-----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, UCMNEHbKW7G/TqQiHh5olsx1CpQxyVvUWZ6MjBbDS07YcEf6+1WRa/X4yNxaz6r2 JKS/IrLIPu8QH7Oie4NCpQ== 0000950137-99-003549.txt : 19991018 0000950137-99-003549.hdr.sgml : 19991018 ACCESSION NUMBER: 0000950137-99-003549 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991001 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMMIS COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000783005 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 351542018 STATE OF INCORPORATION: IN FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23264 FILM NUMBER: 99721296 BUSINESS ADDRESS: STREET 1: ONE EMMIS PLAZA STREET 2: 40 MONUMENT CIRCLE SUITE 700 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 BUSINESS PHONE: 3172660100 MAIL ADDRESS: STREET 1: ONE EMMIS PLZ STREET 2: 40 MONUMENT CIRCLE #700 CITY: INDIAPOLIS STATE: IN ZIP: 46204 FORMER COMPANY: FORMER CONFORMED NAME: EMMIS BROADCASTING CORPORATION DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended August 31, 1999 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to -------- -------- Commission file number: 0-23264 EMMIS COMMUNICATIONS CORPORATION (Exact name of registrant as specified in its charter) INDIANA 35-1542018 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE EMMIS PLAZA 40 MONUMENT CIRCLE SUITE 700 INDIANAPOLIS, INDIANA 46204 (Address of principal executive offices) (Zip Code) (317) 266-0100 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NOT APPLICABLE (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----------- ------------- The number of shares outstanding of each of the Registrant's classes of common stock, as of September 24, 1999, was: 13,417,845 Shares of Class A Common Stock, $.01 Par Value 2,622,125 Shares of Class B Common Stock, $.01 Par Value -1- 2 INDEX
PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements.........................................................................4 Condensed Consolidated Statements of Operations for the three and six months ended August 31, 1998 and 1999.............................................................4 Condensed Consolidated Balance Sheets at February 28, 1999 and August 31, 1999...................................................5 Condensed Consolidated Statements of Cash Flows for the six months ended August 31, 1998 and 1999...................................................................7 Notes to Condensed Consolidated Financial Statements.......................................................................9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................................24 PART II - OTHER INFORMATION Item 1. Legal Proceedings...........................................................................30 Item 4. Submission of Matters to a Vote of Security Holders.......................................................................30 Item 6. Exhibits and Reports on Form 8-K............................................................31 Signatures...........................................................................................32
-2- 3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Emmis Communications Corporation and Subsidiaries: We have reviewed the accompanying condensed consolidated balance sheet of Emmis Communications Corporation (an Indiana corporation) and Subsidiaries as of August 31, 1999, and the related condensed consolidated statements of operations for the three-month and six-month periods ended August 31, 1999 and 1998 and the condensed consolidated statements of cash flows for the six-month periods ended August 31, 1999 and 1998. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Emmis Communications Corporation and Subsidiaries as of February 28, 1999 (not presented separately herein), and, in our report dated April 30, 1999, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 28, 1999 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Indianapolis, Indiana, September 21, 1999. -3- 4 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data)
Three Months Six Months Ended August 31, Ended August 31, (Unaudited) (Unaudited) -------------------------- -------------------------- 1998 1999 1998 1999 -------- -------- ---------- --------- GROSS REVENUES $ 67,873 $ 95,233 $ 120,721 $ 180,154 LESS: AGENCY COMMISSIONS 9,999 13,704 18,228 26,273 -------- -------- --------- -------- NET REVENUES 57,874 81,529 102,493 153,881 Operating expenses 33,063 47,659 60,858 93,122 International business development expenses 354 367 561 747 Corporate expenses 1,969 3,478 3,926 6,684 Time brokerage fees 95 - 2,220 - Depreciation and amortization 6,505 10,336 9,912 20,045 Non-cash compensation 1,081 1,648 2,036 2,293 -------- -------- --------- -------- OPERATING INCOME 14,807 18,041 22,980 30,990 -------- -------- --------- -------- OTHER INCOME (EXPENSE): Interest expense (7,121) (13,936) (12,629) (27,165) Minority interest 868 466 1,875 1,525 Other income (expense), net 811 (55) 1,123 (293) -------- -------- --------- -------- Total other income (expense) (5,442) (13,525) (9,631) (25,933) -------- -------- --------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 9,365 4,516 13,349 5,057 PROVISION FOR INCOME TAXES 5,204 3,300 7,400 3,600 -------- -------- --------- -------- NET INCOME BEFORE EXTRAORDINARY ITEM 4,161 1,216 5,949 1,457 -------- -------- --------- -------- EXTRAORDINARY ITEM, NET OF TAX 1,597 - 1,597 - -------- -------- --------- -------- NET INCOME $ 2,564 $ 1,216 $ 4,352 $ 1,457 ======== ======== ========= ======== Basic net income per share $ .17 $ .08 $ .33 $ .09 ======== ======== ========= ======== Diluted net income per share $ .16 $ .07 $ .32 $ .09 ======== ======== ========= ======== Weighted average common shares outstanding: Basic 15,512,702 15,929,428 13,255,592 15,856,467 Diluted 15,888,107 16,438,098 13,662,310 16,305,944
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. -4- 5 EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data)
February 28, August 31, 1999 1999 ----------- ----------- (Note 1) (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 6,117 $ 3,061 Accounts receivable, net 51,479 62,952 Deferred barter costs 3,128 6,862 Prepaid expenses and other 10,358 16,627 ----------- ----------- Total current assets 71,082 89,502 Property and equipment, net 106,060 117,375 Intangible assets, net 802,307 820,789 Other assets, net 35,382 52,035 ----------- ----------- Total assets $ 1,014,831 $ 1,079,701 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of other long-term debt $ 835 $ 835 Accounts payable 15,635 19,731 Accrued salaries and commissions 4,545 4,730 Accrued interest 6,223 18,033 Deferred revenue 7,238 14,614 Current portion of TV program rights payable 9,471 9,564 Income tax payable 12,057 7,130 Other 13,829 2,557 ----------- ----------- Total current liabilities 69,833 77,194 CREDIT FACILITY AND SENIOR SUBORDINATED NOTES 577,000 619,000 TV PROGRAM RIGHTS PAYABLE, NET OF CURRENT PORTION 25,161 20,686 OTHER LONG-TERM DEBT, NET OF CURRENT PORTION 18,805 17,588 OTHER NONCURRENT LIABILITIES 3,466 5,339 DEFERRED INCOME TAXES 85,017 94,845 ---------- ---------- Total liabilities 779,282 834,652 ---------- ----------
-5- 6 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Class A common stock, $.01 par value; authorized 34,000,000 shares; issued and outstanding 13,190,207 shares at February 28, 1999 and 13,371,821 shares at August 31, 1999 132 134 Class B common stock, $.01 par value; authorized 6,000,000 shares; issued and outstanding 2,582,265 shares at February 28, 1999 and 2,622,125 shares at August 31, 1999 26 26 Additional paid-in capital 260,344 269,241 Accumulated deficit (24,305) (22,848) Accumulated other comprehensive loss (648) (1,504) ---------- ----------- Total shareholders' equity 235,549 245,049 ---------- ---------- Total liabilities and shareholders' equity $ 1,014,831 $1,079,701 =========== ==========
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. -6- 7 EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Six Months Ended August 31, (Unaudited) --------------------- 1998 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,352 $ 1,457 Adjustments to reconcile net income to net cash provided by operating activities - Extraordinary item 1,597 - Depreciation and amortization 11,164 23,730 Provision for bad debts 153 955 Provision for deferred income taxes 2,017 5,570 Gain on sale of property and equipment (533) - Non-cash compensation 2,036 2,293 Other (2,686) (876) Changes in assets and liabilities- Accounts receivable (15,510) (10,247) Deferred barter costs (1,105) (3,734) Prepaid expenses and other current assets 1,249 (6,046) Other assets 2,466 (141) Accounts payable and accrued liabilities (2,698) 15,331 Deferred revenue (1,159) 3,507 Other liabilities 10,336 (25,667) --------- --------- Net cash provided by operating activities 11,679 6,132 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (16,503) (20,831) Proceeds from sale of property and equipment 607 - Deposits on acquisitions and other (9,000) (17,500) Acquisition of WQCD-FM (128,449) - Acquisition of SF Broadcasting (287,293) - Acquisition of Country Sampler - (18,454) --------- --------- Net cash used in investing activities (440,638) (56,785) -------- ---------
-7- 8 CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt (396,525) (48,500) Proceeds from long-term debt 655,652 90,500 Proceeds from issuance of Class A common stock, net of transaction costs 182,640 - Purchase of interest rate cap agreements and other debt related costs (8,912) - Proceeds from exercise of stock options 3,081 5,597 --------- -------- Net cash provided by financing activities 435,936 47,597 --------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,977 (3,056) CASH AND CASH EQUIVALENTS: Beginning of period 5,785 6,117 --------- -------- End of period $ 12,762 $ 3,061 ========= ======== SUPPLEMENTAL DISCLOSURES: Cash paid for- Interest $ 10,971 $ 12,642 Income taxes 286 5,181 ACQUISITION OF WQCD-FM: Fair value of assets acquired $ 203,813 Cash paid 128,449 --------- Liabilities assumed $ 75,364 ========= ACQUISITION OF SF BROADCASTING: Fair value of asset acquired $ 338,790 Cash paid 287,293 Note payable 25,000 --------- Liabilities assumed $ 26,497 ========= ACQUISITION OF COUNTRY SAMPLER: Fair value of assets acquired $ 25,608 Cash paid 18,454 -------- Liabilities assumed $ 7,154 ========
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. -8- 9 EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS August 31, 1999 (Unaudited) Note 1. General Pursuant to the rules and regulations of the Securities and Exchange Commission, the condensed consolidated interim financial statements included herein have been prepared, without audit, by Emmis Communications Corporation and Subsidiaries ("Emmis" or the "Company"). As permitted under the applicable rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, Emmis believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report filed on Form 10-K for the year ended February 28, 1999. On an interim basis, the Company defers major advertising campaigns for which future benefits can be demonstrated. These costs are amortized over the shorter of the estimated period benefited or the remainder of the fiscal year. In the opinion of the registrant, the accompanying condensed consolidated interim financial statements contain all material adjustments (consisting only of normal recurring adjustments), necessary to present fairly the consolidated financial position of Emmis at August 31, 1999 and the results of its operations for the three and six months ended August 31, 1998 and 1999 and its cash flows for the six months ended August 31, 1998 and 1999. The Company's results are subject to seasonal fluctuations. Therefore, results shown on an interim basis are not necessarily indicative of results for a full year. Note 2. Significant Events Country Sampler Acquisition On April 1, 1999, the Company completed its acquisition of substantially all of the assets of Country Sampler, Inc.( the "Country Sampler Acquisition") for approximately $21.0 million plus assumed liabilities of approximately $4.7 million. The purchase price was payable $18.5 million in cash at closing, which was financed through -9- 10 additional borrowings under the Credit Facility, $2.0 million payable under a contract with the principal shareholder through April 2003, and $.5 million payable by October 1999. The acquisition was accounted for as a purchase. In the preliminary purchase price allocation the excess of the purchase price over the estimated fair value of identifiable assets was $17.7 million and is being amortized over 15 years. WKCF-TV: Orlando, FL Effective June 3, 1999, the Company entered into a definitive agreement to purchase substantially all of the assets of television station WKCF in Orlando, Florida, for approximately $191.5 million in cash payable at closing, including an escrow deposit of $12.5 million made in June 1999. This acquisition will be accounted for as a purchase and will be financed through additional debt or equity securities, depending on market conditions and other factors. Emmis expects to close on this acquisition in its fiscal quarter ending November 30, 1999. WKCF is an affiliate of the WB Television Network. As part of this transaction, the Company has entered into an agreement with the WB Television Network which (among other things) extends the existing network affiliation agreement through December 2009. St. Louis Acquisition In June 1999, the Company entered into an agreement with a former executive of Sinclair Broadcasting Group, Inc. ("Sinclair") to purchase the right to acquire the assets of certain broadcast properties in St. Louis, Missouri (the "St. Louis Acquisition"). The right allows the Company to purchase, at fair market value, six radio stations (five FM and one AM) and one ABC-affiliated television station from Sinclair. Under FCC regulations, Emmis can own no more than five FM and three AM stations in the St. Louis market. As Emmis already owns three FM stations in the St. Louis market, concurrent with the consummation of the St. Louis Acquisition, Emmis must divest three FM stations. Management intends to divest the stations with the three weakest transmitting signals. -10- 11 The Company and Sinclair are currently in the process of determining the purchase price and other material terms of the acquisition in accordance with the option agreement. In addition, the acquisition will be subject to approval by both the Federal Communications Commission and the Department of Justice. The St. Louis Acquisition will be accounted for as a purchase and will be financed through additional debt or equity securities, depending on market conditions and other factors. Other At August 31, 1999, five of the Company's six television stations were Fox affiliates. In July 1999, the Fox Network entered into an agreement with its affiliates which requires the affiliates to buy prime time spots from the network. The Company's agreement with the Fox Network commenced on July 15, 1999 and terminates on June 30, 2002. As a result of this agreement, the Company expects its broadcast cash flow will decrease by approximately $.6 million annually. On July 17, 1999, in accordance with the Company's Credit Facility, total borrowing capacity under the Credit Facility decreased $100.0 million to $650.0 million. Note 3. Pro Forma Acquisitions Unaudited pro forma summary information is presented below for the three and six months ended August 31, 1998 and 1999, assuming the June 1998 WQCD Acquisition, the July 1998 SF Acquisition, the October 1998 Wabash Acquisition, the April 1999 Country Sampler Acquisition, and the use of proceeds from the June 1998 Equity Offering, the July 1998 Credit Facility, and the February 1999 Senior Subordinated Notes Offering all had occurred on the first day of the pro forma periods presented below. Preparation of the pro forma summary information was based upon assumptions deemed appropriate by the Company. The pro forma summary information presented below is not necessarily indicative of the results that actually would have occurred if the transactions indicated above had been consummated at the beginning of the periods presented, and is not intended to be a projection of future results. -11- 12
Three Months Six Months Ended August 31, Ended August 31, (Pro Forma) (Historical) (Pro Forma) ------------------------ ----------------------- (Dollars in thousands, except per share data) 1998 1999 1998 1999 -------- -------- --------- --------- Net revenues $ 71,617 $ 81,529 $ 138,918 $ 155,865 ======== ======== ========= ========= Broadcast/publishing cash flow $ 27,117 $ 33,870 $ 49,930 $ 61,336 ======== ======== ========= ========= Net Income $ 580 $ 1,216 $ 19 $ 1,527 ======== ======== ========= ========= Basic net income $ 0.04 $ 0.08 $ - $ 0.10 ======== ======== ========= ========= Diluted net income $ 0.04 $ 0.07 $ - $ 0.09 ======== ======== ========= =========
Weighted average shares outstanding: Basic 15,662,702 15,929,428 15,630,592 15,856,467 ========== ========== ========== ========== Diluted 16,038,107 16,438,098 16,037,310 16,305,944 ========== ========== ========== ==========
Note 4. Basic and Diluted Net Income Per Share Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Potentially dilutive securities at August 31, 1998 and 1999 consisted solely of stock options. Thus, for the three and six months ended August 31, 1998 and 1999, the difference between the weighted-average shares outstanding used to compute basic and diluted EPS is attributable to dilution caused by stock options. Note 5. Comprehensive Income Comprehensive income was comprised of the following for the three and six months ended August 31, 1998 and 1999 (dollars in thousands):
Three Months Six Months Ended August 31, Ended August 31, --------------------- ------------------------ 1998 1999 1998 1999 -------- -------- -------- -------- Net income $ 2,564 $ 1,216 $ 4,352 $ 1,457 Translation adjustment (475) 119 (646) (856) -------- -------- -------- -------- Total comprehensive income $ 2,089 $ 1,335 $ 3,706 $ 601 ======== ======== ======== ========
-12- 13 Note 6. Segment Information The Company's operations are aligned into three business segments: Radio, Television and Publishing. These business segments are consistent with the Company's management of these businesses and its financial reporting structure. The Radio and Television segments derive revenue from the sale of commercial broadcast inventory. The Publishing segment derives revenue from subscriptions and the sale of print advertising inventory. Corporate and Other represents the results of insignificant operations and income and expense not allocated to reportable segments. The Company's segments operate primarily in the United States with one radio station located in Hungary. Total revenues of this radio station for the three and six months ended August 31, 1999 were $2.1 million and $3.2 million, respectively. Revenues during the three and six months ended August 31, 1998 were $0.6 million and $0.7 million, respectively. This station's total assets as of August 31, 1998 and 1999 were $23.1 million and $19.5 million, respectively. The Company evaluates performance of its operating entities based on broadcast cash flow (BCF) and publishing cash flow (PCF). Management believes that BCF and PCF are useful because they provide a meaningful comparison of operating performance between companies in the industry and serve as an indicator of the market value of a group of stations or publishing entities. BCF and PCF are generally recognized by the broadcast and publishing industries as a measure of performance and are used by analysts who report on the performance of broadcasting and publishing groups. BCF and PCF do not take into account Emmis' debt service requirements and other commitments and, accordingly, BCF and PCF are not necessarily indicative of amounts that may be available for dividends, reinvestment in Emmis' business or other discretionary uses. BCF and PCF are not measures of liquidity or of performance in accordance with generally accepted accounting principles, and should be viewed as a supplement to and not a substitute for our results of operations presented on the basis of generally accepted accounting principles. Moreover, BCF and PCF are not standardized measures and may be calculated in a number of ways. Emmis defines BCF and PCF as revenues net of agency commissions and operating expenses. The primary source of broadcast advertising revenues is the sale of advertising time to local and national advertisers. Publishing entities derive revenue from subscriptions and sale of print advertising inventory. The most significant broadcast operating expenses are employee salaries and commissions, costs associated with programming, advertising and promotion, and station general and administrative costs. Significant publishing operating expenses are employee salaries and commissions, costs associated with producing a magazine, and general and administrative costs. -13- 14 The accounting policies as described in the summary of significant accounting policies included in the Company's Annual Report filed on Form 10-K are applied consistently across segments.
THREE MONTHS ENDED CORPORATE AUGUST 31, 1999 RADIO TELEVISION PUBLISHING AND OTHER CONSOLIDATED - --------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Net revenues $ 50,777 $ 16,992 $ 13,293 $ 467 $ 81,529 Operating expenses 23,731 11,731 11,871 326 47,659 -------- -------- -------- ----- -------- Broadcast/publishing cash flow 27,046 5,261 1,422 141 33,870 International business development expenses - - - 367 367 Corporate expenses - - - 3,478 3,478 Depreciation and amortization 4,118 3,605 1,749 864 10,336 Non-cash compensation - - - 1,648 1,648 -------- -------- -------- ----- -------- Operating income (loss) $ 22,928 $ 1,656 $ (327) $(6,216) $ 18,041 ======== ======== ======== ======== ========== Total assets $468,079 $454,088 $ 68,327 $ 89,207 $1,079,701 ======== ======== ======== ======== ==========
SIX MONTHS ENDED CORPORATE AUGUST 31, 1999 RADIO TELEVISION PUBLISHING AND OTHER CONSOLIDATED - --------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Net revenues $ 92,742 $ 35,046 $ 25,210 $ 883 $ 153,881 Operating expenses 46,766 23,737 21,973 646 93,122 -------- -------- -------- ----- -------- Broadcast/publishing cash flow 45,976 11,309 3,237 237 60,759 International business development expenses - - - 747 747 Corporate expenses - - - 6,684 6,684 Depreciation and amortization 8,129 6,985 3,263 1,668 20,045 Non-cash compensation - - - 2,293 2,293 -------- -------- -------- ----- -------- Operating income (loss) $ 37,847 $ 4,324 $ (26) $(11,155) $ 30,990 ======== ======== ======== ======= ========== Total assets $468,079 $454,088 $ 68,327 $ 89,207 $1,079,701 ======== ======== ======== ======= ==========
THREE MONTHS ENDED CORPORATE AUGUST 31, 1998 RADIO TELEVISION PUBLISHING AND OTHER CONSOLIDATED -------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Net revenues $ 42,328 $ 5,796 $ 9,418 $ 332 $ 57,874 Operating expenses 20,807 3,846 8,198 212 33,063 -------- -------- -------- ----- ---------- Broadcast/publishing cash flow 21,521 1,950 1,220 120 24,811 International business development expenses - - - 354 354 Corporate expenses - - - 1,969 1,969 Time brokerage fee 95 - - - 95 Depreciation and amortization 3,579 1,332 1,555 39 6,505 Non-cash compensation - - - 1,081 1,081 -------- -------- --------- ----- ----------- Operating income (loss) $ 17,847 $ 618 $ (335) $ (3,323) $ 14,807 ======== ======== ========= ======== =========== Total assets $450,848 $345,949 $ 45,731 $ 68,299 $ 910,827 ======== ======== ========= ======== ===========
-14- 15
SIX MONTHS ENDED CORPORATE AUGUST 31, 1998 RADIO TELEVISION PUBLISHING AND OTHER CONSOLIDATED -------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Net revenues $ 77,757 $ 5,796 $ 18,258 $ 682 $ 102,493 Operating expenses 40,875 3,846 15,698 439 60,858 -------- -------- -------- -------- --------- Broadcast/publishing cash flow 36,882 1,950 2,560 243 41,635 International business development expenses - - - 561 561 Corporate expenses - - - 3,926 3,926 Time brokerage fee 2,220 - - - 2,220 Depreciation and amortization 5,955 1,332 2,560 65 9,912 Non-cash compensation - - - 2,036 2,036 -------- -------- -------- -------- --------- Operating income (loss) $ 28,707 $ 618 $ - $ (6,345) $ 22,980 ======== ======== ======== ======== ========= Total assets $450,848 $345,949 $ 45,731 $ 68,299 $ 910,827 ======== ======== ======== ======== =========
Note 7. Financial Information for Subsidiary Guarantors and Subsidiary Non-Guarantor Emmis conducts a significant portion of its business through subsidiaries. The Senior Subordinated Notes are fully and unconditionally guaranteed, jointly and severally, by certain direct and indirect subsidiaries (the "Subsidiary Guarantors"). One of Emmis' subsidiaries does not guarantee the Senior Subordinated Notes (the "Subsidiary Non-Guarantor"). The claims of creditors of the Subsidiary Non-Guarantor have priority over the rights of Emmis to receive dividends or distributions from such subsidiary. Presented below is condensed consolidating financial information for the Parent Company Only, the Subsidiary Guarantors and the Subsidiary Non-Guarantor as of February 28, 1999 and August 31, 1999 and for the three and six months ended August 31, 1998 and 1999. The equity method has been used by Emmis with respect to investments in subsidiaries. Separate financial statements for Subsidiary Guarantors are not presented based on management's determination that they do not provide additional information that is material to investors. -15- 16 Emmis Communications Corporation Condensed Consolidating Balance Sheet As of August 31, 1999 (Unaudited, dollars in thousands)
ELIMINATIONS PARENT AND COMPANY SUBSIDIARY SUBSIDIARY CONSOLIDATING ONLY GUARANTORS NON-GUARANTOR ENTRIES CONSOLIDATED ---------------------------------------------------------------------- CURRENT ASSETS: Cash and cash equivalents $ - $ 2,516 $ 545 $ - $ 3,061 Accounts receivable, net - 61,751 1,201 - 62,952 Deferred barter costs - 6,862 - - 6,862 Prepaid expenses and other 3,420 10,974 2,233 - 16,627 ----------- ----------- ----------- ----------- ----------- Total current assets 3,420 82,103 3,979 - 89,502 Property and equipment, net 39,137 77,431 807 - 117,375 Intangible assets, net 461 806,865 13,463 - 820,789 Investment in affiliates 903,744 - - (903,744) - Other assets, net 48,313 7,032 1,205 (4,515) 52,035 ----------- ----------- ----------- ----------- ----------- Total assets $ 995,075 $ 973,431 $ 19,454 $ (908,259) $ 1,079,701 =========== =========== =========== =========== =========== CURRENT LIABILITIES: Current portion of other long-term debt $ 34 $ 17 $ 2,237 $ (1,453) $ 835 Accounts payable 6,691 12,589 451 - 19,731 Accrued salaries and commissions 141 4,589 - - 4,730 Accrued interest 18,033 - - - 18,033 Deferred revenue - 14,614 - - 14,614 Current portion of TV program rights payable - 9,564 - - 9,564 Income taxes payable 6,953 177 - - 7,130 Other 324 1,315 918 - 2,557 ----------- ----------- ----------- ----------- ----------- Total current liabilities 32,176 42,865 3,606 (1,453) 77,194 CREDIT FACILITY AND SENIOR SUBORDINATED NOTES 619,000 - - - 619,000 TV PROGRAM RIGHTS PAYABLE, NET OF CURRENT PORTION - 20,686 - - 20,686 OTHER LONG-TERM DEBT, NET OF CURRENT PORTION 43 791 19,816 (3,062) 17,588 OTHER NONCURRENT LIABILITIES 2,496 2,843 - - 5,339 DEFERRED INCOME TAXES 94,807 38 - - 94,845 ----------- ----------- ----------- ----------- ----------- Total liabilities 748,522 67,223 23,422 (4,515) 834,652 =========== =========== =========== =========== =========== Shareholders' Equity Class A common stock 134 - - - 134 Class B common stock 26 - - - 26 Additional paid-in capital 269,241 - 4,393 (4,393) 269,241 Subsidiary investment - 658,143 2,388 (660,531) - Retained earnings / (accumulated deficit) (22,848) 248,065 (9,245) (238,820) (22,848) Accumulated other comprehensive loss - - (1,504) - (1,504) ----------- ----------- ----------- ----------- ----------- Total shareholders' equity 246,553 906,208 (3,968) (903,744) 245,049 ----------- ----------- ----------- ----------- ----------- Total liabilities and shareholders' equity $ 995,075 $ 973,431 $ 19,454 $ (908,259) $ 1,079,701 =========== =========== =========== =========== ===========
-16- 17 Emmis Communications Corporation Condensed Consolidating Balance Sheet As of February 28, 1999 (Note 1, dollars in thousands)
ELIMINATIONS PARENT AND COMPANY SUBSIDIARY SUBSIDIARY CONSOLIDATING ONLY GUARANTORS NON-GUARANTOR ENTRIES CONSOLIDATED ----------------------------------------------------------------------- CURRENT ASSETS: Cash and cash equivalents $ 2,286 $ 3,146 $ 685 $ - $ 6,117 Accounts receivable, net - 50,436 1,043 - 51,479 Deferred barter costs - 3,128 - - 3,128 Prepaid expenses and other 5,720 4,566 72 - 10,358 ----------- ----------- ----------- ----------- ----------- Total current assets 8,006 61,276 1,800 - 71,082 Property and equipment, net 33,769 71,342 949 - 106,060 Intangible assets, net 151 785,219 16,937 - 802,307 Investment in affiliates 856,701 - - (856,701) - Other assets, net 31,866 7,648 702 (4,834) 35,382 ----------- ----------- ----------- ----------- ----------- Total assets $ 930,493 $ 925,485 $ 20,388 $ (861,535) $ 1,014,831 =========== =========== =========== =========== =========== CURRENT LIABILITIES: Current portion of other long-term debt $ 34 $ 16 $ 2,239 $ (1,454) $ 835 Accounts payable 7,527 7,739 369 - 15,635 Accrued salaries and commissions 1,262 2,719 564 - 4,545 Accrued interest 6,222 1 - - 6,223 Deferred revenue - 7,238 - - 7,238 Current portion of TV program rights payable - 9,471 - - 9,471 Income taxes payable 11,790 267 - - 12,057 Other 146 13,683 - - 13,829 ----------- ----------- ----------- ----------- ----------- Total current liabilities 26,981 41,134 3,172 (1,454) 69,833 CREDIT FACILITY AND SENIOR SUBORDINATED NOTES 577,000 - - - 577,000 TV PROGRAM RIGHTS PAYABLE, NET OF CURRENT PORTION - 25,161 - - 25,161 OTHER LONG-TERM DEBT, NET OF CURRENT PORTION 2,543 (45) 19,687 (3,380) 18,805 OTHER NONCURRENT LIABILITIES (4) 3,470 - - 3,466 DEFERRED INCOME TAXES 87,776 (2,759) - - 85,017 ----------- ----------- ----------- ----------- ----------- Total liabilities 694,296 66,961 22,859 (4,834) 779,282 ----------- ----------- ----------- ----------- ----------- Shareholders' Equity Class A common stock 132 - - - 132 Class B common stock 26 - - - 26 Additional paid-in capital 260,344 - 4,297 (4,297) 260,344 Subsidiary investment - 637,223 - (637,223) - Retained earnings / (accumulated deficit) (24,305) 221,301 (6,120) (215,181) (24,305) Accumulated other comprehensive loss - - (648) - (648) ----------- ----------- ----------- ----------- ----------- Total shareholders' equity 236,197 858,524 (2,471) (856,701) 235,549 ----------- ----------- ----------- ----------- ----------- Total liabilities and shareholders' equity $ 930,493 $ 925,485 $ 20,388 $ (861,535) $ 1,014,831 =========== =========== =========== =========== ===========
-17- 18 Emmis Communications Corporation Condensed Consolidating Statement of Operations For the Three Months Ended August 31, 1999 (Unaudited, dollars in thousands)
ELIMINATIONS PARENT SUBSIDIARY AND COMPANY SUBSIDIARY NON- CONSOLIDATING ONLY GUARANTORS GUARANTOR ENTRIES CONSOLIDATED ----------------------------------------------------------- NET REVENUES $ 467 $ 78,981 $ 2,081 $ - $ 81,529 Operating expenses 326 45,824 1,509 - 47,659 International business - 367 - - 367 development expenses Corporate expenses 3,478 - - - 3,478 Depreciation and amortization 864 8,772 700 - 10,336 Non-cash compensation 1,236 412 - - 1,648 -------- -------- -------- -------- -------- OPERATING INCOME (5,437) 23,606 (128) - 18,041 -------- -------- -------- -------- -------- OTHER INCOME (EXPENSE): Interest expense (13,627) 124 (626) 193 (13,936) Other income (expense), net (1) 208 (69) 273 411 -------- -------- -------- -------- -------- Total other income (expense) (13,628) 332 (695) 466 (13,525) -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES (19,065) 23,938 (823) 466 4,516 PROVISION (BENEFIT) FOR INCOME TAXES (5,610) 8,857 53 - 3,300 -------- -------- -------- -------- -------- (13,455) 15,081 (876) 466 1,216 EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES 14,671 - - (14,671) - -------- -------- -------- -------- -------- NET INCOME (LOSS) $ 1,216 $ 15,081 $ (876) $(14,205) $ 1,216 ======== ======== ======== ======== ========
-18- 19 Emmis Communications Corporation Condensed Consolidating Statement of Operations For the Six Months Ended August 31, 1999 (Unaudited, dollars in thousands)
ELIMINATIONS PARENT SUBSIDIARY AND COMPANY SUBSIDIARY NON- CONSOLIDATING ONLY GUARANTORS GUARANTOR ENTRIES CONSOLIDATED ----------------------------------------------------------------- NET REVENUES $ 883 $ 149,824 $ 3,174 $ - $ 153,881 Operating expenses 646 89,783 2,693 - 93,122 International business - 747 - - 747 development expenses Corporate expenses 6,684 - - - 6,684 Depreciation and amortization 1,668 16,927 1,450 - 20,045 Non-cash compensation 1,720 573 - - 2,293 --------- --------- --------- --------- --------- OPERATING INCOME (9,835) 41,794 (969) - 30,990 --------- --------- --------- --------- --------- OTHER INCOME (EXPENSE): Interest expense (26,007) 265 (1,806) 383 (27,165) Other income (expense), net 16 424 (350) 1,142 1,232 --------- --------- --------- --------- --------- Total other income (expense) (25,991) 689 (2,156) 1,525 (25,933) --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES (35,826) 42,483 (3,125) 1,525 5,057 PROVISION (BENEFIT) FOR INCOME TAXES (12,119) 15,719 - - 3,600 --------- --------- --------- --------- --------- (23,707) 26,764 (3,125) 1,525 1,457 EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES 25,164 - - (25,164) - --------- --------- --------- --------- --------- NET INCOME (LOSS) $ 1,457 $ 26,764 $ (3,125) $ (23,639) $ 1,457 ========= ========= ========= ========= =========
-19- 20 Emmis Communications Corporation Condensed Consolidating Statement of Operations For the Three Months Ended August 31, 1998 (Unaudited, dollars in thousands)
ELIMINATIONS PARENT SUBSIDIARY AND COMPANY SUBSIDIARY NON- CONSOLIDATING ONLY GUARANTORS GUARANTOR ENTRIES CONSOLIDATED ------------------------------------------------------------ NET REVENUES $ 332 $ 56,901 $ 641 $ - $ 57,874 Operating expenses 212 31,521 1,330 - 33,063 International business development expenses - 354 - - 354 Corporate expenses 1,969 - - - 1,969 Time brokerage fees - 95 - - 95 Depreciation and amortization 37 5,628 840 - 6,505 Non-cash compensation 913 168 - - 1,081 -------- -------- -------- -------- -------- OPERATING INCOME (2,799) 19,135 (1,529) - 14,807 -------- -------- -------- -------- -------- OTHER INCOME (EXPENSE): Interest expense (6,487) - (914) 280 (7,121) Other income (expense), net 455 438 198 588 1,679 -------- -------- -------- -------- -------- Total other income (expense) (6,032) 438 (716) 868 (5,442) -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (8,831) 19,573 (2,245) 868 9,365 PROVISION (BENEFIT) FOR INCOME TAXES (2,091) 7,242 53 - 5,204 -------- -------- -------- -------- -------- NET INCOME BEFORE EXTRAORDINARY ITEM (6,740) 12,331 (2,298) 868 4,161 -------- -------- -------- -------- -------- EXTRAORDINARY ITEM, NET OF TAX (1,597) - - - (1,597) EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES 10,901 - - (10,901) - -------- -------- -------- -------- -------- NET INCOME (LOSS) $ 2,564 $ 12,331 $ (2,298) $(10,033) $ 2,564 ======== ======== ======== ======== ========
-20- 21 Emmis Communications Corporation Condensed Consolidating Statement of Operations For the Six Months Ended August 31, 1998 (Unaudited, dollars in thousands)
ELIMINATIONS PARENT SUBSIDIARY AND COMPANY SUBSIDIARY NON- CONSOLIDATING ONLY GUARANTORS GUARANTOR ENTRIES CONSOLIDATED ---------------------------------------------------------------- NET REVENUES $ 682 $ 101,135 $ 676 $ - $ 102,493 Operating expenses 439 58,552 1,867 - 60,858 International business - 561 - - 561 development expenses Corporate expenses 3,926 - - - 3,926 Time brokerage fees - 2,220 - - 2,220 Depreciation and amortization 65 8,571 1,276 - 9,912 Non-cash compensation 1,629 407 - - 2,036 --------- --------- ---------- --------- --------- OPERATING INCOME (5,377) 30,824 (2,467) - 22,980 --------- --------- ---------- --------- --------- OTHER INCOME (EXPENSE): Interest expense (11,270) (6) (1,913) 560 (12,629) Other income (expense), net 473 1,264 (54) 1,315 2,998 --------- --------- ---------- --------- --------- Total other income (expense) (10,797) 1,258 (1,967) 1,875 (9,631) --------- --------- ---------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (16,174) 32,082 (4,434) 1,875 13,349 PROVISION (BENEFIT) FOR INCOME TAXES (4,470) 11,870 - - 7,400 --------- --------- ---------- --------- --------- NET INCOME BEFORE EXTRAORDINARY ITEM (11,704) 20,212 (4,434) 1,875 5,949 --------- --------- ---------- --------- --------- EXTRAORDINARY ITEM, NET OF TAX (1,597) - - - (1,597) EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES 17,653 - - (17,653) - --------- --------- ---------- --------- --------- NET INCOME (LOSS) $ 4,352 $ 20,212 $ (4,434) $ (15,778) $ 4,352 ========= ========= ========= ========= =========
-21- 22 Emmis Communications Corporation Condensed Consolidating Statement of Cash Flows For the Six Months Ended August 31, 1999 (Unaudited, dollars in thousands)
ELIMINATIONS PARENT SUBSIDIARY AND COMPANY SUBSIDIARY NON- CONSOLIDATING ONLY GUARANTORS GUARANTOR ENTRIES CONSOLIDATED --------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 1,457 $ 26,764 $ (3,125) $(23,639) $ 1,457 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities - Depreciation and amortization 2,845 19,435 1,450 - 23,730 Provision for bad debts - 955 - - 955 Provision for deferred income taxes 5,570 - - - 5,570 Non-cash compensation 1,720 573 - - 2,293 Equity in earnings of subsidiaries (25,164) - - 25,164 - Other 1,505 - (856) (1,525) (876) Changes in assets and liabilities - Accounts receivable - (10,089) (158) - (10,247) Deferred barter costs - (3,734) - - (3,734) Prepaid expenses and other current assets 2,300 (6,185) (2,161) - (6,046) Other assets (1,649) 2,011 (503) - (141) Accounts payable and accrued liabilities 9,854 5,959 (482) - 15,331 Deferred revenue - 3,507 - - 3,507 Other liabilities (4,659) (22,055) 1,047 - (25,667) -------- -------- ------- --------- -------- Net cash provided (used) by operating activities (6,221) 17,141 (4,788) - 6,132 -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (7,007) (13,167) (657) - (20,831) Deposits on acquisitions and other (17,500) - - - (17,500) Acquisition of Country Sampler - (18,454) - - (18,454) -------- -------- ------- --------- -------- Net cash used in investing activities (24,507) (31,621) (657) - (56,785) -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt (48,500) - - - (48,500) Proceeds from long-term debt 90,500 - - - 90,500 Intercompany transactions (19,155) 13,850 5,305 - - Proceeds from exercise of stock options 5,597 - - - 5,597 -------- -------- ------- --------- -------- Net cash provided by financing activities 28,442 13,850 5,305 - 47,597 -------- -------- ------- --------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (2,286) (630) (140) - (3,056) CASH AND CASH EQUIVALENTS: Beginning of period 2,286 3,146 685 - 6,117 -------- -------- ------- --------- -------- End of period $ - $ 2,516 $ 545 $ - $ 3,061 ======== ======== ======== ======== ========
-22- 23 Emmis Communications Corporation Condensed Consolidating Statement of Cash Flows For the Six Months Ended August 31, 1998 (Unaudited, dollars in thousands)
ELIMINATIONS PARENT SUBSIDIARY AND COMPANY SUBSIDIARY NON- CONSOLIDATING ONLY GUARANTORS GUARANTOR ENTRIES CONSOLIDATED --------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 4,352 $ 20,212 $ (4,434) $ (15,778) $ 4,352 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities - Extraordinary item 1,597 - - - 1,597 Depreciation and amortization 669 9,219 1,276 - 11,164 Provision for bad debts - 153 - - 153 Provision for deferred income taxes 2,017 - - - 2,017 Gain on Sale of property and equipment - (533) - - (533) Non-cash compensation 1,629 407 - - 2,036 Equity in earnings of subsidiaries (17,653) - - 17,653 - Other - - (811) (1,875) (2,686) Changes in assets and liabilities - Accounts receivable 345 (16,791) 936 - (15,510) Deferred barter costs - (1,105) - - (1,105) Prepaid expenses and other current assets (3,143) 4,585 (193) - 1,249 Other assets (289) 2,446 309 - 2,466 Accounts payable and accrued liabilities (3,336) 871 (233) - (2,698) Deferred revenue - (1,159) - - (1,159) Other liabilities 7,834 1,624 878 - 10,336 -------- -------- ------- --------- -------- Net cash provided (used) by operating activities (5,978) 19,929 (2,272) - 11,679 -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (13,217) (2,818) (468) - (16,503) Deposit on acquisition (9,000) - - - (9,000) Acquisition of WQCD-FM - (128,449) - - (128,449) Acquisition of SF Broadcasting - (287,293) - - (287,293) Other - 607 - - 607 -------- -------- ------- --------- -------- Net cash used by investing activities (22,217) (417,953) (468) - (440,638) -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt (396,525) - - - (396,525) Proceeds from long-term debt 655,652 - - - 655,652 Purchase of interest rate cap agreements and other debt related costs (8,912) - - - (8,912) Proceeds from issuance of Class A common stock, net of transaction costs 182,640 - - - 182,640 Proceeds from exercise of stock options 3,081 - - - 3,081 Intercompany (401,564) 400,661 903 - - -------- -------- ------- --------- -------- Net cash provided by financing activities 34,372 400,661 903 - 435,936 -------- -------- ------- --------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,177 2,637 (1,837) - 6,977 CASH AND CASH EQUIVALENTS: Beginning of period 623 243 4,919 - 5,785 -------- -------- ------- --------- -------- End of period $ 6,800 $ 2,880 $ 3,082 $ - $ 12,762 ========= ========= ========= ========= =========
-23- 24 Note 8. Subsequent Events In September 1999, the Company entered into employment agreements with two executives that extend through February 28, 2001. The agreements specify base salary and maximum annual cash bonuses as well as provide for stock and stock option grants based on certain criteria. Note 9. Reclassifications Certain reclassifications have been made to the August 31, 1998 and February 28, 1999 financial statements to be consistent with the August 31, 1999 presentation. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Note: Certain statements in this report may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks may include decreased advertising expenditures, competitive nature of broadcasting, substantial leverage, Federal regulation and future capital cost of digital conversion, among others. GENERAL The Company evaluates performance of its operating entities based on broadcast cash flow (BCF) and publishing cash flow (PCF). Management believes that BCF and PCF are useful because they provide a meaningful comparison of operating performance between companies in the industry and serve as an indicator of the market value of a group of stations or publishing entities. BCF and PCF are generally recognized by the broadcast and publishing industries as a measure of performance and are used by analysts who report on the performance of broadcasting and publishing groups. BCF and PCF do not take into account Emmis' debt service requirements and other commitments and, accordingly, BCF and PCF are not necessarily indicative of amounts that may be available for dividends, reinvestment in Emmis' business or other discretionary uses. BCF and PCF are not measures of liquidity or of performance in accordance with generally accepted accounting principles, and should be viewed as a supplement to and not a substitute for our results of operations presented on the basis of generally accepted accounting -24- 25 principles. Moreover, BCF and PCF are not standardized measures and may be calculated in a number of ways. Emmis defines BCF and PCF as revenues net of agency commissions and operating expenses. The primary source of broadcast advertising revenues is the sale of advertising time to local and national advertisers. Publishing entities derive revenue from subscriptions and sale of print advertising inventory. The most significant broadcast operating expenses are employee salaries and commissions, costs associated with programming, advertising and promotion, and station general and administrative costs. Significant publishing operating expenses are employee salaries and commissions, costs associated with producing a magazine, and general and administrative costs. The Company's results are subject to seasonal fluctuations. Therefore, results shown on a quarterly basis are not necessarily indicative of results for a full year. RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED AUGUST 31, 1999 COMPARED TO AUGUST 31, 1998 Net revenues for the three months ended August 31, 1999 were $81.5 million compared to $57.9 million for the same period of the prior year, an increase of $23.6 million or 40.9%. Net revenues for the six months ended August 31, 1999 were $153.9 million compared to $102.5 million for the same period of the prior year, an increase of $51.4 million or 50.1%. The increase in net revenues for the three and six-month periods ended August 31, 1999 is primarily the result of the SF and Wabash Acquisitions (the "TV Acquisitions")($11.8 million and $25.4 million, respectively) and Country Sampler Acquisition ($3.6 million and $5.6 million, respectively). Excluding these transactions, net revenues for the three months ended August 31, 1999 would have increased $8.2 million or 15.7% and net revenues for the six months ended August 31, 1999 would have increased $20.4 million or 21.1%. This increase is principally due to the ability to realize higher advertising rates at certain 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. Operating expenses for the three months ended August 31, 1999 were $47.7 million compared to $33.1 million for the same period of the prior year, an increase of $14.6 million or 44.1%. Operating expenses for the six months ended August 31, 1999 were $93.1 million compared to $60.9 million for the same period of the prior year, an increase of $32.2 million or 53.0%. The increase in operating expenses for the three and six-month periods ended August 31, 1999 is primarily the result of the TV Acquisitions ($8.2 million and $17.5 million, respectively) and Country Sampler Acquisition ($3.5 million and $4.7 million, respectively). Excluding these transactions, operating expenses for the three months ended August 31, 1999 would have increased $2.9 million or 10.2% and operating expenses for the six months ended August 31, 1999 would have increased $10.0 million or 17.7%. This increase is principally due to higher advertising and promotional spending at -25- 26 certain of the Company's properties as well as an increase in sales related costs. Broadcast/publishing cash flow for the three months ended August 31, 1999 was $33.9 million compared to $24.8 million for the same period of the prior year, an increase of $9.1 million or 36.5%. Broadcast/publishing cash flow for the six months ended August 31, 1999 was $60.8 million compared to $41.6 million for the same period of the prior year, an increase of $19.2 million or 45.9%. The increase in broadcast/publishing cash flow for the three and six-month periods ended August 31, 1999 is primarily the result of the TV Acquisitions ($3.6 million and $8.0 million, respectively) and Country Sampler Acquisition ($.2 million and $.8 million, respectively). Excluding these transactions, broadcast/publishing cash flow for the three months ended August 31, 1999 would have increased $5.3 million or 22.7% and broadcast/publishing cash flow for the six months ended August 31, 1999 would have increased $10.4 million or 26.1%. This increase is principally due to increased net revenues partially offset by increased operating expenses as discussed above. International business development expenses for the three months ended August 31, 1999 and 1998 were $.4 million. International business development expenses for the six months ended August 31, 1999 were $.7 million compared to $.6 million for the same period of the prior year. These expenses reflect costs associated with Emmis International Corporation. The purpose of this wholly owned subsidiary is to identify, investigate and develop international broadcast investments or other international business opportunities. Expenses consist primarily of salaries, travel and various administrative costs. Corporate expenses for the three months ended August 31, 1999 were $3.5 million compared to $2.0 million for the same period of the prior year, an increase of $1.5 million or 76.6%. Corporate expenses for the six months ended August 31, 1999 were $6.7 million compared to $3.9 million for the same period of the prior year, an increase of $2.8 million or 70.2%. These increases are due to an increase in the number of corporate employees in all departments as a result of the growth of the Company. EBITDA before certain adjustments is defined as broadcast/publishing cash flow less corporate and international business development expenses. EBITDA before certain adjustments for the three months ended August 31, 1999 was $30.0 million compared to $22.5 million for the same period of the prior year, an increase of $7.5 million or 33.5%. EBITDA before certain adjustments for the six months ended August 31, 1999 was $53.3 million compared to $37.1 million for the same period of the prior year, an increase of $16.2 million or 43.6%. This increase is principally due to an increase in broadcast/publishing cash flow partially offset by an increase in corporate expenses. Depreciation and amortization expense for the three months ended August 31, 1999 was $10.3 million compared to $6.5 million for the same period of the prior year, an increase of $3.8 million or 58.9%. -26- 27 Depreciation and amortization expense for the six months ended August 31, 1999 was $20.0 million compared to $9.9 million for the same period of the prior year, an increase of $10.1 million or 102.2%. The increase in depreciation and amortization expense for the three and six-month periods ended August 31, 1999 is primarily the result of the TV Acquisitions ($2.4 million and $5.1 million, respectively), WQCD Acquisition ($.5 million and $1.8 million, respectively) and Country Sampler Acquisition ($.6 million and $1.0 million, respectively). Non-cash compensation expense for the three months ended August 31, 1999 was $1.6 million compared to $1.1 million for the same period of the prior year, an increase of $.5 million or 52.5%. Non-cash compensation expense for the six months ended August 31, 1999 was $2.3 million compared to $2.0 million for the same period of the prior year, an increase of $.3 million or 12.6%. Non-cash 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 shares granted to certain executives under employment agreements for which the fair market value of the shares at the date of grant was higher than the fair market value of shares granted under previous employment agreements. Interest expense for the three months ended August 31, 1999 was $13.9 million compared to $7.1 million for the same period of the prior year, an increase of $6.8 million or 95.7%. Interest expense for the six months ended August 31, 1999 was $27.2 million compared to $12.6 million for the same period of the prior year, an increase of $14.6 million or 115.1%. This increase reflects higher outstanding debt due to the WQCD, SF, Wabash and Country Sampler Acquisitions and an increase in interest rates. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash provided by operations and availability under the Company's credit facility. At August 31, 1999, the Company had cash and cash equivalents of $3.1 million and net working capital of $12.3 million. At August 31, 1999 the Company had up to $331.0 million available under its credit facility. The Company expects that cash flow from operating activities will be sufficient to fund all debt service for debt existing at August 31, 1999, working capital and capital expenditure requirements. In addition, the Company also has access to public equity and debt markets. Effective June 3, 1999, the Company entered into a definitive agreement to purchase substantially all of the assets of television station WKCF in Orlando, Florida, for approximately $191.5 million in cash payable at closing, including an escrow deposit of $12.5 million made in June 1999. This acquisition will be accounted for as a purchase and will be financed through additional debt or equity securities, depending on market conditions and other factors. The FCC approved the acquisition on September 27, 1999. The Company expects to close on this acquisition in its fiscal quarter ending November 30, 1999. -27- 28 In June 1999, the Company entered into an agreement with a former executive of Sinclair Broadcasting Group, Inc. ("Sinclair") to purchase his right to acquire the assets of certain broadcast properties in St. Louis, Missouri (the "St. Louis Acquisition"). The right allows the Company to purchase, at fair market value, six radio stations (five FM and one AM) and one ABC-affiliated television station from Sinclair. The Company and Sinclair are currently in the process of determining the fair market value of the stations and the related terms of a definitive purchase agreement. The St. Louis Acquisition will be accounted for as a purchase and will be financed through additional debt or equity securities, depending on market conditions and other factors. The Company is in discussions regarding the potential acquisition of radio broadcast properties in Argentina in two separate transactions and is pursuing local minority-interest partners for these investments. The Company expects that these acquisitions will have an aggregate purchase price of approximately $25 million and will be financed through additional debt or equity securities, depending on market conditions and other factors. The Company plans to file registration statements for a concurrent public offering of the Company's Class A common stock and the issuance of Series A cumulative convertible preferred stock. The net proceeds from the concurrent offering are expected to be approximately $390 million based on current market valuations. The Company intends to utilize the proceeds to fund the acquisition of additional broadcast properties, acquisition related expenses and for general corporate purposes. The Company intends to file these registration statements during its fiscal quarter ended November 30, 1999. At August 31, 1999, five of the Company's six television stations were Fox affiliates. In July 1999, the Fox Network entered into an agreement with its affiliates which requires the affiliates to buy prime time spots from the network. The Company's agreement with the Fox Network commences on July 15, 1999 and terminates on June 30, 2002. As a result of this agreement, the Company expects its broadcast cash flow will decrease by approximately $.6 million annually. Included in the Company's capital expenditures budget for the year ended February 29, 2000 is approximately $16.3 million for the construction of new operating facilities at KHON-TV in Hawaii. Capital expenditures incurred for the six months ended August 31, 1999 were approximately $20.8 million, including $14.5 million at KHON-TV. As part of its business strategy, the Company continually evaluates potential acquisitions of radio and television stations as well as publishing properties. In connection with future acquisition opportunities, the Company may incur additional debt or issue additional equity or debt securities depending on market conditions and other factors. YEAR 2000 COMPLIANCE Emmis has completed its assessment phase of year 2000 compliance for information technology, other equipment, including broadcast equipment, and embedded technology. Certain technology and equipment is represented by its vendors to be year 2000 compliant. Technology and equipment that is currently not represented as year 2000 compliant will -28- 29 be upgraded or replaced, and tested prior to October 31, 1999. The ability of third parties with whom the Company transacts business to adequately address their year 2000 compliance issues is outside of the Company's control. Therefore, there can be no assurance that the failure of such third parties to adequately address their year 2000 compliance issues will not have a material adverse effect on the Company's business, financial condition, cash flows and results of operations. Emmis has trained certain of its employees at each of its broadcast and publishing properties regarding year 2000 issues and compliance and have made them responsible for that property's year 2000 compliance. Emmis' information systems department is currently auditing the year 2000 compliance of each property. This audit includes: (1) verifying that critical applications have been identified; (2) testing of critical applications; (3) ensuring that year 2000 compliance documentation exists; (4) verifying that remediation is occurring as planned; and (5) developing written contingency plans. Steps 1 through 4 of the audit have been performed at substantially all of the Company's broadcast and publishing properties. The audit should be complete by October 31, 1999. Emmis estimates that the cost of year 2000 remediation effort will be approximately $1.0 million, which will be funded from current operations. Emmis began tracking costs relating to year 2000 compliance in May 1999. As of August 31, 1999, these costs totaled $.5 million. If certain broadcast equipment and information technology is not year 2000 compliant prior to January 1, 2000, the station or magazine using that equipment and information technology might not be able to broadcast, publish or process transactions. If this were to occur, Emmis could implement temporary solutions or processes not involving the malfunctioning equipment. Contingency plans are being documented in the event Emmis must implement such temporary solutions. If Emmis implements temporary solutions and recognizes new issues, Emmis may adjust the focus of the Company's efforts and costs to address its year 2000 compliance. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Management monitors and evaluates changes in market conditions on a regular basis. Based upon the most recent review, management has determined that there have been no material developments affecting -29- 30 market risk since the filing of the Company's Annual Report on Form 10-K for the year ended February 28, 1999. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a party to various legal proceedings arising in the ordinary course of business. In the opinion of management of the Company, however, there are no legal proceedings pending against the Company likely to have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of shareholders of the Company held on June 29, 1999, the following matters received the following votes:
MATTER DESCRIPTION VOTES FOR VOTES AGAINST ABSTAINING - ------------------ --------- ------------- ---------- Election of Directors: Jeffrey H. Smulyan 36,741,019 - 73,189 Doyle L. Rose 36,740,900 - 73,308 Greg Nathanson 36,740,899 - 73,309 Gary L. Kaseff 36,740,901 - 73,307 Lawrence B. Sorrel 34,688,691 - 2,125,517 Frank V. Sica 36,699,501 - 114,707 Richard A. Leventhal* 11,364,641 - 73,387 Susan B. Bayh* 11,396,870 - 41,158 * Class A Director Approval of 1999 Equity Incentive Plan 29,307,520 6,803,118 6,393 Approval of Appointment of Auditors 36,812,723 824 661
-30- 31 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 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 Communications Corporation (Edgar version only) 3.2 Amended and Restated Bylaws of Emmis Communications Corporation (Edgar version only) 10.1 Purchase Agreement dated June 3, 1999 by and between Press Communications Corporation and the Company (Edgar version only) 10.2 Employment Agreement, effective March 1, 1999, between the Company and Doyle L. Rose (Edgar version only) 10.3 Employment Agreement, effective March 1, 1999, between the Company and Richard F. Cummings (Edgar version only) 15 Letter re: unaudited interim financial information 27 Financial data schedule (Edgar version only) (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the three months ended August 31, 1999. -31- 32 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EMMIS COMMUNICATIONS CORPORATION Date: October 1, 1999 By: /s/ WALTER Z. BERGER Walter Z. Berger Executive Vice President (Authorized Corporate Officer), Chief Financial Officer and Treasurer -32- EX-3.1 2 AMENDED & RESTATED ARTICLES OF INCORPORATION 1 Exhibit 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF EMMIS COMMUNICATIONS CORPORATION (As amended through July 16, 1998) The Amended and Restated Articles of Incorporation (the "Restated Articles") of Emmis Communications Corporation, a corporation organized and existing under the laws of the State of Indiana (the "Corporation"), are as follows: ARTICLE I Corporate Name The name of the Corporation is Emmis Communications Corporation. ARTICLE II Purposes The purpose of the Corporation is to transact any or all lawful business for which corporations may be incorporated under the Indiana Business Corporation Law, as now or hereafter amended (the "Act"). The Corporation shall have the same capacity to act as possessed by natural persons and shall have and exercise all powers granted to business corporations formed under the Act and permitted by the laws of the State of Indiana in force from time to time hereafter, including, but not limited to, the general rights, privileges and powers set out in the Act, the power to enter into and engage in partnerships and joint ventures, and to act as agent. The Corporation shall have the power and capacity to engage in all business activities, either directly or through any person, firm, entity, trust, partnership or association. 2 ARTICLE III Definitions As used herein, the following terms shall have the meanings indicated: "Act" has the meaning defined in Article II. "Affiliate of Smulyan" means (i) any person or entity that, directly or indirectly, controls, is controlled by or is under common control with Smulyan, (ii) any corporation or organization (other than the Corporation or a majority-owned subsidiary of the Corporation) of which Smulyan is an officer or partner or is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of voting securities, or in which Smulyan has a substantial beneficial interest, (iii) a Qualified Voting Trust, (iv) any other trust or estate in which Smulyan has a substantial beneficial interest or as to which Smulyan serves as trustee or in a similar fiduciary capacity, or (v) any relative or spouse of Smulyan, or any relative of such spouse, who has the same residence as Smulyan. "Alien" has the meaning defined in Article XI. "Alien Ownership Restrictions" has the meaning defined in Article XI. "Board of Directors" has the meaning defined in Section 7.2(a). "Class A Directors" has the meaning defined in Section 7.4(b). "Class A Shares" has the meaning defined in Section 6.1(a). "Class B Shares" has the meaning defined in Section 6.1(b). "Common Shares" has the meaning defined in Section 6.1(b). "Communications Act" has the meaning defined in Article XI. "Corporation" has the meaning defined in the introduction to these Restated Articles. "Effective Date" means the date and time at which the Restated Articles become effective. "Event of Automatic Conversion" means each of the automatic conversion events described in Section 7.6(a) or Section 7.6(c). "Existing Common Shares" has the meaning defined in Section 7.6(a). 3 "Going Private Transaction" shall mean any transaction that is a "Rule 13e-3 Transaction," as such term is defined in Rule 13e-3(a)(3), 17 C.F.R. ss. 240.13e-3, as amended from time to time, promulgated under the Securities Exchange Act of 1934, as amended; provided, however, that the term "affiliate" as used in Rule 13e-3(a)(3)(i) shall be deemed to include an Affiliate of Smulyan. "Independent Director" shall have the meaning defined in Part III, Section 5(c) of Schedule D to the By-Laws of the National Association of Security Dealers, Inc., as the same may be amended from time to time. "Preferred Stock" has the meaning defined in Section 6.1(c). "Qualified Voting Trust" means any voting trust, voting agreement or similar arrangement pursuant to which Smulyan generally controls the vote of the Common Shares held by or subject to such trust, agreement or similar arrangement, regardless of whether the beneficial owner reserves or is granted a limited right to vote such Common Shares in certain circumstances. A good faith determination by the Board of Directors as to whether a voting trust, voting agreement or similar arrangement constitutes a Qualified Voting Trust shall be conclusive and binding on all shareholders. "Restated Articles" has the meaning defined in the introduction to these Amended and Restated Articles of Incorporation of Emmis Broadcasting Corporation. "Smulyan" means and refers to Jeffrey H. Smulyan. ARTICLE IV Term of Existence The period during which the Corporation shall continue is perpetual. ARTICLE V Registered Office and Registered Agent The street address of the registered office of the Corporation is 950 North Meridian Street, Suite 1200, Indianapolis, Indiana 46204, and the name of the registered agent at such office is Steven C. Crane. 4 ARTICLE VI Capital Structure 6.1. Authorized Shares. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is fifty million (50,000,000), consisting of the following: (a) Thirty-four million (34,000,000) shares of Class A Common Stock, par value $.01 per share (the "Class A Shares"); (b) Six million (6,000,000) shares of Class B Common Stock, par value $.01 per share (the "Class B Shares" and together with the Class A Shares, the "Common Shares"); and (c) Ten million (10,000,000) shares of serial Preferred Stock, par value $.01 per share (the "Preferred Stock"). 6.2. Terms of Stock. The designations, preferences, powers, qualifications and special or relative rights or privileges of the capital stock of the Corporation shall be as set forth in Articles VII and VIII. ARTICLE VII Common Shares 7.1. Identical Rights. Except as otherwise provided in these Restated Articles, all Common Shares shall be identical and shall entitle the holders thereof to the same rights and privileges, including, but not limited to, the right to share ratably in liquidation distributions after payment in full of creditors and payment in full to any holders of Preferred Stock then outstanding of any amount required to be paid under the terms of such Preferred Stock. 7.2. Dividends. (a) General. When, as and if dividends are declared by the Corporation's board of directors (the "Board of Directors"), whether payable in cash, securities of the Corporation or other property, the holders of Common Shares shall be entitled, in accordance with the number of Common Shares held by each, to share equally in and to receive all such dividends, except that if dividends are declared that are payable in Common Shares, such stock dividends shall be payable at the same 5 rate on each class of Common Shares and shall be payable only in Class A Shares to holders of Class A Shares and in Class B Shares to holders of Class B Shares. (b) Record Date. Dividends declared by the Board of Directors shall be paid to the holders of record of the outstanding Common Shares as their names shall appear on the stock register of the Corporation on the record date fixed by the Board of Directors in advance of declaration and payment of each dividend. (c) Stock Dividends. Any Common Shares issued as a dividend shall, when so issued, be duly authorized, validly issued, fully paid and non-assessable. The Corporation shall not issue fractions of Common Shares on payment of any such stock dividend but shall issue a whole number of shares to such holder of Common Shares rounded up or down in the Corporation's sole discretion to the nearest whole number, without compensation to the stockholder whose fractional share has been rounded down or from any stockholder whose fractional share has been rounded up. 7.3. Stock Splits. The Corporation shall not in any manner subdivide (by stock split, reverse stock split, reclassification, stock dividend, recapitalization or otherwise) or combine the outstanding shares of one class of Common Shares unless the outstanding shares of all classes of Common Shares shall be proportionately subdivided or combined, provided that this Section shall not apply to the reclassification taking effect upon the filing of these Restated Articles with the Secretary of State of Indiana. 7.4. Voting Rights. (a) General. The holders of the Class A Shares and the Class B Shares shall vote as a single class in all matters submitted to a vote of the stockholders, with each Class A Share being entitled to one vote and each Class B Share being entitled to ten votes, except (i) for the election of directors, which shall be governed by Subsections (b) and (c) below, (ii) with respect to any Going Private Transaction described in Subsection (e) below, which shall be governed by such Subsection, and (iii) as otherwise provided by law. (b) Class A Directors. In the election of directors, the holders of Class A Shares shall be entitled by class vote, exclusive of all other stockholders, to elect two of the Corporation's directors (the "Class A Directors"), with each Class A Share entitled to one vote; provided, however, that each Class A Director must be qualified at the time of his or her election to be an Independent Director. Any vote by stockholders on the removal of a Class A Director shall only be by the class vote of the holders of Class A Shares. (c) Other Directors. Except as provided in Subsection (b) above, the holders of Class A Shares and Class B Shares, voting as a single class, shall have the right to vote on the election or removal of all directors of the Corporation (other than 6 directors, if any, who may be elected by the holders of Preferred Stock), with each Class A Share entitled to one vote and each Class B Share entitled to ten votes. (d) Class A Director Vacancies. In the event of the death, removal or resignation of a Class A Director prior to expiration of the director's term, the vacancy on the Board of Directors created thereby may be filled by a majority of the directors then in office, although less than a quorum; provided, however, that any person appointed to fill a vacancy created by the death, removal or resignation of a Class A Director shall be an Independent Director. A director elected in such manner to fill such a vacancy shall hold office until the director's successor has been duly elected and qualified at a meeting of holders of Class A Shares duly called for such purpose. (e) Going Private Transactions. With respect to any Going Private Transaction between the Corporation and (i) Smulyan, (ii) any Affiliate of Smulyan or (iii) any group of which Smulyan or any Affiliate of Smulyan is a member, the holders of Class A Shares and Class B Shares shall vote as a single class, with each Class A Share and Class B Share entitled to one vote. 7.5. Issuance of Common Shares. Each new issuance of Common Shares after the Effective Date shall be an issuance of Class A Shares unless (i) the Common Shares are issued to Smulyan or (ii) the Common Shares are issued or subject to a Qualified Voting Trust. In each event described in clauses (i) or (ii) above, each Common Share issued shall be a Class B Share. 7.6. Conversion. (a) Automatic Conversion on Effective Date. Each share of the Corporation's common stock issued and outstanding immediately prior to the Effective Date (the "Existing Common Shares") that is owned of record as of the Effective Date by Smulyan shall convert automatically and without the requirement of any further action into one fully paid and non-assessable Class B Share as of the Effective Date. Each of the Existing Common Shares not converted in accordance with the previous sentence shall convert automatically and without the requirement of any further action into one fully paid and non-assessable Class A Share as of the Effective Date. (b) Voluntary Conversion. Each Class B Share shall be convertible, at the option of its holder, into one fully paid and non-assessable Class A Share at any time. (c) Automatic Conversion. (i) Each Class B Share shall convert automatically into one fully paid and non-assessable Class A Share upon the sale, gift or other transfer of such share, voluntarily or involuntarily, to a person or entity other than Smulyan or an Affiliate of Smulyan; provided, however, that the pledge of a Class B Share pursuant to a bona 7 fide pledge as security for indebtedness owed to the pledgee shall not constitute a transfer for purposes of this Subsection (c) until such time as either (A) such share is registered in the name of the pledgee, (B) the pledgee acquires the right to vote such share and exercises such right, in which case the automatic conversion into a Class A Share shall be deemed to occur immediately prior to such vote, or (C) ownership of the pledged share is transferred pursuant to enforcement of such pledge to a person or entity other than Smulyan or an Affiliate of Smulyan. (ii) All Class B Shares shall convert automatically into fully paid and non-assessable Class A Shares (on the basis of one Class A Share for each Class B Share) upon the earlier of (A) the death of Smulyan or (B) Smulyan's ceasing to own at least 1,520,000 Common Shares, as adjusted from time to time to account for any stock dividend in respect of the Common Shares or any stock split or reverse stock split of Common Shares. (d) Voluntary Conversion Procedure. At the time of a voluntary conversion, the holder of Class B Shares shall deliver to the office of the Corporation or any transfer agent for the Common Shares (i) the certificate or certificates representing the Class B Shares to be converted, duly endorsed in blank or accompanied by proper instruments of transfer, and (ii) written notice to the Corporation stating that such holder elects to convert such share or shares and stating the names and addresses in which each certificate for Class A Shares issued upon such conversion is to be issued. Voluntary conversion shall be deemed to have been effected at the close of business on the date when such delivery is made to the Corporation of the shares to be converted, and the person or entity exercising such voluntary conversion shall be deemed to be the holder of record of the number of Class A Shares issuable upon such conversion at such time. The Corporation shall promptly deliver certificates evidencing the appropriate number of Class A Shares to such holder. (e) Automatic Conversion Procedure. Upon the occurrence of the Event of Automatic Conversion pursuant to Section 7.6(a), each certificate previously representing Existing Common Shares that pursuant to Section 7.6(a) are converted into Class A Shares shall automatically and without the requirement of any further action represent the same number of Class A Shares. Promptly upon the occurrence of (i) the Event of Automatic Conversion pursuant to Section 7.6(a) with respect to those Existing Common Shares that are converted automatically into Class B Shares, or (ii) an Event of Automatic Conversion pursuant to Section 7.6(c), such that Class B Shares are converted automatically into Class A Shares, the holder of such converted shares shall surrender the certificate or certificates therefor, duly endorsed in blank or accompanied by proper instruments of transfer, at the office of the Corporation or of any transfer agent for the Common Shares and shall give written notice to the Corporation, at such office (A) stating that the shares are being converted pursuant to an Event of Automatic Conversion into Class B Shares or Class A Shares as provided in Section 7.6(a) or (c), respectively, (B) specifying the Event of Automatic Conversion (and, if the occurrence of such event is within the control of the transferor, stating the 8 transferor's intent to effect an Event of Automatic Conversion), (C) identifying the number of Existing Common Shares or Class B Shares being converted, and (D) setting out the name or names (with addresses) and denominations in which the certificate or certificates shall be issued, and instructions for the delivery thereof. Delivery of such notice together with the certificates representing the converted shares shall obligate the Corporation to issue and deliver, and thereupon the Corporation or its transfer agent shall promptly issue and deliver, at such stated address to such holder or to the transferee of the converted shares a certificate or certificates for the number and class of Common Shares to which such holder or transferee is entitled, registered in the name of such holder, the designee of such holder or transferee as specified in such notice. Nothing contained in this Subsection (e) or elsewhere in these Restated Articles shall be construed to permit or provide for (i) the transfer of any Class B Shares to any person or entity other than Smulyan or an Affiliate of Smulyan without the conversion of such Class B Shares into Class A Shares upon such transfer or (ii) the issuance of Class B Shares to any person or entity other than Smulyan or an Affiliate of Smulyan. To the extent permitted by law, conversion pursuant to an Event of Automatic Conversion shall be deemed to have been effected as of the date and time at which the Event of Automatic Conversion occurs (such time being the "Conversion Time"). The person or entity entitled to receive the Common Shares issuable upon such conversion shall be treated for all purposes as the record holder of such Common Shares at and as of the Conversion Time. The rights as a holder of the converted shares shall cease and terminate at and as of the Conversion Time, in each case without regard to any failure by the holder to deliver the certificates or the notice required by this Subsection (e). (f) Unconverted Shares; Notice Required. In the event of the conversion of less than all of the Class B Shares evidenced by a certificate surrendered to the Corporation in accordance with the procedures of Section 7.6(d) or (e), the Corporation shall execute and deliver to or upon the written order of the holder of such certificate, without charge to such holder, a new certificate evidencing the number of Class B Shares not converted. Class B Shares shall not be transferred as Class B Shares on the books of the Corporation unless the Corporation shall have received from the holder thereof the written notice described herein. (g) Reservation. The Corporation hereby reserves and shall at all times reserve and keep available, out of its authorized and unissued Class A Shares, for the purposes of effecting conversions, such number of duly authorized Class A Shares as shall from time to time be sufficient to effect the conversion of all outstanding Class B Shares. The Corporation covenants that all the Class A Shares so issuable shall, when so issued, be duly and validly issued, fully paid and non-assessable. Subject to Article XI, the Corporation will take all such action as may be necessary to assure that all such Class A Shares may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange 9 upon which the Class A Shares may be listed. 7.7. Consideration on Merger, Consolidation, etc. In any merger, consolidation or business combination, the consideration to be received per share by the holders of Class A Shares and Class B Shares must be identical for each class of stock, except that in any such transaction in which shares of common stock are to be distributed, such shares may differ as to voting rights to the extent that the voting rights provided in these Restated Articles differ between the Class A Shares and the Class B Shares. ARTICLE VIII Preferred Stock 8.1. Terms of Preferred Stock. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation shall have authority to fix by resolution or resolutions the designations and powers, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions thereof, including, without limitation, the voting rights, dividend rate, purchase or sinking funds, provisions for redemption, conversion rights, redemption price and liquidation preference, of any series of shares of Preferred Stock, to fix the number of shares constituting any such series and to increase or decrease the number of shares of any such series (but not below the number of shares thereof then outstanding). In case the number of shares of any such series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution or resolutions originally fixing the number of shares of such series. 8.2. Series A Convertible Exchangeable Redeemable Preferred Stock. The Corporation shall have a series of Preferred Stock established pursuant to Section 8.1 with the following powers, designation, preferences and relative, participating, optional and other rights: (a) Designation. The class shall consist of one hundred (100) shares of Preferred Stock, designated as "Series A Convertible Exchangeable Redeemable Preferred Stock" (hereinafter referred to as "Series A Preferred Stock"). (b) Dividends. (1) The holders of shares of Series A Preferred Stock shall be entitled to receive, as a class, when and as declared by the Board of Directors, a dividend of shares of Series A Preferred Stock equal to 7.3125% of the then outstanding shares of Series A Preferred Stock, payable pro-rata to holders of Series A Preferred Stock on the first day of January and July of each year that any Series A Preferred Stock shall be outstanding, commencing January 1, 1992. At the option of 10 the Corporation, the Corporation may pay the dividends provided for in this subsection in the form of cash instead of in the form of Series A Preferred Stock, or partly in cash and partly in stock. Any such payment in cash in lieu of distribution of Series A Preferred Stock shall be made at the rate of One Hundred Thousand Dollars ($100,000) per share of Series A Preferred Stock not distributed. (2) Dividends upon the Series A Convertible Preferred Stock shall be cumulative and prior and in preference to any declaration or payment of any dividend on the common stock of the Corporation. Before any dividend on the common stock of the Corporation shall be declared or paid or set apart for payment, the holders of shares of Series A Convertible Preferred Stock shall be entitled to receive dividends, as prescribed in subparagraph (1) above, for all dividend periods ending on or before the date on which any dividend on any common stock is or is to be paid. (3) In the event any shares of Series A Preferred Stock are redeemed pursuant to subsection (d), converted into the Corporation's common shares pursuant to subsection (e), or exchanged pursuant to subsection (f), and thereafter shares of Series A Preferred Stock remain outstanding, the dividend in subsection (b)(1) shall be reduced by multiplying the dividend immediately prior to such event by a fraction of which the numerator is the number of shares of Series A Preferred Stock outstanding immediately after such event and of which the denominator is the number of shares of Series A Preferred Stock outstanding immediately prior to such event. (c) Voting. Except as required by law, the holders of Series A Preferred Stock shall not have the right to vote on any matter as a result of their ownership of Series A Preferred Stock. (d) Redemption. (1) Any shares of Series A Preferred Stock issued as dividends pursuant to Section 6.03(b)(1), and up to 2.625 shares of Series A Preferred Stock issued other than as dividends pursuant to Section 6.03(b)(1) may be redeemed in whole or in part at the option of the Corporation by resolution of its Board of Directors at any time at a price of One Hundred Thousand Dollars ($100,000) per share plus an amount equivalent to the amount of any dividends accrued thereon and remaining unpaid, whether declared or not, at the date of redemption. (2) Not less than thirty (30) nor more than sixty (60) days previous to the date fixed for redemption by the Board of Directors, a notice specifying the time and place thereof shall be given to the holders of record of the Series A Preferred Stock to be redeemed by United States mail at their respective addresses as the same shall appear on the books of the Corporation; provided, however, that no failure to mail such notice, nor any defect therein, nor in the mailing thereof, shall affect the validity of the proceedings for the redemption of any of the Series A Preferred Stock to be redeemed. Upon the redemption date the Corporation shall pay over the 11 redemption price to the holders of the shares upon the endorsement and surrender of the certificates for such shares by the holders of the Series A Preferred Stock. (3) On January 1, 1996 (the "Mandatory Redemption Date"), the Corporation shall redeem all outstanding shares of Series A Preferred Stock by paying therefor in cash One Hundred Thousand Dollars ($100,000) per share plus an amount in cash equal to all dividends on the Series A Preferred Stock accrued and unpaid, whether declared or not, to and including the Mandatory Redemption Date (the "Redemption Price"). Upon the Redemption Date, the Corporation shall pay over the Redemption Price to the holders of the Series A Preferred Stock upon the endorsement and surrender of the certificates for such shares by the holders of the Series A Preferred Stock. (e) Conversion Into Common Shares. (1) Conversion at Option of Corporation. The Corporation shall have the right, at any time including the Mandatory Redemption Date, to require all holders of Series A Preferred Stock to surrender such Series A Preferred Stock for conversion, at the principal office of the Corporation, at the Conversion Price as defined in and adjusted to the extent required under subsection (e)(2), upon ten (10) days' prior written notice to the holders thereof at the addresses appearing on the records of the Corporation; provided, however, that (i) the Corporation's common stock (or other securities into which, by reason of the operation of this subsection (e), the Series A Preferred Stock is convertible) has been publicly traded on a national securities exchange or the National Association of Securities Dealers, Inc. Automated Quotation System or any similar quotation system (whether or not continuously) for a period of 45 business days prior to such notice, (ii) the "Current Market Price" (as defined in subsection (e)(5)(I)) per share of the Corporation's common stock (or such other securities) as of the date of such notice shall exceed the Conversion Price in effect on the last day of the 30 consecutive business day period referred to in the definition of "Current Market Price" by the percentage specified below (the "Conversion Premium") applicable on such date and (iii) the Corporation shall not be in default under the terms of the Series A Preferred Stock. The Conversion Premiums applicable during each of the calendar quarters through the Mandatory Redemption Date are as follows: 12
1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- 1st Qtr. -- 161.58% 215.53% 283.50% 369.14% 2nd Qtr. -- 170.89 228.04 300.06 390.80% 3rd Qtr. 138.94% 187.00 247.55 323.85 419.99% 4th Qtr. 146.90 197.82 261.97 342.81 444.67%
Notwithstanding the foregoing, the Corporation shall not have the right to require conversion of the Series A Preferred Stock if during the 45 business day period prior to notice pursuant to this subsection (e)(1) there shall have occurred any event which, by reason of the operation of this subsection (e), has caused an adjustment of the Conversion Price, unless the Corporation could have required conversion of the Series A Preferred Stock immediately prior to such event. The Corporation shall not have the right to require conversion of less than all of the Series A Preferred Stock held by a particular holder. (2) Conversion at Option of Holder. Any holder of Series A Preferred Stock shall have the right, at any time including the Mandatory Redemption Date, to convert his shares of Series A Preferred Stock into a number of shares of common stock of the Corporation equal to (A) the number of shares of Series A Preferred Stock so converted, times (B) a fraction equal to (i) $100,000.00, divided by (ii) a conversion price of $4,246.70 or, in case adjustment of such conversion price has taken place pursuant to the provisions of subsection (e)(5), then divided by the conversion price as last adjusted (such initial or adjusted conversion price being hereinafter referred to as the "Conversion Price"), upon surrender of all certificates for the Series A Preferred Stock so converted to the Corporation at the principal office of the Corporation together with written notice of election to convert executed by the holder (hereinafter referred to as the "Conversion Notice"), and specifying the name or names in which the shares of common stock deliverable upon such conversion shall be registered (subject to any applicable restrictions on transfer, including without limitation those in subsection (h)), with the addresses of the persons so named, and, if so required by the Corporation, accompanied by a written instrument or instruments of transfer in form satisfactory to the Corporation duly executed by the holder or his attorney duly authorized in writing; provided, however, that no holder of Series A Preferred Shares shall have the right to convert less than all Series A Preferred Shares held by such holder, and provided, further, that no holder of Series A Preferred Stock may convert his shares unless all holders of Series A Preferred Stock convert their shares at the same time. For convenience, the conversion of Series A Preferred Stock into shares of common stock of the Corporation or, by reason of the operation of this subsection (e), into any other shares of stock, other securities, property or cash of the Corporation or any other corporation is herein sometimes referred to as the conversion 13 of Series A Preferred Stock. (3) Delivery of Common Stock. As promptly as practicable after the surrender of certificates for Series A Preferred Stock for conversion pursuant to subsections (e)(1) or (e)(2), the Corporation shall deliver or cause to be delivered at the office where such certificates are so surrendered to or upon the written order of the holder thereof a certificate or certificates representing the number of shares of common stock into which such Series A Preferred Stock may be converted in accordance with the provisions of this subsection (e), registered in such name or names as are duly specified in the Conversion Notice. Subject to the following provisions of this subsection (e)(3), such conversion shall be deemed to have been effected at the close of business on the date when the certificates representing the Series A Preferred Stock shall have been so surrendered for conversion, so that the rights of the holder of such Series A Preferred Stock such shall cease at such time and the person or persons duly named in the Conversion Notice shall be entitled to receive shares of common stock at such time, and such conversion shall be effected at the Conversion Price in effect at such time; provided, however, that no such surrender on any date when the stock transfer books of the Corporation shall be closed shall be effective to constitute the person or persons entitled to receive the shares of common stock upon such conversion as the record holder or holders of such shares of common stock on such date, but such surrender shall be effective to constitute such person or persons as the record holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open and such conversion shall be effected at the Conversion Price in effect at the close of business on such next succeeding day. In the event that a holder of Series A Preferred Stock should fail to surrender his certificates for such stock within ten (10) days after written notice by the Corporation pursuant to subsection (e)(1), such stock shall be deemed to have been surrendered as of the tenth (10th) day following such notice and all rights of the holder of the Series A Preferred Stock as such shall cease and the holder shall be treated as a holder of the number of shares of common stock to which such holder would be entitled. If the last day for the exercise of the conversion right at the place of surrender shall not be a business day, then the last day for the exercise of such right at such place shall be the next succeeding business day. (4) Dividend Adjustment. A holder of Series A Preferred Stock shall receive a cash payment upon conversion of such Series A Preferred Stock in respect of dividends accrued thereon and undistributed to the date of conversion. (5) Adjustment of Conversion Price. The Conversion Price shall be subject to adjustments as follows: 14 (A) In case the Corporation shall (i) pay or make a dividend or other distribution on the outstanding shares of its common stock in shares of its common stock, (ii) subdivide or reclassify the outstanding shares of its common stock into a greater number of shares, or (iii) combine or reclassify the outstanding shares of its common stock into a smaller number of shares, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution or subject to such subdivision, combination or reclassification shall be proportionately adjusted so that a holder of Series A Preferred Stock shall be entitled to receive, upon conversion thereof, the number of shares of common stock which the holder would have owned at the opening of business on the day following the date fixed for such determination had such Series A Preferred Stock been converted immediately prior to such time. (B) In case the Corporation shall issue rights or warrants to all holders of its common stock entitling them to subscribe for or purchase shares of common stock at a price per share less than the Current Market Price (as defined below) per share of common stock on the date fixed for the determination of shareholders entitled to receive such rights or warrants, the Conversion Price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of common stock outstanding at the close of business on the date fixed for such determination plus the number of shares of common stock which the aggregate offering price of the total number of shares of common stock so offered for subscription would purchase at such Current Market Price per share, and of which the denominator shall be the number of shares of common stock outstanding at the close of business on the date fixed for such determination plus the number of shares of common stock so offered for subscription or purchase, such reduction of the Conversion Price to become effective immediately after the opening of business on the day following the date fixed for such determination. (C) In case the Corporation shall, by dividend or otherwise, distribute to all holders of its common stock (i) shares of capital stock of any class other than its common stock, (ii) evidences of its indebtedness or (iii) assets (excluding any rights or warrants referred to in subparagraph (B) of this subsection (e)(5), any cash dividend or distribution lawfully paid under the laws of the state of incorporation of the Corporation, and any dividend or distribution referred to in subsection (e)(5)(A)), the Conversion Price shall be adjusted so that the same shall equal the ratio determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by a fraction of which the numerator shall 15 be the Current Market Price (as defined below) per share of common stock on the date fixed for such determination less the fair market value (as determined by the Board of Directors of the Corporation, whose determination shall be conclusive and described in a Board resolution certified by the Secretary of the Corporation and delivered to the holders of the Series A Preferred Stock) of the portion of the shares of capital stock or evidences of indebtedness or assets so distributed applicable to one share of common stock, and of which the denominator shall be such Current Market Price per share of common stock, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such distribution. (D) In case the Corporation shall issue any securities convertible into or exchangeable for its common stock (other than securities issued in transactions described in subsections (e)(5)(B) and (e)(5)(C) above), so long as such securities may be converted or exchanged within four years following the issuance thereof, for a consideration per share of the Corporation's common stock less than the Current Market Price per share in effect immediately prior to the issuance of such securities, the Conversion Price shall be adjusted immediately thereafter so that it shall equal the ratio determined by multiplying the Conversion Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of common stock outstanding immediately prior to the issuance of such securities plus the number of shares of common stock which the aggregate consideration received for such securities would purchase at such Current Market Price per share, and of which the denominator shall be the number of shares of common stock outstanding immediately prior to such issuance plus the maximum number of shares of common stock deliverable upon conversion of or in exchange for such securities at the initial conversion or exchange price or rate. Upon the termination of the right to convert or exchange such securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustments made upon the issuance of such convertible or exchangeable securities been made upon the basis of the delivery of only the number of shares of common stock actually delivered upon conversion or exchange of such securities and upon the basis of the consideration actually received by the Corporation for such securities. (E) In case of any reclassification of the Corporation's common stock (including any reclassification upon a consolidation or merger in which the Corporation is the continuing corporation) into securities other than the Corporation's common stock, the Series A Preferred Stock shall thereafter be convertible into the kind and amount of shares of such securities receivable upon such reclassification by a holder of the number of shares of common stock into which such Series A Preferred Stock would be convertible immediately prior to such reclassification. 16 (F) In case the Corporation shall issue shares of its common stock for a consideration per share less than 95 percent of the Current Market Price per share of its common stock on the date the Corporation fixes the offering price of such additional shares, the Conversion Price shall be adjusted immediately thereafter so that it shall equal the ratio determined by multiplying the Conversion Price in effect immediately prior thereto by a fraction, of which the numerator shall be the total number of shares of the Corporation's common stock outstanding immediately prior to the issuance of such additional shares plus the number of shares of common stock which the aggregate consideration received for the issuance of such additional shares would purchase at such Current Market Price per share of common stock, and of which the denominator shall be the number of shares of common stock outstanding immediately after the issuance of such additional shares. There shall be no adjustment, however, pursuant to this subparagraph (F) with respect to any shares of common stock issued (i) in any of the transactions described in subparagraph (A) above where there has been an adjustment, (ii) upon conversion or exchange of securities convertible into or exchangeable for common stock where there has been an adjustment, (iii) under employee benefit plans adopted by the Corporation's Board of Directors, or (iv) upon exercise of rights or warranties issued in a bona fide public offering pursuant to a firm commitment underwriting, but only if no adjustment is required pursuant to this subsection (e)(5) with respect to the transaction giving rise to such rights. (G) No adjustment of the Conversion Price pursuant to this Subsection (e) shall be made in any instance where the adjustment would be less than twenty-five cents ($.25) per share, but any such adjustment that would otherwise be required to be made will be taken into account in the computation of any subsequent adjustment. (H) For purposes of this subsection (e)(5), if the Corporation receives consideration other than cash for any of its securities, the value of such consideration is to be determined by the Board of Directors of the Corporation in the exercise of its reasonable business judgment and the basis for such valuation shall be included in any certificate delivered by the Corporation pursuant to subsection (e)(8) or (e)(9) hereof. (I) For purposes of this subsection (e), the term "Current Market Price" per share at any date shall be deemed to be the average of the daily closing prices for 30 consecutive business days commencing 45 business days before such date. The closing price for each day shall be (i) the last reported sale price or, in case no such reported sale takes place on such day, the average of the last reported bid and asked prices, in either case on the principal national securities exchange registered under 17 the Securities Exchange Act of 1934 on which the Corporation's common stock is admitted to trading or listed, or (ii) if not listed or admitted to trading on any national securities exchange, the mean between the closing high bid and low asked quotations of the Corporation's common stock on the National Association of Securities Dealers, Inc. Automated Quotation System, or any similar system of automated dissemination of quotations of securities prices then in common use, if so quoted, or (iii) if not so listed or admitted for trading on such exchange and if not so quoted, the mean between the high bid and low asked quotations for the Corporation's common stock as reported by the National Quotation Bureau Incorporated or such other nationally recognized quotation service selected by the Corporation for that purpose (if said Bureau is not at the time furnishing quotations), if at least two securities dealers have inserted both bid and asked quotations for the Corporation's common stock on at least 5 of the 10 trading days preceding such valuation date. If none of the conditions set forth above is met, unless the holder of the Series A Preferred Stock and the Corporation otherwise agree, the closing price of the Corporation's common stock on any day or the average of such closing prices for any period shall be the fair market value of such common stock as determined by a member firm of the New York Stock Exchange, Inc. mutually acceptable to the holder of the Series A Preferred Stock and the Corporation. (6) Provisions in Case of Consolidation, Merger or Sale of Assets. In case of any consolidation or merger to which the Corporation is a party (other than a consolidation or merger in which the Corporation is the continuing corporation and in which no change is made in the provisions of the outstanding common stock of the Corporation), or in case of any sale or transfer of all or substantially all of the assets of the Corporation, the corporation formed by such consolidation or the corporation resulting from such merger or the corporation which shall have acquired such assets, as the case may be, shall execute and deliver a supplemental agreement which will provide that the holders of Series A Preferred Stock shall have the right during the period the Series A Preferred Stock shall be convertible as specified in this subsection (e) to convert shares of Series A Preferred Stock into the kind and amount of securities, property or cash receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of the Corporation's common stock into which such shares of Series A Preferred Stock might have been converted immediately prior to such consolidation, merger, sale or transfer. Such supplemental agreement shall provide for adjustments which, for events subsequent to the effective date of such supplemental agreement, shall be as nearly equivalent as may be practicable to the adjustments provided for in this subsection (e). The above provisions of this subsection (e)(6) shall similarly apply to successive consolidations, mergers, sales or transfers. (7) Adjustment in the Event of Liquidation. In the event that the Corporation shall make any distribution of at least 5 percent of its total net assets upon or with respect to its common stock, as a liquidating or partial liquidating dividend, 18 or other than as a dividend lawfully payable under the laws of the state of incorporation of the Corporation, each holder of the Series A Preferred Stock shall, upon the exercise of his right to convert after the record date for such distribution or, in the absence of a record date, after the date of such distribution, receive, in addition to the shares into which his Series A Preferred Stock is then convertible, the amount of such assets (or, at the option of the Corporation, a sum equal to the value thereof at the time of distribution as determined by the Board of Directors in its sole discretion) which would have been distributed to such holder of the Series A Preferred Stock if he had exercised his right to convert immediately prior to the record date for such distribution or, in the absence of a record date, immediately prior to the date of such distribution. (8) Notice of Certain Corporate Action. In case the Corporation shall intend to take any action which, pursuant to this subsection (e), would result in an adjustment of the Conversion Price, then the Corporation shall cause to be delivered to the holders of the Series A Preferred Stock, at least 20 days prior to the date on which a record is to be taken for purposes of such action, a notice setting forth the nature of such action, the record date pertaining to such action and the Conversion Prices before and immediately following such action. (9) Notice of Adjustment of Conversion Price. Whenever the Conversion Price is adjusted as provided in this subsection (e), the Corporation shall prepare an officer's certificate executed by the Chief Financial Officer of the Corporation and approved by the Corporation's independent public accountants setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such officer's certificate shall be delivered to the holders of the Series A Preferred Stock as soon as reasonably practicable. (10) Corporation to Reserve Common Stock. Consistent with its obligations under this Section 6.03 the Corporation shall at all times reserve and keep available a sufficient number of shares of its common stock which shall be delivered by the Corporation upon the conversion of the Series A Preferred Stock as provided in this subsection (e). (11) Taxes on Conversion The Corporation will pay any and all stamp and similar taxes that may be payable in respect of the issue or delivery of shares of its common stock upon conversion of the Series A Preferred Stock pursuant to this subsection (e). The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of its common stock in a name other than that of the holder of the Series A Preferred Stock at the time of conversion and no such issue or delivery shall take place until the holder in such case has paid to the Corporation the amount of any such tax or has established to the satisfaction of the Corporation that such tax has been paid. (f) Exchange of Series A Preferred Stock. The Corporation shall have the right, at any time including the Mandatory Redemption Date, to require any 19 holder of Series A Preferred Stock to surrender all of such Series A Preferred Stock for exchange, at the principal office of the Corporation, into junior subordinated notes (the "Exchange Notes") at an exchange ratio of $100,000.00 in aggregate principal amount of Exchange Notes per share of Series A Preferred Stock exchanged, upon ten (10) days' prior written notice to the holder at the address appearing on the records of the Corporation. Any accrued and unpaid dividends at the time of any such exchange shall be paid at the time of the exchange. The Exchange Notes (i) shall mature on the Mandatory Redemption Date, (ii) shall be subordinate to all other indebtedness of the Corporation, (iii) shall bear a coupon rate of 14-5/8% per annum with interest payable semi-annually on January 1 and July 1, and (iv) shall be convertible into the Corporation's common stock to the same extent as, and have terms substantially equivalent to those of, the Series A Preferred Stock. (g) Priority in Event of Dissolution. (1) Subject to the remaining provisions of this subsection (g), the Series A Preferred Stock shall be preferred over the Corporation's common stock as to the net assets of the Corporation, no matter how or in what categories such net assets are reflected on its balance sheet. (2) In event of any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, after due payment or provision for payment of the debts or other liabilities of the Corporation as required by law, the holders of the Series A Preferred Stock shall be entitled to receive out of the net assets of the Corporation One Hundred Thousand Dollars ($100,000) cash for each share, plus an amount equivalent to the amount of any dividends accrued thereon and remaining unpaid at the date of such liquidation, dissolution or winding up of the Corporation, before any distribution shall be made to the holders of the common stock. (3) If, upon any dissolution, liquidation, or winding up, the net assets of the Corporation distributable among the holders of the Series A Preferred Stock shall be insufficient to pay in full the preferential amounts to which such holders are entitled, then such net assets, or the proceeds thereof, shall be distributed among the holders of the Series A Preferred Stock ratably in accordance with the sums which would be payable on such distribution if all sums payable were discharged in full. (h) Restrictions on Transfer. The transfer of any share of Series A Preferred Stock, except to affiliates (as defined herein) shall be conditioned upon the concurrent transfer of all outstanding shares of Series A Preferred Stock to the same transferee, and the Series A Preferred Stock may only be converted as provided in subsection (e) all at the same time. For purposes of this subsection (h), and only for such purposes, an "affiliate" of any person shall include any general partner, limited partner, direct or indirect wholly-owned subsidiary or parent corporation of such person or any affiliate of any of the foregoing. 8.3. Series B Preferred Stock. The Corporation shall have a series of 20 Preferred Stock established pursuant to Section 8.1 with the following powers, designation, preferences and relative, participating, optional and other rights: (a) Designation. The class shall consist of two hundred (200) shares of Preferred Stock, designated as "Series B Preferred Stock" (hereinafter referred to as "Series B Preferred Stock"). The stated amount of the Series B Preferred Stock shall be One Hundred Thousand Dollars ($100,000) per share. (b) Rank. The Series B Preferred Stock shall, with respect to dividend rights and rights on liquidation, winding-up and dissolution, rank prior to the common stock of the Corporation (all equity securities of the Corporation to which the Series B Preferred Stock ranks prior, including the common stock of the Corporation, are collectively referred to herein as the "Junior Securities") and on a parity with the Series A Preferred Stock (as defined in Section 8.2(a)) (all equity securities of the Corporation with which the Series B Preferred Stock ranks on a parity, including the Series A Preferred Stock, are collectively referred to herein as the "Parity Securities"). (c) Dividends. (i) The holders of shares of Series B Preferred Stock shall be entitled to receive, as a class, when and as declared by the Board of Directors, a dividend of shares of Series B Preferred Stock at the annual rate of 4% of the stated amount of the outstanding shares of Series B Preferred Stock from time to time, payable pro rata to holders of Series B Preferred Stock in semi-annual payments on the first day of June and December of each year (each, a "Dividend Payment Date") that any Series B Preferred Stock shall be outstanding, commencing December 1, 1993, provided that with respect to the first Dividend Payment Date, the dividend payable on such date shall accrue from May 28, 1993. At the option of the Corporation, the Corporation may pay any dividend which may be paid in the form of Series B Preferred Stock in the form of cash instead, or partly in cash and partly in stock. Any such payment in cash in lieu of distribution of Series B Preferred Stock shall be made at the rate of One Hundred Thousand Dollars ($100,000) per share of Series B Preferred Stock not distributed. (ii) Dividends upon the Series B Preferred Stock shall be cumulative and prior and in preference to any declaration or payment of any dividend on any Junior Security. Before any dividend on any such Junior Security shall be declared or paid or set apart for payment, the holders of shares of Series B Preferred Stock shall be entitled to receive dividends, as prescribed in Subparagraph (i) above, for all dividend periods ending on or before the date on which any dividend on any such Junior Security is or is to be paid. (iii) No full dividend shall be declared by the Board of Directors or paid or set apart for payment by the Corporation on any Parity Security for any period unless the holders of shares of Series B Preferred Stock shall be entitled to receive dividends, as prescribed in Subparagraph (i) above, for all dividend periods ending on or before 21 the date on which any dividends on any such Parity Security are or are to be paid. If any dividends are not paid in full, in accordance with the above sentence, upon the shares of the Series B Preferred Stock and any other Parity Security, all dividends declared upon the shares of the Series B Preferred Stock and any other Parity Security shall be declared pro rata so that the amount of dividends declared per share of the Series B Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that accrued dividends per share on the Series B Preferred Stock and such Parity Securities bear to each other. (iv) No full or partial dividend payable in the form of cash shall be declared by the Board of Directors or paid or set apart for payment by the Corporation on any Parity Security for any period unless, prior to or concurrently with such declaration, payment or setting apart for payment, as the case may be, all accrued and unpaid dividends on shares of the Series B Preferred Stock which are due and payable shall have been paid or be paid in cash and an amount of funds sufficient to pay in cash the dividends to be paid on the shares of Series B Preferred Stock on the next following Dividend Payment Date shall have been set apart by the Corporation for such purpose. If any dividends payable in cash are not paid or set apart by the Corporation in full in accordance with the above sentence upon the shares of the Series B Preferred Stock and any other Parity Security, all dividends payable in cash declared upon the shares of the Series B Preferred Stock and any other Parity Security shall be declared pro rata so that the amount of dividends payable in cash declared per share of the Series B Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that accrued dividends per share on the Series B Preferred Stock and such Parity Securities bear to each other. (d) Voting. (i) The holders of record of shares of Series B Preferred Stock shall not be entitled to any voting rights except as hereinafter provided in this Subsection (d) or as otherwise provided by law. (ii) So long as any shares of Series B Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of at least 66-2/3% of the shares of the Series B Preferred Stock then outstanding, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting called for the purpose, at which the holders of Series B Preferred Stock shall vote separately as a class, (A) issue any Parity Security (except for the issuance of shares of Series A Preferred Stock as dividends on the outstanding shares of Series A Preferred Stock) or any equity security of the Corporation which ranks senior to the Series B Preferred Stock, whether with respect to dividends or upon liquidation, dissolution, winding-up or otherwise, or any obligation or security convertible into or evidencing the right to purchase any such equity security or (B) amend, alter or repeal any of the provisions of the Corporation's Articles of Incorporation by By-Laws so as to affect adversely the preferences, special rights or powers of the Series B Preferred 22 Stock. (iii) In the event that the Company shall fail to declare or pay dividends in cash or in shares of Series B Preferred Stock in accordance with Subsection (c) hereof for any two dividend periods then, unless the Corporation is prohibited by law from declaring or paying such dividends, at the option of a majority of the holders of the Series B Preferred Stock, the number of directors constituting the Board of Directors of the Corporation shall be increased by one to permit the holders of the Series B Preferred Stock to elect one member of the Board of Directors of the Corporation. The Corporation shall not take any action or fail to take any action which would give rise to any such prohibition. The holders of the Series B Preferred Stock, voting together as a separate class, shall thereupon have the exclusive right to elect one of the members of the Board of Directors immediately upon such failure to declare and pay dividends, unless the Corporation is prohibited by law from declaring or paying such dividends, and at every subsequent meeting at which the terms of office of the directors so elected by the holders of the Series B Preferred Stock expire. (iv) The right of the holders of the Series B Preferred Stock voting together as a separate class to elect a member of the Board of Directors of the Corporation as aforesaid shall continue until such time as the failure to declare or pay dividends as set forth in Subparagraph (iii) above shall no longer exist, at which time the special right of the holders of the Series B Preferred Stock so to vote as a class for the election of a director and the term of office of the director elected by the holders of the Series B Preferred Stock shall terminate and the directors elected by the holders of common stock shall constitute the entire Board of Directors of the Corporation. At any time after voting power to elect a director shall have become vested and be continuing in the holders of the Series B Preferred Stock pursuant to Subparagraph (iii) above, or if vacancies shall exist in the office of director elected by the holders of the Series B Preferred Stock, a proper officer of the Corporation may, and upon the written request of the holders of record of at least 20% of the shares of Series B Preferred Stock then outstanding addressed to the Secretary of the Corporation shall, call a special meeting of the holders of the Series B Preferred Stock for the purposes of electing a director. Any such meeting shall be held at the earliest practicable date at the place for the holding of the annual meeting of stockholders. If such meeting shall not be called by the proper officer of the Corporation within twenty (20) days after personal service of said written request upon the Secretary of the Corporation, or within twenty (20) days after mailing the same within the United States by certified mail, addressed to the Secretary of the Corporation at its principal executive offices, then the holders of record of at least 20% of the outstanding shares of Series B Preferred Stock may designate in writing one of their number to call such meeting at the expense of the Corporation, and such meeting may be called by the person so designated upon the notice required for the annual meetings of stockholders of the Corporation and shall be held at the place for holding the annual meetings of stockholders. Any holder of Series B Preferred Stock so designated shall have access to the lists of stockholders to be called pursuant to the provisions hereof. 23 (v) At any meeting held for the purpose of electing a director at which the holders of Series B Preferred Stock shall have the right, voting together as a separate class, to elect a director as aforesaid, the presence in person or by proxy of the holders of at least 33-1/3% of the outstanding shares of Series B Preferred Stock shall be required to constitute a quorum of such Series B Preferred Stock. (vi) In any case in which the holders of Series B Preferred Stock shall be entitled to vote pursuant to this Subsection (d) or pursuant to Indiana law, each holder of Series B Preferred Stock shall be entitled to one vote for each share of Series B Preferred Stock held. (e) Mandatory Redemption. (i) Unless sooner redeemed as provided herein, on June 1, 2001 (the "Mandatory Redemption Date"), the Corporation shall redeem all outstanding shares of Series B Preferred Stock by paying therefor in cash One Hundred Thousand Dollars ($100,000) per share plus an amount in cash equal to all dividends on the Series B Preferred Stock accrued and unpaid, whether declared or not, to and including the Mandatory Redemption Date (the "Mandatory Redemption Price"). On the Mandatory Redemption Date, the Corporation shall pay the Mandatory Redemption Price to the holders of the Series B Preferred Stock upon the endorsement and surrender of the certificates for such shares by the holders of the Series B Preferred Stock. (ii) If and so long as the Corporation shall be in default of its mandatory redemption obligations pursuant to Subparagraph (i) above with respect to the Series B Preferred Stock, the Corporation shall not (A) directly or indirectly (1) purchase, (2) redeem or (3) satisfy any mandatory redemption, sinking fund or other similar obligation in respect of (x) any Parity Security or (y) any warrants, rights or options exercisable for or convertible into any such Parity Security or (B) declare or pay any dividend or make any distributions on, or, directly or indirectly, purchase, redeem or satisfy any mandatory redemption, sinking fund or other similar obligation in respect of (1) any Junior Security or (2) any warrants, rights or options exercisable for or convertible into any of the Junior Securities. (f) Optional Redemption by Holders of Series B Preferred Stock. (i) Upon the occurrence of an Option Redemption Event (as such term is defined in Subparagraph (v) below), the Corporation shall redeem all shares of Series B Preferred Stock delivered to the Corporation in accordance with Subparagraph (ii) below and shall pay to each holder of such shares an amount in cash per share equal to the price determined in accordance with Subparagraph (iv) below (the "Option Redemption Price") as of the date of the Option Redemption Event. (ii) At least thirty-five (35) days but not more than forty-five (45) days prior to the occurrence of an Option Redemption Event the Corporation shall deliver to 24 each holder of Series B Preferred Stock a notice by first class mail stating the date on which the Option Redemption Event will occur (the "Option Redemption Date") and that each holder of Series B Preferred Stock may, at such holder's option, require the Corporation to redeem, upon the occurrence of such Option Redemption Event, all shares of Series B Preferred Stock delivered to the Corporation by such holder prior to the Option Redemption Date specified in such notice. Each holder of Series B Preferred Stock may elect to have the Corporation redeem all or any portion of the shares of Series B Preferred Stock held by such holder by delivering the certificate(s) of share(s) to be redeemed to the Corporation at its principal executive offices. (iii) If the Option Redemption Event shall be aborted or cancelled, the Corporation shall (A) mail a notice by first class mail to each holder of Series B Preferred Stock stating that the notice delivered pursuant to Subparagraph (ii) above has been rescinded and (B) return the certificates of Series B Preferred Stock delivered to the Corporation pursuant to Subparagraph (ii) above to the respective holders thereof. (iv) The Option Redemption Price per share as of the date of any Redemption Event during any of the 12-month periods specified in the table below shall equal the quotient of (x) the sum of (A) the amount set forth opposite the applicable period under the heading "Redemption Price" plus (B) the product of (1) a fraction the numerator of which is the number of calendar days actually elapsed as of such date since the last day of the immediately preceding period, or, with respect to the first such period, since May 28, 1993, and the denominator of which is 365 or 366, as the case may be, and (2) the amount set forth under the heading "Yearly Increment" opposite the applicable Redemption Price and (y) the number of shares of Series B Preferred Stock outstanding on such date:
Period (inclusive) Redemption Price Yearly Increment 6/1/93 to 5/31/94 $ 4,247,161 $ 668,928 6/1/94 to 5/31/95 $ 4,916,089 $ 774,284 6/1/95 to 5/31/96 $ 5,690,373 $ 896,233 6/1/96 to 5/31/97 $ 6,586,606 $1,037,391 6/1/97 to 5/31/98 $ 7,623,997 $1,200,780 6/1/98 to 5/31/99 $ 8,824,777 $1,389,901 6/1/99 to 5/31/00 $10,214,678 $1,608,813 6/1/00 to 5/31/01 $11,823,491 $1,862,200
(v) As used in this Subsection (f), "Option Redemption Event" shall mean: (A) the consummation of any consolidation or merger of the Corporation with or into any other entity; 25 (B) the consummation of any sale, transfer or other disposition of all or substantially all of the assets or business of the Corporation to any entity other than a wholly owned subsidiary of the Corporation; (C) the Corporation shall, directly or indirectly, (1) purchase, (2) redeem or (3) satisfy any mandatory redemption, sinking fund or other similar obligation in respect of (x) any Junior Security or (y) any warrants, rights or options exercisable for or convertible into any of the Junior Securities; or (D) The making of any Restricted Payment if at the time of such Restricted Payment (1) a default or event of default with respect to the Senior Subordinated Debentures shall have occurred and be continuing; or (2) after giving effect to such Restricted Payment, the sum of the aggregate amount expended by the Corporation after the Cut-Off Date for all Restricted Payments (the amount so expended, if other than in cash, to be determined by the Board of Directors, whose reasonable determination shall be conclusive and evidenced by a resolution of the Board of Directors) shall exceed the sum of (x) an amount equal to the excess, if any, of the Cumulative Consolidated Cash Flow of the Corporation and its Subsidiaries over 1.5 times the Cumulative Consolidated Interest Expense of the Corporation and its Subsidiaries plus (y) the net cash proceeds of, and the fair market value of marketable securities (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors) received by the Corporation from, the issuance or sale after the Cut-Off Date of its Capital Stock (other than Redeemable Stock or Capital Stock of the Corporation issued to any Subsidiary of the Corporation) or warrants for such Capital Stock, from other equity contributions after the Cut-Off Date or from debt securities of the Corporation issued after the Cut-Off Date by the Corporation and converted into or exchanged for Capital Stock (other than Redeemable Stock) of the Corporation or warrants for such Capital Stock plus (z) Five Million Dollars ($5,000,000). As used in this Clause (D), the following terms shall have the meanings ascribed to them below: "Affiliate": with respect to a Person, shall mean another Person directly or indirectly controlling or controlled by or under direct or indirect common control with such first Person. For purposes of this definition, "control" (including with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "Capital Lease": shall mean any Indebtedness represented by a lease 26 obligation of a Person incurred with respect to real property or equipment acquired or leased by such Person and used in its business that is required to be recorded as a capital lease in accordance with GAAP. "Capital Stock": shall mean any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock of the Corporation. "Consolidated Interest Expense": shall mean, for any period, the aggregate interest expense of the Corporation and its Subsidiaries for such period (including amortization of deferred debt issuance cost, original issue discount and non-cash interest payments or accruals and the interest component of Capital Leases), determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income": shall mean, for any period, the net income (or loss) of the Corporation and its Subsidiaries for such period taken as a single accounting period determined on a consolidated basis in accordance with GAAP, excluding the effect of extraordinary or unusual gains or losses, gains or losses in respect of the sale, lease, conveyance or other disposition of assets not in the ordinary course of business and the cumulative effect of changes in accounting principles. "Cumulative Consolidated Cash Flow": shall mean, for the period beginning June 1, 1993 through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, the sum of (i) Consolidated Net Income, (ii) provisions for taxes based on income, (iii) Consolidated Interest Expense, (iv) other non-operating expenses, (v) depreciation expense, (vi) amortization expense, (vii) the effect on Consolidated Net Income of trade/barter transactions, (viii) non-cash compensation expense and (ix) other non-cash items reducing Consolidated Net Income, minus non-operating income, all as determined on a consolidated basis for the Corporation and its Subsidiaries in accordance with GAAP. "Cumulative Consolidated Interest Expense": shall mean, for the period beginning June 1, 1993 through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, the aggregate interest expense of the Corporation and its Subsidiaries for such period (including amortization of deferred debt issuance cost, original issue discount and non-cash payments or accruals and the interest component of Capital Leases), determined on a consolidated basis in accordance with GAAP. "Currency Agreement": shall mean any foreign exchange contract, 27 currency swap agreement or other similar agreement or arrangement designed to protect a Person or any of its Subsidiaries against fluctuations in currency values. "Cut-Off Date": shall mean May 28, 1993. "GAAP": shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, consistently applied, which are applicable to the circumstances as of the date of determination. "Indebtedness": shall mean, without duplication, with respect to any Person, any indebtedness, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements with respect thereto) or representing the balance deferred and unpaid of the purchase price of any property (including pursuant to Capital Leases), except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet of such Person prepared on a consolidated basis in accordance with GAAP, and shall also include, to the extent not otherwise included, the guaranty of items which would be included within this definition and obligations in respect of Currency Agreements and Interest Swap Obligations. Without limiting the generality of the foregoing, "Indebtedness" shall include the Series B Preferred Stock outstanding on the Cut-Off Date or subsequently issued as a dividend in respect of such shares, or the obligation to redeem such shares in accordance with the terms thereof in effect on the Cut-Off Date; provided that "Indebtedness" shall in no event include the Series A Preferred Stock outstanding on the Cut-Off Date or subsequently issued as a dividend in respect of such shares, or the obligation to redeem such shares in accordance with the terms thereof in effect on the Cut-Off Date. "Interest Swap Obligations": shall mean the obligations of any Person pursuant to any interest rate swap agreement, interest rate collar agreement or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in interest rates. "Person": shall mean an individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Redeemable Stock": shall mean stock of the Corporation that by its 28 terms or otherwise is required to be redeemed, or is redeemable at the option of the holders thereof other than the Series A Preferred Stock or the Series B Preferred Stock outstanding on the Cut-Off Date or subsequently issued as a cumulative dividend in respect of shares of such preferred stock in accordance with the terms of such preferred stock in effect on the Cut-Off Date. "Related Person": shall mean (i) any Affiliate of the Corporation, (ii) any individual or entity who directly or indirectly holds 5% or more of the Capital Stock of the Corporation, (iii) any relative of such individual by blood, marriage or adoption not more remote than first cousin and (iv) any officer or director of the Corporation; provided that the term "Related Person" shall not include Nomura Securities International, Inc., any Affiliate thereof or any employee of Nomura Securities International, Inc. or any such Affiliate. "Restricted Payment": shall mean (1) any declaration or payment of any dividend or the making of any distribution on any Capital Stock or to the holders of Capital Stock in respect of such stock (other than dividends or distributions payable in the Corporation's common stock (other than Redeemable Stock) or in shares of Capital Stock (other than Redeemable Stock) of the same class held by such holders or in options, warrants or other rights to purchase the Company's common stock (other than Redeemable Stock) or such Capital Stock (other than Redeemable Stock)), (2) any purchase, redemption or other acquisition or retirement for value, or the purchase, redemption or other acquisition or retirement for value, directly or indirectly, by a Subsidiary of the Corporation, of any Capital Stock (other than in exchange for Capital Stock (other than Redeemable Stock) or options, warrants or other rights to purchase Capital Stock (other than Redeemable Stock)) or (3) the incurrence, creation, assumption or existence of any guarantee of Indebtedness of, or the making of any loan for advancement to, or other investment, by the Corporation or by any of its Subsidiaries, in any Related Person of the Corporation (other than a Subsidiary of the Corporation) excluding any transaction with an officer or director of the Corporation entered into in the ordinary course of business or constituting reasonable compensation to or employee benefit arrangements for such officer or director of the Corporation; provided that the following shall not constitute Restricted Payments: (x) the payment of any dividend within sixty (60) days of declaration thereof, if at such date of declaration such payment would comply with the foregoing provision; (y) the acquisition, redemption or retirement of Redeemable Stock in exchange for Capital Stock that is not Redeemable Stock and is not exchangeable for or convertible into Redeemable Stock or Indebtedness of the Corporation or any of its Subsidiaries; or (z) the redemption of the Series A Preferred Stock in accordance with the terms thereof in effect on the Cut-Off Date. "Senior Subordinated Debenture": shall mean the Corporation's 12% 29 Senior Subordinated Notes due 2003 in an aggregate principal amount of Fifty Million Dollars ($50,000,000) dated as of May 28, 1993. "Subsidiary": shall mean any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of that Person or a combination thereof. (g) Optional Redemption by the Corporation. (i) If the Corporation shall have delivered a notice to each of the holders of Series B Preferred Stock pursuant to Subparagraph (ii) below, the Corporation shall be entitled to redeem and shall redeem, upon the occurrence of a Corporation Redemption Event (as such term is defined in Subparagraph (v) below), all outstanding shares of Series B Preferred Stock at a price per share equal to the price determined in accordance with Subparagraph (iv) below (the "Corporation Redemption Price") and which Corporation Redemption Price shall be payable to each holder of Series B Preferred Stock in cash. (ii) The Corporation may elect, no later than thirty (30) days but no earlier than forty-five (45) days prior to the occurrence of a Corporation Redemption Event, to redeem all outstanding shares of Series B Preferred Stock by delivering to each holder thereof a redemption notice by first class mail stating the date on which such Corporation Redemption Event will occur and that the Corporation shall redeem all outstanding shares of Series B Preferred Stock on such date. (iii) If the Corporation Redemption Event shall be aborted or cancelled, the Corporation shall mail a notice by first class mail to each holder of Series B Preferred Stock stating that the notice delivered pursuant to Subparagraph (ii) above has been rescinded. (iv) The Corporation Redemption Price per share as of the date of any Corporation Redemption Event during any of the 12-month periods specified in the table below shall equal the quotient of (x) the sum of (A) the amount set forth opposite the applicable period under the heading "Redemption Price" plus (B) the product of (1) a fraction the numerator of which is the number of calendar days actually elapsed as of such date since the last day of the immediately preceding period, or, with respect to the first such period, since May 28, 1993, and the denominator of which is 365 or 366, as the case may be, and (2) the amount set forth under the heading "Yearly Increment" opposite the applicable Redemption Price and (y) the number of shares of Series B Preferred Stock outstanding on such date: 30
Period (inclusive) Redemption Price Yearly Increment 6/1/93 to 5/31/94 $ 4,247,161 $ 668,928 6/1/94 to 5/31/95 $ 4,916,089 $ 774,284 6/1/95 to 5/31/96 $ 5,690,373 $ 896,233 6/1/96 to 5/31/97 $ 6,586,606 $1,037,391 6/1/97 to 5/31/98 $ 7,623,997 $1,200,780 6/1/98 to 5/31/99 $ 8,824,777 $1,389,901 6/1/99 to 5/31/00 $10,214,678 $1,608,813 6/1/00 to 5/31/01 $11,823,491 $1,862,200
(v) As used in this Subsection (g), "Corporation Redemption Event" shall mean: (A) the consummation of any consolidation or merger of the Corporation with or into any other entity and in connection with which the holders of Series B Preferred Stock are entitled under the Indiana Business Corporation Law to vote as a separate class and the Corporation shall have failed to obtain the affirmative vote or consent of the holders of at least 66-2/3% of the shares of Series B Preferred Stock voting separately as a class; or (B) the consummation of any sale, transfer or other disposition of all or substantially all of the assets or business of the Corporation to any entity other than a wholly owned subsidiary of the Corporation and in connection with which the holders of Series B Preferred Stock are entitled under the Indiana Business Corporation Law to vote as a separate class and the Corporation shall have failed to obtain the affirmative vote or consent of the holders of at least 66-2/3% of the shares of Series B Preferred Stock voting separately as a class. (h) Priority in Event of Dissolution. (i) Subject to the remaining provisions of this Subsection (h), the Series B Preferred Stock shall be preferred over the Junior Securities as to the net assets of the Corporation, no matter how or in what categories such net assets are reflected on its balance sheet. (ii) In event of any voluntary or involuntary dissolution, liquidation, winding-up of the Corporation, after due payment or provision for payment of the debts or other liabilities of the Corporation as required by law, the holders of the Series B Preferred Stock shall be entitled to receive out of the net assets of the Corporation for each share an amount in cash equal to the Series B Distribution Amount (as determined in accordance with Subparagraph (iii) below). 31 (iii) The Series B Distribution Amount per share as of the date of any distribution made pursuant to Subparagraph (ii) above shall be equal to the quotient of (A) Ten Million Dollars ($10,000,000) plus all dividends accrued, whether paid or unpaid, from May 28, 1993 to such date at the rate set forth in Subparagraph (i) of Subsection (c) above and (B) the number of shares of Series B Preferred Stock outstanding on such date. (iv) If, upon any dissolution, liquidation, or winding-up, the net assets of the Corporation are insufficient to pay in full the preferential amounts payable to the holders of outstanding shares of the Series B Preferred Stock and any Parity Securities, then the holders of all such shares shall share ratably in such distribution of assets in accordance with the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of Series B Preferred Stock and the holders of outstanding shares of such Parity Securities are entitled were paid in full. ARTICLE IX Board of Directors The number of directors constituting the Board of Directors as of the Effective Date shall be nine (9). Thereafter, the number of directors shall be fixed by the By-Laws of the Corporation. ARTICLE X Control Share Acquisitions Chapter 42 of the Act (I.C. 23-1-42) shall not apply to control share acquisitions of shares of capital stock of the Corporation. ARTICLE XI Alien Ownership The following provisions are included in these Restated Articles for the purpose of ensuring that control and management of the Corporation complies with the Communications Act of 1934 and the rules, regulations and policies of the Federal Communications Commission as amended from time to time (collectively, the "Communications Act"): 32 (a) The Corporation (i) shall not issue to or for the account of (A) a person who is a citizen of a country other than the United States; (B) an entity organized under the laws of a government other than the government of the United States or any state, territory, or possession of the United States; (C) a government other than the government of the United States or of any state, territory, or possession of the United States; or (D) a representative of, or an individual or entity controlled by, any of the foregoing (each person or entity described in any of the foregoing clauses (A) through (D), an "Alien") any share of capital stock of the Corporation if such issuance would cause the total capital stock of the Corporation held or voted by Aliens to exceed, in violation of the Communications Act, 25% of (1) the total capital stock of the Corporation outstanding at any time or (2) the total voting power of all shares of such capital stock outstanding and entitled to vote at any time, and (ii) shall not permit the transfer on the books of the Corporation of any capital stock to any Alien that would result in the total capital stock of the Corporation held or voted by Aliens to exceed such 25% limits in violation of the Communications Act. (b) No Alien or Aliens, individually or collectively, shall be entitled to vote or direct or control the vote of more than 25% of (i) the total capital stock of the Corporation outstanding at any time or (ii) the total voting power of all shares of capital stock of the Corporation outstanding and entitled to vote at any time, if to do so would violate the Communications Act. (c) No Alien shall be qualified to act as an officer of the Corporation and no more than one-fourth of the total number of directors of the Corporation at any time may be Aliens, in either case if such would violate the Communications Act. (d) The Board of Directors shall have all powers necessary to implement the provisions of this Article and to ensure compliance with the alien ownership restrictions (the "Alien Ownership Restrictions") of the Communications Act, including, without limitation, the power to prohibit the transfer of any shares of capital stock of the Corporation to any Alien and to take or cause to be taken such action as it deems appropriate to implement such prohibition. Without limiting the generality of the foregoing and notwithstanding any other provision of these Restated Articles to the contrary, any shares of capital stock of the Corporation (other than the Series A Preferred Stock and the Series B Preferred Stock) determined by the Board of Directors to be owned beneficially by an Alien or Aliens shall always be subject to redemption by the Corporation by action of the Board of Directors to the extent necessary in the judgment of the Board of Directors to comply with the Alien Ownership Restrictions. The terms and conditions of such redemption shall be as follows: (i) The redemption price of the shares to be redeemed pursuant to this Article shall be equal to the lower of (A) the fair market value of the shares to be redeemed, as determined in good faith by the Board of Directors in good faith, and (B) such Alien's purchase price of such shares; 33 (ii) The redemption price of such shares may be paid in cash, securities or any combination thereof; (iii) If less than all the shares held by Aliens are to be redeemed, the shares to be redeemed shall be selected in any manner determined by the Board of Directors to be fair and equitable; (iv) At least ten (10) days' written notice of the redemption date shall be given to the record holders of the shares selected to be redeemed (unless waived in writing by any such holder), provided that the redemption date may be the date on which written notice shall be given to record holders if the cash or securities necessary to effect the redemption shall have been deposited in trust for the benefit of such record holders and subject to immediate withdrawal by them upon surrender of the stock certificates for their shares to be redeemed; (v) From and after the redemption date, the shares to be redeemed shall cease to be regarded as outstanding and any and all rights of the holders in respect of the shares to be redeemed or attaching to such shares of whatever nature (including, without limitation, any rights to vote or participate in dividends declared on stock of the same class or series as such shares) shall cease and terminate, and the holders thereof shall thereafter be entitled only to receive the cash or securities payable upon redemption; and (vi) Such other terms and conditions as the Board of Directors shall determine. For purposes of this Article, the determination of the beneficial ownership of shares of capital stock of the Corporation shall be made pursuant to Rule 13d-3, 17 C.F.R. Section 240.13d-3, as amended from time to time, promulgated under the Securities Exchange Act of 1934, as amended, or in such other manner as determined in good faith by the Board of Directors to be fair and equitable. ARTICLE XII Indemnification 12.1. General. The Corporation shall, to the fullest extent to which it is empowered to do so by the Act, or any other applicable laws, as from time to time in effect, indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal, by reason of the fact that such person is or was a director or officer of the Corporation, or who, while serving as such a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another 34 corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, whether for profit or not, against expenses (including counsel fees), judgments, settlements, penalties and fines (including excise taxes assessed with respect to employee benefit plans) actually or reasonably incurred by such person in accordance with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed, in the case of conduct in his or her official capacity, was in the best interests of the Corporation, and in all other cases, was not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, such person either had reasonable cause to believe his or her conduct was lawful or no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not meet the prescribed standard of conduct. 12.2. Authorization of Indemnification. To the extent that a director or officer of the Corporation has been wholly successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in Section 12.1, or in the defense of any claim, issue or matter therein, the Corporation shall indemnify such person against expenses (including counsel fees) actually and reasonably incurred by such person in connection therewith. Any other indemnification under Section 12.1 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case, upon a determination that indemnification of the director or officer is permissible in the circumstances because he or she has met the applicable standard of conduct. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not at the time parties to such action, suit or proceeding; or (ii) if a quorum cannot be obtained under clause (i), by a majority vote of a committee duly designated by the Board of Directors (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to such action, suit or proceeding; or (iii) by special legal counsel (A) selected by the Board of Directors or its committee in the manner prescribed in clauses (i) or (ii), or (B) if a quorum of the Board of Directors cannot be obtained under clause (i) and a committee cannot be designated under clause (ii), selected by a majority vote of the full Board of Directors (in which selection directors who are parties may participate); or (iv) by the stockholders, but shares owned by or voted under the control of directors or officers who are at the time parties to such action, suit or proceeding may not be voted on the determination. Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under foregoing clause (iii) to select counsel. 12.3. Good Faith. For purposes of any determination under Section 12.1, a person shall be deemed to have acted in good faith and to have otherwise met the 35 applicable standard of conduct set forth in Section 12.1 if his or her action is based on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by (i) one or more officers or employees of the Corporation or other enterprise whom he or she reasonably believes to be reliable and competent in the matters presented; (ii) legal counsel, public accountants, appraisers or other persons as to matters he or she reasonably believes are within the person's professional or expert competence; or (iii) a committee of the Board of Directors of the Corporation or other enterprise of which the person is not a member if he or she reasonably believes the committee merits confidence. The term "other enterprise" as used in this Section 12.3 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, partner, trustee, employee or agent. The provisions of this Section 12.3 shall not be exclusive or limit in any way the circumstances in which a person may be deemed to have met the applicable standards of conduct set forth in Section 12.1. 12.4. Payment of Expenses in Advance. Expenses incurred in connection with any civil or criminal action, suit or proceeding may be paid for or reimbursed by the Corporation in advance of the final disposition of such action, suit or proceeding, as authorized in the specific case in the same manner described in Section 12.2, upon receipt of the director or officer's written affirmation of his or her good faith belief that he or she has met the standard of conduct described in Section 12.1 and upon receipt of a written undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she did not meet the standard of conduct set forth in this Article XII, and a determination is made that the facts then known to those making the determination would not preclude indemnification under this Article XII. 12.5. Other Indemnitees. The Corporation may, by action of its Board of Directors, indemnify employees and agents of the Corporation with the same scope and effect and pursuant to the same procedures as provided in this Article XII for directors and officers. 12.6. Provisions Not Exclusive. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled under these Restated Articles of Incorporation, the Corporation's By-Laws, any resolution of the Board of Directors or stockholders, any other authorization, whenever adopted, after notice, by a majority vote of all voting shares of the Corporation then outstanding, or any contract, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to serve in his or her official capacity, and shall inure to the benefit of the heirs, executors and administrators of such a person. 12.7. Vested Right to Indemnification. The right of any person to indemnification under this Article shall vest at the time of occurrence or performance of 36 any event, act or omission giving rise to any action, suit or proceeding of the nature referred to in Section 12.1 and, once vested, shall not later be impaired as a result of any amendment, repeal, alteration or other modification of any or all of these provisions. Notwithstanding the foregoing, the indemnification afforded under this Article shall be applicable to all alleged prior acts or omissions of any individual seeking indemnification hereunder, regardless of the fact that such alleged acts or omissions may have occurred prior to the adoption of this Article. To the extent such prior acts or omissions cannot be deemed to be covered by this Article XII, the right of any person to indemnification shall be governed by the indemnification provisions in effect at the time of such prior acts or omissions. 12.8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or who is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against or incurred by the individual in that capacity or arising from the individual's status as a director, officer, employee or agent, whether or not the Corporation would have power to indemnify the individual against the same liability under this Article. 12.9. Additional Definitions. For purposes of this Article: (i) References to the "Corporation" shall include any domestic or foreign predecessor entity of the Corporation in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction. (ii) Serving an employee benefit plan at the request of the Corporation shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries. A person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interest of the Corporation" referred to in this Article. (iii) The term "party" includes any individual who is or was a plaintiff, defendant or respondent in any action, suit or proceeding, or who is threatened to be made a named defendant or respondent in any action, suit or proceeding. (iv) The term "official capacity," when used with respect to a director, shall mean the office of director of the Corporation; and when used with respect to an individual other than a director, shall mean the office in the Corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the Corporation. "Official capacity" does not include service for any other foreign or domestic corporation or any partnership, joint venture, trust, employee 37 benefit plan, or other enterprise, whether for profit or not. ARTICLE XIII Severability In the event that any Article or Section (or portion thereof) of these Restated Articles shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions, or portion thereof, of these Restated Articles shall be deemed to remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of the Corporation and its stockholders that each such remaining provision (or portion thereof) of these Restated Articles remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders notwithstanding any such findings. 9788 EX-3.2 3 AMENDED & RESTATED BYLAWS 1 Exhibit 3.2 AMENDED AND RESTATED CODE OF BY-LAWS OF EMMIS COMMUNICATIONS CORPORATION Effective March 1, 1994 (As Amended Through July 16, 1998) ARTICLE I Identification and Offices Section 1.1. Name. The name of the Corporation is Emmis Communications Corporation (hereinafter referred to as the "Corporation"). Section 1.2. Registered Office. The registered office and registered agent of the Corporation is as provided and designated in the Corporation's Amended and Restated Articles of Incorporation, as the same may be amended from time to time (the "Articles"). The Board of Directors may, from time to time, change its registered office or registered agent . On or before the day that any such change is to become effective, a certificate of such change shall be filed with the Secretary of State of the State of Indiana. Section 1.3. Other Offices. The Corporation may establish and maintain such other offices, within or without the State of Indiana, as are from time to time authorized by the Board of Directors. The principal office of the Corporation is 950 North Meridian Street, Suite 1200, Indianapolis, Indiana 46204. ARTICLE II Meetings of Shareholders 2 Section 2.1. Place of Meeting. All meetings of the shareholders of the Corporation (the "Shareholders") shall be held at the principal office of the Corporation in the State of Indiana or at such other place within or without the State of Indiana as may be fixed from time to time by the Board of Directors, the Chairman of the Board or the President. Section 2.2. Annual Meeting. The annual meeting of the Shareholders shall be held each year during the last five (5) business days of June for the purpose of electing Directors and for the transaction of such other business as may properly come before the annual meeting. If for any reason an annual meeting is not held during the time period herein provided, such annual meeting maybe held at any time thereafter, or the business to be transacted at such annual meeting may be transacted at any special meeting of the Shareholders called for that purpose. Section 2.3. Special Meetings. Special meetings of all Shareholders or a class of Shareholders for any purpose or purposes, unless otherwise prescribed by law or the Articles, may be called by the Chairman of the Board, President, the President or the Board of Directors. In addition, special meetings of all Shareholders may be called by the holders of at least fifty percent (50%) of the combined voting power of the outstanding shares upon delivery to the Corporation's Secretary or Assistant Secretary of one or more written demands, signed and dated, describing the purpose or purposes for which the special meeting is to be held. 3 Section 2.4. Notice of Meetings. Written notice of the place, date and hour of each meeting of the Shareholders and, in the case of a special meeting, the purpose or purposes for which such meeting is called, shall be mailed or delivered, not less than ten (10) days nor more than sixty (60) days prior to the meeting, to each Shareholder of record entitled to notice of such meeting. If such notice is mailed, it shall be deemed to have been given to a Shareholder when deposited in the United States mail, postage prepaid, addressed to the Shareholder at his address as it appears on the records of Shareholders of the Corporation. No notice shall be required to be given by mail or otherwise where the meeting is an adjourned meeting and the date, time and place of the meeting were announced at the time of adjournment. Section 2.5. Waiver of Notice. Notice of any meeting may be waived in writing by a Shareholder before or after the date and time stated in the notice. Attendance by a Shareholder at a meeting in person or by proxy waives (i) objection to lack of notice or defective notice of the meeting unless the Shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (ii) objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the Shareholder objects to considering the matter when it is presented. Section 2.6. Quorum; Adjourned Meetings. Except as otherwise required by law, the presence in person or by proxy of the holders of record of a majority of the combined voting power of the outstanding shares entitled to vote at a meeting of the Shareholders shall constitute a quorum for the transaction of business at such meeting. In case a quorum shall not be present at a meeting, those present may adjourn to such day as they shall, by majority vote, agree upon, without notice 4 other than announcement at the meeting of the date, time and place of the adjourned meeting, unless the date of the adjourned meeting requires that the Board of Directors fix a new record date therefor, in which case notice of the adjourned meeting shall be given. At adjourned meetings at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. If a quorum is present, the Shareholder may continue to transact business until adjournment notwithstanding the withdrawal of enough Shareholders to leave less than a quorum. Section 2.7. Voting. At each meeting of the Shareholders, every Shareholder entitled to vote shall have the right to vote either in person or by proxy, but no proxy shall be valid after eleven (11) months unless a longer period is expressly provided in the appointment. Upon the demand of any Shareholder, the vote upon any question before the meeting shall be by ballot. A plurality vote of the voting power of the outstanding shares that are entitled to vote for the election of a Director and that are represented in person or by proxy at any meeting at which a quorum for such election is present, shall be sufficient to elect the Director. On all other matters, the action or question shall be decided by the vote of a majority of the combined voting power of the outstanding shares represented in person or by proxy at the meeting at the time of the vote, except as otherwise required by law, the Articles or these By-Laws. Section 2.8. Closing of Books. The Board of Directors may fix a time, not exceeding seventy (70) days preceding the date of any meeting of Shareholders, as a record date for the determination of the Shareholders entitled to notice of, and to vote at, such meeting, notwithstanding any transfer of shares on the books of the Corporation after any record date so fixed. The Board of Directors may close the books of the Corporation against the transfer of shares during the whole or any part of such period. If the Board of Directors fails to fix a record date for determination of the Shareholders entitled to notice of, and to vote at, any meeting of Shareholders, the record date shall be the twentieth (20th) day preceding the date of such meeting. Section 2.9. Organization of Meetings. The Chairman of the Board, or in his absence the President or any person appointed by the Chairman of the Board, shall preside at and act as 5 chairman of all meetings of the Shareholders; and the Secretary, or in his absence any person appointed by the Chairman of the Board, shall act as secretary of the meeting. The order of business and all other matters of procedure at every meeting of the Shareholders may be determined by the presiding officer. Section 2.10. Shareholder List. The Secretary shall prepare before each meeting a complete list of the Shareholders entitled to notice of such meeting, arranged in alphabetical order by class of shares (and each series within a class), and showing the address of, and the number of shares entitled to vote held by, each Shareholder (the "Shareholder List"). Beginning five business days before the meeting and continuing throughout the meeting, the Shareholder List shall be on file at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held, and shall be available for inspection by any Shareholder entitled to vote at the meeting. On written demand, made in good faith and for a proper purpose and describing with reasonable particularity the Shareholder's purpose, and if the Shareholder List is directly connected with the Shareholder's purpose, a Shareholder (or such Shareholder's agent or attorney authorized in writing) shall be entitled to inspect and to copy the Shareholder List, during regular business hours and at the Shareholder's expense, during the period the Shareholder List is available for inspection. The original stock register or transfer book, or a duplicate thereof kept in the State of Indiana, shall be the only evidence as to who are the Shareholders entitled to examine the Shareholder List, or to notice of or to vote at any meeting. ARTICLE III The Board of Directors Section 3.1. General Powers. The business and affairs of the Corporation shall be managed by or under the authority of its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law, the Articles or these By-Laws required to be exercised or done by the Shareholders. Section 3.2. Number, Qualification and Term of Office. The Corporation shall have nine (9) directors (the "Directors") who need not be Shareholders. Each of the Directors shall hold 6 office until the annual meeting of Shareholders next held after such Director's election and until such Director's successor shall have been elected and shall qualify, or until the earlier death, resignation, removal, or disqualification of such Director. The Chairman of the Board shall preside at each Board of Directors meeting, and in his absence, the President or any person appointed by the Chairman of the Board shall preside at the meeting. Section 3.3. Annual Board Meeting. Unless otherwise determined by the Board of Directors, the Board of Directors shall meet each year immediately after the annual meeting of the Shareholders, at the place where such meeting of the Shareholders has been held, for the purpose of organization, election of officers and consideration of any other business that may properly be brought before such annual meeting of the Board of Directors. No notice shall be necessary for the holding of the annual meeting of the Board of Directors. If the annual meeting of the Board of Directors is not held as above provided, the election of officers may be held at any subsequent duly constituted meeting of the Board of Directors. Section 3.4. Regular Board Meetings. Regular meetings of the Board of Directors may be held at stated times or from time to time, and at such place, either within or outside the State of Indiana, as the Board of Directors may determine, without call and without notice. Section 3.5. Special Board Meetings. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or the President, at such place (within or outside the State of Indiana), date and hour as specified in the respective notices of such meetings. Special meetings of the Board of Directors may be called on twenty-four (24) hours notice if notice is given to each Director personally or by telephone or telecopier, or on five (5) days notice if notice is mailed to each Director. Section 3.6. Waiver of Notice and Assent. A Director may waive notice of any meeting of the Board of Directors before or after the date and time of the meeting stated in the notice by a written waiver signed by the Director and filed with the minutes or corporate records. A Director's attendance at or participation in a meeting shall constitute a waiver of notice of such meeting and assent to any corporate action taken at such meeting, unless (i) the Director at the 7 beginning of the meeting (or promptly upon his arrival) objects to the holding the meeting of or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting; (ii) the Director's dissent or abstention from the action taken is entered in the minutes of such meeting; or (iii) the Director delivers written notice of his dissent or abstention to the presiding office at such meeting before its adjournment or to the Secretary immediately after its adjournment. The right of dissent or abstention is not available to a Director who votes in favor of the action taken. Section 3.7. Quorum. At all meetings of the Board of Directors, a majority of the total authorized number of Directors shall constitute a quorum for the transaction of any business, except (i) as provided in the Articles, (ii) for the purpose of filling vacancies, a majority of Directors then in office shall constitute a quorum, and (iii) a lesser number may adjourn a meeting from time to time until a quorum is present. The act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, except as otherwise provided by law, the Articles or these By-Laws. Section 3.8. Conference Communications. Any or all Directors may participate in any meeting, or of any duly authorized committee of Directors, by any means of communications through which the Directors may simultaneously hear each other during such meeting. For the purposes of establishing a quorum and taking any action at the meeting, such Directors participating pursuant to this Section 3.8 shall be deemed present in person at the meeting, and the place of the meeting shall be the place of origination of the conference communication. Section 3.9. Vacancies; Newly Created Directorships. Any vacancy occurring in the Board of Directors, including any vacancy resulting from an increase in the number of Directors, may be filled by a majority vote of the Directors then in office, although less than a quorum. A Director elected to fill a vacancy or a newly created Directorship shall hold office until his successor has been elected and qualified or until his earlier death, resignation or removal. Any such vacancy or newly created Directorship may also be filled at any time by a vote of the Shareholders entitled to vote on the election of the Director. 8 Section 3.10. Removal. Any Director may be removed from office at any time, with or without cause, by the affirmative vote of the holders of a majority of the combined voting power of the shares entitled to vote for the election of such Director, cast at a special meeting of such holders called for such purpose. Removal of a Director by the Board of Directors shall require the affirmative vote of the number of Directors constituting a majority of the total authorized number of Directors. Section 3.11. Committees. A resolution approved by the affirmative vote of a majority of the Board of Directors may establish committees having the authority of the Board of Directors in the management of the business of the Corporation to the extent provided in the resolution and may appoint members of the Board of Directors to serve of them. Committees are subject to the direction and control of, and vacancies in the membership thereof shall be filled by, the Board, except as otherwise provided by law. A majority of the members of a committee present at a meeting is a quorum for the transaction of business, unless a larger or smaller proportion or number is provided in a resolution approved by the Board of Directors. Section 3.12. Written Action. Any action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if a consent in writing setting forth the action so taken is signed by all members of the Board of Directors, and such written consent is filed with the minutes of the proceedings. Such action shall be effective on the date on which the last signature is placed on such writing or writings or such earlier or later effective date as is set forth therein. Section 3.13. Resignations. Any Director may resign at any time by giving written notice to the Secretary. Such resignation shall take effect at the time of receipt of such notice or at any later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 3.14. Compensation of Directors. By resolution of the Board, each Director may be paid his expenses, if any, of attendance at each meeting of the Board of Directors, and may be paid a stated amount as Director or a fixed sum for attendance at each meeting of the Board of 9 Directors, or both. No such payment shall preclude a Director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed, pursuant to resolution by the Board of Directors, like compensation for attending committee meetings. ARTICLE IV Officers Section 4.1. Number. The officers of the Corporation shall be chosen by the Board of Directors and shall include a Chairman of the Board, at least one Executive Vice President, a Secretary, and a Treasurer. The Board of Directors may also choose additional Vice Presidents, one or more Assistant Secretaries or Assistant Treasurers, or such other officers as they may deem advisable. Any number of offices may be held by the same person. Section 4.2. Election, Term of Office and Qualifications. The Board of Director shall elect the officers of the Corporation, each of whom shall have the powers, rights, duties, responsibilities, and terms in office provided in these By-Laws or in a resolution of the Board of Directors not inconsistent herewith. Except for the Chairman of the Board, no officer need be a Director. The President and all other officers, except the Chairman of the Board, who may be Directors, shall continue to hold office until the election and qualification of their successors, notwithstanding an earlier termination of the directorship. Section 4.3. Removal and Vacancies. Any officer may be removed from his office at any time, with or without cause, by majority vote of the entire Board of Directors. Such removal, however, shall be without prejudice to the contract rights of the person so removed. If there is a vacancy among the officers of the Corporation by reason of death, resignation, or otherwise, such vacancy shall be filled for the unexpired term by the Board of Directors Section 4.4. The Chairman of the Board. The Chairman of the Board of Directors shall be the chief executive officer of the Corporation. The Chairman of the Board shall preside at all meetings of the Shareholders and Directors and shall have such other duties as may be prescribed from time to time by the Board of Directors. He may execute and deliver in the name of the 10 Corporation, any deeds, mortgages, bonds, contracts or other instruments pertaining to the business of the Corporation unless the authority to execute and deliver is required by law to be exercised by another person or is delegated by the Articles or these By-Laws or by the Board of Directors to some other officer or agent of the Corporation. Section 4.5. President. The President shall have general active management of the business of the Corporation. In the absence of the Chairman of the Board, he shall preside at all meetings of the Shareholders and Directors. He shall see that all orders and resolutions of the Board of Directors are carried into effect. He may execute and deliver, in the name of the Corporation, any deeds, mortgages, bonds, contracts, or other instruments pertaining to the business of the Corporation unless such authority to execute and deliver is required by law to be exercised by another person or is delegated by the Articles or these By-Laws or by the Board of Directors to some other officer or agent of the Corporation. He shall maintain records of and, whenever necessary, certify all proceedings of the Board of Directors and the Shareholders, and in general, shall perform all duties usually incident to the office of the President. He shall have such other duties as may be prescribed from time to time by the Board of Directors. Section 4.5.1. Radio Division President. The Radio Division President, if one is elected, shall have general active management of all radio operations of the Corporation. He may execute and deliver, in the name of the Corporation, any deeds, mortgages, bonds, contracts, or other instruments pertaining to the business of the Corporation unless the authority to execute and deliver is required by law to be exercised by another person or is delegated by the Articles or By-Laws or by the Board of Directors to some other officer or agent of the Corporation. He shall have such other duties as may be prescribed from time to time by the Board of Directors. Section 4.5.2. International Division President. The International Division President, if one is elected, shall have general active management of all international operations of the Corporation. He may execute and deliver, in the name of the Corporation, any deeds, mortgages, bonds, contracts, or other instruments pertaining to the business of the Corporation unless the authority to execute and deliver is required by law to be exercised by another person or is 11 delegated by the Articles or By-Laws or by the Board of Directors to some other officer or agent of the Corporation. He shall have such other duties as may be prescribed from time to time by the Board of Directors. Section 4.5.3. Television Division President. The Television Division President, if one is elected, shall have general active management of all television operations of the Corporation. He may execute and deliver, in the name of the Corporation, any deeds, mortgages, bonds, contracts, or other instruments pertaining to the business of the Corporation unless the authority to execute and deliver is required by law to be exercised by another person or is delegated by the Articles or ByLaws or by the Board of Directors to some other officer or agent of the Corporation. He shall have such other duties as may be prescribed from time to time by the Board of Directors. Section 4.6. Executive Vice President and other Vice Presidents. The Executive Vice Presidents and any other Vice Presidents shall have such powers and shall perform such duties specified in these By-Laws or prescribed by the Board of Directors or the President. Any Executive Vice President may execute and deliver, in the name of the Corporation, any deeds, mortgages, bonds, contracts, or other instruments pertaining to the business of the Corporation unless the authority to execute and deliver is required by law to be exercised by another person or is delegated by the Articles or By-Laws or by the Board of Directors to some other officer or agent of the Corporation. Section 4.7. Secretary. The Secretary shall be the secretary of and shall attend all meetings of the Shareholders and Board of Directors record all proceedings of such meetings in the minute book of the Corporation. He shall give proper notice of meetings of Shareholders and Directors. He shall perform such other duties as may be prescribed from time to time by the Board of Directors. Section 4.8. Assistant Secretary. The Assistant Secretary, if any, or if there shall be more then one, the Assistant Secretaries in the order determined by the Board of Directors or the President, shall in the absence or disability of the Secretary, perform such other duties and have such powers and duties as the Board of Directors or the President may prescribed from time to 12 time. An Assistant Secretary may, in the event or absence of the Secretary, attest to the execution by the Corporation of all documents. Section 4.9. Treasurer. The Treasurer shall maintain a correct and complete record of account showing accurately at all times the financial condition of the Corporation. The Treasurer shall be the legal custodian of all monies, notes, securities and other valuables which may from time to time come into the possession of the Corporation. The Treasurer shall immediately deposit all funds of the Corporation coming into his hands in some reliable bank or other depositary to be designated by the Board of Directors and shall keep such bank account in the name of the Corporation and shall perform such other duties as may be prescribed from time to time by the Board of Directors or the President. Section 4.10. Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors or the President, shall in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such powers and duties as the Board of Directors or the President may prescribe from time to time. Section 4.12. Delegation of Authority. In the case of the absence or disability of the President, the Radio Division President, the Television Division President, the Executive Vice Presidents and other Vice Presidents shall succeed to the President's power and duties in the order designated by the Board of Directors or the President. In the case of the absence of any officer or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may delegate the powers or duties of such officer to any other officer or to any Director, for the time being, provided a majority of the entire Board concurs therein. 13 ARTICLE V Certificates of Stock Section 5.1. Certificates of Stock. All shares of the Corporation shall be certificated shares. Every holder of stock in the Corporation shall be entitled to have a certificate signed by the Chairman of the Board, the President, or the Executive Vice President and the Secretary or an Assistant Secretary, certifying the number of shares owned by him in the Corporation. The certificates of stock shall be number in the order of their issue. Each certificate shall set forth the number and class of shares and series, if any, and shall state that the Corporation will furnish information relating to the rights, preferences and limitations of the class or series upon request. Section 5.2. Issuance of Shares. The Board of Directors is authorized to cause to be issued shares of the Corporation up to the full amount authorized by the Articles in such amounts as determined by the Board of Directors and permitted by law. If shares are issued for promissory notes or for promises to render services in the future, the Corporation must comply with I.C. 23-1-53-2(b). Section 5.3. Facsimile Signatures. Where a certificate is signed (i) by a transfer agent or an assistant transfer agent, or (ii) by a transfer clerk acting on behalf of the Corporation, and a registrar, the signature of the Chairman of the Board, the President, the Vice President, Secretary or Assistant Secretary may be a facsimile. In case any officer or officers who have signed or whose facsimile signature or signatures have been used on any such certificate or certificates shall cease to be such officer or officers of the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation. Section 5.4. Lost or Destroyed Certificates. Any Shareholder claiming a certificate for shares to be lost, stolen or destroyed shall make an affidavit of that fact in such form as the Board of Directors or President shall require and shall, if the Board of Directors so requires, give the 14 Corporation a bond of indemnity in a form, in an amount, and with one or more sureties satisfactory to the Board of Directors, the Chairman of the Board or the President, to indemnify the Corporation against any claim which may be made against it on account of the reissue of such certificate, whereupon a new certificate may be issued in the same tenor and for the same number of shares as the one alleged to have been lost, stolen or destroyed. Section 5.5. Transfers of Stock. Subject to the power of the Board of Directors under Article XI of the Articles to provide certain transfers of stock ownership to Aliens (as defined in the Articles), upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares fully endorsed or accompanies by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 5.6. Registered Shareholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 5.7. Restrictions on Ownership, Voting and Transfer Right to Redeem. Article XI of the Articles restricts the ownership, voting and transfer of shares of capital stock of the Corporation to the extent necessary to prevent ownership of such shares by Aliens from violating the Communications Act of 1934, as amended (the "Communications Act"), and the regulations of the Federal Communications Commission (the "FCC Regulations"). In addition, Article XI of the Articles entitles the Corporation to redeem shares of capital stock determined by the Board of Directors to be owned beneficially by an Alien or Aliens if such ownership violates the Communications Act or FCC Regulations. Each certificate representing shares of capital stock of the Corporation shall contain a legend referencing such restrictions and right to redeem set forth in Article XI of the Articles. 15 ARTICLE VI General Provisions Section 6.1. Dividends. Subject to applicable law and the Articles, dividends upon the capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting and may be paid in cash, in property or in shares of the capital stock. Section 6.2. Record Date. Subject to any provisions of the Articles, the Board of Directors may fix a date not more than 120 days before the date fixed for the payment of any dividend as the record date for the determination of the Shareholders entitled to receive payment of the dividend, and, in such case, only Shareholders of record on the date so fixed shall be entitled to receive payment of such dividend notwithstanding any transfer of shares on the books of the Corporation after the record date. The Board of Directors may close the books of the Corporation against the transfer of shares during the whole or any part of such period. Section 6.3. Checks. All agreements, checks or demands for money or notes of the Corporation shall be signed by such officer of officers or such other person or persons as the Board of Directors may from time to time designate. If no such designation is made, they may be signed by either the Chairman of the Board, the President, the Executive Vice President, or Secretary, singly. Section 6.4. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board and in the absence of such resolution, the Corporation shall have a February 28/29 fiscal year. Section 6.5. Seal. The Corporation shall have no corporate seal. ARTICLE VII Amendments Section 7.01. Any amendment of these By-Laws shall require approval by the number of Directors constituting a majority of the total authorized number of Directors. Section 7.2. Amendments to be Consistent with Applicable Law. Any amendment of these By-Laws shall be consistent with the Articles and provisions of applicable law then in effect, 16 including without limitation, the Communications Act and the FCC Regulations. ARTICLE VIII Securities of Other Corporations Unless otherwise ordered by the Board of Directors, the Chairman of the Board or the President shall have full power and authority on behalf of the Corporation to purchase, sell, transfer, encumber or vote any and all securities of any other corporation owned by the Corporation, and may execute and deliver such documents as may be necessary to effectuate such purchase, sale, transfer, encumbrance or vote. The Board of Directors may, from time to time, confer like powers upon any other person or persons. ARTICLE IX Business Combinations Chapter 43 of the Indiana Business Corporations Law, as amended (IC 23-1-43), governing Business Combinations, shall be inapplicable to the Corporation. EX-10.1 4 PURCHASE AGREEMENT DATED 6/3/99 1 EXHIBIT 10.1 ASSET PURCHASE AGREEMENT BETWEEN PRESS COMMUNICATIONS, LLC, A DELAWARE LIMITED LIABILITY COMPANY AS SELLER, AND EMMIS COMMUNICATIONS CORPORATION AS BUYER JUNE 3, 1999 2 TABLE OF CONTENTS RECITALS..........................................................................................................1 ARTICLE I - TERMINOLOGY..................................................................................1 1.1 Defined Terms..........................................................................1 1.2 Additional Defined Terms...............................................................3 ARTICLE II - PURCHASE AND SALE...........................................................................5 2.1 Sale Assets............................................................................5 (a) Tangible Personal Property....................................................5 (b) Real Property.................................................................5 (c) Permits.......................................................................5 (d) Station Agreements............................................................6 (e) Intellectual Property.........................................................6 (f) Records.......................................................................6 (g) Miscellaneous Assets..........................................................6 2.2 Excluded Assets........................................................................6 2.3 Assumption of Liabilities..............................................................7 2.4 Earnest Money..........................................................................8 2.5 Purchase Price.........................................................................8 2.6 Allocation of the Purchase Price.......................................................8 2.7 Adjustment of Purchase Price...........................................................9 2.8 Accounts Receivable...................................................................11 ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER..................................................12 3.1 Organization, Good Standing and Requisite Power.......................................12 3.2 Authorization and Binding Effect of Documents.........................................12 3.3 Absence of Conflicts..................................................................12 3.4 Consents..............................................................................13 3.5 Sale Assets; Title....................................................................13 3.6 FCC Licenses..........................................................................13 3.7 Station Agreements....................................................................14 3.8 Tangible Personal Property............................................................16 3.9 Real Property.........................................................................17 3.10 Intellectual Property.................................................................17 3.11 Financial Statements..................................................................18 3.12 Absence of Certain Changes or Events..................................................19 3.13 Litigation............................................................................20
-i- 3 3.14 Labor Matters.........................................................................20 3.15 Employee Benefit Plans................................................................21 3.16 Compliance with Law...................................................................22 3.17 Tax Returns and Payments..............................................................22 3.18 Environmental Matters.................................................................23 3.19 Broker's or Finder's Fees.............................................................24 3.20 Insurance.............................................................................24 3.21 Cable Television Transmission.........................................................24 3.22 Transactions with Affiliates..........................................................25 3.23 Florida Sales Tax.....................................................................25 3.24 Year 2000 Computer Compliance.........................................................25 3.25 Disclosure............................................................................25 ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER....................................................25 4.1 Organization and Good Standing........................................................25 4.2 Authorization and Binding Effect of Documents.........................................26 4.3 Absence of Conflicts..................................................................26 4.4 Consents..............................................................................26 4.5 Broker's or Finder's Fees.............................................................26 4.6 Litigation............................................................................27 4.7 Buyer's Qualification.................................................................27 4.8 WARN Act..............................................................................27 ARTICLE V - OTHER COVENANTS.............................................................................27 5.1 Conduct of the Station's Business Prior to the Closing Date...........................27 5.2. Notification of Certain Matters.......................................................29 5.3 HSR Filing............................................................................29 5.4 FCC Filing; Related FCC Litigation....................................................29 5.5 Title; Additional Documents...........................................................30 5.6 Other Consents........................................................................31 5.7 Inspection and Access.................................................................31 5.8 Confidentiality.......................................................................31 5.9 Publicity.............................................................................32 5.10 Material Adverse Change...............................................................32 5.11 Reasonable Best Efforts...............................................................32 5.12 FCC Reports and Applications..........................................................32 5.13 Tax Returns and Payments..............................................................32 5.14 No Solicitation.......................................................................32 5.15 Certified Resolutions.................................................................33 5.16 Audited Financial Statements..........................................................33 5.17 Survey and Environmental Inspection...................................................33
-ii- 4 5.18 Broker's Fee..........................................................................34 5.19 Covenants of Buyer pending Closing....................................................34 5.20 Cable Television Carriage.............................................................34 5.21 Digital Television Transmission.......................................................34 5.22 Programming Agreements................................................................35 ARTICLE VI - CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE........................................................................35 6.1 Accuracy of Representations and Warranties; Closing Certificate.......................35 6.2 Performance of Agreement..............................................................36 6.3 FCC Order.............................................................................36 6.4 HSR Act...............................................................................36 6.5 Opinions of Seller's Counsel..........................................................36 6.6 Required Consents.....................................................................37 6.7 Delivery of Closing Documents.........................................................37 6.8 No Adverse Proceedings................................................................37 6.9 No Material Adverse Change............................................................37 ARTICLE VII - CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE.......................................................................38 7.1 Accuracy of Representations and Warranties............................................38 7.2 Performance of Agreement..............................................................38 7.3 FCC Order.............................................................................38 7.4 HSR Act...............................................................................38 7.5 Opinion of Buyer's Counsel............................................................38 7.6 No Adverse Proceedings................................................................39 7.7 Delivery of Closing Documents.........................................................39 ARTICLE VIII - CLOSING..................................................................................39 8.1 Time and Place........................................................................39 8.2 Documents to be Delivered to Buyer by Seller..........................................39 8.3 Deliveries to Seller by Buyer.........................................................40 ARTICLE IX - INDEMNIFICATION............................................................................41 9.1 Survival..............................................................................41 9.2 Indemnification by Seller.............................................................41 9.3 Indemnification by Buyer..............................................................42 9.4 Administration of Indemnification.....................................................42
-iii- 5 ARTICLE X - TERMINATION................................................................................43 10.1 Right of Termination..................................................................43 10.2 Obligations Upon Termination..........................................................44 10.3 Termination Notice....................................................................45 ARTICLE XI - CONTROL OF STATION.........................................................................45 ARTICLE XII - EMPLOYMENT MATTERS........................................................................46 12.1 Transfer of Employees.................................................................46 12.2 Employee Benefit Plans................................................................47 12.3 Employment Agreements.................................................................47 ARTICLE XIII - MISCELLANEOUS............................................................................48 13.1 Further Actions.......................................................................48 13.2 Payment of Expenses...................................................................48 13.3 Specific Performance..................................................................48 13.4 Notices...............................................................................48 13.5 Entire Agreement......................................................................49 13.6 Binding Effect; Benefits..............................................................50 13.7 Assignment............................................................................50 13.8 Governing Law.........................................................................50 13.9 Amendments and Waivers................................................................50 13.10 Severability..........................................................................50 13.11 Headings..............................................................................51 13.12 Counterparts..........................................................................51 13.13 References............................................................................51 13.14 Schedules.............................................................................51
-iv- 6 SCHEDULES: Schedule 2.2 Excluded Assets Schedule 3.3 Required Consents and Filings (Seller) Schedule 3.5(a) Excluded Material Assets Schedule 3.5(b) 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 3.11 Financial Statements 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 3.20 Insurance Schedule 3.21 Cable Television Transmissions Schedule 3.22 Transactions with Affiliates Schedule 3.24 Year 2000 Schedule 4.3 Required Consent and Filings (Buyer) Schedule 6.6 Required Consents Schedule 12.1 Excluded Employees -v- 7 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of June 3, 1999, between PRESS COMMUNICATIONS, LLC, a Delaware limited liability company ("Seller"), and EMMIS COMMUNICATIONS CORPORATION, an Indiana corporation ("Buyer"). RECITALS: WHEREAS, Seller owns and operates television station WKCF-TV, Channel 18, Clermont, Florida (the "Station"); and WHEREAS, Buyer desires to acquire substantially all the assets used or useful in the business and operation of the Station, and Seller is willing to convey such assets to Buyer. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller 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, directly or indirectly controls, is controlled by, or is under common control with, the specified Person. Appraisal Firm: BIA Consulting, Inc. Code: The Internal Revenue Code of 1986, as amended. Documents: This Agreement, all Exhibits and Schedules hereto, and each other agreement, certificate or instrument delivered in connection with 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: First Union National Bank, a national banking association headquartered in Charlotte, North Carolina. Escrow Agreement: The Escrow Agreement, dated as of the date hereof, by and among Seller, Buyer and the Escrow Agent relating to the deposit, holding, investment and disbursement of the Earnest Money. FCC: Federal Communications Commission. -1- 8 FCC Order: The order or decision of the FCC (or its delegatee) 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 normally applicable 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. 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 filing of or agreement 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 attorney fees, whether or not arising out of a third party claim. Material Adverse Condition: A condition 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 the Station or the proceeds therefrom; provided, however, that (i) any condition which requires (A) that Buyer or any of its 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 (B) that the Station be operated in accordance with conditions similar to and not more adverse than those contained in the present FCC Licenses issued for operation of the Station, shall not be a Material Adverse Condition, and (ii) the pendency of a petition for reconsideration, application for review, notice of appeal or other pleading contesting the issuance of the FCC Order shall not in any event constitute a Material Adverse Condition. Material Adverse Effect: A material adverse effect on the assets, business, operations, financial condition or results of operations of the Station. Permitted Lien: (i) Any statutory Lien which secures a payment not yet due that arises, and is customarily discharged, in the ordinary course of Seller's business; (ii) Liens arising in connection with equipment or maintenance financing or leasing under the terms of any Station Agreement; and (iii) any other Liens or imperfections in Seller's 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. Person: Any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, other form of business or legal entity or governmental authority. 2 9 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. 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). 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 Seller and the purchase by Buyer of the Station 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. 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) Agreement Introduction Appraisal Report Section 2.6(a) Arbitrating Firm Section 2.7(e) Assumed Obligations Section 2.3(a) Benefit Plans Section 3.15(a) Buyer Introduction Broker Section 3.19 Buyer's Loss Section 9.2(a) Buyer's Trade Credit Section 2.7(b) Cable Agreements Section 5.20 Carrying System Section 3.21 CERCLA Section 3.18(f) Closing Section 8.1 Closing Date Section 8.1 Collection Period Section 2.8(b) DTV Application Section 5.21 Employees Section 3.15(a) ERISA Section 3.15(a) Excluded Assets Section 2.2 FCC Licenses Section 3.6(a) HSR Act Section 5.3 3 10 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(a) Leased Real Property Section 5.18 Mid-Range Section 2.7(e) Multiemployer Plan Section 3.15(c) New Programming Document Section 5.22 Pending FCC Litigation Section 5.4(b) Pending Seller FCC Litigation Section 5.4(c) Preliminary Adjustment Report Section 2.7(b) Purchase Price Section 2.5(a) Real Property Section 2.1(b) Real Property Lease Section 3.9(c) Related Persons Section 3.15(a) Retained Receivables Section 2.8(a) Sale Assets Section 2.1 Seller Introduction Seller's Enforcement Costs Section 10.2(c) Seller's Liquidated Damage Amount Section 10.2(c) Seller's Loss Section 9.3(a) Seller's Trade Credit Section 2.7(b) Station Recitals Station Agreements Section 2.1(d) Survival Period Section 9.1 Tangible Personal Property Section 2.1(a) Threshold Section 9.2(b) Trade Agreements Section 3.7(a) Transfer Objection Section 5.4(b) Transferred Employees Section 12.1(a) ARTICLE II PURCHASE AND SALE 2.1 SALE ASSETS. Upon and subject to the terms and conditions provided herein, on the Closing Date, Seller will sell, transfer, assign and convey to Buyer, and Buyer will purchase from Seller, all of Seller's right, title and interest in and to all tangible and intangible assets (except Excluded Assets) principally used or useful in the operation of the Station as now or previously 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 Seller and principally used in the operation of the 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 Seller between 4 11 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 Seller (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 for use by the Station 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 Seller or hereafter obtained by Seller between the date hereof and the Closing Date, that are necessary for the operation of the Station. (d) Station Agreements. All rights of Seller in, to and under all contracts, leases, agreements, commitments and other arrangements, and any amendments or modifications, principally used or useful in the operation of the Station as of the date hereof (including, but not limited to, those listed on Schedule 3.7(b)) or made or entered into by Seller between the date hereof and the Closing Date in compliance with this Agreement principally for use by the Station (the "Station Agreements"). (e) Intellectual Property. All trade names, trademarks, service marks, copyrights, patents, jingles, slogans, symbols, logos, the call letters WKCF, inventions, and any other proprietary material, process, trade secret or trade right principally used by Seller in the operation of the 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 Seller in connection with the operation of the 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 Seller shall retain exclusive rights to, all right, title and interest whatsoever in or to the name "Press Communications" or any derivations thereof or any signs, symbols or logos bearing the name "Press Communications". (f) 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 the Station, including, but not limited to, any of such items stored on computer disks or tapes. (g) 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 before Closing owned or used by Seller principally in connection with the operation of the Station, including but not limited to all goodwill of the Station. 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 deposit, marketable securities, cash deposits made by Seller to secure contract obligations (except to the extent Seller receives a credit therefor under Section 2.7), and all accounts receivable (other than non-cash receivables under Trade Agreements) for services performed or for goods sold or delivered by Seller prior to the Closing Date; (b) All rights and claims of Seller whether mature, contingent or otherwise, against third parties with respect to, or which are made under or pursuant to, other Excluded Assets; 5 12 (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; (e) All claims of Seller with respect to any Tax refunds; (f) All of Seller's rights under or pursuant to this Agreement or any other rights in favor of Seller pursuant to the other Documents; (g) All loan agreements and other instruments evidencing indebtedness for borrowed money; (h) 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; (i) 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; (j) Seller's minute books, ownership transfer records and other entity records, and any records relating to Excluded Assets and to Liabilities other than the Assumed Obligations; (k) Assets of Seller which are not principally used or useful in the operation or business of the Station, it being understood that Seller engages in other businesses and activities, including other broadcasting business; and (l) The assets listed on Schedule 2.2. 2.3 ASSUMPTION OF LIABILITIES. (a) Buyer shall at Closing assume and agree to pay, discharge and perform the following Liabilities of Seller and the Station (collectively, the "Assumed Obligations"): (i) All Liabilities arising under all Station 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 Seller upon or prior to Closing under any Station Agreement). (ii) Provided that Seller pays Buyer the amount, if any, owed by Seller after Closing under Section 2.7, the Assumed Obligations shall also include such other Liabilities of Seller and the Station to the extent, and only to the extent, the amount thereof is included as a credit to 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 Seller of any kind or nature, all of which Seller shall pay, discharge and perform when due. 6 13 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 Twelve Million Five Hundred Thousand Dollars ($12,500,000). (b) The Escrow Agent shall hold the Earnest Money under the terms of the Escrow Agreement in trust for the benefit of Seller and Buyer. (c) If Closing does not occur, the Earnest Money shall be delivered to Seller 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. 2.5 PURCHASE PRICE. (a) The purchase price for the Sale Assets ("Purchase Price") shall be One Hundred Ninety-One Million Five Hundred Thousand Dollars ($191,500,000), 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 Seller by wire transfer of immediately available funds pursuant to joint written instructions from Seller and Buyer. (ii) The sum of (A) One Hundred Ninety-One Million Five Hundred Thousand Dollars ($191,500,000) minus (B) the Earnest Money shall be paid by Buyer to Seller on the Closing Date by wire transfer of immediately available funds pursuant to written instructions from Seller to Buyer. (b) Seller shall furnish Buyer wire instructions at least two (2) business days prior to the Closing Date. 2.6 ALLOCATION OF THE PURCHASE PRICE. (a) Seller 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 Seller and Buyer are unable to agree on such allocation within such sixty (60) day period, Seller and Buyer agree to retain the Appraisal Firm to appraise the classes of Sale Assets. The Appraisal Firm shall be instructed to perform an appraisal of the classes of Sale Assets and to deliver a report to Seller and Buyer as soon as reasonably practicable (the "Appraisal Report"). Buyer and Seller shall each pay one-half of the fees, costs and expenses of the Appraisal Firm regardless of whether Closing occurs. (b) Buyer and Seller each agree to report the allocation determined in accordance with Section 2.6(a) to the Internal Revenue Service in the form required by Treasury Regulations Section 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) All operating income and operating expenses of the Station shall be adjusted and allocated between Seller and Buyer, and an adjustment in the Purchase Price shall be made as provided in this Section, to 7 14 the extent necessary to reflect the principle that all such income and expenses attributable to the operation of the Station on or before the date preceding the Closing Date shall be for the account of Seller, and all such income and expenses attributable to the operation of the Station on and after the Closing Date shall be for the account of Buyer. The net amount by which the Purchase Price is to be increased or decreased in accordance with this Section is herein referred to as the "Adjustment Amount". (b) Without limiting the generality of the foregoing: (i) Seller shall receive a credit for the unapplied portion, as of Closing, of the security deposits made by Seller under those Station Agreements assumed by Buyer at Closing in accordance with Section 2.3. (ii) Buyer shall be given a credit ("Buyer's Trade Credit") in the amount equal to the financial value (determined in accordance with generally accepting accounting principles) of all time required to be broadcast on the Station on or after the Closing Date under the Trade Agreements, and Seller shall be given a credit ("Seller's Trade Credit") for the financial value (determined in accordance with generally accepted accounting principles) of the goods and services to be received on or after the Closing Date under the Trade Agreements, provided that Seller's Trade Credit shall in no event exceed Buyer's Trade Credit; (iii) Buyer shall be given a credit equal to the amount or value of both cash and noncash consideration that Seller has not paid or provided prior to the Closing Date for programming run by the Station prior to the Closing Date. (iv) with respect to each vacation or portion thereof earned but not taken before the Closing Date by each Station employee hired by Buyer, Buyer shall receive a credit equal to the compensation equivalent thereof, including applicable payroll taxes. (v) The credit given Seller for each prepaid expense shall not exceed an amount commensurate with the benefit therefrom to be received by Buyer after Closing. (c) To the extent not inconsistent with the express provisions of this Agreement, the allocations made pursuant to this Section shall be made in accordance with generally accepted accounting principles. (d) Three (3) business days prior to the Closing Date, Seller shall provide Buyer with a statement setting forth a detailed computation of Seller's reasonable and good faith estimate of the Adjustment Amount as of the Closing Date (the "Preliminary Adjustment Report"). If the Adjustment Amount reflected on the Preliminary Adjustment Report is a credit to Buyer, the Purchase Price payable on the Closing Date shall be reduced by the amount of the preliminary Adjustment Amount, and if the Adjustment Amount reflected on the Preliminary Adjustment Report is a charge to Buyer, the Purchase Price payable on the Closing Date shall be increased by the amount of such preliminary Adjustment Amount. Thereafter, Seller and its auditors and Buyer and its auditors shall have ninety (90) days after the Closing Date to review the Preliminary Adjustment Report and the related books and records of Seller, and Buyer and Seller will in good faith seek to reach agreement on the final Adjustment Amount as of the Closing Date. If agreement is reached within ninety (90) days after the Closing Date, then upon reaching such agreement, Seller shall pay to Buyer or Buyer shall pay to Seller, as the case may be, an amount equal to the difference between (i) the agreed Adjustment Amount and (ii) the preliminary Adjustment Amount indicated in the Preliminary Adjustment Report. Any such payment shall be 8 15 made as provided in Section 2.7(g). If agreement is not reached within such 90-day period, then the dispute resolutions of Section 2.7(e) shall apply. (e) If Seller and its auditors and Buyer and its auditors do not, within the 90-day period specified in Section 2.7(d), reach an agreement on the Adjustment Amount as of the Closing Date, then an independent accounting firm of recognized national standing (the "Arbitrating Firm") selected by Seller and Buyer shall resolve the disputed items. If Seller and Buyer do not agree on the Arbitrating Firm within five (5) days, the Arbitrating Firm shall be a nationally recognized accounting firm selected by lot (after excluding one firm designated by Seller and one firm designated by Buyer). Buyer and Seller shall each inform the Arbitrating Firm in writing as to their respective positions concerning the Adjustment Amount as of the Closing Date, and each shall make readily available to the Arbitrating Firm any books and records and work papers relevant to the preparation of such firm's computation of the Adjustment Amount. The Arbitrating Firm shall be instructed to complete its analysis within thirty (30) days from the date of its engagement and upon completion to inform the parties in writing of its own determination of the Adjustment Amount, the basis for its determination, whether Buyer's or Seller's written position as to the Adjustment Amount is closer to its own determination, and whether its own determination of the Adjustment Amount is within a range that (i) equals twenty percent (20%) of the absolute difference between the written positions of Buyer and Seller as to the Adjustment Amount and (ii) has a midpoint equal to the median of such written positions of Buyer and Seller (the "Mid-Range"). Any determination by the Arbitrating Firm in accordance with this Section shall be final and binding on the parties for purposes of this Section. Within five (5) days after the Arbitrating Firm delivers to the parties its written determination of the Adjustment Amount, Seller shall pay to Buyer, or Buyer shall pay to Seller, as the case may be, an amount equal to the difference between (i) the Adjustment Amount as determined by the Arbitrating Firm and (ii) the preliminary Adjustment Amount indicated in the Preliminary Adjustment Report. Any such payment shall be made as provided in Section 2.7(g). (f) If the Arbitrating Firm determines that the written position of Buyer concerning the Adjustment Amount is closer to its own determination, Seller shall pay the fees and disbursements of the Arbitrating Firm in connection with its analysis. If the Arbitrating Firm determines that the written position of Seller concerning the Adjustment Amount is closer to its own determination, Buyer shall pay the fees and disbursements of the Arbitrating Firm in connection with its analysis. However, if the Arbitrating Firm's determination of the Adjustment Amount is within the Mid-Range, Seller and Buyer shall each pay one-half of the fees and disbursements of the Arbitrating Firm in connection with its analysis. (g) Any payments required under Section 2.7(d) or (e) shall be paid by wire transfer in immediately available funds to the account of the payee at a financial institution in the United States and shall for all purposes constitute an adjustment to the Purchase Price. 2.8 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 (other than non-cash receivables under Trade Agreements) arising from the operation of the Station 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 Seller, use its usual and customary procedures to collect the Retained Receivables as Seller's agent for collection, provided that (i) Buyer shall not be required to commence litigation, employ legal 9 16 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 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 (4) 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 Retained Receivables 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 Retained Receivables during the Collection Period, other than with respect to accounts receivable identified as in dispute as provided in foregoing Section 2.8(b). (e) Buyer shall not, without Seller's prior written consent, compromise or settle for less than full value any of the Retained Receivables unless Buyer pays Seller the full amount of any deficiency. Buyer shall be entitled to purchase from Seller any Retained Receivable for the full amount thereof at any time during or at the expiration of the Collection Period. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer as follows; 3.1 ORGANIZATION, GOOD STANDING AND REQUISITE POWER. Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite power to own, operate and lease its Sale Assets and carry on its business. Seller is duly licensed, qualified to do business and in good standing as a foreign limited liability company under the laws of the State of Florida. 3.2 AUTHORIZATION AND BINDING EFFECT OF DOCUMENTS. Seller has all requisite 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 Seller and the consummation by Seller of the transactions contemplated hereby and thereby have been duly authorized by all necessary action (including all necessary member approvals, if any) on the part of Seller. This Agreement has been, and each of the other Documents at or prior to Closing will be, duly executed and delivered by Seller. This Agreement constitutes (and each of the other Documents, when executed and delivered, will constitute) the valid and binding obligation of Seller enforceable against Seller in accordance with its terms. 3.3 ABSENCE OF CONFLICTS. Except as set forth on Schedule 3.3, and except for necessary clearances or approvals under the HSR Act or the Act, the execution, delivery and performance by Seller of this Agreement and the other Documents, and consummation by Seller of the transactions contemplated hereby and thereby, do not and will not (i) conflict with 10 17 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 obligation under, or (v) result in the creation of any Lien upon the Sale Assets under, the provisions of the organizational documents of Seller, any material indenture, mortgage, lease, loan agreement or other material agreement or instrument to which Seller is bound or affected, or any law, statute, rule, judgment, order or decree to which Seller is 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 Seller of this Agreement and the other Documents, and consummation by Seller 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. (a) 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 Station, with the exception of the Excluded Assets. Schedule 3.5(a) lists each contract, agreement and other asset which is used in the operation of the Station, or is material to the Sale Assets or the business, operations, financial condition or results of operations of this Station, but which in each case is an Excluded Asset by reason of Section 2.2(k). (b) Seller has 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(b) which Seller 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) Seller 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 Station (the "FCC Licenses"), and any action of the FCC with respect to each FCC License is a Final Action with the exception of the FCC Order. 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 Station under the Communications Act of 1934, as amended, and the rules, regulations and policies of the FCC thereunder (collectively, the "Act"), and (ii) constitute all the licenses and authorizations, including amendments and modifications thereto, issued by the FCC to Seller for or in connection with the operation of the 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 material respect the full operation of the Station as now conducted, 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 Station as currently operated. 11 18 (d) The Station is being operated by Seller in all material respects in accordance with the terms and conditions of the FCC Licenses and the Act, including but not limited to those pertaining to RF emissions. (e) No applications, complaints or proceedings are pending or, to the knowledge of Seller, 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 the Station or its operation, other than actions or proceedings affecting the television broadcasting industry in general. (f) Seller has complied in all material respects with all requirements to file registrations, reports, applications and other documents with the FCC with respect to the Station, and all such registrations, 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, Seller has 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 Seller, or (ii) which might reasonably be expected to result in the FCC's denial or delay of approval of the assignment to Buyer of any FCC License or the imposition of any Material Adverse Condition in connection with approval of the transfer to Buyer of any FCC License. (h) There are no unsatisfied or otherwise outstanding citations issued by the FCC with respect to the Station or its operation. (i) True, complete and accurate copies of all FCC Licenses have been delivered by Seller to Buyer. (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 the Station as previously and currently operated by Seller. 3.7 STATION AGREEMENTS. (a) Schedule 3.7(a) lists all agreements, contracts, understandings and commitments (excluding, however, programming agreements) as of the date indicated thereon for the sale of time on the 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 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 delivered to Buyer, and each Trade Agreement entered into by Seller between the date of this Agreement and Closing shall be promptly delivered to Buyer. (b) Schedule 3.7(b) lists all the following types of agreements used in or relating to the operation of the Station: (i) Agreements for sale of broadcast time on the Station for monetary consideration, 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; 12 19 (iii) All sales agency or advertising representation contracts; (iv) Each lease of any Sale Asset (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) All agreements requiring the Station to acquire goods or services exclusively from a single supplier or provider, or prohibiting the Station from providing certain goods or services to any Person other than a specified Person; (viii) All agreements that are not terminable by Seller or its assignee on thirty or less days' notice without breach, penalty or cancellation fee; (ix) Any other agreement involving a commitment by any party thereto with a fair market value of, or requiring any party thereto to pay over the life of the contract, more than Twenty-Five Thousand Dollars ($25,000); and (x) Any other agreement that is material to the business, operations, financial condition or results of operations of the 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, have been delivered to Buyer. The Station Agreements that are not listed on Schedule 3.7(a) or 3.7(b) do not involve commitments by parties thereto with an aggregate fair market value of more than Fifty Thousand Dollars ($50,000). (c) Schedule 3.7(c) lists all of the contracts and agreements used in or relating to the operation of the Station to which an Affiliate of 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, (i) each programming agreement is valid, binding, in full force and effect, and enforceable in accordance with its terms; (ii) neither Seller nor, to the knowledge of 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 programming agreement; (iii) neither Seller nor any Affiliate of Seller has granted or been granted any material waiver or forbearance with respect to any programming agreement; (iv) Seller holds the right to enforce and receive the benefits under each programming agreement, free and clear of Liens (other than Permitted Liens) but subject to the terms and provisions of each such agreement; (v) none of the rights of Seller or any Affiliate of Seller under any programming agreement is subject to termination or modification as a result of the consummation of the transactions contemplated by this Agreement; and (vi) consent or approval by each party to any programming agreement is required thereunder for the consummation of the transactions contemplated hereby. (e) With respect to the Station Agreements (other than programming agreements) which are, individually or in the aggregate, material to the assets, business, operations, financial condition or results of 13 20 operations of the Station, except as set forth in the Schedules, (i) such Station Agreements are valid, binding, in full force and effect, and enforceable in accordance with its terms; (ii) neither Seller nor, to the knowledge of 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 such Station Agreements; (iii) neither Seller nor any Affiliate of Seller has granted or been granted any material waiver or forbearance with respect to any such Station Agreements; (iv) Seller holds the right to enforce and receive the benefits under all such Station Agreements, free and clear of Liens (other than Permitted Liens) but subject to the terms and provisions of each such agreement; (v) none of the rights of Seller or any Affiliate of Seller under any such Station Agreements is subject to termination or modification as a result of the consummation of the transactions contemplated by this Agreement; and (vi) consent or approval by each party to any such Station Agreements is required thereunder for the consummation of the transactions contemplated hereby. 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 the Station as now operated. (b) Except as specified on Schedule 3.8, the equipment constituting a part of the Tangible Personal Property used in or necessary for the operation of the Station as now operated by Seller has been properly maintained in all material respects in accordance with the manufacturers' recommendations and industry practices, is in a good state of repair and operating condition (subject to ordinary wear and tear), and complies 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 correct and complete list of all of the interests in real estate which Seller holds or which are used to any material extent in the operation of the Station. (b) Seller does not own any Real Property used in the operation of the Station. (c) A description of each lease (including all amendments, modifications and supplements) under which Seller leases an interest in any of the Real Property (each, a "Real Property Lease") and a description of the leased Real Property, including but not limited to studio and office space and each transmitter or antenna site (the "Leased Real Property"), are set forth on Schedule 3.7(b). Except as set forth on such Schedule, 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, have been delivered to Buyer. (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; (ii) neither Seller nor, to the knowledge of Seller, any other party, is in material default under any Real Property Lease; (iii) to the knowledge of Seller, 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 Seller received written notice alleging any such event has occurred; (iv) none of the rights of 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 for the consummation of the transactions 14 21 contemplated hereby; and (vi) Seller has not 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 in all material respects with applicable zoning and land use laws, ordinances and regulations. Seller's improvements on the 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 constituting 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 Seller, Seller owns, 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 Station as presently conducted, 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. (b) There are no outstanding or, to the knowledge of Seller, threatened judicial or adversary proceedings with respect to any of the Intellectual Property. (c) Seller has 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) Seller has no knowledge of any infringement or unlawful use of any of the Intellectual Property. (e) Seller has not violated any provisions of the Copyright Act of 1976, 17 U.S.C. ss.101, et seq., in any material respect. Seller has filed all notices and statements of account and has made all payments that are required in connection with the transmission by Seller of any television or other signals. (f) Seller 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. 3.11 FINANCIAL STATEMENTS. (a) Attached as Schedule 3.11 are: (i) The audited balance sheets of Seller as of December 31, 1997 and December 31, 1998; (ii) The audited statements of operations of Seller for the years ended December 31, 1997 and December 31, 1998; (iii) The unaudited balance sheet of Seller as of March 31, 1999 (the "Interim Balance Sheet"); and (iv) The unaudited statement of operations of Seller for the interim period ended March 31, 1999. 15 22 All such statements (i) are in accordance in all material respects with the books and records of the Station and (ii) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis and fairly present the assets and liabilities of the Station as of the dates stated and accurately reflect the results of operations of the Station for the periods covered by the statements, with the exceptions that (A) statements of cash flows are not included with the unaudited statements of operations, (B) federal income tax, expense or benefit are not shown, (C) the unaudited statements do not contain the disclosures required by generally accepted accounting principles in notes accompanying financial statements, and (D) the interim statements are subject to normal year-end adjustments. (b) Seller has no debt, liability or obligation, secured or unsecured (whether absolute, accrued, contingent or otherwise, and whether due or to become due), of a nature required by generally accepted accounting principles to be reflected in a balance sheet or disclosed in the notes thereto, except such debts, liabilities and obligations which (i) are fully accrued or fully reserved against in the Interim Balance Sheet or (ii) are incurred after the date of the Interim Balance Sheet in the ordinary course of business consistent with past practice and in an amount not material to the business, operations, financial condition or results of operations of the Station. 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 had or is reasonably likely to have a Material Adverse Effect. (b) Neither Seller nor the Station has suffered any adverse change or development which, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect. (c) Seller has not: (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 consistent with past practices, or any Real Property Lease; (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 consistent with past practices; (iv) entered into any agreement, commitment or other transaction other than in the ordinary course of business consistent with past practices; (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; 16 23 (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; (vii) entered into any agreement (other than agreements that will be terminated prior to Closing) with any Affiliate of Seller; or (viii) operated its business other than in the ordinary course consistent with past practices. 3.13 LITIGATION. Except as described in Schedule 3.6 and Schedule 3.13, (i) there are no actions, suits, claims, investigations or administrative, arbitration or, to the knowledge of Seller, other proceedings pending or threatened against Seller before or by any court, arbitration tribunal or governmental department or agency, domestic or foreign, that relates to the Station or the Sale Assets; (ii) neither Seller nor, to the knowledge of Seller, any of the officers or employees of Seller, has been charged with, or to the knowledge of Seller 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 the Station or with Seller; and (iii) neither Seller, any properties or assets of Seller nor, to the knowledge of Seller, any officer or employee of 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 Seller which, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect or materially impair the ability of 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 Seller's knowledge, no present or former employee or independent contractor of the Station has a pending claim or charge which has been asserted or threatened against 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. (ii) There is not pending or, to the knowledge of Seller, threatened against Seller any labor dispute, strike or work stoppage that affects or interferes with the operation of the Station, and Seller has no knowledge of any organizational effort currently being made or threatened by or on behalf of any labor union with respect to employees of the Station. There are no material unresolved unfair labor charges against Seller, and Seller has not experienced any strike, work stoppage or other similar significant labor difficulties within the preceding twelve (12) months. (b) Except as set forth on Schedule 3.7(b), (i) Seller is not a signatory or a party to, or otherwise bound by, a collective bargaining agreement which covers employees or former employees of the Station, (ii) 17 24 Seller has not agreed to recognize any union or other collective bargaining unit with respect to any employees of the Station, and (iii) no union or other collective bargaining unit has been certified as representing any employees of the 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 Seller principally in connection with the operation of the Station (other than Mark D. Lass, Robert E. McAllan, Alfred D. Colantoni, Jules L. Plangere, III, Richard T. Morena), 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 the Station has been delivered 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 the 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 Seller or by any other trade or business, whether or not incorporated, which is or has been treated as a single employer together with Seller under Section 414 of the Code (such other trades and businesses referred to collectively as the "Related Persons") or to which 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 (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), Seller has no 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 Seller or the Station. (b) All Benefit Plans 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. Neither Seller nor 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, the Station or the Sale Assets. (c) 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) Neither Seller nor any Related Person has, to Seller's 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 Seller or one employer with Seller under Section 4001 of ERISA. (e) All contributions required to have been made by Seller under the terms of any Benefit Plan or applicable law have been timely made. (f) Seller has no unfunded obligations (including projected obligations) for retiree health and life benefits under any Benefit Plan other than continuation coverage required by law. 18 25 (g) Neither Seller nor 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 Seller's knowledge, no event or condition has occurred or exists which would result in any such material liability to Seller. 3.16 COMPLIANCE WITH LAW. Seller has operated and is operating the 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 except as noted at Schedule 3.13, Seller has not received any notice of noncompliance pertaining to Seller's operation of the Station that has not been cured. 3.17 TAX RETURNS AND PAYMENTS. (a) Except as set forth in Schedule 3.17, Seller has accurately prepared in all material respects and is not delinquent in the filing of any Tax Returns required to be filed by 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 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 Seller's 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 Seller, (ii) Seller has not received notice of any such deficiency, delinquency or default, and (iii) to Seller's knowledge, no taxing authority is now threatening to assert any such deficiency, delinquency or default and, to 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) Seller has withheld any Tax required to be withheld by 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 Seller. 3.18 ENVIRONMENTAL MATTERS. (a) Except as set forth on Schedule 3.18, Seller has obtained all environmental, health and safety permits necessary for the operation of the Station, all such permits are valid and in full force and effect, and Seller is in compliance in all material respects with all terms and conditions of such permits. (b) Except as set forth on Schedule 3.18, there is no proceeding pending or, to Seller's 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 the Station, and to Seller's knowledge, there is no basis for any such proceeding. 19 26 (c) Except as set forth on Schedule 3.18, Seller has operated and is 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 Seller relating to environmental matters. (d) Except as set forth on Schedule 3.18, 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, Seller does not own or use any electrical or other equipment containing polychlorinated biphenyls. (e) For the purposes of this Section 3.18, (i) "hazardous materials" shall mean any waste, substance, materials, smoke, gas, emissions or particulate matter designated as hazardous or toxic under any applicable environmental law, and (ii) "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 the Station, Seller has 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, and no notice pursuant to Section 103(a) or (c) of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.A. ss.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, Seller has not received any notice letter under CERCLA or any other written notice, and, to Seller's knowledge, there is no investigation pending or threatened, to the effect that Seller has 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 Seller's knowledge does there exist any basis for such investigation. 3.19 BROKER'S OR FINDER'S FEES. Except for H.B. LaRue, Media Brokers (the "Broker") who has acted on behalf of both Buyer and Seller, no agent, broker, investment banker or other person or firm acting on behalf of or under the authority of Seller or any Affiliate of 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. Schedule 3.20 lists and briefly describes each insurance policy maintained by Seller with respect to the assets and business of the Station with a claims history for the preceding four (4) years. All of such insurance policies are in full force and effect, and Seller is not in default with respect to its obligations under any such insurance policy and has not been denied insurance coverage. 3.21 CABLE TELEVISION TRANSMISSION. Schedule 3.21 lists (i) to the best of Seller's knowledge, each cable television system on which the signal of the Station is currently being carried (each, a "Carrying System"), (ii) the cable channel on which the Station is currently carried on each Carrying System, and (iii) as to each Carrying System, whether carriage of the signal of the Station is pursuant to a "must-carry" election, a retransmission consent agreement, or otherwise. Except 20 27 as set forth in Schedule 3.21, (i) the Station is carried on each Carrying System pursuant to a valid and timely must-carry election or a valid and enforceable retransmission consent agreement, as the case may be, (ii) Seller has not agreed to reimburse any cable television system for any copyright royalties in respect of carriage of the signal of the Station, (iii) no cable system has advised Seller or the Station of any signal quality or copyright indemnity or other prerequisite to cable carriage of the Station's signal, (iv) 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, and (v) there are no pending or decided requests to modify the Station's Area of Dominant Influence as set forth in the Arbitron 1991-1992 Television ADI Market Guide. 3.22 TRANSACTIONS WITH AFFILIATES. Except as described on Schedule 3.22, Seller has not been involved in any business arrangement or relationship relating to the Station with any Affiliate of Seller, and no Affiliate of Seller owns any property or right, tangible or intangible, which is used in the operation of the Station or is material to the Sale Assets or the business, operations, financial condition or results of operations of the Station. 3.23 FLORIDA SALES TAX. No past, present or future act or omission on the part of Seller shall cause the sale of the Sale Assets (other than motor vehicles, if any) to Buyer pursuant to this Agreement not to be exempt from the Florida personal property sales tax. 3.24 YEAR 2000 COMPUTER COMPLIANCE. Schedule 3.24 describes the actions taken by Seller to avoid errors or failures in its computer systems and software in connection with the year 2000. 3.25 DISCLOSURE. To Seller's knowledge, neither this Agreement (including the Schedules) nor any other Document furnished by Seller or on its behalf contains any untrue statement of a material fact or omits to state a material fact necessary to make any statement herein or therein not misleading. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller 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. 21 28 4.2 AUTHORIZATION AND BINDING EFFECT OF DOCUMENTS. 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 hereby and thereby 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 as set forth on Schedule 4.3 and except for any necessary clearances or approvals under the HSR Act or the 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 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 as set forth on Schedule 4.3 and except for any necessary clearances or approvals under the HSR Act or the 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. Except for the Broker, who has acted on behalf of both Buyer and Seller, 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. 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 or delay the transactions contemplated by this Agreement. 4.7 BUYER'S QUALIFICATION. Buyer has no knowledge of matters which might reasonably be expected to result in the FCC's denial or delay of approval of the transfer to Buyer of any FCC License or the imposition of any Material Adverse Condition in connection with approval of the transfer to Buyer of any FCC License. 22 29 4.8 WARN ACT. Buyer is not planning or contemplating, and has not made or taken, any decisions or actions concerning the employees of the Station after the Closing Date that would require the service of notice under the Worker Adjustment and Retraining Act of 1988, as amended. ARTICLE V OTHER COVENANTS 5.1 CONDUCT OF THE STATION'S BUSINESS PRIOR TO THE CLOSING DATE. Seller covenants and agrees with Buyer that from the date hereof through the Closing Date, or the termination of this Agreement if earlier, and only with respect to Station and none of Seller's other business activities, unless Buyer otherwise consents in writing (which consent shall not be unreasonably withheld, delayed or conditioned), Seller shall: (a) Operate the Station in the ordinary course of business consistent with past practices, 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 commercially reasonable efforts to preserve the 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 the Station consistent in all material respects with the type and quantity of the Station's programming as of the date hereof, and (iv) continuing the 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 the Station and otherwise conduct its business in all material respects in accordance with the terms or conditions of FCC Licenses, the Act, and all other rules, regulations, laws and orders of all governmental authorities having jurisdiction over any aspect of the operation of the Station; (c) Maintain Seller's 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 are, individually or in the aggregate, material to the Sale Assets or the business, operations, financial condition or results of operations of the Station; (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 business, operations, financial condition or results of operations of the 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 (i) are in the ordinary course of business consistent with past practice and (ii) if material, are replaced by similar assets of substantially equal or greater value or utility; 23 30 (g) Not amend, enter into, renew or extend any Trade Agreement that would cause the aggregate financial value (calculated at the Station's average cash advertising rate) of all time required to be broadcast on the Station on or after the Closing Date under Trade Agreements (including amendments, but excluding trade of up to One Hundred Thousand Dollars ($100,000.00) under the broadcast rights agreement Seller intends to enter into with the Orlando Magic) entered into after the date of this Agreement to exceed Fifty Thousand Dollars ($50,000.00); any personal property lease that would cause the aggregate rent required to be paid under personal property leases (including amendments) entered into after the date of this Agreement to exceed Fifty Thousand Dollars ($50,000.00); studio or office lease; antenna lease; network affiliation agreement; talent agreement; broadcast rights agreement with the Orlando Magic; or any agreement described in Section 3.7(b)(vii); (h) Subject to Section 5.22 regarding programming agreements, not enter into, amend, renew or extend any other 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 practices; (i) Maintain its technical equipment currently in use in good operating condition and repair except for ordinary wear and tear; (j) Not increase in any manner the compensation (including severance pay or plans) or benefits of any employees, independent contractors, consultants or commission agents of Seller or the Station, except in the ordinary course of business consistent with past practice; (k) Not introduce any material change with respect to the operation of the Station including, without limitation, any material changes in the percentages of types of programming broadcast by the Station or any other material change in the Station's programming policies, except as required by law; (l) Not enter into any agreement relating to the Station (other than agreements that will be terminated prior to Closing) with any Affiliate of Seller; (m) Not voluntarily enter into any collective bargaining agreement applicable to any employees of the 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 the 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; and (o) Consult with Buyer regarding the extension or modification prior to Closing of current programming, the acquisition prior to Closing of new or additional programming, and the terms and conditions of each such extension, modification or acquisition. 24 31 5.2. NOTIFICATION OF CERTAIN MATTERS. Seller shall give prompt notice to Buyer, and Buyer shall give prompt notice to Seller, 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 either of them under this Agreement. 5.3 HSR FILING. Within ten (10) business days after the execution of this Agreement, Seller 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; RELATED FCC LITIGATION. (a) As promptly as practicable following execution of this Agreement and in no event more than ten (10) business days after the execution of this Agreement, Seller and Buyer shall file all applications with the FCC necessary to obtain the FCC Order, and shall cooperate in taking all commercially reasonable action necessary and proper to promptly obtain the FCC Order without a Material Adverse Condition. Although the FCC Order becoming a Final Action is not a condition precedent to either party's obligation to close under this Agreement, Seller and Buyer shall cooperate in taking all commercially reasonable action necessary and proper to cause the FCC Order to become a Final Action as soon as practicable, provided that commercially reasonable action shall not include payment or providing of material consideration to settle with an objecting party. (b) Seller and Buyer acknowledge that for the FCC Order to become a Final Action, it will be necessary to achieve final resolution of (i) each objection or petition filed in opposition to the transfer of the FCC Licenses to Buyer (each, a "Transfer Objection") and (ii) the currently pending proceedings described on Schedule 3.6 relating to the renewal of the FCC Licenses and the prior transfer of the FCC Licenses to Seller (the "Pending FCC Litigation"). Seller agrees to reimburse Buyer for the reasonable attorney fees incurred by Buyer in connection with its participation in the defense of (i) each Transfer Objection based upon or relating to the alleged misconduct or other act or omission of Seller and (ii) the Pending FCC Litigation. Buyer agrees to reimburse Seller for the reasonable attorney fees incurred by Seller in connection with its participation in the defense of each Transfer Objection based upon or relating to the alleged misconduct or other act or omission of Buyer. (c) Buyer agrees to participate as reasonably requested by Seller in prosecuting to a final resolution the pending proceedings instituted by Seller in opposition to the FCC's grant of authorizations for WRBW-TV (the "Pending Seller FCC Litigation"), provided that Seller promptly reimburses Buyer for all reasonable out-of-pocket expenses incurred by Buyer in connection with such participation. Such out-of-pocket expenses will include reasonable attorney fees but shall not include any portion of employee compensation allocable to the time spent by any employee of Buyer in participating on Buyer's behalf in the Pending Seller FCC Litigation as requested by Seller. 5.5 TITLE; ADDITIONAL DOCUMENTS. 25 32 At the Closing, Seller 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. Seller 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 Seller. 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, which documents shall be in a form reasonably acceptable to Buyer and Seller. 5.6 OTHER CONSENTS. Seller shall use its commercially reasonable efforts to obtain the consents or waivers to the transactions contemplated by this Agreement required under the Station Agreements, and Buyer shall cooperate as reasonably requested by Seller in assisting Seller to obtain such consents. Neither Seller nor Buyer shall be required to pay or grant any material consideration in order for Seller to obtain any such consent or waiver except that Seller shall be required to obtain releases of Liens (other than Permitted Liens) which encumber any of the Sale Assets with Seller being permitted to use the proceeds delivered by Buyer at Closing in order to obtain such releases. Buyer acknowledges that Seller's failure to obtain any consent shall not be a breach of this Agreement provided that Seller shall have used commercially reasonable efforts to obtain the consent. 5.7 INSPECTION AND ACCESS. Seller will, prior to the Closing Date, make available the assets, books, accounting records, correspondence and files of Seller (to the extent related to the operation of the Station) for examination by Buyer, its officers, attorneys, accountants and agents, with the right to make copies of all or portions of such books, records and files. 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 Station. Seller will furnish to Buyer monthly unaudited financial statements of Seller prepared in a manner consistent with the unaudited statements identified in Section 3.11, and such additional financial, operating and other information regarding Seller or the Station as Buyer may reasonably request. If Closing occurs, the books, records and files that are not part of but relate to the Sale Assets shall be preserved and maintained by Seller for five (5) years after the Closing, and the books, records and files that are part of the Sale Assets shall be maintained and preserved by Buyer for a period of five (5) years after the Closing. Each such party shall give 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 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 Seller (or its 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 such information (i) was otherwise publicly available when received, (ii) is or hereafter becomes lawfully obtainable from third parties not related to Buyer or its Affiliates, (iii) is required to be disclosed by law, judicial or other governmental rule or order, or the rules of any stock exchange or (iv) to the extent such duty as to confidentiality is waived in writing by Seller. 26 33 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 Seller will promptly notify the other party of any event of which Buyer or Seller, as the case may be, obtains knowledge which has had or could reasonably be expected to have Material Adverse Effect. 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. Seller 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 Station. In addition, Seller 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. Seller will timely file with the appropriate governmental agencies all Tax Returns required to be filed by Seller with respect to the Station prior to Closing and timely pay all Taxes reflected on such Tax Returns as owing by Seller. 5.14 NO SOLICITATION. From the date hereof until the earlier of Closing or termination of this Agreement, neither Seller nor any Affiliate of 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 Seller or any material assets of the Station or any merger, consolidation or other business combination with Seller (each an "Acquisition Proposal"), or (b) otherwise knowingly assist or negotiate with any Person with respect to an Acquisition Proposal. Seller 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, Seller shall furnish Buyer with certified resolutions of its managers and members 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. 27 34 (b) Within fifteen (15) business days after the date hereof, Buyer shall furnish Seller 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. Seller recognizes that Buyer is a publicly reporting company and agrees that Buyer shall be entitled at Buyer's expense to cause audited and unaudited financial statements of the Station 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. 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. Furthermore, if all or a portion of the audited financial statements of Sellers may be used for such purpose, Seller hereby consents to Buyer's use of such financial statements for the purposes set forth in this Section 5.16, and Seller agrees to use its commercially reasonable efforts to obtain the consent of the independent accounting firm which opined as to such financial statements. 5.17 SURVEY AND ENVIRONMENTAL INSPECTION. At Buyer's expense, subject to obtaining the consent of any landlord of Leased Real Property and Buyer providing such releases and indemnifications as may be reasonably required by any such landlord to provide such consents, Buyer shall have the right to cause a detailed survey and an environmental inspection to be performed for each portion of the Leased Real Property. Buyer shall cause the companies performing such work to deliver to Seller, contemporaneously with the delivery to Buyer, a copy of each such survey or inspection report. Buyer agrees to indemnify, defend and hold Seller and each owner and tenant of Lease Real Property harmless from and against any liability, loss, costs ,damages, and/or expenses (including reasonable attorneys' fees and expenses) incurred by any of Seller, the owners or other tenants of Leased Real Property, as a result of conducting the survey and/or environmental inspections of any portion of Leased Real Property by Buyer, its agents, employees or independent contractors. 5.18 BROKER'S FEE. If Closing occurs, each of Seller and Buyer agrees to pay Closing one-half of the fee earned by Broker in connection with the transactions contemplated by this Agreement, provided that Buyer shall in no event be obligated to pay in excess of Nine Hundred Seventy-Five Thousand Dollars ($975,000) of such fee. 5.19 COVENANTS OF BUYER PENDING CLOSING. Buyer covenants and agrees with Seller that from the date hereof through the Closing Date or the date this Agreement is terminated, if earlier, that Buyer shall (i) not take or agree to take any action that would materially delay the consummation of the Closing as contemplated by this Agreement; and (ii) respond promptly to any request of Seller in connection with any of the activities described in Section 5.1. 5.20 CABLE TELEVISION CARRIAGE. If the Closing has not occurred by October 1, 1999, Seller, in consultation with Buyer, shall timely make must-carry elections or enter into retransmission consent agreements (together with the must-carry elections, the 28 35 "Cable Agreements") with all material Carrying Systems. Seller shall negotiate, in consultation with Buyer, the terms and conditions of the Cable Agreements which shall be commercially reasonable and include terms and conditions that are usual and customary within the television broadcasting industry. In negotiating the Cable Agreements, Seller shall also endeavor to provide for the Station to be carried on channel 8 of each Carrying System and to have a channel of each Carrying System allocated for future digital transmission of the Station's signal. 5.21 DIGITAL TELEVISION TRANSMISSION. If the Closing has not occurred by November 1, 1999, Seller, in consultation with Buyer, shall timely file a digital television construction permit application ("DTV Application") for the Station. Seller shall prosecute the DTV Application with diligence and shall diligently oppose any objection to, appeal from or petition to reconsider the grant of the DTV Application. 5.22 PROGRAMMING AGREEMENTS. (a) Seller shall consult with Buyer regarding programming as prescribed in Section 5.1(o) and shall furnish Buyer a copy of each document setting forth the terms and conditions and otherwise governing each extension, modification or acquisition of programming prior to Closing (each, a "New Programming Document") promptly after the New Programming Document is available to Seller. Buyer may object within its reasonable judgment to an extension, modification or acquisition of programming or to the terms and conditions set forth in the related New Programming Document by giving Seller written notice of Buyer's objection within five (5) business days after receipt of the related New Programming Document. If Buyer fails to so object, Buyer shall be deemed to have granted approval (and Buyer may not subsequently object) with respect to the extension, modification or acquisition of programming or the terms and conditions set forth in the related New Programming Document. (b) In the event Buyer objects in accordance with foregoing Subsection (a) to an extension, modification or acquisition of programming or the terms and conditions set forth in the related New Programming Document, the New Programming Document shall be deemed to be an Excluded Asset that will not be assigned to or assumed by Buyer, and Seller shall remain responsible after Closing for all liabilities and obligations under the New Programming Document. 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 Seller contained in this Agreement or in any other Document shall be true and correct 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 the Closing Date, except for changes permitted hereunder. 29 36 (b) Seller shall have delivered to Buyer on the Closing Date an officer's certificate that the conditions specified in Sections 6.1(a), 6.2, 6.6, 6.9, and 7.6 are satisfied as of the Closing Date. 6.2 PERFORMANCE OF AGREEMENT. Seller shall have performed in all material respects all of its covenants, agreements and obligations required by this Agreement to be performed or complied with by Seller prior to or up the Closing Date. 6.3 FCC ORDER. (a) The FCC Order shall have been issued without any Material Adverse Condition affecting Buyer and shall have become effective under the Act. (b) Conditions which the FCC Order 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. (c) All of the FCC Licenses shall be in full force and effect. 6.4 HSR ACT. The waiting period (including any extensions) 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 SELLER'S COUNSEL. 30 37 Buyer shall have received (a) the written opinion of Seller's counsel, dated as of the Closing Date, that (i) Seller is a limited liability company duly formed and in good standing under the laws of the State of Delaware and is in good standing and duly qualified to do business under the laws of the State of Florida, (ii) the execution, delivery and performance of the Agreement and each of the other Documents have been duly authorized by all requisite action (including any necessary member approval) on the part of Seller, and (iii) the Agreement and other Documents have been duly and validly executed and delivered by Seller and constitute valid and legally binding obligations enforceable against Seller 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 Seller's FCC counsel, dated as of the Closing Date, that (i) Seller holds the FCC Licenses, which (A) are in full force and effect and constitute all of the licenses, permits and authorizations required by the FCC for, or used in the operation of, the Station as now operated; and (B) constitute all of the licenses and authorizations issued by the FCC to Seller for, or in connection with, the operation of the Station, (ii) all authorizations, approvals and consents of the FCC required under the Act to permit the assignment of the FCC Licenses by Seller to Buyer have been obtained, are in effect, and have not been reversed, stayed, enjoined, set aside, annulled or suspended, and (iii) except as set forth in Schedule 3.6, there is no FCC or judicial 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 or any court of competent jurisdiction against Seller 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). Each opinion shall state that Buyer's senior lenders are entitled to rely on the opinion, and may otherwise be subject to customary qualifications and limitations. 6.6 REQUIRED CONSENTS. (a) Subject to Section 6.6(b), Seller shall have obtained prior to Closing the written consents or waivers to the transactions contemplated by this Agreement, in form reasonably satisfactory to Buyer's counsel and without any modification or condition which is materially adverse to Buyer or the Station, which are required under (i) each Station Agreement for each transmitter, antenna (including each satellite and translator transmitter) or office and studio site under which Seller is a lessee, (ii) the network affiliation agreement with WB Television Network Partners, LP, (iii) the programming agreements identified on Schedule 6.6. (b) In the event that prior to the sixtieth (60th) day after issuance of the FCC Order, Seller shall not have obtained the written consent as prescribed in Section 6.6(a) for the assignment to Buyer of the network affiliation agreement with WB Television Network Partners, LP, Buyer shall be entitled to terminate this Agreement by giving Seller written notice of such termination on or before the seventy-fifth (75th) day after issuance of the FCC Order. 6.7 DELIVERY OF CLOSING DOCUMENTS. Seller shall have delivered or caused to be delivered to Buyer on the Closing Date each of the documents to be delivered pursuant to Section 8.2. 6.8 NO ADVERSE PROCEEDINGS. 31 38 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 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 the Station since the date of the Interim Balance Sheet which has resulted in, or is reasonably likely to result in, a Material Adverse Effect; provided, however, that an adverse change in the revenue or ratings of the Station shall not constitute for purposes of this Section a change or development which has, or is reasonably likely to have, a Material Adverse Effect. ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE The obligations of Seller 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 Seller in writing: 7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. (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 Seller. (b) Buyer shall have delivered to Seller on the Closing Date a certificate that the conditions specified in Sections 7.1(a), 7.2 and 6.8 are satisfied as of the Closing Date. 7.2 PERFORMANCE OF AGREEMENT. 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 ORDER. (a) The FCC Order shall have been issued and shall have become effective under the Act. (b) Conditions which the FCC Order 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 his Agreement shall have expired or been terminated. 7.5 OPINION OF BUYER'S COUNSEL. 32 39 Seller 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 and (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 law effecting the enforcement of creditors' rights generally and general principles of equity. The opinion of Buyer's counsel may be subject to customary qualifications and limitations. 7.6 NO ADVERSE PROCEEDINGS. Except as set forth in Schedule 3.6, 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 Seller 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 to be delivered pursuant to Section 8.3. 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 LLP, 135 North Pennsylvania Street, Suite 2700, Indianapolis, Indiana, at 10:00 o'clock A.M. on the fifth business day following satisfaction or waiver of the conditions precedent hereunder to Closing (the "Closing Date"). 8.2 DOCUMENTS TO BE DELIVERED TO BUYER BY SELLER. At the Closing, Seller shall deliver to cause to be delivered to Buyer the following, in each case in form and substance reasonably satisfactory to Buyer: (a) The opinions of Seller's 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 Seller is duly organized and in good standing as a limited liability company in the State of Delaware and is qualified to do business and in good standing in the State of Florida; (c) A certificate of a duly authorized managing member of Seller attesting as to the incumbency of each signatory of Seller who executes this Agreement and any of the other Documents and to similar customary matters; 33 40 (d) A bill of sale and other instruments of transfer and conveyance transferring the Sale Assets to Buyer, in form reasonably acceptable to Buyer; (e) The certificate described in Section 6.1(b); (f) A written instruction of Seller to Escrow Agent instructing the Escrow Agent to distribute the Earnest Money as prescribed in Section 2.4; (g) The consents or waivers prescribed in Section 6.6; and (h) Such additional information and materials as Buyer shall have reasonably requested to evidence the satisfaction of the conditions to its obligation to close hereunder, including without limitation, any documents expressly required by this Agreement to be delivered by Seller at Closing. 8.3 DELIVERIES TO SELLER BY BUYER. At the Closing, Buyer shall deliver or cause to be delivered to Seller the following, in each case in form and substance reasonably satisfactory to Seller: (a) The Purchase Price in accordance with Section 2.5, as adjusted under Section 2.7(d); (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 Earnest Money as prescribed in Section 2.4; (e) An agreement by Buyer assuming the Assumed Obligations; and (f) Such additional information and materials as Seller shall have reasonably requested to evidence the satisfaction of the conditions to its obligation to close hereunder. 34 41 ARTICLE IX INDEMNIFICATION 9.1 SURVIVAL. 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 Documents; 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 five (5) years after the Closing Date, and (iv) in the case of any other representation or warranty, end two (2) years 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 SELLER. (a) Subject to Section 9.2(b), Seller shall 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 (each, a "Buyer's Loss") relating to, arising out of or resulting from: (i) Any breach by Seller of any of its representations, warranties, covenants or agreements in this Agreement or any other Document; or (ii) Any obligation, indebtedness or Liability of Seller (other than the Assumed Obligations) regardless of whether disclosed to Buyer and regardless of whether constituting a breach by Seller of any representation, warranty, covenant or agreement hereunder or under any other Document; or (iii) Noncompliance by Seller with the provisions of the Bulk Sales Act, if applicable, in connection with the transactions contemplated by this Agreement. (b) If Closing occurs, Seller shall not be obligated to indemnify Buyer unless and until the aggregate amount of Buyer's Losses exceeds One Hundred Fifty Thousand Dollars ($150,000) (the "Threshold"), in which case Buyer shall then be entitled to indemnification of the entire amount of Buyer's Losses, provided that any payment owed by Seller to Buyer for any Liability for breach of Section 3.23 or pursuant to or under Section 2.7 or Section 9.2(a)(ii) shall not be counted in determining whether the Threshold limitation is satisfied, and Buyer shall have the right to recover any such Liability without regard to such limitation. 9.3 INDEMNIFICATION BY BUYER. 35 42 (a) Subject to Sections 9.3(b) and 10.2, Buyer shall indemnify and hold harmless Seller and its officers, directors, members, employees, agents, representatives, Affiliates, successors and assigns from and against, pay or reimburse each of them for and with respect to any Loss (each, a "Seller's 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 the Station 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 Seller unless and until the aggregate amount of Seller's Losses exceeds the Threshold, in which case Seller shall then be entitled to indemnification of the entire amount of Seller's Losses, provided any payment owed by Buyer to Seller for any Liability pursuant to or under Section 2.7 or Section 9.3(a)(ii) shall not be counted in determining whether the Threshold limitation is satisfied, and Seller shall have the right to recover any such Liability 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. 36 43 (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 reasonably 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 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 Station. ARTICLE X TERMINATION 10.1 RIGHT OF TERMINATION. This Agreement may be terminated prior to Closing: (a) By written agreement of Seller 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 the other party; or (ii) Closing does not occur within eighteen (18) months after the date hereof. (c) By Buyer as provided in Section 6.6(b). Buyer agrees that in the event (i) the conditions precedent under Article VI (excluding Section 6.7) have been satisfied, (ii) Seller is ready, willing and able to satisfy the condition under Section 6.7, and (iii) Buyer nevertheless fails or refuses to perform its obligation to close under this Agreement, Buyer shall be in material breach of this Agreement. 10.2 OBLIGATIONS UPON TERMINATION. (a) Upon termination of this Agreement, each party shall thereafter remain liable for (i) breach of this Agreement prior to such termination and (ii) payment and performance of the party's obligations under Sections 5.8, 5.9, and 13.2 and under Article IX and this Article X, which in each case shall survive termination of this Agreement; provided, however, that if 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). (b) If this Agreement is terminated prior to Closing for any reason other than by Seller pursuant to Section 10.1(b)(i) as a result of a material breach by Buyer under this Agreement, Buyer shall be entitled to the return of the Earnest Money, in which case Buyer and Seller 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. 37 44 (c) If Closing shall not have occurred because of a material breach by Buyer under this Agreement, Seller's sole remedy at law or in equity under this Agreement shall be (i) the termination by Seller of this Agreement, and (ii) the recovery from Buyer of (A) an amount equal to the Earnest Money (the "Seller's Liquidated Damage Amount") and (B) Seller's reasonable attorneys' fees and other costs of collection incurred by Seller in enforcing its right to recover Seller's Liquidated Damage Amount (such fees and other costs herein referred to as "Seller's Enforcement Costs"). In the event of such termination by Seller, Seller shall be entitled to receive the Earnest Money in payment of Seller's Liquidated Damage Amount, and Buyer and Seller shall cooperate in taking such action as required under the Escrow Agreement to effect the Escrow Agent's distribution of the Earnest Money to Seller. Seller shall also be entitled to pursue any other remedy available to Seller at law or in equity to recover the entire Seller's Liquidated Damage Amount and Seller's Enforcement Costs, provided that the total monetary damages (including any amount received from the Escrow Agent under the Escrow Agreement) to which Seller shall be entitled shall not exceed the sum of Seller's Liquidated Damage Amount plus Seller's Enforcement Costs. BUYER ACKNOWLEDGES AND AGREES THAT SELLER'S RECEIPT OF SELLER'S LIQUIDATED DAMAGE AMOUNT SHALL CONSTITUTE PAYMENT OF LIQUIDATED DAMAGES HEREUNDER AND NOT A PENALTY AND THAT SELLER'S 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 the notice is given. If at the time a party gives a termination notice, the party is entitled to give the notice pursuant to more than one Subsection of Section 10.1, the Subsection pursuant to which the notice is given and termination is effected shall be deemed to be the Subsection specified in the notice provided that the party giving the notice is at such time entitled to terminate this Agreement pursuant to the specified Subsection. ARTICLE XI CONTROL OF STATION Between the date of this Agreement and the Closing Date, Buyer shall not control, manage or supervise the operation of the Station or the conduct of its business, all of which shall remain the sole responsibility and under the control of Seller, subject to Seller's compliance with this Agreement. 38 45 ARTICLE XII EMPLOYMENT MATTERS 12.1 TRANSFER OF EMPLOYEES. (a) Seller and Buyer shall cooperate in arranging a presentation by the Chairman of Buyer to Seller's employees promptly after the date of this Agreement. The form and substance of the presentation shall be subject to the approval of both Seller and Buyer, which shall not be unreasonably withheld. In addition, at such time as Seller in its sole and absolute discretion shall permit but in no event earlier than sixty (60) days before the projected Closing Date, Buyer may interview employees of Seller who perform services principally for the Station (excluding the employees identified on Schedule 12.1) for the purpose of selecting those employees to whom Buyer desires to offer employment effective immediately after Closing (such employees who are given and accept such offers of employment are referred to herein as the "Transferred Employees"). Seller agrees to cooperate fully with Buyer in connection with Buyer's interviewing and offering to hire any such employees, and Seller shall not take any action, directly or indirectly, to prevent any such employee from becoming employed by Buyer from and after the Closing; provided, however, that (i) all such offers of employment shall be expressly conditioned upon the occurrence of Closing, and (ii) if this Agreement is terminated, Buyer shall not, for a period of two years after such termination, employ or solicit the employment of any person employed by Seller at the Station at any time during the six-month period preceding such termination. (b) Seller 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 of any Station employee before, upon or after Closing, 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 under any Benefit Plan as a result of or in connection with such termination, 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 shall pay, discharge and be solely responsible for all liabilities, obligations, costs and expenses of Buyer 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 any such liabilities are included as an Assumed Obligation pursuant to Section 2.3(a)(ii) in determining the Adjustment Amount. 12.2 EMPLOYEE BENEFIT PLANS. (a) Buyer shall not acquire any rights or interest in, or assume or have any obligations or liabilities under, any of the Benefit Plans, and Seller or the Benefit Plans, as applicable, will retain all assets and liabilities under the Benefit Plans. Seller 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. (b) Solely for purposes of determining the eligibility of any Transferred Employee not covered by the Assumed Plans to participate in, and for purposes of determining the vesting of any amounts that may accrue to each such Transferred Employee under, any pension or profit sharing plan of Buyer applicable to persons 39 46 employed at the Station after Closing, Buyer shall for each such plan of Buyer take into account and give credit of one year for each two full years of service of each such Transferred Employee with Seller immediately prior to the Closing, to the extent such service is required to be taken into account under such pension or profit sharing plan of Buyer. Buyer shall not be required to take into account the length of service of any such Transferred Employee with Seller for any other purpose in connection with such Transferred Employee's participation in any pension or profit sharing plan of Buyer, including, without limitation, the determination of the amount of benefits accrued to such Transferred Employee thereunder. (c) Solely for purposes of determining the eligibility of any Transferred Employee not covered by the Assumed Plans to participate in the group insurance plans of Buyer after Closing, Buyer shall take into account and give credit for the period of service of each such Transferred Employee with Seller immediately prior to Closing to the extent such service is required to be taken into account under the comparable plan of Buyer, provided that Buyer shall not be obligated to provide immediate coverage for pre-existing conditions. Buyer shall, however, use reasonable efforts to provide immediate coverage for pre-existing conditions with respect to each such Transferred Employee, provided that such reasonable efforts shall not include the incurrence of material cost or liability on the part of Buyer. 12.3 EMPLOYMENT AGREEMENTS. Buyer acknowledges and agrees that Buyer's obligations under this Article XII are in addition to and not in limitation of Buyer's obligation to assume, as and to the extent prescribed in Section 2.3(a), the employment agreements set forth in Schedule 3.7(b). 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 Seller and fifty percent (50%) by Buyer, provided that any Transfer Taxes (including, but not limited to, any Florida documentary stamp tax imposed as a result of Buyer's grant of a mortgage or security interest with respect to any of the Sale Assets) shall be borne by Buyer. All other Taxes shall be paid by the party primarily liable under applicable law to pay such Tax. (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. 40 47 13.3 SPECIFIC PERFORMANCE. Seller acknowledges that the Station is of a special, unique and extraordinary character, and that damages alone are an inadequate remedy for a breach of this Agreement by Seller. Accordingly, as an alternative to termination of this Agreement under Section 10.1, Buyer shall be entitled, in the event of Seller's breach, to enforcement of this Agreement (subject to obtaining any required approval of the FCC or the Department of Justice) by a decree of specific performance or injunctive relief requiring Seller to fulfill its 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 Seller's breach. In any action to specifically enforce Seller's obligation to close the transactions contemplated by this Agreement, Seller 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 Seller's 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 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 Communications Corporation One Emmis Plaza 40 Monument Circle, Suite 700 Indianapolis, IN 46204 Attention: Jeffrey H. Smulyan, Chairman Copy to: Bose McKinney & Evans LLP 2700 First Indiana Plaza 135 North Pennsylvania Street Indianapolis, IN 46204 Attention: David L. Wills (b) If to Seller, to: Press Communications, LLC 1350 Campus Parkway, Suite 106 Wall, NJ 07753 Attention: Alfred D. Colantoni Copy to: Witman, Stadtmauer & Michaels, P.A. 26 Columbia Turnpike Florham Park, NJ 07932 Attention: Eric J. Michaels, Esq. 41 48 or to such other address as a party may from time to time give notice to 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 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 d irect 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 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 for performance of all of Buyer's obligations under this Agreement, (iii) such assignment shall not materially delay issuance of the FCC Order, and (iv) 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. 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. 42 49 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. Unless otherwise specified in this Agreement, each of the Schedules referenced in this Agreement is attached to, and is incorporated by reference into, this Agreement. Executed as of the date first written above. PRESS COMMUNICATIONS, LLC By:_______________________________ Printed:__________________________ Its:______________________________ EMMIS COMMUNICATIONS CORPORATION By:_______________________________ Printed:__________________________ Its:______________________________ 43 EX-10.2 5 EMPLOYMENT AGREEMENT EFFECTIVE 3/1/99 1 EXHIBIT 10.2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of March 1, 1999, by and between EMMIS COMMUNICATIONS CORPORATION, an Indiana corporation (the "Employer"), and DOYLE L. ROSE, a California resident (the "Executive"). RECITALS WHEREAS, Employer and its subsidiaries are engaged in the ownership and operation of various radio and television stations, magazines, and related operations (together, the "Emmis Group"); WHEREAS, Executive is presently employed by Employer pursuant to an oral agreement entered into upon the expiration of Executive's prior employment agreement on February 28, 1998; WHEREAS, Employer desires to continue to employ Executive as an executive pursuant to a written agreement, and Executive desires to be so employed; and WHEREAS, Employer and Executive agree to memorialize the terms of their relationship herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing, the mutual promises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows: 1. EMPLOYMENT. Upon the terms and subject to the conditions of this Agreement, Employer hereby employs Executive and Executive hereby accepts employment by the Employer. This Agreement supersedes the March 1, 1995 Employment Agreement and any subsequent oral understandings, representations or agreements between the parties. 2. TERM. The term of Executive's employment hereunder (the "Term") shall commence on March 1, 1999 and continue until February 28, 2001, unless terminated earlier in accordance with the provisions herein. As used herein, the term "Contract Year" means the twelve (12) month period commencing on March 1, 1999 and on each anniversary thereof. 3. EXECUTIVE'S POSITION, DUTIES, AND AUTHORITY. 1 2 3.1 POSITION. Employer shall employ Executive, and Executive shall serve as an executive of Employer and of any successor by merger, acquisition of substantially all of the assets or stock of Employer or otherwise. Executive shall serve as Radio Division President of Employer or in such other position or positions to which the Board of Directors of Employer (the "Board") shall, with Executive's consent, appoint Executive; provided, however, that in the case of any merger involving Employer, acquisition of substantially all of the assets or outstanding stock of Employer or any substantial and material change in the business of Employer, the Board may change Executive's title or duties without Executive's consent so long as Executive's duties are not substantially diminished in importance. 3.2 DUTIES AND AUTHORITY. Executive shall have executive duties, functions, authority and responsibilities commensurate with the office or offices he from time to time holds with Employer. Subject to any change pursuant to Section 3.1, Executive's duties, functions, authority and responsibilities hereunder shall be substantially the same as or greater than the duties, functions, authority and responsibilities held by Executive immediately prior to the date hereof. 3.3 EMMIS GROUP DIRECTORSHIPS AND OFFICES. If Executive is elected as a director of Employer, Executive shall serve in such position without additional remuneration other than the indemnification provided for in Section 10 hereof. Executive shall also serve without additional remuneration as a director and/or officer of one or more of Employer's subsidiaries if appointed to such position by Employer. 4. FULL-TIME SERVICES. Executive's services hereunder shall be performed on a full-time basis in a diligent and competent fashion to the best of his abilities. Executive shall not undertake any outside employment or outside business activities without the consent of the Board; provided, however, that subject to satisfaction of his obligations under the preceding sentence, Executive shall be allowed to (i) manage his personal, financial and legal affairs and (ii) serve on civic or charitable boards or committees. 2 3 5. LOCATION OF EMPLOYMENT. Unless Executive consents otherwise in writing, the headquarters for performance of his services hereunder shall be the offices designated by Employer in or near Los Angeles, California, and Executive shall not be required to relocate his office outside the metropolitan area of Los Angeles, California, subject to such reasonable travel as the performance of Executive's duties in the business of the Emmis Group may require. 6. BASE COMPENSATION. 6.1 BASE SALARY. During each Contract Year hereunder, Employer shall pay or cause to be paid to Executive a base salary per annum (the "Base Salary") of Four Hundred Thirty Three Thousand Dollars ($433,000.00), payable in bi-weekly installments. 6.2 CAR ALLOWANCE. During the Term, Executive shall receive a car allowance paid monthly in the same amount as received by Executive in the month immediately prior to the effective date of this Agreement. 7. ADDITIONAL COMPENSATION. 7.1 SIGNING BONUS. Executive is entitled to a cash signing bonus (the "Signing Bonus") in the amount of Three Hundred Thousand Dollars ($300,000.00), payable in two (2) equal installments prior to the execution of this Agreement. By signing below, Executive acknowledges and confirms receipt of both installments of the Signing Bonus. 7.2 CASH INCENTIVE COMPENSATION. Employer shall establish a Target Bonus Plan ("TBP") pursuant to which it shall pay an annual cash bonus to Executive with respect to a particular Contract Year if Executive's performance justifies such a bonus. Executive shall be entitled to receive an annual cash bonus up to a maximum of One Hundred Fifty Thousand Dollars ($150,000.00) each Contract Year (the "Bonus") in an amount to be determined by the Compensation Committee of the Board of Directors (the "Compensation Committee") based on Executive's performance during the Contract Year compared to performance criteria established by the Compensation Committee from time to time. Employer shall have the right to modify the TBP from time to time. 7.3 EQUITY-BASED INCENTIVE COMPENSATION. (a) Executive has been granted options (the "Executive Options") to acquire one hundred fifty thousand (150,000) shares of Class A Common Stock of Employer at an exercise price per share equal to $40.00 (subject to adjustment for stock splits and stock dividends) pursuant to Employer's 1997 Equity Incentive Plan (the "Plan"). Executive Options for 25,000 shares were forfeited on February 28, 1999, for failure to meet relevant Broadcast Cash Flow Targets. (b) The Executive Options shall be subject to further forfeiture as follows (and shall not be exercisable until all risk of forfeiture has expired): 3 4 (1) Executive Options for 50,000 shares shall be forfeited on each of February 29, 2000 and February 28, 2001, in each case if as of such date Executive is not still an employee of Employer on such date or has not performed under this Agreement. (2) Executive Options for an additional 10,000 shares shall be forfeited on each of February 29, 2000 and February 28, 2001, in each case if as of such date the Broadcast Cash Flow (as defined by Employer for purposes of its financial reports under the Securities Exchange Act of 1934, as amended) for Employer's radio station properties, excluding any radio station properties licensed outside the United States, for the Contract Year concluding on such date (the "Actual Annual Domestic Radio BCF") is not at least 10.0% greater than the budgeted target determined in advance by the Compensation Committee (the "Annual Target BCF"). (3) Executive Options for an additional 7,500 shares shall be forfeited on each of February 29, 2000 and February 28, 2001, in each case if as of such date the Actual Annual Domestic Radio BCF is not at least 5.0% greater than the Annual Target BCF. (4) Executive Options for an additional 7,500 shares shall be forfeited on each of February 29, 2000 and February 28, 2001, in each case if as of such date the Actual Annual Domestic Radio BCF is not at least 2.5% greater than the Annual Target BCF. (c) The Annual Target BCF for the Contract Year ending February 28, 2000 is $82,540,000. The Compensation Committee shall set the Annual Target BCF for the following Contract Year prior to the commencement of such Contract Year after consulting with Executive and reviewing Employer's annual budgets for the Radio Division prepared for such Contract Year. (d) Each Executive Option (i) shall become first exercisable on the thirtieth (30th) day following (A) the date of Executive's death during the term of this Agreement or (B) May 30, 2001, if Executive has either completed the entire two-year term of this Agreement and is still an employee of Employer on February 28, 2001, or has become disabled within the meaning of Section 14.2; (ii) shall have a term of five (5) years following the date it becomes first exercisable (except as otherwise provided in the Plan, including without limitation the provisions of Section 18(b) thereof); (iii) shall not be exercisable if Executive has not (A) completed the entire two-year term of this Agreement and is not an employee of Employer on February 28, 2001, (B) died during the term of 4 5 this Agreement, or (C) become disabled within the meaning of Section 14.2; (iv) shall permit, at the election of Executive, payment of the exercise price in any one or combination of (A) cash or (B) Class A Common Stock of Employer owned by Executive valued on the business day preceding the date of exercise at its Fair Market Value (as defined in the Plan); (v) shall be evidenced by a written grant agreement executed on behalf of Employer on the date of grant; and (vi) shall be exercisable for Class A Common Stock, without restrictive legends on the certificates therefor other than those appearing on the Class A Common Stock generally. 7.4 PERFORMANCE-BASED COMPENSATION. It is the intent of Employer and Executive that all compensation paid pursuant to Sections 7.2 and 7.3 of this Agreement will be performance-based compensation which will qualify under Section 162(m) of the Internal Revenue Code of 1986, as amended, to be deducted by Employer, and all provisions in Sections 7.2 and 7.3 will be construed to permit the compensation paid thereunder to so qualify. 7.5 STOCK GRANT. If Executive completes the entire two-year Term and is still an employee of Employer on February 28, 2001, or if Executive dies during the Term, Executive will be entitled to a grant of Fifteen Thousand Four Hundred (15,400) shares of Class A Common Stock of Employer (the "Stock Grant"). Employer, at its option, may pay the Stock Grant in Common Stock or in cash. If the Stock Grant is paid in cash, such cash payment shall be an amount equal to the Fair Market Value of the Stock Grant on the business day immediately preceding the payment date. 8. EXPENSES. Employer shall pay or reimburse Executive for all reasonable expenses actually incurred or paid by Executive during the term of this Agreement in the performance of Executive's services hereunder upon presentation of expense statements or vouchers or such other supporting information as Employer may reasonably require of Executive. 9. VACATION AND OTHER BENEFITS. Executive shall be entitled to twenty-five (25) business days of paid vacation per Contract Year (accruing at the rate of 2-1/2 days per month for purposes of calculating payments on termination of employment) which days shall not be cumulative. During the term of this Agreement, Executive shall be eligible to participate in any pension or profit-sharing plan or program of Employer now or hereafter existing in accordance with and to the extent that he is eligible under the general provisions thereof. Executive shall also be eligible to participate in any group life insurance, hospitalization, medical, health and accident, disability or similar plan or program of Employer, now or hereafter existing in accordance with and to the extent that he is eligible under the general provisions thereof. 10. INDEMNIFICATION. Executive shall be entitled in connection with his employment 5 6 hereunder to the benefit of the indemnification provisions contained in Employer's Amended and Restated Articles of Incorporation or By-Laws or any corporate resolution, as the same may be amended from time to time (not including any amendments or additions that limit or narrow, but including any that add to or broaden, the protection afforded to Executive), to the fullest extent permitted by applicable law. Employer shall in addition cause Executive to be indemnified in accordance with Chapter 37 of the Indiana Business Corporation Law, as the same may be amended from time to time, to the fullest extent permitted by such chapter, to the extent required to make Executive whole in connection with any loss, cost or expense indemnifiable thereunder. Executive shall be insured under the Employer's Director's and Officer's Liability Insurance Policy as in effect from time to time. Notwithstanding any other provision of this Agreement to the contrary, any termination of Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 10. 11. CONFIDENTIAL INFORMATION. 11.1 NON-DISCLOSURE. Executive acknowledges that certain information concerning the business of Employer is of a confidential nature and that as a result of his employment with Employer, Executive may have received or may hereafter receive confidential information concerning the business of Employer or its subsidiaries which, if known to competitors of Employer, would damage Employer, its subsidiaries or their respective businesses. Executive agrees that during the term of this Agreement and for a period of one (1) year from the termination of this Agreement, by expiration or otherwise (such additional one (1) year period, the "Applicable Period"), Executive will not divulge or appropriate to his own use, or to the use of any third party (other than Employer and its representatives or as directed in writing by Employer), any information or knowledge concerning the business of Employer or its subsidiaries which is not generally available to the public other than through the activities of Executive. Executive further agrees that upon termination of his employment for any reason, Employee will surrender to Employer all documents, brochures, writings, illustrations, price lists, marketing plans, budgets and other such materials which he received from or developed on behalf of Employer through his employment. Executive acknowledges that all such materials are at all times property of Employer. 11.2 INJUNCTIVE RELIEF. Executive acknowledges that his breach of Section 11.1 will cause irreparable injury and damage to Employer, the exact amount of which will be difficult to ascertain, that the remedies at law for any such breach would be inadequate, and that the provisions of this Section 11 have been negotiated and written to prevent such irreparable injury and damage. Accordingly, if Executive breaches Section 11.1, then 6 7 Employer shall be entitled to injunctive relief enforcing Section 11.1 to the extent reasonably necessary to protect Employer's legitimate interests, without posting bond or other security. If Executive violates Section 11.1 and Employer brings legal action for injunctive or other relief, Employer shall not, as a result of the time involved in obtaining such relief, be deprived of the benefit of the full period of non-disclosure set forth herein. Accordingly, the obligations set forth in Sections 11.1 shall be deemed to have the duration set forth therein, computed from the date such relief is granted but reduced by the time expired between the date the Applicable Period began to run and the date of the first violation of the covenants by Executive. 12. NON-INTERFERENCE AND NON-COMPETITION. 12.1 NON-INTERFERENCE. During the term of this Agreement and for the Applicable Period, Executive will not, directly or indirectly, take any action (or permit any action to be taken by an entity with which he is associated) which has the effect of interfering with (i) on-air talent of Employer or its subsidiaries or (ii) any other employee of Employer. Without limiting the generality of the foregoing, Executive specifically agrees that during the term of this Agreement and for the Applicable Period neither he nor any entity with which he is associated shall hire or engage any on-air talent of Employer or any other employee of Employer to provide services for any other business or solicit them to cease their employment with Employer. 12.2 NON-COMPETITION (DURING EMPLOYMENT). During the term of this Agreement, Executive will not, without the prior written approval of the Board, engage directly or indirectly in, or become employed by, serve as an agent or consultant to or become an officer, director, partner, principal or shareholder of any corporation, partnership or other entity which is engaged in the radio broadcasting business in any ADI radio market in which any member of the Emmis Group owns, operates or has an interest in (or has owned, operated or had an interest in) any broadcasting station at such time or at any time during the preceding two (2) years. As long as Executive does not engage in any other activity prohibited by the immediately preceding sentence, Executive's ownership of less than five percent (5%) of the issued and outstanding stock of any corporation whose stock is traded on an established securities market shall not constitute competition with Employer for the purpose of this Section 12.2. 12.3 NON-COMPETITION (POST-EMPLOYMENT). During the Applicable Period, Executive will not, without the prior written approval of the Board, engage directly or indirectly in, or become employed by, serve as an agent or consultant to or become an officer, director, partner, principal or shareholder of any corporation, partnership or other 7 8 entity which is engaged in the radio broadcasting business in any ADI radio market in which any member of the Emmis Group owns, operates or has an interest in (or has owned, operated or had an interest in) any broadcasting station at such time or at any time during the preceding two (2) years. As long as Executive does not engage in any other activity prohibited by the immediately preceding sentence, Executive's ownership of less than five percent (5%) of the issued and outstanding stock of any corporation whose stock is traded on an established securities market shall not constitute competition with Employer for the purpose of this Section 12.3. 12.4 INJUNCTIVE RELIEF. Executive acknowledges and agrees that the provisions of this Section 12 have been specifically negotiated and carefully worded in recognition of the opportunities which will be afforded to Executive by Employer by virtue of his continued association with Employer, and the influence that Executive will have over Employer's employees, customers and suppliers by virtue of Executive's relationships with such persons. Executive further acknowledges that his breach of Section 12.1, 12.2 or 12.3 will cause irreparable injury and damage to Employer, the exact amount of which will be difficult to ascertain, that the remedies at law for any such breach would be inadequate, and that the provisions of this Section 12 have been negotiated and written to prevent such irreparable injury and damage. Accordingly, if Executive breaches Section 12.1, Section 12.2 or Section 12.3, then Employer shall be entitled to injunctive relief enforcing Section 12.1, 12.2 or 12.3, as the case may be, to the extent reasonably necessary to protect Employer's legitimate interests, without posting bond or other security. If Executive violates Section 12.1 or 12.3 and Employer brings legal action for injunctive or other relief, Employer shall not, as a result of the time involved in obtaining such relief, be deprived of the benefit of the full period of non-interference or non-competition set forth herein. Accordingly, the obligations set forth in Sections 12.1 and 12.3 shall be deemed to have the duration set forth therein, computed from the date such relief is granted but reduced by the time expired between the date the Applicable Period began to run and the date of the first violation of the covenants by Executive. 12.5 CONSTRUCTION. In the event that, despite the express agreement herein of Employer and Executive, any provisions of this Section shall be determined by any court or other tribunal of competent jurisdiction to be unenforceable for any reason whatsoever, the parties agree that this Section 12 shall be interpreted to extend only to the maximum extent as to which it may be enforceable, and that the Section shall be severable into its component parts, all as determined by such court or tribunal. 13. TERMINATION OF AGREEMENT BY EMPLOYER FOR CAUSE. 8 9 13.1 TERMINATION. Employer may, by action of the Board, terminate Executive's employment hereunder for Cause (as defined in Section 13.3 below) in accordance with the terms and conditions of this Section. Following a determination by the Board that Executive should be terminated for Cause, Employer shall give written notice (the "Preliminary Notice") to Executive specifying the grounds for such termination, and Executive shall have ten (10) days after receipt of the Preliminary Notice to respond. If following expiration of such ten (10) day period the Board reaffirms its determination that Executive should be terminated for Cause, such termination shall be effective upon delivery by Employer to Executive of a final notice of termination (the "Final Notice"). 13.2 EFFECT OF TERMINATION. In the event of termination for Cause as provided in Section 13.1 above: (i) Executive shall have no further obligations or liabilities hereunder except his obligations under Sections 11 and 12, which shall survive such termination of this Agreement. (ii) Employer shall have no further obligations or liabilities hereunder, except that Employer shall, not later than two (2) weeks after the termination date: (A) Pay to Executive all unpaid Base Salary with respect to any period ending on or before the termination date, plus the compensation equivalent of all unused vacation days earned in the then current Contract Year prior to the termination date; and (B) Pay to Executive any Bonus which may have been earned for a Contract Year ending on or prior to the termination date pursuant to Section 7.2 but which is unpaid as of the termination date. 13.3 DEFINITION OF CAUSE. As used herein, "Cause" means either (i) action by Executive involving willful or repeated failure, neglect or refusal to perform any material obligation under this Agreement (or any duties assigned to Executive consistent with the terms of this Agreement) at the time and in the manner set forth herein (or in such assignment), and continuation of such breach after written notice and the expiration of a thirty (30) day cure period (provided, however, that it is not the parties' intention that Employer shall be required to provide successive such notices to Executive, and in the event Employer has provided Executive with a notice and opportunity to cure pursuant to this clause, it may terminate this Agreement for a subsequent breach similar or related to the breach for which notice was previously given or for a continuing series or pattern of breaches (whether or not similar or related) without providing notice or an opportunity to 9 10 cure pursuant to this clause, it may terminate this Agreement for a subsequent breach similar or related to the breach for which notice was previously given or for a continuing series or pattern of breaches (whether or not similar or related) without providing notice or an opportunity to cure); or (ii) Executive's commission of a felony involving moral turpitude or Executive's action, knowing allowance of actions, or omissions which are in violation of the Communications Act of 1934, as amended, or the rules and regulations of the Federal Communications Commission (the "FCC") or which otherwise jeopardize the FCC licenses granted to Employer or its subsidiaries. 14. DISABILITY. 14.1 TERMINATION OF EMPLOYMENT. If Executive shall become Disabled (as defined in Section 14.2), Employer shall continue to compensate Executive under the terms of this Agreement without diminution and otherwise without regard to such disability or nonperformance of duties, until Executive has been disabled for a cumulative period of six (6) months, at which time Executive's employment shall automatically terminate on the last day of such six (6) month period. The date that Executive's employment terminates pursuant to this section is referred to herein as the "Disability Termination Date." 14.2 DISABILITY DEFINITION. Executive shall be deemed to have become "Disabled" for purposes of this Agreement if, during the term of this Agreement, because of ill health, physical or mental disability or for other causes beyond his control he shall have been unable or unwilling or shall have failed to perform his duties hereunder, as determined by the written opinion of an independent medical physician designated by Employer and reasonably acceptable to Executive. 14.3 OBLIGATIONS AFTER TERMINATION. Unless Employer exercises its option under Section 14.6 below to reinstate Executive to his full compensation, duties, functions, responsibilities and authority hereunder for the then balance of the original term of this Agreement, Executive shall have no further obligations or liabilities hereunder after a Disability Termination Date except his obligations under Sections 11 and 12 which shall survive. After a Disability Termination Date, Employer shall have no further obligations or liabilities hereunder except its obligations under Sections 10, 14.4, 14.5 and 14.6 below which shall survive. 14.4 PAYMENT OF UNPAID SALARY AFTER TERMINATION. Employer shall, not later than two (2) weeks after a Disability Termination Date, pay to Executive all unpaid Base Salary with respect to any period ending on or before the Disability Termination Date, plus the compensation equivalent of all unused vacation days earned in the then current Contract Year prior to the Disability Termination Date. 14.5 POST-TERMINATION COMPENSATION. Following a Disability Termination Date: (i) Employer shall pay to Executive in bi-weekly payments during each Contract 10 11 Year or partial Contract Year remaining under this Agreement an amount equal to fifty percent (50%) of the Base Salary for such Contract Year or partial Contract Year, and (ii) notwithstanding anything to the contrary contained in Section 7, Executive shall be entitled to retain, for the Contract Year in which the Disability Termination Date occurs, fifty percent (50%) of the Executive Options Executive would have otherwise been entitled to retain, after application of the forfeitures described in Sections 7.3(b)(1) through (4), had Executive been employed by Employer on the last day of the Contract Year in which the Disability Termination Date occurs. Executive Options for 50,000 shares shall be forfeited for the Contract Year subsequent to the Contract Year in which the Disability Termination Date occurs. The benefits required to be paid under this Section 14.5 (beginning with the Base Salary amount) shall be reduced by the amount of any benefits payable to Executive under any group or individual disability insurance plan or policy, the premiums for which are paid by Employer. 14.6 REINSTATEMENT. If during the original term of this Agreement and subsequent to a Disability Termination Date, Executive shall fully recover from a disability, Employer shall have the right (exercisable within sixty (60) days after written notice from Executive of such recovery), but not the obligation, to reinstate Executive to employment hereunder for the then balance of the original term of this Agreement. In the event of such reinstatement, Employer shall pay Executive at his full level of compensation hereunder and otherwise employ Executive in accordance with the terms and provisions of this Agreement, and Executive shall be considered to have performed under this Agreement during the period between the Disability Termination Date and the date of such reinstatement for purposes of Section 7.3 and any restricted stock bonus awards or Executive Options granted thereunder. 15. DEATH OF EXECUTIVE. 15.1 TERMINATION OF AGREEMENT. This Agreement shall terminate upon Executive's death. In the event of such termination, Employer shall have no further obligations or liabilities hereunder (including, but not limited to, any obligation to make payments under Section 14 for any period after Executive's date of death) except its obligations under Section 15.2 below which shall survive such termination. 15.2 COMPENSATION. Upon Executive's death, Employer shall, not later than two (2) weeks after Executive's date of death: (i) Pay to Executive's estate or designated beneficiary all unpaid Base Salary with respect to any period ending on or before Executive's date of death, plus the 11 12 compensation equivalent of all unused vacation days earned in the then current Contract Year prior to the termination date; and (ii) Pay to Executive's estate or designated beneficiary the Stock Grant to the extent required under Section 7.5. 15.3 NO REDUCTION. Amounts payable pursuant to this Section shall not be reduced by the value of any benefits payable to the Executive's estate or designated beneficiary under any life insurance plan or policy. 15.4 DEATH AFTER TERMINATION. In the event Executive dies after termination of this Agreement pursuant to Sections 13 or 14, all amounts required to be paid by Employer prior to Executive's death in connection with such termination that remain unpaid as of Executive's date of death shall be paid to Executive's estate or designated beneficiary. 16. NO MITIGATION REQUIRED. Executive shall not be required to mitigate any damages suffered by him by reason of Employer's breach hereof. No amounts payable to Executive by reason of the termination of his employment hereunder shall be subject to reduction or offset, or otherwise diminished, by reason of any other compensation received by Executive. 17. NOTICES. All notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered personally or sent by prepaid telegram, or mailed first-class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith): (a) If to Employer: Emmis Communications Corporation One Emmis Plaza, 7th Floor 40 Monument Circle Indianapolis, Indiana 46204 Attn.: Board of Directors (b) If to Executive, to him at his address on the personnel records of Employer. 18. GENERAL. 18.1 GOVERNING LAW. Employer and Executive acknowledge that Employer is based in Indiana and that Executive, while maintaining an office in California at Executive's request, travels extensively throughout the United States in the course of his duties for Employer. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Indiana. Employer and Executive agree that any and all actions or suits in connection with, arising out of or related to this 12 13 Agreement or Executive's employment with Employer will be litigated only in courts of record located in Marion County, Indiana, and Employer and Executive each (i) consent and submit to the personal jurisdiction of any state or federal court located within Marion County, Indiana, (ii) waive any right to transfer or change the venue of any such litigation to a court located outside Marion County, Indiana and (iii) agree to service of process, to the extent permitted by law, by registered or certified mail, return receipt requested, addressed to such party's address as determined pursuant to Section 17 of this Agreement. Each of the agreements in this Section 18.1 is irrevocable to the fullest extent permitted by applicable law. 18.2 CAPTIONS. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 18.3 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties. 18.4 SUCCESSORS AND ASSIGNS. This Agreement, and Executive's rights and obligations hereunder, may not be assigned by Executive, except that Executive may designate pursuant to Section 18.6 one or more beneficiaries to receive any amounts that would otherwise be payable hereunder to Executive's estate. 18.5 AMENDMENTS; WAIVERS. This Agreement cannot be changed, modified or amended, and no provision or requirement hereof may be waived, without the consent in writing of Executive and Employer. The failure of a party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce such provision. No waiver by a party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach or a waiver of the breach of any other term or covenant contained in this Agreement. 18.6 BENEFICIARIES. Whenever this Agreement provides for any payment to Executive's estate, such payment may be made instead to such beneficiary or beneficiaries as Executive may have designated in a writing filed with Employer. Executive shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to Employer (and to any applicable insurance company). 18.7 SEVERABILITY. If any provision of this Agreement shall be declared invalid or unenforceable, the remainder of this Agreement will continue in full force and effect so far as the intent of the parties can be carried out. 13 14 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. EMMIS COMMUNICATIONS CORPORATION By: --------------------------------- Jeffrey H. Smulyan Chairman of the Board and Chief Executive Officer "Employer" -------------------------------- Doyle L. Rose "Executive" 14 EX-10.3 6 EMPLOYMENT AGREEMENT EFFECTIVE 3/1/99 1 EXHIBIT 10.3 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of March 1, 1999, by and between EMMIS COMMUNICATIONS CORPORATION, an Indiana corporation (the "Employer"), and RICHARD F. CUMMINGS, a California resident (the "Executive"). RECITALS WHEREAS, Employer and its subsidiaries are engaged in the ownership and operation of various radio and television stations, magazines, and related operations (together, the "Emmis Group"); WHEREAS, Executive is presently employed by Employer pursuant to an oral agreement entered into upon the expiration of Executive's prior employment agreement on February 28, 1998; WHEREAS, Employer desires to continue to employ Executive as an executive pursuant to a written agreement, and Executive desires to be so employed; and WHEREAS, Employer and Executive agree to memorialize the terms of their relationship herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing, the mutual promises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows: 1. EMPLOYMENT. Upon the terms and subject to the conditions of this Agreement, Employer hereby employs Executive and Executive hereby accepts employment by the Employer. This Agreement supersedes the March 1, 1995 Employment Agreement and any subsequent oral understandings, representations or agreements between the parties. 2. TERM. The term of Executive's employment hereunder (the "Term") shall commence on March 1, 1999 and continue until February 28, 2001, unless terminated earlier in accordance with the provisions herein. As used herein, the term "Contract Year" means the twelve (12) month period commencing on March 1, 1999 and on each anniversary thereof. 3. EXECUTIVE'S POSITION, DUTIES, AND AUTHORITY. 1 2 3.1 POSITION. Employer shall employ Executive, and Executive shall serve as an executive of Employer and of any successor by merger, acquisition of substantially all of the assets or stock of Employer or otherwise. Executive shall serve as Executive Vice President-Programming of Employer or in such other position or positions to which the Board of Directors of Employer (the "Board") shall, with Executive's consent, appoint Executive; provided, however, that in the case of any merger involving Employer, acquisition of substantially all of the assets or outstanding stock of Employer or any substantial and material change in the business of Employer, the Board may change Executive's title or duties without Executive's consent so long as Executive's duties are not substantially diminished in importance. 3.2 DUTIES AND AUTHORITY. Executive shall have executive duties, functions, authority and responsibilities commensurate with the office or offices he from time to time holds with Employer. Subject to any change pursuant to Section 3.1, Executive's duties, functions, authority and responsibilities hereunder shall be substantially the same as or greater than the duties, functions, authority and responsibilities held by Executive immediately prior to the date hereof. 3.3 EMMIS GROUP DIRECTORSHIPS AND OFFICES. If Executive is elected as a director of Employer, Executive shall serve in such position without additional remuneration other than the indemnification provided for in Section 10 hereof. Executive shall also serve without additional remuneration as a director and/or officer of one or more of Employer's subsidiaries if appointed to such position by Employer. 4. FULL-TIME SERVICES. Executive's services hereunder shall be performed on a full-time basis in a diligent and competent fashion to the best of his abilities. Executive shall not undertake any outside employment or outside business activities without the consent of the Board; provided, however, that subject to satisfaction of his obligations under the preceding sentence, Executive shall be allowed to (i) manage his personal, financial and legal affairs and (ii) serve on civic or charitable boards or committees. 2 3 5. LOCATION OF EMPLOYMENT. Unless Executive consents otherwise in writing, the headquarters for performance of his services hereunder shall be the offices designated by Employer in or near Los Angeles, California, and Executive shall not be required to relocate his office outside the metropolitan area of Los Angeles, California, subject to such reasonable travel as the performance of Executive's duties in the business of the Emmis Group may require. 6. BASE COMPENSATION. 6.1 BASE SALARY. During each Contract Year hereunder, Employer shall pay or cause to be paid to Executive a base salary per annum (the "Base Salary") of Four Hundred Thirty Three Thousand Dollars ($433,000.00), payable in bi-weekly installments. 6.2 CAR ALLOWANCE. During the Term, Executive shall receive a car allowance paid monthly in the same amount as received by Executive in the month immediately prior to the effective date of this Agreement. 7. ADDITIONAL COMPENSATION. 7.1 SIGNING BONUS. Executive is entitled to a cash signing bonus (the "Signing Bonus") in the amount of Three Hundred Thousand Dollars ($300,000.00), payable in two (2) equal installments prior to the execution of this Agreement. By signing below, Executive acknowledges and confirms receipt of both installments of the Signing Bonus. 7.2 CASH INCENTIVE COMPENSATION. Employer shall establish a Target Bonus Plan ("TBP") pursuant to which it shall pay an annual cash bonus to Executive with respect to a particular Contract Year if Executive's performance justifies such a bonus. Executive shall be entitled to receive an annual cash bonus up to a maximum of One Hundred Fifty Thousand Dollars ($150,000.00) each Contract Year (the "Bonus") in an amount to be determined by the Compensation Committee of the Board of Directors (the "Compensation Committee") based on Executive's performance during the Contract Year compared to performance criteria established by the Compensation Committee from time to time. Employer shall have the right to modify the TBP from time to time. 7.3 EQUITY-BASED INCENTIVE COMPENSATION. (a) Executive has been granted options (the "Executive Options") to acquire one hundred fifty thousand (150,000) shares of Class A Common Stock of Employer at an exercise price per share equal to $40.00 (subject to adjustment for stock splits and stock dividends) pursuant to Employer's 1997 Equity Incentive Plan (the "Plan"). Executive Options for 25,000 shares were forfeited on February 28, 1999, for failure to meet relevant Broadcast Cash Flow targets. (b) The Executive Options shall be subject to further forfeiture as follows (and shall not be exercisable until all risk of forfeiture has expired): 3 4 (1) Executive Options for 50,000 shares shall be forfeited on each of February 29, 2000 and February 28, 2001, in each case if as of such date Executive is not still an employee of Employer on such date or has not performed under this Agreement. (2) Executive Options for an additional 10,000 shares shall be forfeited on each of February 29, 2000 and February 28, 2001, in each case if as of such date the Broadcast Cash Flow (as defined by Employer for purposes of its financial reports under the Securities Exchange Act of 1934, as amended) for Employer's radio station properties, excluding any radio station properties licensed outside the United States, for the Contract Year concluding on such date (the "Actual Annual Domestic Radio BCF") is not at least 10.0% greater than the budgeted target determined in advance by the Compensation Committee (the "Annual Target BCF"). (3) Executive Options for an additional 7,500 shares shall be forfeited on each of February 29, 2000 and February 28, 2001, in each case if as of such date the Actual Annual Domestic Radio BCF is not at least 5.0% greater than the Annual Target BCF. (4) Executive Options for an additional 7,500 shares shall be forfeited on each of February 29, 2000 and February 28, 2001, in each case if as of such date the Actual Annual Domestic Radio BCF is not at least 2.5% greater than the Annual Target BCF. (c) The Annual Target BCF for the Contract Year ending February 28, 2000 is $82,540,000. The Compensation Committee shall set the Annual Target BCF for the following Contract Year prior to the commencement of such Contract Year after consulting with Executive and reviewing Employer's annual budgets for the Radio Division prepared for such Contract Year. (d) Each Executive Option (i) shall become first exercisable on the thirtieth (30th) day following (A) the date of Executive's death during the term of this Agreement or (B) May 30, 2001, if Executive has either completed the entire two-year term of this Agreement and is still an employee of Employer on February 28, 2001, or has become disabled within the meaning of Section 14.2; (ii) shall have a term of five (5) years following the date it becomes first exercisable (except as otherwise provided in the Plan, including without limitation the provisions of Section 18(b) thereof); (iii) shall not be exercisable if Executive has not (A) completed the entire two-year term of this Agreement and is not an employee of Employer on February 28, 2001, (B) died during the term of 4 5 this Agreement, or (C) become disabled within the meaning of Section 14.2; (iv) shall permit, at the election of Executive, payment of the exercise price in any one or combination of (A) cash or (B) Class A Common Stock of Employer owned by Executive valued on the business day preceding the date of exercise at its Fair Market Value (as defined in the Plan); (v) shall be evidenced by a written grant agreement executed on behalf of Employer on the date of grant; and (vi) shall be exercisable for Class A Common Stock, without restrictive legends on the certificates therefor other than those appearing on the Class A Common Stock generally. 7.4 PERFORMANCE-BASED COMPENSATION. It is the intent of Employer and Executive that all compensation paid pursuant to Sections 7.2 and 7.3 of this Agreement will be performance-based compensation which will qualify under Section 162(m) of the Internal Revenue Code of 1986, as amended, to be deducted by Employer, and all provisions in Sections 7.2 and 7.3 will be construed to permit the compensation paid thereunder to so qualify. 7.5 STOCK GRANT. If Executive completes the entire two-year Term and is still an employee of Employer on February 28, 2001, or if Executive dies during the Term, Executive will be entitled to a grant of Fifteen Thousand Four Hundred (15,400) shares of Class A Common Stock of Employer (the "Stock Grant"). Employer, at its option, may pay the Stock Grant in Common Stock or in cash. If the Stock Grant is paid in cash, such cash payment shall be an amount equal to the Fair Market Value of the Stock Grant on the business day immediately preceding the payment date. 8. EXPENSES. Employer shall pay or reimburse Executive for all reasonable expenses actually incurred or paid by Executive during the term of this Agreement in the performance of Executive's services hereunder upon presentation of expense statements or vouchers or such other supporting information as Employer may reasonably require of Executive. 9. VACATION AND OTHER BENEFITS. Executive shall entitled to twenty-five (25) business days of paid vacation per Contract Year (accruing at the rate of 2-1/2 days per month for purposes of calculating payments on termination of employment) which days shall not be cumulative. During the term of this Agreement, Executive shall be eligible to participate in any pension or profit-sharing plan or program of Employer now or hereafter existing in accordance with and to the extent that he is eligible under the general provisions thereof. Executive shall also be eligible to participate in any group life insurance, hospitalization, medical, health and accident, disability or similar plan or program of Employer, now or hereafter existing in accordance with and to the extent that he is eligible under the general provisions thereof. 10. INDEMNIFICATION. Executive shall be entitled in connection with his employment 5 6 hereunder to the benefit of the indemnification provisions contained in Employer's Amended and Restated Articles of Incorporation or By-Laws or any corporate resolution, as the same may be amended from time to time (not including any amendments or additions that limit or narrow, but including any that add to or broaden, the protection afforded to Executive), to the fullest extent permitted by applicable law. Employer shall in addition cause Executive to be indemnified in accordance with Chapter 37 of the Indiana Business Corporation Law, as the same may be amended from time to time, to the fullest extent permitted by such chapter, to the extent required to make Executive whole in connection with any loss, cost or expense indemnifiable thereunder. Executive shall be insured under the Employer's Director's and Officer's Liability Insurance Policy as in effect from time to time. Notwithstanding any other provision of this Agreement to the contrary, any termination of Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 10. 11. CONFIDENTIAL INFORMATION. 11.1 NON-DISCLOSURE. Executive acknowledges that certain information concerning the business of Employer is of a confidential nature and that as a result of his employment with Employer, Executive may have received or may hereafter receive confidential information concerning the business of Employer or its subsidiaries which, if known to competitors of Employer, would damage Employer, its subsidiaries or their respective businesses. Executive agrees that during the term of this Agreement and for a period of one (1) year from the termination of this Agreement, by expiration or otherwise (such additional one (1) year period, the "Applicable Period"), Executive will not divulge or appropriate to his own use, or to the use of any third party (other than Employer and its representatives or as directed in writing by Employer), any information or knowledge concerning the business of Employer or its subsidiaries which is not generally available to the public other than through the activities of Executive. Executive further agrees that upon termination of his employment for any reason, Employee will surrender to Employer all documents, brochures, writings, illustrations, price lists, marketing plans, budgets and other such materials which he received from or developed on behalf of Employer through his employment. Executive acknowledges that all such materials are at all times property of Employer. 11.2 INJUNCTIVE RELIEF. Executive acknowledges that his breach of Section 11.1 will cause irreparable injury and damage to Employer, the exact amount of which will be difficult to ascertain, that the remedies at law for any such breach would be inadequate, and that the provisions of this Section 11 have been negotiated and written to prevent such irreparable injury and damage. Accordingly, if Executive breaches Section 11.1, then 6 7 Employer shall be entitled to injunctive relief enforcing Section 11.1 to the extent reasonably necessary to protect Employer's legitimate interests, without posting bond or other security. If Executive violates Section 11.1 and Employer brings legal action for injunctive or other relief, Employer shall not, as a result of the time involved in obtaining such relief, be deprived of the benefit of the full period of non-disclosure set forth herein. Accordingly, the obligations set forth in Sections 11.1 shall be deemed to have the duration set forth therein, computed from the date such relief is granted but reduced by the time expired between the date the Applicable Period began to run and the date of the first violation of the covenants by Executive. 12. NON-INTERFERENCE AND NON-COMPETITION. 12.1 NON-INTERFERENCE. During the term of this Agreement and for the Applicable Period, Executive will not, directly or indirectly, take any action (or permit any action to be taken by an entity with which he is associated) which has the effect of interfering with (i) on-air talent of Employer or its subsidiaries or (ii) any other employee of Employer. Without limiting the generality of the foregoing, Executive specifically agrees that during the term of this Agreement and for the Applicable Period neither he nor any entity with which he is associated shall hire or engage any on-air talent of Employer or any other employee of Employer to provide services for any other business or solicit them to cease their employment with Employer. 12.2 NON-COMPETITION (DURING EMPLOYMENT). During the term of this Agreement, Executive will not, without the prior written approval of the Board, engage directly or indirectly in, or become employed by, serve as an agent or consultant to or become an officer, director, partner, principal or shareholder of any corporation, partnership or other entity which is engaged in the radio broadcasting business in any ADI radio market in which any member of the Emmis Group owns, operates or has an interest in (or has owned, operated or had an interest in) any broadcasting station at such time or at any time during the preceding two (2) years. As long as Executive does not engage in any other activity prohibited by the immediately preceding sentence, Executive's ownership of less than five percent (5%) of the issued and outstanding stock of any corporation whose stock is traded on an established securities market shall not constitute competition with Employer for the purpose of this Section 12.2. 12.3 NON-COMPETITION (POST-EMPLOYMENT). During the Applicable Period, Executive will not, without the prior written approval of the Board, engage directly or indirectly in, or become employed by, serve as an agent or consultant to or become an officer, director, partner, principal or shareholder of any corporation, partnership or other 7 8 entity which is engaged in the radio broadcasting business in any ADI radio market in which any member of the Emmis Group owns, operates or has an interest in (or has owned, operated or had an interest in) any broadcasting station at such time or at any time during the preceding two (2) years. As long as Executive does not engage in any other activity prohibited by the immediately preceding sentence, Executive's ownership of less than five percent (5%) of the issued and outstanding stock of any corporation whose stock is traded on an established securities market shall not constitute competition with Employer for the purpose of this Section 12.3. 12.4 INJUNCTIVE RELIEF. Executive acknowledges and agrees that the provisions of this Section 12 have been specifically negotiated and carefully worded in recognition of the opportunities which will be afforded to Executive by Employer by virtue of his continued association with Employer, and the influence that Executive will have over Employer's employees, customers and suppliers by virtue of Executive's relationships with such persons. Executive further acknowledges that his breach of Section 12.1, 12.2 or 12.3 will cause irreparable injury and damage to Employer, the exact amount of which will be difficult to ascertain, that the remedies at law for any such breach would be inadequate, and that the provisions of this Section 12 have been negotiated and written to prevent such irreparable injury and damage. Accordingly, if Executive breaches Section 12.1, Section 12.2 or Section 12.3, then Employer shall be entitled to injunctive relief enforcing Section 12.1, 12.2 or 12.3, as the case may be, to the extent reasonably necessary to protect Employer's legitimate interests, without posting bond or other security. If Executive violates Section 12.1 or 12.3 and Employer brings legal action for injunctive or other relief, Employer shall not, as a result of the time involved in obtaining such relief, be deprived of the benefit of the full period of non-interference or non-competition set forth herein. Accordingly, the obligations set forth in Sections 12.1 and 12.3 shall be deemed to have the duration set forth therein, computed from the date such relief is granted but reduced by the time expired between the date the Applicable Period began to run and the date of the first violation of the covenants by Executive. 12.6 CONSTRUCTION. In the event that, despite the express agreement herein of Employer and Executive, any provisions of this Section shall be determined by any court or other tribunal of competent jurisdiction to be unenforceable for any reason whatsoever, the parties agree that this Section 12 shall be interpreted to extend only to the maximum extent as to which it may be enforceable, and that the Section shall be severable into its component parts, all as determined by such court or tribunal. 13. TERMINATION OF AGREEMENT BY EMPLOYER FOR CAUSE. 8 9 13.1 TERMINATION. Employer may, by action of the Board, terminate Executive's employment hereunder for Cause (as defined in Section 13.3 below) in accordance with the terms and conditions of this Section. Following a determination by the Board that Executive should be terminated for Cause, Employer shall give written notice (the "Preliminary Notice") to Executive specifying the grounds for such termination, and Executive shall have ten (10) days after receipt of the Preliminary Notice to respond. If following expiration of such ten (10) day period the Board reaffirms its determination that Executive should be terminated for Cause, such termination shall be effective upon delivery by Employer to Executive of a final notice of termination (the "Final Notice"). 13.2 EFFECT OF TERMINATION. In the event of termination for Cause as provided in Section 13.1 above: (i) Executive shall have no further obligations or liabilities hereunder except his obligations under Sections 11 and 12, which shall survive such termination of this Agreement. (ii) Employer shall have no further obligations or liabilities hereunder, except that Employer shall, not later than two (2) weeks after the termination date: (A) Pay to Executive all unpaid Base Salary with respect to any period ending on or before the termination date, plus the compensation equivalent of all unused vacation days earned in the then current Contract Year prior to the termination date; and (B) Pay to Executive any Bonus which may have been earned for a Contract Year ending on or prior to the termination date pursuant to Section 7.2 but which is unpaid as of the termination date. 13.3 DEFINITION OF CAUSE. As used herein, "Cause" means either (i) action by Executive involving willful or repeated failure, neglect or refusal to perform any material obligation under this Agreement (or any duties assigned to Executive consistent with the terms of this Agreement) at the time and in the manner set forth herein (or in such assignment), and continuation of such breach after written notice and the expiration of a thirty (30) day cure period (provided, however, that it is not the parties' intention that Employer shall be required to provide successive such notices to Executive, and in the event Employer has provided Executive with a notice and opportunity to cure pursuant to this clause, it may terminate this Agreement for a subsequent breach similar or related to the breach for which notice was previously given or for a continuing series or pattern of breaches (whether or not similar or related) without providing notice or an opportunity to 9 10 cure); or (ii) Executive's commission of a felony involving moral turpitude or Executive's action, knowing allowance of actions, or omissions which are in violation of the Communications Act of 1934, as amended, or the rules and regulations of the Federal Communications Commission (the "FCC") or which otherwise jeopardize the FCC licenses granted to Employer or its subsidiaries. 14. DISABILITY. 14.1 TERMINATION OF EMPLOYMENT. If Executive shall become Disabled (as defined in Section 14.2), Employer shall continue to compensate Executive under the terms of this Agreement without diminution and otherwise without regard to such disability or nonperformance of duties, until Executive has been disabled for a cumulative period of six (6) months, at which time Executive's employment shall automatically terminate on the last day of such six (6) month period. The date that Executive's employment terminates pursuant to this section is referred to herein as the "Disability Termination Date." 14.2 DISABILITY DEFINITION. Executive shall be deemed to have become "Disabled" for purposes of this Agreement if, during the term of this Agreement, because of ill health, physical or mental disability or for other causes beyond his control he shall have been unable or unwilling or shall have failed to perform his duties hereunder, as determined by the written opinion of an independent medical physician designated by Employer and reasonably acceptable to Executive. 14.3 OBLIGATIONS AFTER TERMINATION. Unless Employer exercises its option under Section 14.6 below to reinstate Executive to his full compensation, duties, functions, responsibilities and authority hereunder for the then balance of the original term of this Agreement, Executive shall have no further obligations or liabilities hereunder after a Disability Termination Date except his obligations under Sections 11 and 12 which shall survive. After a Disability Termination Date, Employer shall have no further obligations or liabilities hereunder except its obligations under Sections 10, 14.4, 14.5 and 14.6 below which shall survive. 14.4 PAYMENT OF UNPAID SALARY AFTER TERMINATION. Employer shall, not later than two (2) weeks after a Disability Termination Date, pay to Executive all unpaid Base Salary with respect to any period ending on or before the Disability Termination Date, plus the compensation equivalent of all unused vacation days earned in the then current Contract Year prior to the Disability Termination Date. 14.5 POST-TERMINATION COMPENSATION. Following a Disability Termination Date: (i) Employer shall pay to Executive in bi-weekly payments during each Contract 10 11 Year or partial Contract Year remaining under this Agreement an amount equal to fifty percent (50%) of the Base Salary for such Contract Year or partial Contract Year, and (ii) notwithstanding anything to the contrary contained in Section 7, Executive shall be entitled to retain, for the Contract Year in which the Disability Termination Date occurs, fifty percent (50%) of the Executive Options Executive would have otherwise been entitled to retain, after application of the forfeitures described in Sections 7.3(b)(1) through (4), had Executive been employed by Employer on the last day of the Contract Year in which the Disability Termination Date occurs. Executive Options for 50,000 shares shall be forfeited for the Contract Year subsequent to the Contract Year in which the Disability Termination Date occurs. The benefits required to be paid under this Section 14.5 (beginning with the Base Salary amount) shall be reduced by the amount of any benefits payable to Executive under any group or individual disability insurance plan or policy, the premiums for which are paid by Employer. 14.7 REINSTATEMENT. If during the original term of this Agreement and subsequent to a Disability Termination Date, Executive shall fully recover from a disability, Employer shall have the right (exercisable within sixty (60) days after written notice from Executive of such recovery), but not the obligation, to reinstate Executive to employment hereunder for the then balance of the original term of this Agreement. In the event of such reinstatement, Employer shall pay Executive at his full level of compensation hereunder and otherwise employ Executive in accordance with the terms and provisions of this Agreement, and Executive shall be considered to have performed under this Agreement during the period between the Disability Termination Date and the date of such reinstatement for purposes of Section 7.3 and any restricted stock bonus awards or Executive Options granted thereunder. 15. DEATH OF EXECUTIVE. 15.1 TERMINATION OF AGREEMENT. This Agreement shall terminate upon Executive's death. In the event of such termination, Employer shall have no further obligations or liabilities hereunder (including, but not limited to, any obligation to make payments under Section 14 for any period after Executive's date of death) except its obligations under Section 15.2 below which shall survive such termination. 15.2 COMPENSATION. Upon Executive's death, Employer shall, not later than two (2) weeks after Executive's date of death: (i) Pay to Executive's estate or designated beneficiary all unpaid Base Salary with respect to any period ending on or before Executive's date of death, plus the 11 12 compensation equivalent of all unused vacation days earned in the then current Contract Year prior to the termination date; and (ii) Pay to Executive's estate or designated beneficiary the Stock Grant to the extent required under Section 7.5. 15.3 NO REDUCTION. Amounts payable pursuant to this Section shall not be reduced by the value of any benefits payable to the Executive's estate or designated beneficiary under any life insurance plan or policy. 15.4 DEATH AFTER TERMINATION. In the event Executive dies after termination of this Agreement pursuant to Sections 13 or 14, all amounts required to be paid by Employer prior to Executive's death in connection with such termination that remain unpaid as of Executive's date of death shall be paid to Executive's estate or designated beneficiary. 16. NO MITIGATION REQUIRED. Executive shall not berequired to mitigate any damages suffered by him by reason of Employer's breach hereof. No amounts payable to Executive by reason of the termination of his employment hereunder shall be subject to reduction or offset, or otherwise diminished, by reason of any other compensation received by Executive. 17. NOTICES. All notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered personally or sent by prepaid telegram, or mailed first-class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith): (a) If to Employer: Emmis Communications Corporation One Emmis Plaza, 7th Floor 40 Monument Circle Indianapolis, Indiana 46204 Attn.: Board of Directors (b) If to Executive, to him at his address on the personnel records of Employer. 18. GENERAL. 18.1 GOVERNING LAW. Employer and Executive acknowledge that Employer is based in Indiana and that Executive, while maintaining an office in California at Executive's request, travels extensively throughout the United States in the course of his duties for Employer. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Indiana. Employer and Executive agree that any and all actions or suits in connection with, arising out of or related to this 12 13 Agreement or Executive's employment with Employer will be litigated only in courts of record located in Marion County, Indiana, and Employer and Executive each (i) consent and submit to the personal jurisdiction of any state or federal court located within Marion County, Indiana, (ii) waive any right to transfer or change the venue of any such litigation to a court located outside Marion County, Indiana and (iii) agree to service of process, to the extent permitted by law, by registered or certified mail, return receipt requested, addressed to such party's address as determined pursuant to Section 17 of this Agreement. Each of the agreements in this Section 18.1 is irrevocable to the fullest extent permitted by applicable law. 18.2 CAPTIONS. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 18.3 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties. 18.4 SUCCESSORS AND ASSIGNS. This Agreement, and Executive's rights and obligations hereunder, may not be assigned by Executive, except that Executive may designate pursuant to Section 18.6 one or more beneficiaries to receive any amounts that would otherwise be payable hereunder to Executive's estate. 18.5 AMENDMENTS; WAIVERS. This Agreement cannot be changed, modified or amended, and no provision or requirement hereof may be waived, without the consent in writing of Executive and Employer. The failure of a party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce such provision. No waiver by a party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach or a waiver of the breach of any other term or covenant contained in this Agreement. 18.6 BENEFICIARIES. Whenever this Agreement provides for any payment to Executive's estate, such payment may be made instead to such beneficiary or beneficiaries as Executive may have designated in a writing filed with Employer. Executive shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to Employer (and to any applicable insurance company). 18.7 SEVERABILITY. If any provision of this Agreement shall be declared invalid or unenforceable, the remainder of this Agreement will continue in full force and effect so far as the intent of the parties can be carried out. 13 14 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. EMMIS COMMUNICATIONS CORPORATION By: ----------------------------- Jeffrey H. Smulyan Chairman of the Board and Chief Executive Officer "Employer" ----------------------------- Richard F. Cummings "Executive" 14 EX-15 7 LETTER RE:UNAUDITED INTERIM FINANCIAL INFORMATION 1 EXHIBIT 15 October 1, 1999 Mr. Walter Z. Berger Chief Financial Officer Emmis Communications Corporation One Emmis Plaza 40 Monument Circle Suite 700 Indianapolis, Indiana 46204 Dear Mr. Berger: We are aware that Emmis Communications Corporation has incorporated by reference in its Registration Statement Nos. 33-83890 and 333-14657 its Form 10-Q for the three and six-months ended August 31, 1999, which includes our report dated September 21, 1999, covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, /s/ ARTHUR ANDERSEN LLP - ------------------------ ARTHUR ANDERSEN LLP EX-27 8 FINANCIAL DATA SCHEDULE
5 0000783005 EMMIS COMMUNICATIONS CORPORATION 3-MOS 6-MOS FEB-28-2000 FEB-28-2000 JUN-01-1999 MAR-01-1999 AUG-31-1999 AUG-31-1999 3,061 0 0 0 64,854 0 1,902 0 0 0 89,502 0 149,654 0 32,279 0 1,079,701 0 77,194 0 636,588 0 0 0 0 0 160 0 244,889 0 1,079,701 0 95,233 180,154 95,233 180,154 13,704 26,273 13,704 26,273 76,559 120,704 454 955 13,936 27,165 4,516 5,057 3,300 3,600 1,216 1,457 0 0 0 0 0 0 1,216 1,457 .08 .09 .07 .09
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