload Option may be exercised at any time during the unexpired term of the Exercised Option (subject to earlier termination thereof as provided in the Plan and in the applicable Award Agreement); (iii) the terms of the Reload Option shall be the same as the terms of the Exercised Option to which it relates, except that (A) the Option Price shall be the Fair Market Value of the Stock on the Grant Date of the Reload Option, and (B) no Reload Option may be exercised within one year from the Grant Date thereof; and (iv) each Reload Option shall by its terms be subject to the Company's receipt of either an opinion of counsel for the Company or a "no-action" letter from the staff of the SEC to the effect that the grant of such Reload Option would not cause the Plan to fail to satisfy the requirements of Rule 16b-3 (or any successor provision) under Section 16(b) of the Exchange Act. (e) Exercise of Options. Subject to Sections 4(b)(viii), 7(g), 13 and 18 and such terms and conditions as the Committee may impose, each Option shall be exercisable in one or more installments commencing not earlier than the first anniversary of the Grant Date of such Option. Each Option shall be exercised by delivery to the Company of written notice of intent to purchase a specific number of shares of Stock subject to the Option. The Option Price of any shares of Stock or shares of restricted stock as to which an Option shall be exercised shall be paid in full at the time of the exercise. Payment may, at the election of the Grantee, be made in any one or any combination of the following: (i) cash; (ii) Stock valued at its Fair Market Value on the business day preceding the date of exercise (including through an attestation procedure); (iii) with the approval of the Committee, shares of restricted stock each valued at the Fair Market Value of a share of Stock on the business day next preceding the date of exercise; (iv) by waiver of compensation due or accrued to the Grantee for services rendered; (v) with the consent of the Committee, by tender of property; (vi) provided that a public market for the Stock exists: (A) through a "same day sale" commitment from the Grantee and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer") whereby the Grantee irrevocably elects to exercise the Option and to sell a portion of the Stock so purchased in order to pay for the Option, and whereby the NASD Dealer irrevocably commits upon receipt of such Stock to forward the Option Price directly to the Company; or (B) through a "margin" commitment from the Grantee and an NASD Dealer whereby the Grantee irrevocably elects to exercise the Option and to pledge the Stock so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Option Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Stock to forward the Option Price directly to the Company; or (C) through any other procedure pursuant to which the Grantee delivers to the Company a properly executed exercise notice and instructions to deliver the resulting Stock to a stock broker that are intended to satisfy the provisions of Section 220. 3(e)(4) of Regulation T issued by the Board of Governors of the Federal Reserve System as in effect from time to time; (vii) in the discretion of the Committee and to the extent permitted by law, in accordance with Section 14; or (viii) by the surrender of all or part of the Option being exercised. (f) Use of Restricted Stock to Pay Option Price. If restricted stock ("Tendered Restricted Stock") is used to pay the Option Price for Stock subject to an Option, then a number of shares of Stock acquired on exercise of the Option equal to the number of shares of Tendered Restricted Stock shall, unless the Committee provides otherwise, be subject to the same restrictions as the Tendered Restricted Stock, determined as of the date of exercise of the Option. If the Option Price for restricted stock subject to an Option is paid with Tendered Restricted Stock, and if the Committee determines that the restricted stock acquired on exercise of the Option is subject to restrictions that cause it to have a greater risk of forfeiture than the Tendered Restricted Stock, then notwithstanding the preceding sentence, all the restricted stock acquired on exercise of the Option shall, unless the Committee provides otherwise, be subject to such restrictions. (g) Special Rules for Section 16 Persons. Except as determined by the Committee in its sole discretion, no Option identified with a Stock Appreciation Right shall be exercisable by a Section 16 Person for six months from its Grant Date. This limitation shall not apply if the Grantee dies or incurs a Disability before the end of the six-month period. (h) Provision Applicable to Certain Hardship Distributions. No Grantee shall make any elective contribution or employee contribution (within the meaning of Treasury Regulation Section 1.401(k)-1(d)(2)(iv)(B)(4)) (i.e., exercise an Option with cash or check) to the Plan during the 12-month period after the Grantee's receipt of a deemed hardship A-7 8 distribution (within the meaning of Treasury Regulation Section 1.401(k)-1(d)(2)(iv)) from a plan of the Company (or a related party within the provisions of Code Section 414(b), (c), (m) or (o)) containing a cash or deferred arrangement under Section 401(k) of the Code. The preceding sentence shall not apply if and to the extent that the Committee determines it is not necessary to qualify any such plan as a cash or deferred arrangement under Section 401(k) of the Code. 8. RESTRICTED STOCK. (a) Grant of Shares of Restricted Stock. Before the grant of any shares of Restricted Stock, the Committee shall determine, in its discretion: (i) the per share purchase price of such shares (which, subject to clauses (A) and (B) of this sentence, may be zero), and (ii) the restrictions applicable to such grant; provided, however, that: (A) the per share purchase price of all such shares (other than treasury shares) shall be greater than or equal to the par value of the Stock; and (B) if such shares are to be granted to a Section 16 Person, the per share purchase price of any such shares shall also be at least 50% of the Fair Market Value of the Stock on the Grant Date unless such shares are granted for no monetary consideration or with a purchase price per share equal to the par value of the Stock, except that this clause (B) shall be inapplicable if the Company obtains an opinion of counsel for the Company or a "no action" letter from the staff of the SEC to the effect that such limitation is not necessary for the Plan to comply with the requirements of Rule 16b-3 (or any successor exemption) under the Exchange Act. (b) Exercise. Payment of the purchase price (if greater than zero) for shares of Restricted Stock shall be made in full by the Grantee before the delivery of such shares and, in any event, no later than 10 days after the Grant Date for such shares. Such payment may, at the election of the Grantee and unless the Committee otherwise provides in the Award Agreement, be made in any one or any combination of the following: (i) cash, (ii) Stock valued at its Fair Market Value on the business day next preceding the date of payment, or (iii) shares of Restricted Stock, each valued at the Fair Market Value of a share of Stock on the business day next preceding the date of payment; provided that: (A) the use of Stock or restricted stock in payment of such purchase price by a Section 16 Person is subject to the prior receipt by the Company of either a favorable opinion of counsel for the Company or a "no action" letter from the staff of the SEC with respect to the exemption of such use of stock from liability under Section 16(b) of the Exchange Act or the inapplicability of such liability; (B) in the discretion of the Committee and to the extent permitted by law, payment may also be made in accordance with Section 14; and (C) if the purchase price for Restricted Stock ("New Restricted Stock") is paid with shares of restricted stock ("Old Restricted Stock"), the restrictions applicable to the New Restricted Stock shall be the same as if the Grantee had paid for the New Restricted Stock in cash unless, in the judgment of the Committee, the Old Restricted Stock was subject to a greater risk of forfeiture, in which case a number of shares of New Restricted Stock equal to the number of shares of Old Restricted Stock tendered in payment for New Restricted Stock shall, unless the Committee provides otherwise, be subject to the same restrictions as the Old Restricted Stock, determined immediately before such payment. (c) Forfeiture. The Committee may, but need not, provide that all or any portion of a Grantee's Award of Restricted Stock shall be forfeited: (i) upon the Grantee's Termination of Employment within a specified time period after the Grant Date, or (ii) if the Company or the Grantee does not achieve specified performance goals within a specified time period after the Grant Date and before the Grantee's Termination of Employment. (d) Effect of Forfeiture. If a share of Restricted Stock is forfeited, then: (i) the Grantee shall be deemed to have resold such share of restricted stock to the Company at the lesser of (A) the purchase price paid by the Grantee (such purchase price shall be deemed to be zero dollars ($0) if no purchase price was paid) or (B) the Fair Market Value of a share of Stock on the date of such forfeiture; (ii) the Company shall pay to the Grantee the amount determined under clause (i) of this sentence as soon as is administratively practical; and (iii) such share of Restricted Stock shall cease to be outstanding, and shall no longer confer on the Grantee thereof any rights as a stockholder of the Company, from and after the date of the Company's tender of the payment specified in clause (ii) of this sentence, whether or not such tender is accepted by the Grantee. A-8 9 (e) Certificates. Any share of Restricted Stock shall be held (together with a stock power executed in blank by the Grantee) in escrow by the Secretary of the Company until such shares become nonforfeitable or are forfeited and shall bear an appropriate legend specifying that such share is non-transferable and subject to the restrictions set forth in the Plan. If any shares of Restricted Stock become nonforfeitable, the Company shall cause certificates for such shares to be issued or reissued without such legend. 9. STOCK APPRECIATION RIGHTS. (a) Grant of Stock Appreciation Rights. When granted, Stock Appreciation Rights may, but need not, be identified with shares of Stock subject to a specific Option, specific shares of Restricted Stock, or specific Performance Units of the Grantee (including any Option, shares of Restricted Stock, or Performance Units granted on or before the Grant Date of the Stock Appreciation Rights) in a number equal to or different from the number of Stock Appreciation Rights so granted. If Stock Appreciation Rights are identified with shares of Stock subject to an Option, shares of Restricted Stock, or Performance Units, then, unless otherwise provided in the applicable Award Agreement, the Grantee's associated Stock Appreciation Rights shall terminate upon (i) the expiration, termination, forfeiture, or cancellation of such Option, shares of Restricted Stock, or Performance Units, (ii) the exercise of such Option or Performance Units, or (iii) the nonforfeitability of such shares of Restricted Stock. (b) Exercise of Stock Appreciation Rights. Subject to Section 4(b)(viii), 9(d), 13 and 18 and such terms and conditions as the Committee may impose, each Stock Appreciation Right shall be exercisable not earlier than the first anniversary of the Grant Date of such Stock Appreciation Right to the extent the Option with which it is identified, if any, may be exercised, to the extent the Restricted Stock with which it is identified, if any, is nonforfeitable, or to the extent the Performance Unit with which it is identified, if any, may be exercised, unless otherwise provided by the Committee. Stock Appreciation Rights shall be exercised by delivery to the Company of written notice of intent to exercise a specific number of Stock Appreciation Rights. Unless otherwise provided in the applicable Award Agreement, the exercise of Stock Appreciation Rights which are identified with shares subject to an Option, shares of Restricted Stock, or Performance Units shall result in the cancellation or forfeiture of such Option, shares of Restricted Stock, or Performance Units, as the case may be, to the extent of such exercise. (c) Benefit for Stock Appreciation Rights. The benefit for each Stock Appreciation Right exercised shall be equal to the difference between: (i) the Fair Market Value of a share of Stock on the date of such exercise and (ii) an amount equal to: (A) for any Stock Appreciation Right identified with an Option, the Option Price of such Option, unless the Committee in the grant of the Stock Appreciation Right specified a higher amount, or (B) for any other Stock Appreciation Right, the Fair Market Value of a share of Stock on the Grant Date of such Stock Appreciation Right, unless the Committee in the grant of the Stock Appreciation Right specified a higher amount; provided that the Committee, in its discretion, may provide that the benefit for any Stock Appreciation Right shall not exceed a stated percentage (which may exceed 100%) of the Fair Market Value of a share of Stock on such Grant Date. The benefit upon the exercise of a Stock Appreciation Right shall be payable in cash, except that the Committee, with respect to any particular exercise, may, in its discretion, pay benefits wholly or partly in Stock. (d) Special Rules for Section 16 Persons. Except as determined by the Committee in its sole discretion, no Stock Appreciation Right shall be exercisable by a Section 16 Person for six months from its Grant Date. This limitation shall not apply if the Grantee dies or incurs a Disability before the end of the six-month period. 10. PERFORMANCE UNITS. (a) Grant of Performance Units. (i) Before the grant of any Performance Unit, the Committee shall: (A) determine performance goals ("Performance Goals") applicable to such grant, (B) designate a period, of not less than one year nor more than seven years, for the measurement of the extent to which Performance Goals are attained, which period may begin prior to the Grant Date (the "Measuring Period"), and (C) assign a "Performance Percentage" to each level of A-9 10 attainment of Performance Goals during the Measuring Period, with the percentage applicable to minimum attainment being zero percent (0%) and the percentage applicable to maximum attainment to be determined by the Committee from time to time. (ii) In establishing Performance Goals, the Committee may consider such performance factor or factors as it deems appropriate, including net income, cash flow, growth in net income or cash flow, earnings per share, growth of earnings per share, return on equity, or return on capital. The Performance Goals may include minimum and optimum objectives or a single set of objectives. The Committee may, at any time, in its discretion, modify Performance Goals in order to facilitate their attainment for any reason, including recognition of unusual or nonrecurring events affecting the Company or a Subsidiary or changes in applicable laws, regulations or accounting principles. If a Grantee is promoted, demoted or transferred to a different business unit of the Company during a performance period, the Committee may adjust or eliminate the Performance Goals as it deems appropriate. (iii) When granted, Performance Units may, but need not, be identified with shares of Stock subject to a specific option, specific shares of Restricted Stock, or specific Stock Appreciation Rights of the Grantee granted under the Plan or any Prior Plan in a number equal to or different from the number of the Performance Units so granted. If Performance Units are identified with shares of Stock subject to an option, shares of Restricted Stock, or Stock Appreciation Rights, then, unless otherwise provided in the applicable Award Agreement, the Grantee's associated Performance Units shall terminate upon (A) the expiration, termination, forfeiture, or cancellation of such Option, shares of Restricted Stock, or Stock Appreciation Rights, (B) the exercise of such Option or Stock Appreciation Rights, or (C) the nonforfeitability of such shares of Restricted Stock. (iv) With respect to Awards of Performance Units that are intended to qualify as "performance based" within the meaning of Code Section 162(m)(4)(C), the Committee shall (A) select the Grantees for such Awards, (B) establish in writing the applicable Performance Goals and all related terms no later than 90 days after the commencement of the period of service to which the Performance Goals relate (or such earlier or later date as may be the applicable deadline for compensation payable hereunder to qualify as "performance based" within the meaning of Code Section 162(m)(4)(C)), and (C) designate the Awards that are to qualify as "performance based" within the meaning of Code Section 162(m)(4)(C). (b) Exercise of Performance Units. Subject to Sections 13 and 18 and such terms and conditions as the Committee may impose, if, with respect to any Performance Unit, the minimum Performance Goals have been achieved during the applicable Measuring Period, then such Performance Unit shall be exercisable commencing on the later of (i) the first anniversary of the Grant Date or (ii) the first day after the end of the applicable Measuring Period. Performance Units shall be exercised by delivery to the Company of written notice of intent to exercise a specific number of Performance Units; provided, however, that Performance Units not identified with an Option, shares of Restricted Stock, or Stock Appreciation Rights shall be deemed exercised on the date on which they first become exercisable. After completion of the Measuring Period, the Committee shall certify in writing the extent to which the Performance Goals and other material terms applicable to such Award are attained. Unless and until the Committee so certifies, the Award shall not be paid. Unless otherwise provided for in the applicable Award Agreement, the exercise of Performance Units which are identified with an Option, shares of Restricted Stock, or Stock Appreciation Rights shall result in the cancellation or forfeiture of such Option, shares of Restricted Stock, or Stock Appreciation Rights, as the case may be, to the extent of such exercise. (c) Benefit of Performance Unit. The benefit for each Performance Unit exercised shall be an amount equal to the product of: (i) the Fair Market Value of a share of Stock on the Grant Date of the Performance Unit multiplied by (ii) the Performance Percentage attained during the Measuring Period for such Performance Unit. (d) Payment. The benefit upon the exercise of a Performance Unit shall be payable as soon as is administratively practicable after the later of (i) the date the Grantee exercises or is deemed to exercise such Performance Unit, or (ii) the date (or dates in the event of installment payments) as provided in the applicable Award Agreement. Such benefit shall be payable in cash, except that the Committee, with respect to any particular exercise, may, in its discretion, pay A-10 11 benefits wholly or partly in Stock. The number of shares of Stock payable in lieu of cash shall be determined by valuing the Stock at its Fair Market Value on the business day next preceding the date such benefit is to be paid. (e) No Discretion. With respect to Awards of Performance Units that are intended to qualify as "performance based" within the meaning of Code Section 162(m)(4)(C), the Committee has no discretion to increase the amount of the Award due upon attainment of the applicable Performance Goals. No provision of this Plan shall preclude the Committee from exercising negative discretion with respect to any Award of Performance Units (i.e., to reduce or eliminate the Award payable) within the meaning of Treasury Regulation Section 1.162-27(e)(2)(iii)(A). (f) Forfeiture. In addition to any specific provisions on forfeiture provided for in any Performance Unit Award Agreement, Performance Units will be forfeited if the Grantee terminates employment (other than upon death, disability or retirement) with the Company, a Subsidiary or an affiliate prior to the completion of the Measuring Period; provided that the Committee shall have the authority to provide for a partial or full payment of the Award that would have been payable if the Grantee had continued employment for the entire Measuring Period, which shall be paid at the same time as it would have been paid if no such termination of employment occurred, but only if and to the extent the exercise of such discretion by the Committee does not prevent any Award from qualifying as "performance based" within the meaning of Code Section 162(m)(4)(C). 11. GRANTEE'S AGREEMENT TO SERVE. Each Grantee who is granted an Award shall, by executing such Grantee's Award Agreement, agree that such Grantee will remain in the employ of the Company or any of its Subsidiaries for at least one year after the Grant Date. No obligation of the Company or any of its Subsidiaries as to the length of any Grantee's employment shall be implied by the terms of the Plan, any grant of an Award hereunder or any Award Agreement. The Company and its Subsidiaries reserve the same rights to terminate employment of any Grantee as existed before the Effective Date. 12. NON-TRANSFERABILITY. Except as permitted by the Committee in writing, each Award (other than Restricted Stock) granted hereunder shall by its terms not be assignable or transferable other than by will or the laws of descent and distribution and may be exercised, during the Grantee's lifetime, only by the Grantee. Each share of Restricted Stock shall be non-transferable until such share becomes nonforfeitable. 13. EFFECTS OF A CHANGE IN CONTROL. The terms and provisions of this Section 13 shall apply upon the occurrence of a Change in Control only if, prior to the Change in Control, the Committee shall have determined that this Section 13 shall be applicable. The Committee shall give written notice to the Grantees of such a determination and the date on which such determination is made. After the occurrence of a Change in Control following the date on which such determination is made, then: (a) General. Subject to Sections 7(g), 9(d) and 18 but notwithstanding Section 11 or any other provisions of the Plan: (i) all Options, Stock Appreciation Rights, and Performance Units granted under the Plan shall immediately be fully exercisable; and (ii) all shares of Restricted Stock shall immediately be nonforfeitable and freely transferable. (b) Benefit. The benefit, if any, payable with respect to any Performance Unit for which the Measuring Period has not ended shall be equal to the product of: (i) the Fair Market Value of a share of Stock on the Grant Date of the Performance Unit multiplied successively by each of the following; (ii) a fraction, the numerator of which is the number of months (including as a whole month any partial month) that have elapsed since the beginning of such Measuring Period until the date of such Change in Control, and the denominator of which is the number of months (including as a whole month any partial month) in the Measuring Period; and (iii) a percentage equal to the greater of (A) the target percentage, if any, specified in the applicable Award Agreement, or (B) the maximum percentage, if any, that would be earned under the terms of the applicable Award Agreement assuming that such rate at which the performance goals have been achieved as of the date of the Change in Control would continue until the end of the Measuring Period. 14. LOANS AND GUARANTEES. The Committee may, in its discretion: A-11 12 (i) allow a Grantee to defer payment to the Company of all or any portion of (i) the Option Price of an Option, (ii) the purchase price of a share of Restricted Stock, or (iii) any taxes associated with a benefit hereunder which is not a cash benefit at the time such benefit is so taxable, or (ii) cause the Company to guarantee a loan from a third party to the Grantee, in an amount equal to all or any portion of such Option Price, purchase price, or any related taxes. Any such payment deferral or guarantee by the Company pursuant to this Section 14 shall be on a secured or unsecured basis for such periods, at such interest rates, and on such other terms and conditions as the Committee may determine. Notwithstanding the foregoing, a Grantee shall not be entitled to defer the payment of such Option Price, purchase price, or any related taxes unless the Grantee (i) enters into a binding obligation to pay the deferred amount and (ii) pays upon exercise of an Option or grant of shares of Restricted Stock, as the case may be, an amount equal to or greater than the aggregate par value of all shares of Stock or Restricted Stock (other than treasury shares) to be then delivered. If the Committee has permitted a payment deferral or caused the Company to guarantee a loan pursuant to this Section 14, then the Committee may, in its discretion, require the immediate payment of such deferred amount or the immediate release of such guarantee upon the Grantee's Termination of Employment or upon the Grantee's sale or other transfer of the Grantee's shares of Stock purchased pursuant to such deferral or guarantee. 15. NOTIFICATION UNDER SECTION 83(B). If the Committee has not, on the Grant Date or any later date, prohibited such Grantee from making the following election, and a Grantee shall, in connection with the exercise of any Option, or the grant of any share of Restricted Stock, make the election permitted under Section 83(b) of the Code (i.e., an election to include in such Grantee's gross income in the year of transfer the amounts specified in Section 83(b) of the Code), such Grantee shall notify the Company of such election within 10 days of filing notice of the election with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under the authority of Section 83(b) of the Code. 16. MANDATORY WITHHOLDING TAXES. (a) General. Whenever under the Plan, cash or shares of Stock are to be delivered upon exercise or payment of an Award or upon a share of Restricted Stock becoming nonforfeitable, or any other event with respect to rights and benefits hereunder, the Company shall be entitled to require as a condition of delivery (i) that the Grantee remit an amount sufficient to satisfy all federal, state and local withholding tax requirements related thereto, (ii) the withholding of such sums from compensation otherwise due to the Grantee or from any shares of Stock due to the Grantee under the Plan, or (iii) any combination of the foregoing. (b) Incentive Stock Options. If any disqualifying disposition described in Section 7(b)(vi) is made with respect to shares of Stock acquired under an Incentive Stock Option granted pursuant to the Plan or any election described in Section 15 is made, then the person making such disqualifying disposition or election shall remit to the Company an amount sufficient to satisfy all federal, state, and local withholding taxes thereby incurred; provided that, in lieu of or in addition to the foregoing, the Company shall have the right to withhold such sums from compensation otherwise due to the Grantee or from any shares of Stock due to the Grantee under the Plan. 17. ELECTIVE SHARE WITHHOLDING. (a) Election by Grantee. Subject to Section 17(b), a Grantee may elect the withholding ("Share Withholding") by the Company of a portion of the shares of Stock otherwise deliverable to such Grantee upon the exercise or payment of an Award or upon a share of Restricted Stock's becoming nonforfeitable (each a "Taxable Event") having a Fair Market Value equal to: (i) the minimum amount necessary to satisfy required federal, state, or local withholding tax liability attributable to the Taxable Event; or (ii) with the Committee's prior approval, a greater amount, not to exceed the estimated total amount of such Grantee's tax liability with respect to the Taxable Event. A-12 13 (b) Restrictions. Each Share Withholding election by a Grantee shall be made in writing in a form acceptable to the Committee and shall be subject to the following restrictions: (i) a Grantee's right to make such an election shall be subject to the Committee's right to revoke such right at any time before the Grantee's election if the Committee has reserved the right to do so in the Award Agreement; (ii) if the Grantee is a Section 16 Person, such Grantee's election shall be subject to the disapproval of the Committee at any time, whether or not the Committee has reserved the right to do so; (iii) the Grantee's election must be made before the date (the "Tax Date") on which the amount of tax to be withheld is determined; (iv) the Grantee's election shall be irrevocable by the Grantee; (v) unless waived by the Committee, a Section 16 Person may not elect Share Withholding within six months after the grant of the related Option or Stock Appreciation Rights (except if the Grantee dies or incurs a Disability before the end of the six-month period); (vi) unless waived by the Committee, a Section 16 Person must elect Share Withholding six months before the Tax Date; and (vii) in the event that the Tax Date is deferred until six months after the delivery of Stock under Section 83(b) of the Code, the Grantee shall receive the full amount of Stock with respect to which the exercise occurs, but such Grantee shall be unconditionally obligated to tender back to the Company the proper number of shares of Stock on the Tax Date. 18. TERMINATION OF EMPLOYMENT. (a) Restricted Stock. Except as otherwise provided by the Committee on or after the Grant Date, a Grantee's shares of Restricted Stock that are forfeitable shall be forfeited upon the Grantee's Termination of Employment. (b) Other Awards. If the Grantee has a Termination of Employment for Cause, any unexercised Option, Stock Appreciation Right, or Performance Unit shall terminate upon the Grantee's Termination of Employment. If the Grantee has a Termination of Employment for any reason other than Cause, then any unexercised Option, Stock Appreciation Right, or Performance Unit, to the extent exercisable on the date of the Grantee's Termination of Employment, may be exercised in whole or in part, not later than the later of (A) the 90th day following the Grantee's Termination of Employment or (B) the 30th day following the last day for which the Grantee is entitled to severance payments under the Company's or any Subsidiary's personnel policies, except that: (i) if the Grantee's Termination of Employment is caused by the death of the Grantee, then any unexercised Option, Stock Appreciation Right, or Performance Unit, to the extent exercisable on the date of the Grantee's death, may be exercised, in whole or in part, at any time within one year after the Grantee's death by the Grantee's personal representative or by the person to whom the Option, Stock Appreciation Right, or Performance Unit is transferred by will or the applicable laws of descent and distribution; (ii) if the Grantee's Termination of Employment is as a result of retirement, then any unexercised Option, Stock Appreciation Right, or Performance Unit, to the extent exercisable at the date of such Termination of Employment, may be exercised, in whole or in part, at any time within 90 days after such Termination of Employment; provided that, if the Grantee dies after such Termination of Employment and before the end of such 90-day period, such Option, Stock Appreciation Right, or Performance Unit may be exercised by the deceased Grantee's personal representative or by the person to whom the Option, Stock Appreciation Right, or Performance Unit is transferred by will or the applicable laws of descent and distribution within one year after the Grantee's Termination of Employment; and (iii) if the Grantee's Termination of Employment is on account of the Disability of the Grantee, then any unexercised Option, Stock Appreciation Right, or Performance Unit, to the extent exercisable at the date of such Termination of Employment, may be exercised, in whole or in part, at any time within one year after the date of such Termination of Employment; provided that, if the Grantee dies after such Termination of Employment and before the end of such one-year period, such Option, Stock Appreciation Right, or Performance Unit may be exercised by the deceased Grantee's personal representative or by the person to whom the Option, Stock Appreciation Right, or Performance Unit is transferred by will or the applicable laws of descent and distribution within one year after the Grantee's Termination of Employment, or, if later, within 180 days after the Grantee's death. (c) Exceptions at the Discretion of the Committee. If the Grantee has a Termination of Employment for any reason other than Cause, the Committee may provide on or after the Grant Date (including after a Grantee's Termination of Employment, but before the expiration of the term specified in the applicable Award Agreement) for one or more of the following: (i) that any unexercised Option, Stock Appreciation Right, or Performance Unit, to the extent exercisable on the date of such Termination of Employment, may be exercised, in whole or in part, at any time within a period specified by the Committee after the date of such Termination of Employment; (ii) that any Option, Stock Appreciation A-13 14 Right, or Performance Unit which is not exercisable on or before the date of such Termination of Employment (A) will continue to become exercisable, as if such Termination of Employment had not occurred, after such date for a period specified by the Committee and (B) to the extent such Option, Stock Appreciation Right, or Performance Unit has become exercisable during such period, may be exercised, in whole or in part, at or before the end of such period; (iii) that any share of Restricted Stock that has not become nonforfeitable on or before the date of such Termination of Employment may become nonforfeitable as if such Termination of Employment had not occurred after such date for a period specified by the Committee; or (iv) that if the Grantee dies after such Termination of Employment and before the expiration of the period specified under clause (i) or (ii) of this Section 18(c), such Option, Stock Appreciation Right, or Performance Unit may be exercised by the deceased Grantee's personal representative or by the person to whom the Option, Stock Appreciation Right, or Performance Unit is transferred by will or the applicable laws of descent and distribution within the specified period after the Grantee's Termination of Employment, or, if later, within 180 days after the Grantee's death; provided that if such rights are granted, the Committee may thereafter take actions to limit such rights but only if such limitation is consented to by the Grantee. (d) Maximum Extension. Notwithstanding the foregoing, no Award shall be exercisable beyond the maximum term permitted under the original Award Agreement unless the Committee explicitly extends such original term, in which case such term shall not be extended beyond the maximum term permitted by the Plan. 19. SUBSTITUTED AWARDS. If the Committee cancels any Award (granted under this Plan, the Prior Plans, or any plan of any entity acquired by the Company or any of its Subsidiaries), and a new Award is substituted therefor, then the Committee may, in its discretion, determine the terms and conditions of such new Award and may, in its discretion, provide that the grant date of the canceled Award shall be the date used to determine the earliest date or dates for exercising the new substituted Award so that the Grantee may exercise the substituted Award at the same time as if the Grantee had held the substituted Award since the grant date of the canceled Award; provided that no award shall be canceled without the consent of the Grantee if the terms and conditions of the new Award to be substituted are not at least as favorable as the terms and conditions of the award to be canceled; and further provided that no Section 16 Person may exercise a substituted Stock Appreciation Right or a substituted Option identified with a Stock Appreciation Right within six months after the grant date (calculated without reference to this Section 19) of such substituted Stock Appreciation Right or Option, unless the Company shall have received an opinion of counsel for the Company or "no action" letter from the staff of the SEC to the effect that such limitation is not necessary in order to avoid liability under Section 16(b) of the Exchange Act. 20. SECURITIES LAW MATTERS. (a) Legend and Investment Representation. If the Committee deems necessary to comply with the Securities Act of 1933, or any rules, regulations or other requirements of the SEC or any stock exchange or automated quotation system, the Committee may require a written investment intent representation by the Grantee and may require that a restrictive legend be affixed to certificates for shares of Stock, or that the Stock be subject to such stock transfer orders and other restrictions as the Committee may deem necessary or advisable. (b) Postponement by Committee. If based upon the opinion of counsel for the Company, the Committee determines that the exercise or nonforfeitability of, or delivery of benefits pursuant to, any Award would violate any applicable provision of (i) federal or state securities law or (ii) the listing requirements of any national securities exchange or the requirements of any automated quotation system on which are listed or quoted any of the Company's equity securities, then the Committee may postpone any such exercise, nonforfeitability or delivery, as the case may be, but the Company shall use reasonable and good faith efforts to cause such exercise, nonforfeitability or delivery to comply with all such provisions at the earliest practicable date. The Committee's authority under this Section 20(b) shall expire on the date of the first Change in Control to which Section 13 applies. (c) No Obligation to Register or List. The Company shall be under no obligation to register the Stock with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company shall have no liability for any inability or failure to do so. A-14 15 (d) Waiver of Section 16 Restrictions. The Committee may waive compliance with any provision of this Plan which is expressly applicable only to Section 16 Persons if the Committee determines that such compliance is not necessary to avoid a violation of Section 16(b) of the Exchange Act. 21. FUNDING. Benefits payable under the Plan to any person shall be paid directly by the Company. The Company shall not be required to fund, or otherwise segregate assets to be used for payment of, benefits under the Plan. 22. NO EMPLOYMENT RIGHTS. Neither the establishment of the Plan, nor the granting of any Award shall be construed to (i) give any Grantee the right to remain employed by the Company or any of its Subsidiaries or to any benefits not specifically provided by the Plan, or (ii) in any manner modify the right of the Company or any of its Subsidiaries to modify, amend, or terminate any of its employee benefit plans. 23. RIGHTS AS A STOCKHOLDER. A Grantee shall not, by reason of any Award (other than Restricted Stock) have any right as a stockholder of the Company with respect to the shares of Stock which may be deliverable upon exercise or payment of such Award until such shares have been delivered to such Grantee. Shares of Restricted Stock held by a Grantee or held in escrow by the Company or by an agent of the Company shall confer on the Grantee all rights of a stockholder of the Company, except as otherwise provided in the Plan. The Committee, in its discretion, at the time of grant of Restricted Stock, may permit or require the payment of cash dividends thereon to be deferred and, if the Committee so determines, reinvested in additional Restricted Stock to the extent shares are available under Section 3, or otherwise reinvested. Stock dividends and deferred cash dividends issued with respect to Restricted Stock shall be treated as additional shares of Restricted Stock that are subject to the same restrictions and other terms as apply to the shares with respect to which such dividends are issued. The Committee may, in its discretion, provide for crediting to and payment of interest on deferred cash dividends. 24. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Grantee's Stock, the Committee may require the Grantee to deposit all certificates representing such Stock, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Grantee who is permitted to execute a promissory note as partial or full consideration for the purchase of Stock under the Plan shall be required to pledge and deposit with the Company all or part of the Stock so purchased as collateral to secure the payment of the Grantee's obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company shall have full recourse against the Grantee under the promissory note notwithstanding any pledge of the Grantee's Stock or other collateral. In connection with any pledge of the Stock, the Grantee shall be required to execute and deliver a written pledge agreement in such form as the Committee shall from time to time approve. The Stock purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid. 25. NATURE OF PAYMENTS. Any and all grants, payments of cash, or deliveries of shares of Stock hereunder shall constitute special incentive payments to the Grantee and shall not be taken into account in computing the amount of salary or compensation of the Grantee for the purposes of determining any pension, retirement, death or other benefits under (i) any pension, retirement, profit-sharing, bonus, life insurance or other employee benefit plan of the Company or any of its Subsidiaries, or (ii) any agreement between the Company or any Subsidiary, on the one hand, and the Grantee, on the other hand, except as such plan or agreement shall otherwise expressly provide. 26. NON-UNIFORM DETERMINATIONS. The Committee's determinations under the Plan need not be uniform and may be made by the Committee selectively among persons who receive, or are eligible to receive, Awards (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be entitled, among other things, to make non-uniform and selective determinations and to enter into non-uniform and selective Award Agreements as to (i) the identity of the Grantees, (ii) the terms and provisions of Awards, and (iii) the treatment, under Section 18, of Terminations of Employment. Notwithstanding the foregoing, the Committee's interpretation of Plan provisions shall be uniform as to similarly situated Grantees. A-15 16 27. ADJUSTMENTS. The Committee shall make equitable adjustment of: (i) the aggregate numbers of shares of Stock, shares of Restricted Stock and Stock Appreciation Rights, available under Sections 3(a) and 3(b), (ii) the number of shares of Stock or shares of Restricted Stock covered by an Award, (iii) the Option Price, and (iv) the Fair Market Value of Stock to be used to determine the amount of the benefit payable upon exercise of Stock Appreciation Rights or Performance Units, to reflect a stock dividend, stock split, reverse stock split, share combination, recapitalization, merger, consolidation, asset spin-off, reorganization, or similar event of or by the Company. 28. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall be approved by the shareholders of the Company (excluding holders of Stock issued pursuant to this Plan), consistent with applicable laws, including but not limited to Section 162(m)(4)(C) (ii) of the Code, within 12 months before or after the Effective Date. Upon the Effective Date, Awards may be granted pursuant to the Plan; provided, however, that: (i) no Option may be exercised prior to initial shareholder approval of the Plan; (ii) no Option granted pursuant to an increase in the number of shares of Stock approved by the Board shall be exercised prior to the time such increase has been approved by the shareholders of the Company; and (iii) in the event that shareholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be canceled, any Stock issued pursuant to any Award shall be canceled and any purchase of Stock hereunder shall be rescinded. 29. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board, the submission of the Plan to the shareholders of the Company for approval, nor any provision of the Plan shall be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including the granting of stock options and bonuses otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 30. AMENDMENT AND TERMINATION OF THE PLAN. Subject to any applicable shareholder approval requirements of applicable law or the rules of any national securities exchange or automated quotation service on which the Stock is listed or quoted, the Plan may be amended by the Board at any time and in any respect, including without limitation to qualify Awards hereunder as performance-based compensation under Code Section 162(m)(4)(C) and to permit or facilitate qualification of Options therefore or thereafter granted as Incentive Stock Options under the Code; provided that, without shareholder approval, no amendment shall (a) increase the aggregate number of shares which may be issued as Incentive Stock Options under the Plan within the meaning of Proposed Treasury Regulation Section 1.422A- 2(b)(3)(iv) or its successor, or (b) change the material terms of a Performance Goal that were previously approved by shareholders within the meaning of Treasury Regulation Section 1.162-27(e)(4)(vi) or a successor provision, unless the Board shall determine that such approval is not necessary to avoid loss of a deduction under Section 162(m) of the Code, will not avoid such a loss of deduction or is not advisable. The Plan may also be terminated at any time by the Board and shall terminate automatically on the tenth anniversary of the Effective Date unless earlier terminated by the Board. No amendment or termination of this Plan shall adversely affect any Award granted prior to the date of such amendment or termination without the written consent of the Grantee. 31. WEEKENDS AND HOLIDAYS. Unless this Section 31 prevents an Option from qualifying as an Incentive Stock Option under Section 422 of the Code or prevents an Award from qualifying as performance-based compensation under Section 162(m) of the Code, if any day on which action under the Plan must be taken falls on a Saturday, Sunday or legal holiday, such action may be taken on the next succeeding day not a Saturday, Sunday or legal holiday. 32. FOREIGN GRANTEES. Without amending the Plan, Awards may be granted to Grantees who are foreign nationals or employed outside the United States or both, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to further the purposes of the Plan. 33. INTERPRETATION UNDER SECTION 162(M). Any provision of the Plan to the contrary notwithstanding, and except to the extent that the Committee determines otherwise: (i) transactions with respect to persons whose remuneration is subject to the provisions of Section 162(m) of the Code shall conform to the requirements of Section 162(m)(4)(C) of the Code, and (ii) every position of the Plan shall be administered, interpreted and construed to carry out (i) hereof. Notwithstanding any provision of the Plan to the contrary, the Plan is intended to give the Committee the authority to A-16 17 grant Awards hereunder that qualify as performance-based compensation under Code Section 162(m)(4)(C) and that do not so qualify. Every provision of the Plan shall be administered, interpreted and construed to carry out such intention and any provision that cannot be so administered, interpreted and construed shall to that extent be disregarded; and any provision of the Plan that would prevent an Award that the Committee intends to qualify as performance-based pay under Code Section 162(m)(4)(C) from so qualifying shall be administered, interpreted and construed to carry out such intent and any provision that cannot be so administered, interpreted and construed shall to that extent be disregarded. 34. APPLICABLE LAW. The validity, construction, interpretation and administration of the Plan and of any determinations or decisions made thereunder, and the rights of all persons having or claiming to have any interest therein or thereunder, shall be governed by, and determined exclusively in accordance with, the laws of the State of Indiana, but without giving effect to the principles of conflicts of laws thereof. Without limiting the generality of the foregoing, the period within which any action arising under or in connection with the Plan must be commenced shall be governed by the laws of the State of Indiana, without giving effect to the principles of conflicts of laws thereof, irrespective of the place where the act or omission complained of took place and of the residence of any party to such action and irrespective of the place where the action may be brought. 35. CONSTRUCTION. The use of the masculine gender shall also include within its meaning the feminine. The use of the singular shall include within its meaning the plural and vice versa. A-17 EX-10.7 3 1ST, 2ND & 3RD AMENDS. TO CREDIT & TERM LOAN AGMTS 1 EXHIBIT 10.7 FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT This FIRST AMENDMENT, dated as of February 6, 1998 (this "Amendment"), by and among (a) Emmis Broadcasting Corporation, an Indiana corporation (the "Borrower"), (b) BankBoston, N.A., Toronto Dominion (Texas), Inc., First Union National Bank, Fleet Bank, N.A., Union Bank of California, N.A., The Bank of New York, Mellon Bank, Barclays Bank PLC, Bank of America, Bank One, Indiana, N.A., Bank of Montreal, Compagnie Financiere de CIC et de l'Union Europeenne, Lehman Commercial Paper Inc., Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, SunTrust Bank, Central Florida, N.A., Banque Nationale de Paris, Banque Paribas, Mercantile Bank National Association, National City Bank of Indiana, Societe Generale, Toronto Dominion (Texas), Inc., and Key Corporate Capital Inc. (collectively, the "Banks"), (c) BankBoston, N.A., as managing agent for each of the Banks (in such capacity, the "Managing Agent"), and (d) The Toronto-Dominion Bank and First Union National Bank as documentation agents, and Fleet Bank, N.A., Union Bank of California, N.A., Key Corporate Capital Inc., The Bank of New York, Mellon Bank and Barclays Bank PLC as co-agents (collectively, together with the Managing Agent, the "Agents"). WHEREAS, the Borrower, the Banks and the Agents are parties to that certain Amended and Restated Revolving Credit and Term Loan Agreement, dated as of July 1, 1997, as amended (as amended and in effect, the "Credit Agreement"); and WHEREAS, the Borrower has requested and the Banks have agreed, subject to the terms and conditions set forth herein, to modify certain provisions of the Credit Agreement in connection with (i) the acquisition (the "TMI Acquisition") by the Borrower of the capital stock of Mediatex Communications Corporation ("MCC"), which owns all of the capital stock of Texas Monthly, Inc. ("TMI") and Mediatex Development Corporation, ("MDC"), (ii) the WTLC Acquisition and (iii) the Corporate Restructure; NOW, THEREFORE, the Borrower, the Banks and the Agents hereby covenant and agree as follows: Section 1. DEFINED TERMS. Capitalized terms which are used herein without definition and which are defined in the Credit Agreement shall have the same meanings herein as in the Credit Agreement. Section 2. AMENDMENTS TO THE CREDIT AGREEMENT. (a) The following definitions in Section 1.1 of the Credit Agreement are hereby amended and restated in their entirety to read as follows: "Adjusted Total Funded Debt. At any time of determination, the sum of (a) Total Funded Debt, plus (b) (i) prior to the WQCD Closing Date, the Net WQCD Acquisition Amount and (ii) after the WQCD Closing Date, $0." 2 -2- "Copyright Notice. Collectively, (i) the Amended and Restated Memorandum of Grant of Security Interest in Copyrights dated as of July 1, 1997, as the same may be amended from time to time hereafter, made by the Borrower in favor of the Managing Agent and (ii) the Memorandum of Grant of Security Interest in Copyrights dated as of March 1, 1998, as the same may be amended from time to time hereafter, made by Texas Monthly, Inc. in favor of the Managing Agent, each in form and substance satisfactory to the Banks and the Managing Agent." "Guaranty. Collectively, (i) the Amended and Restated Guaranty, dated as of July 1, 1997, as the same may be amended from time to time hereafter, made by each of the Subsidiaries of the Borrower named therein in favor of the Banks and the Managing Agent, (ii) the Subsidiary Guaranty, dated as of March 1, 1998, made by each of the New WTLC Subsidiaries, the New TMI Subsidiaries, the License Subsidiaries, and the Partnership Subsidiaries in favor of the Banks and the Managing Agent, pursuant to which each Subsidiary guaranties to the Banks and the Managing Agent the irrevocable payment and performance in full of the Obligations, in form and substance satisfactory to the Banks and the Managing Agent." "License Subsidiaries. Collectively, Emmis License Corporation, Emmis License Corporation of New York, Emmis FM License Corporation of St. Louis, Emmis FM License Corporation of Chicago, KPWR License, Inc., Emmis FM License Corporation of Indianapolis, Emmis FM Radio License Corporation of Indianapolis, Emmis AM Radio License Corporation of Indianapolis, Emmis Radio License Corporation of New York, Emmis 104.1 Radio License Corporation of St. Louis, Emmis 106.5 FM License Corporation of St. Louis, Emmis 105.7 FM Radio License Corporation of Indianapolis and Emmis 1310 AM Radio License Corporation of Indianapolis, each an Indiana corporation and after giving effect to the Corporate Restructure, each will become a California corporation." "Net WQCD Acquisition Amount. (a) (i) $141,000,000 at any time while either (x) the Supplemental Agreement dated December 2, 1997 between Tribune and the Borrower is in effect and Tribune's election thereunder is not the subject of a revocation under Section 4 thereof and any condition to the closing contemplated thereby which is not satisfied does not remain unwaived by the parties thereto for more than 30 days or (y) Tribune has exercised the option under the Option Agreement to require the Borrower to complete the WQCD Acquisition pursuant to another tax-deferred like-kind exchange and for so long as the Borrower and Tribune are actively pursuing in good faith the exchange transaction contemplated by such exercise or (ii) in any other case, $160,000,000, less (b) the sum of the Maximum Drawing Amount under, and all Unpaid Reimbursement Obligations relating to, all Letters of Credit issued for the benefit of Tribune to support the Borrower's obligations under the WQCD Acquisition Documents." "Operating Subsidiaries. Collectively, Emmis FM Broadcasting Corporation of Indianapolis, Emmis FM Broadcasting Corporation of Chicago, Emmis FM Broadcasting Corporation of St. Louis, Emmis Broadcasting Corporation of New York, KPWR, Inc., Emmis FM Radio Corporation of Indianapolis, Emmis AM Radio Corporation of Indianapolis, Emmis Holding Corporation of New York, Emmis Radio Corporation of New York, Emmis 104.1 FM Radio Corporation of St. Louis, Emmis 106.5 FM Broadcasting Corporation of St. Louis, Emmis International Corporation, Emmis 105.7 FM Radio Corporation of Indianapolis, Emmis 1310 AM Radio Corporation of Indianapolis and the New TMI Subsidiaries." 3 -3- "Pledge Agreements. Collectively, the Borrower Stock Pledge Agreement, the Subsidiary Pledge Agreements and the Partnership Pledge Agreements." "Subsidiary Pledge Agreements. Collectively, (i) the Amended and Restated Pledge Agreement, dated as of July 1, 1997, as the same may be amended from time to time hereafter, among certain of the Subsidiaries of the Borrower, on the one hand, and the Managing Agent, on the other hand, (ii) the Subsidiary Pledge Agreement, dated as of March 1, 1998, among Mediatex Communications Corporation, on the one hand, and the Managing Agent, on the other hand, and (iii) the Subsidiary Pledge Agreement, dated as of March 1, 1998, among Emmis License Corporation, on the one hand, and the Managing Agent, on the other hand, each in form and substance satisfactory to the Banks and the Managing Agent." "Subsidiary Security Agreement. Collectively, (i) the Amended and Restated Security Agreement dated as of July 1, 1997, as the same may be amended from time to time hereafter, among the Subsidiaries of the Borrower named therein, on the one hand, and the Managing Agent, on the other hand, and (ii) the Subsidiary Security Agreement dated as of March 1, 1998 among the New WTLC Subsidiaries, the New TMI Subsidiaries, the License Subsidiaries and the Partnership Subsidiaries on the one hand, and the Managing Agent, on the other hand, each in form and substance satisfactory to the Banks and the Managing Agent." "Trademark Assignments. Collectively, (i) the Amended and Restated Trademark Collateral Security and Pledge Agreement dated as of July 1, 1997, as the same may be amended from time to time hereafter, among the Borrower and the Managing Agent, (ii) the Amended and Restated Trademark Collateral Security and Pledge Agreement dated as of July 1, 1997, as the same may be amended from time to time hereafter, among certain Subsidiaries of the Borrower and the Managing Agent and (iii) the Subsidiary Trademark Collateral Security and Pledge Agreement dated as of March 1, 1998, as the same may be amended from time to time hereafter, among Texas Monthly, Inc., Mediatex Communications Corporation and the Managing Agent, each in form and substance satisfactory to the Banks and the Managing Agent." (b) Section 1.1 of the Credit Agreement is hereby amended by adding the following new definitions in the proper alphabetical sequence thereof: "New TMI Subsidiaries. Mediatex Communications Corporation, Texas Monthly, Inc. and Mediatex Development Corporation." "New WTLC Subsidiaries. Emmis 105.7 FM Radio Corporation of Indianapolis, Emmis 105.7 FM Radio License Corporation of Indianapolis, Emmis 1310 AM Radio Corporation of Indianapolis, and Emmis 1310 AM Radio License Corporation of Indianapolis." "Partnership Pledge Agreements. Collectively, (i) the Collateral Assignment of Partnership Interests, dated as of March 1, 1998, as the same may be amended from time to time hereafter, among the partners of the Partnership Subsidiaries, on the one hand, and the Managing Agent, on the other hand, and (ii) the Collateral Assignment of Partnership Interests, dated as of March 1, 1998, as the same may be amended from time to time hereafter, among Mediatex Development Corporation, on the one hand, and the Managing Agent, on the other hand, each in form and substance satisfactory to the Banks and the Managing Agent." 4 -4- "Partnership Subsidiaries. Collectively, Emmis Indiana Radio, L.P. and Emmis Publishing, L.P." (c) The Credit Agreement is hereby amended by replacing Schedules 1.1(b), 8.3(b), 8.3(c), 8.7, 8.19, 8.20, 8.21 and 8.22 thereto with Schedules 1.1(b), 8.3(b), 8.3(c), 8.7, 8.19, 8.20, 8.21 and 8.22 hereto. Section 3. CONSENT. The Banks and the Managing Agent hereby consent to the consummation by the Borrower of the Acquisition contemplated by the Stock Purchase Agreement (the "Purchase Agreement"), among the Borrower, Michael R. Levy, Dow Jones & Company, Inc., and Gregory Curtis, substantially in the form of Exhibit A hereto with such changes thereto as are approved by the Managing Agent (other than changes to the amount of the Purchase Price as defined therein), provided, that, each of the conditions specified in Section 4 of this Amendment shall have been satisfied with respect to such Acquisition. Section 4. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective upon the satisfaction of the following conditions precedent: (a) the execution and delivery by the Borrower, the Managing Agent and the Banks of this Amendment; (b) receipt by the Managing Agent of a duly executed Subsidiary Guaranty, Subsidiary Security Agreement (referenced in clause (ii) of such definition), Subsidiary Pledge Agreement (referenced in clause (ii) of such definition), Trademark Assignment (referenced in clause (iii) of such definition) and Copyright Notice (referenced in clause (ii) of such definition) and a duly executed amendment to the Borrower Stock Pledge Agreement, each in form and substance satisfactory to the Managing Agent, as necessary to insure that the Managing Agent has a pledge of 100% of the issued and outstanding stock of the New TMI Subsidiaries, a first priority perfected security interest in all of the assets of the New TMI Subsidiaries and that the New TMI Subsidiaries are Guarantors under the Guaranty; (c) receipt by the Managing Agent from each of the New TMI Subsidiaries of a completed and fully executed Perfection Certificate; (d) receipt by the Managing Agent of the results of UCC searches with respect to the Collateral of each New TMI Subsidiary, indicating no liens other than Permitted Liens; (e) receipt by the Managing Agent of such UCC financing statements as necessary to perfect the Managing Agent's security interest in the assets of the New TMI Subsidiaries; (f) each owner of equity interests in the New TMI Subsidiaries shall have delivered to the Managing Agent the certificated securities to be pledged pursuant to the applicable Pledge Agreement, together with stock powers therefor duly executed in blank; (g) all filings, recordings, deliveries of instruments and other actions necessary or desirable in the opinion of the Managing Agent to perfect the Managing Agent's security interest in the Collateral of the New TMI Subsidiaries and the stock of the New TMI Subsidiaries shall have been duly effected 5 -5- and the Managing Agent shall have received evidence thereof in form and substance satisfactory to the Managing Agent; (h) the Managing Agent shall have received such duly executed Mortgages with respect to any Real Estate owned or leased by any of the New TMI Subsidiaries as the Managing Agent may request, together with related title insurance policies, collateral assignments in the form of the Collateral Assignment of Leases and all necessary consents from each applicable landlord, each in form and substance satisfactory to the Managing Agent; (i) the Managing Agent shall have received copies of environmental reports with respect to the Real Estate of the New TMI Subsidiaries; (j) the Borrower shall have furnished to the Managing Agent a duly executed certificate substantially in the form of Exhibit B hereto; (k) the Managing Agent shall have received from each New TMI Subsidiary (i) a certificate of the Secretary of State of each jurisdiction in which such Subsidiary is incorporated or qualified to do business as to the legal existence and good standing of such New TMI Subsidiary, (ii) its charter, certified as of a recent date by the Secretary of State of its jurisdiction of incorporation, (iii) its by-laws, certified by a duly authorized officer of such New TMI Subsidiary as of the date hereof, (iv) the resolutions of the Board of Directors of such New TMI Subsidiary authorizing the execution, delivery and performance of the Security Documents to which it is to become a party as required hereby, certified by a duly authorized officer of such New TMI Subsidiary and (v) a certificate of an officer of such New TMI Subsidiary as to the incumbency and signature of officers authorized to execute and deliver the documents contemplated hereby; (l) the Banks and the Managing Agent shall have received opinions from counsel to the Borrower and its Subsidiaries and counsel to the Sellers under the Purchase Agreement, each in form and substance satisfactory to the Banks and the Managing Agent; (m) the Managing Agent shall have received evidence satisfactory to it that (i) all liens and encumbrances with respect to the properties and assets of the New TMI Subsidiaries, other than Permitted Liens, have been discharged in full and (ii) all outstanding Indebtedness of the New TMI Subsidiaries, other than Indebtedness permitted by the Credit Agreement, has been paid in full; (n) the Managing Agent shall have received (i) evidence that the Borrower has completed the TMI Acquisition in accordance with the terms of the Purchase Agreement and (ii) certified copies of the Purchase Agreement and the other acquisition documents executed in connection therewith; and (o) the Managing Agent shall have received evidence that all conditions precedent to the Corporate Restructure Closing Date have been satisfied and performed in full as set forth in Section 15 of the Credit Agreement. Section 5. AFFIRMATION OF THE BORROWER. The Borrower hereby affirms all of its Obligations under the Credit Agreement and under each of the other Loan Documents to which it is a party and hereby affirms its absolute and unconditional promise to pay to the Banks the Loans and all other amounts due under the Credit Agreement and the other Loan Documents. The Borrower hereby represents, warrants and confirms that the Obligations are and remain secured pursuant to the Security Documents. 6 -6- Section 6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Banks and the Managing Agent as follows: (a) Representations and Warranties. Each of the representations and warranties contained in Section 8 of the Credit Agreement were true and correct in all material respects when made, and, after giving effect to this Amendment, are true and correct on and as of the date hereof, except to the extent that such representations and warranties relate specifically to a prior date. (b) Enforceability. The execution and delivery by the Borrower of this Amendment, and the performance by the Borrower of this Amendment and the Credit Agreement, as amended hereby, are within the corporate authority of the Borrower and have been duly authorized by all necessary corporate proceedings. This Amendment and the Credit Agreement, as amended hereby, constitute valid and legally binding obligations of the Borrower, enforceable against it in accordance with their terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights in general. (c) No Default. No Default or Event of Default has occurred and is continuing, and no Default or Event of Default will result from the execution, delivery and performance by the Borrower of this Amendment. Section 7. NO OTHER AMENDMENTS, ETC. Except as expressly provided in this Amendment, (a) all of the terms and conditions of the Credit Agreement and the other Loan Documents remain unchanged, and (b) all of the terms and conditions of the Credit Agreement, as amended hereby, and of the other Loan Documents are hereby ratified and confirmed and remain in full force and effect. Nothing herein shall be construed to be an amendment or a waiver of any requirements of the Borrower or of any other Person under the Credit Agreement or any of the other Loan Documents except as expressly set forth herein. Section 8. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Amendment, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. Section 9. MISCELLANEOUS. This Amendment shall be deemed to be a contract under seal under the laws of The Commonwealth of Massachusetts and shall for all purposes be construed in accordance with and governed by the laws of The Commonwealth of Massachusetts. The captions in this Amendment are for convenience of reference only and shall not define or limit the provisions hereof. The Borrower agrees to pay to the Managing Agent, on demand by the Managing Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by the Managing Agent in connection with the preparation of this Amendment, including reasonable legal fees. 7 -7- IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. BANKBOSTON, N.A., INDIVIDUALLY AND AS MANAGING AGENT By:__________________________________ Title: FIRST UNION NATIONAL BANK, INDIVIDUALLY AND AS DOCUMENTATION AGENT By:__________________________________ Title: TORONTO DOMINION (TEXAS), INC., INDIVIDUALLY By:__________________________________ Title: THE TORONTO-DOMINION BANK, AS DOCUMENTATION AGENT By:__________________________________ Title: FLEET BANK, N.A., INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: 8 -8- UNION BANK OF CALIFORNIA, N.A., INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: KEY CORPORATE CAPITAL INC., INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: THE BANK OF NEW YORK, INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: MELLON BANK, INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: BARCLAYS BANK PLC, INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: BANK OF AMERICA, INDIVIDUALLY By:__________________________________ Title: 9 -9- BANK ONE, INDIANA, N.A., INDIVIDUALLY By:__________________________________ Title: BANK OF MONTREAL, INDIVIDUALLY By:__________________________________ Title: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: LEHMAN COMMERCIAL PAPER INC., INDIVIDUALLY By:__________________________________ Title: SOCIETE GENERALE, INDIVIDUALLY By:__________________________________ Title: 10 -10- SUNTRUST BANK, CENTRAL FLORIDA, N.A., INDIVIDUALLY By:__________________________________ Title: BANQUE NATIONALE DE PARIS, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: BANQUE PARIBAS, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: MERCANTILE BANK NATIONAL ASSOCIATION, INDIVIDUALLY By:__________________________________ Title: NATIONAL CITY BANK OF INDIANA, INDIVIDUALLY By:__________________________________ Title: 11 -11- COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: ACCEPTED EMMIS BROADCASTING CORPORATION By: Title: 12 -12- Each of the undersigned Subsidiaries of the Borrower hereby (a) acknowledges the foregoing Amendment and (b) ratifies and confirms all of its obligations under the Guaranty and under each of the other Loan Documents to which it is a party. EMMIS FM BROADCASTING CORPORATION OF INDIANAPOLIS EMMIS FM BROADCASTING CORPORATION OF CHICAGO EMMIS FM BROADCASTING CORPORATION OF ST. LOUIS KPWR, INC. EMMIS PUBLISHING CORPORATION EMMIS BROADCASTING CORPORATION OF NEW YORK EMMIS MEADOWLANDS CORPORATION EMMIS FM RADIO CORPORATION OF INDIANAPOLIS EMMIS AM RADIO CORPORATION OF INDIANAPOLIS EMMIS HOLDING CORPORATION OF NEW YORK EMMIS RADIO CORPORATION OF NEW YORK EMMIS 104.1 FM RADIO CORPORATION OF ST. LOUIS EMMIS 106.5 FM BROADCASTING CORPORATION OF ST. LOUIS EMMIS INTERNATIONAL BROADCASTING CORPORATION EMMIS DAR, INC. EMMIS INTERNATIONAL CORPORATION EMMIS 105.7 FM RADIO CORPORATION OF INDIANAPOLIS EMMIS 1310 AM RADIO CORPORATION OF INDIANAPOLIS MEDIATEX COMMUNICATIONS CORPORATION TEXAS MONTHLY, INC. MEDIATEX DEVELOPMENT CORPORATION EMMIS INDIANA RADIO, L.P. EMMIS PUBLISHING, L.P. By: Title: Executive Vice President 13 -13- EMMIS FM LICENSE CORPORATION OF INDIANAPOLIS EMMIS FM LICENSE CORPORATION OF CHICAGO EMMIS LICENSE CORPORATION OF NEW YORK EMMIS FM LICENSE CORPORATION OF ST. LOUIS KPWR LICENSE, INC. EMMIS FM RADIO LICENSE CORPORATION OF INDIANAPOLIS EMMIS AM RADIO LICENSE CORPORATION OF INDIANAPOLIS EMMIS RADIO LICENSE CORPORATION OF NEW YORK EMMIS 104.1 FM RADIO LICENSE CORPORATION OF ST. LOUIS EMMIS 106.5 FM LICENSE CORPORATION OF ST. LOUIS EMMIS 105.7 FM RADIO LICENSE CORPORATION OF INDIANAPOLIS EMMIS 1310 AM RADIO LICENSE CORPORATION OF INDIANAPOLIS EMMIS LICENSE CORPORATION By: Title: President 14 SECOND AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT This SECOND AMENDMENT, dated as of March 20, 1998 (this "Amendment"), by and among (a) Emmis Broadcasting Corporation, an Indiana corporation (the "Borrower"), (b) BankBoston, N.A., Toronto Dominion (Texas), Inc., First Union National Bank, Fleet Bank, N.A., Union Bank of California, N.A., The Bank of New York, Mellon Bank, Barclays Bank PLC, Bank of America, Bank One, Indiana, N.A., Bank of Montreal, Compagnie Financiere de CIC et de l'Union Europeenne, Lehman Commercial Paper Inc., Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, SunTrust Bank, Central Florida, N.A., Banque Nationale de Paris, Banque Paribas, Mercantile Bank National Association, National City Bank of Indiana, Societe Generale, Toronto Dominion (Texas), Inc., and Key Corporate Capital Inc. (collectively, the "Banks"), (c) BankBoston, N.A., as managing agent for each of the Banks (in such capacity, the "Managing Agent"), and (d) The Toronto-Dominion Bank and First Union National Bank as documentation agents, and Fleet Bank, N.A., Union Bank of California, N.A., Key Corporate Capital Inc., The Bank of New York, Mellon Bank and Barclays Bank PLC as co-agents (collectively, together with the Managing Agent, the "Agents"). WHEREAS, the Borrower, the Banks and the Agents are parties to that certain Amended and Restated Revolving Credit and Term Loan Agreement, dated as of July 1, 1997, (as amended by that First Amendment dated as of February 6, 1998, the "Credit Agreement"); and WHEREAS, the Borrower has requested and the Banks have agreed, subject to the terms and conditions set forth herein, to modify certain provisions of the Credit Agreement; NOW, THEREFORE, the Borrower, the Banks and the Agents hereby covenant and agree as follows: Section 1. DEFINED TERMS. Capitalized terms which are used herein without definition and which are defined in the Credit Agreement shall have the same meanings herein as in the Credit Agreement. Section 2. AMENDMENT TO THE CREDIT AGREEMENT. Section 8.17 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "8.17 Use of Proceeds; Regulations U and X. The proceeds of the Tranche A Loans shall be used for the purpose of (a) working capital and general corporate purposes and (b) funding Permitted Acquisitions including, without limitation, the WQCD Acquisition and the WTLC Acquisition. The proceeds of the Tranche B Term 15 -2- Loan shall be used to fund the Refinancing Obligations and the transaction costs incurred in connection therewith. The proceeds of the Tranche C Loans and the Tranche C Term Loan shall be used for the purpose of (a) funding or refinancing the purchase price paid for the acquisition of the New TMI Subsidiaries pursuant to that certain Stock Purchase Agreement among the Borrower, Michael R. Levy, Dow Jones & Company, Inc. and Gregory Curtis, a copy of which is attached as Exhibit A to the First Amendment to the Credit Agreement, (b) funding Permitted Acquisitions and (c) funding up to $25,000,000 in the aggregate for deposits in connection with bids made by the Borrower for the acquisition of broadcast properties, provided, that, (x) to the extent that such amounts are returned to the Borrower, the Borrower shall repay the outstanding Tranche C Loans in the amount of such returned deposits and (y) the use of Tranche C Loans for such purpose shall not be deemed to constitute consent by the Banks and the Managing Agent to the acquisition for which such deposits will be used. No portion of any Loan is to be used for the purpose of purchasing or carrying any "margin security" or "margin stock" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. No portion of any Loan is to be used, and no portion of any Letter of Credit is to be obtained, for an investment in any Subsidiary of the Borrower which is not a party to a Guaranty." Section 3. CONSENT. The Banks and the Managing Agent hereby consent to a waiver of Section 4.7(a) of the Option Agreement to permit the WQCD Acquisition to close after the grant by the FCC of the renewal of the FCC License for WQCD-FM but prior to the date on which such grant becomes a Final Action (as defined in the Option Agreement); provided that no petition or appeal is then pending before the FCC which objects to such renewal. Section 4. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective upon the execution and delivery by the Borrower, the Managing Agent and the Majority Banks of this Amendment. Section 5. AFFIRMATION OF THE BORROWER. The Borrower hereby affirms all of its Obligations under the Credit Agreement and under each of the other Loan Documents to which it is a party and hereby affirms its absolute and unconditional promise to pay to the Banks the Loans and all other amounts due under the Credit Agreement and the other Loan Documents. The Borrower hereby represents, warrants and confirms that the Obligations are and remain secured pursuant to the Security Documents. Section 6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Banks and the Managing Agent as follows: (a) Representations and Warranties. Each of the representations and warranties contained in Section 8 of the Credit Agreement were true and correct in all material respects when made, and, after giving effect to this Amendment, are true and correct on and as of the date hereof, except to the extent that such representations and warranties relate specifically to a prior date. 16 -3- (b) Enforceability. The execution and delivery by the Borrower of this Amendment, and the performance by the Borrower of this Amendment and the Credit Agreement, as amended hereby, are within the corporate authority of the Borrower and have been duly authorized by all necessary corporate proceedings. This Amendment and the Credit Agreement, as amended hereby, constitute valid and legally binding obligations of the Borrower, enforceable against it in accordance with their terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights in general. (c) No Default. No Default or Event of Default has occurred and is continuing, and no Default or Event of Default will result from the execution, delivery and performance by the Borrower of this Amendment. Section 7. NO OTHER AMENDMENTS, ETC. Except as expressly provided in this Amendment, (a) all of the terms and conditions of the Credit Agreement and the other Loan Documents remain unchanged, and (b) all of the terms and conditions of the Credit Agreement, as amended hereby, and of the other Loan Documents are hereby ratified and confirmed and remain in full force and effect. Nothing herein shall be construed to be an amendment or a waiver of any requirements of the Borrower or of any other Person under the Credit Agreement or any of the other Loan Documents except as expressly set forth herein. Section 8. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Amendment, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. Section 9. MISCELLANEOUS. This Amendment shall be deemed to be a contract under seal under the laws of The Commonwealth of Massachusetts and shall for all purposes be construed in accordance with and governed by the laws of The Commonwealth of Massachusetts. The captions in this Amendment are for convenience of reference only and shall not define or limit the provisions hereof. The Borrower agrees to pay to the Managing Agent, on demand by the Managing Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by the Managing Agent in connection with the preparation of this Amendment, including reasonable legal fees. 17 -4- IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. BANKBOSTON, N.A., INDIVIDUALLY AND AS MANAGING AGENT By:__________________________________ Title: FIRST UNION NATIONAL BANK, INDIVIDUALLY AND AS DOCUMENTATION AGENT By:__________________________________ Title: TORONTO DOMINION (TEXAS), INC., INDIVIDUALLY By:__________________________________ Title: THE TORONTO-DOMINION BANK, AS DOCUMENTATION AGENT By:__________________________________ Title: FLEET BANK, N.A., INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: 18 -5- UNION BANK OF CALIFORNIA, N.A., INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: KEY CORPORATE CAPITAL INC., INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: THE BANK OF NEW YORK, INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: MELLON BANK, INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: BARCLAYS BANK PLC, INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: BANK OF AMERICA, INDIVIDUALLY By:__________________________________ Title: 19 -6- BANK ONE, INDIANA, N.A., INDIVIDUALLY By:__________________________________ Title: BANK OF MONTREAL, INDIVIDUALLY By:__________________________________ Title: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: LEHMAN COMMERCIAL PAPER INC., INDIVIDUALLY By:__________________________________ Title: SOCIETE GENERALE, INDIVIDUALLY By:__________________________________ Title: 20 -7- SUNTRUST BANK, CENTRAL FLORIDA, N.A., INDIVIDUALLY By:__________________________________ Title: BANQUE NATIONALE DE PARIS, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: BANQUE PARIBAS, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: MERCANTILE BANK NATIONAL ASSOCIATION, INDIVIDUALLY By:__________________________________ Title: NATIONAL CITY BANK OF INDIANA, INDIVIDUALLY By:__________________________________ Title: 21 -8- COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: ACCEPTED EMMIS BROADCASTING CORPORATION By:________________________________ Title: 22 -9- Each of the undersigned Subsidiaries of the Borrower hereby (a) acknowledges the foregoing Amendment and (b) ratifies and confirms all of its obligations under the Guaranty and under each of the other Loan Documents to which it is a party. EMMIS FM BROADCASTING CORPORATION OF INDIANAPOLIS EMMIS FM BROADCASTING CORPORATION OF CHICAGO EMMIS FM BROADCASTING CORPORATION OF ST. LOUIS KPWR, INC. EMMIS PUBLISHING CORPORATION EMMIS BROADCASTING CORPORATION OF NEW YORK EMMIS MEADOWLANDS CORPORATION EMMIS FM RADIO CORPORATION OF INDIANAPOLIS EMMIS AM RADIO CORPORATION OF INDIANAPOLIS EMMIS HOLDING CORPORATION OF NEW YORK EMMIS 104.1 FM RADIO CORPORATION OF ST. LOUIS EMMIS 106.5 FM BROADCASTING CORPORATION OF ST. LOUIS EMMIS INTERNATIONAL BROADCASTING CORPORATION EMMIS DAR, INC. EMMIS INTERNATIONAL CORPORATION EMMIS 105.7 FM RADIO CORPORATION OF INDIANAPOLIS EMMIS 1310 AM RADIO CORPORATION OF INDIANAPOLIS MEDIATEX COMMUNICATIONS CORPORATION TEXAS MONTHLY, INC. MEDIATEX DEVELOPMENT CORPORATION EMMIS INDIANA RADIO, L.P. EMMIS PUBLISHING, L.P. By:_____________________________ Title: Executive Vice President 23 -10- EMMIS FM LICENSE CORPORATION OF INDIANAPOLIS EMMIS FM LICENSE CORPORATION OF CHICAGO EMMIS LICENSE CORPORATION OF NEW YORK EMMIS FM LICENSE CORPORATION OF ST. LOUIS KPWR LICENSE, INC. EMMIS FM RADIO LICENSE CORPORATION OF INDIANAPOLIS EMMIS AM RADIO LICENSE CORPORATION OF INDIANAPOLIS EMMIS RADIO LICENSE CORPORATION OF NEW YORK EMMIS 104.1 FM RADIO LICENSE CORPORATION OF ST. LOUIS EMMIS 106.5 FM LICENSE CORPORATION OF ST. LOUIS EMMIS 105.7 FM RADIO LICENSE CORPORATION OF INDIANAPOLIS EMMIS 1310 AM RADIO LICENSE CORPORATION OF INDIANAPOLIS EMMIS LICENSE CORPORATION By:____________________________________ Title: President 24 THIRD AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT This THIRD AMENDMENT, dated as of March 27, 1998 (this "Amendment"), by and among (a) Emmis Broadcasting Corporation, an Indiana corporation (the "Borrower"), (b) BankBoston, N.A., Toronto Dominion (Texas), Inc., First Union National Bank, Fleet Bank, N.A., Union Bank of California, N.A., The Bank of New York, Mellon Bank, Barclays Bank PLC, Bank of America, Bank One, Indiana, N.A., Bank of Montreal, Compagnie Financiere de CIC et de l'Union Europeenne, Lehman Commercial Paper Inc., Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, SunTrust Bank, Central Florida, N.A., Banque Nationale de Paris, Banque Paribas, Mercantile Bank National Association, National City Bank of Indiana, Societe Generale, Toronto Dominion (Texas), Inc., and Key Corporate Capital Inc. (collectively, the "Banks"), (c) BankBoston, N.A., as managing agent for each of the Banks (in such capacity, the "Managing Agent"), and (d) The Toronto-Dominion Bank and First Union National Bank as documentation agents, and Fleet Bank, N.A., Union Bank of California, N.A., Key Corporate Capital Inc., The Bank of New York, Mellon Bank and Barclays Bank PLC as co-agents (collectively, together with the Managing Agent, the "Agents"). WHEREAS, the Borrower, the Banks and the Agents are parties to that certain Amended and Restated Revolving Credit and Term Loan Agreement, dated as of July 1, 1997, (as amended by that First Amendment dated as of February 6, 1998 and that Second Amendment dated as of March 20, 1998, the "Credit Agreement"); and WHEREAS, the Borrower has requested and the Banks have agreed, subject to the terms and conditions set forth herein, to modify certain provisions of the Credit Agreement; NOW, THEREFORE, the Borrower, the Banks and the Agents hereby covenant and agree as follows: Section 1. DEFINED TERMS. Capitalized terms which are used herein without definition and which are defined in the Credit Agreement shall have the same meanings herein as in the Credit Agreement. Section 2. AMENDMENTS TO THE CREDIT AGREEMENT. (a) Section 8.17 of the Credit Agreement as amended by that Second Amendment dated as of March 20, 1998, is hereby amended by deleting the amount "$25,000,000" in the twelfth line of such section and substituting "$34,000,000" therefor. 25 -2- (b) Section 11.2 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "11.2 Total Leverage Ratio. The Borrower will not permit the Total Leverage Ratio, determined as at the last day of any fiscal quarter ending on any date or during any period described in the table set forth below, to exceed the ratio set forth opposite such date or period in such table:
Period Ratio ----------------------- ---------- Closing Date to 2/27/98 7.00:1.00 2/28/98 6.50:1.00 3/1/98 to 8/31/98 7.00:1.00 9/1/98 to 2/27/99 6.50:1.00 2/28/99 to 2/28/00 6.00:1.00 2/29/00 to 2/27/01 5.50:1.00 2/28/01 to 2/27/02 5.00:1.00 2/28/02 and thereafter 4.50:1.00"
Section 3. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective upon the execution and delivery by the Borrower, the Managing Agent and the Majority Banks of this Amendment. Section 4. AFFIRMATION OF THE BORROWER. The Borrower hereby affirms all of its Obligations under the Credit Agreement and under each of the other Loan Documents to which it is a party and hereby affirms its absolute and unconditional promise to pay to the Banks the Loans and all other amounts due under the Credit Agreement and the other Loan Documents. The Borrower hereby represents, warrants and confirms that the Obligations are and remain secured pursuant to the Security Documents. Section 5. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Banks and the Managing Agent as follows: (a) Representations and Warranties. Each of the representations and warranties contained in Section 8 of the Credit Agreement were true and correct in all material respects when made, and, after giving effect to this Amendment, are true and correct on and as of the date hereof, except to the extent that such representations and warranties relate specifically to a prior date. (b) Enforceability. The execution and delivery by the Borrower of this Amendment, and the performance by the Borrower of this Amendment and the Credit Agreement, as amended hereby, are within the corporate authority of the Borrower and have been duly authorized by all necessary corporate proceedings. This Amendment and the Credit Agreement, as amended hereby, constitute valid and legally binding obligations of the Borrower, enforceable against it in accordance with their terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights in general. 26 -3- (c) No Default. No Default or Event of Default has occurred and is continuing, and no Default or Event of Default will result from the execution, delivery and performance by the Borrower of this Amendment. Section 6. NO OTHER AMENDMENTS, ETC. Except as expressly provided in this Amendment, (a) all of the terms and conditions of the Credit Agreement and the other Loan Documents remain unchanged, and (b) all of the terms and conditions of the Credit Agreement, as amended hereby, and of the other Loan Documents are hereby ratified and confirmed and remain in full force and effect. Nothing herein shall be construed to be an amendment or a waiver of any requirements of the Borrower or of any other Person under the Credit Agreement or any of the other Loan Documents except as expressly set forth herein. Section 7. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Amendment, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. Section 8. MISCELLANEOUS. This Amendment shall be deemed to be a contract under seal under the laws of The Commonwealth of Massachusetts and shall for all purposes be construed in accordance with and governed by the laws of The Commonwealth of Massachusetts. The captions in this Amendment are for convenience of reference only and shall not define or limit the provisions hereof. The Borrower agrees to pay to the Managing Agent, on demand by the Managing Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by the Managing Agent in connection with the preparation of this Amendment, including reasonable legal fees. 27 -4- IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. BANKBOSTON, N.A., INDIVIDUALLY AND AS MANAGING AGENT By:__________________________________ Title: FIRST UNION NATIONAL BANK, INDIVIDUALLY AND AS DOCUMENTATION AGENT By:__________________________________ Title: TORONTO DOMINION (TEXAS), INC., INDIVIDUALLY By:__________________________________ Title: THE TORONTO-DOMINION BANK, AS DOCUMENTATION AGENT By:__________________________________ Title: FLEET BANK, N.A., INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: 28 -5- UNION BANK OF CALIFORNIA, N.A., INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: KEY CORPORATE CAPITAL INC., INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: THE BANK OF NEW YORK, INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: MELLON BANK, INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: BARCLAYS BANK PLC, INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: BANK OF AMERICA, INDIVIDUALLY By:__________________________________ Title: 29 -6- BANK ONE, INDIANA, N.A., INDIVIDUALLY By:__________________________________ Title: BANK OF MONTREAL, INDIVIDUALLY By:__________________________________ Title: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: LEHMAN COMMERCIAL PAPER INC., INDIVIDUALLY By:__________________________________ Title: SOCIETE GENERALE, INDIVIDUALLY By:__________________________________ Title: 30 -7- SUNTRUST BANK, CENTRAL FLORIDA, N.A., INDIVIDUALLY By:__________________________________ Title: BANQUE NATIONALE DE PARIS, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: BANQUE PARIBAS, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: MERCANTILE BANK NATIONAL ASSOCIATION, INDIVIDUALLY By:__________________________________ Title: NATIONAL CITY BANK OF INDIANA, INDIVIDUALLY By:__________________________________ Title: 31 -8- COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: ACCEPTED EMMIS BROADCASTING CORPORATION By:__________________________ Title: 32 -9- Each of the undersigned Subsidiaries of the Borrower hereby (a) acknowledges the foregoing Amendment and (b) ratifies and confirms all of its obligations under the Guaranty and under each of the other Loan Documents to which it is a party. EMMIS FM BROADCASTING CORPORATION OF INDIANAPOLIS EMMIS FM BROADCASTING CORPORATION OF CHICAGO EMMIS FM BROADCASTING CORPORATION OF ST. LOUIS KPWR, INC. EMMIS PUBLISHING CORPORATION EMMIS BROADCASTING CORPORATION OF NEW YORK EMMIS MEADOWLANDS CORPORATION EMMIS FM RADIO CORPORATION OF INDIANAPOLIS EMMIS AM RADIO CORPORATION OF INDIANAPOLIS EMMIS HOLDING CORPORATION OF NEW YORK EMMIS 104.1 FM RADIO CORPORATION OF ST. LOUIS EMMIS 106.5 FM BROADCASTING CORPORATION OF ST. LOUIS EMMIS INTERNATIONAL BROADCASTING CORPORATION EMMIS DAR, INC. EMMIS INTERNATIONAL CORPORATION EMMIS 105.7 FM RADIO CORPORATION OF INDIANAPOLIS EMMIS 1310 AM RADIO CORPORATION OF INDIANAPOLIS MEDIATEX COMMUNICATIONS CORPORATION TEXAS MONTHLY, INC. MEDIATEX DEVELOPMENT CORPORATION EMMIS INDIANA RADIO, L.P. EMMIS PUBLISHING, L.P. By:_____________________________ Title: Executive Vice President 33 -10- EMMIS FM LICENSE CORPORATION OF INDIANAPOLIS EMMIS FM LICENSE CORPORATION OF CHICAGO EMMIS LICENSE CORPORATION OF NEW YORK EMMIS FM LICENSE CORPORATION OF ST. LOUIS KPWR LICENSE, INC. EMMIS FM RADIO LICENSE CORPORATION OF INDIANAPOLIS EMMIS AM RADIO LICENSE CORPORATION OF INDIANAPOLIS EMMIS RADIO LICENSE CORPORATION OF NEW YORK EMMIS 104.1 FM RADIO LICENSE CORPORATION OF ST. LOUIS EMMIS 106.5 FM LICENSE CORPORATION OF ST. LOUIS EMMIS 105.7 FM RADIO LICENSE CORPORATION OF INDIANAPOLIS EMMIS 1310 AM RADIO LICENSE CORPORATION OF INDIANAPOLIS EMMIS LICENSE CORPORATION By:____________________________________ Title: President 34 WAIVER OF AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT This WAIVER, dated as of October 10, 1997 (this "Amendment"), by and among (a) Emmis Broadcasting Corporation, an Indiana corporation (the "Borrower"), (b) BankBoston, N.A., Toronto Dominion (Texas), Inc., First Union National Bank, Fleet Bank, N.A., Union Bank of California, N.A., The Bank of New York, Mellon Bank, Barclays Bank PLC, Bank of America, Bank One, Indiana, N.A., Bank of Montreal, Compagnie Financiere de CIC et de l'Union Europeenne, Lehman Commercial Paper Inc., Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch, SunTrust Bank, Central Florida, N.A., Banque Nationale de Paris, Banque Paribas, Mercantile Bank National Association, National City Bank of Indiana, Societe Generale, Toronto Dominion (Texas), Inc., and Key Corporate Capital Inc. (collectively, the "Banks"), (c) BankBoston, N.A., as managing agent for each of the Banks (in such capacity, the "Managing Agent"), and (d) The Toronto-Dominion Bank and First Union National Bank as documentation agents, and Fleet Bank, N.A., Union Bank of California, N.A., Key Corporate Capital Inc., The Bank of New York, Mellon Bank and Barclays Bank PLC as co-agents (collectively, together with the Managing Agent, the "Agents"). WHEREAS, the Borrower, the Banks and the Agents are parties to that certain Amended and Restated Revolving Credit and Term Loan Agreement, dated as of July 1, 1997, as amended (as amended and in effect, the "Credit Agreement"); and WHEREAS, the Borrower has requested and the Banks have agreed, subject to the terms and conditions set forth herein, to waive certain provisions of the Credit Agreement; NOW, THEREFORE, the Borrower, the Banks and the Agents hereby covenant and agree as follows: Section 1. DEFINED TERMS. Capitalized terms which are used herein without definition and which are defined in the Credit Agreement shall have the same meanings herein as in the Credit Agreement. Section 2. WAIVERS. (a) The Banks and the Managing Agent hereby waive the provisions of Section 10.3(m) of the Credit Agreement solely to the extent necessary to permit Emmis International Corporation to make an Investment in the shares of Radio Hungaria Co. Ltd., a company organized under the laws of Hungary ("Radio Hungaria"), without the requirement that Radio Hungaria grant a security interest in its assets and properties to the Managing Agent; provided 35 -2- that, Emmis International Corporation shall grant a security interest in such shares of Radio Hungaria to be acquired by it to the Managing Agent under the Subsidiary Pledge Agreement. (b) The Banks and the Managing Agent hereby waive the provisions of Section 10.5(e) of the Credit Agreement solely to the extent necessary to permit the disposition by Emmis 1380 Radio License Corporation of St. Louis and Emmis 1380 Radio Corporation of St. Louis of the Station WKBQ(AM) by the donation of such Station to a not-for-profit organization. Section 3. CONDITIONS TO EFFECTIVENESS. This Waiver shall become effective upon the execution and delivery by the Borrower, the Managing Agent and the Banks of this Waiver. Section 4. AFFIRMATION OF THE BORROWER. The Borrower hereby affirms all of its Obligations under the Credit Agreement and under each of the other Loan Documents to which it is a party and hereby affirms its absolute and unconditional promise to pay to the Banks the Loans and all other amounts due under the Credit Agreement and the other Loan Documents. The Borrower hereby represents, warrants and confirms that the Obligations are and remain secured pursuant to the Security Documents. Section 5. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Banks and the Managing Agent as follows: (a) Representations and Warranties. Each of the representations and warranties contained in Section 8 of the Credit Agreement were true and correct in all material respects when made, and, after giving effect to this Waiver, are true and correct on and as of the date hereof, except to the extent that such representations and warranties relate specifically to a prior date. (b) Enforceability. The execution, delivery and performance by the Borrower of this Waiver are within the corporate authority of the Borrower and have been duly authorized by all necessary corporate proceedings. This Waiver constitutes valid and legally binding obligations of the Borrower, enforceable against it in accordance with their terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights in general. (c) No Default. No Default or Event of Default has occurred and is continuing, and no Default or Event of Default will result from the execution, delivery and performance by the Borrower of this Waiver. Section 6. NO OTHER AMENDMENTS, ETC. Except as expressly provided in this Waiver, (a) all of the terms and conditions of the Credit Agreement and the other Loan Documents remain unchanged, and (b) all of the terms and conditions of the Credit Agreement, as amended hereby, and of the other Loan Documents are hereby ratified and confirmed and remain in full force and effect. Nothing herein shall be construed to be an amendment or a waiver of any requirements of the Borrower or of any other Person under the Credit Agreement or any of the other Loan Documents except as expressly set forth herein. 36 -3- Section 7. EXECUTION IN COUNTERPARTS. This Waiver may be executed in any number of counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Waiver, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. Section 8. MISCELLANEOUS. This Waiver shall be deemed to be a contract under seal under the laws of The Commonwealth of Massachusetts and shall for all purposes be construed in accordance with and governed by the laws of The Commonwealth of Massachusetts. The captions in this Waiver are for convenience of reference only and shall not define or limit the provisions hereof. The Borrower agrees to pay to the Managing Agent, on demand by the Managing Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by the Managing Agent in connection with the preparation of this Waiver, including reasonable legal fees. 37 -4- IN WITNESS WHEREOF, the parties have executed this Waiver as of the date first above written. BANKBOSTON, N.A., INDIVIDUALLY AND AS MANAGING AGENT By:__________________________________ Title: FIRST UNION NATIONAL BANK, INDIVIDUALLY AND AS DOCUMENTATION AGENT By:__________________________________ Title: TORONTO DOMINION (TEXAS), INC., INDIVIDUALLY By:__________________________________ Title: THE TORONTO-DOMINION BANK, AS DOCUMENTATION AGENT By:__________________________________ Title: FLEET BANK, N.A., INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: 38 -5- UNION BANK OF CALIFORNIA, N.A., INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: KEY CORPORATE CAPITAL INC., INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: THE BANK OF NEW YORK, INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: MELLON BANK, INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: BARCLAYS BANK PLC, INDIVIDUALLY AND AS CO-AGENT By:__________________________________ Title: BANK OF AMERICA, INDIVIDUALLY By:__________________________________ Title: 39 -6- BANK ONE, INDIANA, N.A., INDIVIDUALLY By:__________________________________ Title: BANK OF MONTREAL, INDIVIDUALLY By:__________________________________ Title: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: LEHMAN COMMERCIAL PAPER INC., INDIVIDUALLY By:__________________________________ Title: SOCIETE GENERALE, INDIVIDUALLY By:__________________________________ Title: 40 -7- SUNTRUST BANK, CENTRAL FLORIDA, N.A., INDIVIDUALLY By:__________________________________ Title: BANQUE NATIONALE DE PARIS, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: BANQUE PARIBAS, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: MERCANTILE BANK NATIONAL ASSOCIATION, INDIVIDUALLY By:__________________________________ Title: NATIONAL CITY BANK OF INDIANA, INDIVIDUALLY By:__________________________________ Title: 41 -8- COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, INDIVIDUALLY By:__________________________________ Title: By:__________________________________ Title: ACCEPTED EMMIS BROADCASTING CORPORATION By:__________________________ Title: 42 -9- Each of the undersigned Subsidiaries of the Borrower hereby (a) acknowledges the foregoing Waiver and (b) ratifies and confirms all of its obligations under the Guaranty and under each of the other Loan Documents to which it is a party. EMMIS FM BROADCASTING CORPORATION OF INDIANAPOLIS EMMIS FM BROADCASTING CORPORATION OF CHICAGO EMMIS FM BROADCASTING CORPORATION OF ST. LOUIS KPWR, INC. EMMIS PUBLISHING CORPORATION EMMIS BROADCASTING CORPORATION OF NEW YORK EMMIS MEADOWLANDS CORPORATION EMMIS FM LICENSE CORPORATION OF INDIANAPOLIS EMMIS FM LICENSE CORPORATION OF CHICAGO EMMIS LICENSE CORPORATION OF NEW YORK EMMIS FM LICENSE CORPORATION OF ST. LOUIS KPWR LICENSE, INC. EMMIS FM RADIO CORPORATION OF INDIANAPOLIS EMMIS AM RADIO CORPORATION OF INDIANAPOLIS EMMIS FM RADIO LICENSE CORPORATION OF INDIANAPOLIS EMMIS AM RADIO LICENSE CORPORATION OF INDIANAPOLIS EMMIS HOLDING CORPORATION OF NEW YORK EMMIS RADIO CORPORATION OF NEW YORK EMMIS RADIO LICENSE CORPORATION OF NEW YORK EMMIS 104.1 FM RADIO CORPORATION OF ST. LOUIS EMMIS 104.1 FM RADIO LICENSE CORPORATION OF ST. LOUIS EMMIS 106.5 FM BROADCASTING CORPORATION OF ST. LOUIS EMMIS INTERNATIONAL BROADCASTING CORPORATION EMMIS DAR, INC. EMMIS 106.5 FM LICENSE CORPORATION OF ST. LOUIS EMMIS 1380 AM RADIO CORPORATION OF ST. LOUIS 43 -10- EMMIS 1380 AM RADIO LICENSE CORPORATION OF ST. LOUIS EMMIS INTERNATIONAL CORPORATION By:_________________________________ Title: EX-10.14 4 STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.14 STOCK PURCHASE AGREEMENT AMONG EMMIS BROADCASTING CORPORATION AND MICHAEL R. LEVY, DOW JONES & COMPANY, INC., AND GREGORY CURTIS FEBRUARY 6, 1998 2 STOCK PURCHASE AGREEMENT AMONG EMMIS BROADCASTING CORPORATION AND MICHAEL R. LEVY, DOW JONES & COMPANY, INC., AND GREGORY CURTIS FEBRUARY 6, 1998 Table of Contents Page No. ARTICLE 1 PURCHASE AND SALE OF SHARES 1 1.1 PURCHASE AND SALE OF SHARES........................ 1 1.2 PURCHASE PRICE..................................... 1 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLERS.................. 5 2.1 ORGANIZATION AND STANDING; BUSINESS CONDUCTED...... 5 2.2 CAPITALIZATION..................................... 6 2.3 OWNERSHIP OF SHARES................................ 7 2.4 AUTHORITY.......................................... 7 2.5 FINANCIAL STATEMENTS............................... 8 2.6 ABSENCE OF UNDISCLOSED LIABILITIES................. 8 2.7 ABSENCE OF CERTAIN CHANGES......................... 9 2.8 TITLE TO ASSETS AND RELATED MATTERS................ 10 2.9 CIRCULATION........................................ 10 2.10 TAX................................................ 11 2.11 EMPLOYEES.......................................... 11 2.12 RELATIONSHIP WITH AFFILIATES....................... 12 2.13 BROKERAGE AND FINDERS' FEES........................ 12 2.14 JUDGMENTS.......................................... 12 2.15 LITIGATION......................................... 12 2.16 COMPLIANCE WITH LAWS............................... 13 2.17 POWERS OF ATTORNEY................................. 13 2.18 LICENSES AND RIGHTS................................ 13 2.19 CONTRACTS.......................................... 13 2.20 NO DEFAULTS........................................ 14 2.21 INTELLECTUAL PROPERTY.............................. 15 2.22 INSURANCE POLICIES................................. 15 2.23 NO CONFLICT........................................ 16 2.24 ENVIRONMENTAL MATTERS.............................. 16 2.25 EMPLOYEE PLANS..................................... 16 i. 3 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BUYER.............. 18 3.1 ORGANIZATION; QUALIFICATION................... 18 3.2 AUTHORITY OF BUYER............................ 18 3.3 INVESTMENT PURPOSE............................ 19 3.4 BROKERAGE AND FINDERS' FEE.................... 19 ARTICLE 4 COVENANTS............................................ 19 4.1 CONFIDENTIALITY............................... 19 4.2 NONCOMPETITION................................ 19 4.3 [INTENTIONALLY OMITTED.]...................... 20 4.4 TERMINATION OF SHAREHOLDER AGREEMENTS......... 20 4.5 MAINTENANCE OF INSURANCE...................... 21 4.6 BONUSES....................................... 21 ARTICLE 5 INDEMNIFICATION...................................... 21 5.1 INDEMNIFICATION BY BUYER...................... 21 5.2 INDEMNIFICATION BY SELLERS.................... 22 5.3 INDEMNITY PROCEDURE........................... 23 5.4 MEASURE OF DAMAGES............................ 25 5.5 WAIVER OF RIGHT TO CONTRIBUTION............... 25 ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER......... 25 6.1 PERFORMANCE OF UNDERTAKINGS................... 25 6.2 REPRESENTATIONS AND WARRANTIES................ 25 6.3 CONSENTS...................................... 25 6.4 HART-SCOTT-RODINO............................. 25 6.5 NO MATERIAL ADVERSE CHANGE.................... 26 6.6 DOCUMENTS TO BE DELIVERED TO BUYER............ 26 6.7 SUITS......................................... 27 6.8 OFFICERS AND KEY EMPLOYEES.................... 27 ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATION OF SELLERS........ 27 7.1 PERFORMANCE OF UNDERTAKINGS................... 27 7.2 REPRESENTATIONS AND WARRANTIES................ 27 7.3 CONSENTS...................................... 27 7.4 HART-SCOTT-RODINO............................. 27 7.5 DOCUMENTS TO BE DELIVERED TO SELLERS.......... 28 7.6 SUITS......................................... 28 7.7 INSURANCE ARRANGEMENTS........................ 28 7.8 ASSIGNMENT OF PERSONAL PROPERTY............... 29 ARTICLE 8 ii. 4 CLOSING................................................ 29 ARTICLE 9 SURVIVAL............................................... 29 ARTICLE 10 REMEDIES............................................... 29 10.1 GENERAL........................................ 29 10.2 NO WAIVER...................................... 30 ARTICLE 11 MISCELLANEOUS.......................................... 30 11.1 ASSIGNMENT..................................... 30 11.2 EXPENSES....................................... 30 11.3 NOTICE......................................... 30 11.4 CAPTIONS....................................... 32 11.5 COOPERATION.................................... 32 11.6 SCHEDULES AND EXHIBITS......................... 32 11.7 COUNTERPARTS................................... 32 11.8 PUBLICITY...................................... 32 11.9 APPLICABLE LAW................................. 32 11.11 SEVERABILITY................................... 33 11.12 ENTIRE AGREEMENT............................... 33 Schedules 1.1 2.2(a) 2.7 2.11 2.18 2.22 4.6 2.1(a) 2.2(b) 2.8 2.15 2.19 2.23 6.8 2.1(b) 2.3 2.10 2.16 2.20 2.24 7.7 2.1(c) 2.4 2.12 2.17 2.21 2.25 7.8 2.1(d) 2.6
Exhibits 1.2(d) 6.6(c) -- Intentionally omitted 7.5(c) -- Intentionally omitted iii. 5 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement ("Agreement"), dated February 6, 1998, by and among Michael R. Levy ("Levy"), Dow Jones & Company, Inc. ("Dow Jones"), and Gregory Curtis ("Curtis") (each a "Seller", and collectively "Sellers"), and Emmis Broadcasting Corporation, an Indiana corporation ("Buyer"). W I T N E S S E T H: WHEREAS, Sellers own all of the issued and outstanding shares of stock of Mediatex Communications Corporation, a Texas corporation ("MCC"); and WHEREAS, MCC, through its wholly owned subsidiary, Texas Monthly, Inc., a Texas corporation ("TMI"), is engaged in the business of publishing the periodical Texas Monthly (the "Magazine") and operating related and ancillary activities, including without limitation, producing and maintaining WWW Ranch, a web site, all of which utilize intellectual property owned by TMI; is engaged through its Publishing Partnership Division in the custom publishing business; and is engaged through its Mediatex National Sales Division in national sales activities for Texas Monthly and other publications (all such activities collectively being hereinafter referred to as the "Business"); and WHEREAS, Buyer desires to acquire, and Sellers desire to sell to Buyer, all of the issued and outstanding shares of common stock, par value $.10 per share, of MCC (the "Shares"); NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements hereinafter contained, the parties hereto covenant and agree as follows: ARTICLE 1 PURCHASE AND SALE OF SHARES 1.1 PURCHASE AND SALE OF SHARES. On the terms and subject to the conditions set forth in this Agreement, on the Closing Date (as defined in Article 8 hereof) each Seller will sell, assign, transfer and deliver to Buyer, free and clear of all liens, pledges and encumbrances of any kind, nature and description, and Buyer will purchase and accept from such Seller, the Shares owned by such Seller as set forth on Schedule 1.1, and each Seller will deliver to Buyer certificates for such Shares. Each such certificate shall be duly endorsed, or accompanied by a duly executed stock power, for transfer to Buyer. 1.2 PURCHASE PRICE. (a) The purchase price (the "Purchase Price") for the Shares shall equal the sum of (i) $37,000,000.00 less the unpaid principal and accrued and unpaid interest as of the Closing Date on any interest-bearing debt for borrowed money (the "Closing Date Debt") of any Company (as hereinafter defined) including, but not limited to, the unpaid principal 6 and accrued and unpaid interest as of the Closing Date under the loans (the "Bank Loan") payable by TMI and MCC to NationsBank of Texas, N.A., as confirmed in writing at Closing by such bank (such difference hereinafter referred to as the "Initial Purchase Price"), subject to adjustment as provided in Section 1.2(b)(iii) (as adjusted, the "Adjusted Initial Purchase Price") and subject to further adjustment as provided in Section 1.2(b)(iv) (as further adjusted, the "Adjusted Final Purchase Price"). (b) The Purchase Price shall be paid as follows: (i) The Adjusted Initial Purchase Price shall be paid at Closing (as hereinafter defined) in immediately available funds by wire transfer to such bank accounts as shall be designated by Sellers, respectively, by notice to Buyer. Three business days prior to the Closing Date, Sellers shall provide Buyer with a reasonably detailed calculation of the estimated Closing Date Debt as of the Closing Date. (ii) All payments of the Purchase Price will be paid to Sellers (and any rebate of the Purchase Price pursuant to Section 1.2(b)(iv) shall be paid by Sellers) in proportion to their ownership of Shares as follows:
Percentage Number of Share Shareholder of Shares Ownership ----------- --------- ----------- Michael R. Levy 89,966 67.5948% Dow Jones & Company, Inc. 41,689 31.3225% Gregory Curtis 1,441 1.0827% ------- -------- 133,096 100%
(iii) The Initial Purchase Price shall be subject to adjustment as provided in this Subsection (iii). Three business days prior to the Closing Date, Sellers shall provide Buyer with a reasonably detailed statement (the "Preliminary Working Capital Report") setting forth Sellers' reasonable and good faith estimate of the Closing Date Current Assets, the Closing Date Current Liabilities, and the Closing Date Working Capital. The Adjusted Initial Purchase Price payable on the Closing Date shall be the Initial Purchase Price reduced by the Closing Date Working Capital Deficit, if any, or increased by the Closing Date Working Capital Surplus, if any, as shown on the Preliminary Working Capital Report. As used in this Agreement, the following terms shall have the meanings indicated: (A) "Closing Date Accounts Receivable" shall mean all accounts receivable of the Companies (as hereinafter defined) as of the close of business immediately prior to the Closing Date that have arisen from operation of the Business in the ordinary course consistent with past practices. 2 7 (B) "Closing Date Current Assets" shall mean the sum, as of the close of business immediately prior to the Closing Date, of (i) the Closing Date Accounts Receivable, plus (ii) the prepaid expenses and future issue costs of the Companies, plus (iii) cash on hand, plus (iv) circulation materials and other inventories, all as determined in accordance with generally accepted accounting principles applied on a basis consistent with prior years as reflected in the Audited Financial Statements (as defined in Section 2.5) ("GAAP"). (C) "Closing Date Current Liabilities" shall mean all trade payables and other items that would be included as current liabilities on a balance sheet of any of the Companies as of the close of business immediately prior to the Closing Date prepared in accordance with GAAP, excluding, however, (1) one-half of bonuses payable to senior management of MCC and TMI, up to a maximum exclusion of $45,000.00, and the payroll taxes relating to the excluded amount of such bonuses, (2) one-half of MCC's legal fees incurred in connection with the transactions contemplated by this Agreement up to a maximum exclusion of $15,000.00, (3) all Closing Date Debt, and (4) any unearned subscription revenue and related accrued expenses arising in the ordinary course of the Business consistent with past practices ("Subscription Liabilities"). (D) "Closing Date Working Capital" shall mean the algebraic difference of (i) the Closing Date Current Assets, minus (ii) the Closing Date Current Liabilities. (E) "Closing Date Working Capital Deficit" shall mean the amount, if any, by which the Closing Date Working Capital is less than $2,743,125. (F) "Closing Date Working Capital Surplus" shall mean the amount, if any, by which the Closing Date Working Capital is greater than $2,893,125. (G) Furthermore, "Closing Date Current Assets" shall not include the $2,182,010 in cash (the "Capital Contribution") which Levy contributed to MCC immediately prior to the Closing, such amount being calculated to equal the Companies obligations to pay cash to employees (the "Plan Payments") (but not the payroll taxes relating to such Plan Payments) pursuant to (i) the MCC Key Employee Success Sharing Plan, (ii) the MCC Management Success Sharing Plan, and (iii) the MCC Key Executive Employee Equity Participation Plan (together, the "Plans"). Also, "Closing Date Current Liabilities" shall not include the Plan Payments to the extent, and only to the extent, the Plan Payments do not exceed the Capital Contribution. In addition, "Closing Date Current Liabilities" shall not include the payroll taxes relating to the Plan Payments. (iv) The Purchase Price shall be subject to adjustment as follows: (A) Within sixty (60) days after the Closing Date, Buyer shall deliver to Sellers a reasonably detailed statement setting forth Buyer's determination (consistent with Exhibit 1.2(d)) of the Closing Date Current Assets, Closing Date Current Liabilities, Closing Date Working Capital, Closing Date Debt, and Closing Date Working Capital 3 8 Surplus or Closing Date Working Capital Deficit (herein sometimes collectively referred to as the "Closing Date Balance Sheet Amounts") and the Adjusted Final Purchase Price, which shall be final and binding on the parties for purposes of determining the Purchase Price unless within twenty-one days after receiving Buyer's statement, any Seller objects to such determination by giving Buyer written notice setting forth his or its determination (consistent with Exhibit 1.2(d)) of such Closing Date Balance Sheet Amounts, the Adjusted Final Purchase Price and the basis for his or its determination. In the event of such an objection and the failure of the parties within fifteen (15) days thereafter to reach agreement on the Adjusted Final Purchase Price, then Buyer may select any office in the United States of KPMG Peat Marwick LLP (the "Arbitrating Accounting Firm") which shall make the final determination (consistent with Exhibit 1.2(d)) of the Closing Date Balance Sheet Amounts and the Adjusted Final Purchase Price. The determination of the Adjusted Final Purchase Price by the Arbitrating Accounting Firm shall be final and binding upon the parties for purposes of determining the Purchase Price. The fees of the Arbitrating Accounting Firm shall be paid (1) by Buyer if the objecting Seller's calculation of the Adjusted Final Purchase Price is closer to the Arbitrating Accounting Firm's determination, (2) by the objecting Seller or Sellers if Buyer's calculation of the Adjusted Final Purchase Price is closer to the Arbitrating Accounting Firm's determination, and (3) otherwise 50% by the objecting Seller or Sellers and 50% by Buyer. In the event the Adjusted Final Purchase Price as finally determined under this Section 1.2(b)(iv)(A) exceeds the Adjusted Initial Purchase Price as set forth in the Preliminary Working Capital Report, the Purchase Price shall be increased by the amount of such excess. In the event the Adjusted Final Purchase Price as finally determined under this Section 1.2(b)(iv)(A) is less than the Adjusted Initial Purchase Price as set forth in the Preliminary Working Capital Report, the Purchase Price shall be reduced by the amount of such decrease. (B) If the adjustments under this Subsection (iv) result in a net reduction of the Purchase Price, Sellers shall rebate to Buyer a portion of the Purchase Price equal to such reduction. If the adjustments under this Subsection (iv) result in a net increase of the Purchase Price, Buyer shall pay to Sellers an amount equal to such increase. Any payment due under this Subsection (iv) shall be made not later than five (5) business days after the final determination of the Closing Date Working Capital and the Closing Date Debt pursuant to this Subsection (iv). Payment shall be made by wire transfer to the bank account designated by the recipient of such payment. The Purchase Price after such adjustments shall be the Adjusted Final Purchase Price. (C) Sellers and Buyer agree to cooperate as reasonably requested by the Arbitrating Accounting Firm in the determination of the Closing Date Working Capital and the Closing Date Debt. (c) Seventy-Four Thousand Dollars ($74,000.00) of the Purchase Price shall be allocated to the noncompetition covenants in Section 4.2 (prorata among the Sellers pursuant to the percentages set forth in Section 1.2(b)(ii)), and the balance of the portion of the Purchase Price shall be allocated to the Shares. Sellers and Buyer shall use such allocations for all reporting purposes in connection with federal, state and local income 4 9 taxes. Any adjustment provided in this Agreement to the Purchase Price shall be deemed an adjustment to the portion of the Purchase Price allocated to the Shares. (d) An example of the calculation of the Adjusted Final Purchase Price is attached as Exhibit 1.2(d). (e) Notwithstanding anything contained herein to the contrary, the parties agree and acknowledge that the Adjusted Initial Purchase Price, Adjusted Final Purchase Price, and the calculations of the Purchase Price (and the components thereof), have been and shall be calculated as of 11:59 P.M. on January 31, 1998 (the "Determination Time") for all purposes under the Agreement. Furthermore, each of the Sellers represents and warrants that (i) the principal amount of the Closing Date Debt as of the Determination Time is the same as the amount as of the Closing Date, and (ii) the Companies have only incurred liabilities since the Determination Time in the ordinary course of business consistent with past practices. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLERS Each Seller hereby represents and warrants to Buyer, as of the date hereof, as follows: 2.1 ORGANIZATION AND STANDING; BUSINESS CONDUCTED. (a) MCC is a corporation duly organized, validly existing and in good standing under the laws of Texas, has full corporate power and authority to carry on its business as and where now conducted and to own, operate and lease its properties in the places where such properties are now owned, operated or leased by it, which jurisdictions are set forth on Schedule 2.1(a), and is duly qualified, licensed or otherwise authorized to do business and is in good standing in each jurisdiction, domestic and foreign, in which the nature of the business conducted by such corporation or the property owned, leased or operated by it makes such qualification, licensing or other authorization necessary, except where the failure to be so qualified, licensed or authorized would not have a material adverse effect on the assets, operations, financial condition, results of operations or business of MCC and the Subsidiaries (as defined below) taken as a whole (a "Material Adverse Effect"), which jurisdictions are set forth on Schedule 2.1(a). (b) Except as set forth on Schedule 2.1(b), MCC has no subsidiaries or any investments in any incorporated or unincorporated entities, other than TMI and Mediatex Development Corporation (together, the "Subsidiaries"). Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas, has full corporate power and authority to carry on its business as and where now conducted and to own, operate and lease its properties in the places where such properties are now owned, operated or leased by it, which jurisdictions are set forth on Schedule 2.1(b), and is duly qualified, licensed or otherwise authorized to do business and is in good 5 10 standing in each jurisdiction, domestic and foreign, in which the nature of the business conducted by such corporation or the property owned, leased or operated by it makes such qualification, licensing or other authorization necessary, except where the failure to be so qualified, licensed or authorized would not have a Material Adverse Effect, which jurisdictions are set forth on Schedule 2.1(b). (c) Except as set forth on Schedule 2.1(c), the business of MCC and the Subsidiaries has been and is limited to the operation of the Business, activities directly related thereto, and incidental activities that are not material individually or in the aggregate. (d) Accurate and complete copies of articles of incorporation and by-laws (or their equivalent), including all amendments thereto and restatements thereof, corporate minutes and the stock record book of MCC and of each Subsidiary have been delivered to Buyer. Except as set forth on Schedule 2.1(d), all corporate action of the type which is customarily recorded in the minutes of proceedings of the directors and shareholders of a corporation which has previously been taken by shareholders of MCC and of each Subsidiary, by the Board of Directors of MCC and of each Subsidiary or by any committee of any such Board is properly and accurately recorded in all material respects in the corporate minutes of MCC or the Subsidiary, as the case may be. Complete and accurate records with respect to the issuance, transfer, redemption and cancellation of shares of capital stock of MCC and each Subsidiary are contained in their respective stock record books. 2.2 CAPITALIZATION. (a) The authorized capital stock of MCC consists of 1,000,000 shares of common stock, par value $.10 per share, of which one hundred thirty-three thousand ninety-six (133,096) shares are issued and outstanding. All of the Shares are duly authorized, validly issued, fully paid and non-assessable and have not been issued in violation of preemptive or other rights or in violation of applicable securities laws. The authorized capital stock and number of shares of such stock outstanding of each Subsidiary is set forth on Schedule 2.2(a). All such outstanding shares of each Subsidiary are duly authorized, validly issued, fully paid and non-assessable and have not been issued in violation of preemptive or other rights or in violation of applicable securities laws. (b) Except as set forth on Schedule 2.2(b), neither MCC nor any Subsidiary has any options, warrants or other rights outstanding for the purchase of, or has any outstanding securities convertible into, any equity security of such corporation. Neither MCC nor any Subsidiary has agreed to issue, purchase, sell or transfer any of its securities. 2.3 OWNERSHIP OF SHARES. Such Seller owns and at the Closing will own of record and beneficially all of his or its Shares specified on Schedule 1.1, and transfer at Closing will vest in the Buyer good title to the Shares of such Seller free and clear of any 6 11 pledge, lien, claim, encumbrance, option or agreement, rights of dower or community property subject to Buyer-created liens and resale restrictions under securities laws. Except as set forth on Schedule 2.3, all outstanding shares of each Subsidiary are owned beneficially and of record solely by MCC free and clear of any pledge, lien, claim, encumbrance, option or agreement, rights of dower or community property, subject to Buyer-created liens and resale restrictions under securities laws. 2.4 AUTHORITY. (a) This Agreement constitutes a valid and binding agreement of such Seller, enforceable against him or it in accordance with its terms. Except for violations, breaches and defaults for which waivers have been obtained and which are set forth on Schedule 2.4, neither the execution, delivery nor consummation of this Agreement by such Seller will, with the passage of time, the giving of notice or otherwise, result in a violation or breach of, or constitute a default under, any term or provision of any material indenture, mortgage, deed of trust, lease, franchise, license, permit, instrument, order, judgment, decree, statute, rule, regulation, ordinance, law, contract, agreement or any other restriction to which MCC or any Subsidiary (each a "Company", and together the "Companies") or such Seller is a party or to which any of the Companies' or such Seller's assets are subject or bound; nor will it result in the creation or imposition of any lien, mortgage, pledge, security interest, encumbrance, claim or other charge of any kind ("Lien") upon any of the assets of any Company or such Seller; nor will it result in any lawful acceleration or termination of any loan agreement or other evidence of indebtedness, security agreement or industrial revenue bond document to which any Company or such Seller is a party or to which any Company's assets or the assets of such Seller are subject. (b) Except tor those approvals or consents that will have been obtained by such Seller and the Companies prior to Closing or which are set forth on Schedule 2.4, no approval or consent of any person, firm or other entity or body, including any federal, state, local or foreign government department or agency, is required to be obtained by any Company or such Seller for the authorization of this Agreement or the consummation by such Seller of the transactions herein contemplated (the "Transactions"), except for approvals or consents under Contracts (as hereinafter defined) that are not material to the Business. 2.5 FINANCIAL STATEMENTS. Sellers have provided or caused to be provided to Buyer the Audited Consolidated Financial Statements of the Companies, certified by KPMG Peat Marwick LLP, independent public accountants, consisting of (i) consolidated balance sheets of the Companies as at July 31, 1997, 1996 and 1995 and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended (collectively, the "Audited Financial Statements"), and the Unaudited Consolidated Financial Statements of the Companies consisting of a consolidated balance sheet of the Companies as at December 31, 1997 ("Current Date") and the related consolidated statements of income, stockholders' equity and cash flows for the five (5) months then 7 12 ended (collectively, the "Unaudited Financial Statements," and together with the Audited Financial Statements, the "Financial Statements"). The Financial Statements have been prepared in accordance with GAAP and fairly present in all material respects the financial position of the Companies as of those dates and the results of its operations and changes in its financial position for the fiscal year or period then ended, except that the Unaudited Financial Statements do not include changes in stockholders' equity or footnotes and are subject to normal year end adjustments which in the aggregate are not material. The Financial Statements include all adjustments required for a fair presentation, except that the Unaudited Financial Statements do not include changes in stockholders' equity or footnotes and are subject to normal year end adjustments which in the aggregate are not material. The Companies make and keep books, records and accounts that in reasonable detail accurately and fairly reflect the transactions, acquisitions and dispositions of the assets of the Companies in all material respects. 2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Each of the Companies has no debt, liability or obligation, secured or unsecured (whether absolute, accrued, contingent, or otherwise, and whether due or to become due), including, but not limited to, liabilities or obligations of a nature required by GAAP to be reflected in a corporate balance sheet or disclosed in the notes thereto, except (i) liabilities which are fully accrued or fully reserved against in the Financial Statements, (ii) Subscription Liabilities incurred after the Current Date, (iii) current liabilities incurred in the ordinary course of the Business or in connection with this Agreement or the Transactions, all of which will be satisfied in full prior to Closing or included (except to the extent otherwise specifically provided in this Agreement) as Closing Date Current Liabilities, (iv) the Bank Loan, (v) the Companies' obligations (other than for breach) under the Contracts (as hereinafter defined), (vi) liabilities disclosed on Schedule 2.6, and (vii) any other liability if, and only if, the liability does not constitute a breach of any representation or warranty in this Article 2 that is qualified by materiality but would constitute a breach thereof if the representation and warranty were not qualified by materiality. 2.7 ABSENCE OF CERTAIN CHANGES. Since the Current Date except as set forth on Schedule 2.7, the Companies have actively conducted their businesses in the ordinary and regular course and maintained their records and books of account in reasonable detail which accurately and fairly reflect the transactions of the Companies in all material respects. Since the Current Date, there has not been, except as disclosed on Schedule 2.7: (a) Any material adverse change in the nature of the business, the results of operations, the assets, the financial condition, or the manner of conducting the Business, other than changes in the ordinary course of business, none of which has had or may reasonably be expected to have a Material Adverse Effect; (b) Any material damage, destruction or casualty loss (whether or not covered by insurance) adversely affecting the business, the results of operations, the assets or the 8 13 financial condition of any Company or its ability to carry on its operations substantially as presently conducted; (c) Any declaration, setting aside or payment of dividends or other distributions in respect of the Shares; (d) Any entering into of any employment agreement, or any increase in the compensation payable, or to become payable, by the Companies to any of their respective officers, employees or agents over the rates payable at the Current Date, except for increases in the ordinary course of business in the compensation payable to employees who are paid on any hourly basis; (e) Any issuance of securities of any Company, including options, warrants or other agreements evidencing or requiring such issuance; (f) Any entering into, amendment or termination of, default by the Companies or, to the best of the knowledge of such Seller, default by any other party under, any material contract, agreement or license to which any Company is a party; (g) Any material labor dispute or collective labor negotiation involving any Company; (h) Any discharge or satisfaction of any lien, encumbrance, obligation or liability (accrued, absolute, fixed or contingent) of any Company except in the ordinary course of business or under the Bank Loan; (i) Incurrence by any Company of any material obligation or liability (accrued, absolute, fixed or contingent) except current liabilities incurred, and obligations entered into, in the ordinary course of business and consistent with prior practice; (j) Institution of any severance, retirement, bonus, stock option, profit sharing, pension plan or similar agreement or material changes made in any such existing plans of any Company, other than severance or bonus arrangements with employees of any Company entered into in the ordinary course of business consistent with past practices; (k) Any capital expenditure, or any commitment for a capital expenditure entered into by any Company which was not outstanding as of the Current Date, involving an amount of more than Twenty-Five Thousand Dollars ($25,000) in any one instance or an aggregate of more than One Hundred Thousand Dollars ($100,000); (l) Announcement or initiation of any general increase in compensation, bonus, insurance or employee benefits involving employees of any Company; or (m) Any amendment to the articles of incorporation or bylaws of any Company. 9 14 2.8 TITLE TO ASSETS AND RELATED MATTERS. Except for any lien for current taxes not yet due or as disclosed on Schedule 2.8, one of the Companies owns, free and clear of any liens, claims, charges, options, leases or other encumbrances or security interests (purchase money or otherwise), (i) all of the personal property reflected in the Unaudited Financial Statements as owned, and (ii) all personal property acquired since the Current Date, other than personal property which has been disposed of in the ordinary course of business (it being understood that a disposition to any person of any asset, other than inventory in the ordinary course of business, carried on the Companies' books at more than Twenty-Five Thousand Dollars ($25,000) shall be deemed to be a disposition other than in the ordinary course of business). All personal property used by the Companies in the operation of the Business is either owned by one of the Companies or leased under an agreement reflected on a Schedule hereto. All such owned or leased personal property is of sufficient quantity and type necessary to conduct the Business in all material respects in the manner which it has been and is now operated, and all such material personal property is in good operating condition and repair, ordinary wear and tear excepted. 2.9 CIRCULATION. MCC has provided or caused to be provided to Buyer (i) the audited circulation reports (the "White Sheets") of the Audit Bureau of Circulations ("ABC") with respect to the Magazine for the twelve months ended December 31, 1996 and December 31, 1995, respectively; and (ii) the unaudited publisher's circulation statement (the "Pink Sheet") published by ABC with respect to the Magazine for the six months ended June 30, 1997. Such White Sheets and Pink Sheet fairly present the information shown thereon in all material respects. The average paid circulation of the Magazine for the six months ended June 30, 1997 was not less than ninety-eight percent (98%) of the amount set forth in such Pink Sheet. 2.10 TAX. (a) Except as set forth on Schedule 2.10, each Company has filed on a timely basis all federal, state, local and foreign tax and duty returns and reports of every nature required to be filed by it, which returns and reports are true, correct and complete, and has paid all such taxes and duties shown as due on such returns. Except as disclosed on Schedule 2.10, no Company has received any notice that it is delinquent in the payment of any tax or estimated tax payments, and has not required any extension of time within which to file any tax return which has not since been filed. Except as set forth on Schedule 2.10, no notices respecting asserted or assessed deficiencies for any tax have been received by any Company. The income tax returns of the Companies have never been audited by the Internal Revenue Service or the comparable agency of a foreign country, state, or municipality, and except as set forth on Schedule 2.10, no investigation of any Company by any tax agency or authority is presently pending or to the knowledge of such Seller threatened, and none of the Companies is a party to any action or proceeding by any governmental authority for the assessment or collection of taxes, nor has any such event been asserted or to the knowledge of such Seller threatened. No Company has filed any consent of the type described under Section 341(f) of the Internal Revenue Code of 1986, as amended, and applicable regulations promulgated thereunder (the "Code"), or made 10 15 any election or deemed election pursuant to Section 338 of the Code. Neither such Seller nor any Company has extended or waived any statute of limitation with respect to any tax. (b) Provision for taxes has been adequately accrued on the Financial Statements and on the books of the Companies for all periods as to which no returns are due. (c) For purposes of this Agreement, the term "tax" or "taxes" means all income, gross receipts, sales, use, ad valorem, franchise, profits, license, withholding, payroll, employment, excise, stamp, premium, property, customs duties, fees, assessments, foreign income and withholding taxes or other charges of any kind whatsoever, together with any interest and any penalties, additions to tax or other additional amounts imposed by any taxing authority, domestic or foreign. 2.11 EMPLOYEES. (a) Schedule 2.11 sets forth a true and complete list of (i) the names, titles, salaries, currently accrued and unused vacation (including both the number of days and dollar value), bonus arrangements and all other compensation of all employees, consultants or independent contractors employed or retained by any Company, and (ii) the termination pay or other severance benefits, if any, payable to each such employee upon termination of employment. The Contracts furnished to Buyer include true and complete copies of all such written agreements, and Buyer has been furnished a written summary of the terms of employment or retention for each employee, consultant or independent contractor who is not employed or retained under a written agreement. (b) There is no collective bargaining agreement applicable to any employees of any Company, and to the best of such Seller's knowledge, there is no organizational effort currently being made or threatened by or on behalf of any labor union with respect to employees of any Company. There are no unfair labor charges pending against any Company, and no Company has experienced any significant labor difficulties within the preceding 24 months. 2.12 RELATIONSHIP WITH AFFILIATES. (a) Such Seller (other than Dow Jones) does not possess, directly or indirectly, any financial interest in, and is not a director, officer or employee of, any corporation, partnership or other entity which is a supplier, customer or competitor of any Company. (b) Except as set forth on Schedule 2.12, there are no arrangements between any Company and such Seller or an affiliate of such Seller pursuant to which goods or services are provided to or by any Company other than the services provided by Levy and Curtis as employees of the Companies. 2.13 BROKERAGE AND FINDERS' FEES. No Company or such Seller, nor any officer, director, employee or agent of any Company or such Seller, has incurred on behalf of any 11 16 Company or such Seller any liability to any broker, finder or agent for any brokerage fees, finders' fees or commissions with respect to the Transactions, except that MCC has retained The Jordan, Edmiston Group, Inc. (the "Broker") to act as broker and advisor to the Companies and Sellers in connection with the Transactions. The Broker's fee shall be paid by Sellers at Closing and, accordingly, will not be a Closing Date Current Liability. 2.14 JUDGMENTS. No Company is a party to or subject to any judgment, order or decree entered in any action or proceeding brought by any federal, state, municipal, foreign or other governmental department or agency or any other party against a Company enjoining it in respect of, or the effect of which is to limit, restrict, regulate or prohibit, any business practice or the conduct of business in any area or the acquisition of any property. 2.15 LITIGATION. Except as set forth on Schedule 2.15, there are no claims, actions, suits, demands or other proceedings or investigations, either administrative or judicial, pending or, to such Seller's knowledge, threatened against any Company or with respect to the Business or the Transactions. No Company is charged with or, to such Seller's knowledge, threatened with, a material charge or violation, or is under investigation with respect to a possible material violation, of any material provision of any federal, state, local or foreign law, statute, ordinance, administrative ruling, rule or regulation relating to any aspect of the Business. Schedule 2.15 also sets forth, with respect to the matters listed therein, those matters which are fully or partially covered by insurance, and the amount, if any, of the claim not so covered. 2.16 COMPLIANCE WITH LAWS. Except as set forth on Schedule 2.16, no Company is in violation of or in default under: (i) any judgment, order or decree of any court, or (ii) to such Seller's knowledge, any law, statute, ordinance, rule or regulation of any federal, state, local or foreign government or any department or agency of any of the foregoing (including, without limitation, the Foreign Corrupt Practices Act and laws, regulations, orders and restrictions applicable to zoning, pension, welfare or employee benefit plans, wages and hours, equal employment, labor relations and occupational health and safety), nor has it received any notice of noncompliance, or of any investigation or review for possible violation of the foregoing which would have a Material Adverse Effect. Except as set forth in Schedule 2.16, there is no basis for any such action which would have a Material Adverse Effect. 2.17 POWERS OF ATTORNEY. Except as set forth on Schedule 2.17 or contained in the Contracts, no Company has any powers of attorney outstanding. 2.18 LICENSES AND RIGHTS. Except as set forth on Schedule 2.18, the Companies possess all material franchises, licenses, permits and other authorizations from federal, state, local, foreign and other governmental or regulatory authorities that are necessary to permit the Companies to operate or otherwise transact the Business at all locations and places where they have operated or otherwise transacted business on or since the Current Date or are presently operating or otherwise transacting business, and no Company is in violation in any material respect of any of the same. As to any such permit, license or 12 17 authorization that is about to expire, a Company, as appropriate, has filed for renewal of the same in a timely and proper manner. Such franchises, licenses, permits and other authorizations are listed on Schedule 2.18. 2.19 CONTRACTS. Schedule 2.19 is a true and complete list of all written and all material oral contracts, understandings, commitments, arrangements and agreements (including all amendments thereto), unperformed in whole or in part, to which any Company is a party (the "Contracts"), including but not limited to: (a) Contracts for the employment or compensation of any director, officer, employee, registered representative or agent of any Company; (b) Contracts relating to equipment purchases or construction; (c) Collective bargaining agreements, bonus, incentive, pension, profit sharing, hospitalization, life insurance, sickness and accident insurance, deferred compensation, retirement, stock option or stock purchase plans or similar plans providing employee benefits; (d) Conditional sales contracts, leases of real or personal property and contracts for the purchase or sale of real or personal property; (e) Any contract or agreement for the furnishing of services or products by any Company, except individual contracts made in the ordinary course of business with scheduled payments of less than Twenty-Five Thousand Dollars ($25,000) in the aggregate; (f) Contracts containing covenants limiting the freedom of any Company to compete in any line of business or with any person, (g) Any partnership or joint venture agreement or arrangement or any other agreement involving a sharing of profits; (h) Any lease of real or personal property; (i) Any contract or agreement for the purchase of any materials, finished products, supplies or services except individual purchase orders made in the ordinary course of business with scheduled payments of less than Twenty-Five Thousand Dollars ($25,000) in the aggregate; (j) Any instrument or arrangement evidencing or securing indebtedness for money borrowed or to be borrowed, whether directly or indirectly, by way of purchase money obligation, guaranty, conditional sale, lease-purchase or otherwise, or any contracts encumbering title to any properties, real or personal; and 13 18 (k) Distribution and sales representative agreements. MCC has provided to Buyer a true and complete copy of each material written Contract, and a true and complete written description of each material oral Contract. 2.20 NO DEFAULTS. Except as set forth on Schedule 2.20, no material breach or default under any Contract or any default (or event which with the passage of time or the giving of notice or both would become a material default or breach) exists in the performance of any obligation of any Company under the terms of any Contract, and the consummation of the Transactions will not result in such a breach or default nor result in the creation or imposition of any Lien upon the Shares or any assets of any Company. 2.21 INTELLECTUAL PROPERTY. (a) As used herein, "Intellectual Property" means all trade names, trademarks, service marks, copyrights, patents, inventions, jingles, slogans, symbols, logos and any other proprietary material, process, trade secret or trade right used in the operation of the Business or otherwise owned or held by any Company, and all registrations, applications and licenses for any of the foregoing. (b) Schedule 2.21 lists all Intellectual Property applied for, owned, used or licensed (either as licensor or licensee) in connection with the operation of the Business. Except as disclosed on Schedule 2.21: (i) One of the Companies owns, free and clear of conflicting claims or restrictions and without infringement on the rights of others, all right and interest in, and right and authority to use in connection with the conduct of the Business as presently conducted, all of the Intellectual Property listed on Schedule 2.21 that is material to the conduct of the Business, and the rights under all such Intellectual Property are in full force and effect. (ii) There are no outstanding or, to the knowledge of such Seller, threatened judicial or adversary proceedings to which any Company is a party with respect to any of the Intellectual Property listed on Schedule 2.21. (iii) No person or entity has been granted any license or other right or interest in or to any of the Intellectual Property listed on Schedule 2.21 or to the use thereof. (iv) Such Seller has no knowledge of any infringement or unlawful use of any of the Intellectual Property listed on Schedule 2.21. (v) MCC has delivered to Buyer copies of all state and federal registrations and other material documents, if any, establishing any of the rights and properties constituting a part of the Intellectual Property. 14 19 2.22 INSURANCE POLICIES. Schedule 2.22 lists the policies of theft, fire, liability, workers' compensation and other forms of insurance held by any Company, including the names of the insurers, the coverage limits and the amount of the deductible. Schedule 2.22 also describes any self insurance programs of any Company in effect. MCC has furnished to Buyer true and complete copies of all such policies and descriptions of such self insurance programs. Neither such Seller nor any Company has knowledge of any threat by any insurance carriers to terminate any of the insurance policies now held by any Company or materially increase any premiums in respect thereof, nor has any Company failed to comply with any conditions contained in any of such policies that would adversely affect any Company's rights under any such policies. 2.23 NO CONFLICT. Except as set forth on Schedule 2.23, neither such Seller nor, to the knowledge of such Seller, any officer or director of any Company has any interest in any property, real or personal, tangible or intangible, including inventions, patents, copyrights, trademarks or trade names, used in or pertaining to the Business. 2.24 ENVIRONMENTAL MATTERS. No environmental permits or licenses of any Company are necessary to conduct its business as presently conducted or as conducted during the last three (3) years. Except as set forth on Schedule 2.24, no Company has delivered any reports to any federal, state, local and foreign environmental agencies for the past five (5) years regarding environmental matters. No Company has received any notice of environmental violations or has conducted, or currently operates, surface impoundments, incinerators, Iandfills, tanks, waste piles or deep well injection systems for the treatment, storage or disposal of hazardous or solid wastes. Except as disclosed on Schedule 2.24, no Company has transported any hazardous wastes, or entered into a contract or agreement, or otherwise arranged, for the transportation of any such hazardous waste, for disposal or treatment at an off-site treatment, storage or disposal facility. Neither such Seller nor any Company is aware of any pending or threatened litigation by governmental agencies or citizens groups concerning any alleged violation of environmental laws or regulations by any Company. There are no claims or potential claims resulting from any requirements, liabilities or claims, to remedy or cleanup or resulting from the placement or discharge from any Company's facilities of hazardous waste, solid wastes, wastewater or process water, whether required by a statute, order or regulation of a governmental agency or a private claim. 2.25 EMPLOYEE PLANS. Except for the plans and arrangements listed and described on Schedule 2.25 (individually a "Benefit Plan" and collectively the "Benefit Plans"), no Company or any other member of the Controlled Group (as defined below), maintains, sponsors or has an obligation or liability with respect to any "employee benefit plan," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, and the applicable regulations promulgated thereunder ("ERISA"), or any incentive, bonus or severance plan or arrangement, employment contract, collective bargaining agreement, deferred compensation, stock purchase or incentive agreement or arrangement, or other employee benefit plan or arrangement. For purposes of this 15 20 Section 2.25, "Controlled Group" shall mean the Companies and any trade or business, whether or not incorporated, which is currently treated together with the Companies under Section 4001(b)(1) of ERISA or Sections 414(b), (c), (m) or (o) of the Code. With respect to each Benefit Plans listed on Schedule 2.25, true and complete copies of which have been provided to Buyer, except as set forth on Schedule 2.25: (a) There are no actions, suits or claims pending (other than routine claims for benefits) or, to such Seller's knowledge, threatened against the Benefit Plans, the assets of the Benefit Plans, any fiduciary of the Benefit Plans, or any Company. (b) The Benefit Plans, the fiduciaries and administrators of the Benefit Plans, and the Controlled Group have at all times been in substantial compliance with applicable requirements of ERISA, the Code, and any other applicable law governing the Benefit Plans, and the Benefit Plans have at all times been administered substantially in accordance with all such requirements of law and in accordance with their respective terms to the extent consistent with all such requirements of law. (c) No Benefit Plan is a "multiemployer plan" as described in Section 3(37) of ERISA or Section 414(f) of the Code, or is subject to Title IV of ERISA, or Part 3 of Subtitle B of Title 1 of ERISA. (d) No trust associated with any of the Benefit Plans has earned any "unrelated business taxable income" (as, such term is defined in Section 512 of the Code and the regulations thereunder) or "unrelated debt financed income" (as such term is defined in Section 514 of the Code and regulations thereunder). (e) If any of the Benefit Plans is an "employee welfare benefit plan" as defined in Section 3(1) of ERISA, (i) there is no trust associated with any such Benefit Plan, (ii) any such Benefit Plan does not provide for non-terminable or non-alterable medical benefits for employees, dependents or retirees, and (iii) any such Benefit Plan does not provide any benefits for any person upon or following retirement or termination of employment except as otherwise required by Part 6 of Subtitle B of Title I of ERISA or Section 4980B of the Code (herein collectively referred to as "COBRA"), and then only to the extent the person pays for such benefit. (f) Except as required by law or under the terms of the Benefit Plans, no events or changes have occurred or are reasonably expected to occur with respect to any of the Benefit Plans that would cause a material increase in the cost of providing benefits under such Benefit Plan. (g) Full payment has been made of all amounts which any Company is required, under applicable law or under the Benefit Plans, to have paid as a contribution or a benefit for the plan years of each of the Benefit Plans that ended prior to the date hereof. All contributions required to be made to and all other liability of any Company under the Benefit Plans for the periods covered by the Financial Statements have been set forth on 16 21 the appropriate Financial Statement in accordance with GAAP. Benefits under the Benefit Plans are as provided in the documents governing the Benefit Plans and, except as required by law or in accordance with the terms of the Benefit Plans, have not been increased subsequent to the date as of which such documents have been provided. (h) The consummation of the Transactions will not (i) entitle any current or former employee or officer of any Company to severance pay, unemployment compensation or any other payment, (ii) accelerate the time of payment or vesting under any of the Benefit Plans, (iii) increase the amount of compensation due any such employee or officer, (iv) cause any Company to transfer or set aside any assets to fund or otherwise provide for the benefits under any of the Benefit Plans for any current or former employee, officer or director, or (v) result in any non-exempt prohibited transaction described in ERISA Section 406 or Code Section 4975. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Sellers as follows: 3.1 ORGANIZATION; QUALIFICATION. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Indiana, has full corporate power and authority to carry on its business as and where now conducted and to own, operate and lease its properties at and in the places where such properties are now owned, operated or leased by it, and is duly qualified, licensed or otherwise authorized to do business and is in good standing in each jurisdiction, domestic and foreign, in which the nature of the business conducted by it or the property owned, leased or operated by it makes such qualification, licensing or other authorization necessary. 3.2 AUTHORITY OF BUYER. (a) The execution and delivery of this Agreement by Buyer and the due consummation of the Transactions will have been duly authorized by all necessary corporate action as of the Closing Date, and this Agreement constitutes a valid and binding agreement of Buyer enforceable against it in accordance with its terms. The execution of this Agreement by Buyer is not contrary to the articles of incorporation or bylaws of Buyer. Neither the execution, delivery nor consummation of this Agreement by Buyer will, with the passage of time, the giving of notice or otherwise, result in a violation or breach of, or constitute a default under, any term or provision of any indenture, mortgage, deed of trust, lease, franchise, license, permit, instrument, order, judgment, decree, statute, rule, regulation, ordinance, law, contract, agreement or any other restriction to which Buyer is a party or to which Buyer or any of its assets are subject or bound, nor will it result in the creation or imposition of any Lien upon any of its assets nor will it result in an acceleration or termination of any loan agreement or other evidence of indebtedness, security agreement or industrial revenue bond document to which Buyer is a party or to which any of its assets are subject. 17 22 (b) At the Closing Date, no further corporate action will be necessary on the part of Buyer to make this Agreement valid and binding upon Buyer. No other approval or consent of any person, firm or other entity or body is required to be obtained by Buyer for the authorization of this Agreement or the consummation by Buyer of the Transactions. 3.3 INVESTMENT PURPOSE. The Shares are being acquired for investment and not with a view toward the resale or distribution thereof. Buyer understands that the Shares may not be sold or transferred unless subsequently registered under the Securities Act of 1933, as amended (the "Securities Act"), and any applicable state securities laws, or unless exemptions from registration under such laws are available. Buyer represents and warrants that the Companies have made available to Buyer the opportunity to ask questions and to receive answers concerning the Companies, the Shares and to otherwise conduct the due diligence it sought to conduct in connection with an investment decision to purchase the Shares. 3.4 BROKERAGE AND FINDERS' FEE. Buyer has not incurred any liability to any Broker, finder or agent for any brokerage fees, finders' fees or commissions with respect to the Transactions. ARTICLE 4 COVENANTS 4.1 CONFIDENTIALITY. All information delivered to Buyer or otherwise disclosed in writing as confidential by any Seller (or its or his representatives) before or after the date hereof, in connection with the Transactions, shall be kept confidential by Buyer, the other Sellers, and its or his representatives and shall not be used other than as contemplated by this Agreement, except to the extent that such information (i) was otherwise publicly available or known by the recipient when received, (ii) is or hereafter becomes lawfully obtainable from third parties not related to Buyer, the other Sellers, or its or his affiliates, (iii) is required by law or the rules of any stock exchange to be disclosed or (iv) to the extent such duty as to confidentiality is waived in writing by or on behalf of the party from whom the information is obtained. 4.2 NONCOMPETITION. (a) Each Seller severally agrees that during the three-year period (in the case of Levy) or the one-year period (in the case of Dow Jones and Curtis) from and after the Closing Date, such Seller shall not, whether as an owner, shareholder, partner, employee, consultant, advisor, independent contractor or otherwise, directly or indirectly (except as an employee of any Company) engage in the business of producing, publishing, distributing or selling a regional or city magazine the content of which is generally centered on Texas or a city or other area or location within Texas. The parties acknowledge and agree that this provision does not apply to any of any Seller's other publications (whether print or on-line), in their current formats, existing as of the date hereof, even if such existing 18 23 publications carry articles or publish issues from time to time pertaining to events of interest covered in the Magazine. (b) Each Seller severally acknowledges that the restrictions in the foregoing Subsection (a) are reasonable in scope and duration and necessary to protect, and to enable Buyer as the owner of the Business to receive the anticipated benefits of, the goodwill of the Business. (c) The restrictions under foregoing Subsection (a) shall be severable and constitute a separate covenant with respect to each type of business. Each Seller agrees that if in any judicial proceeding a court shall refuse to enforce any of the separate covenants under foregoing Subsection (a), then such unenforceable covenant shall be deemed eliminated from the provisions of this Agreement for the purposes of such proceeding to the extent necessary to permit the remaining separate covenants to be enforced in such proceeding. (d) For a period of two years after the Closing Date, each Seller severally agrees to hold in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law or the rules of any stock exchange, all confidential documents and information concerning Buyer or the Business, provided that the restrictions in this Subsection shall not preclude the enforcement of any such Seller's rights under this Agreement. (e) Each Seller severally acknowledges that Buyer and the Companies will be irreparably harmed in the event of a breach or threatened breach by any of them of the restrictions under this Section, that there would be no adequate relief at law or in damages to compensate Buyer or the Companies for any such breach, and that Buyer or the Companies shall be entitled to injunctive relief requiring specific performance of this Section by such Seller in addition to any other remedy that may be available at law or in equity. (f) Each Seller severally acknowledges and agrees that the restrictions in this Section shall be for the benefit of Buyer, the Companies and their respective successors and assigns, and shall be enforceable by Buyer, the Companies and their respective successors and assigns. 4.3 [INTENTIONALLY OMITTED.] 4.4 TERMINATION OF SHAREHOLDER AGREEMENTS. Sellers shall terminate or cause to be terminated the following agreements and shall release and waive any and all claims thereunder, effective upon the Closing: (i) the Shareholders' Agreement dated October 7, 1987 among MCC, Levy, Curtis and Dow Jones, as amended by the Amendment to Shareholders' Agreement dated March 29, 1996 and (ii) the Stock Restriction Agreement dated October 7, 1987 among Curtis, Levy, MCC and Dow Jones. 19 24 4.5 MAINTENANCE OF INSURANCE. For a period of at least four (4) years following the Closing, Buyer will cause MCC and TMI and their respective successors and assigns to maintain liability insurance coverage including coverage for libel and slander in such amounts and with such terms and provisions as are reasonably prudent and generally customary for companies engaged in the same business as MCC and TMI provided; however; that in no event shall the amount of such coverage be less than thirty million and no/100 dollars $30,000,000.00 per occurrence and thirty million and no/100 dollars $30,000,000.00 in the aggregate. During such period, Buyer shall include Sellers as additional insureds under such insurance and provide to Sellers evidence of such insurance as Sellers or any of them may reasonably request. 4.6 BONUSES. Buyer shall cause the Companies promptly after Closing to pay bonuses in the amounts and to the employees specified on Schedule 4.6. The parties agree that all of such bonuses shall constitute current liabilities of the Companies as of the close of business immediately prior to Closing but that a portion of such bonuses equal to the lesser of (i) $45,000.00 or (ii) one-half of the full amount of such bonuses, shall be excluded from Closing Date Current Liabilities. ARTICLE 5 INDEMNIFICATION 5.1 INDEMNIFICATION BY BUYER. Buyer agrees promptly to indemnify and save Sellers harmless from and against all costs, demands, expenses, losses, claims, damages and liabilities, including without limitation reasonable attorney's fees, arising out of, relating to or resulting from: (a) Any inaccuracy in any representation or the breach of any warranty made by Buyer in or pursuant to this Agreement or in any Closing document delivered to Sellers pursuant to this Agreement or in any other document which this Agreement recites as having been delivered by Buyer to Sellers, or (b) Any failure by Buyer duly to perform or observe any term, provision, covenant or agreement in this Agreement on the part of Buyer to be performed or observed prior to or after the Closing, or (c) Any liability or claim arising out of the conduct of the Business after the Closing Date. Buyer shall not be obligated to indemnify Sellers unless and until the aggregate amount of such indemnification exceeds $500,000.00, in which case Sellers shall then be entitled to indemnification of the entire amount of such indemnification (i.e., from the first dollar), provided that any payment owed by Buyer to Sellers under Section 1.2 shall not be 20 25 counted in determining whether such $500,000.00 limitation is satisfied, and Sellers shall have the right to recover any such payment without regard to any such limitation. 5.2 INDEMNIFICATION BY SELLERS. (a) Subject to Section 5.2(b), Sellers, jointly and severally, agree promptly to indemnify and hold harmless Buyer and, after Closing, Companies from and against all costs, demands, expenses, losses, claims, damages and liabilities, including without limitation reasonable attorney fees (collectively, "Buyer's Losses"), arising out of, relating to or resulting from: (i) Any inaccuracy in any representation or the breach of any warranty made by any Seller in or pursuant to this Agreement, any Schedule hereto or document attached to such Schedule or in any Closing document, or (ii) Any failure by any Seller duly to perform or observe any term, provision, covenant, agreement or condition in this Agreement on the part of such Seller to be performed or observed prior to or after the Closing, or (iii) The Stanley Lawsuit (as defined in Schedule 2.15) or the article published in the Magazine which is the subject of the Stanley Lawsuit, to the extent any Buyer's Losses arising out of, relating to or resulting from the Stanley Lawsuit or such article are not recoverable by the Companies under insurance policies maintained by the Companies prior to closing. (b) Indemnification under Sections 5.2(a) is subject to the following limitations: (i) No Seller shall be obligated to indemnify Buyer unless and until Buyer's Losses exceed $500,000.00, in which case Buyer shall then be entitled to indemnification of the entire amount of Buyer's Losses (i.e., from the first dollar), provided that any amount owed by any Seller to Buyer under Sections 1.2 and 5.2(a)(iii) and Buyer's Losses from a breach of Section 2.1(a), 2.2, 2.3 or 2.10 shall not be counted in determining whether such limitation is satisfied, and Buyer shall have the right to recover any such payment without regard to any such limitation. (ii) The aggregate amount of all payments required to be made by any Seller in satisfaction of claims for indemnification pursuant to Section 5.2(a) shall not exceed such Seller's portion of the Purchase Price as set forth in Section 1.2(b)(ii). (iii) With respect to any Buyer's Loss, Buyer shall not be entitled to recover from either Levy or Dow Jones in excess of such Seller's Pro Rata Share (as defined below) of the Buyer's Loss until Buyer has obtained a judgment against the other (the "Other Seller") for such Buyer's Loss and such judgment remains undischarged, in whole or in part, for thirty (30) days after the day it is entered, in which case Buyer shall, subject to the limitations set forth in the foregoing Subsection (b)(ii), be entitled to recover the full 21 26 amount of the Buyer's Loss without regard to the limitation in this Subsection (b)(iii); provided that (A) the limitation in this Subsection (b)(iii) shall not apply if the Other Seller is subject to voluntary or involuntary bankruptcy or insolvency proceedings, has sold substantially all of its or his assets, or has died or otherwise ceased to exist, and (B) any appeal from a judgment against the Other Seller shall not abate or otherwise impair Buyer's right to collect the entire amount of the Buyer's Loss without regard to the limitation in this Subsection (b)(iii) subsequent to the thirtieth (30th) day after the entry of such judgment. "Pro Rata Share" with respect to either Dow Jones or Levy shall mean a fraction having a numerator equal to the ownership percentage specified in Section 1.2(b) for such Seller and a denominator equal to 98.9173%. (iv) Notwithstanding anything contained herein to the contrary, no Seller shall be liable for any Buyer's Loss resulting from or relating to the breach of any other Seller's representations and warranties under Section 2.3 or any other Seller's covenants under Sections 4.1 and 4.2. 5.3 INDEMNITY PROCEDURE. (a) Any party (an "Indemnified Party") seeking indemnification hereunder from any other party hereto (an "Indemnifying Party") shall notify the Indemnifying Party of any claim to be asserted under Section 5.1 or 5.2 against the Indemnifying Party within thirty (30) days after the Indemnified Party receives notice of or otherwise has actual knowledge of such claim ("Adverse Claim"), and shall provide to the Indemnifying Party as soon as practicable thereafter all information and documentation necessary to support and verify the Adverse Claim being asserted, and the Indemnifying Party shall be given access to all books and records in the possession or control of the Indemnified Party which the Indemnifying Party reasonably determines to be related to such Adverse Claim. (b) Promptly after receipt by an Indemnified Party of notice of the commencement by any third party of any action, suit or proceeding which might result in the Indemnifying Party becoming obligated to indemnify or make any other payment to the Indemnified Party under this Agreement, the Indemnified Party shall notify the Indemnifying Party forthwith in writing of the commencement thereof. The failure of the Indemnified Party to so notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability which it may have on account of this indemnification or otherwise, except to the extent that the Indemnifying Party is materially prejudiced thereby. The Indemnifying Party shall have the right, within thirty (30) days after being so notified, to assume the defense of such litigation or proceeding with counsel reasonably satisfactory to the Indemnified Party in good faith and at the Indemnifying Party's own expense; provided that unless and until the Indemnifying Party shall assume such defense pursuant to this sentence, the Indemnified Party shall have the right to conduct and control the defense of such litigation and proceeding (including the settlement thereof) without the Indemnifying Party's consent and shall be entitled to payment from the Indemnifying Party of all reasonable costs of such defense (including attorney's fees and expenses). If it is determined that the Indemnified Party is not entitled to indemnification from the Indemnifying Party, then the 22 27 amount of the costs of such defense advanced by the Indemnifying Party shall be reimbursed by the Indemnified Party. In any such litigation or proceeding the defense of which the Indemnifying Party shall have so assumed, the Indemnified Party shall have the right to participate therein and retain its own counsel at its own expense, unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of the same counsel or (ii) the named parties to any such litigation or proceeding (including impleaded parties) include both the Indemnifying Party and the Indemnified Party, and representation of such parties by the same counsel would be inappropriate due to actual or potential differing interests between them; in either such case, such separate counsel may be retained by the Indemnified Party at the expense of the Indemnifying Party. The Indemnifying Party may elect to settle any claim, action or proceeding defended by it without the written consent of the Indemnified Party provided that such settlement is limited to payment of monetary damages which are payable in full by the Indemnifying Party and the Indemnified Party is fully discharged at the time of the settlement from any liability with respect to the claim, action or proceeding. The Indemnifying Party may not enter into any settlement that is not limited to payment of monetary damages without the Indemnified Party's prior written consent which will not be unreasonably withheld. Each Seller and Buyer severally covenant to use all reasonable efforts to cooperate fully with respect to the defense of any claim, action or proceeding covered by this Section 5.3. (c) The parties acknowledge and agree that (i) the Stanley Lawsuit constitutes an Adverse Claim with respect to which Buyer is deemed to have given Sellers notice and related information and documentation in accordance with Section 5.3(a), and (ii) the Sellers as the Indemnifying Party shall have the right to assume the defense of the Stanley Lawsuit in accordance with Section 5.3(b). Notwithstanding anything herein to the contrary, it is agreed that (i) the Stanley Lawsuit shall not be settled by Buyer without the consent of Sellers if the resulting settlement will exceed amounts that are recoverable by the Companies under insurance policies maintained by the Companies prior to Closing and (ii) Buyer shall not seek to change existing legal counsel handling the Stanley Lawsuit without the consent of Sellers, which consent (under either (i) or (ii)) shall not be unreasonably withheld. Furthermore, it is expressly agreed that if the Sellers assume the defense of the Stanley Lawsuit, Buyer will cause MCC to cooperate fully so that the cost of the defense of such lawsuit (including attorneys' fees and expenses) can continue to be borne by the Companies in accordance with the terms of the insurance policies maintained by the Companies prior to the Closing, and shall only be borne by the Sellers after all insurance available to the Companies for the payment of such costs is exhausted. 5.4 MEASURE OF DAMAGES. The measure of damages to be awarded to any Indemnified Party shall be the amount which would be required to place such Indemnified Party in the position in which it or he would have been had the event resulting in such indemnification not occurred, taking into account receipt of insurance proceeds, related indemnity payments from unaffiliated third parties and related tax benefits, if any. 5.5 WAIVER OF RIGHT TO CONTRIBUTION. Sellers hereby waive, effective as of the Closing Date, any rights which Sellers may have against any Company in connection with 23 28 any contribution or indemnification for payments made after the Closing pursuant to this Agreement or otherwise. ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER The obligation of Buyer to consummate the purchase of the Shares is subject to the satisfaction of the following conditions at or prior to the Closing Date, unless waived in writing by Buyer: 6.1 PERFORMANCE OF UNDERTAKINGS. Each of the acts and undertakings to be performed by Sellers on or before the Closing Date pursuant to this Agreement shall have been duly performed. 6.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Sellers contained in this Agreement or in any Schedule or Exhibit hereto or any certificate delivered to Buyer that are qualified by materiality shall be true, and all such representations and warranties that are not qualified by materiality shall be true in all material respects, on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, regardless of the date as of which the information in this Agreement or any such Schedule, Exhibit or certificate is given, except for changes permitted under the terms of this Agreement or consented to in writing by Buyer. 6.3 CONSENTS. All necessary approvals or consents shall have been obtained from any and all federal, state, local and foreign governmental departments and agencies and all other commissions, boards, agencies and from any other person, firm or entity whose approval or consent is necessary to the consummation of the Transactions. 6.4 HART-SCOTT-RODINO. Any waiting periods applicable to the Transactions under applicable U.S. and foreign antitrust or trade regulation laws and regulations, including, without limitation, under the Hart-Scott-Rodino Act ("HSR"), shall have expired or been terminated. 6.5 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change in the Business, or the results of operations, assets or financial condition of any Company between the Current Date and the Closing Date, other than changes affecting the magazine publishing industry generally. 6.6 DOCUMENTS TO BE DELIVERED TO BUYER. Buyer shall have received all of the following documents, satisfactory in form in the reasonable discretion of Buyer and its counsel: 24 29 (a) Certificates representing all of the Shares, with stock powers covering the Shares endorsed in blank and in proper form for transfer, with all requisite stock transfer tax stamps, if any, affixed to such certificates; (b) The written resignations of all officers and directors of each Company or documentation reasonably satisfactory to Buyer as to the removal, consistent with law, of any non-resigning officer or director; (c) The opinion of each of Levy's counsel, Dow Jones' counsel and MCC's counsel, each dated the Closing Date, to the effect set forth in Exhibit 6.6(c); (d) Governmental certificates, dated as of a date as near as practicable to the Closing Date, showing that each Company is duly incorporated and in good standing in the State of Texas and that MCC is qualified to do business and in good standing in each jurisdiction listed on Schedule 2.1(a); (e) A certificate of the Secretary (or Assistant Secretary) of each Company attesting as to the Articles of Incorporation and Bylaws of such Company; (f) The stock certificates representing all of the outstanding capital stock of the Subsidiaries issued in the name of MCC; (g) The corporate minute books of each Company, including true and complete copies of the Articles of Incorporation, the Bylaws and the minutes of all meetings of directors and shareholders and written consents reflecting all actions taken by the directors or shareholders without a meeting from the date of incorporation to the Closing Date; and (h) Such additional information and materials as Buyer shall have reasonably requested to evidence the satisfaction of Sellers' obligations hereunder. 6.7 SUITS. No suit, action or other proceeding shall be threatened or pending before any court or governmental agency in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the Transactions. 6.8 OFFICERS AND KEY EMPLOYEES. Buyer shall have entered into an employment, consulting agreement or other arrangement with Levy and each of the officers and key employees identified on Schedule 6.8 containing terms and conditions acceptable to Buyer and Sellers including, without limitation, (a) the length of such arrangement, (b) duties and responsibilities intended, (c) positions, title and reporting responsibilities and (d) base compensation, benefits and other compensation arrangements. 6.9 BANK LOAN. Buyer shall have received assurances satisfactory to Buyer that immediately upon payment in full of the Bank Loan, all liens securing the Bank Loan, including, without limitation, the pledge of the shares of TMI, shall be released in full. 25 30 ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATION OF SELLERS The obligations of Sellers to sell the Shares is subject to satisfaction of the following conditions at or prior to the Closing Date, unless waived by each Seller: 7.1 PERFORMANCE OF UNDERTAKINGS. Each of the acts and undertakings to be performed by Buyer on or before the Closing Date pursuant to this Agreement shall have been duly performed. 7.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Buyer contained in this Agreement or in any certificate delivered to Sellers shall be true in all material respects on and as of the Closing Date, with the same effect as though such representations and warranties had been made on and as of such date, except for changes permitted under the terms of this Agreement or consented to in writing by Sellers. 7.3 CONSENTS. All necessary approvals, consents and releases shall have been obtained from any and all federal, state, local and foreign governmental departments and agencies and from all other commissions, boards, agencies and from any other person, firm or entity whose approval, consent or release is necessary to the consummation of the transactions contemplated by this Agreement. 7.4 HART-SCOTT-RODINO. Any waiting periods applicable to the Transactions under applicable U.S. and foreign antitrust or trade regulation laws and regulations, including, without limitation, under the HSR, shall have expired or been terminated. 7.5 DOCUMENTS TO BE DELIVERED TO SELLERS. Sellers shall have received the following documents or confirmation of actions by Buyer, satisfactory in form and substance in the reasonable discretion of each Seller and its or his counsel: (a) Payment of the Adjusted Initial Purchase Price; (b) Copies of resolutions adopted by the Board of Directors of Buyer, certified by its Secretary or an Assistant Secretary, authorizing the execution, delivery and performance of this Agreement; (c) The opinion of Buyer's counsel, dated the Closing Date, to the effect set forth in Exhibit 7.5(c); and (d) Such additional information and materials as Seller shall have reasonably requested to evidence satisfaction of Buyer's obligations hereunder. 7.6 SUITS. No suit, action or other proceeding shall be threatened or pending before any court or governmental agency in which it is sought to restrain or prohibit or to 26 31 obtain damages or other relief in connection with this Agreement or the consummation of the Transactions. 7.7 INSURANCE ARRANGEMENTS. (a) Levy and Buyer shall have entered into an agreement that provides for (i) the release by MCC of any right to receive reimbursement for premium payments made by MCC under the existing split-dollar life insurance arrangement with Levy described on Schedule 7.7, and (ii) the release by Levy of any obligation of MCC to make any further premium payments for such insurance. (b) Curtis and Buyer shall have entered into an agreement that provides for (i) the release by MCC of any right to receive reimbursement for premium payments made by MCC under the existing split-dollar life insurance arrangement with Curtis described on Schedule 7.7, and (ii) the release by Curtis of any obligation of MCC to make any further premium payments for such insurance. (c) Trustee of the Levy Children's Family Trusts ("Trustee") and Buyer shall have entered into an agreement that provides for (i) the release by MCC of any right to receive reimbursement for premium payments made by MCC under the existing split-dollar life insurance arrangement with Trustee described on Schedule 7.7, and (ii) the release by Trustee of any obligation of MCC to make any further premium payments for such insurance. 7.8 ASSIGNMENT OF PERSONAL PROPERTY. Title to the assets set forth on Schedule 7.8 shall have been transferred to the respective Sellers as set forth on such Schedule 7.8. 7.9 OFFICERS AND KEY EMPLOYEES. The condition set forth on Schedule 6.8 shall have been satisfied. ARTICLE 8 CLOSING The closing of the Transactions (the "Closing") shall take place at the offices of Bose McKinney & Evans, 2700 First Indiana Plaza, 135 North Pennsylvania Street, Indianapolis, Indiana 46204 on the date hereof. ARTICLE 9 SURVIVAL All representations, warranties, covenants and agreements contained in this Agreement or in any other Closing document shall survive the Closing regardless of any investigation, inquiry or knowledge on the part of any party hereto, and the Closing shall 27 32 not constitute a waiver by any party of any breach thereof by any other party; provided, however, that the period of survival shall (i) in the case of the representations and warranties in Sections 2.1(a), 2.2, 2.3, 2.10 and Article 3, continue for the applicable statute of limitation, (ii) in the case of all other representations and warranties, end eighteen (18) months after the Closing Date, (iii) in the case of the indemnification covenant under Section 5.1 or 5.2 for breach of any representation or warranty, continue for the same period as the representation or warranty, (iv) in the case of the covenants under Section 4.2, continue for the period specified in such Section, (v) in the case of the indemnification obligation under Section 5.2(a)(iii), continue indefinitely, and (vi) in the case of all other covenants and agreements, continue for the applicable statute of limitation (in each case, the "Survival Period"). No claim may be brought under this Agreement or any other document unless written notice of the claim is given on or prior to the last day of the applicable Survival Period. In the event notice of a bona fide claim existing at the time such notice is so given, the right to indemnification with respect to the claim as set forth in Article 5 shall survive the applicable Survival Period until the claim is finally resolved and any obligations with respect to the claim are fully satisfied. ARTICLE 10 REMEDIES 10.1 GENERAL. All rights, remedies or powers hereby conferred shall, to the extent not prohibited by law, be deemed cumulative and not exclusive of any other thereof, or of any other rights, remedies or powers available. No single or partial exercise of any right, remedy or power by a party shall preclude further exercise thereof. 10.2 NO WAIVER. No delay or omission to exercise any right, power or remedy accruing to a party upon the occurrence of any breach of any warranty, covenant or agreement contained in this Agreement shall impair any such right, power or remedy or be construed to be a waiver of any such breach or any acquiescence therein or to any similar breach thereafter occurring. No waiver of any single breach shall be deemed to be a waiver of any thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of a party of any breach or any waiver of any provision or condition of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. ARTICLE 11 MISCELLANEOUS 11.1 ASSIGNMENT. All covenants, agreements, representations and warranties of the parties contained herein shall be binding upon and inure to the benefit of Buyer and its successors and assigns and Sellers and their respective successors, assigns, estates and personal representatives and the Companies and their successors and assigns. This Agreement may not be assigned by any party without the prior written consent of the other parties, except that (i) Buyer may assign its rights or delegate its duties hereunder to any direct or indirect wholly-owned subsidiary of Buyer, and (ii) any party may assign its rights 28 33 under this Agreement as collateral security to any lender providing financing to the party or any of its affiliates; provided that in the case of any assignment, the assignor shall remain liable for performance of his or its indemnity and other obligations under this Agreement. 11.2 EXPENSES. Buyer and each Seller will bear all of his or its own respective expenses, and MCC will bear its expenses, including but not limited to counsel and accountants' fees, in connection with this Agreement and the Transactions. Any such expenses of MCC that are not paid in full as of the Closing shall constitute current liabilities of the Companies as of January 31, 1998, but the lesser of (i) $15,000 or (ii) one-half (1/2) of such expenses shall be excluded as Closing Date Current Liabilities. 11.3 NOTICE. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when (i) personally delivered, (ii) delivered by courier (including overnight delivery service) or (iii) deposited in the United States mail, certified or registered, return receipt requested, postage prepaid, in each case addressed to the parties or their permitted assignees, at the following addresses (or at such other address as to which notice shall be given in writing by either party to the other) as follows: (a) To Buyer: Emmis Broadcasting Corporation 950 North Meridian Street, Suite 1200 Indianapolis, Indiana 46204 Attention: Jeffrey H. Smulyan, Chairman Copy to: Bose McKinney & Evans 2700 First Indiana Plaza Indianapolis, Indiana 46204 Attention: David L. Wills, Esq. (b) To Sellers: (i) Levy: Michael R. Levy Post Office Box 146 Austin, Texas 78767 29 34 Copy to: W. Amon Burton, Jr., Esq. 1306 Guadalupe Austin, Texas 78701 (ii) Dow Jones: Dow Jones & Company, Inc. 200 Liberty Street New York, New York 10281 Attention: Mr. Kevin Roche, Chief Financial Officer Copy to: Patterson, Belknap, Webb & Tyler LLP 1133 Avenue of the Americas New York, New York 10036-6710 Attention: John P. Schmitt, Esq. (iii) Curtis: Gregory Curtis 3602 River Road Austin, Texas 78703 Copy to: Akin, Gump, Strauss, Hauer & Feld, LLP 1900 Frost Bank Plaza 816 Congress Avenue Austin, Texas 78701 Attention: Brandon C. Janes 11.4 CAPTIONS. Captions and Section headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing it. 11.5 COOPERATION. The parties agree to cooperate in the effectuation of the Transactions and to execute any and all additional documents or to take such additional action as shall be reasonably necessary or appropriate for such purpose. 11.6 SCHEDULES AND EXHIBITS. All references to Schedules and Exhibits herein shall include Schedules and Exhibits hereto or certified by and delivered by the applicable parties prior to the execution and delivery of this Agreement whether or not attached 30 35 hereto. All Schedules, certificates and documents delivered pursuant to the terms of this Agreement are made a part hereof. 11.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 11.8 PUBLICITY. No party shall issue or cause the publication of any press release or other public announcement with respect to the transactions contemplated by this Agreement without the consent of each of the other parties (which consent shall not be unreasonably withheld) except as may be required by law, rule or regulation, court process or any listing agreement with any national securities exchange. 11.9 APPLICABLE LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Texas without regard to its principles of conflicts of laws. 11.10 CONSENT TO JURISDICTION. EACH PARTY HERETO (I) AGREES THAT THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF INDIANA OR, IF JURISDICTION OF THAT COURT IS NOT AVAILABLE, THE STATE COURTS OF THE STATE OF INDIANA, SHALL HAVE EXCLUSIVE JURISDICTION OF ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND ANY ACTION FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF; (II) AGREES TO SUBMIT GENERALLY AND UNCONDITIONALLY TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF INDIANA OR, IF JURISDICTION OF THAT COURT IS NOT AVAILABLE, TO THE EXCLUSIVE JURISDICTION OF THE STATE COURTS OF THE STATE OF INDIANA, FOR THE PURPOSE OF ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND ANY ACTION FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF; (III) IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING IN ANY MANNER PERMITTED BY THE RULES APPLICABLE TO SUCH COURT, INCLUDING SERVICE OF PROCESS BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE ADDRESS FOR SUCH PARTY NOTED HEREIN; AND (IV) IRREVOCABLY WAIVES ANY OBJECTION WHICH SUCH PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM; PROVIDED THAT (A) A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING THAT IS NOT FURTHER APPEALABLE SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT, AND (B) ANY ACTION FOR SPECIFIC PERFORMANCE OF OTHER INJUNCTIVE OR 31 36 EQUITABLE RELIEF MAY BE BROUGHT IN ANY OTHER COURT HAVING PERSONAL JURISDICTION OVER THE DEFENDANT. 11.11 SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against its regulatory policy, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 11.12 ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits hereto) constitutes the entire agreement between the parties hereto with respect to the subject hereof, and no amendment, alteration or modification of this Agreement shall be valid unless in each instance such amendment, alteration or modification is expressed in a written instrument duly executed in the name of the party or parties making such amendment, alteration or modification. There are no oral agreements between or among the parties hereto. 32 37 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. BUYER: EMMIS BROADCASTING CORPORATION By:______________________________________________ Howard L. Schrott, Executive Vice President, Chief Financial Officer and Treasurer SELLERS: __________________________________________________ MICHAEL R. LEVY DOW JONES & COMPANY, INC. By:_______________________________________________ Printed:__________________________________________ Title:____________________________________________ __________________________________________________ GREGORY CURTIS _________________________________________________ TRACY CURTIS (wife of Gregory Curtis) 33 EX-10.15 5 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.15 ASSET PURCHASE AGREEMENT BY AND BETWEEN EMMIS BROADCASTING CORPORATION AND WABASH VALLEY BROADCASTING CORPORATION * * * MARCH 20, 1998 2 TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS 1 "Accounts Receivable" 1 "Affiliate" 1 "Assets" 1 "Assumed Contracts" 1 "Closing" 2 "Closing Date" 2 "Consents" 2 "Contracts" 2 "Early Termination Event" 2 "Escrow Agent" 2 "Escrow Agreement" 2 "Excluded Assets" 2 "FCC" 2 "FCC Consent" 2 "FCC Licenses" 2 "Final Deposit" 2 "GAAP" 2 "Initial Deposit" 3 "Intangibles" 3 "Licenses" 3 "Material Adverse Effect" 3 "Non-FCC Licenses" 3 "Permitted Liens" 3 "Purchase Price" 3 "Real Property" 3 "Tangible Personal Property" 3 SECTION 2. PURCHASE AND SALE OF ASSETS 4 2.1 Agreement to Sell and Buy 4 2.2 Excluded Assets 4 2.3 Purchase Price 5 2.4 Payment of Purchase Price 6 2.5 Assumption of Liabilities and Obligations 6 SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER 7 3.1 Organization, Standing, and Authority 7 3.2 Authorization and Binding Obligation 7 3.3 Absence of Conflicting Agreements 7
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Page 3.4 Title to and Condition of Real Property 8 3.5 Title to and Condition of Tangible Personal Property 8 3.6 Assumed Contracts 9 3.7 Consents 9 3.8 Intangibles 10 3.9 Insurance 10 3.10 Reports 10 3.11 Personnel 10 3.12 Taxes 11 3.13 Claims and Legal Actions 11 3.14 Environmental Matters 11 3.15 Compliance with Laws 12 3.16 Conduct of Business in Ordinary Course 12 3.17 Transactions with Affiliates 12 3.18 Broker 12 3.19 Governmental Licenses 12 3.20 Acquired Assets 13 SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER 13 4.1 Organization, Standing, and Authority 13 4.2 Authorization and Binding Obligation 13 4.3 Absence of Conflicting Agreements 14 4.4 Broker 14 4.5 Buyer Qualifications 14 4.6 Financing 14 SECTION 5. OPERATIONS OF THE STATIONS PRIOR TO CLOSING 14 5.1 Generally 14 5.2 Compensation 15 5.3 Contracts 15 5.4 Disposition of Assets 15 5.5 Encumbrances 15 5.6 Access to Information 15 5.7 Maintenance of Assets 15 5.8 Insurance 16 5.9 Consents 16 5.10 Books and Records 16 5.11 Notification 16 5.12 Compliance with Laws 16 5.13 Collection of Accounts Receivable 16 5.14 Cure 16
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Page 5.15 Licenses 16 5.16 Audited Financial Statements 17 5.17 Schedules 17 SECTION 6. SPECIAL COVENANTS AND AGREEMENTS 17 6.1 HSR Act 17 6.2 Control of the Stations 17 6.3 Risk of Loss 17 6.4 Confidentiality 18 6.5 Cooperation 18 6.6 Access to Books and Records 18 6.7 Appraisal 18 6.8 Employment Matters 18 6.9 Accounts Receivable 19 6.10 FCC Consent 20 6.11 Buyer Conduct 20 6.12 Noncompetition Agreement 20 SECTION 7. CONDITIONS TO OBLIGATIONS OF BUYER AND SELLER AT CLOSING 21 7.1 Conditions to Obligations of Buyer 21 7.2 Conditions to Obligations of Seller 24 SECTION 8. CLOSING AND CLOSING DELIVERIES 24 8.1 Closing 24 8.2 Deliveries by Seller 25 8.3 Deliveries by Buyer 25 SECTION 9.TERMINATION 26 9.1 Termination by Seller 26 9.2 Termination by Buyer 26 9.3 Rights on Termination 27 9.4 Escrow Deposit 28 SECTION 10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; CERTAIN REMEDIES 28 10.1 Representations, Warranties and Covenants 28 10.2 Indemnification by Seller 29 10.3 Indemnification by Buyer 29 10.4 Limitations 30 10.5 Procedure for Indemnification 30
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Page 10.6 Specific Performance 31 10.7 Attorneys' Fees 31 10.8 Indemnification Fund 31 10.9 Bulk Transfer 32 SECTION 11. MISCELLANEOUS 32 11.1 Fees and Expenses 32 11.2 Notices 32 11.3 Benefit and Binding Effect 33 11.4 Assignment 33 11.5 Further Assurances 33 11.6 Governing Law 33 11.7 Headings 33 11.8 Gender and Number 34 11.9 Entire Agreement 34 11.10 Waiver of Compliance; Consents 34 11.11 Press Release 34 11.12 Counterparts 34
- iv - 6 LIST OF SCHEDULES Schedule 3.3 -- Consents Schedule 3.4 -- Real Property Schedule 3.5 -- Tangible Personal Property Schedule 3.6(a) -- Contracts Schedule 3.6(b) -- Trade Agreements Schedule 3.8 -- Intangibles Schedule 3.9 -- Insurance Schedule 3.11 -- Employee Matters Schedule 3.13 -- Litigation Schedule 3.17 -- Transactions with Affiliates Schedule 3.19 -- FCC Licenses Schedule 4.3 -- Buyer Consents Schedule 6.12 -- Noncompetition Agreement Schedule 10.8 -- Indemnification Escrow Agreement
- v - 7 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT is dated as of the 20th day of March, 1998, between Emmis Broadcasting Corporation, an Indiana corporation ("Buyer"), and Wabash Valley Broadcasting Corporation, an Indiana corporation ("Seller"). R E C I T A L S A. Seller is the licensee of radio and television stations WTHI (AM), WTHI-FM and WTHI (TV), Terre Haute, Indiana, WWVR-FM, West Terre Haute, Indiana (FCC license assignment application pending), and WFTX (TV), Cape Coral, Florida (collectively, the "Stations") pursuant to authorizations issued by the Federal Communications Commission ("FCC"). B. Seller desires to sell, and Buyer desires to buy, certain assets that are used or useful in the business or operations of the Stations for the price and on the terms and conditions set forth in this Agreement. A G R E E M E N T S In consideration of the above recitals and of the mutual agreements and covenants contained in this Agreement, Buyer and Seller, intending to be bound legally, agree as follows: SECTION 1. DEFINITIONS The following terms, as used in this Agreement, shall have the meanings set forth in this Section: "Accounts Receivable" means all accounts receivable of Seller arising out of the operation of the Stations prior to the Closing Date. "Affiliate" means, with respect to any specified person or entity, another person or entity which, or a member of an immediate family which, directly or indirectly controls, is controlled by, or is under common control with, the specified person or entity. "Assets" means the assets to be sold, transferred, or otherwise conveyed to Buyer under this Agreement, as specified in Section 2.1. "Assumed Contracts" means (i) all Contracts listed in Schedule 3.6 that are designated as Contracts that are to be assumed by Buyer on and after the Closing Date, (ii) all Contracts that are not required to be listed on Schedule 3.6 by the express terms of Section 3.6, (iii) Contracts entered into by Seller after the date hereof pursuant to Section 5.3 and (iv) any Contracts entered into by Seller between the date of this Agreement and the Closing Date that Buyer agrees in writing to assume. 8 "Closing" means the consummation of the purchase and sale of the Assets pursuant to this Agreement in accordance with the provisions of Section 8. "Closing Date" means the date on which the Closing occurs, as determined pursuant to Section 8. "Consents" means the consents, permits, or approvals of government authorities and other third parties necessary to transfer the Assets to Buyer or otherwise to consummate the transactions contemplated by this Agreement. "Contracts" means all contracts, leases, non-governmental licenses, and other agreements (including leases for personal or real property and employment agreements), written or oral, (including any amendments and other modifications thereto) to which Seller is a party and which relate to or affect the Assets or the business or operations of the Stations, and (i) which are in effect on the date of this Agreement or (ii) which are entered into by Seller between the date of this Agreement and the Closing Date, but excluding any of the foregoing that are included in the Excluded Assets. "Early Termination Event" has the meaning set forth in Section 9.2. "Escrow Agent" means NBD Bank, N.A. "Escrow Agreement" means the Deposit Escrow Agreement, of even date herewith by and among Buyer, Seller and the Escrow Agent. "Excluded Assets" has the meaning set forth in Section 2.2. "FCC" means the Federal Communications Commission. "FCC Consent" means action by the FCC granting its consent to the assignment of the FCC Licenses to Buyer as contemplated by this Agreement, provided that such action has not been reversed, stayed, enjoined, set aside, annulled or suspended and with respect to which no timely petition for reconsideration or administrative or judicial appeal or sua sponte action of the FCC with comparable effect is pending. "FCC Licenses" means all Licenses issued by the FCC to Seller in connection with the business or operations of the Stations, including the right to use the call letters "WWVR", "WFTX" or "WTHI". "Final Deposit" has the meaning set forth in Section 9.4. "GAAP" means generally accepted accounting principles, as in effect from time to time, applied on a consistent basis. - 2 - 9 "Initial Deposit" has the meaning set forth in Section 9.4. "Intangibles" means all copyrights, trademarks, trade names, service marks, service names, licenses, patents, permits, jingles, proprietary information, technical information and data, machinery and equipment warranties, and other similar intangible property rights and interests (and any goodwill associated with any of the foregoing) applied for, issued to, or owned by Seller or under which Seller is licensed or franchised and which are used or useful in the business and operations of the Stations, together with any additions thereto between the date of this Agreement and the Closing Date, but excluding any of the foregoing that are included in the Excluded Assets. "Licenses" means all licenses, permits, and other authorizations issued to Seller by the FCC (including the right to use the call letters "WWVR" "WFTX" and "WTHI"), the Federal Aviation Administration, or any other federal, state, or local governmental authorities in connection with the conduct of the business or operations of the Stations, together with any additions thereto between the date of this Agreement and the Closing Date. "Material Adverse Effect" means a material adverse effect on the Assets taken as a whole or the businesses of the Stations, provided that the foregoing shall not include any material adverse effect arising out of (i) factors affecting the radio or television broadcasting industry generally, (ii) general national, regional or local economic conditions, (iii) governmental or legislative laws, rules or regulations affecting the radio or television broadcasting industry generally, or (iv) actions taken by Buyer or its affiliates. "Non-FCC Licenses" means the Licenses issued by any governmental authorities (other than the FCC) in connection with the business or operations of the Stations. "Permitted Liens" means liens for taxes and assessments not yet due and payable, mechanics' and other statutory liens created in the ordinary course of business that secure obligations not delinquent, restrictions, easements and other encumbrances on the Real Property which do not adversely affect the use or value of the Real Property. "Purchase Price" means the purchase price specified in Section 2.3. "Real Property" means all of Seller's real property and interests in real property, leaseholds and subleaseholds, purchase options, easements, licenses, rights to access, rights of way, all buildings and other improvements thereon, and other real property interests which are used or useful in the business or operations of the Stations, together with any additions thereto between the date of this Agreement and the Closing Date, but excluding any of the foregoing that are included in the Excluded Assets. "Tangible Personal Property" means all of Seller's machinery, equipment, tools, vehicles, furniture, leasehold improvements, office equipment, plant, inventory, spare parts, and other tangible personal property which is used or useful in the conduct of the business or operations of the Stations, - 3 - 10 together with any additions thereto between the date of this Agreement and the Closing Date, but excluding any of the foregoing that are included in the Excluded Assets. SECTION 2. PURCHASE AND SALE OF ASSETS 2.1 Agreement to Sell and Buy. Subject to the terms and conditions set forth in this Agreement, Seller hereby agrees to sell, transfer, and deliver to Buyer on the Closing Date, and Buyer agrees to purchase on the Closing Date, all of Seller's rights, title and interest in and to the following Assets used or useful in connection with the conduct of the business or operations of the Stations, together with any additions thereto between the date of this Agreement and the Closing Date, but excluding the assets described in Section 2.2, free and clear of any claims, liabilities, security interests, mortgages, liens, pledges, conditions, charges, or encumbrances of any nature whatsoever (except for Permitted Liens): (a) The Tangible Personal Property; (b) The Real Property; (c) The Assumed Contracts; (d) The Intangibles and the goodwill of the Stations, if any; (e) All of Seller's proprietary information, technical information and data, machinery and equipment warranties, maps, computer discs and tapes, plans, diagrams, blueprints, and schematics, relating to the business and operation of the Stations; (f) All books and records relating to the business or operations of the Stations, other than those described in Section 2.2(b), including executed copies of the Assumed Contracts; (g) The Licenses; and (h) All records required by the FCC to be kept by the Stations. 2.2 Excluded Assets. The Assets sold, transferred and delivered to Buyer hereunder shall exclude the following assets (the "Excluded Assets"): (a) Seller's cash on hand as of the Closing and all other cash in any of Seller's bank or savings accounts; any insurance policies, letters of credit, or other similar items and cash surrender value in regard thereto; and any stocks, bonds, certificates of deposit and similar investments; (b) All books and records that Seller is required by law to retain, that pertain to Seller's organization or other internal matters and all tax records; - 4 - 11 (c) Any pension, profit-sharing, or employee benefit plans, and any collective bargaining agreements; (d) The Accounts Receivable; (e) Claims of Seller against third parties with respect to matters occurring prior to the Closing Date, except to the extent such claims relate to the condition of the Assets on and after the Closing Date; and (f) Prepaid expenses for which Seller does not receive a credit under Section 2.3(b) hereof and deposits to the extent not reflected in the adjustments made pursuant to Section 2.3(b) hereof. 2.3 Purchase Price. (a) Purchase Price. The Purchase Price for the Assets shall be Ninety Million Dollars ($90,000,000.00), adjusted as provided in Section 2.3(b) below. (b) Prorations. The Purchase Price shall be increased or decreased as required to effectuate the proration of the revenues and expenses of the Stations. All revenues and all expenses arising from the operation of the Stations, excluding accrued sick leave days but including business and non-governmental license fees, annual regulatory fees imposed by the FCC, utility charges, real and personal property taxes and assessments levied against the Assets, property and equipment rentals, applicable copyright or other fees, sales and service charges, taxes (except for taxes arising from the transfer of the Assets under this Agreement), programming fees and expenses, employee compensation, including wages, commissions, vacation and personal days accrued but unused for all employees of Seller who become employees of Buyer and prepaid and deferred items, shall be prorated between Buyer and Seller in accordance with GAAP and the principle that Seller shall be entitled to all revenues and shall be responsible for all expenses, costs, and liabilities allocable to the period prior to the Closing Date and Buyer shall be entitled to all revenues and shall be responsible for all expenses, costs, and obligations allocable to the period on and after the Closing Date. Notwithstanding the preceding sentence, there shall be no adjustment for, and Seller shall remain solely liable with respect to, any Contracts not included in the Assumed Contracts and any other obligation or liability not being assumed by Buyer in accordance with Section 2.5. (c) Manner of Determining Adjustments. (i) Any adjustments will, insofar as feasible, be determined and paid on the Closing Date, with final settlement and payment by the appropriate party occurring no later than ninety (90) days after the Closing Date or such other date as the parties shall mutually agree upon. Seller shall prepare and deliver to Buyer not later than five (5) days before the Closing Date a preliminary settlement statement which shall set forth Seller's good faith estimate of the prorations - 5 - 12 under Section 2.3(b). The preliminary settlement statement shall contain all information reasonably necessary to determine the prorations under Section 2.3(b), including appropriate supporting documentation and such other information as may be reasonably requested by Buyer, to the extent such prorations can be determined or estimated as of the date of the preliminary settlement statement and shall be certified by an officer (but without personal liability of such officer) on behalf of Seller to be true and complete to Seller's knowledge. (ii) Not later than ninety (90) days after the Closing Date, Buyer shall deliver to Seller a statement setting forth Buyer's determination of any changes to the prorations made at the Closing. Buyer's statement (A) shall contain all information reasonably necessary to determine the prorations to the Purchase Price under Section 2.3(b), including appropriate supporting documentation, and such other information as may be reasonably requested by Seller, and (B) shall be certified by an officer (but without personal liability to such officer) on behalf of Buyer to be true and complete to Buyer's knowledge. Seller (and its authorized representatives) shall have the right to visit the Stations during normal business hours to verify and review such documentation upon providing reasonable notice to Buyer (such access not to unreasonably interfere with the business or operations of the Stations). If Seller disputes the prorations determined by Buyer, it shall deliver to Buyer within fifteen (15) days after its receipt of Buyer's statement a statement setting forth its determination of such prorations. If Seller notifies Buyer of its acceptance of Buyer's statement, or if Seller fails to deliver its statement within the fifteen (15) day period specified in the preceding sentence, Buyer's determination of such adjustments and prorations shall be conclusive and binding on the parties as of the last day of such fifteen (15) day period. (iii) Buyer and Seller shall use good faith efforts to resolve any dispute involving the determination of the prorations in connection with the Closing. If the parties are unable to resolve any dispute within fifteen days following the delivery to Buyer of the statement described in the penultimate sentence of Section 2.3(c)(ii), Buyer and Seller shall jointly designate a nationally recognized firm of independent certified public accountants (the "Neutral Auditors") to resolve such dispute. If the parties are unable to agree on the designation of the Neutral Auditors, then a nationally recognized accounting firm will be selected by lot from two names submitted by Seller and two names submitted by Buyer, none of which shall be employed by Seller or Buyer or any of their respective affiliates. The Neutral Auditors' resolution of the dispute shall be made within sixty (60) days of their selection, shall be based on presentations by Seller and Buyer and not by independent financial audit and shall be final and binding on the parties. The Neutral Auditors' resolution of the dispute may be enforced by any court of competent jurisdiction. Fees of the Neutral Auditors shall be split equally between the parties. 2.4 Payment of Purchase Price. The Purchase Price, as adjusted under Section 2.3(b) and less the amount of the Indemnity Fund to be paid as provided in Section 10.8, shall be paid by Buyer to Seller at Closing by federal wire transfer of same-day funds pursuant to wire instructions delivered by Seller to Buyer at least two (2) days prior to the Closing Date. - 6 - 13 2.5 Assumption of Liabilities and Obligations. As of the Closing Date, Buyer shall assume and undertake to pay, discharge, and perform all obligations and liabilities (a) under the Licenses and Assumed Contracts insofar as such obligations and liabilities arise on and after the Closing Date, (b) with respect to which an adjustment to the Purchase Price is made in favor of Buyer pursuant to Section 2.3(b), and (c) to any former employee of Seller who is hired by Buyer insofar as such obligations and liabilities arise on and after the Closing Date. Buyer shall not assume any other obligations or liabilities of Seller, including (i) any obligations or liabilities under any Contract not included in the Assumed Contracts, (ii) any obligations or liabilities under the Assumed Contracts relating to the period prior to the Closing Date, (iii) any claims or pending litigation or proceedings relating to the operation of the Stations prior to the Closing, (iv) any obligations or liabilities arising under capitalized leases or other financing agreements not assumed by Buyer, and (v) any obligations or liabilities of Seller under any employee pension, retirement, or other benefit plans or collective bargaining agreements, and all such obligations and liabilities shall remain and be the obligations and liabilities solely of Seller. SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER Subject to the parties' agreement and acknowledgment that the Schedules referred to in this Section 3 are to be delivered by Seller not later than ten (10) business days after the date hereof, Seller represents and warrants to Buyer as follows: 3.1 Organization, Standing, and Authority. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Indiana. Seller has full power and authority (i) to own, lease, and use the Assets as now owned, leased, and used, (ii) to conduct the business and operations of the Stations as now conducted, and (iii) subject to obtaining the Consents set forth on Schedule 3.3 and any applicable requirement under the HSR Act, to execute and deliver this Agreement and all of the other agreements and documents contemplated hereby (the "Seller Ancillary Agreements") and to perform and comply with all of the terms, covenants, and conditions to be performed and complied with by Seller hereunder and thereunder. 3.2 Authorization and Binding Obligation. The execution, delivery, and performance by Seller of this Agreement and the Seller Ancillary Agreements have been duly authorized by all necessary corporate actions on the part of Seller and its board of directors and shareholders. This Agreement has been duly executed and delivered by Seller and constitutes the legal, valid, and binding obligation of Seller and upon execution thereof, the Seller Ancillary Agreements will be duly executed and delivered by Seller and will constitute the legal, valid and binding obligations of Seller, in each case enforceable against it in accordance with their respective terms, except as the enforceability of this Agreement and the Seller Ancillary Agreements may be affected by bankruptcy, insolvency, or similar laws affecting creditors' rights generally, and by judicial discretion in the enforcement of equitable remedies. 3.3 Absence of Conflicting Agreements. Subject to obtaining the FCC Consent, the other Consents listed on Schedule 3.3 and any applicable requirements under the HSR Act, the execution, - 7 - 14 delivery, and performance of this Agreement and the Seller Ancillary Agreements (with or without the giving of notice, the lapse of time, or both): (i) do not require the consent of any third party, except for any such individual consent the failure of which to obtain could not reasonably be expected to have a Material Adverse Effect; (ii) will not conflict with any provision of the organizational documents of Seller; (iii) will not conflict with, result in a breach of, or constitute a default or an event creating rights of acceleration, termination or cancellation under, any law, judgment, order, ordinance, injunction, decree, rule, regulation, or ruling of any court or governmental instrumentality applicable to Seller; and (iv) will not conflict with, constitute grounds for termination of, result in a breach of, or constitute a default under, any material agreement, instrument, license, or permit to which Seller is a party or by which Seller or the Assets may be bound. 3.4 Title to and Condition of Real Property. Schedule 3.4 contains a complete and accurate description in all material respects of all the Real Property and Seller's interests therein. Together with the Excluded Assets, the Real Property listed on Schedule 3.4 comprises all real property interests necessary to conduct the business and operations of the Stations as now conducted. With respect to each leasehold or subleasehold interest included in the Real Property being conveyed under this Agreement, so long as Seller fulfills its obligations under the lease therefor, Seller will have enforceable rights under such lease in accordance with the terms and conditions thereof. Except as disclosed on Schedule 3.4, all towers, guy anchors, and buildings and other improvements included in the Assets are located entirely on the Real Property listed in Schedule 3.4. Seller will deliver to Buyer true and complete copies of all leases pertaining to the Real Property within ten (10) business days after the date of execution of this Agreement. All Real Property (including the improvements thereon) (i) is in good condition and repair in all material respects consistent with its present use (ordinary wear and tear excepted), (ii) is available for immediate use in the conduct of the business and operations of the Stations, and (iii) complies in all material respects with all applicable building or zoning codes and the regulations of any governmental authority having jurisdiction. Seller has full legal and practical access to the Real Property. Seller has no material Non-FCC Licenses. 3.5 Title to and Condition of Tangible Personal Property. Schedule 3.5 lists all material items of Tangible Personal Property. Together with the Excluded Assets, the Tangible Personal Property listed on Schedule 3.5 comprises all material items of tangible personal property necessary to conduct the business and operations of the Stations as now conducted. Except as described in Schedule 3.5, Seller owns and has good title to each item of Tangible Personal Property, and none of the Tangible Personal Property owned by Seller is subject to any security interest, mortgage, pledge, conditional sales agreement, or other lien or encumbrance, except for Permitted Liens and liens set forth on Schedule 3.5 hereto. Each item of Tangible Personal Property is available for immediate use in the business and operations of the Stations and, except as set forth on Schedule 3.5, is in good operating condition and repair, ordinary wear and tear excepted. Except as set forth on Schedule 3.5, all items of transmitting equipment included in the Tangible Personal Property (i) have been maintained in all material respects in a manner consistent with generally accepted standards of good engineering practice, and (ii) together with the Excluded Assets, will permit the Stations and - 8 - 15 any auxiliary broadcast stations used in the operation of the Stations to operate in all material respects in compliance with the terms of the FCC Licenses, the rules and regulations of the FCC, and with all other applicable federal, state, and local statutes, ordinances, rules, and regulations. 3.6 Assumed Contracts. (a) Schedule 3.6(a) is a true and complete list of all Contracts except (a) Contracts payable in cash for production services or for the sale of advertising time broadcast on the Stations, (b) trade or barter advertising agreements entered into in the ordinary course of business, (c) oral employment Contracts terminable at will and (d) other Contracts with a duration of one year or less and entered into in the ordinary course of business not involving liabilities exceeding $1,000 per Contract per year or $25,000 per year in the aggregate for all such Contracts. Seller will deliver to Buyer true and complete copies of all written Contracts listed on Schedule 3.6(a) and true and complete memoranda of all oral Contracts (including any amendments and other modifications to such Contracts) within ten (10) business days after the date of execution of this Agreement. Other than the Contracts listed on Schedule 3.6(a) or any other Schedule to this Agreement and the Contracts that are not required to be listed on Schedule 3.6(a), Seller requires no contract, lease, or other agreement to enable it to carry on its business as now conducted. All of the Assumed Contracts (a) are in full force and effect and constitute valid and binding obligations of Seller, (b) contain no provisions restricting competition and (c) to the best knowledge of Seller, the other parties thereto, and subject to obtaining the Consents listed on Schedule 3.3 to the extent applicable to such Contracts, may be transferred to Buyer pursuant to this Agreement and will be in full force and effect at the time of such transfer except to the extent any such Assumed Contract is terminated or expires in accordance with its terms prior to Closing. Seller has fulfilled and performed in all material respects its obligations under each of the Assumed Contracts and, to the best knowledge of Seller, no other party to the Assumed Contracts is in material default or breach thereunder, and no event has occurred and no condition exists which, with the passage of time or the giving of notice or both, would constitute a material default or breach by Seller or, to the best knowledge of Seller, by any such other party. (b) Schedule 3.6(b) lists all agreements, contracts, understandings and commitments as of the date indicated thereon for the sale of time on the Stations for other than monetary consideration ("Trade Agreements") as of the date stated therein, and sets forth the parties thereto, the financial value of the time required to be provided from and after the date of such Schedule and the financial value of the goods or services to be received by Seller from and after the date of such Schedule. True and complete copies of all written Trade Agreements in effect as of such date, including all amendments, modifications and supplements thereto, will be delivered to Buyer within ten (10) business days after the date of execution of this Agreement and each Trade Agreement hereafter entered into prior to Closing shall be promptly delivered to Buyer. 3.7 Consents. Except for any applicable requirements under the HSR Act and subject to obtaining the FCC Consent and the other Consents described in Schedule 3.3, no consent, approval, permit, or authorization of, or declaration to or filing with, any governmental or regulatory authority, - 9 - 16 or any other third party is required to permit Seller (i) to consummate this Agreement and the transactions contemplated hereby and (ii) to assign or transfer the Assets to Buyer. 3.8 Intangibles. Schedule 3.8 is a true and complete list of all material Intangibles, all of which are valid and in good standing and uncontested. Seller will deliver to Buyer copies of all documents establishing or evidencing all material Intangibles within ten (10) business days after the date of execution of this Agreement. To the best knowledge of Seller, Seller is not infringing upon or otherwise acting adversely to any trademarks, trade names, service marks, service names, copyrights, patents, patent applications, know-how, methods, or processes owned by any other person or persons, and there is no claim or action pending, or to the knowledge of Seller threatened, with respect thereto. Except as set forth in Schedule 3.8, Seller has not licensed anyone to use any Intangible and Seller has no knowledge of the infringement by any person of any Intangible. The Intangibles listed on Schedule 3.8, the FCC Licenses and the Excluded Assets described in Section 2.2(f) comprise all intangible property interests necessary to conduct the business and operations of the Stations as now conducted. 3.9 Insurance. Schedule 3.9 sets forth all policies of insurance covering the Assets and such policies are in full force and effect. 3.10 Reports. To the best of Seller's knowledge, all material returns, reports, and statements required to be filed by Seller with respect to the Stations with any governmental agency have been filed, and all reporting requirements of any governmental authorities having jurisdiction over Seller and the Stations have been complied with by Seller in all material respects. All of such returns, reports, and statements are substantially complete and correct as filed. 3.11 Personnel. (a) Employees and Compensation. Schedule 3.11 contains a true and complete list of all positions of employees of Seller who are employed at the Stations, their job titles and current salary. Schedule 3.11 also contains a description as of the date of this Agreement of all employee benefit plans or arrangements applicable to the employees of the Stations. All employee benefits and welfare plans or arrangements listed in Schedule 3.11 were established and have been executed, managed and administered in all material respects in accordance with the Internal Revenue Code of 1986, as amended and the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Seller is not aware of the existence of any governmental audit or examination of any of such plans or arrangements nor is Seller liable for any arrears of wages (other than those arising as the result of reasonable payroll practices) or any material taxes or penalties for failure to comply with any of the foregoing. (b) Labor Relations. Seller is not a party to or subject to any collective bargaining agreements with respect to the Stations, except as described in Schedule 3.6. Seller has no written contracts of employment with any employee of the Stations, other than those listed in Schedule 3.6. Seller has complied in all material respects with all laws, rules, and regulations relating to the - 10 - 17 employment of labor, including those related to wages, hours, collective bargaining, occupational safety, discrimination, and the payment of social security and other payroll related taxes and it has not received any written notice alleging that it has failed to comply in any material respect with any such laws, rules, or regulations. No labor union or other collective bargaining unit represents or to Seller's knowledge, claims to represent any of the employees of the Stations. To Seller's knowledge, there is no union campaign being conducted to solicit cards from employees to authorize a union to request a National Labor Relations Board certification election with respect to any employees at the Stations. 3.12 Taxes. There are no proceedings pending pursuant to which Seller is or could be made liable for any taxes, penalties, interest, or other charges, the liability for which could extend to Buyer as transferee of the Assets and, to the best knowledge of Seller, no event has occurred that could impose on Buyer any transferee liability for any taxes, penalties, or interest due or to become due from Seller. 3.13 Claims and Legal Actions. Except for any FCC rulemaking proceedings generally affecting the broadcasting industry or as listed on Schedule 3.13 attached hereto, there is no claim, legal action, counterclaim, suit, arbitration, governmental investigation or other legal, administrative, or tax proceeding, nor any order, decree or judgment, in progress or pending, or to the knowledge of Seller threatened, against or relating to Seller with respect to its ownership or operation of the Stations or otherwise relating to the Assets or the business or operations of the Stations which could reasonably be expected to have a Material Adverse Effect. 3.14 Environmental Matters. (a) Seller is in compliance with all laws, rules, and regulations of all federal, state, and local governments (and all agencies thereof) concerning the environment, except for any noncompliance which could not reasonably be expected to have a Material Adverse Effect, and Seller has received no written notice of a charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand, or notice having been filed or commenced against Seller in connection with its ownership or operation of the Stations alleging any failure to comply with any such law, rule, or regulation. (b) To the best of Seller's knowledge, Seller has no liability relating to its ownership or operation of the Stations that could reasonably be expected to have a Material Adverse Effect under any law, rule, or regulation of any federal, state, or local government (or agency thereof) concerning the release or threatened release of hazardous substances, pollution or protection of the environment. (c) To the best of Seller's knowledge, in connection with its ownership or operation of the Stations, Seller holds and is in compliance with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and is in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, - 11 - 18 schedules, and timetables which are contained in, all federal, state, and local laws, rules, and regulations relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes, except in each case for any noncompliance which could not be reasonably expected to have a Material Adverse Effect. 3.15 Compliance with Laws. Seller is, in all material respects, in compliance with all federal, state, and local laws, rules, regulations, and ordinances applicable or relating to the ownership and operation of the Stations. Neither the ownership or use of the properties of the Stations nor the conduct of the business or operations of the Stations conflicts in any material respect with the rights of any other person or entity. 3.16 Conduct of Business in Ordinary. Since December 28, 1997, Seller has conducted the business and operations of the Stations in the ordinary course of business consistent with past practices in all material respects and has not: (a) Made any sale, assignment, lease, or other transfer of any of the Stations' properties other than obsolete assets no longer used in the operation of the Stations or other assets sold or disposed of in the normal and usual course of business with suitable replacements being obtained therefor; (b) Canceled any debts owed to or claims held by Seller with respect to the Stations, except in the normal and usual course of business; or (c) Suffered any material write-down of the value of any Assets or any material write-off as uncollectible of any accounts receivable of the Stations. 3.17 Transactions with Affiliates. Except as described on Schedule 3.17, Seller has not been involved in any business arrangement or relationship relating to the Stations with any affiliate of Seller, and no affiliate of Seller owns any property or right, tangible or intangible, which is used in the business of the Stations. As used in this paragraph, "affiliate" has the meaning set forth in Rule 12b-2 promulgated under the Securities Exchange Act of 1934. 3.18 Broker. Neither Seller nor any person acting on Seller's behalf has incurred any liability for any finders' or brokers' fees or commissions in connection with the transactions contemplated by this Agreement. 3.19 Governmental Licenses. Schedule 3.19 includes a true and complete list of all of the Licenses issued by the FCC. Seller will deliver to Buyer true and complete copies of the Licenses (including any amendments and other modifications thereto) issued by the FCC within ten (10) - 12 - 19 business days after the date of execution of this Agreement. Except for the FCC License for the operation of WWVR-FM, West Terre Haute, Indiana (the "WWVR License") for which the assignment application is currently pending, all FCC Licenses have been validly issued, and Seller is the authorized legal holder thereof. Except for the WWVR License, the FCC Licenses listed on Schedule 3.19 comprise all of the licenses, permits, and other authorizations required from the FCC for the lawful conduct of the business and operations of the Stations in the manner and to the extent they are now conducted, except for any auxiliary broadcast authorization the failure to obtain which could not reasonably be expected to have a Material Adverse Effect. Except for the WWVR License, none of the FCC Licenses is subject to any restriction or condition that would limit in any material respect the operation of the Stations as now operated. Except for the WWVR License, the FCC Licenses are in full force and effect, and the conduct of the business and operations of the Stations is in compliance therewith and no event has occurred or condition or state of facts exists which constitutes or, after notice or lapse of time or both, would constitute a breach or default under any such FCC Licenses, except for such events, conditions or state of facts that could not reasonably be expected to have a Material Adverse Effect. Seller has no reason to believe that any of the FCC Licenses would not be renewed by the FCC and no written notice of cancellation, of default or of any dispute concerning any FCC License, or of any event, condition or state of facts as described in the preceding sentence, has been received by Seller. Notwithstanding any provision in this Agreement to the contrary, Seller makes no representation, warranty or covenant whatsoever regarding any DTV allocation that Seller has received or may receive in the future for the television Stations or the outcome of the FCC rulemaking identified as In the Matter of Advanced Television Systems, MM Docket No. 87-268 and any related or subsequent FCC or court proceeding (the "ATV Rulemaking"), except that Seller has not knowingly taken any action which could reasonably be expected to materially adversely affect or jeopardize the television Stations' respective DTV allocation. 3.20 Acquired Assets. The Assets constitute all of the assets necessary for the continued operation and business of the Stations in the ordinary course as substantially conducted on the date hereof. SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: 4.1 Organization, Standing, and Authority. Buyer is an Indiana corporation duly organized, validly existing, and in good standing under the laws of the State of Indiana and at Closing, Buyer will be duly qualified as a foreign corporation and will be in good standing in the State of Florida. Buyer has all requisite power and authority to execute and deliver this Agreement and all of the other agreements documents and instruments contemplated hereby (the "Buyer Ancillary Agreements"), and to perform and comply with all of the terms, covenants, and conditions to be performed and complied with by Buyer hereunder and thereunder. - 13 - 20 4.2 Authorization and Binding Obligation. The execution, delivery, and performance by Buyer of this Agreement and the Buyer Ancillary Agreements have been duly authorized by all necessary actions on the part of Buyer. This Agreement has been duly executed and delivered by Buyer and constitutes the legal, valid, and binding obligation of Buyer and, upon execution thereof, the Buyer Ancillary Agreements will be duly executed and delivered by Buyer and will constitute the legal, valid and binding obligations of Buyer, in each case enforceable against Buyer in accordance with their respective terms, except as the enforceability of this Agreement and the Buyer Ancillary Agreements may be affected by bankruptcy, insolvency, or similar laws affecting creditors' rights generally and by judicial discretion in the enforcement of equitable remedies. 4.3 Absence of Conflicting Agreements. Subject to obtaining the FCC Consent and the other Consents listed on Schedule 4.3 and any applicable requirements under the HSR Act, the execution, delivery, and performance by Buyer of this Agreement and the Buyer Ancillary Agreements (with or without the giving of notice, the lapse of time, or both): (i) do not require the consent of any third party except for such consents the failure of which to obtain could not reasonably be expected to have a material adverse effect on the performance by Buyer of its obligations hereunder; (ii) will not conflict with the organizational documents of Buyer; (iii) will not conflict with, result in a breach of, or constitute a default under, any law, judgment, order, injunction, decree, rule, regulation, or ruling of any court or governmental instrumentality applicable to Buyer; or (iv) will not conflict with, constitute grounds for termination of, result in a breach of, or constitute a default under, any material agreement, instrument, license, or permit to which Buyer is a party or by which Buyer may be bound, such that Buyer could not acquire or operate the Assets. 4.4 Broker. Neither Buyer nor any person acting on Buyer's behalf has incurred any liability for any finders' or brokers' fees or commissions in connection with the transactions contemplated by this Agreement. 4.5 Buyer Qualifications. Buyer is, and as of the Closing will be, legally, financially and otherwise qualified to perform its obligations hereunder and to be the licensee of and to acquire, own and operate the Stations under the Communications Act of 1934, as amended, and the rules, regulations and policies of the FCC. Buyer knows of no fact that would disqualify Buyer as an assignee of the FCC Licenses or as the owner and operator of the Stations. To Buyer's knowledge, no waiver of any FCC rule or policy is required for the grant of the FCC Consent. 4.6 Financing. Buyer will have available sufficient funds to enable it to consummate the transactions contemplated hereby. SECTION 5. OPERATIONS OF THE STATIONS PRIOR TO CLOSING 5.1 Generally. Seller agrees that, between the date of this Agreement and the Closing Date, Seller shall operate the Stations only in the ordinary course of business in accordance with their respective current practices and staffing levels and shall maintain expenditures for marketing and promotion efforts in amounts not less than the amounts so expended in the corresponding months - 14 - 21 of the previous year (except where such conduct would conflict with the following covenants or with Seller's other obligations under this Agreement), and in accordance with the other covenants in this Section 5. 5.2 Compensation. Seller shall not increase by more than three percent (3%) the compensation, bonuses, or other benefits payable or to be payable to any person employed in connection with the conduct of the business or operations of the Stations, except as may be contractually required. 5.3 Contracts. Seller will not, without the prior written consent of Buyer, which consent (except for consents relating to programming agreements) shall not be unreasonably withheld, enter into any contract or commitment relating to the Stations or the Assets, or amend any Assumed Contract or incur any obligation that will be binding on Buyer after Closing, except that Seller shall have the right to enter into or renew (i) contracts or commitments with advertisers for production or the sale of advertising time on the Stations for cash, (ii) trade or barter agreements entered into in the ordinary course of business consistent with past practices, and (iii) other contracts or commitments therefor having a duration of one year or less and not involving liabilities in excess of $5,000 per year individually or $25,000 per year in the aggregate. Prior to the Closing Date, Seller shall deliver to Buyer a list of all Contracts entered into between the date of this Agreement and the Closing Date in accordance with this Section 5.3, together with copies of such Contracts. 5.4 Disposition of Assets. Seller shall not sell, assign, lease, or otherwise transfer or dispose of any of the Assets, except where no longer used or useful in the business or operations of the Stations or in connection with the acquisition of replacement property of equivalent kind and value. Notwithstanding the foregoing, the expiration by their terms of Contracts prior to Closing shall not be deemed a violation of this Agreement. 5.5 Encumbrances. Seller shall not create or assume any claim, liability, mortgage, lien, pledge, condition, charge, or encumbrance of any nature whatsoever upon the Assets, except for (i) liens disclosed on Schedule 3.4 or Schedule 3.5 which shall be removed on or prior to the Closing Date and (ii) Permitted Liens. 5.6 Access to Information. Seller shall give Buyer and its authorized representatives access, during normal business hours and with reasonable prior notice, to the Assets and to all other books, records, Contracts, and documents relating to the Stations for the purpose of audit and inspection, so long as such audit and inspection does not unreasonably interfere with the business and operations of the Stations. 5.7 Maintenance of Assets. Seller shall use commercially reasonable efforts to maintain the Assets in good operating condition and repair (ordinary wear and tear excepted). Seller shall maintain inventories of spare parts and expendable supplies at levels consistent with past practices and shall use its commercially reasonable efforts to preserve the goodwill of the suppliers, contractors, licensors, employees, customers, distributors and others having business relations with - 15 - 22 the Stations. If any loss, damage, impairment, confiscation, or condemnation of or to any of the Assets occurs, Seller shall repair, replace, or restore the Assets to their prior condition as represented in this Agreement as soon thereafter as possible, and Seller shall use the proceeds of any claim under any insurance policy solely to repair, replace, or restore any of the Assets that are lost, damaged, impaired, or destroyed. Seller shall pay when due all amounts it is obligated to pay pursuant to the Contracts and shall otherwise comply with all of their obligations thereunder. 5.8 Insurance. Seller shall maintain the existing insurance policies on the Stations and the Assets through the Closing Date. 5.9 Consents. Seller shall use commercially reasonable efforts to obtain the Consents without any change in the terms or conditions of any Contract or License that could be materially less advantageous to the Stations than those pertaining under the Contract or License as in effect on the date of this Agreement; provided, however, that Seller's failure to obtain any Consent shall not constitute a breach of this Agreement so long as Seller shall have used commercially reasonable efforts to obtain such Consent. Seller shall promptly advise Buyer of any difficulties experienced in obtaining any of the Consents and of any conditions proposed, considered, or requested for any of the Consents. Buyer shall use commercially reasonable efforts to assist Seller in obtaining the Consents, including, without limitation, executing such assumption instruments and other documents as may be reasonably required in connection with obtaining the Consents. 5.10 Books and Records. Seller shall maintain its books and records relating to the Stations only in the ordinary course consistent with past practices. 5.11 Notification. Seller shall promptly notify Buyer in writing of any material change in any of the information contained in Seller's representations and warranties contained in Section 3 of this Agreement. 5.12 Compliance with Laws. Seller shall comply in all material respects with all laws, rules, and regulations applicable or relating to the ownership and operation of the Stations. 5.13 Collection of Accounts Receivable. Seller shall collect the accounts receivable of the Stations only in the ordinary course consistent with its past practices. 5.14 Cure. For all purposes under this Agreement, the existence or occurrence of any events or circumstances that constitutes or causes a breach of a representation or warranty of Seller or Buyer under this Agreement (including, without limitation, in the case of Seller, under the information disclosed in the Schedules hereto) on the date such representation or warranty is made shall be deemed not to constitute a breach of such representation or warranty if such event or circumstance is cured on or before thirty (30) days after the receipt by such party of written notice thereof from such other party. - 16 - 23 5.15 Licenses. Seller shall not cause or permit, by any act or failure to act, any of the FCC Licenses to expire or to be revoked, suspended, or modified in any materially adverse respect, or take any action that could reasonably be expected to cause the FCC to institute proceedings for the suspension, revocation, or materially adverse modification of any of the FCC Licenses; provided, however, that in no event shall any action of the FCC with respect of the ATV Rulemaking constitute a breach or default hereunder unless Seller knowingly takes any action with respect thereto that at the time of the taking of such action could reasonably be expected to materially adversely affect the Stations. 5.16 Audited Financial Statements. Seller recognizes that Buyer is a publicly reporting company and agrees that notwithstanding the restrictions in Section 6.4, Buyer shall be entitled at its expense to cause audited and unaudited financial statements of the Stations to be prepared for such periods and filed with the Securities and Exchange Commission, and included in a prospectus distributed to prospective investors, as required by laws and regulations applicable to Buyer as a publicly reporting company or registrant. Seller agrees to cooperate with Buyer and the auditing accountants as reasonably requested by Buyer in connection with the preparation and filing of such financial statements, including providing a customary management representation letter in the form prescribed by generally accepted auditing standards. 5.17 Schedules. Seller shall deliver to Buyer all of the Schedules referred to in Section 3 not later than ten (10) business days after the date hereof. SECTION 6. SPECIAL COVENANTS AND AGREEMENTS 6.1 HSR Act. As soon as practicable after the execution hereof but in no event later than twenty (20) business days after the execution hereof, each of Buyer and Seller shall make the filings required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Buyer and Seller agree to (a) cooperate with each other in connection with all such HSR Act filings, which cooperation shall include furnishing the other with any information or documents that may be reasonably required in connection with such filings; (b) promptly file, after any request by the Federal Trade Commission ("FTC") or Department of Justice ("DOJ") and after appropriate negotiation with the FTC or DOJ of the scope of such request, any information or documents requested by the FTC or DOJ; and (c) furnish each other with any correspondence from or to, and notify each other of any other communications with, the FTC or DOJ that relates to the transactions contemplated hereunder, and to the extent practicable, to permit each other to participate in any conferences with the FTC or DOJ. The transfer of the Assets hereunder is expressly conditioned upon the waiting period relating to any such filings having duly expired or been terminated by the appropriate government agencies without the enforcement of any action by any such agencies to restrain or postpone the transactions contemplated hereby. 6.2 Control of the Stations. Prior to Closing, Buyer shall not, directly or indirectly, control, supervise, direct, or attempt to control, supervise, or direct, the operations of the Stations; - 17 - 24 such operations, including complete control and supervision of all of the Stations' respective programs, employees, and policies, shall be the sole responsibility of Seller until the Closing. 6.3 Risk of Loss. The risk of any loss, damage, impairment, confiscation, or condemnation of any of the Assets from any cause whatsoever shall be borne by Seller at all times prior to the Closing. 6.4 Confidentiality. Except as necessary for the consummation of the transaction contemplated by this Agreement, and except as and to the extent required by law, each party will keep confidential any information obtained from the other party in connection with the transactions contemplated by this Agreement. If this Agreement is terminated, each party will return to the other party all information obtained by such party from the other party in connection with the transactions contemplated by this Agreement. 6.5 Cooperation. Buyer and Seller shall cooperate fully with each other and their respective counsel and accountants in connection with any actions required to be taken as part of their respective obligations under this Agreement, and Buyer and Seller shall execute such other documents as may be necessary and desirable to the implementation and consummation of this Agreement, and otherwise use their commercially reasonable efforts to consummate the transaction contemplated hereby and to fulfill their obligations under this Agreement. Notwithstanding the foregoing, Buyer shall have no obligation to agree to any material adverse change in any Assumed Contract or FCC License to obtain a Consent required with respect thereto. 6.6 Access to Books and Records. Seller shall provide Buyer reasonable access and the right to copy for a period of three years from the Closing Date any books and records relating to the assets that are not included in the Assets. Buyer shall provide Seller reasonable access and the right to copy for a period of three years from the Closing Date any books and records relating to the Assets. 6.7 Appraisal. Buyer and Seller agree to allocate the Purchase Price for tax and recording purposes in accordance with an appraisal to be completed as soon as practicable but in no event later than 90 days following Closing. The appraisal shall be conducted by a party mutually acceptable to Buyer and Seller. Buyer and Seller shall each pay one-half of the cost of such appraisal. 6.8 Employment Matters. (a) Immediately after the Closing, Buyer shall employ as employees at will all individuals employed by Seller at the Stations immediately prior to the Closing. Such employment by Buyer shall be subject to the terms, conditions and policies of employment established by Buyer. Buyer shall not assume any Seller employee benefit plans as listed on Schedule 3.11. (b) For each employee of Seller who becomes an employee of Buyer (a "Hired Employee"), Buyer shall provide to such employee credit for past service with Seller in accordance - 18 - 25 with Buyer's policies and practices as in effect at such time. Buyer shall offer health insurance and other benefits of the types and amounts as are generally offered to employees of Buyer and its Affiliates engaged in broadcasting activities as of the Closing Date. (c) To the extent the Purchase Price is reduced pursuant to Section 2.3 in respect thereof, Buyer shall grant Hired Employees credit for and shall assume and be responsible for any liabilities with respect to vacation and personal days accrued but unused by any Hired Employee as of the Closing Date. (d) Within a reasonable period of time after the Closing Date, Buyer shall accept a rollover of Hired Employees' account balances in Seller's 401(k) Plan. 6.9 Accounts Receivable. (a) Within ten (10) days after the Closing Date, Seller shall furnish to Buyer a true and complete list of Seller's Accounts Receivable, which list shall set forth for each Accounts Receivable the name of the debtor, the date of the invoice, the amount of any payments previously received on account and the balance due. (b) For a period of ninety (90) days after the Closing Date (the "Collection Period"), Buyer will, without charge to Seller, use its usual and customary procedures to collect the Accounts Receivable as Seller's agent for collection, provided that (i) Buyer shall not be required to commence litigation, employ legal counsel or a collection agency or make any other extraordinary collection efforts, and (ii) Buyer's obligation to act as Seller's agent in the collection of the Accounts Receivable shall terminate upon expiration of the Collection Period. For the purpose of determining amounts collected by Buyer with respect to the Accounts Receivable, each payment by an account debtor shall be applied to the older or oldest accounts receivable, whether Seller's or Buyer's, constituting a liability of such account debtor unless the account debtor in writing identifies such an account as being in dispute and directs that a particular payment be applied to a specific newer account receivable. (c) Every four weeks during the Collection Period (and within fifteen (15) days after the end of the Collection Period), Buyer shall deliver to Seller a statement showing all collections of Accounts Receivable made on behalf of Seller since the last previous report and shall pay such collections to Seller by check at the time such statement is delivered. (d) Seller shall not engage in any collection efforts against account debtors under the Accounts Receivable during the Collection Period, other than with respect to Accounts Receivable identified as in dispute as provided in foregoing Subsection (b). (e) Buyer shall not, without Seller's prior written consent, compromise or settle for less than full value any of the Accounts Receivable unless Buyer pays Seller the full amount of - 19 - 26 any deficiency. Buyer shall be entitled to purchase from Seller any Accounts Receivable for such amount as the parties may agree at any time during or at the expiration of the Collection Period. 6.10 FCC Consent. (a) The assignment of the FCC Licenses in connection with the purchase and sale of the Assets pursuant to this Agreement shall be subject to the prior consent and approval of the FCC. (b) Seller and Buyer shall file within ten (10) business days after the date hereof an appropriate application for the FCC Consent. The parties shall prosecute the application with all reasonable diligence and otherwise use their commercially reasonable efforts to obtain a grant of the application as expeditiously as practicable. Buyer's portion of the applications for the FCC Consents with respect to radio and television stations WTHI(AM), WTHI-FM and WTHI(TV), Terre Haute, Indiana, and WWVR-FM, West Terre Haute, Indiana (the "Terre Haute FCC Consents"), shall include a request for waiver of the FCC's one-to-a-market rule (47 C.F.R. Section 73.3555(c)) to permit the common ownership of such radio and television stations (the "Terre Haute One-To-A-Market Waiver"). Notwithstanding any provision in this Agreement to the contrary, Buyer's obligation to consummate the transactions contemplated by this Agreement shall not be affected by the imposition of any condition in the Terre Haute FCC Consents requiring divestiture of one or more of the above-referenced Terre Haute radio stations in order to comply with current or future FCC ownership rules. Should such divestiture be required, Buyer will use its commercially reasonable efforts (i) to sell the necessary radio station(s) and (ii) to cause the filing of an application for FCC consent to the sale of the necessary radio station(s), each within the period specified by the FCC. Further more, each party agrees to comply with any other condition imposed on it by the FCC Consent, except that no party shall be required to comply with a condition if (1) the condition was imposed on it as the result of a circumstance the existence of which does not constitute a breach by the party of any of its representations, warranties, or covenants under this Agreement, and (2) compliance with the condition would have a material adverse effect upon it. Buyer and Seller shall oppose any requests for reconsideration or judicial review of the FCC Consent. If the Closing shall not have occurred for any reason within the original effective period of the FCC Consent, and neither party shall have terminated this Agreement under Section 9, the parties shall jointly request an extension of the effective period of the FCC Consent. No extension of the FCC Consent shall limit the exercise by either party of its rights under Section 9. 6.11 Buyer Conduct Buyer shall take no action or fail to take any action that would disqualify Buyer from being the licensee of the Stations under the Communications Act of 1934, as amended, and the rules, regulations and policies of the FCC or that would result in the imposition on Buyer of any condition contained in the FCC Consent that need not be complied with by or under Section 6.10. 6.12 Noncompetition Agreement As an inducement to Buyer to consummate the transactions contemplated herein, at the Closing, Seller shall execute and deliver to Buyer, and Buyer - 20 - 27 shall execute and deliver to Seller, a Noncompetition Agreement in the form of Schedule 6.12 hereto (the "Noncompetition Agreement"). SECTION 7. CONDITIONS TO OBLIGATIONS OF BUYER AND SELLER AT CLOSING 7.1 Conditions to Obligations of Buyer. All obligations of Buyer at the Closing are subject at Buyer's option to the fulfillment prior to or at the Closing Date of each of the following conditions: (a) Representations and Warranties. All representations and warranties of Seller contained in this Agreement (i) that are qualified as to materiality, shall be true and complete and (ii) that are not qualified as to materiality, shall be true and complete in all material respects, in each case at and as of the Closing Date as though made at and as of that time except to the extent that (i) any such representation or warranty is expressly stated only as of a specified earlier date, in which case such representation or warranty shall be true as of such earlier date and (ii) any changes are contemplated by this Agreement. (b) Covenants and Conditions. Seller shall have performed and complied in all material respects with all covenants, agreements, and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date. (c) Consents. All Consents designated as "material" on Schedule 3.3 (the "Material Consents") shall have been obtained and delivered to Buyer without any material adverse change in the terms or conditions of any agreement or any governmental license, permit, or other authorization. (d) HSR Act; No Restraint. The waiting period under the HSR Act, if applicable, shall have expired or been terminated without any unresolved action by the DOJ or the FTC to prevent the Closing and there shall not be in effect any preliminary or permanent injunction or other order, decree or ruling by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, no statute, rule, regulation or administrative order shall have been promulgated or enacted by a government authority and there shall not be in effect any temporary restraining order of a court of competent jurisdiction, which, in any case, materially restrains or prohibits the transactions contemplated hereby. (e) Deliveries. Seller shall have made or stand willing to make all the deliveries to Buyer set forth in Section 8.2. (f) FCC Consent. The FCC Consent shall have been granted without the imposition on Buyer of any conditions that need not be complied with by Buyer under Section 6.10 hereof and Seller shall have complied with any conditions imposed on it by the FCC Consent. - 21 - 28 (g) Governmental Authorizations. Seller shall be the holder of the Licenses issued by the FCC to the Stations and, other than as a result of any decision or order issued by the FCC or any court in connection with the ATV Rulemaking, there shall not have been any modification of such Licenses that would have a Material Adverse Effect. No proceeding shall be pending the effect of which could be to revoke, cancel, fail to renew, suspend, or modify adversely in any material respect such Licenses. (h) Title Insurance and Survey. Buyer shall have obtained, at Buyer's expense, a title commitment (the "Title Commitment") on the current ALTA form from a title insurance company (the "Title Insurance Company") wherein the Title Insurance Company shall agree to insure in Buyer fee simple title to each parcel of Real Property owned by Seller (the "Owned Real Property"). The exceptions to title specified in the Title Commitment shall be limited to the preprinted or standard exceptions to title (the "Standard Exceptions"), the lien for taxes not yet due and payable (the "Permitted Tax Lien") and such other exceptions (the "Other Permitted Exceptions") that will neither (1) materially impair Buyer's ability to use the insured Owned Real Property in the operation of the Stations in the manner in which it is now used, nor (2) constitute or evidence a mortgage or other lien (other than a Permitted Tax Lien) against such title, except mortgages or other liens that will be released at Closing at Seller's expense. Furthermore: (i) Buyer shall have obtained, at Buyer's expense, a current "as-built" survey (each, a "Survey") of each portion of the Owned Real Property. Each such Survey shall be prepared by a registered surveyor, shall comply with current ALTA Minimum Standard Detail Requirements, shall be accompanied by a certification sufficient for the Title Insurance Company's deletion of the Standard Exceptions relating to survey matters, and shall not disclose any matters which would materially impair Buyer's ability to use any of the surveyed Owned Real Property in the operation of the Stations in the manner in which it is now used; (ii) On the Closing Date, the Title Insurance Company shall have unconditionally agreed in writing to issue pursuant to the Title Commitment a final title policy, the premium for which shall be paid by the Buyer, as of the Closing Date insuring fee simple title in Buyer to the Owned Real Property covered by the Title Commitment, subject only to the Permitted Tax Lien and Other Permitted Exceptions. On or before the Closing Date, Seller shall execute and deliver to the Title Insurance Company an affidavit regarding mechanic's liens sufficient to allow deletion of such liens as a Standard Exception in the final title policy; and (iii) If within sixty (60) days after the date hereof: (a) A Title Commitment has not been obtained for any portion of the Owned Real Property, Buyer shall be deemed to have waived the conditions precedent in foregoing Subsections (h) and (h)(ii) with respect to such portion of the Owned Real Property. (b) A Survey has not been obtained by Buyer for any portion of the Owned Real Property, Buyer shall be deemed to have waived the condition precedent in - 22 - 29 foregoing Subsection (h)(i) with respect to such portion of the Owned Real Property, and shall be deemed to have waived the condition precedent in foregoing Subsection (h)(ii) to the extent satisfaction of such condition with respect to such portion of the Owned Real Property would require such Survey. (c) Buyer does not by written notice to Seller within ten (10) days of receipt of the Title Commitment and Survey specifically identify and object to a defect or exception to title to any of the Owned Real Property, Buyer shall be deemed to have waived its right to object to such defect or exception. (i) Environmental Inspection. At Buyer's expense, Buyer shall have caused an environmental inspection to be performed by a reputable environmental engineering company of each portion of the Owned Real Property, and any real property leased by Seller and used in the operation of any Station (the "Leased Real Property"), and the inspection report shall not disclose a reasonable basis for a determination that any such portion of the Owned Real Property or the Leased Real Property in its current condition would cause Buyer as the owner or lessee thereof to incur a material liability under any applicable environmental law, rule or regulation. Buyer shall cause the environmental consultant to deliver to Seller's attorney a copy of each such inspection report at the same time such report(s) are delivered to Buyer. In the event that within sixty (60) days after the date hereof, Buyer shall have failed to give Seller's attorney written notice specifying in detail the manner in which any such report discloses a reasonable basis for a determination that a portion of the Owned Real Property or the Leased Real Property in its current condition would cause Buyer as the owner or lessee thereof to incur a material liability under applicable environmental laws, rules or regulations, Buyer shall be deemed to have waived the condition precedent set forth in this Section 7.1(i). (j) Opinions of Seller's Counsel. Buyer shall have received (a) the written opinion of Seller's counsel, dated as of the Closing Date, that (i) Seller is a corporation duly organized and validly existing under the laws of the State of Indiana, (ii) the execution, delivery and performance of the Agreement and each of the other documents have been duly authorized by all requisite corporate action (including all necessary shareholder approval) on the part of Seller, (iii) the Agreement and each of the other documents have been duly and validly executed and delivered by Seller, and (iv) the execution, delivery and performance by Seller of this Agreement and the Seller Ancillary Documents do not violate or contravene, to counsel's knowledge, any judgment, order, or agreement to which Seller is subject or a party or to which the Assets are bound; and (b) the written opinion of the Seller's FCC counsel, dated as of the Closing Date, that (i) Seller holds the FCC Licenses, each of which is in effect, (ii) the FCC Licenses are not subject to any conditions other than those shown upon their face and those imposed by generally applicable rules and regulations of the FCC, (iii) the FCC has granted the FCC Consent and the FCC Consent is not the subject of any petition for reconsideration, application for review or other similar apparition, and (iv) to the counsel's knowledge, there are no proceedings pending, or threatened by or before the FCC affecting or relating to the Stations or the FCC Licenses. - 23 - 30 (k) Schedules. Seller shall have delivered to Buyer within ten (10) business days after the date hereof all of the Schedules referred to in Section 3, and all such Schedules shall be acceptable in form and substance to Buyer within its reasonable judgment; provided, however, that if Buyer fails to provide Seller with written notice specifying in detail the manner in which any such Schedule is unacceptable to Buyer within fifteen (15) business days after the date hereof, Buyer shall be deemed to have waived the condition precedent set forth in this Section 7.1(k). 7.2 Conditions to Obligations of Seller. All obligations of Seller at the Closing are subject at Seller's option to the fulfillment prior to or at the Closing Date of each of the following conditions: (a) Representations and Warranties. All representations and warranties of Buyer contained in this Agreement (i) that are qualified as to materiality, shall be true and complete and (ii) that are not qualified as to materiality, shall be true and complete in all material respects, in each case at and as of the Closing Date as though made at and as of that time, except to the extent that (i) any such representation or warranty is expressly stated only as of a specified earlier date, in which case such representation or warranty shall be true as of such earlier date and (ii) any changes are contemplated by this Agreement. (b) Covenants and Conditions. Buyer shall have performed and complied in all material respects with all covenants, agreements, and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date. (c) Deliveries. Buyer shall have made or stand willing to make all the deliveries set forth in Section 8.3. (d) HSR Act; No Restraint. The waiting period under the HSR Act, if applicable, shall have expired or been terminated without any unresolved action by the DOJ or the FTC to prevent the Closing and there shall not be in effect any preliminary or permanent injunction or other order, decree or ruling by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, no statute, rule, regulation or administrative order shall have been promulgated or enacted by a government authority and there shall not be in effect any temporary restraining order of a court of competent jurisdiction, which, in any case, materially restrains or prohibits the transactions contemplated hereby. (e) FCC Consent. The FCC Consent shall have been granted without the imposition on Seller of any conditions that need not be complied with by Seller under Section 6.11 hereof and Buyer shall have complied with any conditions imposed on it by the FCC Consent. - 24 - 31 SECTION 8. CLOSING AND CLOSING DELIVERIES 8.1 Closing. (a) Closing Date. Subject to the satisfaction or, to the extent permissible by law, waiver (by the party for whose benefit the Closing condition is imposed) on the date scheduled for Closing, of the conditions precedent set forth in Sections 7.1 and 7.2, as appropriate, the Closing shall take place at 10:00 a.m. on a date, to be set by Buyer on at least five (5) business days' written notice to Seller, that is (1) not earlier than the first business day after the FCC Consent is granted and the condition of Closing set forth in Sections 7.1(f) and 7.2(e) has been satisfied, and (2) not later than fourteen (14) days following the date upon which the FCC Consent is granted and the condition of Closing set forth in Sections 7.1(f) and 7.2(e) has been satisfied. If Buyer fails to give notice of the Closing Date by the date which is five (5) business days prior to the date set forth in clause (2) in the preceding sentence, the Closing shall take place on the first business day following the end of the fourteen (14) day period described in such clause. (b) Closing Place. The Closing shall be held at a location agreed upon by Buyer and Seller. 8.2 Deliveries by Seller. Prior to or on the Closing Date, Seller shall deliver to Buyer the following, in form and substance reasonably satisfactory to Buyer and its counsel: (a) Transfer Documents. Duly executed special warranty deeds, bills of sale, motor vehicle titles, assignments, and other transfer documents which shall be sufficient to vest good and marketable title to the Assets in the name of Buyer, free and clear of all mortgages, liens, restrictions, encumbrances, claims, and obligations, except for Permitted Liens; (b) Consents. An executed copy of any instrument evidencing receipt of any Material Consents and to the extent obtained, any other Consents; (c) Officer's Certificate. A certificate, dated as of the Closing Date, executed by Seller, certifying compliance by Seller with the conditions set forth in Sections 7.1(a) and (b); (d) Contracts, Business Records, Etc. Copies of all Assumed Contracts, Licenses, blueprints, schematics, working drawings, plans, projections, engineering records, and all files and records used by Seller in connection with its operations; (e) Indemnification Escrow Agreement. The Indemnification Escrow Agreement (as defined below) duly executed by Seller; and (f) Noncompetition Agreement. The Noncompetition Agreement, duly executed by Seller. - 25 - 32 8.3 Deliveries by Buyer. Prior to or on the Closing Date, Buyer shall deliver to Seller the following, in form and substance reasonably satisfactory to Seller and its counsel: (a) Purchase Price. The Purchase Price, as adjusted pursuant to Section 2.3(b) and as reduced pursuant to Section 10.8; (b) Assumption Agreements. Appropriate assumption agreements pursuant to which Buyer shall assume and undertake to perform Seller's obligations under the Assumed Contracts and the FCC Licenses as provided in Section 2.5; (c) Officer's Certificate. A certificate, dated as of the Closing Date, executed by Buyer, certifying compliance by Buyer with the conditions set forth in Sections 7.2(a) and (b); (d) Indemnification Escrow Agreement. The Indemnification Escrow Agreement duly executed by Buyer; and (e) Noncompetition Agreement. The Noncompetition Agreement, duly executed by Buyer. SECTION 9. TERMINATION 9.1 Termination by Seller. This Agreement may be terminated by Seller, if Seller is not then in material default, upon written notice to Buyer, upon the occurrence of any of the following: (a) Conditions. If, on the date that would otherwise be the Closing Date, Seller shall have notified Buyer in writing that one or more of the conditions precedent to the obligations of Seller set forth in Section 7.2 of this Agreement have not been satisfied by Buyer or waived in writing by Seller and such condition or conditions shall not have been satisfied by Buyer or waived in writing by Seller within five (5) days following such notice. (b) Judgments. If, on the date that would otherwise be the Closing Date, there is in effect any law, regulation, rule, judgment, decree, or order that would prevent or make unlawful the Closing. (c) Upset Date. If the Closing shall not have occurred by December 31, 1998. (d) Breach. Without limiting Seller's rights under the other provisions of this Section 9.1, if Buyer has failed to cure any material breach of any of its representations, warranties or covenants under this Agreement within thirty (30) days after Buyer received written notice thereof from Seller. - 26 - 33 (e) Final Deposit. If no Early Termination Event has occurred and Buyer fails to deliver the Final Deposit in immediately available funds to the account or accounts designated by the Escrow Agent by 5:00 p.m. EST, on the sixteenth business day following the date of execution of this Agreement. If this Agreement is terminated by Seller pursuant to this Section 9.1(e), the Initial Deposit, held by the Escrow Agent pursuant to the Escrow Agreement, including any interest or other proceeds from the investment of such Initial Deposit, shall be disbursed to or at the direction of Seller; provided however, that the remedies provided under this Section 9.1(e) are cumulative and shall not preclude Seller from seeking any other remedies existing at law, in equity or otherwise. 9.2 Termination by Buyer. This Agreement may be terminated by Buyer, if Buyer is not then in material default, upon written notice to Seller, upon the occurrence of any of the following: (a) Conditions. If, on the date that would otherwise be the Closing Date, Buyer shall have notified Seller in writing that one or more of the conditions precedent to the obligations of Buyer set forth in Section 7.1 of this Agreement have not been satisfied by Seller or waived in writing by Buyer and such condition or conditions shall not have been satisfied by Seller or waived in writing by Buyer within five (5) days following such notice. (b) Judgments. If, on the date that would otherwise be the Closing Date, there is in effect any law, regulation, rule, judgment, decree, or order that would prevent or make unlawful the Closing. (c) Upset Date. If the Closing shall not have occurred by December 31, 1998. (d) Damage. If any damage or destruction of the Assets or any other event occurs that causes any of the Stations to cease broadcasting operations for a period of seven (7) or more full, consecutive days (for the purpose of this Section 9.2(d), a "full day" shall mean a consecutive 24-hour period). (e) Breach. Without limiting Buyer's rights under the other provisions of this Section 9.2, if Seller has failed to cure any material breach of any of its representations, warranties or covenants under this Agreement within thirty (30) days after Seller received written notice thereof from Buyer. (f) Early Termination Event. If (i) Seller does not deliver all of the Schedules referred to in Section 3 within the time period specified in Section 5.17, or (ii) the Schedules delivered by Seller to Buyer are not acceptable to Buyer within its reasonable judgment, or (iii) Buyer discovers through its due diligence investigation, including review of the Schedules to be furnished by Seller (which when delivered in final form shall constitute a part of this Agreement), that any representation and warranty of Seller contained in this Agreement (A) that is qualified as to materiality is not true and complete, or (B) that is not qualified as to materiality is not true and complete in all material respects (each of clauses (i), (ii) and (iii), an "Early Termination Event"); - 27 - 34 provided, however, that Buyer must deliver written notice to Seller of an Early Termination Event within fifteen (15) business days of the date of this Agreement. Notwithstanding any other provisions of this Agreement, if Buyer terminates this Agreement pursuant to an Early Termination Event and timely notice of such Early Termination Event is delivered to Seller, the Initial Deposit held by the Escrow Agent pursuant to the Escrow Agreement, including any interest or other proceeds from the investment of such Initial Deposit held by the Escrow Agent, shall be disbursed to or at the direction of Buyer, and Buyer shall have no other remedy for any damages suffered by Buyer by reason of an Early Termination Event. 9.3 Rights on Termination. If this Agreement is terminated pursuant to Section 9.1 or Section 9.2 and neither party is in material breach of this Agreement, the parties hereto shall not have any further liability to each other with respect to the purchase and sale of the Assets. Except as provided in Section 9.1(e), if this Agreement is terminated by Seller due to Buyer's material breach of this Agreement, then the payment to Seller of the sum described in Section 9.4 below shall be liquidated damages and shall constitute full payment and the exclusive remedy for any damages suffered by Seller by reason of Buyer's material breach of this Agreement. Seller and Buyer agree in advance that actual damages would be difficult to ascertain and that said sum is a fair and equitable amount to reimburse Seller for damages sustained due to Buyer's material breach of this Agreement. 9.4 Escrow Deposit. Buyer has deposited with the Escrow Agent the sum of One Million Eight Hundred Thousand Dollars ($1,800,000.00), which sum equals two percent (2%) of the Purchase Price (the "Initial Deposit"), in accordance with the Escrow Agreement. On or before the sixteenth business day following the date of execution of this Agreement, Buyer shall deposit with the Escrow Agent the sum of Seven Million Two Hundred Thousand Dollars ($7,200,000.00), which shall equal eight percent (8%) of the Purchase Price (the "Final Deposit", together with the "Initial Deposit", the "Deposit"). All such funds deposited with the Escrow Agent shall be held and disbursed in accordance with the terms of the Escrow Agreement and the following provisions: (a) At the Closing, all amounts held by the Escrow Agent pursuant to the Escrow Agreement, including any interest or other proceeds from the investment of funds held by the Escrow Agent, shall be disbursed to or at the direction of Buyer. (b) Unless otherwise provided in this Agreement, if this Agreement is terminated pursuant to Section 9.1 or 9.2 and Buyer is not in material breach of this Agreement, all amounts held by the Escrow Agent pursuant to the Escrow Agreement, including any interest or other proceeds from the investment of funds held by the Escrow Agent, shall be disbursed to or at the direction of Buyer. (c) If this Agreement is terminated by Seller due to Buyer's material breach of this Agreement, then the entire amount of the Deposit shall be disbursed by the Escrow Agent to or at the direction of Seller as liquidated damages under Section 9.3 above, and any interest or other - 28 - 35 proceeds from the investment of the Deposit shall be disbursed by the Escrow Agent to or at the direction of Buyer. SECTION 10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; CERTAIN REMEDIES 10.1 Representations, Warranties and Covenants. All representations and warranties contained in this Agreement shall be deemed continuing representations and warranties and, shall survive (and not be affected in any respect by) the closing and any investigation conducted by any party and any information any party may receive, except for the representations and warranties contained in Sections 3.1, 3.2, 3.5 (in the case of Section 3.5 to the extent of the title representation only), 3.18, 4.1, 4.2 and 4.4 (each of which shall survive indefinitely), for a period of two (2) years and any claim for a breach of a representation or warranty must be brought prior to the expiration of such two (2) year period. Any claim for indemnification in respect of a covenant or agreement of Buyer or Seller hereunder to be performed before the Closing shall be made prior to the date which is two (2) years from the Closing Date. Notwithstanding anything in this Agreement to the contrary, the covenants and agreements in this Agreement to be performed after the Closing shall survive the Closing until fully performed. 10.2 Indemnification by Seller. Subject to Sections 10.1 and 10.4, Seller hereby agrees to indemnify and hold Buyer harmless against and with respect to, and shall reimburse Buyer for: (a) Any and all costs, losses, liabilities, or damages resulting from any inaccurate representation, breach of warranty, or nonfulfillment of any covenant by Seller contained in this Agreement or in any certificate, document, or instrument delivered to Buyer under this Agreement. (b) Any and all obligations of Seller not assumed by Buyer pursuant to this Agreement and the failure of Seller to perform any and all of such obligations, including any obligation or liability arising at any time under any Contract not included in the Assumed Contracts. (c) Any and all losses, liabilities, or damages resulting from the operation or ownership of the Stations prior to the Closing, including any liabilities arising under the Assumed Contracts or the Licenses which relate to events occurring prior the Closing Date. (d) Any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs, and expenses, including reasonable legal fees and expenses, incident to any of the foregoing or incurred in investigating or attempting to avoid the same or to oppose the imposition thereof, or in enforcing this indemnity. 10.3 Indemnification by Buyer. Subject to Sections 10.1 and 10.4, Buyer hereby agrees to indemnify and hold Seller harmless against and with respect to, and shall reimburse Seller for: - 29 - 36 (a) Any and all costs, losses, liabilities, or damages resulting from any inaccurate representation, breach of warranty, or nonfulfillment of any covenant by Buyer contained in this Agreement or in any certificate, document, or instrument delivered to Seller under this Agreement. (b) Any and all obligations of Seller assumed by Buyer pursuant to this Agreement and the failure of Buyer to perform any and all of such obligations. (c) Any and all losses, liabilities or damages resulting from the operation or ownership of the Stations on and after the Closing, including any obligation or liability arising under the Licenses and the Assumed Contracts which relate to events occurring after the Closing. (d) Any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs and expenses, including reasonable legal fees and expenses, incident to any of the foregoing or incurred in investigating or attempting to avoid the same or to oppose the imposition thereof, or in enforcing this indemnity. 10.4 Limitations. No indemnification shall be required to be made by any party hereto until the aggregate amount of all indemnification claims against such indemnifying party exceeds $50,000, provided that once such claims exceed $50,000, such indemnifying party shall only be required to indemnify the other party with respect to the portion of all claims which exceeds $50,000 in the aggregate. The previous limitation shall not apply to the prorations to the Purchase Price under Section 2.3. Notwithstanding anything to the contrary contained herein, in no event shall Seller's obligations for indemnification under this Agreement exceed in the aggregate the Purchase Price hereunder and Buyer hereby waives and releases any recourse against Seller for indemnification above the Purchase Price hereunder. Except as set forth in Section 10.6, the indemnification provisions in this Section 10 set forth the exclusive remedies of the parties hereto following the Closing for a breach of a representation, warranty or covenant under this Agreement or any other claims relating to this Agreement. There shall be no limitation as to amount or time with respect to any breach of a representation or warranty set forth in Sections 3.1, 3.2, 3.5 (in the case of Section 3.5 to the extent of the title representation only), 3.18, 4.1, 4.2 and 4.4. 10.5 Procedure for Indemnification. The procedure for indemnification shall be as follows: (a) The party claiming indemnification (the "Claimant") shall promptly give notice to the party from which indemnification is claimed (the "Indemnifying Party") of any claim, whether between the parties or brought by a third party, specifying in reasonable detail the factual basis for the claim. If the claim relates to an action, suit, or proceeding filed by a third party against Claimant, such notice shall be given by Claimant within five (5) days after written notice of such action, suit, or proceeding was given to Claimant, provided that any failure to give notice of such action, suit or proceeding within such five (5) day period shall not relieve the Indemnifying Party of its obligations hereunder except to the extent such failure shall have prejudiced such party in the defense or resolution of any such claim. - 30 - 37 (b) With respect to claims solely between the parties, following receipt of notice from the Claimant of a claim, the Indemnifying Party shall have thirty (30) days to make such investigation of the claim as the Indemnifying Party deems necessary or desirable. For the purposes of such investigation, the Claimant agrees to make available to the Indemnifying Party and/or its authorized representatives the information relied upon by the Claimant to substantiate the claim. If the Claimant and the Indemnifying Party agree at or prior to the expiration of the thirty (30) day period (or any mutually agreed upon extension thereof) to the validity and amount of such claim, the Indemnifying Party shall immediately pay to the Claimant the amount of the claim. If the Claimant and the Indemnifying Party do not agree within the thirty (30) day period (or any mutually agreed upon extension thereof), the Claimant may seek appropriate remedy at law or equity. (c) With respect to any claim by a third party as to which the Claimant is entitled to indemnification under this Agreement, the Indemnifying Party shall have the right at its own expense, to participate in or assume control of the defense of such claim, and the Claimant shall cooperate fully with the Indemnifying Party, subject to reimbursement for actual out-of-pocket expenses incurred by the Claimant as the result of a request by the Indemnifying Party. If the Indemnifying Party elects to assume control of the defense of any third-party claim, the Claimant shall have the right to participate in the defense of such claim at its own expense. If the Indemnifying Party does not elect to assume control or otherwise participate in the defense of any third party claim, it shall be bound by the results obtained by the Claimant with respect to such claim. (d) If a claim, whether between the parties or by a third party, requires immediate action, the parties will make every effort to reach a decision with respect thereto as expeditiously as possible. (e) The indemnification rights provided in Sections 10.2 and 10.3 shall extend to the shareholders, directors, officers, members, employees, and representatives of any Claimant although for the purpose of the procedures set forth in this Section 10.5, any indemnification claims by such parties shall be made by and through the Claimant. 10.6 Specific Performance. The parties recognize that if Seller breaches this Agreement and refuses to perform under the provisions of this Agreement, monetary damages alone would not be adequate to compensate Buyer for its injury. Buyer shall therefore be entitled to obtain specific performance of the terms of this Agreement. If any action is brought by Buyer to enforce this Agreement, Seller shall waive the defense that there is an adequate remedy at law. 10.7 Attorneys' Fees. If either Seller or Buyer brings suit against the other in connection with this Agreement and the party against whom suit is brought (the "Defendant") is successful in denying substantially all the relief sought by the claimant, then the Defendant shall be entitled to recover from the claimant the reasonable attorneys' fees and other costs and expenses incurred by the Defendant in connection with such suit regardless of whether such suit is prosecuted to judgment. - 31 - 38 10.8 Indemnification Fund. At the Closing, $2,000,000 of the Purchase Price payable by Buyer to Seller under Section 2.3(a) (the "Indemnity Fund") shall be deposited with the Escrow Agent. The Indemnity Fund shall be held in accordance with the terms hereof and the terms of the Indemnification Escrow Agreement in the form of Schedule 10.8 attached hereto (the "Indemnification Escrow Agreement"). The Indemnity Fund shall be used as a source of funds to satisfy indemnification claims by Buyer under this Section 10; provided, however, that the Indemnity Fund shall not be the only source of funds to satisfy indemnification claims by Buyer and Buyer shall have all of its rights at law and in equity to enforce its indemnification rights under this Section 10. Upon final determination of a claim in favor of Buyer by a court of competent jurisdiction or by mutual agreement of Buyer and Seller, Buyer shall be entitled to the amount of such claim from the Indemnity Fund. Any claims by Buyer against the Indemnity Fund must be made by Buyer before the date which is twelve months after the Closing Date (the "Indemnity Termination Date"). On the Indemnity Termination Date, the Escrow Agent shall disburse to Seller the Indemnity Fund together with all interest earned thereon less the amount of any claims made by Buyer against the Indemnity Fund prior to such date (the "Claim Amount"). The Claim Amount shall be retained by the Escrow Agent in escrow until the underlying claim or claims related thereto have been finally determined by a court of competent jurisdiction or by mutual agreement of Buyer and Seller. Buyer and Seller hereby agree to jointly direct the Escrow Agent to disburse any portion of the Indemnity Fund to any party which is entitled thereto pursuant to the terms hereof. 10.9 Bulk Transfer. Seller and Buyer hereby waive compliance with the provisions of any applicable bulk sales law and no representations, warranty or covenant contained in this Agreement shall be deemed to have been breached as a result of such non-compliance. SECTION 11. MISCELLANEOUS 11.1 Fees and Expenses. Buyer shall pay any federal, state, or local sales or transfer tax, including Florida documentary stamp tax, arising in connection with the conveyance of the Assets by Seller to Buyer pursuant to this Agreement and any filing fees under the HSR Act. Buyer and Seller shall each pay one-half of all filing fees required by the FCC in connection with the application for the FCC Consent. Except as otherwise provided in this Agreement, each party shall pay its own expenses incurred in connection with the authorization, preparation, execution, and performance of this Agreement, including all fees and expenses of counsel, accountants, agents, and representatives. Each party shall be responsible for all fees or commissions payable to any finder, broker, advisor, or similar person retained by or on behalf of such party. 11.2 Notices. All notices, demands, and requests required or permitted to be given under the provisions of this Agreement shall be (a) in writing, (b) delivered by personal delivery, or sent by commercial delivery service or registered or certified mail, return receipt requested, (c) deemed to have been given on the date of personal delivery or the date set forth in the records of the delivery service or on the return receipt, and (d) addressed as follows: - 32 - 39 If to Seller: Wabash Valley Broadcasting Corporation 4790 W. 16th Street Indianapolis, IN 46222 Attention: Mr. John H. Newcomb With a copy to: Ice Miller Donadio & Ryan One American Square, Box 82001 Indianapolis, IN 46282-0002 Attention: Thomas H. Ristine, Esq. If to Buyer: Emmis Broadcasting Corporation 950 North Meridian Street, Suite 1200 Indianapolis, IN 46204 Attention: Mr. Jeffrey H. Smulyan With a copy to: Attention: Bose McKinney & Evans 2700 First Indiana Plaza 135 North Pennsylvania Street Indianapolis, IN 46204 Attention: David L. Wills, Esq.
or to any other or additional persons and addresses as the parties may from time to time designate in a writing delivered in accordance with this Section 11.2. 11.3 Benefit and Binding Effect. Except as otherwise provided herein, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors or permitted assigns. Except to the extent specified herein, nothing in this Agreement, express or implied, shall confer on any person other than the parties hereto and their respective successors or permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 11.4 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by either party without the prior written consent of the other party provided that: (a) Either party may assign its rights under this Agreement as collateral security to any lender providing financing to the party or any of its Affiliates; and (b) Buyer may assign all of its rights under this Agreement to an Affiliate, provided that (i) the representations and warranties of Buyer hereunder shall be true and correct in all material respects as applied to the assignee, (ii) both Buyer and the assignee shall execute and deliver to Seller a written instrument in form and substance satisfactory to Seller within its reasonable judgment in which both Buyer and the assignee agree to be jointly and severally liable - 33 - 40 for performance of all of Buyer's obligations under this Agreement, and (iii) Buyer and the assignee shall deliver such other documents and instruments as reasonably requested by Seller, including appropriate certified resolutions of the boards of directors of Buyer and the assignee. 11.5 Further Assurances. The parties shall take any actions and execute any other documents that may be necessary or desirable for the implementation and consummation of this Agreement, including, in the case of Seller, any additional bills of sale, deeds, or other transfer documents that, in the reasonable opinion of Buyer, may be necessary to ensure, complete, and evidence the full and effective transfer of the Assets to Buyer pursuant to this Agreement. 11.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED, AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF INDIANA (WITHOUT REGARD TO THE CHOICE OF LAW PROVISIONS THEREOF). 11.7 Headings. The headings in this Agreement are included for ease of reference only and shall not control or affect the meaning or construction of the provisions of this Agreement. 11.8 Gender and Number. Words used in this Agreement, regardless of the gender and number specifically used, shall be deemed and construed to include any other gender, masculine, feminine, or neuter, and any other number, singular or plural, as the context requires. 11.9 Entire Agreement. This Agreement, the schedules, hereto, and all documents, certificates, and other documents to be delivered by the parties pursuant hereto, collectively represent the entire understanding and agreement between Buyer and Seller with respect to the subject matter hereof. This Agreement supersedes all prior negotiations between the parties and cannot be amended, supplemented, or changed except by an agreement in writing that makes specific reference to this Agreement and which is signed by the party against which enforcement of any such amendment, supplement, or modification is sought. 11.10 Waiver of Compliance; Consents. Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligation, representation, warranty, covenant, agreement, or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, representation, warranty, covenant, agreement, or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Agreement requires or permits consent by or on behalf of any party hereto, such consent shall be given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this Section 11.10. 11.11 Press Release. Prior to, at or after the Closing, neither party shall publish any press release, make any other public announcement or otherwise communicate with any news media concerning this Agreement or the transactions contemplated hereby without the prior written consent of the other party; provided, however, that nothing contained herein shall prevent either party from - 34 - 41 promptly making all filings with governmental authorities as may, in its judgement, be required or advisable in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 11.12 Counterparts. This Agreement may be signed in counterparts with the same effect as if the signature on each counterpart were upon the same instrument. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] - 35 - 42 IN WITNESS WHEREOF, the parties hereto have duly executed this Asset Purchase Agreement as of the day and year first above written. SELLER WABASH VALLEY BROADCASTING CORPORATION By:_____________________________________ John H. Newcomb, Executive Vice President BUYER EMMIS BROADCASTING CORPORATION By:______________________________________ Name:__________________________________ Title:_________________________________ - 36 - EX-10.16 6 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.16 ASSET PURCHASE AGREEMENT BY AND AMONG SF BROADCASTING OF HONOLULU, INC. SF HONOLULU LICENSE SUBSIDIARY, INC. SF BROADCASTING OF NEW ORLEANS, INC. SF NEW ORLEANS LICENSE SUBSIDIARY, INC. SF BROADCASTING OF MOBILE, INC. SF MOBILE LICENSE SUBSIDIARY, INC. SF BROADCASTING OF GREEN BAY, INC. SF GREEN BAY LICENSE SUBSIDIARY, INC. AS SELLERS, AND EMMIS BROADCASTING CORPORATION AS BUYER MARCH 30, 1998 2 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of March 30, 1998, by and among SF BROADCASTING OF HONOLULU, INC., a Delaware corporation ("SF Honolulu"), SF HONOLULU LICENSE SUBSIDIARY, INC., a Delaware corporation ("Honolulu Licensee"), SF BROADCASTING OF NEW ORLEANS, INC., a Delaware corporation ("SF New Orleans"), SF NEW ORLEANS LICENSE SUBSIDIARY, INC., a Delaware corporation ("New Orleans Licensee"), SF BROADCASTING OF MOBILE, INC., a Delaware corporation ("SF Mobile"), SF MOBILE LICENSE SUBSIDIARY, INC., a Delaware corporation ("Mobile Licensee"), SF BROADCASTING OF GREEN BAY, INC., a Delaware corporation ("SF Green Bay") and SF GREEN BAY LICENSE SUBSIDIARY, INC., a Delaware corporation ("Green Bay Licensee") (each of the foregoing entities shall be referred to herein individually as a "Seller" and collectively as "Sellers"), and EMMIS BROADCASTING CORPORATION, an Indiana corporation ("Buyer"). RECITALS: WHEREAS, SF Honolulu owns and operates television station KHON(TV), Channel 2, Honolulu, Hawaii, together with satellite station KAII(TV) Wailuku, Hawaii and satellite station KHAW(TV) Hilo, Hawaii, television translator station K55DZ Lihue and Kauai, Hawaii, and McHale Videofilm (each of the foregoing stations together with McHale Videofilm are collectively referred to herein as the "Honolulu Station"); and Honolulu Licensee holds the licenses and authorizations issued by the Federal Communications Commission (the "FCC") for the operation of the Honolulu Station; WHEREAS, SF Green Bay owns and operates television station WLUK(TV), Channel 11, Green Bay, Wisconsin and television translator station W40AN Escanaba, Michigan (the "Green Bay Station"); and Green Bay Licensee holds the licenses and authorizations issued by the FCC for the operation of the Green Bay Station; WHEREAS, SF Mobile owns and operates television station WALA(TV), Channel 10, Mobile, Alabama (the "Mobile Station"); and Mobile Licensee holds the licenses and authorizations issued by the FCC for the operation of the Mobile Station; WHEREAS, SF New Orleans owns and operates television station WVUE(TV), Channel 8, New Orleans, Louisiana (the "New Orleans Station" and together with the Mobile Station, the Green Bay Station and the Honolulu Station, the "Stations"); and New Orleans Licensee holds the licenses and authorizations issued by the FCC for the operation of the New Orleans Station; 3 TABLE OF CONTENTS
Page ARTICLE I TERMINOLOGY..................................................... 2 1.1 Defined Terms........................................................ 2 1.2 Additional Defined Terms............................................. 7 ARTICLE II PURCHASE AND SALE.............................................. 8 2.1 Sale Assets.......................................................... 8 2.2 Excluded Assets......................................................10 2.3 Assumption of Liabilities............................................11 2.4 Earnest Money........................................................11 2.5 Purchase Price.......................................................12 2.6 Allocation of the Purchase Price.....................................17 2.7 Adjustment of Purchase Price.........................................18 2.8 Accounts Receivable..................................................20 2.9 Seller Representative................................................21 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS.....................21 3.1 Organization, Good Standing and Corporate Power......................21 3.2 Authorization and Binding Effect of Documents........................21 3.3 Absence of Conflicts.................................................22 3.4 Consents.............................................................22 3.5 Sale Assets; Title...................................................22 3.6 FCC Licenses.........................................................22 3.7 Station Agreements...................................................24 3.8 Tangible Personal Property...........................................26 3.9 Real Property........................................................26 3.10 Intellectual Property................................................27 3.11 Financial Statements.................................................28 3.12 Absence of Certain Changes or Events.................................29 3.13 Litigation...........................................................30 3.14 Labor Matters........................................................30 3.15 Employee Benefit Plans...............................................31 3.16 Compliance with Law..................................................33 3.17 Tax Returns and Payments.............................................33 3.18 Environmental Matters................................................33
i 4 3.19 Broker's or Finder's Fees............................................35 3.20 Insurance............................................................35 3.21 Cable Television Transmission........................................35 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER........................35 4.1 Organization and Good Standing.......................................35 4.2 Authorization and Binding Effect of Documents........................35 4.3 Absence of Conflicts.................................................36 4.4 Consents.............................................................36 4.5 Broker's or Finder's Fees............................................36 4.6 Litigation...........................................................36 4.7 Buyer's Qualification................................................37 4.8 Adequacy of Financing................................................37 4.9 Capitalization; Buyer Stock..........................................37 4.10 SEC Filings; Financial Statements....................................38 4.11 Material Contracts...................................................38 4.12 WARN Act.............................................................39 4.13 No Outside Reliance..................................................39 ARTICLE V OTHER COVENANTS.................................................39 5.1 Conduct of the Stations' Business Prior to the Closing Date..........39 5.2 Notification of Certain Matters......................................41 5.3 HSR Filing...........................................................41 5.4 FCC Filing...........................................................42 5.5 Title; Additional Documents..........................................42 5.6 Other Consents.......................................................42 5.7 Inspection and Access................................................42 5.8 Confidentiality......................................................43 5.9 Publicity............................................................43 5.10 Material Adverse Change..............................................43 5.11 Reasonable Best Efforts..............................................43 5.12 FCC Reports and Applications.........................................44 5.13 Tax Returns and Payments.............................................44 5.14 No Solicitation......................................................44 5.15 Certified Resolutions................................................44 5.16 Audited Financial Statements.........................................45 5.17 Studio Relocation....................................................45 5.18 SEC Registration Statement...........................................45 5.19 Environmental Inspection.............................................45
ii 5 5.20 Affiliate Guaranty...................................................46 ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE..............................................46 6.1 Accuracy of Representations and Warranties; Closing Certificate......46 6.2 Performance of Agreement.............................................46 6.3 FCC Orders...........................................................46 6.4 HSR Act..............................................................47 6.5 Opinions of Sellers' Counsel.........................................47 6.6 Required Consents....................................................48 6.7 Delivery of Closing Documents........................................49 6.8 No Adverse Proceedings...............................................49 6.9 No Material Adverse Change...........................................49 ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLERS TO CLOSE............................................49 7.1 Accuracy of Representations and Warranties...........................49 7.2 Performance of Agreements............................................50 7.3 FCC Orders...........................................................50 7.4 HSR Act..............................................................50 7.5 Opinion of Buyer's Counsel...........................................50 7.6 No Adverse Proceedings...............................................50 7.7 Delivery of Closing Documents........................................51 7.8 Effectiveness of Registration Statement..............................51 7.9 Listing of Shares....................................................51 ARTICLE VIII CLOSING......................................................51 8.1 Time and Place.......................................................51 8.2 Documents to be Delivered to Buyer by Sellers........................51 8.3 Deliveries to Sellers by Buye........................................52 ARTICLE IX INDEMNIFICATION................................................53 9.1 Survival.............................................................53 9.2 Indemnification by Sellers...........................................54 9.3 Indemnification by Buyer.............................................55 9.4 Administration of Indemnification....................................55 ARTICLE X TERMINATION; LIQUIDATED DAMAGES.................................57 10.1 Right of Termination.................................................57 10.2 Obligations Upon Termination.........................................57
iii 6 10.3 Termination Notice..................................................58 ARTICLE XI CONTROL OF STATIONS............................................58 ARTICLE XII EMPLOYMENT MATTERS............................................58 12.1 Transfer of Employees...............................................58 12.2 Employee Benefit Plans..............................................59 12.3 Union Employees.....................................................60 12.4 Employment Agreements...............................................60 ARTICLE XIII MISCELLANEOUS................................................60 13.1 Further Actions.....................................................60 13.2 Payment of Expenses.................................................60 13.3 Specific Performance................................................61 13.4 Notices.............................................................61 13.5 Entire Agreement....................................................62 13.6 Binding Effect; Benefits............................................63 13.7 Assignment..........................................................63 13.8 Governing Law.......................................................63 13.9 Amendments and Waivers..............................................63 13.10 Severability........................................................64 13.11 Headings............................................................64 13.12 Counterparts........................................................64 13.13 References..........................................................64 13.14 Schedules and Exhibits..............................................64 13.15 Joint and Several Liability.........................................64 EXHIBITS: - - --------- Exhibit A Form of Promissory Note Exhibit B Form of Stock Pledge Agreement Exhibit C Form of Fox Affiliation Agreement Exhibit D Form of Guaranty SCHEDULES Schedule 2.2(l) Additional Excluded Assets Schedule 2.8 Retained Receivables
7 Schedule 3.1 Foreign Qualifications Schedule 3.3 Required Consents and Filings Schedule 3.5 Liens to be Released Prior to Closing Schedule 3.6 FCC Licenses Schedule 3.7(a) Trade Agreements Schedule 3.7(b) Station Agreements Schedule 3.7(c) Affiliate Agreements Schedule 3.8 Tangible Personal Property Schedule 3.9 Real Property Interests Schedule 3.10 Intellectual Property Schedule 3.12 Absence of Certain Changes or Events Schedule 3.13 Litigation Schedule 3.14(a) Employee Claims Schedule 3.14(c) List of Employees Schedule 3.15 Employee Benefit Plans Schedule 3.17 Tax Returns and Payments Schedule 3.18 Environmental Matters Schedule 3.21 Cable Television Transmissions Schedule 6.6 Required Consents viii 8 WHEREAS, pursuant to a guaranty (the "Guaranty") to be given to Buyer on the Closing Date by USA Broadcasting, Inc., a Delaware corporation and an Affiliate of each of the Sellers ("USA Broadcasting"), USA Broadcasting will guarantee to Buyer the prompt and complete performance of the obligations of Sellers arising under this Agreement and the other Seller Documents; and WHEREAS, Buyer desires to acquire substantially all the assets used or useful in the business and operation of the Stations, and Sellers are willing to convey such assets to Buyer. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sellers and Buyer agree as follows: ARTICLE I TERMINOLOGY 1.1 DEFINED TERMS. As used herein, the following terms shall have the meanings indicated: Affiliate: With respect to any specified Person, another Person which, or a member of an immediate family which, directly or indirectly controls, is controlled by, or is under common control with, the specified Person. Appraisal Firm: Bond & Pecaro. Assumed Plans: The Benefit Plans to which Sellers are required to contribute pursuant to the collective bargaining agreements and labor union contracts that are Station Agreements. Code: The Internal Revenue Code of 1986, as amended. Common Stock: The Class A Common Stock, $.01 par value per share, of Buyer. - 2 - 9 Documents: This Agreement, the Note, the Stock Pledge Agreement and all Exhibits and Schedules hereto, and each other agreement, certificate or instrument delivered pursuant to this Agreement. Earnest Money: As of a given date, the amount deposited as of such date with the Escrow Agent under the Escrow Agreement, together with the interest and other earnings thereon as of such date. Escrow Agent: NBD Bank, N.A., a national banking association headquartered in Indianapolis, Indiana. Escrow Agreement: The Escrow Agreement, dated as of the date hereof, by and among the Sellers, the Seller Representative, Buyer and the Escrow Agent relating to the deposit, holding, investment and disbursement of the Earnest Money. Exchange Act: The Securities Exchange Act of 1934, as amended. Fair Market Value: The per share closing price of the Common Stock on NASDAQ for the second trading day preceding the determination date, as accurately reported in The Wall Street Journal. FCC: Federal Communications Commission. FCC Orders: The orders or decisions of the FCC granting its consent to the transfer of all of the FCC Licenses to Buyer. Final Action: An action of the FCC that has not been reversed, stayed, enjoined, set aside, annulled or suspended; with respect to which no timely petition for reconsideration or administrative or judicial appeal or sua sponte action of the FCC with comparable effect is pending; and as to which the time for filing any such petition or appeal (administrative or judicial) or for the taking of any such sua sponte action of the FCC has expired. Fox Children's Network Payment Rights: Rights of the Sellers to receive payments from or in connection with the Fox Children's Network. Green Bay Station: Television station WLUK(TV), Channel 11, Green Bay, Wisconsin and television translator station W40AN Escanaba, Michigan. 3 10 Honolulu Station: Television station KHON(TV), Channel 2, Honolulu, Hawaii, satellite station KAII(TV) Wailuku, Hawaii, satellite station KHAW(TV) Hilo, Hawaii, television translator station K55DZ Lihue and Kauai, Hawaii, and McHale Videofilm. Liabilities: As to any Person, all debts, adverse claims, liabilities and obligations, direct, indirect, absolute or contingent of such Person, whether accrued, vested or otherwise, whether in contract, tort, strict liability or otherwise and whether or not actually reflected, or required by generally accepted accounting principles to be reflected, in such Person's balance sheets or other books and records. Lien: Any mortgage, deed of trust, pledge, hypothecation, title defect, right of first refusal, security or other adverse interest, encumbrance, easement, restriction, claim, option, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, affecting any assets or property, including any agreement to give or grant any of the foregoing, any conditional sale or other title retention agreement, and the agreement by any Seller to give any financing statement with respect to any assets or property under the Uniform Commercial Code or comparable law of any jurisdiction. Loss: With respect to any person or entity, any and all costs, obligations, liabilities, demands, claims, settlement payments, awards, judgments, fines, penalties, damages and reasonable out-of-pocket expenses, including court costs and reasonable attorneys' fees, whether or not arising out of a third party claim. Material Adverse FCC Condition: A condition imposed by the FCC which would restrict, limit, increase the cost or burden of or otherwise adversely affect or impair, in each case in any material respect, the right of Buyer to the ownership, use, control or operation of any Station; provided, however, that any condition imposed by the FCC which requires (i) that Buyer or any of Buyer's Subsidiaries file periodic reports with the FCC regarding compliance with rules and policies of the FCC pertaining to affirmative action and equal opportunity employment, or (ii) that a Station be operated in accordance with conditions similar to and not materially more adverse than those contained in the present FCC Licenses shall not be a Material Adverse FCC Condition. Material Adverse Effect: A material adverse effect on the assets, business, or operations of the Stations taken as a whole, except for any such material adverse effect resulting from (a) general economic 4 11 conditions applicable to the television broadcast industry, (b) circumstances that are not likely to recur and either have been substantially remedied or that can be substantially remedied without substantial cost or delay, or (c) Buyer's refusal to consent to any new lease or purchase agreement in connection with relocation of the Honolulu Station's office and studio as contemplated in Section 5.17. Mobile Station: Television station WALA(TV), Channel 10, Mobile, Alabama. NASDAQ: The National Association of Securities Dealers' Automated Quotation System/National Market. New Orleans Station: Television station WVUE(TV), Channel 8, New Orleans, Louisiana. Parent Entities: SF Multistations, Inc. and SF Broadcasting of Wisconsin, Inc., each a Delaware corporation and the owner of all of the outstanding capital stock of certain of the Sellers. Permitted Lien: (a) Any statutory Lien which secures a payment not yet due that arises, and is customarily discharged, in the ordinary course of Sellers' business; (b) any other Liens or imperfections in Sellers' title to any Sale Assets or properties that, individually and in the aggregate, are not material in character or amount and are not reasonably expected to materially detract from the value or materially interfere with the existing use of any of the Sale Assets; (c) Liens arising in connection with equipment or maintenance financing or leasing under the terms of the Station Agreements; (d) Liens arising pursuant to the terms of leases on Real Property or Leased Real Property which are subject to any lease or sublease to a third party; (e) Liens for Taxes not yet due and payable or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on Sellers' books in accordance with GAAP; and (f) Liens specified on the current title insurance policies for the Owned Real Property provided by Sellers to Buyer prior to the date hereof (except for Liens securing indebtedness of Sellers for borrowed money). Person: Any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, other form of business or legal entity or Governmental Authority. 5 12 Proration Items: Any power and utility charges, business and license fees (including retroactive adjustments thereof), sales and service charges, commissions, special assessments, and rental payments and personal and real estate Taxes and assessments with respect to the Real Property, Taxes (except for Transfer Taxes arising from the transfer of the Assets hereunder), deposits, rights and obligations under Trade Agreements, accrued vacation, unused sick leave and other similar prepaid and deferred items and any other operating expenses incurred in the ordinary course of Sellers' business, and all operating income and revenue of the Stations. The parties acknowledge and agree that there shall be excluded from Proration Items the severance pay relating to any employee of any Seller that is payable under any severance plan or arrangement of any Seller (which severance pay shall remain the obligation of Sellers). SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended. Subsidiary: With respect to any Person, a corporation, partnership, limited liability company, or other entity of which shares of stock or other ownership interests having ordinary voting power to elect a majority of the directors of such corporation, or other Persons performing similar functions for such entity, are owned, directly or indirectly, by such Person. Stations: The New Orleans Station, the Mobile Station, the Green Bay Station and the Honolulu Station. Taxes: All federal, state, local and foreign taxes including, without limitation, income, gains, transfer, unemployment, withholding, payroll, social security, real property, personal property, excise, sales, use and franchise taxes, levies, assessments, imposts, duties, licenses and registration fees and charges of any nature whatsoever, including interest, penalties and additions with respect thereto and any interest in respect of such additions or penalties. Tax Return: Any return, filing, report, declaration, questionnaire or other document required to be filed for any period with any taxing authority (whether domestic or foreign) in connection with any Taxes (whether or not payment is required to be made with respect to such document). 6 13 TBA: Any time brokerage agreement, local marketing arrangement, joint sales agreement, joint operating agreement, limited management agreement or other similar agreement or contract. Transfer Taxes: All sales, use, conveyance, recording and other similar transfer Taxes and fees applicable to, imposed upon or arising out of the sale by Sellers and the purchase by Buyer of the Stations whether now in effect or hereinafter adopted and regardless of which party such Transfer Tax is imposed upon. Transfer Taxes shall in no event include any net or gross income Taxes. USA Broadcasting: USA Broadcasting, Inc., a Delaware corporation and Affiliate of each of the Sellers. 1.2 ADDITIONAL DEFINED TERMS. As used herein, the following terms shall have the meanings defined in the section indicated below: Acquisition Proposal Section 5.14 Act Section 3.6(b) Adjustment Amount Section 2.7(a) Appraisal Report Section 2.6(a) Arbitrator Section 2.7(d) Assumed Obligations Section 2.3(a) Benefit Plans Section 3.15(a) Buyer Material Contracts Section 4.13 Buyer SEC Reports Section 4.10 Buyer's Plan Section 12.1(f) Cap Section 9.2(c) Carrying System Section 3.21 Closing Section 8.1 Closing Date Section 8.1 Collection Period Section 2.8(b) Deductible Section 9.2(b) employee benefit plans Section 3.15(a) employee pension benefit plans Section 12.1(c) employee welfare benefit plans Section 12.1(c) Employees Section 3.15(a) ERISA Section 3.15(a) Excluded Assets Section 2.2 FCC Arbitrator Section 6.3(b) FCC Licenses Section 3.6(a)
7 14 Fox Network Agreements Section 8.2(i) HSR Act Section 5.3 HSR Filing Section 5.3 Indemnified Party Section 9.4(a) Indemnifying Party Section 9.4(a) Intellectual Property Section 2.1(e) Interim Balance Sheet Section 3.11(c) Leased Real Property Section 5.18 Maturity Date Section 2.5(a)(iv) Multiemployer Plan Section 3.15(c) Note Section 2.5(a)(iv) Owned Real Property Section 3.9(b) Preliminary Adjustment Report Section 2.7(b) Purchase Price Section 2.5(a) Real Property Section 2.1(b) Registration Statement Section 5.17 Related Persons Section 3.15(a) Retained Receivables Section 2.8(a) Sale Assets Section 2.1 Seller Representative Section 2.9 Sellers' Enforcement Costs Section 10.2(c) Sellers' Liquidated Damage Amount Section 10.2(c) Sellers' Plan Section 12.1(f) Shares Section 2.5(c) significant issue Section 6.3(b) Station Agreements Section 2.1(d) Stock Pledge Agreement Section 2.5(a)(iv) Studio Relocation Section 5.16 Survival Period Section 9.1 Tangible Personal Property Section 2.1(a) Trade Agreements Section 3.7(a) Transferred Employees Section 12.1(a)
ARTICLE II PURCHASE AND SALE 2.1 SALE ASSETS. 8 15 Upon and subject to the terms and conditions provided herein, on the Closing Date, Sellers will sell, transfer, assign and convey to Buyer, and Buyer will purchase from Sellers, all of Sellers' right, title and interest in and to all tangible and intangible assets (except Excluded Assets) used by each Seller or useful by each Seller in the operation of the Stations as each has been and is now operated (the "Sale Assets"), including the following: (a) Tangible Personal Property. All transmitter, antenna and other broadcast equipment, studio equipment, furniture, parts, artwork, computers and office equipment, supplies, programming library and other tangible personal property owned or leased by Sellers and used in the operation of any Station, including but not limited to the items listed on Schedule 3.8, together with such modifications, replacements, improvements and additional items, and subject to such deletions therefrom, made or acquired by Sellers between the date hereof and the Closing Date in accordance with the terms and provisions of this Agreement (the "Tangible Personal Property"). (b) Real Property. All interests of Sellers (including, but not limited to, leaseholds) in the real estate listed on Schedule 3.9 and all fixtures and improvements thereon, together with such additional improvements and interests in real estate made or acquired between the date hereof and the Closing Date (the "Real Property"). (c) Permits. The FCC Licenses and all other governmental permits, licenses and authorizations (and any renewals, extensions, amendments or modifications thereof) now held by Sellers or hereafter obtained by Sellers between the date hereof and the Closing Date, that are necessary for the operation of the Stations. (d) Fox Children's Network Payment Rights. All rights to payments made after March 31, 1997 pursuant to the Fox Children's Network Payment Rights. (e) Station Agreements. All rights of Sellers in, to and under all contracts, leases, agreements, commitments and other arrangements, and any amendments or modifications, used or useful in the operation of any Station as of the date hereof (including, but not limited to, those listed on Schedule 3.7(b)) or made or entered into by any Seller between the date hereof and the Closing Date in compliance with this Agreement (the "Station Agreements"). (f) Intellectual Property. All trade names, trademarks, service marks, copyrights, patents, jingles, slogans, symbols, logos, the call letters KHON(TV), KAII(TV), KAHW(TV), WLUK(TV), WALA(TV) and WVUE(TV), inventions, and any other proprietary material, process, trade secret or trade right used by any Seller in the operation of any Station, and all registrations, applications and licenses for any of the foregoing, including, without limitation, those set forth on Schedule 3.10; any additional such items acquired or used by any Seller in connection with the operation of any 9 16 Station between the date hereof and the Closing Date; and all goodwill associated with any of the foregoing (collectively, the "Intellectual Property"); provided, however, that the Intellectual Property shall not include and Sellers shall retain exclusive rights to, all right, title and interest whatsoever in or to the names "SF Broadcasting", "USA Networks", "Fox" or any derivations thereof or any signs, symbols or logos bearing the names "SF Broadcasting", "USA Networks" or "Fox". (g) Records. The originals or true and complete copies of all of the books, records, accounts, files, logs, ledgers and journals pertaining to or used in the operation of any Station, including, but not limited to, any of such items stored on computer disks or tapes. (h) Miscellaneous Assets. Any other tangible or intangible assets, properties or rights of any kind or nature not otherwise described above in this Section 2.1 and now or hereafter owned or used by Sellers in connection with the operation of the Stations, including but not limited to all goodwill of the Stations. 2.2 EXCLUDED ASSETS. Notwithstanding any provision of this Agreement to the contrary, the Sale Assets shall not include the following (the "Excluded Assets"): (a) Any and all cash, bank deposits and other cash equivalents, certificates of deposits, marketable securities, cash deposits made by Sellers to secure contract obligations, and all accounts receivable (except in each case to the extent Sellers receive a credit therefor under Section 2.7 and except for rights to receive payments after the date hereof pursuant to the Fox Children's Network Payment Rights); (b) All rights and claims of any Seller whether mature, contingent or otherwise, against third parties relating to the Assets or the Stations, whether in tort, contract, or otherwise, to the extent arising during and relating to any period prior to the Closing Date; (c) All prepaid expenses (and rights arising therefrom or related thereto) except to the extent taken into account in determining the Adjustment Amount under Section 2.7; (d) All Benefit Plans (other than the Assumed Plans); (e) Any and all claims of any Seller with respect to any Tax refunds; 10 17 (f) All of each Seller's rights under or pursuant to this Agreement or any other rights in favor of Sellers pursuant to the other Documents; (g) All rights to payments made prior to the date hereof pursuant to the Fox Children's Network Payment Rights; (h) All loan agreements and other instruments evidencing indebtedness for borrowed money; (i) All contracts of insurance, all coverages and proceeds thereunder and all rights in connection therewith, including, without limitation, rights arising from any refunds due with respect to insurance premium payments to the extent they relate to such insurance policies; (j) All tangible personal property disposed of or consumed between the date hereof and the Closing Date in accordance with the terms and provisions of this Agreement; (k) Sellers' corporate minute books, corporate seal, stock transfer records and other corporate records and any records relating to Excluded Assets and to liabilities other than the Assumed Obligations; and (l) The assets listed and identified on Schedule 2.2(l). 2.3 ASSUMPTION OF LIABILITIES. (a) Buyer shall at Closing assume and agree to pay, discharge, perform and indemnify and hold Sellers harmless from and against the following Liabilities of Sellers and the Stations (collectively, the "Assumed Obligations"): (i) All Liabilities arising under all Station Agreements (including, without limitation, all Trade Agreements) and the FCC Licenses assigned and transferred to Buyer in accordance with this Agreement to the extent such Liabilities arise during and relate to any period on or after the Closing Date (excluding, however, any Liability arising from either (A) the breach of any Station Agreement by reason of its assignment to Buyer without a required consent or (B) any other breach or default by Sellers upon or prior to Closing under any Station Agreement). (ii) Provided that Sellers pay Buyer the amount, if any, owed by Sellers after Closing under Section 2.7, the Assumed Obligations shall also include such other Liabilities of Sellers and the Stations to the extent, and only to the extent, the amount thereof is included as a credit to 11 18 Buyer in calculating the Adjustment Amount as ultimately determined pursuant to Section 2.7. (b) Except for the Assumed Obligations, Buyer shall not assume or in any manner be liable for any Liabilities of Sellers of any kind or nature, all of which Sellers shall pay, discharge and perform when due. 2.4 EARNEST MONEY. (a) Concurrently with the execution of this Agreement, Buyer has deposited with the Escrow Agent in immediately available funds the sum of Twenty-Five Million Dollars ($25,000,000). (b) The Escrow Agent shall hold the Earnest Money under the terms of the Escrow Agreement in trust for the benefit of the parties hereto. (c) If Closing does not occur, the Earnest Money shall be delivered to Sellers or returned to Buyer in accordance with Section 10.2, and if Closing does occur, the Earnest Money shall be applied at Closing as provided in Section 2.5. (d) If Buyer provides evidence reasonably satisfactory to Sellers demonstrating Buyer's ability to finance the purchase of the Sale Assets, Sellers shall promptly cooperate with Buyer to cause the Escrow Agent to return to Buyer Five Million Dollars ($5,000,000) of the Earnest Money. 2.5 PURCHASE PRICE. (a) The purchase price for the Sale Assets ("Purchase Price") shall be Three Hundred Seven Million Dollars ($307,000,000), subject to adjustment as provided in Section 2.7, payable as follows: (i) An amount equal to the Earnest Money shall be paid by the Escrow Agent's disbursement of the Earnest Money to Sellers by wire transfer of immediately available funds pursuant to joint written instructions from Sellers and Buyer. (ii) The sum of (A) Two Hundred Fifty-Seven Million Dollars ($257,000,000) minus (B) the Earnest Money shall be paid by Buyer to Sellers on the Closing Date by wire transfer of immediately available funds pursuant to the written instructions from Sellers to Buyer. (iii) An additional Twenty-Five Million Dollars ($25,000,000) shall be paid by Buyer to Sellers on the Closing Date by wire transfer of immediately available funds pursuant to the written 12 19 instructions from Sellers to Buyer, provided that Buyer may elect by written notice received by Sellers at least ten (10) business days prior to the Closing Date to pay such portion of the Purchase Price by the issuance to Sellers on the Closing Date of the number of shares of Common Stock equal to the quotient of Twenty-Five Million Dollars ($25,000,000) divided by the Fair Market Value as of the Closing Date, with any fractional share interest to be paid in cash based on the Fair Market Value as of the Closing Date. (iv) An additional Twenty-Five Million Dollars ($25,000,000) shall be paid by Buyer's execution and delivery to the Seller Representative (or the Seller Representative's designee) on the Closing Date of a Promissory Note, in the form of Exhibit A (the "Note"), in the principal amount of Twenty-Five Million Dollars ($25,000,000) due and payable, together with interest at eight percent (8.0%) per annum, on the first anniversary of the Closing Date (the "Maturity Date"). On four (4) business days prior written notice to the holder of the Note, the principal amount of the Note, together with all accrued and unpaid interest, may be prepaid in whole at any time in cash or by wire transfer of immediately available funds, without premium or penalty. The Note shall be payable by wire transfer of immediately available funds, provided that Buyer may elect by written notice received by Sellers at least ten (10) business days prior to the payment date, to make payment by issuance to the Seller Representative (or the Seller Representative's designee) of the number of shares of Common Stock equal to the quotient of the amount of the outstanding principal and accrued interest under the Note as of the payment date, divided by the Fair Market Value as of the payment date, with any fractional share interest to be paid in cash based on the Fair Market Value as of the payment date. In order to secure the obligations of Buyer under the Note, Buyer shall grant to Sellers at Closing a first priority perfected security interest in Shares as more particularly described in the Stock Pledge Agreement attached hereto as Exhibit B (the "Stock Pledge Agreement"). (b) Sellers shall furnish Buyer wire instructions at least two (2) business days prior to the Closing Date for payments to be made by Buyer to Sellers on the Closing Date, and not later than three (3) business days after Sellers' receipt of Buyer's written request with respect to prepayment of the Note. (c) All shares of Common Stock issuable in payment of the Purchase Price or the Note, and all shares of Common Stock issuable as security for repayment of the Note (collectively, the "Shares") shall, as of the Closing Date and at all times thereafter until sold by Sellers, be (i) subject to Section 2.5(d), freely tradeable, 13 20 (ii) registered pursuant to a registration statement declared effective by the SEC under the Securities Act on or prior to the Closing Date and (iii) included for listing on NASDAQ. (d) Buyer acknowledges that Sellers would have preferred that the Purchase Price be paid entirely in cash at Closing. As an inducement to Sellers for their agreement under Section 2.5(a)(iii) to permit Buyer at Buyer's election to satisfy a Twenty-Five Million Dollar ($25,000,000.00) portion of the Purchase Price by issuance of Shares on the Closing Date (the "Initial Payment Shares"), Buyer and Sellers agree as follows: (i) Unless the Seller Representative notifies the Buyer in writing at or prior to Closing that the Sellers have elected to waive their rights under this Section 2.5(d) (an "IPS Waiver Notice"), the sale of the Initial Payment Shares shall be subject to the terms and conditions of this Section 2.5(d). If the Seller Representative shall provide an IPS Waiver Notice at or prior to Closing, then neither Sellers nor Buyer shall have any rights or obligations under this Section 2.5(d) in respect of any Initial Payment Shares. (ii) Unless the Seller Representative shall have provided an IPS Waiver Notice at or prior to Closing, Sellers shall not be entitled to sell the Initial Payment Shares during the thirty (30) day period following the Closing Date (the "IPS Lockup Period") except in accordance with this Section 2.5(d)(ii). During the IPS Lockup Period, Buyer shall be entitled to cause Sellers to sell in a commercially reasonable manner such Initial Payment Shares to such buyers and for such prices as directed by Buyer to the Seller Representative in writing at least two (2) business days prior to the date of any such sale, provided that (A) such sale (or sales) shall be for cash, shall close within the IPS Lockup Period and all proceeds from such sale (or sales) shall be immediately paid to the Sellers, and (B) Buyer shall pay Sellers in immediately available funds on the first business day after expiration of the IPS Lockup Period the sum of (i) the amount, if any, by which the product of (A) Twenty-Five Million Dollars ($25,000,000) times (B) a fraction having a numerator equal to the number of Initial Payment Shares sold during the IPS Lockup Period in accordance with this Section 2.5(d)(ii) and a denominator equal to the total number of Initial Payment Shares, exceeds the amount equal to the aggregate cash proceeds received by Sellers from such sale (or sales) after deduction for all trade costs, sale expenses and block trade discounts, but without any deduction for brokerage commissions, plus (ii) interest on the balance of the IPS Guaranteed Amount outstanding from time to time calculated at a rate of eight percent (8%) per annum 14 21 from the Closing Date until the amount in Clause (i) is paid to Sellers, provided that if no amount is payable to Sellers under foregoing Clause (i), such interest shall be payable on the first business day after expiration of the IPS Lockup Period. Upon Buyer's payment of the amounts payable under foregoing Clauses (i) and (ii), no further interest shall accrue or be payable upon any balance of the IPS Guaranteed Amount. (iii) Any Initial Payment Shares that are subject to the IPS Lockup Period but are not sold in accordance with Section 2.5(d)(ii) within the IPS Lockup Period (the "Remaining IPS Payment Shares") may be sold by Sellers after expiration of the IPS Lockup Period in any commercially reasonable manner that Sellers desire. Upon expiration of the period ("Post-IPS Lockup Period") commencing immediately after the IPS Lockup Period and ending upon the earlier of (A) the date on which all Remaining IPS Payment Shares have been sold or (B) the first anniversary of the Closing Date, Buyer shall pay to Sellers in immediately available funds the amount, if any, by which the product of (A) Twenty-Five Million Dollars ($25,000,000) times (B) a fraction having a numerator equal to the number of Remaining IPS Payment Shares sold during the Post-IPS Lockup Period and a denominator equal to the total number of Initial Payment Shares, exceeds the amount equal to the aggregate cash proceeds received by Sellers from such sale (or sales) after deduction for all trade costs, sale expenses and block trade discounts, but without any deduction for brokerage commissions; provided that Buyer's obligation to make such payment shall be conditioned upon Sellers' submission to Buyer of a reasonably detailed and certified statement setting forth, for each sale of Remaining IPS Payment Shares during the Post-IPS Lockup Period, the per share sale price, the manner of sale, and any related trade costs, sale expenses, block trade discounts and brokerage commissions. Sellers shall have no rights against Buyer under this Section 2.5(d) with respect to any Remaining IPS Payment Shares that are not sold within the Post-IPS Lockup Period. (iv) As used in this Section 2.5(d), the term "IPS Guaranteed Amount" shall mean, as of any date commencing on the Closing Date and ending on the date immediately preceding the date on which the payments required under Section 2.5(d)(ii) are made, the amount, if any, by which (i) Twenty-Five Million Dollars ($25,000,000) exceeds as of such date (ii) the aggregate cash proceeds received by Sellers as of such date from any sale of Initial Payment Shares after deduction for all trade costs, sale expenses and block trade discounts, but without any deduction for brokerage commissions. 15 22 (e) As an inducement to Sellers for their agreement to permit Buyer at Buyer's election to pay the Note by issuance of Shares on the earlier of the maturity date or a prepayment date (the "Subsequent Payment Shares"), Buyer and Sellers agree as follows: (i) Unless the holder of the Note (the "Holder") notifies the Buyer in writing on or prior to the date on which the Note is paid in full by the issuance of Shares, whether on the maturity date or a prepayment date (the "Note Payment Date"), that the Holder has elected to waive its rights under this Section 2.5(e) (an "SPS Waiver Notice"), the sale of the Subsequent Payment Shares shall be subject to the terms and conditions of this Section 2.5(e). If the Holder shall provide an SPS Waiver Notice on or prior to the Note Payment Date, then neither the Holder nor Buyer shall have any rights or obligations under this Section 2.5(e) in respect of any Subsequent Payment Shares. (ii) Unless the Holder shall have provided an SPS Waiver Notice on or prior to the Note Payment Date, the Holder shall not be entitled to sell the Subsequent Payment Shares during the thirty (30) day period following the Note Payment Date (the "SPS Lockup Period") except in accordance with this Section 2.5(e)(ii). During the SPS Lockup Period, Buyer shall be entitled to cause the Holder to sell in a commercially reasonable manner such Subsequent Payment Shares to such buyers and for such prices as directed by Buyer to the Holder in writing at least two (2) business days prior to the date of any such sale, provided that (A) such sale (or sales) shall be for cash, shall close within the SPS Lockup Period and all proceeds from such sale (or sales) shall be immediately paid to the Holder, and (B) Buyer shall pay the Holder in immediately available funds on the first business day after expiration of the SPS Lockup Period the sum of (i) the amount, if any, by which the product of (A) Twenty-Five Million Dollars ($25,000,000), plus all accrued interest under the Note as of the Note Payment Date (the "Payment Date Note Balance") times (B) a fraction having a numerator equal to the number of Subsequent Payment Shares sold during the SPS Lockup Period in accordance with this Section 2.5(e)(ii) and a denominator equal to the total number of Subsequent Payment Shares, exceeds the amount equal to the aggregate cash proceeds received by the Holder from such sale (or sales) after deduction for all trade costs, sale expenses and block trade discounts, but without any 16 23 deduction for brokerage commissions, plus (ii) interest on the balance of the SPS Guaranteed Amount outstanding from time to time calculated at a rate of eight percent (8%) per annum from the Note Payment Date until the amount in Clause (i) is paid to the Holder, provided that if no amount is payable to the Holder under foregoing Clause (i), such interest shall be payable on the first business day after expiration of the SPS Lockup Period. Upon Buyer's payment of the amounts payable under foregoing Clauses (i) and (ii), no further interest shall accrue or be payable upon any balance of the SPS Guaranteed Amount. (iii) Any Subsequent Payment Shares that are subject to the SPS Lockup Period but are not sold in accordance with Section 2.5(e)(ii) within the SPS Lockup Period (the "Remaining SPS Payment Shares") may be sold by the Holder after expiration of the SPS Lockup Period in any commercially reasonable manner that the Holder desires. Upon expiration of the period ("Post-SPS Lockup Period") commencing immediately after the SPS Lockup Period and ending upon the earlier of (A) the date on which all Remaining SPS Payment Shares have been sold or (B) the first anniversary of the Note Payment Date, Buyer shall pay to the Holder in immediately available funds the amount, if any, by which the product of (A) the Payment Date Note Balance times (B) a fraction having a numerator equal to the number of Remaining SPS Payment Shares sold during the Post-SPS Lockup Period and a denominator equal to the total number of Subsequent Payment Shares, exceeds the amount equal to the aggregate cash proceeds received by the Holder from such sale (or sales) after deduction for all trade costs, sale expenses and block trade discounts, but without any deduction for brokerage commissions; provided that Buyer's obligation to make such payment shall be conditioned upon the Holder's submission to Buyer of a reasonably detailed and certified statement setting forth, for each sale of Remaining SPS Payment Shares during the Post-SPS Lockup Period, the per share sale price, the manner of sale, and any related trade costs, sale expenses, block trade discounts and brokerage commissions. The Holder shall have no rights against Buyer under this Section 2.5(e) with respect to any Remaining SPS Payment Shares that are not sold within the Post-SPS Lockup Period. (iv) As used in this Section 2.5(e), the term "SPS Guaranteed Amount" shall mean, as of any date commencing on 17 24 the Note Payment Date and ending on the date immediately preceding the date on which the payments required under Section 2.5(e)(ii) are made, the amount, if any, by which (i) the Payment Date Note Balance exceeds as of such date (ii) the aggregate cash proceeds received by the Holder as of such date from any sale of SPS Payment Shares after deduction for all trade costs, sale expenses and block trade discounts, but without any deduction for brokerage commissions. 2.6 ALLOCATION OF THE PURCHASE PRICE. (a) Sellers and Buyer shall use good faith efforts to agree upon, prior to Closing, an allocation of the Purchase Price among the Sale Assets which, if agreed upon within sixty (60) days after the date hereof, will be incorporated in a schedule to be executed by the parties prior to or at Closing. If Sellers and Buyer are unable to agree on such allocation within such sixty (60) day period, Sellers and Buyer agree to retain the Appraisal Firm to appraise the classes of Sale Assets of each Station. The Appraisal Firm shall be instructed to perform an appraisal of the classes of Sale Assets of each Station and to deliver a report to Sellers and Buyer as soon as reasonably practicable (the "Appraisal Report"). Buyer and Sellers shall each pay one-half of the fees, costs and expenses of the Appraisal Firm whether or not the transactions contemplated hereby are consummated. (b) Buyer and Sellers each agree to report such allocation, whether agreed upon or as provided for in the Appraisal Report, to the Internal Revenue Service in the form required by Treasury Regulation 1.1060-IT and to use such allocation for all other reporting purposes after Closing in connection with federal, state and local income and, to the extent permitted under applicable law, franchise Taxes. 2.7 ADJUSTMENT OF PURCHASE PRICE. (a) As used herein, "Adjustment Amount" means adjustments to the Purchase Price customary in television and radio broadcast station transactions for Proration Items to reflect that all Proration Items of such Stations shall be apportioned between Buyer and Sellers in accordance with the principle that Sellers shall receive the benefit of or credit for all revenues, refunds, the portion of deposits and prepaid expenses allocable to the period from and after the Closing Date, and shall be responsible for all expenses, costs 18 25 and Liabilities, allocable to the conduct of the businesses or operations of the Stations for the period prior to the Closing Date, and Buyer shall receive the benefit of or credit for all revenues and refunds, and shall be responsible for all expenses, costs and Liabilities, allocable to the conduct of the businesses or operations of such Stations from and after the Closing Date; provided, however, that there shall be no adjustment or proration for any negative or positive net trade balance for the Stations (taken as a whole) except to the extent that any such trade balance (whether positive or negative) exceeds $50,000 for the Stations (taken as a whole); provided, further, that with respect to programming agreements, only those payments due and payable during the month in which the Closing occurs which relate to programming to be broadcast during such month shall be prorated. All determinations of the Adjustment Amount shall be made in accordance with generally accepted accounting principles consistently applied for the period prior to the Closing Date; provided that in determining the Adjustment Amount, Buyer shall be given a credit equal to the total amount of payments received by Sellers during the period from the date hereof to the Closing Date pursuant to the Fox Children's Network Payment Rights. (b) Three (3) business days prior to the Closing Date, Sellers shall provide Buyer with a statement (the "Preliminary Adjustment Report") setting forth Sellers' reasonable and good faith estimate of the Adjustment Amount. The portion of the Purchase Price payable at Closing pursuant to Section 2.5(a)(ii) shall be reduced or increased by, as the case may be, the Adjustment Amount. (c) During the 120-day period after the Closing Date, Sellers, Buyer and their respective accountants shall review the Preliminary Adjustment Report and the books and records of Sellers related to the report, and Buyer and Sellers will in good faith seek to reach agreement on the computation of the Adjustment Amount. If agreement is reached within one hundred twenty (120) days after the Closing Date, then upon reaching such agreement, Sellers shall pay to Buyer the amount by which the agreed Adjustment Amount is less than, or Buyer shall pay to Sellers the amount by which the agreed Adjustment Amount is greater than, the Adjustment Amount indicated in the Preliminary Adjustment Report. (d) If Sellers and Buyer fail to reach agreement on the Adjustment Amount within one hundred twenty (120) days after the Closing Date, then the New York, New York office of Price Waterhouse L.L.P. (the "Arbitrator") shall make the determination. Sellers and Buyer shall each inform the Arbitrator in writing of their respective determinations of the Adjustment Amount and each of its components and shall make readily available to the Arbitrator any books, records and work papers relevant to the Arbitrator's determination. The Arbitrator shall be instructed to complete its determination within thirty (30) days after the date of its engagement and upon completion to inform the parties in writing of its determination of the Adjustment Amount, the basis for its 19 26 determination, whether Buyer's or Sellers' written position as to the Adjustment Amount is closer to its own determination, and whether its own determination of the Adjustment Amount is within plus or minus ten percent (10%) of the average of the written positions of Buyer and Sellers as to the Adjustment Amount. The determination by the Arbitrator in accordance with this section shall be final and binding on the parties for purposes of this section. Within five (5) days after the Arbitrator's delivery to the parties of its written determination of the Adjustment Amount, Sellers shall pay to Buyer the amount by which the Adjusted Amount is determined by the Arbitrator is less than, or Buyer shall pay to Sellers the amount by which the Adjustment Amount determined by the Arbitrator is greater than, the Adjustment Amount indicated in the Preliminary Adjustment Report. (e) If the Arbitrator determines that the written position of Buyer as to the Adjustment Amount is closer to its own determination, Sellers shall pay the fees and disbursements of the Arbitrator. If the Arbitrator determines that the written position of Sellers as to the Adjustment Amount is closer to its own determination, Buyer shall pay the fees and disbursements of the Arbitrator. However, if the Arbitrator's determination of the Adjustment Amount is within plus or minus ten percent (10%) of the average of the written positions of Buyer and Sellers, Sellers and Buyer shall each pay one-half of the Arbitrator's fees and disbursements. (f) Concurrently with any payment required under foregoing Subsection (c) or (d), the payor shall pay the payee interest on the payment at eight percent (8.0%) per annum from the Closing Date until the date on which the payment is made. 2.8 ACCOUNTS RECEIVABLE. (a) Within ten (10) days after the Closing Date, Sellers shall furnish to Buyer a true and complete list of Sellers' accounts receivable (other than non-cash receivables under Trade Agreements and unpaid amounts under the Fox Children's Network Payment Rights) arising from the operation of the Stations prior to the Closing Date in the ordinary course of business (the "Retained Receivables"), which list shall set forth for each Retained Receivable the name of the debtor, the date of the invoice, the amount of any payments previously received on account and the balance due. (b) For a period of one hundred twenty (120) days after the Closing Date (the "Collection Period"), Buyer will, without charge to Sellers, use its usual and customary procedures to collect the Retained Receivables as Sellers' agent for collection, provided that (i) Buyer shall not be required to commence litigation, employ legal counsel or a collection agency or make any 20 27 other extraordinary collection efforts, and (ii) Buyer's obligation to act as Sellers' agent in the collection of the Retained Receivables shall terminate upon expiration of the Collection Period. For the purpose of determining amounts collected by Buyer with respect to the Retained Receivables, each payment by an account debtor shall be applied to the older or oldest accounts receivable of such account debtor unless the account debtor in writing identifies such an account as being in dispute and directs that a particular payment be applied to a specific newer account receivable. (c) Every four weeks during the Collection Period (and within fifteen (15) days after the end of the Collection Period), Buyer shall deliver to Sellers a statement showing all collections of Retained Receivables made on behalf of Sellers since the last previous report and shall pay such collections to Sellers by check at the time such statement is delivered. (d) Sellers shall not engage in any collection efforts against account debtors under the Retained Receivables during the Collection Period, other than with respect to accounts receivable identified as in dispute as provided in foregoing Subsection (b). (e) Buyer shall not, without Sellers' prior written consent, compromise or settle for less than full value any of the Retained Receivables unless Buyer pays Sellers the full amount of any deficiency. Buyer shall be entitled to purchase from Sellers any Retained Receivable for such amount as the parties may agree at any time during or at the expiration of the Collection Period. (f) Buyer shall have no right to set-off any amounts collected for Retained Receivables for any amounts owed to Buyer from Sellers, except that Buyer shall be entitled to offset and retain from its collection of the Retained Receivables certain amounts for capital expenditures and other items as and to the extent set forth on Schedule 2.8. 2.9 SELLER REPRESENTATIVE. Each of the Sellers hereby appoints SF Broadcasting of Honolulu, Inc. as the seller representative (the "Seller Representative") and agrees that the Seller Representative shall have the authority, on behalf of each of the Sellers, to: (a) receive amounts payable to any of the Sellers (including the Shares), and give discharge and provide receipts with respect thereto, (b) execute and deliver any documents or agreements necessary or desirable in connection with the transactions contemplated by the Agreement, (c) give and receive notices, instructions and other communications under the Agreement; and (d) take such 21 28 other action with respect to the Agreement or any other Document as the Seller Representative may deem necessary or appropriate. To further effect the foregoing, each Seller upon request of the Seller Representative shall execute a power of attorney designating the Seller Representative his attorney-in-fact for the purposes set forth in this Section. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS Sellers, jointly and severally, represent and warrant to Buyer as follows: 3.1 ORGANIZATION, GOOD STANDING AND CORPORATE POWER. Each Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power to own, operate and lease its Sale Assets and carry on its business. Each Seller is duly licensed, qualified to do business and in good standing as a foreign corporation under the laws of the jurisdiction(s) listed in Schedule 3.1. 3.2 AUTHORIZATION AND BINDING EFFECT OF DOCUMENTS. Each Seller has all requisite corporate power and authority to enter into this Agreement and the other Documents and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and each of the other Documents by Sellers and the consummation by Sellers of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action (including all necessary shareholder approvals, if any) on the part of Sellers. This Agreement has been, and each of the other Documents at or prior to Closing will be, duly executed and delivered by Sellers. This Agreement constitutes (and each of the other Documents, when executed and delivered, will constitute) the valid and binding obligation of Sellers enforceable against Sellers in accordance with its terms. 3.3 ABSENCE OF CONFLICTS. Except as set forth on Schedule 3.3, the execution, delivery and performance by Sellers of this Agreement and the other Documents, and consummation by Sellers of the transactions contemplated hereby and thereby, do not and will not (i) conflict with or result in any breach of any of the terms, conditions or provisions of, (ii) constitute a default under, (iii) result in a violation of, (iv) give any third party the right to modify, terminate or accelerate any 22 29 obligation under, or (v) result in the creation of any Lien upon the Sale Assets under, the provisions of the articles or certificate of incorporation or by-laws of Sellers, any material indenture, mortgage, lease, loan agreement or other material agreement or instrument to which Sellers are bound or affected, or any law, statute, rule, judgment, order or decree to which Sellers are subject. 3.4 CONSENTS. Except as set forth on Schedule 3.3 and except for any necessary clearances or approvals under the HSR Act or the Act, the execution, delivery and performance by Sellers of this Agreement and the other Documents, and consummation by Sellers of the transactions contemplated hereby and thereby, do not and will not require the authorization, consent, approval, exemption, clearance or other action by or notice or declaration to, or filing with, any court, any administrative or other governmental body, or any other third party. 3.5 SALE ASSETS; TITLE. The Sale Assets constitute all of the assets, properties and rights of every type and description, real, personal and mixed, tangible and intangible, that are currently used in or material to the operation of the Stations, with the exception of the Excluded Assets. Sellers have good and marketable title to, or a valid lessee's or licensee's interest in, all of the Sale Assets free and clear of all Liens except (i) Liens described on Schedule 3.5 which Sellers shall cause to be released prior to Closing and (ii) Permitted Liens. 3.6 FCC LICENSES. Except as set forth on Schedule 3.6: (a) One of the Sellers is the valid and legal holder of each of the licenses, permits and authorizations of the FCC listed on Schedule 3.6 for the operation of the Stations (the "FCC Licenses"). The expiration date of the term of each FCC License is shown on Schedule 3.6. (b) The FCC Licenses (i) are valid, subsisting and in full force and effect, and constitute all of the licenses, permits and authorizations used in or required for the current operation of the Stations under the Communications Act of 1934, as amended, and the rules, regulations and policies under the FCC thereunder (collectively, the "Act"), and (ii) constitute all the licenses and authorizations, including amendments and modifications thereto, issued by the FCC to such Seller for or in connection with the operation of such Station. (c) Other than as set forth in the FCC Licenses, none of the FCC Licenses is subject to any restriction or condition which limits in any 23 30 material respect the full operation of the Stations as now conducted by Sellers, and as of the Closing Date, none of the FCC Licenses shall be subject to any restriction or condition which would limit in any material respect the full operation of the Stations as they are currently operated. (d) The Stations are being operated by Sellers in all material respects in accordance with the terms and conditions of the FCC Licenses, the Act and the rules and regulations of the FCC applicable to it, including but not limited to those pertaining to RF emissions. (e) Except as set forth in Schedule 3.6, no applications, complaints or proceedings are pending or, to the knowledge of Sellers, are threatened which may result in the revocation, modification, non-renewal or suspension of any of the FCC Licenses, the denial of any pending applications, the issuance of any cease and desist order or the imposition of any fines, forfeitures or other administrative actions by the FCC with respect to any Station or its operation, other than actions or proceedings affecting the television broadcasting industry in general. (f) Sellers have complied in all material respects with all requirements to file reports, applications and other documents with the FCC with respect to the Stations, and all such reports, applications and documents are true, correct and complete in all material respects. (g) Other than actions or proceedings affecting the television broadcasting industry in general, Sellers have no knowledge of matters (i) which might reasonably be expected to result in the adverse modification, suspension or revocation of or the refusal to renew any of the FCC Licenses or the imposition of any fines or forfeitures by the FCC against Sellers, or (ii) which might reasonably be expected to result in the FCC's refusal to grant or delay approval of the assignment to Buyer (assuming Buyer is qualified to hold the FCC Licenses) of any FCC License or the imposition of any Material Adverse FCC Condition in connection with approval of the transfer to Buyer of any FCC License (other than with respect to the continuation of the satellite waiver in Hawaii). (h) There are not any unsatisfied or otherwise outstanding citations issued by the FCC with respect to any Station or its operation. (i) True, complete and accurate copies of all FCC Licenses have been delivered by Sellers to Buyer's FCC counsel. 24 31 (j) Except for the FCC Licenses, there are no material licenses, permits or authorizations from governmental or regulatory authorities required for the lawful operation and conduct of each Station by Sellers of the Stations as they are currently being operated. 3.7 STATION AGREEMENTS. (a) Schedule 3.7(a) lists in summary manner all agreements, contracts, understandings and commitments as of the date indicated thereon for the sale of time on a Station for other than monetary consideration ("Trade Agreements"), and sets forth the parties thereto, the financial value of the time required to be provided from and after the date of such Schedule and the estimated financial value of the goods or services to be received by a Seller from and after the date of such Schedule. True and complete copies of all written Trade Agreements in effect as of such date, including all amendments, modifications and supplements thereto, have been made available to Buyer. (b) Schedule 3.7(b) lists all the following types of agreements used in or relating to the operation of any Station: (i) Agreements for sale of broadcast time on a Station for monetary consideration as of March 24, 1998, other than such agreements entered into in the ordinary course of business involving broadcast time of less than Twenty-Five Thousand Dollars ($25,000); (ii) All network affiliation agreements; (iii) All sales agency or advertising representation contracts; (iv) Each antenna, office and studio lease and any other lease of real property (including a description of the property leased thereunder); (v) All collective bargaining agreements, employment agreements and agreements with independent contractors; (vi) All programming agreements; (vii) Any other agreement (other than Trade Agreements) involving a commitment by any party thereto with a fair market value of, or requiring any party thereto to pay over the 25 32 life of the contract, more than One Hundred Thousand Dollars ($100,000); and (viii) Any other agreement that is material to the business, operations or financial condition of any Station. True and complete copies of all the foregoing Station Agreements that are in writing, and true and accurate summaries of all the foregoing Station Agreements that are oral, including all amendments, modifications and supplements thereto, have been made available to Buyer. The Station Agreements (other than Trade Agreements) that are not listed on Schedule 3.7(b) do not involve commitments by parties thereto with an aggregate fair market value of more than One Hundred Thousand Dollars ($100,000) for any Station. (c) Schedule 3.7(c) lists all of the contracts and agreements used in or relating to the operation of any Station to which an Affiliate of any Seller is a party. True and complete copies of those in writing have been delivered to Buyer, and summaries of those that are oral are set forth on Schedule 3.7(c). (d) Except as set forth in the Schedules hereto, (i) all Station Agreements which are, individually or in the aggregate, material to the business, operations or financial condition of any Station are valid and in full force and effect; (ii) no Seller or, to the knowledge of any Seller, any other party is in material default under, and no event has occurred which (after the giving of notice or the lapse of time or both) would constitute a material default under, any Station Agreements which are, individually or in the aggregate, material to the business, operations or financial condition of any Station; (iii) no Seller or any Affiliate of any Seller has granted or been granted any material waiver or forbearance with respect to any Station Agreements which are, individually or in the aggregate, material to the business, operations or financial condition of any Station; (iv) Sellers hold the right to enforce and receive the benefits under all the Station Agreements which are, individually or in the aggregate, material to the business, operations or financial condition of any Station, free and clear of Liens (other than Permitted Liens) but subject to the terms and provisions of each such agreement; (v) except as set forth on Schedule 3.3, none of the rights of Sellers or any Affiliate of Sellers under Station Agreements which are, individually or in the aggregate, material to the business, operations or financial condition of any Station is subject to termination or modification as a result of the consummation of the transactions contemplated by this Agreement; and (vi) except as set forth on Schedule 3.3, no consent or approval by any party to Station Agreements which are, individually or in the aggregate, material to the business, operations or financial condition of any Station is required thereunder for the consummation of the transactions contemplated hereby. 26 33 (e) As of the date of this Agreement, Sellers have received less than Ten Thousand Dollars ($10,000) in the aggregate during the preceding twelve (12) months pursuant to the Fox Children's Network Payment Rights. 3.8 TANGIBLE PERSONAL PROPERTY. (a) Schedule 3.8 lists, as of the date of this Agreement, all Tangible Personal Property (other than Excluded Assets, office supplies and other incidental items) material to the conduct of the business and operations of any Station in the manner in which it is now operated and having a book value in excess of Seven Thousand Five Hundred Dollars ($7,500). (b) The equipment constituting a part of the Tangible Personal Property used in or necessary for the operation of any Station in the manner in which it is now operated by Sellers has been properly maintained prior to the date hereof in all material respects in accordance with the manufacturers' recommendations and industry practices as of the date hereof, is in a good state of repair and operating condition (subject to ordinary wear and tear), and complies as of the date hereof in all material respects with the Act and other applicable laws, rules, regulations and ordinances. 3.9 REAL PROPERTY. (a) The list of Real Property set forth on Schedule 3.9 is a true and correct list of all of the interests in real estate which any Seller holds or which are used to any material extent in the operation of any Station in the manner in which it has been and is being operated by Sellers as of the date of this Agreement. (b) Sellers hold good and marketable fee simple title to each parcel of Real Property listed in Schedule 3.9 as owned by a Seller (the "Owned Real Property") free and clear of any Liens except (i) Liens described on Schedule 3.5 which Sellers shall cause to be released prior to Closing, and (ii) Permitted Liens. To Sellers' knowledge, except as set forth on Schedule 3.9, there is no pending, threatened or contemplated action to take by eminent domain or to condemn any of the Real Property. (c) Each lease (including all amendments, modifications and supplements thereto) under which a Seller leases any interest in any of the Real Property, including, but not limited to, any Station Agreement under which any Seller uses a transmitter or antenna site (the "Leased Real Property") is described on Schedule 3.7(b) (each, a "Real Property Lease"), and except as set forth on such Schedule, such Seller holds good and marketable title to the lessee's interest under each Real Property Lease free and clear of all Liens except Permitted Liens. True and complete copies of all Real Property Leases, including all amendments, modifications and supplements thereto, have been delivered to Buyer. 27 34 (d) Except as set forth on the Schedules hereto, (i) each Real Property Lease is legal, valid, binding and enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity); (ii) no Seller nor, to the knowledge of any Seller, any other party thereto, is in material breach of or in material default under any Real Property Lease; (iii) to the knowledge of Sellers, there has not occurred any event which, after the giving of notice or the lapse of time or both, would constitute a material default under, or result in the material breach of, any Real Property Lease, nor has any Seller received written notice alleging or stating that any such event has occurred unless such event has been cured; (iv) none of the rights of any Seller under any Real Property Lease is subject to termination or modification as a result of the consummation of the transactions contemplated by this Agreement; (v) no consent or approval by any party to any Real Property Lease is required thereunder for the consummation of the transactions contemplated hereby; and (vi) no Seller has granted or been granted any material waiver or forbearance with respect to any Real Property Lease. (e) All improvements on the Real Property are in compliance with applicable zoning and land use laws, ordinances and regulations in all respects necessary to conduct the operation of the Stations operating thereon as conducted by Sellers as of the date of this Agreement except for any instances of any non-compliance which do not or will not in the aggregate have a Material Adverse Effect. Each Seller's improvements on any Real Property are in good working condition and repair (subject to ordinary wear and tear). 3.10 INTELLECTUAL PROPERTY. Schedule 3.10 lists all trade names, trademarks, service marks, copyrights and patents included in the Intellectual Property, including all registrations, applications and licenses for any of the Intellectual Property. Except as disclosed on Schedule 3.10: (a) To the knowledge of Sellers, Sellers own, free and clear of Liens, all right and interest in, and right and authority to use in connection with the conduct of the business of the Stations as presently conducted. To the knowledge of Sellers, all of the Intellectual Property listed on Schedule 3.10, and all of the rights and properties constituting a part of the Intellectual Property, are in full force and effect as of the date of this Agreement; (b) As of the date of this Agreement, there are no outstanding or, to the knowledge of Sellers, threatened judicial or adversary proceedings with respect to any of the Intellectual Property; 28 35 (c) Sellers have not granted to any other person or entity any license or other right or interest in or to any of the Intellectual Property or to the use thereof; (d) As of the date of this Agreement, Sellers have no knowledge of any infringement or unlawful use of any of the Intellectual Property; (e) As of the date of this Agreement, Sellers have not violated any provisions of the Copyright Act of 1976, 17 U.S.C. Section 101, et. seq., in any material respect. Sellers have filed all notices and statements of account and have made all payments that are required in connection with the transmission by Sellers of any television or other signals prior to the date of this Agreement, except for failures to file or pay that would not have a Material Adverse Effect; and (f) Sellers have delivered to Buyer copies of all state or federal registrations and other material documents, if any, establishing any of the rights and properties constituting a part of the Intellectual Property. 3.11 FINANCIAL STATEMENTS. Sellers have delivered to Buyer: (a) The audited balance sheets of the Parent Entities as of December 31, 1997 and 1996; (b) The audited statements of operations of the Parent Entities for the years ended December 31, 1997 and 1996; (c) The unaudited balance sheet of each Station as of February 28, 1998 (the "Interim Balance Sheet"); and (d) The unaudited statement of operations of each Station for the interim period ended February 28, 1998. All such statements (i) are in accordance in all material respects with the books and records of the applicable Stations and (ii) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis and fairly present in all material respects the assets and liabilities of such Station(s) as of the dates stated and accurately reflect in all material respects the results of operations of such Station(s) for the periods covered by the statements, with the exceptions that (A) statements of cash flows are not included, (B) federal income tax, expense or benefit are not shown, (C) such statements do not contain the disclosures required by 29 36 generally accepted accounting principles in notes accompanying financial statements, and (D) the interim statements are subject to normal year-end adjustments. 3.12 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Interim Balance Sheet, other than as described on Schedule 3.12: (a) There has not been any damage, destruction or other casualty loss with respect to the Sale Assets (whether or not covered by insurance) which, individually or in the aggregate has, or could reasonably be expected to have, a Material Adverse Effect. (b) No Seller or any Station has suffered any adverse change or development which, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect. (c) No Seller has: (i) amended or terminated any Station Agreement set forth on Schedule 3.7(a), 3.7(b) or 3.7(c) except in the ordinary course of business; (ii) mortgaged, pledged or subjected to any Lien, any of the Sale Assets, except for Permitted Liens; (iii) acquired or disposed of any Sale Assets or entered into any agreement or other arrangement for such acquisition or disposition, except in the ordinary course of business; (iv) entered into any agreement, commitment or other transaction other than in the ordinary course of business; (v) paid any bonus to any officer, director or employee or granted to any officer, director or employee any other increase in compensation in any form, except in the ordinary course of business consistent with past practices; (vi) adopted or amended any collective bargaining, bonus, profit-sharing, compensation, stock option, pension, retirement, deferred compensation, severance or other plan, agreement, trust, fund or arrangement for the benefit of employees (whether or not legally binding) or made any material changes in its policies of employment; 30 37 (vii) entered into any agreement (other than agreements that will be terminated prior to Closing) with any Affiliate of any Seller; or (viii) operated its business other than in the ordinary course. 3.13 LITIGATION. Except as described in Schedule 3.13, as of the date hereof (a) there are no actions, suits, claims, investigations or administrative, arbitration or other proceedings pending or, to the knowledge of any Seller, threatened against any Seller before or by any court, arbitration tribunal or governmental department or agency, domestic or foreign, that relates to any Station or the Sale Assets; (b) no Seller or, to the knowledge of any Seller, any of the officers or employees of any Seller, has been charged with, or is under investigation with respect to, any violation of any provision of any federal, state, foreign or other applicable law or administrative regulation in respect of such officer's or employee's employment at any Station or with any Seller; and (c) no Seller or any properties or assets of any Seller or, to the knowledge of any Seller, any officer or employee of any Seller is a party to or bound by any order, arbitration award, judgment or decree of any court, arbitration tribunal or governmental department or agency, domestic or foreign, in respect of any business practices, the acquisition of any property, or the conduct of any business, of any Seller, which, individually or in the aggregate, has or could reasonably be expected to have, a Material Adverse Effect or materially impair the ability of any Seller to perform its obligations hereunder and consummate the transactions contemplated hereby. 3.14 LABOR MATTERS. (a) Except as listed on Schedule 3.14(a): (i) To each Seller's knowledge, no present or former employee or independent contractor of any Station has a pending claim or charge which has been asserted or threatened against any Seller for (A) overtime pay; (B) wages, salaries or profit sharing; (C) vacations, time off or pay in lieu of vacation or time off; (D) any violation of any statute, ordinance, contract or regulation relating to minimum wages, maximum hours of work or the terms or conditions of employment; (E) discrimination against employees on any basis; (F) unlawful or wrongful employment or termination practices; (G) unlawful retirement, termination or labor relations practices or breach of contract; or (H) any violation of occupational safety or health standards. 31 38 (ii) There is not pending or, to the knowledge of any Seller, threatened against any Seller any labor dispute, strike or work stoppage that affects or interferes with, or is likely to affect or interfere with, the operation of any Station, and no Seller has knowledge of any organizational effort currently being made or threatened by or on behalf of any labor union with respect to employees of any Station. There are no material unresolved unfair labor charges against any Seller. No Seller has experienced any strike, work stoppage or other similar significant labor difficulties within the twelve (12) months preceding the date hereof. (b) Except as set forth on Schedule 3.7(b), (i) no Seller is a signatory or a party to, or otherwise bound by, a collective bargaining agreement which covers employees or former employees of any Station, (ii) no Seller has agreed to recognize any union or other collective bargaining unit with respect to any employees of any Station, and (iii) no union or other collective bargaining unit has been certified as representing any employees of any Station. (c) Schedule 3.14(c) sets forth a true and complete list, as of the date set forth on such list, of all persons employed by any Seller or at any Station, and states for each such employee the current level of compensation payable to such employee, the termination pay or other severance benefits, if any, that may be payable to such employee upon termination of employment, and whether such employee is employed under a written contract. A true and complete copy of any handbook, policy manual or similar written guidelines furnished to employees of each Station has been made available to Buyer. 3.15 EMPLOYEE BENEFIT PLANS. (a) All compensation or benefit plans, policies, practices, arrangements and agreements covering any employee or former employee of any Seller or any Station or the beneficiaries or dependents of such employee or former employee (such employees, former employees, beneficiaries and dependents herein referred to collectively as the "Employees") which are or have been established or maintained and are currently in effect, or to which contributions are being made by any Seller or by any other trade or business, whether or not incorporated, which is or has been treated as a single employer together with any Seller under Section 414 of the Code (such other trades and businesses referred to collectively as the "Related Persons") or to which any Seller or any Related Person is obligated to contribute, including, but not limited to, "employee benefit plans" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), employment, retention, change of control, severance, stock option or other equity based, bonus, incentive compensation, deferred compensation, retirement, fringe benefit and welfare plans, policies, practices, arrangements and agreements 32 39 (collectively, the "Benefit Plans"), are disclosed in Schedule 3.15. Except pursuant to a Benefit Plan disclosed in Schedule 3.15 or any agreements disclosed in Schedule 3.7(b), no Seller has fixed or contingent liability or obligation to any of the Employees or to any person whose services are or were provided as an independent contractor to any Seller or any Station. (b) All Benefit Plans (other than the Assumed Plans, with respect to which this representation is limited to Sellers' knowledge) have been administered and are in compliance in all material respects with applicable provisions, if any, of ERISA and the Code and all other applicable law. No Seller or any Related Person has engaged in a transaction with respect to any Benefit Plan that could result in a material Tax, penalty or other liability under the Code or ERISA being imposed against Buyer, any Station or the Sale Assets. (c) Other than the Assumed Plans, no Benefit Plan is a multiemployer plan within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA (a "Multiemployer Plan"). (d) No Seller or any Related Person has, to Sellers' knowledge, incurred or expects to incur any material withdrawal liability with respect to a Multiemployer Plan under Subtitle E of Title IV of ERISA regardless of whether based on contributions by any entity which is considered a predecessor of any Seller or one employer with any Seller under Section 4001 of ERISA. (e) All contributions required to have been made by each Seller under the terms of any Benefit Plan or applicable law have been timely made. (f) No Seller has any unfunded obligations (including projected obligations) for retiree health and life benefits under any Benefit Plan other than continuation coverage required by law; provided, however, that this representation shall be limited to Seller's knowledge to the extent it relates to the Assumed Plans. (g) No Seller or any Related Person has incurred any material liability under or pursuant to Title I or IV of ERISA or the penalty, excise tax or joint and several liability provisions of the Code relating to employee benefit plans and, to Sellers' knowledge, no event or condition has occurred or exists which would result in any such material liability to any Seller. 33 40 3.16 COMPLIANCE WITH LAW. Each Seller has operated and is operating the applicable Station in all material respects in compliance with the Act and all other federal, state and local laws, statutes, ordinances, regulations, licenses, permits or exemptions therefrom and all applicable orders, writs, injunctions and decrees of any court, commission, board, agency or other instrumentality, and such Seller has not received any notice of noncompliance pertaining to such Seller's operation of such Station that has not been cured. 3.17 TAX RETURNS AND PAYMENTS. (a) Except as set forth in Schedule 3.17, each Seller has accurately prepared in all material respects and is not delinquent in the filing of any Tax Returns required to be filed by such Seller, including filings regarding employees, sales, operations or assets. All Taxes due and payable pursuant thereto and all other Taxes or assessments due and payable by such Seller or chargeable as a Lien upon its assets have been paid, except for any such Taxes that are being contested in good faith for which adequate reserves have been made on Sellers' financial statements. (b) Except as set forth in Schedule 3.17, (i) no outstanding unsatisfied deficiency, delinquency or default for any Tax has been claimed or assessed against any Seller, (ii) no Seller has received notice of any such deficiency, delinquency or default, and (iii) to each Seller's knowledge, no taxing authority is now threatening to assert any such deficiency, delinquency or default and, to such Seller's knowledge, there is no reasonable basis for any such assertion. (c) No Tax is required to be withheld by Buyer pursuant to Section 1445 of the Code as a result of the transactions contemplated by this Agreement. (d) Each Seller has withheld any Tax required to be withheld by such Seller under applicable law and regulations, and such withholdings have either been paid to the proper governmental agency or set aside in accounts for such purpose, or accrued, reserved against and entered upon the books of such Seller. 3.18 ENVIRONMENTAL MATTERS. (a) Except as set forth on Schedule 3.18, Sellers have obtained all environmental, health and safety permits necessary for the operation of the Stations, all such permits are valid and in full force and effect, and Sellers are in compliance in all material respects with all terms and conditions of such permits. 34 41 (b) Except as set forth on Schedule 3.18, there is no proceeding pending or, to Sellers' knowledge, threatened which may result in the reversal, rescission, termination, modification or suspension of any environmental or health or safety permits necessary for the operation of any Station, and to Sellers' knowledge there is no basis for any such proceeding. (c) Except as set forth on Schedule 3.18, Sellers have operated and are operating in all material respects in compliance with all federal, state, local and other laws, statutes, ordinances and regulations, and licenses, permits, exemptions, orders, writs, injunctions and decrees of any court, commission, board, agency or other governmental instrumentality, applicable to Sellers and relating to environmental matters. (d) Except as set forth on Schedule 3.18, to Sellers' knowledge, there are no conditions or circumstances associated with the Sale Assets which may give rise to any material liability or material cost under applicable environmental law. Except as listed on Schedule 3.18, Sellers do not own or use any electrical or other equipment containing polychlorinated biphenyls. (e) For the purposes of this Section 3.18, "hazardous materials" shall mean any waste, substance, materials, smoke, gas, emissions or particulate matter designated as hazardous or toxic under any applicable environmental law. For purposes of this Section 3.18, "environmental law" shall mean any federal, state, local or other laws, statutes, ordinances, regulations, licenses, permits or any order, writ, injunction or decree of any court, commission, board, agency or other instrumentality relating to the regulation of hazardous materials. (f) Except as set forth on Schedule 3.18, with respect to the operation of any Station, Sellers have not filed or been required to file any notice under any applicable law, rule, regulation, order, judgment, injunction, decree or ruling reporting a release of a hazardous material into the environment that has or reasonably can be expected to have a Material Adverse Effect, and no notice pursuant to Section 103(a) or (c) of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.A. Section 9601, et seq. ("CERCLA") or any other applicable environmental law or regulation has been or was required to be filed. (g) Except as set forth on Schedule 3.18, Sellers have not received any notice letter under CERCLA or any other written notice and there is no investigation pending, or to Sellers' knowledge threatened, to the effect that Sellers have or may have material liability for or as a result of the release or threatened release of a hazardous material into the environment or for the suspected unlawful presence of hazardous material thereon, nor to Sellers' knowledge does there exist any basis for such investigation. 35 42 3.19 BROKER'S OR FINDER'S FEES. Except for R.P. Companies, Inc. the fees and charges of which will be paid by Sellers simultaneously with Closing, no agent, broker, investment banker or other person or firm acting on behalf of or under the authority of any Seller or any Affiliate of any Seller is or will be entitled to any broker's or finder's fee or any other commission or similar fee, directly or indirectly, in connection with the transactions contemplated by this Agreement. 3.20 INSURANCE. There is now in full force and effect with reputable insurance companies fire and extended coverage insurance with respect to all tangible Sale Assets and public liability and broadcaster's liability insurance, all in reasonable commercial amounts. 3.21 CABLE TELEVISION TRANSMISSION. To Sellers' knowledge, Schedule 3.21 lists each cable television system on which the signal of any Station is currently being carried (each, a "Carrying System"). To Sellers' knowledge, except as set forth in Schedule 3.21, (a) the carriage of each Station on a listed Carrying System is pursuant to a valid and enforceable retransmission consent agreement, (b) Sellers have not agreed to reimburse any cable television system for any copyright royalties in respect of carriage of the signal of any Station, (c) no cable system has advised any Seller or any Station of any signal quality or copyright indemnity or other prerequisite to cable carriage of any Station's signal, and (d) no cable system has declined or threatened to decline such carriage or failed to respond to a request for carriage or sought any form of relief from carriage from the FCC. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Sellers as follows: 4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Indiana. Buyer has all requisite corporate power to own, operate and lease its properties and carry on its business as it is now being conducted and as the same will be conducted following the Closing. 4.2 AUTHORIZATION AND BINDING EFFECT OF DOCUMENTS. 36 43 Buyer has all requisite corporate power and authority to enter into this Agreement and the other Documents and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and each of the other Documents by Buyer and the consummation by Buyer of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Buyer. This Agreement has been, and each of the other Documents at or prior to Closing will be, duly executed and delivered by Buyer. This Agreement constitutes (and each of the other Documents, when executed and delivered, will constitute) the valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms. 4.3 ABSENCE OF CONFLICTS. Except for obtaining the FCC Orders and any necessary clearances or approvals under the HSR Act, the execution, delivery and performance by Buyer of this Agreement and the other Documents, and consummation by Buyer of the transactions contemplated hereby and thereby, do not and will not (i) conflict with or result in any breach of any of the terms, conditions or provisions of, (ii) constitute a default under, (iii) result in a violation of, or (iv) give any third party the right to modify, terminate or accelerate any obligation under, the provisions of the articles of incorporation or by-laws of Buyer, any indenture, mortgage, lease, loan agreement or other agreement or instrument to which Buyer is bound or affected, or any law, statute, rule, judgment, order or decree to which Buyer is subject. 4.4 CONSENTS. Except for obtaining the FCC Orders and any necessary clearances or approvals under the HSR Act, the execution, delivery and performance by Buyer of this Agreement and the other Documents, and consummation by Buyer of the transactions contemplated hereby and thereby, do not and will not require the authorization, consent, approval, exemption, clearance or other action by or notice or declaration to, or filing with, any court or administrative or other governmental body, or the consent, waiver or approval of any other Person. 4.5 BROKER'S OR FINDER'S FEES. No agent, broker, investment banker, or other person or firm acting on behalf of Buyer or under its authority is or will be entitled to any broker's or finder's fee or any other commission or similar fee, directly or indirectly, from Buyer in connection with the transactions contemplated by this Agreement. 4.6 LITIGATION. 37 44 There are no legal, administrative, arbitration or other proceedings or governmental investigations pending or, to the knowledge of Buyer, threatened against Buyer that would give any third party the right to enjoin the transactions contemplated by this Agreement. 4.7 BUYER'S QUALIFICATION. (a) Buyer is, and pending Closing will remain, legally, financially and otherwise qualified under the Communications Act and all rules, regulations and policies of the FCC to acquire and operate the Stations. Buyer has no knowledge of matters which might reasonably be expected to result in the FCC's refusal to grant or delay approval of the transfer to Buyer of any FCC License or the imposition of any Material Adverse FCC Condition in connection with approval of the transfer to Buyer of any FCC License. To Buyer's knowledge, and except for FCC approval of Buyer's continued operation of KAII(TV) and KAHW(TV) as satellite television stations, no waiver of any FCC rule or policy is necessary to be obtained for the grant of the applications for the assignment of the FCC Licenses to Buyer, nor will processing pursuant to any exception or rule of general applicability be requested or required in connection with the consummation of the transactions herein. (b) As of the date hereof and through the later to occur of the HSR Filing and the filing of the FCC Applications, neither Buyer nor any Affiliate of Buyer (a) owns, controls or operates any television or radio station located in any DMA in which a Station is located; (b) has any direct or indirect interest, including, without limitation, any equity, debt, security or any other financial interest, whether or not "attributable" (as defined in the rules and regulations of the FCC), or management interest, in (i) any television or radio station located in any DMA in which a Station is located, or (ii) any applicant seeking to construct or acquire, by assignment of license or transfer of control, any such television or radio station (an "Applicant"); or (c) is a party to any TBA with a television or radio station located in any DMA in which a Station is located, or with any Applicant. Buyer acknowledges and agrees that the representations set forth in this Section 4.7(b) shall take into account and include (a) the consummation of any proposed or pending acquisition (as of the date hereof and through the later to occur of the HSR Filing and the filing of the FCC Applications) of television or radio stations (including the acquisition of the Stations) by Buyer or any Affiliate of Buyer or any Applicant, and (b) any TBA or proposed or pending TBA (as of the date hereof and through the later to occur of the HSR Filing and the filing of the FCC Applications) to which Buyer or any Affiliate of Buyer is or may become a party. 4.8 ADEQUACY OF FINANCING. Buyer, as of the Closing, will have adequate funds to enable Buyer to consummate the transactions contemplated hereby. 38 45 4.9 CAPITALIZATION; BUYER STOCK. All of the Shares issuable to the Seller Representative in accordance with this Agreement (or pledged to the Seller Representative under the Stock Pledge Agreement) will be duly authorized, validly issued, fully paid and nonassessable, will be issued in compliance with applicable federal and state securities laws and will be delivered free and clear of all Liens and may be freely resold or transferred by the Seller Representative. 4.10 SEC FILINGS; FINANCIAL STATEMENTS. (a) Buyer has filed all forms, reports, statements and other documents required to be filed with the SEC since December 1, 1997, and has heretofore made available to Sellers, in the form filed with the SEC since such date, together with any amendments thereto, its (i) Annual Reports on Form 10-K, (ii) all Quarterly Reports on Form 10-Q, (iii) all proxy statements relating to meetings of stockholders (whether annual or special), (iv) all reports on Form 8-K and (v) all other reports or registration statements filed by Buyer (collectively, the "Buyer SEC Reports"). The Buyer SEC Reports (A) complied as to form in all material respects with the requirements of the Exchange Act and the Securities Act and (B) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) The audited consolidated financial statements and unaudited interim financial statements of Buyer included in the Buyer SEC Reports comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto. The financial statements, including all related notes and schedules, contained in the Buyer SEC Reports (or incorporated by reference therein) present fairly in all material respects the consolidated financial position of Buyer and its subsidiaries as at the respective dates thereof and the consolidated results of operations and cash flows of Buyer and its subsidiaries for the periods indicated, in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as may be noted therein) and subject in the case of interim financial statements to normal year-end adjustments. (c) Since November 30, 1997, there has not been any change in the assets, business or operations of Buyer, including any transaction, commitment, dispute, damage, destruction or loss, whether or not covered by insurance, or other event of any character (whether or not in the ordinary course of business) individually or in the aggregate which has had, or is reasonably likely to have, a material adverse effect on Buyer. 39 46 4.11 MATERIAL CONTRACTS. All agreements filed as exhibits to Buyer SEC Reports and each agreement that would have been required to be filed as an exhibit to Buyer SEC Reports if such agreement had been entered into prior to the date of filing any such Buyer SEC Report (collectively, the "Buyer Material Contracts") are valid and in full force and effect on the date hereof except to the extent they have previously expired in accordance with their terms, and has not (and Buyer has no knowledge that any party thereto has) violated any provision of, or committed or failed to perform any act which with or without notice, lapse of time or both would constitute a default under the provisions of, any Buyer Material Contract, except for defaults which would not reasonably be expected to have a material adverse effect on Buyer. 4.12 WARN ACT. Buyer is not planning or contemplating, and has not made or taken, any decisions or actions concerning the employees of the Stations after the Closing Date that would require the service of notice under the Worker Adjustment and Retraining Act of 1988, as amended. 4.13 NO OUTSIDE RELIANCE. Buyer has not relied and is not relying on any statement, representation or warranty other than those made in this Agreement, the Schedules hereto or the certificates to be delivered to Buyer at the Closing pursuant to this Agreement. Buyer is not relying on any projections or other predictions contained or referred to in materials that have been or may hereafter be provided to Buyer or any of its Affiliates, agents or representatives, and Sellers make no representations or warranties with respect to any such projections or other predictions. ARTICLE V OTHER COVENANTS 5.1 CONDUCT OF THE STATIONS' BUSINESS PRIOR TO THE CLOSING DATE. Sellers covenant and agree with Buyer that from the date hereof through the Closing Date, unless Buyer otherwise consents in writing (which consent shall not be unreasonably withheld, delayed or conditioned), Sellers shall: 40 47 (a) Operate each Station in the ordinary course of business, including (i) incurring promotional expenses consistent with the amount currently budgeted, (ii) making capital expenditures prior to the Closing Date as are necessary to repair or replace Assets that are damaged or destroyed, (iii) using reasonable commercial efforts to preserve each Station's present business operations, organization and goodwill and its relationships with customers, employees, advertisers, suppliers and other contractors (including independent contractors providing on-air or production services) and to maintain programming for each Station consistent in all material respects with the type and quantity of each Station's programming as of the date hereof, and (iv) continuing each Station's usual and customary policy with respect to extending credit and collection of accounts receivable and the maintenance of its facilities and equipment; (b) Operate each Station and otherwise conduct its business in all material respects in accordance with the terms or conditions of the FCC Licenses, all applicable rules and regulations of the FCC, and all other rules, regulations, laws and orders of all governmental authorities having jurisdiction over any aspect of the operation of such Station; (c) Maintain Sellers' books and records in accordance with generally accepted accounting principles on a basis consistent with prior periods; (d) Promptly notify Buyer in writing of any event or condition which, with notice or the lapse of time or both, would constitute an event of material default under any of the Station Agreements which would, individually or in the aggregate, have a Material Adverse Effect; (e) Timely comply in all material respects with the Station Agreements which are, individually or in the aggregate, material to the Sale Assets or the operations, financial condition or results of operations of any Station; (f) Not sell, lease, grant any rights in or to or otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of the Sale Assets except for dispositions of assets that are in the ordinary course of business consistent with past practice; (g) Not amend, enter into, renew or extend any antenna lease, programming agreement, or network affiliation agreement; and not enter into or amend any employment contracts or other Station Agreements except on terms comparable to those of Station Agreements now in existence and otherwise in the ordinary course of business consistent with past practice; 41 48 (h) Maintain its technical equipment currently in use in good operating condition and repair, except for ordinary wear and tear; (i) Not increase in any manner the compensation (including severance pay or plans) or benefits of any employees, independent contractors, consultants or commission agents of any Seller or Station, except in the ordinary course of business consistent with past practice; (j) Not introduce any material change with respect to the operation of any Station including, without limitation, any material changes in the percentages of types of programming broadcast by such Station or any other material change in such Station's programming policies, except as required by law; (k) Not engage in any business other than the operation of the Stations and business activities directly related thereto; (l) Not enter into any agreement (other than agreements that will be terminated prior to Closing) with any Affiliate of any Seller; (m) Not voluntarily enter into any collective bargaining agreement applicable to any employees of any Station or otherwise voluntarily recognize any union as the bargaining representative of any such employees; and not enter into or amend any collective bargaining agreement applicable to any employees of any Station to provide that it shall be binding upon any "successor" employer or such employees; (n) Not take or agree to take any action that would materially delay the consummation of the Closing as contemplated by this Agreement; (o) Consult with Buyer regarding extension or modification of current programming and acquisition of new or additional programming; and (p) Use commercially reasonable efforts to effect the relocation of the Honolulu Station's office and studio space in a manner that will not materially interfere with the operation of the Honolulu Station, and consult with Buyer regarding the material aspects of such relocation. 5.2 NOTIFICATION OF CERTAIN MATTERS. Sellers shall give prompt notice to Buyer, and Buyer shall give prompt notice to Sellers, of (a) the occurrence, or failure to occur, of any event that would be likely to cause any of their respective representations or warranties contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Closing Date, and (b) any failure on their respective parts to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by any of them under this Agreement. 42 49 5.3 HSR FILING. Within ten (10) business days after the execution of this Agreement, Sellers and Buyer shall make the filings required to be made under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"), in connection with the transactions contemplated by this Agreement (the "HSR Filing"). 5.4 FCC FILING. As promptly as practicable following execution of this Agreement and in no event more than five (5) business days after the execution of this Agreement, Sellers and Buyer shall file all necessary applications with the FCC and take all commercially reasonable actions as shall be necessary and proper to obtain promptly the FCC Orders without a Material Adverse FCC Condition and to cause each of the FCC Orders to become a Final Action as soon as practicable. 5.5 TITLE; ADDITIONAL DOCUMENTS. At the Closing, Sellers shall transfer and convey to Buyer good and marketable title to all of the Sale Assets free and clear of any Liens except Permitted Liens. Sellers shall execute or cause to be executed such documents, in addition to those delivered at the Closing, as may be necessary to confirm in Buyer such title to the Sale Assets and to carry out the purposes and intent of this Agreement, which documents shall be in a form reasonably acceptable to Buyer and Sellers. Buyer shall execute or cause to be executed such documents, in addition to those delivered at Closing as may be necessary to confirm Buyer's assumption of the Assumed Obligations and issuance of the Shares free and clear of all Liens, which documents shall be in a form reasonably acceptable to Buyer and Sellers. 5.6 OTHER CONSENTS. Sellers and Buyer shall each use their commercially reasonable efforts to obtain the consents or waivers to the transactions contemplated by this Agreement required under the Station Agreements; provided that neither Sellers nor Buyer shall be required to make any financial accommodation to a third party in order to obtain any such consent or waiver (other than payment of any amount otherwise due such third party). 5.7 INSPECTION AND ACCESS. Sellers will, prior to the Closing Date, make available the assets, books, accounting records, correspondence and files of Sellers (to the extent related to the operation of the Stations) for examination by Buyer, its officers, attorneys, accountants 43 50 and agents, with the right to make copies of such books, records and files or extracts therefrom. Such access will be available during normal business hours, upon reasonable notice and in such manner as will not unreasonably interfere with the conduct of the business of the Stations. Furthermore, Sellers will be required to provide such access only during two (2) time periods, each of which will last no more than three (3) consecutive business days. Sellers will furnish to Buyer monthly unaudited financial statements of Seller prepared in a manner consistent with the unaudited statements identified in Section 3.12. Sellers will furnish to Buyer such additional financial and operating data and other available information regarding Sellers as Buyer may reasonably request. Those books, records and files the possession of which is not being transferred to Buyer pursuant to this Agreement which relate to the Sale Assets shall be preserved and maintained by Sellers for four (4) years after the Closing and those books, records and files relating to the Sale Assets the possession of which is being transferred to Buyer hereunder shall be maintained and preserved by Buyer for a period of four (4) years after the Closing. Each such party shall give to the other party and its authorized representatives, during normal business hours, such access to, and the opportunity at the other party's expense to copy, such books and records retained by it as may be reasonably requested by the other party. 5.8 CONFIDENTIALITY. Subject to Section 5.16, all information delivered or made available to Buyer or Buyer's representatives or otherwise disclosed in writing by Sellers (or their representatives) before or after the date hereof, in connection with the transactions contemplated by this Agreement, shall be kept confidential by Buyer and its representatives and shall not be used other than as contemplated by this Agreement, except to the extent that such information (a) was otherwise publicly available when received, (b) is or hereafter becomes lawfully obtainable from third parties not related to Buyer or its Affiliates, (c) is required to be disclosed to a governmental authority, (d) is required by law or the rules of any stock exchange to be disclosed or (e) to the extent such duty as to confidentiality is waived in writing by Sellers. 5.9 PUBLICITY. The parties agree that no public release or announcement concerning the transactions contemplated hereby shall be issued by any party without the prior written consent of the other party, except as required by law or applicable regulations. 5.10 MATERIAL ADVERSE CHANGE. Buyer and Sellers will promptly notify the other party of any event of which Buyer or Sellers, as the case may be, obtains knowledge which has had or could reasonably be expected to have a Material Adverse Effect. 44 51 5.11 REASONABLE BEST EFFORTS. Subject to the terms and conditions of this Agreement, each party will use its reasonable best efforts to take all action and to do all things necessary, proper or advisable to satisfy any condition hereunder in its power to satisfy and to consummate and make effective as soon as practicable the transactions contemplated by this Agreement. 5.12 FCC REPORTS AND APPLICATIONS. Sellers shall file, on a current and timely basis and in all material respects in a truthful and complete fashion until the Closing Date, all reports and documents required to be filed with the FCC with respect to the Stations. In addition, Sellers shall timely file all applications necessary for renewal of any of the FCC Licenses, shall prosecute each such application with diligence, shall in each case seek renewal for a full term, and shall diligently oppose any objection to, appeal from or petition to reconsider the grant of any such renewal application. 5.13 TAX RETURNS AND PAYMENTS. Sellers will timely file with the appropriate governmental agencies all Tax Returns required to be filed by Sellers with respect to the Stations prior to Closing and timely pay all Taxes reflected on such Tax Returns as owing by Sellers. 5.14 NO SOLICITATION. From the date hereof until the earlier of Closing or termination of this Agreement, no Seller or any Affiliate of any Seller shall directly or indirectly (a) knowingly solicit or encourage submission of any proposal or offer from any person relating specifically to the acquisition or purchase of any interest in any Seller or any material assets of any Seller or any merger, consolidation or other business combination with any Seller (each an "Acquisition Proposal"), or (b) otherwise knowingly assist or negotiate with any person with respect to an Acquisition Proposal. Sellers shall promptly notify Buyer in writing if an Acquisition Proposal is made in writing after the date of this Agreement. 5.15 CERTIFIED RESOLUTIONS. (a) Within fifteen (15) business days after the date hereof, Sellers shall furnish Buyer with (i) certified resolutions of the board of directors of Sellers and the Shareholders of Sellers evidencing the authorization and approval of the execution and delivery of this Agreement and each of the other Documents and the consummation of the transactions contemplated hereby and thereby, and (ii) certified resolutions of the board of directors of USA Broadcasting evidencing the authorization and approval of the execution and delivery of the Guaranty. 45 52 (b) Within fifteen (15) business days after the date hereof, Buyer shall furnish Sellers with certified resolutions of the board of directors of Buyer evidencing the authorization and approval of the execution and delivery of this Agreement and each of the other Documents and the consummation of the transactions contemplated hereby and thereby. 5.16 AUDITED FINANCIAL STATEMENTS. Sellers recognize that Buyer is a publicly reporting company and agree that Buyer shall be entitled at Buyer's expense to cause audited and unaudited financial statements of the Stations to be prepared for such periods and filed with the SEC, and included in a prospectus distributed to prospective investors, as required by laws and regulations applicable to Buyer as a publicly reporting company or registrant. Sellers agree to cooperate with Buyer and the auditing accountants as reasonably requested by Buyer in connection with the preparation and filing of such financial statements, including providing a customary management representation letter in the form prescribed by generally accepted auditing standards. Furthermore, if all or a portion of the audited financial statements of the Parent Entities may be used for such purpose, Sellers hereby consent to Buyer's use of such financial statements for the purposes set forth in this Section 5.16 and Sellers agree to use their commercially reasonable efforts to obtain the consent of the independent accounting firm which opined as to such financial statements. 5.17 STUDIO RELOCATION. Provided Closing occurs, Buyer shall reimburse Sellers on the Closing Date for all costs, fees, and expenses incurred (a) after the date hereof in connection with Seller's relocation of the studio site for KHON-TV in Honolulu, Hawaii and the purchase of a condominium for such studio site ("Studio Relocation"), and (b) prior to the date hereof, in connection with the Studio Relocation; provided, however, that any amounts reimbursed by Buyer pursuant to this Clause (b) shall not exceed $75,000 in the aggregate. 5.18 SEC REGISTRATION STATEMENT. Promptly following the execution and delivery of this Agreement, Seller shall prepare and file with the SEC a registration statement registering the Shares in accordance with the Securities Act (the "Registration Statement"). Seller shall take all actions reasonably necessary, including, without limitation, responding timely to SEC comments and requests for additional information, to have the Registration Statement declared effective as of the Closing Date. 5.19 ENVIRONMENTAL INSPECTION. 46 53 At Buyer's expense, Buyer shall have the right to cause an environmental inspection to be performed by a reputable environmental engineering company of each portion of the Owned Real Property and Leased Real Property. Buyer shall cause the environmental consultant to deliver to Sellers a copy of each such inspection report at the same time such report(s) are delivered to Buyer. 5.20 AFFILIATE GUARANTY. On the Closing Date, Sellers shall cause USA Broadcasting to execute and deliver the Guaranty in the form of Exhibit D. ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE Buyer's obligation to close the acquisition of the Sale Assets pursuant to the terms of this Agreement is subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions, unless waived by Buyer in writing: 6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES; CLOSING CERTIFICATE. (a) The representations and warranties of Sellers contained in this Agreement or in any other Document shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except for changes permitted hereunder and except for representations and warranties that speak as of a specific date or time other than the Closing Date (which need only be true and correct in all material respects as of such date or time)), except to the extent that the failure of such representations and warranties to be true and correct shall not have had, or be reasonably expected to have, a Material Adverse Effect. (b) Sellers shall have delivered to Buyer on the Closing Date an officer's certificate that the conditions specified in Sections 6.1(a), 6.2, 6.9, and 7.6 are satisfied as of the Closing Date. 6.2 PERFORMANCE OF AGREEMENT. Sellers shall have performed all of their covenants, agreements and obligations required by this Agreement to be performed or complied with by them prior to or upon the Closing Date, except to the extent that the failure to perform such covenants, agreements and obligations shall not have, when considered together, had a Material Adverse Effect. 47 54 6.3 FCC ORDERS. (a) All of the FCC Orders shall have been issued without any Material Adverse FCC Condition affecting Buyer; provided that if a petition to deny or other third-party objection which raises any significant issue is filed with the FCC prior to the date on which all of the FCC Orders are issued and become effective, and such petition or objection is not withdrawn as of such date, then Buyer's obligation to effect the Closing shall be subject to the further condition that the FCC Orders shall each have become a Final Action (unless the FCC Arbitrator pursuant to Section 6.3(b) determines there is no significant issue or the parties otherwise agree). Furthermore, the FCC Orders shall include authorization for Buyer to continue to operate KAII(TV) and KAHW(TV) as satellite television stations. (b) If within five (5) days after Buyer and Sellers acquire knowledge of such a petition or objection, Buyer and Sellers do not agree on whether such petition or objection raises a significant issue, then R. Clark Wadlow (the "FCC Arbitrator") of the law firm of Sidley & Austin shall be engaged to resolve such matter within five (5) business days. If Mr. Wadlow is unable or unwilling to so serve, then the parties shall promptly designate and engage another attorney who regularly practices communications law to serve as the FCC Arbitrator. The FCC Arbitrator may adopt such procedures and policies in reviewing and deciding this matter as the FCC Arbitrator desires in his sole discretion. The FCC Arbitrator's decision shall be final and binding on Buyer and Sellers, and Buyer and Sellers shall each bear one-half of the FCC Arbitrator's fees and expenses. For purposes of this Agreement, the parties acknowledge and agree that a "significant issue" is any issue which if resolved in the favor of a petitioner or third-party objector is reasonably likely to result in the FCC requiring the Buyer to divest any Station or operate any Station subject to a Material Adverse FCC Condition. (c) Conditions which the FCC Orders or any order, ruling or decree of any judicial or administrative body specifies and requires to be satisfied prior to transfer of the FCC Licenses to Buyer shall have been satisfied. (d) All of the FCC Licenses shall be in full force and effect. 6.4 HSR ACT. The waiting period (including any extension) under the HSR Act applicable to the sale and purchase of the Sale Assets pursuant to this Agreement shall have expired or been terminated. 6.5 OPINIONS OF SELLERS' COUNSEL. 48 55 Buyer shall have received (a) the written opinion of Sellers' corporate counsel, dated as of the Closing Date, that (i) each Seller is a corporation duly formed and in good standing under the laws of the state in which such Seller is incorporated, (ii) the execution, delivery and performance of the Agreement and each of the other Documents have been duly authorized by all requisite corporate action (including any necessary shareholder approval) on the part of Sellers, and (iii) the Agreement and other Documents have been duly and validly executed and delivered by Sellers and constitute valid and legally binding obligations enforceable against Sellers in accordance with their terms, subject to bankruptcy, insolvency and other laws affecting the enforcement of creditors' rights generally and general principles of equity, and (b) the written opinion of Sellers' FCC counsel, dated as of the Closing Date, that (i) the Sellers hold the FCC Licenses, (ii) all authorizations, approvals and consents of the FCC required under the Communications Act to permit the assignment of the FCC Licenses by the Sellers to Buyer have been obtained, are in effect, and have not been reversed, stayed, enjoined, set aside, annulled or suspended, and (iii) there is no FCC order, judgment, decree, notice of apparent liability or order of forfeiture outstanding, and to counsel's knowledge, no action, suit, notice of apparent liability, order of forfeiture, investigation or other proceeding pending, by or before the FCC against the Sellers that might result in a revocation, cancellation, suspension, non-renewal, short-term renewal or materially adverse modification of the FCC Licenses, except FCC proceedings generally affecting the television industry (including but not limited to the proceedings which will require modification of all television licenses to accommodate the transition to digital television). An opinion addressing the matters in foregoing Clause (a) but with respect to USA Broadcasting and the Guaranty shall have also been received by Buyer from counsel for USA Broadcasting. Each of such opinions shall be subject to customary qualifications and limitations. 6.6 REQUIRED CONSENTS. Sellers shall have been able to obtain through commercially reasonable efforts, but without incurring substantial cost or expense, the written consents or waivers to the transactions contemplated by this Agreement, in form reasonably satisfactory to Buyer's counsel and without any condition materially adverse to Buyer or the Stations, which are required under (i) each Station Agreement for each transmitter or antenna (including each satellite and translator transmitter) site where a Seller is a lessee and (ii) the programming agreements identified for each Station on Schedule 6.6; provided, however, that (A) obtaining such a consent with respect to one or more of such programming agreements shall not be a condition precedent to Closing if Buyer and Sellers agree upon a reduction in the Purchase Price to compensate Buyer for the reduction, if any, in the fair market value of one or more of the Stations as a result of the inability to obtain such a consent, and (B) if Buyer and Sellers fail to agree prior to Closing on such a Purchase Price reduction, (1) Buyer shall pay the Purchase Price at Closing without such a reduction, (2) the parties shall promptly take all action necessary 49 56 to cause the appropriate reduction, if any, to be determined by expedited arbitration in accordance with the expedited arbitration rules of the American Arbitration Association, and (3) promptly after such determination is made, Sellers shall refund to Buyer in immediately available funds the amount of such reduction, if any, together with interest from the Closing Date at eight percent (8%) per annum. A further condition shall be that Buyer shall have been furnished a written statement from the lessor under the lease of the Honolulu's Station's main transmitter and antenna site that the term of such lease was renewed as of January 2, 1998 for an additional ten (10) years. 6.7 DELIVERY OF CLOSING DOCUMENTS. Sellers shall have delivered or caused to be delivered to Buyer on the Closing Date each of the documents required to be delivered pursuant to Section 8.2. 6.8 NO ADVERSE PROCEEDINGS. No judgment or order shall have been rendered and remain in effect, and no action or proceeding by any governmental entity shall be pending, against Buyer that would restrain or make unlawful the purchase and sale of the Sale Assets as contemplated by this Agreement. 6.9 NO MATERIAL ADVERSE CHANGE. There shall have been no change or development affecting any Seller or any Station since December 31, 1997 which has resulted in, or could reasonably be expected to result in, a Material Adverse Effect; provided, however, that an adverse change in the revenue or cash flow of any Station shall not constitute for purposes of this Section a change or development which has, or could reasonably be expected to have, a Material Adverse Effect unless the failure of Sellers to perform in all material respects the covenants under Section 5.1 shall have caused such Material Adverse Effect. ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLERS TO CLOSE The obligations of Sellers to close the sale of the Sale Assets pursuant to the terms of this Agreement is subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions, unless waived by Sellers in writing: 7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. 50 57 (a) The representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects on the date hereof and at the Closing Date with the same effect as though made at such time, except for changes that are not materially adverse to Sellers. (b) Buyer shall have delivered to Sellers on the Closing Date a certificate that the conditions specified in Sections 7.1(a) and 7.2 are satisfied as of the Closing Date. 7.2 PERFORMANCE OF AGREEMENTS. Buyer shall have performed in all material respects all of its covenants, agreements and obligations required by this Agreement and each of the other Documents to be performed or complied with by it prior to or upon the Closing Date. 7.3 FCC ORDERS. (a) All of the FCC Orders shall have been issued as to all Stations and shall have become effective under the rules of the FCC and applicable law. (b) Conditions which the FCC Orders or any order, ruling or decree of any judicial or administrative body specifies and requires to be satisfied prior to transfer of the FCC Licenses to Buyer shall have been satisfied. 7.4 HSR ACT. The waiting period (including any extension) under the HSR Act applicable to the sale and purchase of the Sale Assets pursuant to this Agreement shall have expired or been terminated. 7.5 OPINION OF BUYER'S COUNSEL. Sellers shall have received the written opinion of Buyer's counsel, dated as of the Closing Date, that (i) Buyer is a corporation duly formed and in good standing under the laws of the state in which Buyer is incorporated, (ii) the execution, delivery and performance of the Agreement and other Documents have been duly authorized by all requisite corporate action (including any necessary shareholder approval) on the part of Buyer, (iii) the Agreement and each of the other Documents have been duly and validly executed and delivered by Buyer and constitute valid and legally binding obligations enforceable against Buyer in accordance with their terms, subject to bankruptcy, insolvency and other laws affecting the enforcement of creditors' rights generally and general principles of equity, (iv) the Shares to be issued to the Sellers in accordance with terms of this Agreement, when so issued, will be duly authorized, validly issued, fully paid and non-assessable, and (v) the Stock Pledge Agreement creates in favor of 51 58 Sellers a perfected security interest in the Shares covered thereby. Each of the opinions of Buyer's Counsel shall be subject to customary qualifications and limitations. 7.6 NO ADVERSE PROCEEDINGS. No judgment or order shall have been rendered and remain in effect, and no action or proceeding by any governmental entity shall be pending, against Sellers that would restrain or make unlawful the purchase and sale of the Sale Assets as contemplated by this Agreement. 7.7 DELIVERY OF CLOSING DOCUMENTS. Buyer shall have delivered or cause to be delivered to Seller on the Closing Date each of the Documents required to be delivered pursuant to Section 8.3. 7.8 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement shall have been declared effective by the SEC under the Securities Act. No stop order suspending the effectiveness of such registration statement shall have been issued by the SEC and no proceedings for that purpose shall have been initiated or threatened by the SEC. 7.9 LISTING OF SHARES. All Shares shall have been included for listing on NASDAQ upon official notice of issuance. ARTICLE VIII CLOSING 8.1 TIME AND PLACE. Closing of the purchase and sale of the Sale Assets pursuant to this Agreement (the "Closing") shall take place at the offices of Bose McKinney & Evans, 135 North Pennsylvania Street, Suite 2700, Indianapolis, Indiana, at 10:00 o'clock A.M. on the date (the "Closing Date") that is the fifth business day following satisfaction or waiver of the conditions precedent hereunder to Closing. 8.2 DOCUMENTS TO BE DELIVERED TO BUYER BY SELLERS. 52 59 At the Closing, Sellers shall deliver or cause to be delivered to Buyer the following, in each case in form and substance reasonably satisfactory to Buyer: (a) The opinions of Sellers' counsel and FCC counsel, dated the Closing Date, to the effect set forth in Section 6.5; (b) Governmental certificates, dated as of a date as near as reasonably practicable to the Closing Date, showing that each Seller is duly incorporated and in good standing in the state of its incorporation and is qualified to do business and in good standing in the jurisdictions listed in Schedule 3.1; (c) A certificate of the Secretary of each Seller attesting as to the incumbency of each officer of such Seller who executes this Agreement and any of the other Documents and to similar customary matters; (d) A bill of sale and other instruments of transfer and conveyance transferring the Sale Assets (except the Owned Real Property) to Buyer, in forms reasonably acceptable to Buyer and Sellers; (e) A deed, in a form recordable in the applicable jurisdiction, for each parcel of the Owned Real Property, which deed shall convey insurable, fee simple title for that parcel free and clear of all Liens except for Permitted Liens and be substantially the same form as the deed that transferred title to such Owned Real Property to Sellers; and such customary owner's or seller's affidavit as are reasonably necessary to enable Buyer to obtain title insurance with respect to the Owned Real Property without any standard preprinted exception (except those standard preprinted exceptions which may be deleted by delivery of a current certified ALTA/ACSM survey); (f) A certificate of nonforeign status under Section 1445 of the Code, complying with the requirements of the Income Tax Regulations promulgated pursuant to such section; (g) The certificate described in Section 6.1(b); (h) A written instruction of Sellers to Escrow Agent instructing the Escrow Agent to distribute the Escrow Account at the direction of Sellers; (i) Modified network affiliation agreements for each of the Stations with Fox Broadcasting Company in the form and substance of Exhibit C ("Fox Network Agreements"); and (j) The Guaranty executed by USA Broadcasting as prescribed in Section 5.20. 53 60 (k) such additional information and materials as Buyer shall have reasonably requested to evidence the satisfaction of the conditions to its obligations hereunder, including without limitation, any documents expressly required by this Agreement to be delivered by Sellers at Closing. 8.3 DELIVERIES TO SELLERS BY BUYER. At the Closing, Buyer shall deliver or cause to be delivered to Sellers the following, in each case in form and substance reasonably satisfactory to Sellers: (a) The Purchase Price (including all Shares issued at Closing) in accordance with Section 2.5, as adjusted under Section 2.7(b); (b) The certificate described in Section 7.1(b); (c) A certificate of the Secretary of Buyer attesting as to the incumbency of each officer of Buyer who executes this Agreement and any of the other Documents and to similar customary matters; (d) A written instruction of Buyer to Escrow Agent instructing the Escrow Agent to distribute the Escrow Account at the direction of Sellers; (e) An agreement by Buyer assuming the Assumed Obligations, in forms reasonably acceptable to Buyer and Sellers. (f) Fox Network Agreements, Stock Pledge Agreement and Note executed by Buyer; and (g) Such additional information and materials as Sellers shall have reasonably requested to evidence the satisfaction of the conditions to their obligations hereunder. ARTICLE IX INDEMNIFICATION 9.1 SURVIVAL. 54 61 All representations, warranties, covenants and agreements in this Agreement or any other Document shall survive the Closing regardless of any investigation, inquiry or knowledge on the part of any party, and the Closing shall not be deemed a waiver by any party of the representations, warranties, covenants or agreements of any other party in this Agreement or any other Document; provided, however, that the period of survival shall, (i) with respect to the representations and warranties in Section 3.15 (Employee Benefit Plans), end for each Benefit Plan upon expiration of the statute of limitations applicable to the Benefit Plan, (ii) with respect to the representations and warranties pertaining to Taxes under Section 3.17, end for each Tax upon expiration of the statute of limitations applicable to the Tax, (iii) with respect to the representations and warranties in Section 3.18 (Environmental Matters), end three (3) years after the Closing Date, and (iv) in the case of any other representation or warranty, end twelve (12) months after the Closing Date (in each case, the "Survival Period"). No claim for breach of any representation or warranty may be brought under this Agreement or any other Document unless written notice describing in reasonable detail the nature and basis of such claim is given on or prior to the last day of the applicable Survival Period. In the event such notice of a claim is so given, the right to indemnification with respect to such claim shall survive the applicable Survival Period until the claim is finally resolved and any obligations with respect to the claim are fully satisfied. 9.2 INDEMNIFICATION BY SELLERS. (a) Subject to Section 9.2(b), Sellers shall, jointly and severally indemnify, defend, and hold harmless Buyer and its officers, directors, employees, Affiliates, successors and assigns from and against, and pay or reimburse each of them for and with respect to, any Loss relating to, arising out of or resulting from: (i) Any breach by Sellers of any of its representations, warranties, covenants or agreements in this Agreement or any other Document; or (ii) Any obligation, indebtedness or Liability of Sellers (other than the Assumed Obligations) regardless of whether disclosed to Buyer and regardless of whether constituting a breach by Sellers of any representation, warranty, covenant or agreement hereunder or under any other Document; or (iii) Noncompliance by Sellers with the provisions of the Bulk Sales Act, if applicable, in connection with the transactions contemplated by this Agreement. (b) If Closing occurs, Sellers shall not be obligated to indemnify Buyer unless and until the aggregate amount of Buyer's Losses exceeds Five Hundred 55 62 Thousand Dollars ($500,000) (the "Deductible"), in which case Buyer shall then be entitled to indemnification of Buyer's Loss in excess of the Deductible, provided that any payment owed by Sellers to Buyer for any Liability pursuant to or under Section 2.7, Section 2.8(f), or Section 9.2(a)(ii), shall not be counted in determining whether the Deductible limitation is satisfied, and Buyer shall have the right to recover any such payment without regard to such limitation. (c) The aggregate amount of all payments made by Sellers in satisfaction of claims for indemnification pursuant to this Section 9.2 shall not exceed Twenty Million Dollars ($20,000,000) (the "Cap"), provided that any payment owed by Sellers to Buyer under Section 2.7 shall not be counted in determining whether the Cap has been met. (d) Notwithstanding any other provision of this Agreement to the contrary, and except for remedies that Buyer may have for any fraud by the Sellers, Buyer acknowledges and agrees that the maximum aggregate liability of the Sellers (taken as a whole) pursuant to this Agreement to Buyer and any of its Affiliates for any and all Losses shall not exceed the Cap, regardless of whether Buyer seeks indemnification pursuant to this Article IX, regardless of the form of action, whether in contract or tort, including negligence, and regardless of whether or not the Sellers are notified of the possibility of damages to Buyer. 9.3 INDEMNIFICATION BY BUYER. (a) Subject to Sections 9.3(b) and 10.2, Buyer shall indemnify and hold harmless Sellers and their officers, directors, employees, agents, representatives, Affiliates, successors and assigns from and against, and pay or reimburse each of them for and with respect to any Loss relating to, arising out of or resulting from: (i) Any breach by Buyer of any of its representations, warranties, covenants or agreements in this Agreement or any other Document; or (ii) The Assumed Obligations; or (iii) Buyer's operation of any of the Stations on or after the Closing Date (except for any Loss relating to, arising out of or resulting from any Excluded Asset) or Buyer's ownership of the Sale Assets. (b) If Closing occurs, Buyer shall not be obligated to indemnify Sellers unless and until the aggregate amount of Sellers' Losses exceeds the Deductible, in which case Sellers shall then be entitled to indemnification of Sellers' Losses in excess of the Deductible, provided any payment owed by Buyer to Sellers for any Assumed 56 63 Obligations or for any Liability pursuant to or under Section 2.7, Section 2.8, Section 5.17, Section 9.3(a)(iii) or Sections 12.1(c) and (d) shall not be counted in determining whether the Deductible limitation is satisfied, and Sellers shall have the right to recover any such payment without regard to any such limitation. 9.4 ADMINISTRATION OF INDEMNIFICATION. For purposes of administering the indemnification provisions set forth in Sections 9.2 and 9.3, the following procedure shall apply: (a) Whenever a claim shall arise for indemnification under this Article, the party entitled to indemnification (the "Indemnified Party") shall reasonably promptly give written notice to the party from whom indemnification is sought (the "Indemnifying Party") setting forth in reasonable detail, to the extent then available, the facts concerning the nature of such claim and the basis upon which the Indemnified Party believes that it is entitled to indemnification hereunder. (b) In the event of any claim for indemnification resulting from or in connection with any claim by a third party, the Indemnifying Party shall be entitled, at its sole expense, either (i) to participate in defending against such claim or (ii) to assume the entire defense with counsel which is selected by it and which is reasonably satisfactory to the Indemnified Party provided that (A) the Indemnifying Party agrees in writing that it does not and will not contest its responsibility for indemnifying the Indemnified Party in respect of such claim or proceeding and (B) no settlement shall be made and no judgment consented to without the prior written consent of the Indemnified Party which shall not be unreasonably withheld (except that no such consent shall be required if the claimant is entitled under the settlement to only monetary damages actually paid by the Indemnifying Party). If, however, (i) the claim, action, suit or proceeding would, if successful, result in the imposition of damages for which the Indemnifying Party would not be solely responsible, or (ii) representation of both parties by the same counsel would otherwise be inappropriate due to actual or potential differing interests between them, then the Indemnifying Party shall not be entitled to assume the entire defense and each party shall be entitled to retain counsel who shall cooperate with one another in defending against such claim. In the case of Clause (i) of the preceding sentence, the Indemnifying Party shall be obligated to bear only that portion of the expense of the Indemnified Party's counsel that is in proportion to the damages indemnifiable by the Indemnifying Party compared to the total amount of the third-party claim against the Indemnified Party. (c) If the Indemnifying Party does not choose to defend against a claim by a third party, the Indemnified Party may defend in such manner as it deems appropriate or settle the claim (after giving notice thereof to the Indemnifying Party) on such terms as the Indemnified Party may deem appropriate, and the Indemnified Party 57 64 shall be entitled to periodic reimbursement of defense expenses incurred and prompt indemnification from the Indemnifying Party in accordance with this Article. (d) Failure or delay by an Indemnified Party to give a reasonably prompt notice of any claim (if given prior to expiration of any applicable Survival Period) shall not release, waive or otherwise affect an Indemnifying Party's obligations with respect to the claim, except to the extent that the Indemnifying Party can demonstrate actual loss or prejudice as a result of such failure or delay. Buyer shall not be deemed to have notice of any claim by reason of any knowledge acquired on or prior to the Closing Date by an employee of the Stations. ARTICLE X TERMINATION; LIQUIDATED DAMAGES 10.1 RIGHT OF TERMINATION. This Agreement may be terminated prior to Closing: (a) By written agreement of Sellers and Buyer; or (b) By written notice from a party that is not then in material breach of this Agreement if: (i) The other party has continued in material breach of this Agreement for twenty (20) days after written notice of such breach from the terminating party is received by such other party; or (ii) Closing does not occur within one year after the date hereof. 10.2 OBLIGATIONS UPON TERMINATION. (a) Upon termination of this Agreement, each party shall thereafter remain liable for breach of this Agreement prior to such termination and remain liable to pay and perform any obligation under Article IX and this Article, provided, however, that in the event Closing does not occur, the aggregate liability of Buyer for breach or default under this Agreement shall be limited as provided in Section 10.2(c). 58 65 (b) If this Agreement is terminated prior to Closing for any reason other than a material breach or default by Buyer under this Agreement, Buyer shall be entitled to the return of the Earnest Money, and Buyer and Sellers shall cooperate in taking such action as required under the Escrow Agreement to effect the Escrow Agent's distribution of the Earnest Money to Buyer. (c) If Closing shall not have occurred because of a material breach or default by Buyer under this Agreement, Sellers' sole remedy at law or in equity under this Agreement shall be (i) the termination by Sellers of this Agreement, and (ii) the recovery from Buyer of (A) an amount equal to the Earnest Money (the "Sellers' Liquidated Damage Amount") and (B) Sellers' reasonable attorneys' fees and other costs of collection incurred by Sellers in enforcing their right to recover Sellers' Liquidated Damage Amount (such fees and other costs herein referred to as "Sellers' Enforcement Costs"). In the event of such termination by Sellers, Sellers shall be entitled under the Escrow Agreement (subject to Buyer's right to contest in good faith) to effect the Escrow Agent's distribution to Sellers of the Earnest Money, and Sellers shall be entitled to pursue any other remedy available to Sellers at law or in equity to recover the entire Sellers' Liquidated Damage Amount and Sellers' Enforcement Costs, provided that the total monetary damages (including any amount received from the Escrow Agent under the Escrow Agreement) to which Sellers shall be entitled shall not exceed the sum of Sellers' Liquidated Damage Amount plus Sellers' Enforcement Costs. BUYER ACKNOWLEDGES AND AGREES THAT SELLERS' RECEIPT OF SELLERS' LIQUIDATED DAMAGE AMOUNT SHALL CONSTITUTE PAYMENT OF LIQUIDATED DAMAGES HEREUNDER AND NOT A PENALTY AND THAT SELLERS' LIQUIDATED DAMAGE AMOUNT IS REASONABLE IN LIGHT OF THE SUBSTANTIAL BUT INDETERMINATE HARM ANTICIPATED TO BE CAUSED BY BUYER'S MATERIAL BREACH OR DEFAULT UNDER THIS AGREEMENT, THE DIFFICULTY OF PROOF OF LOSS AND DAMAGES, THE INCONVENIENCE AND NON-FEASIBILITY OF OTHERWISE OBTAINING AN ADEQUATE REMEDY, AND THE VALUE OF THE TRANSACTIONS TO BE CONSUMMATED HEREUNDER. 10.3 TERMINATION NOTICE. Each notice given by a party pursuant to Section 10.1 to terminate this Agreement shall specify the Subsection of Section 10.1 pursuant to which such notice is given. If at the time a party gives a termination notice, such party is entitled to give such notice pursuant to more than one Subsection of Section 10.1, the Subsection pursuant to which such notice is given and termination is effected shall be deemed to be the Subsection specified in such notice provided that the party giving such notice is at such time entitled to terminate this Agreement pursuant to the specified Subsection. 59 66 ARTICLE XI CONTROL OF STATIONS Between the date of this Agreement and the Closing Date, Buyer shall not control, manage or supervise the operation of the Stations or the conduct of their business, all of which shall remain the sole responsibility and under the control of Sellers, subject to Sellers' compliance with this Agreement. ARTICLE XII EMPLOYMENT MATTERS 12.1 TRANSFER OF EMPLOYEES. (a) Buyer shall offer employment (effective immediately after Closing) to each of the employees of the Stations (including those on leave of absence, whether short-term, long-term, family, maternity, disability, paid, unpaid or other, but excluding the employees identified on Schedule 2.2(l) hereto), at a comparable salary or wage rate (as the case may be), position and place of employment as held by each such employee immediately prior to the Closing Date and with the same employee benefits generally provided by Buyer to Buyer's similarly situated employees (such employees who are given and accept such offers of employment are referred to herein as the "Transferred Employees"). As of the Closing Date, Buyer shall provide Sellers with written notice of any employees of the Stations who have not accepted Buyer's offer of employment. Nothing in this Section 12.1(a) is intended to nor shall guarantee employment for any Transferred Employee for any length of time after the Closing Date. (b) Sellers shall pay, discharge and be solely responsible for all liabilities, obligations, costs and expenses which arise or become payable under any Benefit Plan as a result of, or in connection with, the termination by any Seller of any Station employee including, without limitation, all severance or termination pay and all accrued vacation, salary, wages and other compensation payments or benefits, if any, which arise or become payable as a result of or in connection with such terminations, except to the extent any such liabilities are included as an Assumed Obligation pursuant to Section 2.3(a)(ii) in determining the Adjustment Amount. (c) Buyer agrees, as between Buyer and Sellers, that Buyer shall pay any Transferred Employee who is terminated by Buyer without cause during the six month period after Closing the severance amount stated on Schedule 3.14(c) for such Transferred Employee, as adjusted in accordance with the applicable formula described 60 67 on such Schedule to reflect the actual termination date if other than August 31, 1998. The foregoing agreement by Buyer, however, is not intended to be and shall not constitute the assumption by Buyer of any obligation under any severance policy, plan or arrangement of Sellers. (d) Buyer shall pay, discharge and be solely responsible for all liabilities, obligations, costs and expenses which arise or become payable as a result of or in connection with Buyer's employment of any Transferred Employees upon Closing or Buyer's termination of any Transferred Employees after Closing, including, without limitation, all severance or termination pay and all accrued vacation, salary, wages and other compensation payments or benefits. Buyer shall not, however, assume or be obligated to pay any benefits under any Benefit Plans (including, but not limited to, any severance policy, plan or arrangement) except to the extent arising under any Assumed Plan during and relating to any period on or after the Closing Date. 12.2 EMPLOYEE BENEFIT PLANS. Buyer shall not acquire any rights or interest in, or assume or have any obligations or liabilities under, any of the Benefit Plans, and Sellers or the Benefit Plans, as applicable, will retain all assets and liabilities in respect of Sellers' employees under the Benefit Plans. Sellers shall comply with the provisions of the Continuation Coverage Under Group Health Plan of ERISA, Title I, Part 6, to the extent applicable in connection with the transactions contemplated by this Agreement. 12.3 UNION EMPLOYEES. Notwithstanding the above provisions of this Article XII, upon consummation of the Closing hereunder, Buyer shall: (i) recognize the unions and labor organizations which are parties to the collective bargaining agreements set forth in Schedule 3.7(b); and (ii) offer employment to all active employees of the Stations represented by any such union or labor organization; and (iii) assume and be responsible for the liabilities and obligations of Sellers arising under the collective bargaining agreements listed on Schedule 3.7(b), including, without limitation, liabilities or obligations with respect to severance pay, accrued vacation and other similar liabilities or obligations, but only to the extent such liabilities and obligations are included as part of the Assumed Obligations. 12.4 EMPLOYMENT AGREEMENTS. Buyer acknowledges and agrees that Buyer's obligations pursuant to this Article XII are in addition to, and not in limitation of, Buyer's obligation to assume the employment agreements set forth in Schedule 3.7(b). 61 68 ARTICLE XIII MISCELLANEOUS 13.1 FURTHER ACTIONS. From time to time before, at and after the Closing, each party, at its expense and without further consideration, will execute and deliver such documents as reasonably requested by the other party in order more effectively to consummate the transactions contemplated hereby. 13.2 PAYMENT OF EXPENSES. (a) The fees for the HSR Filing, the fees for filing the applications with the FCC under Section 5.4, and all Transfer Taxes payable in connection with consummation of the transactions contemplated by this Agreement, shall be paid fifty percent (50%) by Sellers and fifty percent (50%) by Buyer. All other Taxes shall be paid by the party primarily liable under applicable law to pay such Tax. Notwithstanding anything to the contrary in this Agreement, all mortgage recordation taxes and fees incurred in connection with the recording of any mortgage or deed of trust by Buyer or any of its lenders shall be paid by Buyer. (b) Except as otherwise expressly provided in this Agreement, each of the parties shall bear its own expenses, including the fees of any attorneys and accountants engaged by such party, in connection with the transactions contemplated by this Agreement. 13.3 SPECIFIC PERFORMANCE. Sellers acknowledge that each Station is of a special, unique and extraordinary character, and that damages alone are an inadequate remedy for a breach of this Agreement by Sellers. Accordingly, as an alternative to termination of this Agreement under Section 10.1, Buyer shall be entitled, in the event of Sellers' breach, to enforcement of this Agreement (subject to obtaining any required approval of the FCC) by a decree of specific performance or injunctive relief requiring Sellers to fulfill their obligations under this Agreement. Such right of specific performance or injunctive relief shall be in addition to, and not in lieu of, Buyer's right to recover damages and to pursue any other remedies available to Buyer for Sellers' breach. In any action to specifically enforce Sellers' obligation to close the transactions contemplated by this Agreement, Sellers shall waive the defense that there is an adequate remedy at law or in equity and agrees that Buyer shall be entitled to obtain specific performance of Sellers' obligation to close without being required to prove actual damages. As a condition to seeking specific performance, Buyer shall not be required to tender the 62 69 Purchase Price as contemplated by Section 2.5 but shall be required to demonstrate that Buyer is ready, willing and able to tender the Purchase Price as contemplated by such Section. 13.4 NOTICES. All notices, demands or other communications given hereunder shall be in writing and shall be sufficiently given if delivered by courier (including overnight delivery service) or sent by registered or certified mail, first class, postage prepaid, addressed as follows: (a) if to Buyer, to: Emmis Broadcasting Corporation 950 North Meridian Street, Suite 1200 Indianapolis, Indiana 46204 Attention: Jeffrey H. Smulyan, Chairman Copy to: Bose McKinney & Evans 2700 First Indiana Plaza Indianapolis, Indiana 46204 Attention: David L. Wills, Esq. (b) if to Sellers, to: USA Broadcasting, Inc. 52 West 57th Street, 38th Floor New York, New York 10019 Attention: Julius Genachowski, Esq. Copy to: Hogan & Hartson L.L.P. 555 13th Street, N.W. Washington, DC 20004 Attention: William S. Reyner, Jr., Esq. and to: Fox Inc. 63 70 10201 West Pico Boulevard Building 88 - Room 150 Los Angeles, California 90035 Attention: Paul F. Haggerty or such other address as a party may from time to time notify the other party in writing (as provided above). Any such notice, demand or communication shall be deemed to have been given (i) if so mailed, as of the close of the third business day following the date so mailed, and (ii) if delivered by courier, on the date received. 13.5 ENTIRE AGREEMENT. This Agreement, the Schedules, Exhibits and the other Documents constitute the entire agreement and understanding between the parties with respect to the subject matter hereof and supersede any prior negotiations, agreements, understandings or arrangements between the parties hereto with respect to the subject matter hereof. 13.6 BINDING EFFECT; BENEFITS. Except as otherwise provided herein, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors or permitted assigns. Except to the extent specified herein, nothing in this Agreement, express or implied, shall confer on any person other than the parties hereto and their respective successors or permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 13.7 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by either party without the prior written consent of the other party, provided that: (a) Either party may assign its rights under this Agreement as collateral security to any lender providing financing to the party or any of its Affiliates; and (b) Buyer may assign all of its rights under this Agreement to a direct or indirect wholly-owned subsidiary of Buyer, provided that (i) the representations and warranties of Buyer hereunder shall be true and correct in all respects as applied to the assignee, (ii) both Buyer and the assignee shall execute and deliver to Sellers a written instrument in form and substance satisfactory to Sellers within their reasonable judgment in which both Buyer and the assignee agree to be jointly and severally liable for performance of all of Buyer's obligations under this Agreement, (iii) such assignment shall not materially delay issuance of the FCC Orders, and (iv) Buyer and the assignee shall deliver such other documents and instruments as reasonably requested by 64 71 Sellers, including appropriate certified resolutions of the boards of directors of Buyer and the assignee provided, however, under no circumstances may Buyer assign any right or obligation hereunder to deliver the Shares or to repay the Note. 13.8 GOVERNING LAW. This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of New York without regard to its principles of conflicts of laws. 13.9 AMENDMENTS AND WAIVERS. No term or provision of this Agreement may be amended, waived, discharged or terminated orally but only by an instrument in writing signed by the party against whom the enforcement of such amendment, waiver, discharge or termination is sought. Any waiver shall be effective only in accordance with its express terms and conditions. 13.10 SEVERABILITY. Any provision of this Agreement which is unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such unenforceability without invalidating the remaining provisions hereof, and any such unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereto hereby waive any provision of law now or hereafter in effect which renders any provision hereof unenforceable in any respect. 13.11 HEADINGS. The captions in this Agreement are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. 13.12 COUNTERPARTS. This Agreement may be executed in any number of counterparts, and by any party on separate counterparts, each of which shall be an original, and all of which together shall constitute one and the same instrument. 13.13 REFERENCES. All references in this Agreement to Articles and Sections are to Articles and Sections contained in this Agreement unless a different document is expressly specified. 13.14 SCHEDULES AND EXHIBITS. 65 72 Unless otherwise specified herein, each Schedule and Exhibit referred to in this Agreement is attached hereto, and each such Schedule and Exhibit is hereby incorporated by reference and made a part hereof as if fully set forth herein. 13.15 JOINT AND SEVERAL LIABILITY. Sellers shall be jointly and severally liable for each representation, warranty, covenant, agreement, liability or obligation of all or any one of the Sellers under this Agreement or any other Document whether or not otherwise indicated in this Agreement or any other Document. 66 73 IN WITNESS WHEREOF, each of the parties hereto has caused this Asset Purchase Agreement to be executed as of the date first written above. SF BROADCASTING OF HONOLULU, INC. By: _____________________________________ Printed Name: ___________________________ Its: ____________________________________ SF HONOLULU LICENSE SUBSIDIARY, INC. By: _____________________________________ Printed Name: ___________________________ Its: ____________________________________ SF BROADCASTING OF NEW ORLEANS, INC. By: _____________________________________ Printed Name: ___________________________ Its: ____________________________________ SF NEW ORLEANS LICENSE SUBSIDIARY, INC. 67 74 By: _____________________________________ Printed Name: ___________________________ Its: ____________________________________ SF BROADCASTING OF MOBILE, INC. By: _____________________________________ Printed Name: ___________________________ Its: ____________________________________ SF MOBILE LICENSE SUBSIDIARY, INC. By: _____________________________________ Printed Name: ___________________________ Its: ____________________________________ SF BROADCASTING OF GREEN BAY, INC. By: _____________________________________ Printed Name: ___________________________ Its: ____________________________________ 68 75 SF GREEN BAY LICENSE SUBSIDIARY, INC. By: _____________________________________ Printed Name: ___________________________ Its: ____________________________________ EMMIS BROADCASTING CORPORATION By: _____________________________________ David L. Wills, Assistant Secretary 69 EX-11 7 SCHEDULES 1 EXHIBIT 11 EMMIS BROADCASTING CORPORATION AND SUBSIDIARIES SCHEDULE OF CALCULATION OF PER SHARE NET INCOME
For the Three Months Ended For the Twelve Months Ended February 28,1998 February 28, 1998 ---------------- ----------------- Weighted Calculated Weighted Calculated Net Average Per Net Average Per Shares Share Income Shares Share Income ----------- ---------- ---------- ---------- ---------- ----------- Shares outstanding and net income used in the determination of basic net income per share ($3,136,000) 10,888,522 ($0.29) $ 8,984,000 10,903,333 $ 0.82 Options (A) 474,432 Used in the determination of diluted net income per share ($3,136,000) 10,888,522 ($0.29) $ 8,984,000 11,377,765 $ 0.79 (A) Excluded due to antidiluted effect. For the Three Months Ended For the Twelve Months Ended February 28,1997 February 28, 1997 ---------------- ----------------- Weighted Calculated Weighted Calculated Net Average Per Net Average Per Shares Share Income Shares Share Income ----------- ---------- ---------- ---------- ---------- ---------- Shares outstanding and net income used in the determination of basic net income per share $1,240,000 10,979,641 $0.11 $15,440,000 10,942,996 $ 1.41 Options 425,706 348,229 Used in the determination of diluted net income per share $1,240,000 11,405,347 $0.11 $15,440,000 11,291,225 $ 1.37
EX-21 8 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 SUBSIDIARIES OF EMMIS BROADCASTING CORPORATION
Other Names Jurisdiction of Under Which Subsidiary Incorporation Business is Done - - ---------- ------------- ---------------- Emmis FM Broadcasting Corporation of Indianapolis Indiana -- Emmis FM Broadcasting Corporation of St. Louis Indiana KSHE KPWR, Inc. Indiana -- Emmis Broadcasting Corporation of New York Indiana WQHT Emmis FM Broadcasting Corporation of Chicago Indiana WKQX Emmis FM License Corporation of Indianapolis California -- Emmis FM License Corporation of St. Louis California -- KPWR License, Inc. California -- Emmis License Corporation of New York California -- Emmis FM License Corporation of Chicago California -- Emmis Meadowlands Corporation Indiana -- Emmis Publishing Corporation Indiana -- Emmis AM Radio Corporation of Indianapolis Indiana -- Emmis FM Radio Corporation of Indianapolis Indiana -- Emmis AM Radio License Corporation of Indianapolis California -- Emmis FM Radio License Corporation of Indianapolis California -- Emmis Holding Corporation of New York Delaware WRKS Emmis Radio License Corporation of New York California -- Emmis Broadcasting Corporation Indiana -- Emmis 104.1 FM Radio Corporation of St. Louis Indiana WALC Emmis 104.1 FM Radio License Corporation of St. Louis California -- Emmis 106.5 FM Broadcasting Corporation of St. Louis Indiana WKKX Emmis 106.5 FM License Corporation of St. Louis California -- Emmis 1310 AM Radio Corporation of Indianapolis Indiana -- Emmis 1310 AM Radio License Corporation of Indianapolis California -- Emmis 105.7 FM Radio Corporation of Indianapolis Indiana -- Emmis 105.7 FM License Corporation of Indianapolis California -- Mediatex Communications Corporation Texas -- Mediatex Development Corporation Texas -- Texas Monthly, Inc. Texas -- Emmis License Corporation California -- Emmis International Broadcasting Corporation California -- Emmis DAR, Inc. Indiana -- Emmis Publishing, L.P. Indiana Indianapolis Monthly Cincinnati Magazine Atlanta Magazine Emmis Indiana Radio, L.P. Indiana WENS WIBC WNAP WTLC-FM WTLC-AM Emmis International Corporation Indiana -- Emmis 1380 AM Radio Corporation of St. Louis Indiana -- Duncan American Radio, LLC Indiana -- Radio Hungaria Co. Ltd. Hungary --
EX-23 9 CONSENT OF ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statement File Numbers 333-83890 and 333-14657. ARTHUR ANDERSEN LLP Indianapolis, Indiana, May 5, 1998. EX-24 10 POWERS OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below, hereby constitutes and appoints Jeffrey H. Smulyan, Howard L. Schrott and Norman H. Gurwitz, or any of them, his attorneys-in-fact and agents, with full power of substitution and resubstitution for him in any and all capacities, to sign the annual report of Emmis Broadcasting Corporation on Form 10-K under the Securities Exchange Act of 1934 for the fiscal year ended February 28, 1998, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each of such attorneys-in-fact and agents or his substitute or substitutes may do or cause to be done by virtue hereto. Dated: May 1, 1998 /s/Lawrence B. Sorrel ----------------------------- Lawrence B. Sorrel 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below, hereby constitutes and appoints Jeffrey H. Smulyan, Howard L. Schrott and Norman H. Gurwitz, or any of them, his attorneys-in-fact and agents, with full power of substitution and resubstitution for him in any and all capacities, to sign the annual report of Emmis Broadcasting Corporation on Form 10-K under the Securities Exchange Act of 1934 for the fiscal year ended February 28, 1998, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each of such attorneys-in-fact and agents or his substitute or substitutes may do or cause to be done by virtue hereto. Dated: May 1, 1998 /s/Richard A. Leventhal ----------------------------- Richard A. Leventhal 3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below, hereby constitutes and appoints Jeffrey H. Smulyan, Howard L. Schrott and Norman H. Gurwitz, or any of them, his attorneys-in-fact and agents, with full power of substitution and resubstitution for him in any and all capacities, to sign the annual report of Emmis Broadcasting Corporation on Form 10-K under the Securities Exchange Act of 1934 for the fiscal year ended February 28, 1998, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each of such attorneys-in-fact and agents or his substitute or substitutes may do or cause to be done by virtue hereto. Dated: May 1, 1998 /s/Doyle L.Rose ----------------------------- Doyle L. Rose 4 POWER OF ATTORNEY KNOW BY THESE PRESENTS, that the person whose signature appears below, hereby constitutes and appoints Jeffrey H. Smulyan, Howard L. Schrott and Norman H. Gurwitz, or any of them, his or her attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her in any and all capacities, to sign the annual report of Emmis Broadcasting Corporation on Form 10-K under the Securities Exchange Act of 1934 for the fiscal year ended February 28, 1998, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each of such attorneys-in-fact and agents or his or her substitute or substitutes may do or cause to be done by virtue hereto. Dated: May 1, 1998 /s/Susan B. Bayh ----------------------------- Susan B. Bayh 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below, hereby constitutes and appoints Jeffrey H. Smulyan, Howard L. Schrott and Norman H. Gurwitz, or any of them, his attorneys-in-fact and agents, with full power of substitution and resubstitution for him in any and all capacities, to sign the annual report of Emmis Broadcasting Corporation on Form 10-K under the Securities Exchange Act of 1934 for the fiscal year ended February 28, 1998, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each of such attorneys-in-fact and agents or his substitute or substitutes may do or cause to be done by virtue hereto. Dated: May 1, 1998 /s/Gary L. Kaseff ----------------------------- Gary L. Kaseff 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below, hereby constitutes and appoints Jeffrey H. Smulyan, Howard L. Schrott and Norman H. Gurwitz, or any of them, his attorneys-in-fact and agents, with full power of substitution and resubstitution for him in any and all capacities, to sign the annual report of Emmis Broadcasting Corporation on Form 10-K under the Securities Exchange Act of 1934 for the fiscal year ended February 28, 1998, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each of such attorneys-in-fact and agents or his substitute or substitutes may do or cause to be done by virtue hereto. Dated: May 1, 1998 /s/Jeffrey H. Smulyan ----------------------------- Jeffrey H. Smulyan EX-27 11 FDS
5 0000783005 EMMIS BROADCASTING CORPORATION YEAR FEB-28-1998 MAR-01-1997 FEB-28-1998 5,785 0 33,466 1,346 0 51,152 54,415 20,969 333,388 28,069 231,371 0 0 110 45,210 333,388 149,406 149,406 23,551 23,551 96,397 802 13,772 14,884 5,900 8,984 0 0 0 8,984 .82 .79
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