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