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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934 for the Fiscal Year Ended February 28, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 for the Transition Period from _____ to _____.
Commission file number 0-23264
EMMIS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
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Indiana 35-1542018
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 Monument Circle, Suite 700
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
317/266-0100
Registrant's Telephone Number
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Class A Common Stock, $.01 par value
Title of Class
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's Knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all
documents and reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
[ ].
The aggregate market value of the voting stock held by non-affiliates
of the registrant, as of April 30, 1999, was approximately $566,224,920.
The number of shares outstanding of each of the registrant's classes
of common stock, as of April 30, 1999, was:
13,240,619 Class A Common Shares, $.01 par value
2,582,265 Class B Common Shares, $.01 par value
Documents Incorporated by Reference: See Page 2
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DOCUMENTS INCORPORATED BY REFERENCE
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Documents Form 10-K Reference
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Proxy Statement Dated May 26, 1999 Part III
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EMMIS COMMUNICATIONS CORPORATION
FORM 10-K
TABLE OF CONTENTS
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Page
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PART I ......................................................................................................4
Item 1. Business....................................................................................4
Item 2. Properties.................................................................................21
Item 3. Legal Proceedings..........................................................................23
Item 4. Submission of Matters to a Vote of Security Holders........................................23
PART II .....................................................................................................23
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters......................23
Item 6. Selected Financial Data....................................................................24
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.......25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................30
Item 8. Financial Statements and Supplementary Data................................................32
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......68
PART III .....................................................................................................69
Item 10. Directors and Executive Officers of the Registrant........................................69
Item 11. Executive Compensation....................................................................70
Item 12. Security Ownership of Certain Beneficial Owners and Management............................70
Item 13. Certain Relationships and Related Transactions............................................70
PART IV .....................................................................................................70
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..........................70
Signatures....................................................................................................73
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PART I
ITEM 1. BUSINESS.
GENERAL
We are a diversified media company with radio broadcasting, television
broadcasting and magazine publishing operations. We are the eighth largest radio
broadcaster in the United States based on total revenues. The thirteen FM radio
stations and three AM radio stations we own in the United States serve the
nation's three largest radio markets of New York City, Los Angeles and Chicago,
as well as St. Louis, Indianapolis and Terre Haute, Indiana. Our six television
stations, which we acquired in 1998, are located in New Orleans, Louisiana,
Mobile, Alabama, Green Bay, Wisconsin, Honolulu, Hawaii, Fort Myers, Florida and
Terre Haute, Indiana.
Our strategy is to selectively acquire underdeveloped media properties in
desirable markets and then to create value by developing those properties to
increase their cash flow. We find such underdeveloped properties attractive
because they offer greater potential for revenue and cash flow growth than
mature properties. We have been successful in acquiring these types of radio
stations and improving their ratings, revenues and cash flow with our marketing
focus and innovative programming expertise. We have created top-performing radio
stations which rank, in terms of primary demographic target audience share,
among the top ten stations in the New York City, Los Angeles and Chicago radio
markets according to the Winter 1998 Arbitron Survey. We believe that our strong
large-market radio presence and diversity of station formats makes us attractive
to a diverse base of radio advertisers and reduces our dependence on any one
economic sector or specific advertiser.
More recently, we have begun to apply our advertising sales and programming
expertise to our television stations. We view our entry into television as a
logical outgrowth of our radio business and as a platform for diversification.
Like the radio stations we previously acquired, our television stations are
underdeveloped properties located in desirable markets, which can benefit from
innovative, research-based programming and our experienced management team. We
believe we can improve the ratings, revenues and broadcast cash flow of our
television stations with a more market-focused, research-based programming
approach and other related strategies, which have proven successful with our
radio properties.
In addition to our domestic broadcasting properties, we operate news and
agriculture information networks in Indiana, publish Indianapolis Monthly,
Atlanta, Cincinnati, Texas Monthly and Country Sampler and related magazines,
and have a 54% interest in a national radio station in Hungary. We also engage
in various businesses ancillary to our broadcasting business, such as consulting
and broadcast tower leasing.
BUSINESS STRATEGY
We are committed to maintaining our leadership positions in broadcasting,
enhancing the performance of our broadcast properties, and distinguishing
ourselves through the quality of our operations. Our strategy has the following
principal components:
CREATE CASH FLOW GROWTH BY ENHANCING STATION PERFORMANCE. Our strategy is
to selectively acquire underdeveloped media properties in desirable markets
and then to create value by developing those properties to increase their
cash flow. We believe that our station portfolio provides significant
potential for revenue and cash flow growth through enhanced operating
performance. We believe that our growth is less dependent on overall
advertising market growth than it would be if we owned only mature
properties. We expect to continue to create value, particularly in our
recently-acquired television stations, through maximizing operating
efficiencies, development of innovative programming and focused sales and
marketing efforts.
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DEVELOP INNOVATIVE PROGRAMMING. We believe that knowledge of local markets
and innovative programming developed to target specific demographic groups
are the most important determinants of individual radio and television
station success. We conduct extensive market research to identify
underserved segments of our markets or to insure that we are meeting the
needs and tastes of our target audiences. Utilizing the research results,
we concentrate on providing focused programming formats carefully tailored
to the demographics of our markets and our advertisers' preferences. Such
programming strategies might include, for example, the development or
acquisition of on-air talent or development of a sports coverage or news
franchise. Local market knowledge is particularly important in developing
programming for our Fox television stations, as the higher degree of
programming flexibility afforded by our Fox affiliation provides us greater
opportunity to tailor our programming to meet the specific demands of our
local markets. Greg Nathanson, who heads our television division and
directs programming, has over 30 years of television broadcasting
experience and has had extensive independent programming experience as
President of Programming and Development for Twentieth Television and
President of Fox Television Stations.
EMPHASIZE FOCUSED SALES AND MARKETING STRATEGY. Emmis designs its local and
national sales efforts based on advertiser demand and the competition
within each market. We provide our sales force with extensive training and
technology for sophisticated inventory management techniques, which allows
us to make frequent price adjustments based on regional and local market
conditions. We seek to maximize sources of non-traditional, non-spot
revenue and have led the industry in developing "vendor co-op" (as
explained under Advertising Sales) advertising revenue. Although this
source of advertising revenue is common in the newspaper and magazine
industry, we were among the first broadcasters to recognize and take
advantage of the potential of vendor co-op advertising.
ENCOURAGE ENTREPRENEURIAL MANAGEMENT APPROACH. We believe that broadcasting
is primarily a local business and that much of our success is the result of
the efforts of regional and local management and staff. We have attracted
and retained an experienced team of broadcast professionals who understand
the musical tastes, demographics and competitive opportunities of their
particular market. Our decentralized approach to station management gives
local management oversight of station spending, long-range planning,
company policies and resource allocation at their individual stations and
rewards local management based on those stations' performance. In addition,
we encourage our managers and employees to own a stake in Emmis, and over
90% of all full-time employees have an equity ownership position in the
company. We believe that this entrepreneurial management approach has given
us a distinctive corporate culture, making Emmis a highly desirable
employer in the broadcasting industry and significantly enhancing our
ability to attract and retain experienced and highly motivated employees
and management.
SELECTIVELY PURSUE STRATEGIC ACQUISITIONS. Our acquisition strategy is to
selectively acquire underdeveloped media properties at reasonable purchase
prices where our experienced management team can enhance value. We believe
that continued consolidation in the radio broadcasting industry will result
in attractive acquisition opportunities as the number of potential buyers
for radio assets declines as a result of in-market ownership limitations,
and we will continue to evaluate acquisitions of individual radio stations
or groups of radio stations in both our current and new markets. We believe
that attractive acquisition opportunities are becoming increasingly
available in the television broadcasting industry. In many cases,
television stations have suffered ratings and revenue declines due to
management inattention, improper programming strategies or inadequate sales
and marketing efforts. We also expect to evaluate acquisitions of
international broadcasting stations and magazine publishing properties
which present attractive purchase prices and significant opportunities to
capitalize on our management expertise to enhance cash flow. We intend to
seek strong local minority-interest partners in evaluating and completing
international broadcasting acquisition opportunities.
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RADIO AND TELEVISION STATIONS
The following tables set forth certain information regarding our radio and
television stations and their broadcast markets.
RADIO STATIONS
In the following table, "Market Rank by Revenue" is the ranking of the
market revenue size of the principal radio market served by the station among
all radio markets in the United States. Market revenue and ranking figures are
from Duncan's Radio Market Guide (1998 ed.). We own a 40% equity interest in the
publisher of Duncan's Radio Market Guide. "Ranking in Primary Demographic
Target" is the ranking of the station among all radio stations in its market
based on the Winter 1998 Arbitron Survey, except that rankings for the Terre
Haute stations are based on the Fall 1998 Arbitron Survey because Arbitron
compiles surveys only in the Fall and Spring in that market. A "t" indicates the
station tied with another station for the stated ranking. "Station Audience
Share" represents a percentage generally computed by dividing the average number
of persons over age 12 listening to a particular station during specified time
periods by the average number of such persons for all stations in the market
area as determined by Arbitron.
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RANKING IN
STATION MARKET PRIMARY PRIMARY STATION
AND RANK BY DEMOGRAPHIC DEMOGRAPHIC AUDIENCE
MARKET REVENUE FORMAT TARGET AGES TARGET SHARE
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LOS ANGELES 1
KPWR-FM Dance/Contemporary Hit 12-24 1 4.3
NEW YORK 2
WQHT-FM Dance/Contemporary Hit 12-24 1 5.7
WRKS-FM Classic Soul/Smooth R&B 25-54 5 3.6
WQCD-FM Contemporary Jazz 25-54 8 2.7
Chicago 3
WKQX-FM New Rock 18-34 3 3.4
St. Louis 18
KSHE-FM Album Oriented Rock 18-34 11 3.2
WKKX-FM Country 18-34 5 4.1
WXTM-FM Extreme Rock 18-34 10 2.1
Indianapolis 30
WENS-FM Adult Contemporary 25-54 4 5.8
WIBC-AM News/Talk 35-64 3 9.3
WNAP-FM Classic Rock 18-34 8 3.7
WTLC-FM Urban Contemporary 25-54 9 4.6
WTLC-AM Solid Gold Soul, Gospel 25-54 24 0.8
and Talk
Terre Haute 172
WTHI-FM Country 25-54 1t 19.2
WTHI-AM News/Talk 35-54 9t 1.7
WWVR-FM Classic Rock 25-49 1 12.1
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TELEVISION STATIONS
In the following table, "DMA Rank" is estimated by the A.C. Nielsen Company
("Nielsen") as of January 1997. Rankings are based on the relative size of a
station's market among the 210 generally recognized Designated Market Areas
("DMAs"), as defined by Nielsen. "Number of Stations in Market" represents the
number of television stations ("Reportable Stations") designated by Nielsen as
"local" to the DMA, excluding public television stations and stations which do
not meet minimum Nielsen reporting standards (i.e., a weekly cumulative audience
of less than 2.5%) for reporting in the Sunday through Saturday, 9:00 a.m. to
midnight time period. "Station Rank" reflects the station's rank relative to
other Reportable Stations based upon the DMA rating as reported by Nielsen from
9:00 a.m. to midnight, Sunday through Saturday during February 1999. "Station
Audience Share" reflects an estimate of the share of DMA households viewing
television received by a local commercial station in comparison to other local
commercial stations in the market as measured from 9:00 a.m. to midnight, Sunday
through Saturday.
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NUMBER OF STATION
TELEVISION METROPOLITAN DMA AFFILIATION/ STATIONS STATION AUDIENCE
STATION AREA SERVED RANK CHANNEL IN MARKET RANK SHARE
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WVUE-TV New Orleans, LA 41 Fox/8 7 3t 8
WALA-TV Mobile, AL-Pensacola, FL 62 Fox/10 6 3 10
WLUK-TV Green Bay, WI 70 Fox/11 6 4 10
KHON-TV Honolulu, HI 71 Fox/2 6 1 16
WFTX-TV Fort Myers, FL 83 Fox/36 5 4 7
WTHI-TV Terre Haute, IN 139 CBS/10 3 1 24
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Emmis also owns KAII-TV and KHAW-TV, which operate as satellite stations of
KHON-TV and primarily re-broadcast the signal of KHON-TV. The stations are
considered one station for FCC multiple ownership purposes. Low power television
translators W40AN and K55D2 retransmit stations WLUK-TV and KHON-TV,
respectively.
RADIO NETWORKS
In addition to our other radio broadcasting operations, we own and operate
two radio networks. Network Indiana provides news and other programming to
nearly 70 affiliated radio stations in Indiana. AgriAmerica Network provides
farm news, weather information and market analysis to radio stations across
Indiana.
PUBLISHING OPERATIONS
We publish the following magazines through our publishing division:
Indianapolis Monthly. We have published Indianapolis Monthly magazine since
September 1988. Indianapolis Monthly covers local personalities, homes and
lifestyles and currently has a paid monthly circulation of approximately 45,000.
With a large advertising base and a popular editorial focus, Indianapolis
Monthly is the market's leading general interest magazine focusing on the
Indianapolis area.
Atlanta. We acquired and began publishing Atlanta magazine in August 1993.
Atlanta covers area personalities, issues and style and currently has a paid
monthly circulation of approximately 65,000. The magazine was unprofitable for
several years before we acquired it for a nominal investment. Certain
initiatives, including downsizing staff, increasing sales efforts and
repositioning the editorial focus, have contributed to improving profitability.
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Cincinnati. We acquired Cincinnati magazine in October 1997. Cincinnati
magazine was founded by the Greater Cincinnati Chamber of Commerce in 1967 and,
under its prior owners, the magazine grew to a paid monthly circulation of
approximately 22,000. We repositioned the editorial product to an up-to-date
city/regional magazine covering people and entertainment in Cincinnati, doubled
the existing sales staff and marketed the newly designed magazine to the
Cincinnati area. The magazine currently has a paid monthly circulation of
approximately 31,000.
Texas Monthly. We acquired Texas Monthly magazine in February 1998. The
critically acclaimed magazine, which has received eight National Magazine
Awards, has a paid monthly circulation of approximately 300,000, and we believe
it is read by more than 2,436,000 people. It marked its 25th anniversary with
the publication of the February 1998 issue, which set a single issue advertising
record. Since acquiring the magazine, we have worked to increase Texas Monthly's
operating efficiencies while leaving the highly regarded editorial product
intact.
During the year ended February 28, 1999 we also entered into an agreement
to acquire Country Sampler magazine. This acquisition closed in April 1999.
Country Sampler focuses on country craft and home decorating ideas and products,
and we believe it is read by more than two million people. In connection with
the acquisition of Country Sampler, we also acquired other related magazines
focusing on particular segments of the country craft and home decorating market.
COMMUNITY INVOLVEMENT
We believe that to be successful, we must be integrally involved in the
communities we serve. To that end, each of our stations participates in many
community programs, fundraisers and activities that benefit a wide variety of
organizations. Charitable organizations that have been the beneficiaries of our
marathons, walkathons, dance-a-thons, concerts, fairs and festivals include,
among others, The March of Dimes, American Cancer Society, Riley Children's
Hospital and research foundations seeking cures for cystic fibrosis, leukemia
and AIDS and helping to fight drug abuse. In addition to our planned activities,
our stations take leadership roles in community responses to natural disasters.
INDUSTRY INVOLVEMENT
We have an active leadership role in a wide range of industry
organizations. Our senior managers have served in various capacities with
industry associations, including as directors of the National Association of
Broadcasters, the Radio Advertising Bureau, the Radio Futures Committee and the
Arbitron Advisory Council and as founding members of the Radio Operators Caucus.
In addition, our managers have been voted Radio President of the Year and
General Manager of the Year, and at various times we have been voted Most
Respected Broadcaster in polls of radio industry chief executive officers and
managers.
FEDERAL REGULATION
Television and radio broadcasting are subject to the jurisdiction of the
Federal Communications Commission (the "FCC") under the Communications Act of
1934, as amended (and, as amended by the Telecommunications Act of 1996 (the
"1996 Act"), the "Communications Act"). Television or radio broadcasting is
prohibited except in accordance with a license issued by the FCC upon a finding
that the public interest, convenience and necessity would be served by the grant
of such license. The FCC has the power to revoke licenses for, among other
things, false statements made in applications or willful or repeated violations
of the Communications Act or of FCC rules. In general, the Communications Act
provides that the FCC shall allocate television and radio licenses in such
manner as will provide a fair, efficient and equitable distribution of service
throughout the United States. The FCC determines the location of stations,
regulates the apparatus used by stations, and regulates numerous other areas of
television and radio broadcasting pursuant to rules, regulations and policies
adopted under authority of the Communications Act. The Communications Act, among
other things, prohibits the assignment of a broadcast license or the transfer of
control of a corporation holding a license without the prior approval of the
FCC. Under
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the Communications Act, the FCC also regulates certain aspects of the operation
of cable television systems and other electronic media that compete with
broadcast stations.
The 1996 Act represented the most comprehensive overhaul of the country's
telecommunications laws in more than 60 years. The 1996 Act significantly
changed both the process for renewal of broadcast station licenses and the
broadcast ownership rules. The following is a brief summary of certain
provisions of the Communications Act and of specific FCC regulations and
policies. Reference should be made to the Communications Act, FCC rules and the
public notices and rulings of the FCC for further information concerning the
nature and extent of federal regulation of radio and television stations.
First, the 1996 Act established a "two-step" renewal process that limits
the FCC's discretion to consider applications filed in competition with an
incumbent's renewal application. The 1996 Act also substantially liberalized the
national broadcast ownership rules, eliminating the national radio limits and
easing the national restrictions on TV ownership. The 1996 Act also relaxed
local radio ownership restrictions, but left local TV restrictions in place
pending further FCC review. The FCC has already implemented some of these
changes through Commission Orders.
This new regulatory flexibility has engendered aggressive local, regional,
and/or national acquisition campaigns. Removal of previous station ownership
limitations on leading incumbents (i.e., existing networks and major station
groups) has increased sharply the competition for and the prices of attractive
stations.
Other legislation has been introduced from time to time which would amend
the Communications Act in various respects and the FCC from time to time
considers new regulations or amendments to its existing regulations. We cannot
predict whether any such legislation will be enacted or new or amended FCC
regulations adopted or what their effect would be on Emmis.
License Renewal. Radio and television stations operate pursuant to
broadcasting licenses that are ordinarily granted by the FCC for maximum terms
of eight years and are subject to renewal upon application to the FCC. Our
licenses currently have the following expiration dates, until renewed:
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WENS-FM (Indianapolis)...............................August 1, 2004
WKQX-FM (Chicago)....................................December 1, 2004
KSHE-FM (St. Louis).................................February 1, 2005
KPWR-FM (Los Angeles)................................December 1, 2005
WQHT-FM (New York)...................................June 1, 2006
WQCD-FM (New York)...................................June 1, 2006
WIBC-AM (Indianapolis)...............................August 1, 2004
WNAP-FM (Indianapolis)...............................August 1, 2004
WRKS-FM (New York)...................................June 1, 2006
WKKX-FM (St. Louis)..................................December 1, 2004
WXTM-FM (St. Louis)..................................December 1, 2004
WTLC-AM (Indianapolis)...............................August 1, 2004
WTLC-FM (Indianapolis)...............................August 1, 2004
WTHI-AM (Terre Haute)................................August 1, 2004
WTHI-FM (Terre Haute)................................August 1, 2004
WWVR-FM (Terre Haute)................................August 1, 2004
WTHI-TV (Terre Haute)................................August 1, 2005
WFTX-TV(Fort Myers)..................................February 1, 2005
WALA-TV (Mobile).....................................April 1, 2005
WVUE-TV (New Orleans)................................June 1, 2005
WLUK-TV (Green Bay)..................................December 1, 2005
KHON-TV (Honolulu)...................................February 1, 2007
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KAII-TV (Maui).......................................February 1, 2007
KHAW-TV (Hawaii).....................................February 1, 2007
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Under the 1996 Act, at the time an application is filed for renewal for a
station license, parties in interest, as well as members of the public, may
apprise the FCC of the service the station has provided during the preceding
license term and urge the denial of the application. If such a petition to deny
presents information from which the FCC concludes (or if the FCC concludes on
its own) that there is a "substantial and material" question whether grant of
the renewal application would be in the public interest under applicable rules
and policy, the FCC may conduct a hearing on specified issues to determine
whether renewal should be granted. The 1996 Act modified the license renewal
process to provide for the grant of a renewal application upon a finding by the
FCC that the licensee:
(1) has served the public interest, convenience and necessity;
(2) has committed no serious violations of the Communications Act or the
FCC's rules; and
(3) has committed no other violations of the Communications Act or the
FCC's rules which would constitute a pattern of abuse.
If the FCC cannot make such a finding, it may deny a renewal application, and
only then may the FCC accept other applications to operate the station of the
former licensee. In a vast majority of cases, the FCC renews broadcast licenses
even when petitions to deny applications are filed against broadcast license
renewal applications.
In February 1999, pursuant to various third-party proposals, the FCC sought
comment on whether it should establish a "microradio" service. The service, as
proposed, would consist of three classes of low-power stations licensed by the
FCC: a class of 1,000 watt stations; a class of 100 watt stations; and a class
of 1-10 watt stations. The licenses would be available only to entities and
individuals with no interests in any other FCC-regulated license and stations
would be permitted to operate on a for-profit basis. In order to accommodate
these "microradio" stations, the FCC is considering whether to weaken the
interference protection provided to full-power radio stations, including those
owned by Emmis. Emmis cannot predict at this time the outcome of this rulemaking
proceeding or what effect establishing a "microradio" service would have on
Emmis' radio stations
Ownership Matters. The 1996 Act eliminated restrictions on the number of
radio stations that may be owned by one entity nationwide. Under the 1996 Act,
with limited exceptions, the number of radio stations that may be owned by one
entity in a given radio market is dependent on the number of commercial stations
in that market:
- if the market has 45 or more stations, one entity may own not more
than eight stations, of which not more than five may be in one service
(AM or FM);
- if the market has between 30 and 44 stations, one entity may own not
more than seven stations, of which not more than four may be in one
service;
- if the market has between 15 and 29 stations, a single entity may own
not more than six stations, of which not more than four may be in one
service; and
- if the market has fourteen or fewer stations, one entity may own not
more than five stations, of which not more than three may be in one
service, except that in such a market one entity may not own more than
fifty percent of the stations in the market.
Each of the six markets in which our radio stations are located has at least 15
commercial radio stations. In determining whether we are in compliance with the
local ownership limits on AM and FM stations, the FCC will
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consider our AM and FM holdings as well as the attributable broadcast interests
of our officers, directors and attributable stockholders. Accordingly, any
attributable broadcast interests of our officers and directors may limit the
number of radio stations we may acquire or own in any market in which such
officers or directors hold or acquire attributable broadcast interests. In
addition, our officers and directors may from time to time hold various
nonattributable interests in media properties. One entity may not own a radio
station together with a television station (the "one-to-a-market" rule) or
together with a daily newspaper in the same market, although common ownership
of a radio station and a television station in the same market is permitted
upon a finding by the FCC that such ownership is in the public interest. The
FCC has established a liberal waiver policy to permit common ownership of a
radio station and a television station in any of the nation's 25 largest
markets; the 1996 Act directed the FCC to extend that policy to the 50 largest
markets. Emmis has been granted a waiver of the one-to-a-market rule to permit
its common ownership of WTHI-AM, WTHI-FM, WWVR-FM and WTHI-TV.
With respect to television, the 1996 Act and the FCC's subsequently issued
orders eliminated the previously existing 12-station limit for station ownership
and increased the national audience reach limitation from 25% to 35%. On a local
basis, however, the 1996 Act did not alter current FCC rules that limit an
individual entity to maintaining an attributable interest in only one television
station in a market. The 1996 Act did require the FCC to conduct a rule making
proceeding, however, to determine whether to narrow the geographic scope of the
local television cross-ownership rule (the so-called "TV duopoly rule") to
permit some two-station combinations in certain (large) markets. At the time of
the passage of the 1996 Act, the FCC had already initiated a rule making
proceeding to consider whether the television duopoly rule should be retained,
modified or eliminated. That proceeding remains pending.
The same prohibition concerning daily newspapers and radio stations also
applies to common ownership of a daily newspaper and a television broadcast
station. Under current policy, the FCC will grant a permanent waiver of the
newspaper cross-ownership rule (whether involving radio or television) only in
those circumstances where the effects of applying the rule would be "unduly
harsh," i.e., the newspaper is unable to sell the commonly-owned station or the
sale would be at an artificially depressed price, or the local community could
not support a separately-owned newspaper and broadcast station. The FCC has
previously granted only two permanent waivers of this cross-ownership rule. The
FCC has pending a Notice of Inquiry requesting comment on possible changes to
its policy for waiving the rule including, among other possible changes:
- whether waivers should only be available in markets of a particular
size;
- whether any weight should be given to a newspaper's or broadcast
station's economic presence or market penetration; and
- whether there should be limits on the number of broadcast stations or
other media outlets that could be co-owned with a newspaper in the
same market.
At present, the FCC's one-to-a-market and cross-ownership rules do not
apply to Local Marketing Agreements ("LMAs") as defined below. As part of its
attribution rule making, however, the FCC has proposed to apply these rules to
LMAs. If such a rule were adopted, Emmis could not provide programming to a
radio or television station pursuant to an LMA if Emmis or an individual or an
entity holding an attributable ownership interest in Emmis already owns a
television station or a daily newspaper in the same market.
The FCC rules generally prohibit the direct or indirect common ownership,
operation, control or interest in a cable television system, on the one hand,
and a local television broadcast station whose television signal (predicted
grade B contour as defined under FCC regulations) reaches any portion of the
community served by the cable television system, on the other hand (the
"cable-television ownership rule"). The 1996 Act eliminates the statutory
prohibition underlying the cable-television ownership rule and directed the FCC
to review the cable-television ownership rule to determine if it is necessary in
the public interest. In March 1998, the FCC initiated a rule making proceeding
to determine whether the cable-television ownership rule is necessary and in the
public interest or should
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be eliminated. Pursuant to the mandate of the 1996 Act, the FCC eliminated its
regulatory restriction on cross-ownership of cable systems and national
broadcasting networks.
Transfers of Control. The Communications Act prohibits the assignment of a
broadcast license or the transfer of control of a broadcast licensee without the
prior approval of the FCC. In determining whether to grant such approval, the
FCC considers a number of factors, including compliance with the various rules
limiting common ownership of media properties, the "character" of the licensee
and those persons holding "attributable" interests therein, and compliance with
the Communications Act's limitations on alien ownership as well as compliance
with other FCC policies. When passing on an assignment or transfer application,
the FCC is prohibited from considering whether the public interest might be
served by an assignment or transfer of the broadcast license to any party other
than the assignee or transferee specified in the application.
A transfer of control of a corporation controlling a broadcast license may
occur in various ways. For example, a transfer of control occurs if an
individual stockholder gains or loses "affirmative" or "negative" control of
such corporation through issuance, redemption or conversion of stock.
"Affirmative" control would consist of control of more than 50% of such
corporation's outstanding voting power and "negative" control would consist of
control of exactly 50% of such voting power. To obtain the FCC's prior consent
to assign or transfer control of a broadcast license, appropriate applications
must be filed with the FCC. If the application involves a "substantial change"
in ownership or control, the application must be placed on public notice for a
period of 30 days during which petitions to deny the application may be filed by
interested parties, including members of the public. If the application does not
involve a "substantial change" in ownership or control, it is a "pro forma"
application. The "pro forma" application is nevertheless subject to having
informal objections filed against it. If the FCC grants an assignment or
transfer application, interested parties have 30 days from public notice of the
grant to seek reconsideration of that grant. Generally, parties that do not file
initial petitions to deny or informal objections against the application face a
high hurdle in seeking reconsideration of the grant. The FCC normally has an
additional ten days to set aside such grant on its own motion. (FCC rules for
computation of time may cause some more variation in the actual time for action
and response.)
In the case of all of these ownership rules, the FCC requires the
attribution of broadcast licenses between a broadcasting company and certain of
its stockholders, officers or directors such that there would be a violation of
FCC regulations where such a stockholder, officer or director and the
broadcasting company together held more than the permitted number of stations or
a prohibited combination of media outlets in the same market. Under FCC rules,
with certain exceptions, attribution of broadcast licenses occurs where any five
percent voting stockholder or officer or director of a broadcasting company
directly or indirectly owns, operates, controls or has a five percent voting
interest in or is an officer or director of any other broadcasting company.
Attribution also occurs in the case of general partnership interests and in the
case of limited partnership interests where a limited partner is "materially
involved" in the media-related activities of the partnership. Passive
investments of less than ten percent of the voting interest in a broadcasting
company held by certain categories of financial institutions are generally not
cognizable for purposes of the foregoing rules of attribution. To assess whether
a voting stock interest in a direct or indirect parent corporation of a
broadcast licensee is attributable, the FCC uses a "multiplier" analysis in
which non-controlling voting stock interests are deemed proportionally reduced
at each non-controlling link in a multi-corporation ownership chain. In cases
involving competing media in the same market, however, FCC policy in certain
instances prohibits common ownership interests under its "cross-interest" policy
even where they are non-voting interests or fall below the five percent and ten
percent "benchmarks" discussed above, although the FCC has initiated proceedings
to inquire whether this policy should be liberalized or eliminated. Emmis'
Amended and Restated Articles of Incorporation and By-Laws authorize the Board
of Directors to prohibit any ownership, voting or transfer of its capital stock
which would cause Emmis to violate the Communications Act or FCC regulations.
For purposes of the local radio ownership rules described above, a station
is also considered to have an attributable interest in another station in the
same market if the first station provides the programming for more than 15% of
the broadcast time, on a weekly basis, of a second station. As a result, such
programming arrangements may not be entered into by station combinations that
could not be commonly owned under FCC rules.
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In cases where one person or entity (such as Jeffrey H. Smulyan in the case
of Emmis) holds more than 50% of the combined voting power of the common stock
of a broadcasting company, a minority shareholder of the company generally would
not be deemed to hold an "attributable" interest in the company. However, any
attributable interest by any such shareholder in another broadcast station or
other media in a market where such company owns, or seeks to acquire, a station
would still be subject to review by the FCC under its "cross-interest" policy,
and could result in the company's being unable to obtain from the FCC one or
more authorizations needed to conduct its broadcast business or being unable to
obtain FCC consents for future acquisitions. Further, in the event that a
majority shareholder of a company (such as Mr. Smulyan in the case of Emmis)
were no longer to hold more than 50% of the combined voting power of the common
stock of the company, the interests of minority shareholders which had
theretofore been considered nonattributable could become attributable, with the
result that any other media interests held by such shareholders would be
combined with the media interests of such company for purposes of determining
compliance with FCC ownership rules. In the case of Emmis, Mr. Smulyan's level
of voting control could decrease to or below 50% as a result of transfers of
common stock pursuant to agreement or conversion of the Class B Common Stock
into Class A Common Stock. In the event of any noncompliance, steps required to
achieve compliance could include divestitures by either the shareholder or the
affected company. Further, other media interests of shareholders having or
acquiring an attributable interest in such a company could result in the company
being unable to obtain from the FCC one or more authorizations needed to conduct
its broadcast business or being unable to obtain FCC consents for future
acquisitions. Conversely, a company's media interests could operate to restrict
other media investments by shareholders having or acquiring an interest in the
company.
Under the 1996 Act, the FCC is required to review all of its broadcast
ownership rules every two years to determine whether the public interest
dictates that such rules be repealed or modified. The FCC recently initiated a
biennial review and is considering a number of changes to its rules, including
changes to the newspaper cross-ownership rule, the local radio ownership rules,
and certain aspects of its cable-television ownership rule. We cannot predict
the outcome of these proceedings. The adoption of more restrictive ownership
limits could have a material adverse effect on our business.
Alien Ownership Rules. Under the Communications Act, no FCC license may be
held by a corporation of which more than one-fifth of its capital stock is owned
of record or voted by aliens or their representatives or by a foreign government
or representative thereof, or by any corporation organized under the laws of a
foreign country (collectively, "Non-U.S. Persons"). Furthermore, the
Communications Act provides that no FCC license may be granted to any
corporation directly or indirectly controlled by any other corporation of which
more than one-fourth of its capital stock is owned of record or voted by
Non-U.S. Persons if the FCC finds the public interest will be served by the
refusal of such license. The FCC staff has interpreted this provision to require
an affirmative public interest finding to permit the grant or holding of a
license, and such a finding has been made only in limited circumstances. The
foregoing restrictions on alien ownership apply in modified form to other forms
of business organization, including partnerships. Our Amended and Restated
Articles of Incorporation and Code of By-Laws authorize the Board of Directors
to prohibit such ownership, voting or transfer of its capital stock as would
cause Emmis to violate the Communications Act or FCC regulations.
Cross-Interest Policy. Under its "cross-interest" policy, referred to
above, the FCC considers certain "meaningful" relationships among competing
media outlets in the same market, even if the ownership rules do not
specifically prohibit the relationship. Under the cross-interest policy, the FCC
in certain instances may prohibit one party from acquiring an attributable
interest in one media outlet and a substantial non-attributable economic
interest in another media outlet in the same market. Under this policy, the FCC
may consider significant equity interests combined with an attributable interest
in a media outlet in the same market, joint ventures, and common key employees
among competitors. The cross-interest policy does not necessarily prohibit all
of these interests, but requires that the FCC consider whether, in a particular
market, the "meaningful" relationships between competitors could have a
significant adverse effect upon economic competition and program diversity.
Heretofore, the FCC has not applied its cross-interest policy to LMAs (as
defined below) and JSAs (as defined below) between broadcast stations. In its
ongoing rule making proceeding concerning the attribution rules described below,
the FCC has sought comment on, among other things:
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<PAGE> 15
- whether the cross-interest policy should be applied only in smaller
markets and
- whether non-equity financial relationships such as debt, when combined
with multiple business interrelationships such as LMAs and JSAs and
other programming relationships raise concerns under the cross-interest
policy.
Programming and Operation. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually has relaxed
or eliminated many of the more formalized procedures it developed to promote the
broadcast of certain types of programming responsive to the needs of a station's
community of license. However, licensees continue to be required to present
programming that is responsive to community problems, needs and interests and to
maintain certain records demonstrating such responsiveness. Broadcast of obscene
or indecent material is regulated by the FCC as well as by state and federal
law. Complaints from listeners concerning a station's programming often will be
considered by the FCC when it evaluates renewal applications of a licensee,
although such complaints may be filed and considered by the FCC at any time.
Stations also must pay regulatory and application fees and follow various rules
promulgated under the Communications Act that regulate, among other things,
political advertising, sponsorship identifications, the advertisement of
contests and lotteries, and technical operations, including limits on radio
frequency radiation. Until recently, the FCC required licensees to develop and
implement affirmative action programs designed to promote equal employment
opportunities, and to submit reports to the FCC with respect to these matters on
an annual basis and in connection with a renewal application. In 1998, the
United States Court of Appeals for the District of Columbia Circuit held that
the FCC's equal employment opportunity policies violate the Fifth Amendment. As
a result, licensees are no longer required to develop or file materials relating
to equal employment opportunity matters. The FCC has proposed new equal
employment opportunity rules that would impose on licensees many of the same
outreach and recordkeeping obligations as the former rules. During the pendancy
of this rulemaking, Emmis and other major licensees have informally volunteered
to comply with the principles espoused in the FCC's old equal employment
opportunity rules and policies.
There are FCC rules and policies, and rules and policies of other federal
agencies, that regulate matters such as network-affiliate relations, the ability
of stations to obtain exclusive rights to air syndicated programming, cable
systems' carriage of syndicated and network programming on distant stations,
political advertising practices, application procedures and other areas
affecting the business or operations of broadcast stations. The FCC has adopted
rules to implement the Children's Television Act of 1990, which, among other
provisions, limits the permissible amount of commercial matter in children's
programs and requires each television station to present "educational and
informational" children's programming. The FCC also has adopted renewal
processing guidelines effectively requiring television stations to broadcast an
average of three hours per week of children's educational programming. In
addition, the FCC has adopted rules that require television stations to
broadcast, over an 8 to 10 year transition period which commenced on January 1,
1998, increasing and set percentages of closed captioned programming for the
hearing-impaired.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary fines, the grant of "short"
(less than the maximum term) license renewal terms or, for particularly
egregious violations, the denial of a license renewal application or the
revocation of a license.
Local Marketing Agreements. Over the past few years, a number of radio and
television stations, including certain Emmis stations, have entered into what
commonly are referred to as "local marketing agreements" or "time brokerage
agreements" (together, "LMAs"). These agreements take various forms.
Separately-owned and licensed stations may agree to function cooperatively in
terms of programming, advertising sales and other matters, subject to compliance
with the antitrust laws and the FCC's rules and policies, including the
requirement that the licensee of each station maintain independent control over
the programming and other operations of its own station.
A radio station that brokers substantial time on another station in its
market or engages in an LMA with a radio station in the same market will be
considered to have an attributable ownership interest in the brokered station
for
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purposes of the FCC's ownership rules, discussed above. As a result, a
broadcast station may not enter into an LMA that allows it to program more than
15% of the broadcast time, on a weekly basis, on another local radio station
that it could not own under the FCC's local multiple ownership rules. FCC rules
also prohibit the radio broadcast licensee from simulcasting more than 25% of
its programming on another station in the same broadcast service (i.e., AM-AM
or FM-FM) where the two stations service substantially the same geographical
area, where the licensee owns those stations or owns one and programs the other
through an LMA arrangement. The FCC has specifically revised its
"cross-interest" policy to make that policy inapplicable to time brokerage
arrangements. Under its current policies, the FCC does not attribute LMAs
between television stations to the station or entity providing programming. In
connection with its review of its attribution rules, as discussed below, the
FCC has proposed to attribute television LMAs in the same fashion as LMAs
between radio stations. Concurrently, the FCC is considering whether and for
how long to "grandfather" existing television LMAs if the LMA would result in
an attributable interest for the brokering station or entity.
Joint Sales Agreements. Another example of a cooperative agreement between
differently owned radio stations in the same market is a joint sales agreement
("JSA"), whereby one station sells advertising time in combination, both on
itself and on a station under separate ownership. In the past the FCC has
determined that issuance of joint advertising sales should be left to antitrust
enforcement. Currently JSAs are not deemed by the FCC to be attributable.
However, the FCC has outstanding a notice of proposed rule making, which, if
adopted, would require Emmis to terminate any JSA it might have with a radio
station with which Emmis could not have an LMA.
Recent Developments and Proposed Changes. The FCC in March 1992 initiated
an inquiry and rule making proceeding in which it solicited comment on whether
it should alter its ownership attribution rules, and initiated a further rule
making proceeding in December 1994 to solicit additional public comment on
amending those rules. Among the issues being explored in the proceeding are:
- whether the FCC should raise the benchmarks for determining voting
stock interests to be "attributable" from 5% to 10% for those
stockholders other than passive institutional investors, and from 10%
to 20% for passive institutional investors;
- whether to consider non-voting stock interests to be attributable
under the multiple ownership rules (at present such interests are not
attributable);
- whether to consider generally attributable voting stock interests
which account for a minority of the issued and outstanding shares of
voting stock of a corporate licensee, where the majority of the
corporation's voting stock is held by a single stockholder; and
- whether to adopt a new attribution policy under which the FCC would
scrutinize multiple "cross interests" or other significant business
relationships which are held in combination among ostensibly
arm's-length competing broadcasters in the same market to determine
whether combined interests which individually would not raise concerns
as to potential diminution of competition and diversity of viewpoints
would nonetheless raise such concerns in light of the totality of the
relationships among the parties (including, e.g., LMAs, JSAs, debt
relationships, holdings of non-attributable interests, or other
relationships among competing broadcasters in the same market).
In November 1996, the FCC issued a second further notice of proposed rule
making in which, in addition to the attribution proposals outlined above, it
sought comment on whether the FCC should modify its attribution rules by, among
other changes:
- attributing ownership in situations where an entity:
(1) holds a non-attributable equity or debt interest in a broadcast
licensee that exceeds a minimum threshold and
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(2) either supplies programming to the licensee or owns a daily
newspaper, cable system or broadcast station in the same market as
the licensee ("Equity/Debt Plus Rule");
- attributing interests in LMAs between television stations in the same
market; and
- attributing interests in JSAs, under which a third party purchases the
right to sell a licensee's commercial time inventory, but the owner of
the license continues to program its station.
With respect to application of the Equity/Debt Plus Rule, if adopted, the
Commission may grandfather equity/debt plus relationships that were in existence
as of December 15, 1994, or require parties to terminate such relationships
within a short period of time following the rule's adoption. We cannot predict
when or whether any of these attribution proposals will ultimately be adopted by
the FCC.
In April 1997, the FCC adopted rules authorizing delivery of digital audio
radio service on a nationwide basis by satellite ("SDARS"). At the same time,
the FCC put out for comment a proposal to permit SDARS to be supplemented by
terrestrial transmitters designed to fill "gaps" in satellite coverage. The FCC
has awarded two nationwide licenses for SDARS and a third company has applied
for a license. It is anticipated that SDARS, when implemented, will be capable
of delivering multiple channels of compact-disc quality sound which will be
receivable through the use of special receiving antennas.
In October 1998, in response to a petition filed by USA Digital Radio, the
FCC sought comment on whether to initiate a proceeding to adopt rules for the
delivery of digital audio broadcasting on a local basis by terrestrial stations
utilizing existing broadcasting frequencies. As proposed, digital audio
broadcasting would permit existing AM and FM stations to operate in either full
analog, hybrid or full digital modes on their current frequencies.
Also in April 1997, the FCC adopted rules that require television
broadcasters to provide digital television ("DTV") to consumers. The FCC also
adopted a table of allotments for DTV, which provides eligible existing
broadcasters with a second channel on which to provide DTV service. The FCC's
DTV allotment plan is based on the use of a "core" DTV spectrum between channels
2-51. The Communications Act mandates that unless certain benchmarks are not
satisfied, by the end of 2006 the FCC must recover the channels currently used
for analog broadcasting. Television broadcasters will be allowed to use their
channels according to their best business judgment. Such uses can include
multiple standard definition program channels, data transfer, subscription
video, interactive materials, and audio signals (so-called "ancillary"
services), although broadcasters will be required to provide a free digital
video programming service that is at least comparable to today's analog service.
The FCC has imposed a fee of 5% of the annual gross revenues for television
broadcasters' use of the DTV spectrum to offer ancillary services (i.e.,
services other than free, over-the-air, advertiser-supported television). The
form and amount of these fees may have a significant effect on the profitability
of such services. Broadcasters will not be required to air "high definition"
programming or, initially, to simulcast their analog programming on the digital
channel. Affiliates of ABC, CBS, NBC and Fox in the top 10 television markets
were required to be on the air with a digital signal by May 1, 1999. Affiliates
of those networks in markets 11-30 are required to be on the air with digital
signals by November 1, 1999, and the remaining commercial stations, including
those owned by Emmis, are required to file DTV construction permit applications
by November 1, 1999 and to be on the air with digital signals by May 1, 2002.
The FCC stated that broadcasters will remain public trustees and that it will
issue a notice to determine the extent of broadcasters' future public interest
obligations.
In August 1998, the FCC adopted rules to govern the use of auctions to
resolve competing applications for initial licenses and construction permits and
competing applications for major modifications to existing commercial broadcast
facilities. The rules apply to full power commercial radio and analog television
stations, as well as to all secondary commercial broadcast services (e.g., low
power television, FM translator and television translator services). Currently,
pending applications for major modifications are "frozen" and will not be acted
upon by the FCC. Our pending and future applications for major modifications may
become subject to auction proceedings if
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they are found to be mutually exclusive with major modification applications
filed by other radio licensees or applications for new stations.
On March 13, 1998, the FCC approved a television programming rating system
developed by the television industry which will allow parents to "black-out"
programs that contain material they consider inappropriate for children. On
March 13, 1998, the FCC also adopted technical requirements for the
implementation of so-called "v-chip technology" which will enable parents to
program television sets so that certain programming will be inaccessible to
children.
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). The FCC began
implementing the requirements of the 1992 Cable Act in 1993, and final
implementation proceedings remain pending regarding certain of the rules and
regulations previously adopted. Certain statutory provisions, such as signal
carriage and retransmission consent, have a direct effect on television
broadcasting. Other provisions are focused exclusively on the regulation of
cable television but can still be expected to have an indirect effect on Emmis
because of the competition between over-the-air television stations and cable
systems.
The signal carriage, or "must carry," provisions of the 1992 Cable Act
require cable operators to carry the signals of local commercial and
non-commercial television stations and certain low power television stations.
The U.S. Supreme Court upheld the constitutionality of the must-carry provisions
of the 1992 Cable Act in 1997. Systems with 12 or fewer usable activated
channels and more than 300 subscribers must carry the signals of at least three
local commercial television stations. A cable system with more than 12 usable
activated channels, regardless of the number of subscribers, must carry the
signals of all local commercial television stations, up to one-third of the
aggregate number of usable activated channels of such a system. The 1992 Cable
Act also includes a retransmission consent provision that prohibits cable
operators and other multi-channel video programming distributors ("MVPDs") from
carrying broadcast signals without obtaining the station's consent in certain
circumstances. The "must carry" and retransmission consent provisions are
related in that a local television broadcaster, on a cable system-by-cable
system basis, must make a choice once every three years whether to proceed under
the "must carry" rules or to waive the right to mandatory but uncompensated
carriage and negotiate a grant of retransmission consent to permit the cable
system to carry the station's signal, in most cases in exchange for some form of
consideration from the cable operator. Cable systems and other MVPDs must obtain
retransmission consent to carry all distant commercial stations other than
"super stations" delivered via satellite.
Whether and to what extent such must-carry rights will extend to the new
digital television signals discussed above to be broadcast by licensed
television stations (including those to be owned by Emmis) over the next several
years is still a matter to be determined by a rule making proceeding initiated
by the FCC in July 1998. The rule making proceeding also seeks comment on
related issues, including how to resolve technical compatibility problems,
whether the FCC should modify its signal quality requirement during the
transition, how to regulate channel placement of digital television signals and
whether such signals must be carried on the basic cable tier. We cannot predict
at this time whether the FCC will adopt "must carry" requirements for digital
television signals or the effect of an FCC decision on our television stations.
The FCC has authorized the provision of video programming directly to home
subscribers through high-powered direct broadcast satellites ("DBS"). DBS
systems currently are capable of broadcasting as many as 175 channels of digital
television service directly to subscribers' equipment with 18-inch receiving
dishes and decoders. Currently, several entities provide DBS service to
consumers throughout the country. Other DBS operators hold licenses, but have
not yet commenced service. Generally, the signals of local television broadcast
stations are not carried on DBS systems although Congress is considering
legislation which would permit carriage of local stations. DBS operators may not
import distant network signals into local television markets unless the
individual household that would receive the distant network signal is not
capable of receiving a sufficiently strong signal of the local affiliate of the
given network. In 1998, several federal judges found that certain DBS operators
had unlawfully provided distant network signals to households that were not
eligible to receive them and ordered the
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operators to cease providing the illegal signals. In response to these
decisions, Congress is contemplating whether to enact legislation that would
give DBS operators more flexibility in providing distant network signals to
particular households. We cannot predict whether this legislation will pass,
but if it does it could adversely affect our television stations by reducing
the number of households that receive the television signals of our stations.
As part of the ongoing examination of its broadcast ownership rules, the
FCC is considering whether to permit a single entity to own television stations
covering more than 35% of the national television homes. The FCC is also
considering whether to eliminate the 50% discount credited to UHF television
stations in calculating compliance with the national ownership cap. The Congress
and the FCC have under consideration, and may in the future consider and adopt,
new laws, regulations and policies regarding a wide variety of matters that
could, directly or indirectly, affect the operation, ownership and profitability
of our broadcast stations, result in the loss of audience share and advertising
revenues for our broadcast stations and affect our ability to acquire additional
broadcast stations or finance such acquisitions. Such matters include:
- proposals to impose spectrum use or other fees on FCC licensees;
- the FCC's equal employment opportunity rules and other matters
relating to minority and female involvement in the broadcasting
industry;
- proposals to repeal or modify some or all of the FCC's multiple
ownership rules and/or policies;
- proposals to increase the benchmarks or thresholds for attributing
ownership interests in broadcast media;
- proposals to change rules relating to political broadcasting,
including the reinstatement of the so-called "fairness doctrine";
- technical and frequency allocation matters;
- AM stereo broadcasting;
- proposals to permit expanded use of FM translator stations;
- proposals to restrict or prohibit the advertising of beer, wine and
other alcoholic beverages on radio;
- proposals permitting FM stations to accept formerly impermissible
interference;
- changes in the FCC's alien ownership, cross-interest, multiple
ownership and cross-ownership policies;
- proposals to reimpose holding periods for licenses;
- changes to broadcast technical requirements, including those relative
to the implementation of digital audio broadcasting and satellite
digital audio radio service;
- proposals to tighten safety guidelines relating to radio frequency
radiation exposure; and
- proposals to limit the tax deductibility of advertising expenses by
advertisers.
We cannot predict whether any proposed changes will be adopted, what other
matters might be considered in the future, or what impact, if any, the
implementation of any of these proposals or changes might have on our business.
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The foregoing is only a brief summary of certain provisions of the
Communications Act and of specific FCC regulations. Reference is made to the
Communications Act, FCC regulations and the public notices and rulings of the
FCC for further information concerning the nature and extent of federal
regulation of broadcast stations.
ADVERTISING SALES
Our stations derive their advertising revenue from local and regional
advertising in the marketplaces in which they operate, as well as from the sale
of national advertising. Local and most regional sales are made by a station's
sales staff. National sales are made by firms specializing in such sales which
are compensated on a commission-only basis. We believe that the volume of
national advertising revenue tends to adjust to shifts in a station's audience
share position more rapidly than does the volume of local and regional
advertising revenue.
We have led the industry in developing "vendor co-op" advertising revenue
(i.e., revenue from a manufacturer or distributor which is used to promote its
particular goods together with local retail outlets for those goods). Although
this source of advertising revenue is common in the newspaper and magazine
industry, we were among the first radio broadcasters to recognize, and take
advantage of, the potential of vendor co-op advertising. Our Revenue Development
Systems division has established a network of radio stations which share
information about sources of vendor co-op revenue. In addition, each of our
stations has a salesperson devoted exclusively to the development of cooperative
advertising. We also use this approach at our television stations. At the end of
the last fiscal year we acquired substantially all of the assets of the
Co-Opportunities division of Jefferson-Pilot Communications. We believe that the
business of Co-Opportunities (which focuses more on co-op advertising for
television stations and cable systems) provides an excellent complement to
Revenue Development Systems.
COMPETITION
Radio and television broadcasting stations compete with the other
broadcasting stations in their respective market areas, as well as with other
advertising media such as newspapers, magazines, outdoor advertising, transit
advertising, the Internet and direct mail marketing. Competition within the
broadcasting industry occurs primarily in individual market areas, so that a
station in one market does not generally compete with stations in other market
areas. In each of our markets, our stations face competition from other stations
with substantial financial resources, including stations targeting the same
demographic groups. In addition to management experience, factors which are
material to competitive position include the station's rank in its market,
authorized power, assigned frequency, audience characteristics, local program
acceptance and the number and characteristics of other stations in the market
area. We attempt to improve our competitive position with programming and
promotional campaigns aimed at the demographic groups targeted by our stations,
and through sales efforts designed to attract advertisers that have done little
or no broadcast advertising by emphasizing the effectiveness of radio and
television advertising in increasing the advertisers' revenues. Recent changes
in the policies and rules of the FCC permit increased joint ownership and joint
operation of local stations. Those stations taking advantage of these joint
arrangements may in certain circumstances have lower operating costs and may be
able to offer advertisers more attractive rates and services. Although we
believe that each of our stations can compete effectively in its market, there
can be no assurance that any of our stations will be able to maintain or
increase its current audience ratings or advertising revenue market share.
Although the broadcasting industry is highly competitive, some barriers to
entry exist. The operation of a broadcasting station in the United States
requires a license from the FCC, and the number of stations that can operate in
a given market is limited by the availability of the frequencies that the FCC
will license in that market, as well as by the FCC's multiple ownership rules
regulating the number of stations that may be owned and controlled by a single
entity. The FCC's multiple ownership rules have changed significantly as a
result of the Telecommunications Act of 1996.
The broadcasting industry historically has grown in terms of total revenues
despite the introduction of new technology for the delivery of entertainment and
information, such as cable television, audio tapes and compact
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discs. We believe that radio's portability in particular makes it less
vulnerable than other media to competition from new methods of distribution or
other technological advances. There can be no assurance, however, that the
development or introduction in the future of any new media technology will not
have an adverse effect on the radio or television broadcasting industry.
EMPLOYEES
As of February 28, 1999 Emmis had approximately 1,268 full-time employees
and approximately 283 part-time employees. We have approximately 208 employees
at various radio and television stations represented by unions. We consider
relations with our employees to be excellent.
ITEM 2. PROPERTIES.
The following table sets forth information as of February 28, 1999 with
respect to Emmis' offices and studios and its broadcast tower locations.
Management believes that the properties are in good condition and are suitable
for Emmis' operations.
<TABLE>
<CAPTION>
EXPIRATION
YEAR PLACED OWNED OR DATE
PROPERTY IN SERVICE LEASED OF LEASE
- -------- ----------- -------- ----------
<S> <C> <C> <C>
Corporate and Publishing Headquarters/ 1998 Owned --
WENS-FM/ WIBC-AM/WNAP-FM/
WTLC-AM & FM/ Indianapolis Monthly
One Emmis Plaza
40 Monument Circle
Indianapolis, Indiana
WENS-FM Tower 1985 Owned --
WNAP-FM Tower 1979 Owned --
WIBC-AM Tower 1966 Owned --
WTLC-AM Tower 1965 Leased May 2021
WTLC-FM Tower 1968 Leased December 2000
KSHE-FM 1986 Leased September 2007
700 St. Louis Union Station
St. Louis, Missouri
KSHE-FM Tower 1986 Leased September 2009
WXTM-FM/WKKX-FM 1988 Leased September 2007
800 St. Louis Union Station
St. Louis, Missouri
WXTM-FM Tower 1984 Owned --
WKKX-FM Tower 1989 Leased September 2009
KPWR-FM 1988 Leased February 2003
2600 West Olive
Burbank, California
KPWR-FM Tower 1993 Leased March 2003(1)
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C> <C> <C>
WQHT-FM/WRKS-FM/WQCD-FM 1996 Leased January 2013
395 Hudson Street, 7th Floor
New York, New York
WQHT-FM Tower 1988 Leased Month-to-Month
WRKS-FM Tower 1992 Leased November 2005
WQCD-FM Tower 1992 Leased March 2007
WKQX-FM 1979 Leased July 1999(2)
Merchandise Mart Plaza
Chicago, Illinois
WKQX-FM Tower 1975 Leased September 1999(2)
Atlanta Magazine Office 1993 Leased February 2003
1360 Peachtree Street
Atlanta, Georgia
Cincinnati Magazine 1996 Leased September 2001
One Centennial Plaza
Cincinnati, OH
Texas Monthly 1989 Leased August 2008
701 Brazos, Suite 1600
Austin, TX
KHON-TV 1987 Leased September 1999(3)
1170 Auahi Street
Honolulu, HI
KHON-TV Tower 1978 Leased December 2018
WALA-TV 1996 Leased May 2001
210 government Street
Mobile, AL
WALA-TV Tower 1987 Owned --
WFTX-TV 1987 Owned --
621 Pine Island Road
Cape Coral, FL
WFTX-TV Tower 1987 Owned --
WLUK-TV 1966 Owned --
787 Lombardi Avenue
Green Bay, WI
WLUK-TV Tower 1961 Owned --
WTHI-TV/AM/FM/WWVR-FM 1954 Owned --
918 Ohio Street
Terre Haute, IN
WTHI-TV Tower 1965 Owned --
WTHI-AM/FM Tower 1954 Owned --
WWVR-FM Tower 1954 Owned --
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C> <C> <C>
WVUE-TV 1972 Owned --
1025 South Jefferson Davis Highway
New Orleans, LA
WVUE-TV Tower 1963 Owned --
</TABLE>
- --------------
(1) The lease provides for one renewal option of ten years following the
expiration date. Emmis also owns a tower site which it placed in service in
1984 and currently uses as a back-up facility and on which it leases space
to other broadcasters.
(2) Emmis is in the process of negotiating a new lease with the lessor.
(3) Emmis expects to move into a new studio facility prior to the expiration
of the lease.
ITEM 3. LEGAL PROCEEDINGS.
Emmis currently and from time to time is involved in litigation incidental
to the conduct of its business, but Emmis is not a party to any lawsuit or
proceeding which, in the opinion of management, is likely to have a material
adverse effect on the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to shareholders during Emmis' fourth quarter.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Emmis' Class A Common Stock is traded in the over-the-counter market and is
quoted on the National Association of Securities Dealers Automated Quotation
(NASDAQ) National Market System under the symbol EMMS.
The following table sets forth the high and low sale prices of the Class A
Common Stock for the periods indicated. No dividends were paid during any such
periods.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
<S> <C> <C>
May 1997...............................39.25 33.75
August 1997............................49.75 36.50
November 1997..........................47.88 43.25
February 1998..........................49.50 44.00
May 1998...............................55.06 43.13
August 1998............................48.75 37.50
November 1998..........................38.75 25.25
February 1999..........................51.25 34.69
</TABLE>
At April 30, 1999, there were approximately 1,439 record holders of the
Class A Common Stock, and there were two record holders, but only one beneficial
owner, of the Class B Common Stock.
Emmis intends to retain future earnings for use in its business and does
not anticipate paying any dividends on shares of its common stock in the
foreseeable future.
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<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
----------------------------
(in thousands, except per share data)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues $74,604 $109,244 $113,720 $140,583 $232,836
Operating expenses 45,990 62,466 62,433 81,170 143,348
International business development expenses 313 1,264 1,164 999 1,477
Corporate expenses 3,700 4,419 5,929 6,846 10,427
Time brokerage fee - - - 5,667 2,220
Depreciation and amortization 3,827 5,677 5,481 7,536 28,314
Noncash compensation 600 3,667 3,465 1,482 4,269
Operating income 20,174 31,751 35,248 36,883 42,781
Interest expense 7,849 13,540 9,633 13,772 35,650
Loss on donation of radio station - - - 4,833 -
Other income (expense), net (170) (303) 325 6 1,914
Income before income taxes and extraordinary item 12,155 17,908 25,940 18,284 9,045
Income before extraordinary item 7,627 10,308 15,440 11,084 2,845
Net income 7,627 10,308 15,440 11,084 1,248
Basic net income per share $0.72 $0.96 $1.41 $1.02 $0.09
Diluted net income per share $0.70 $0.93 $1.37 $0.98 $0.08
Weighted average common shares outstanding:
Basic 10,557 10,691 10,943 10,903 14,453
Diluted 10,832 11,084 11,291 11,362 14,848
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28 (29),
-------------------------------------------------------------
(Dollars in thousands)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash $ 3,205 $ 1,218 $ 1,191 $ 5,785 $ 6,117
Working capital 10,088 14,761 15,463 21,635 1,249
Net intangible assets 139,729 135,830 131,743 234,558 802,307
Total assets 183,441 176,566 189,716 333,388 1,014,831
Credit facility and senior subordinated debt 152,000 124,000 115,000 215,000 577,000
Shareholders' equity (deficit) (2,661) 13,884 34,422 43,910 235,549
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 (29),
----------------------------
(Dollars in thousands)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Broadcast/publishing cash flow (1) $ 28,614 $ 46,778 $ 51,287 $ 59,413 $ 89,488
Adjusted EBITDA (1) 24,601 41,095 44,194 51,568 77,584
Cash flows from (used in):
Operating activities 15,480 23,221 21,362 22,487 35,121
Investing activities (102,682) 222 (13,919) (116,693) (541,470)
Financing activities 88,800 (25,430) (7,470) 98,800 506,681
Capital expenditures 1,081 1,396 7,559 16,991 37,383
</TABLE>
- ---------------
(1) Broadcast/publishing cash flow and adjusted EBITDA are not measures
of liquidity or of performance in accordance with generally accepted
accounting principles, and should be viewed as a supplement to and
not a substitute for Emmis' results of operations presented on the
basis of generally accepted accounting principles.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
GENERAL
The company evaluates performance of its operating entities based on
broadcast cash flow (BCF) and publishing cash flow (PCF). Management believes
that BCF and PCF are useful because they provide a meaningful comparison of
operating performance between companies in the industry and serve as an
indicator of the market value of a group of stations or publishing entities. BCF
and PCF are generally recognized by the broadcast and publishing industries as a
measure of performance and are used by analysts who report on the performance of
broadcasting and publishing groups. BCF and PCF do not take into account Emmis'
debt service requirements and other commitments and, accordingly, BCF and PCF
are not necessarily indicative of amounts that may be available for dividends,
reinvestment in Emmis' business or other discretionary uses. BCF and PCF are not
measures of liquidity or of performance in accordance with generally accepted
accounting principles, and should be viewed as a supplement to and not a
substitute for our results of operations presented on the basis of generally
accepted accounting principles. Moreover, BCF and PCF are not standardized
measures and may be calculated in a number of ways. Emmis defines BCF and PCF as
revenues net of agency commissions and operating expenses. The primary source of
broadcast advertising revenues is the sale of advertising time to local and
national advertisers. Publishing entities derive revenue from subscriptions and
sale of print advertising. The most significant broadcast operating expenses are
employee salaries and commissions, costs associated with programming,
advertising and promotion, and station general and administrative costs.
Significant publishing operating expenses are employee salaries and commissions,
costs associated with producing the magazine, and general and administrative
costs.
The Company's revenues are affected primarily by the advertising rates its
entities charge. These rates are in large part based on the entities' ability to
attract audiences/subscribers in demographic groups targeted by their
advertisers. Broadcast entities ratings are measured principally four times a
year by Arbitron Radio Market Reports for radio stations and by A.C. Nielsen
Company for television stations. Because audience ratings in a station's local
market are critical to the station's financial success, the Company's strategy
is to use market research and advertising and promotion to attract and retain
audiences in each station's chosen demographic target group.
In addition to the sale of advertising time for cash, stations typically
exchange advertising time for goods or services which can be used by the station
in its business operations. The Company generally confines the use of such trade
transactions to promotional items or services for which the Company would
otherwise have paid cash. In
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<PAGE> 26
addition, it is the Company's general policy not to pre-empt advertising spots
paid for in cash with advertising spots paid for in trade.
ACQUISITIONS
On April 1, 1999, Emmis acquired substantially all the assets of Country
Sampler, Inc. for approximately $19.0 million in cash, $2.0 million payable
under contract with the principal shareholder through April 2003, and assumed
liabilities of approximately $3.4 million (the "Country Sampler Acquisition").
The acquisition was accounted for as a purchase and was financed through
additional borrowings under the Company's amended and restated credit facility
(Credit Facility).
Effective October 1, 1998, the Company completed its acquisition of
substantially all of the assets of Wabash Valley Broadcasting Corporation (the
"Wabash Acquisition"), the seller, for a cash purchase price of $88.9 million
(including transaction costs), plus assumed program rights payable and other
liabilities of approximately $12.2 million. The Company financed the acquisition
through borrowings under the Credit Facility. The Wabash Acquisition consists of
WFTX-TV, a Fox network affiliated television station in Ft. Myers, Florida,
WTHI-TV a CBS network affiliated television station in Terre Haute, Indiana,
WTHI-FM and AM and WWVR-FM, radio stations located in the Terre Haute, Indiana
area.
On July 16, 1998, the Company completed its acquisition of substantially
all of the assets of SF Broadcasting of Wisconsin, Inc. and SF Multistations,
Inc. and Subsidiaries (collectively the "SF Acquisition"), the seller, for a
cash purchase price of $287.3 million (including transaction costs), a $25
million promissory note due to the former owner, plus assumed program rights
payable and other liabilities of approximately $34.7 million. The Company
financed the acquisition through a $25 million promissory note and borrowings
under the Credit Facility. The promissory note was paid in full in February
1999. The SF Acquisition consists of four Fox network affiliated television
stations: WLUK-TV in Green Bay, Wisconsin, WVUE-TV in New Orleans, Louisiana,
WALA-TV in Mobile, Alabama, and KHON-TV in Honolulu, Hawaii (including McHale
Videofilm and satellite stations KAII-TV, Wailuku, Hawaii, and KHAW-TV, Hilo,
Hawaii).
On June 5, 1998, the Company completed its acquisition of radio station
WQCD-FM in New York City (the "WQCD Acquisition") from Tribune New York Radio,
Inc. for a cash purchase price of $141.6 million (including transaction costs)
less approximately $13.0 million for cash purchase price adjustments relating to
taxes, plus $20.0 million of net current tax liabilities, $52.5 million of
deferred tax liabilities and $0.3 million of liabilities associated with the
acquisition. The acquisition was accounted for as a purchase and was financed
through additional bank borrowings. Effective July 1, 1997 through the date of
closing, the Company operated WQCD-FM under a time brokerage agreement.
On February 1, 1998, the Company acquired all of the outstanding capital
stock of Mediatex Communications Corporation for approximately $37.4 million in
cash plus assumed liabilities of $8.0 million (the "Mediatex Acquisition").
Mediatex Communications Corporation owns and operates Texas Monthly, a regional
magazine. The acquisition was accounted for as a purchase and was financed
through additional bank borrowings.
On November 1, 1997, the Company acquired substantially all of the net
assets of Cincinnati Magazine from CM Media, Inc. for approximately $2.0 million
in cash (the "Cincinnati Acquisition"). Emmis financed the acquisition through
additional bank borrowings. The acquisition was accounted for as a purchase.
On November 1, 1997, the Company completed its acquisition of substantially
all of the assets of WTLC-FM and AM in Indianapolis from Panache Broadcasting,
L.P. for approximately $15.3 million in cash (the "Indianapolis Acquisition").
Emmis financed the acquisition through additional bank borrowings. The
acquisition was accounted for as a purchase.
26
<PAGE> 27
Emmis owns a 54% interest in a Hungarian subsidiary (Slager Radio Rt.)
which was formed in August 1997. In November 1997, Slager Radio acquired a radio
broadcasting license from the Hungarian government at a cost of approximately
$19.2 million. The broadcast license has an initial term of seven years and is
subject to renewal for an additional five years. Slager Radio began broadcasting
on February 16, 1998.
On October 1, 1997, the Company acquired the assets of Network Indiana and
AgriAmerica from Wabash Valley Broadcasting Corporation for $.7 million in cash
(the "Network Acquisition"). Emmis financed the acquisition through additional
bank borrowings. The acquisition was accounted for as a purchase.
On March 31, 1997, Emmis completed its acquisition of substantially all of
the assets of radio stations WXTM-FM (formerly WKBQ-FM and WALC-FM), WALC-AM
(formerly WKBQ-AM) and WKKX-FM in St. Louis (the "St. Louis Acquisition") from
Zimco, Inc. for approximately $43.6 million in cash, plus an agreement to
broadcast approximately $1 million in trade spots, for Zimco, Inc., over a
period of years. The purchase price was financed through additional bank
borrowings and the acquisition was accounted for as a purchase. In February
1998, the Company donated radio station WALC-AM to a church. The $4.8 million
net book value of the station at the time of donation was recognized as a loss
on donation of radio station. Effective December 1, 1996 through the date of
closing, the Company operated the acquired stations under a time brokerage
agreement.
RESULTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1999 COMPARED TO YEAR ENDED FEBRUARY 28, 1998. Net
revenues for the year ended February 28, 1999 were $232.8 million compared to
$140.6 million for the same period of the prior year, an increase of $92.2
million or 65.6%. This increase was principally due to the Indianapolis,
Cincinnati and Mediatex Acquisitions that occurred toward the end of fiscal 1998
and the SF and Wabash Acquisitions that occurred in fiscal 1999 (collectively
the "98/99 Acquisitions"). Additionally, Emmis realized higher advertising rates
at its broadcasting properties, resulting from higher ratings at certain
broadcasting properties, as well as increases in general radio spending in the
markets in which the Company operates. On a pro forma basis, net revenues would
have increased $22.2 million or 9.2% for the year. For purposes herein, pro
forma information assumes the 98/99 Acquisitions and the WQCD Acquisition were
effective on the first day of the year ended February 28, 1998.
Operating expenses for the year ended February 28, 1999 were $143.3 million
compared to $81.2 million for the same period of the prior year, an increase of
$62.1 million or 76.6%. This increase was principally attributable to the 98/99
Acquisitions and increased promotional spending at the Company's broadcasting
properties. On a pro forma basis, operating expenses would have increased $7.9
million or 5.0% for the year.
Broadcast/publishing cash flow for the year ended February 28, 1999 was
$89.5 million compared to $59.4 million for the same period of the prior year,
an increase of $30.1 million or 50.6%. This increase was due to increased net
revenues partially offset by increased operating expenses as discussed above. On
a pro forma basis, broadcast/publishing cash flow would have increased $14.3
million or 17.1% for the year.
Corporate expenses for the year ended February 28, 1999 were $10.4 million
compared to $6.8 million for the same period of the prior year, an increase of
$3.6 million or 52.3%. This increase was primarily due to an increase in the
number of corporate employees as a result of the growth of the Company and
increased travel and other expenses related to potential acquisitions that were
not finalized.
Adjusted EBITDA is defined as broadcast/publishing cash flow less corporate
and international development expenses. Adjusted EBITDA for the year ended
February 28, 1999 was $77.6 million compared to $51.6 million for the same
period of the prior year, an increase of $26.0 million or 50.4%. This increase
was principally due to the increase in broadcast/publishing cash flow partially
offset by an increase in corporate expenses. On a pro forma basis, adjusted
EBITDA would have increased $10.9 million or 14.5% for the year.
27
<PAGE> 28
Interest expense was $35.7 million for the year ended February 28, 1999
compared to $13.8 million for the same period of the prior year, an increase of
$21.9 million or 158.9%. This increase reflected higher outstanding debt due to
the 98/99 Acquisitions and the WQCD Acquisition. On a pro forma basis, interest
expense would have increased $1.9 million or 3.9% for the year.
Depreciation and amortization expense for the year ended February 28, 1999
was $28.3 million compared to $7.5 million for the same period of the prior
year, an increase of $20.8 million or 275.7%. This increase was primarily due to
the 98/99 Acquisitions and the WQCD Acquisition. On a pro forma basis,
depreciation and amortization expense would have increased $5.0 million or
16.3%.
Non-cash compensation expense for the year ended February 28, 1999 was $4.3
million compared to $1.5 million for the same period of the prior year, an
increase of $2.8 million or 188.1%. Non-cash compensation includes compensation
expense associated with stock options granted, restricted common stock issued
under employment agreements and common stock contributed to the Company's Profit
Sharing Plan. The increase in non-cash compensation relates primarily to options
awarded the CEO in fiscal 1999 under his employment contract which similar
options were not awarded in fiscal 1998.
In April 1999, the Fox Network made a proposal to decrease the number of
commercials available for sale by local TV affiliates. If this proposal is
implemented, the Company expects its broadcast cash flow would decrease by
approximately $1.0 million.
YEAR ENDED FEBRUARY 28, 1998 COMPARED TO YEAR ENDED FEBRUARY 28, 1997. Net
revenues for the year ended February 28, 1998 were $140.6 million compared to
$113.7 million for the same period of the prior year, an increase of $26.9
million or 23.6%. This increase was principally due to the St. Louis
Acquisition, the Operation of WQCD-FM, and the ability to realize higher
advertising rates at the Company's broadcasting properties, resulting from
higher ratings at certain broadcasting properties, as well as increases in
general radio spending in the markets in which the Company operates.
Operating expenses for the year ended February 28, 1998 were $81.2 million
compared to $62.4 million for the same period of the prior year, an increase of
$18.8 million or 30.0%. This increase was principally attributable to the St.
Louis Acquisition, the Operation of WQCD-FM and increased promotional spending
at the Company's broadcasting properties.
Broadcast/publishing cash flow for the year ended February 28, 1998 was
$59.4 million compared to $51.3 million for the same period of the prior year,
an increase of $8.1 million or 15.8%. This increase was due to increased net
revenues partially offset by increased operating expenses as discussed above.
Corporate expenses for the year ended February 28, 1998 were $6.8 million
compared to $5.9 million for the same period of the prior year, an increase of
$.9 million or 15.5%. This increase was primarily due to increased travel
expenses and other expenses related to potential acquisitions that were not
finalized and increased professional fees.
Adjusted EBITDA is defined as broadcast/publishing cash flow less corporate
and international development expenses. Adjusted EBITDA for the year ended
February 28, 1998 was $51.6 million compared to $44.2 million for the same
period of the prior year, an increase of $7.4 million or 16.7%. This increase
was principally due to the increase in broadcast/publishing cash flow partially
offset by an increase in corporate expenses.
Interest expense was $13.8 million for the year ended February 28, 1998
compared to $9.6 million for the same period of the prior year, an increase of
$4.2 million or 43.0%. This increase reflected higher outstanding debt due to
the St. Louis Acquisition and the write-off of deferred financing costs
associated with refinancing of the
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<PAGE> 29
Company's bank debt, offset by voluntary repayments made thereunder and a rate
decrease associated with the refinancing.
Depreciation and amortization expense for the year ended February 28, 1998
was $7.5 million compared to $5.5 million for the same period of the prior year,
an increase of $2.0 million or 37.5%. This increase was primarily due to the
Mediatex, Indianapolis, and St. Louis Acquisitions.
Non-cash compensation expense for year the ended February 28, 1998 was $1.5
million compared to $3.5 million for the same period of the prior year, a
decrease of $2.0 million or 57.2%. Non-cash compensation includes compensation
expense associated with stock options granted, restricted common stock issued
under employment agreements and common stock contributed to the Company's Profit
Sharing Plan. This decrease was due primarily to options under an employment
contract awarded to the CEO in fiscal 1997 which similar options were not
awarded in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
In June 1998, Emmis completed the sale of 4.6 million shares of its Class A
Common Stock at $42.00 per share resulting in total proceeds of $193.0 million.
Net proceeds from the offering were used to repay outstanding obligations under
the Credit Facility.
On July 16, 1998, the Company entered into the Credit Facility for $750.0
million, which may be increased up to $1.0 billion. The Credit Facility matures
on August 31, 2006, except for the Term Note which matures on February 28, 2007,
and is comprised of (1) a $400.0 million revolving credit facility which is
subject to certain adjustments as defined in the Credit Facility, (2) a $250.0
million term note and (3) a $100.0 million revolving acquisition credit
facility/term note. This Credit Facility is available for general corporate
purposes and acquisitions. Amounts borrowed under the Credit Facility bear
interest at a variable rate based on an index chosen by the Company. The
commitments under the 8-year revolving credit facility, 8-year revolving
acquisition Credit Facility/term loan are subject to scheduled annual reductions
beginning in 2001 and to additional reductions from the net proceeds of asset
sales if the Company's ratio of total indebtedness to operating cash flow
exceeds a specified level. As of February 28, 1999, Emmis had $473.0 million
available for borrowing under its Credit Facility.
In February 1999, Emmis completed the sale of $300.0 million of senior
subordinated notes that mature in February 2009 (the "Notes"). The Notes bear
interest at 8 1/8% with interest payments due semi-annually on September and
March 15. Net proceeds of the Notes were used to repay a $25 million promissory
note and the related $1.1 million accrued interest due to SF Broadcasting in
connection with the purchase of four television stations and outstanding
obligations under the Credit Facility. Up to 35% of the Notes can be redeemed
prior to March 15, 2002 with the net proceeds of a public offering and the Notes
can be 100% redeemed on or after March 15, 2004.
In connection with the acquisition of KHON-TV in Honolulu, Hawaii, in July
1998, Emmis acquired a commitment to complete the construction of new operating
facilities, including broadcast equipment, for the station. The project is
expected to be completed in the fall of 1999 for an estimated cost of
approximately $19.0 million of which $2.7 million has been incurred through
February 28, 1999.
In the fiscal years ended February 1997, 1998 and 1999, the Company had
capital expenditures of $7.6 million, $17.0 million, and $37.4 million,
respectively. These capital expenditures primarily consisted of progress
payments in connection with the Indianapolis office facility project, leasehold
improvements to office and studio facilities in connection with the
consolidation of its New York broadcast properties to a single location, and
broadcast equipment purchases and tower upgrades, respectively.
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<PAGE> 30
On April 1, 1999, the Company acquired substantially all the assets of
Country Sampler, Inc. for approximately $19.0 million in cash, $2.0 million
payable under contract with the principal shareholder through April 2003 and
assumed liabilities of approximately $3.4 million (the "Country Sampler
Acquisition"). The acquisition was accounted for as a purchase and was financed
through additional borrowings under the Credit Facility.
The Company expects cash flow from operating activities and borrowings
available under its Credit Facility will be sufficient to fund all debt service
for debt existing at February 28, 1999, working capital requirements, and
capital expenditure requirements for the next year.
IMPACT OF THE YEAR 2000
Emmis has completed its assessment phase of year 2000 compliance for
information technology for all of its radio broadcasting properties except those
included in the Wabash Valley Acquisition. The Company has also completed its
assessment of other equipment, including broadcast equipment and embedded
technology, at certain radio properties. Assessment of year 2000 compliance at
newly acquired television stations, corporate and publishing entities is
partially complete. Certain information technology and other equipment is
represented by its vendors to be year 2000 compliant. Technology and equipment
that is currently not represented as year 2000 compliant will be upgraded or
replaced, and tested prior to August 31, 1999. In connection with the move of
our corporate and Indianapolis operations to an office building in downtown
Indianapolis, substantially all information technology and other equipment in
the building has been replaced and is believed to be year 2000 compliant. Emmis
estimates that the cost of the remaining year 2000 remediation effort will be
approximately $2.0 million, which will be funded from current operations. Emmis
has not separately tracked costs incurred to date relating to year 2000
compliance; however, management believes that these costs have been
insignificant. Emmis has trained its employees regarding year 2000 issues and
compliance. Certain employees at each entity are responsible for year 2000
compliance. Emmis' information systems department is currently auditing the year
2000 compliance of each entity. This audit includes (1) verifying that critical
applications have been identified, (2) testing of critical applications, (3)
ensuring that year 2000 compliance documentation exists, (4) verifying that
remediation is occurring as planned and (5) developing written contingency
plans. The audit should be complete by August 31, 1999. If certain broadcast
equipment and information technology is not year 2000 compliant prior to January
1, 2000, an entity using that equipment and information technology might not be
able to broadcast and process transactions. If this were to occur, temporary
solutions or processes not involving the malfunctioning equipment could be
implemented. The contingency plans documented during the audit process would be
used to implement such temporary solutions.
INFLATION
The impact of inflation on the Company's operations has not been
significant to date. However, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on the Company's
operating results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GENERAL
Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of Emmis due to adverse changes in
financial and commodity market prices and rates. Emmis is exposed to market risk
from changes in domestic and international interest rates (i.e. prime and LIBOR)
and foreign currency exchange rates. To manage this exposure Emmis periodically
enters into interest rate derivative agreements. Emmis does not use financial
instruments for trading and is not a party to any leveraged derivatives.
30
<PAGE> 31
INTEREST RATES
At February 28 1999, Emmis' entire outstanding balance under the Credit
Facility, or approximately 48% of Emmis' Credit Facility and Senior Subordinated
Debt outstanding bears interest at variable rates. Emmis currently hedges a
portion of its outstanding debt with interest rate caps that effectively cap the
Credit Facility's underlying base rate at a weighted average rate of 7.1% on the
three-month LIBOR for agreements in place as of February 28, 1999. Assuming the
current level of borrowings protected under interest rate cap agreements and
that LIBOR increased from the rates at February 28, 1999 to the cap rates,
interest expense would have increased by $5.7 million and net income would have
decreased by $3.5 million. The Credit Facility requires Emmis to maintain
interest rate protection agreements through July 2001. The notional amount
required varies based upon Emmis' ratio of adjusted debt to EBITDA, as defined
in the Credit Facility. The notional amount of the agreements at February 28,
1999 totaled $274 million and expire at various dates ranging from April 2000 to
February 2001. The fair value of the interest rate cap agreements was $166,000
at February 28, 1999.
FOREIGN CURRENCY
Emmis owns a 54% interest in a Hungarian subsidiary which is consolidated
in the accompanying financial statements. This subsidiary's operations are
measured in their local currency. Emmis has a natural hedge through some of the
subsidiary's long-term obligations being denominated in Hungarian forints. Emmis
maintains no other derivative instruments to mitigate the exposure to
translation and/or transaction risk. However, this does not preclude the
adoption of specific hedging strategies in the future. It is estimated that a
10% change in the value of the U.S. dollar to the Hungarian forint would not be
material.
31
<PAGE> 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY 28,
--------------------------------------------
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
GROSS REVENUES $134,102 $165,324 $274,056
LESS AGENCY COMMISSIONS 20,382 24,741 41,220
-------- -------- --------
NET REVENUES 113,720 140,583 232,836
Operating expenses 62,433 81,170 143,348
International business
development expenses 1,164 999 1,477
Corporate expenses 5,929 6,846 10,427
Time brokerage fee - 5,667 2,220
Depreciation and amortization 5,481 7,536 28,314
Non-cash compensation 3,465 1,482 4,269
-------- -------- ---------
OPERATING INCOME 35,248 36,883 42,781
------ -------- --------
OTHER INCOME (EXPENSE):
Interest expense (9,633) (13,772) (35,650)
Loss on donation of radio station - (4,833) -
Other income, net 325 6 1,914
-------- -------- ---------
Total other income (expense) (9,308) (18,599) (33,736)
-------- -------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 25,940 18,284 9,045
PROVISION FOR INCOME TAXES 10,500 7,200 6,200
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 15,440 11,084 2,845
EXTRAORDINARY ITEM, NET OF TAX - - 1,597
--------- --------- --------
NET INCOME $ 15,440 $ 11,084 $ 1,248
========= ========== =========
BASIC EARNINGS PER SHARE:
Income before Extraordinary Item $1.41 $1.02 $ 0.20
Extraordinary Item, Net of Tax - - (0.11)
------ ------ -------
Net Income $1.41 $1.02 $ 0.09
===== ===== ======
DILUTED EARNINGS PER SHARE:
Income before extraordinary item $1.37 $0.98 $0.19
Extraordinary item, net of tax - - (0.11)
------ ------ -------
Net income $1.37 $0.98 $ 0.08
===== ===== ======
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
32
<PAGE> 33
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FEBRUARY 28,
----------------------
1998 1999
------ ------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,785 $ 6,117
Accounts receivable, net of allowance for doubtful
accounts of $1,346 and $1,698 at February 28, 1998
and 1999, respectively 32,120 51,479
Current portion of TV program rights - 3,646
Income tax refunds receivable 4,968 -
Prepaid expenses and other 8,279 9,840
--------- ---------
Total current assets 51,152 71,082
-------- --------
PROPERTY AND EQUIPMENT:
Land and buildings 2,192 35,411
Leasehold improvements 8,188 8,351
Broadcasting equipment 18,800 63,943
Office equipment and automobiles 12,144 21,199
Construction in progress 13,091 3,418
-------- ---------
54,415 132,322
Less- Accumulated depreciation
and amortization 20,969 26,262
-------- --------
Total property and equipment, net 33,446 106,060
-------- -------
INTANGIBLE ASSETS:
Broadcast licenses 195,400 711,928
Trademarks 1,022 756
Excess of cost over fair value of net
assets of purchased businesses 53,297 123,614
Other intangibles 5,567 5,632
--------- ---------
255,286 841,930
Less- Accumulated amortization 20,728 39,623
-------- --------
Total intangible assets, net 234,558 802,307
------- -------
OTHER ASSETS:
Deferred debt issuance costs and cost of
interest rate cap agreements, net of
accumulated amortization of $692 and
and $839 at February 28, 1998 and
1999, respectively 3,806 18,907
TV program rights, net of current portion - 7,836
Investments 5,114 5,664
Deposits and other 5,312 2,975
------- ------
Total other assets, net 14,232 35,382
-------- --------
Total assets $333,388 $1,014,831
======== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
33
<PAGE> 34
CONSOLIDATED BALANCE SHEETS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------
1998 1999
------ ------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of other long-term debt $ 1,499 $ 835
Current portion of TV program rights payable - 9,471
Accounts payable 13,140 15,635
Collection of account receivable on behalf of
SF Broadcasting and Wabash Valley Broadcasting - 9,016
Accrued salaries and commission 2,893 4,545
Accrued interest 2,421 6,223
Income tax payable - 12,057
Deferred revenue 7,985 7,238
Other 1,579 4,813
-------- ----------
Total current liabilities 29,517 69,833
CREDIT FACILITY AND SENIOR SUBORDINATED DEBT 215,000 577,000
TV PROGRAM RIGHTS PAYABLE, NET OF CURRENT PORTION - 25,161
OTHER LONG-TERM DEBT, NET OF CURRENT PORTION 14,923 18,805
OTHER NONCURRENT LIABILITIES 604 3,466
MINORITY INTEREST 1,875 -
DEFERRED INCOME TAXES 27,559 85,017
-------- ----------
Total liabilities 289,478 779,282
-------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SHAREHOLDERS' EQUITY:
Class A common stock, $.01 par value; authorized 34,000,000 shares; issued
and outstanding 8,430,660 shares and 13,190,207 shares at February 28,
1998 and 1999, respectively 84 132
Class B common stock, $.01 par value; authorized
6,000,000 shares; issued and outstanding 2,560,894 shares and 2,582,265
shares at February 28, 1998 and 1999, respectively 26 26
Additional paid-in capital 69,353 260,344
Accumulated deficit (25,553) (24,305)
Accumulated other comprehensive income - (648)
-------- -----------
Total shareholders' equity 43,910 235,549
-------- ----------
Total liabilities and shareholders' equity $333,388 $1,014,831
======== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
34
<PAGE> 35
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
-----------------------------------
Addi-
Shares Shares tional
Out- Out- Paid-in
standing Amount standing Amount Capital
-------- ------ -------- ------ -------
(Dollars in thousands, except share data)
<S> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 29, 1996 8,264,940 $ 83 2,606,332 $26 $ 65,852
Issuance of Class A Common Stock in
exchange for Class B Common Stock 31,862 - (31,862) - -
Exercise of stock options and
related income tax benefits 92,415 1 - - 1,632
Compensation related to granting
of stock and stock options - - - - 2,715
Issuance of Class A Common
Stock to profit sharing plan 21,739 - - - 750
Comprehensive Income:
Net income - - - - -
---------- ---- --------- --- --------
BALANCE, FEBRUARY 28, 1997 8,410,956 84 2,574,470 26 70,949
---------- ---- --------- --- --------
Issuance of Class A Common Stock in
exchange for Class B Common Stock 13,576 - (13,576) - -
Exercise of stock options and
related income tax benefits 106,305 1 - - 2,966
Compensation related to granting
of stock and stock options - - - - 732
Issuance of Class A Common
Stock to profit sharing plan 15,152 - - - 750
Issuance of Class A Common Stock
to employees and officers and related
income tax benefits 79,115 1 - - 954
Purchase of Class A Common
Stock (194,444) (2) - - (6,998)
Comprehensive Income:
Net income - - - - -
---------- ---- --------- --- --------
BALANCE, FEBRUARY 28, 1998 8,430,660 84 2,560,894 26 69,353
---------- ---- --------- --- --------
Issuance of Class A Common Stock in
exchange for Class B Common Stock 7,629 - (7,629) - -
Exercise of stock options and
related income tax benefits 124,678 2 29,000 - 4,128
Compensation related to granting
of stock and stock options - - - - 3,269
Issuance of Class A Common
Stock to profit sharing plan 21,592 - - - 1,000
Issuance of Class A Common Stock
to employees and officers and related
income tax benefits 5,648 - - - -
Equity offering, net of costs incurred
of $10,606 4,600,000 46 - - 182,594
Comprehensive Income:
Net income - - - - -
Cumulative translation adjustment - - - - -
Total comprehensive income - - - - -
---------- ---- --------- --- --------
BALANCE, FEBRUARY 28, 1999 13,190,207 $132 2,582,265 $26 $260,344
========== ==== ========= === ========
</TABLE>
<TABLE>
<CAPTION>
Accumu-
Accum- lated Other Total
ulated Comprehen- Shareholders'
Deficit sive Income Equity
-------- ------------ -------------
(Dollars in thousands, except share data)
<S> <C> <C> <C>
BALANCE, FEBRUARY 29, 1996 $(52,077) $ - $ 13,884
Issuance of Class A Common Stock in
exchange for Class B Common Stock - - -
Exercise of stock options and
related income tax benefits - - 1,633
Compensation related to granting
of stock and stock options - - 2,715
Issuance of Class A Common
Stock to profit sharing plan - - 750
Comprehensive Income:
Net income 15,440 - 15,440
-------- ----- --------
BALANCE, FEBRUARY 28, 1997 (36,637) - 34,422
-------- ----- --------
Issuance of Class A Common Stock in
exchange for Class B Common Stock - - -
Exercise of stock options and
related income tax benefits - - 2,967
Compensation related to granting
of stock and stock options - - 732
Issuance of Class A Common
Stock to profit sharing plan - - 750
Issuance of Class A Common Stock
to employees and officers and related
income tax benefits - - 955
Purchase of Class A Common
Stock - - (7,000)
Comprehensive Income:
Net income 11,084 - 11,084
-------- ----- --------
BALANCE, FEBRUARY 28, 1998 (25,553) - 43,910
-------- ----- --------
Issuance of Class A Common Stock in
exchange for Class B Common Stock - - -
Exercise of stock options and
related income tax benefits - - 4,130
Compensation related to granting
of stock and stock options - - 3,269
Issuance of Class A Common
Stock to profit sharing plan - - 1,000
Issuance of Class A Common Stock
to employees and officers and related
income tax benefits - - -
Equity offering, net of costs incurred
of $10,606 - - 182,640
Comprehensive Income:
Net income 1,248 -
Cumulative translation adjustment - (648)
Total comprehensive income - - 600
-------- ----- --------
BALANCE, FEBRUARY 28, 1999 $(24,305) $(648) $235,549
======== ===== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
35
<PAGE> 36
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY 28,
---------------------------------------------
1997 1998 1999
----- ------- ------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 15,440 $ 11,084 $ 1,248
Adjustments to reconcile net income to
net cash provided by operating activities-
Extraordinary item - - 1,597
Depreciation and amortization of property and equipment 1,639 2,580 9,705
Amortization of debt issuance costs and cost of
interest rate cap agreements 1,071 2,183 839
Amortization of intangible assets 3,842 4,956 18,609
Amortization of TV program rights - - 3,005
Provision for bad debts 726 802 1,745
Provision (benefit) for deferred income taxes 1,590 (524) 4,953
Compensation related to stock and stock options granted 2,715 732 3,269
Contribution to profit sharing plan paid with common stock 750 750 1,000
Loss on donation of radio station - 4,833 -
Cash paid for TV program rights - - (1,469)
Other (195) 357 (1,143)
(Increase) decrease in certain current assets .
(net of dispositions and acquisitions)-
Accounts receivable (2,385) (8,389) (21,104)
Prepaid expenses and other current assets (3,041) (4,760) (727)
Increase (decrease) in certain current liabilities
(net of dispositions and acquisitions)-
Accounts payable 2,757 5,560 1,868
Accrued salaries and commissions (1,999) 1,332 1,337
Accrued interest (146) 2,247 3,802
Deferred revenue 395 292 (747)
Other current liabilities 26 116 4,486
(Increase) decrease in deposits and other assets (898) (1,832) 3,435
Increase (decrease) in other noncurrent liabilities (925) 168 (587)
-------- --------- ---------
Net cash provided by operating activities 21,362 22,487 35,121
-------- --------- ---------
INVESTING ACTIVITIES:
Acquisition of WXTM-FM, WALC-AM and WKKX-FM (6,600) (36,964) -
Acquisition of WTLC-FM and WTLC-AM - (15,336) -
Acquisition of Texas Monthly - (37,389) -
Acquisition of Cincinnati Magazine - (1,979) -
Acquisition of Network Indiana and AgriAmerica - (709) -
Acquisition of WQCD-FM - - (128,550)
Acquisition of SF Broadcasting - - (287,293)
Acquisition of Wabash Valley Broadcasting - - (88,905)
Purchases of property and equipment (7,559) (16,991) (37,383)
Initial payment for purchase of Hungarian broadcast license - (7,325) -
Other 240 - 661
-------- --------- ---------
Net cash used by investing activities (13,919) (116,693) (541,470)
-------- --------- ---------
</TABLE>
36
<PAGE> 37
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE-YEAR PERIOD ENDED FEBRUARY 28,
--------------------------------------------
(DOLLARS IN THOUSANDS)
1997 1998 1999
-------- --------- ----------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds of credit facility and senior subordinated notes 19,000 288,378 1,063,000
Payments on credit facility (28,102) (183,928) (723,500)
Purchases of interest rate cap agreements and payment
of loan fees - (4,291) (19,589)
Proceeds (purchase) of the Company's Class A Common
Stock, net of transaction costs - (7,000) 182,640
Proceeds from exercise of stock options and income tax
benefits of certain equity transactions 1,632 3,922 4,130
Other - 1,719 -
-------- --------- ----------
Net cash provided (used) by financing activities (7,470) 98,800 506,681
-------- --------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (27) 4,594 332
CASH AND CASH EQUIVALENTS:
Beginning of year 1,218 1,191 5,785
-------- --------- ----------
End of year $ 1,191 $ 5,785 $ 6,117
======== ========= ==========
</TABLE>
37
<PAGE> 38
<TABLE>
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ 8,708 $ 9,655 $ 33,439
Income taxes 9,180 8,419 1,580
Non-cash investing and financing transactions-
Fair value of assets acquired by incurring debt 17 32 -
ACQUISITION OF WXTM-FM, WALC-AM AND WKKX-FM:
Fair value of assets acquired - $ 44,564 -
Cash paid - 43,564 -
---------
Liabilities assumed - $ 1,000 -
ACQUISITION OF TEXAS MONTHLY:
Fair value of assets acquired - $ 45,421 -
Cash paid - 37,389 -
---------
Liabilities assumed - $ 8,032 -
ACQUISITION OF WQCD-FM:
Fair value of assets acquired - - $201,347
Cash paid - - 128,550
-------
Liabilities assumed - - $ 72,797
ACQUISITION OF SF BROADCASTING:
Fair value of assets acquired - - $346,952
Cash paid - - 287,293
-------
Liabilities assumed - - $ 59,659
ACQUISITION OF WABASH VALLEY BROADCASTING:
Fair value of assets acquired - - $101,055
Cash paid - - 88,905
--------
Liabilities assumed - - $ 12,150
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
38
<PAGE> 39
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
Emmis Communications Corporation is a diversified media company
with radio broadcasting, television broadcasting and magazine publishing
operations. The thirteen FM radio stations and three AM radio stations Emmis
Communications Corporation owns in the United States serve the nation's three
largest radio markets of New York City, Los Angeles and Chicago, as well as St.
Louis, Indianapolis and Terre Haute, Indiana. The six television stations,
which Emmis Communications Corporation acquired in 1998, are located in New
Orleans, Louisiana, Mobile, Alabama, Green Bay, Wisconsin, Honolulu, Hawaii,
Fort Myers, Florida and Terre Haute, Indiana. Emmis Communications Corporation
also publishes Indianapolis Monthly, Texas Monthly, Cincinnati and Atlanta
magazines, has a 54% interest in a national radio station in Hungary (Slager
Radio) and engages in certain businesses ancillary to its business, such as
broadcast tower leasing and advertising and program consulting.
b. Principles of Consolidation
In fiscal 1999, Emmis Broadcasting Corporation changed its name
to Emmis Communications Corporation. The consolidated financial statements
include the accounts of Emmis Communications Corporation and its majority owned
Subsidiaries. Unless the content otherwise requires, references to Emmis or the
Company in these financial statements mean Emmis Communications Corporation and
its Subsidiaries. All significant intercompany balances and transactions have
been eliminated. Effective in the fourth quarter of fiscal 1999, Emmis began
recording 100% of Slager Radio's losses as the minority shareholders'
investment had been reduced to zero. When Slager Radio generates net income,
Emmis will recognize 100% of their net income to the extent that losses greater
than Emmis' 54% interest have been previously recorded.
c. Revenue Recognition
Broadcasting revenue is recognized as advertisements are aired.
Publication revenue is recognized in the month of delivery.
d. Television Programming
Emmis has agreements with distributors for the rights to
television programming over contract periods which generally run from one to
five years. Each contract is recorded as an asset and a liability at an amount
equal to its gross contractual commitment when the license period begins and
the program is available for its first showing. The portion of program
contracts which become payable within one year is reflected as a current
liability in the accompanying consolidated balance sheet.
The rights to program materials are reflected in the accompanying
consolidated balance sheet at the lower of unamortized cost or estimated net
realizable value. Estimated net realizable values are based upon management's
expectation of future advertising revenues, net of sales commissions, to be
generated by the program material. Amortization of program contract costs is
computed under either the straight-line method over the contract period or
based on usage, whichever yields the greater amortization for each program on a
monthly basis. Program contract costs, estimated by management to be amortized
in the succeeding year, are classified as current assets. Program contract
liabilities are typically paid on a scheduled basis and are not affected by
adjustments for amortization or estimated net realizable value. Certain program
contracts provide for the exchange of advertising air time in lieu of cash
payments for the rights to such programming. These
39
<PAGE> 40
contracts are recorded as the programs are aired at the estimated fair value of
the advertising air time given in exchange for the program rights.
e. International Business Development Expenses
International business development expenses include the cost of
the Company's efforts to identify, investigate and develop international
broadcast investments or other international business opportunities.
f. Non-cash Compensation
Non-cash compensation includes compensation expense associated
with stock options granted, restricted common stock issued under employment
agreements and common stock contributed to the Company's Profit Sharing Plan.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." Pro forma disclosure of net income and earnings per share under
SFAS No. 123 is presented in Note 9.
g. Cash and Cash Equivalents
Emmis considers time deposits, money market fund shares, and all
highly liquid debt instruments with original maturities of three months or less
to be cash equivalents.
h. Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization are generally computed by the straight-line method over the
estimated useful lives of the related assets which are 31.5 years for
buildings, not more than 32 years for leasehold improvements, 5 to 7 years for
broadcasting equipment, office equipment and automobiles. Maintenance, repairs
and minor renewals are expensed; improvements are capitalized. Interest was
capitalized in connection with the construction of the Indianapolis office
facility. The capitalized interest was recorded as part of the building cost.
In fiscal 1999 and 1998 approximately $1,591,000 and $312,000 of interest was
capitalized, respectively. No interest was capitalized in fiscal 1997. On a
continuing basis, the Company reviews the financial statement carrying value of
property and equipment for impairment. If events or changes in circumstances
were to indicate that an asset carrying value may not be recoverable, a
write-down of the asset would be recorded through a charge to operations.
i. Intangible Assets
Intangible assets are recorded at cost. Generally, broadcast
licenses, trademarks and the excess of cost over fair value of net assets of
purchased businesses are being amortized using the straight-line method over 40
years. The cost of the broadcast license for Slager Radio (totaling
approximately $20.8 million) is being amortized over the seven year initial
term of the license. The excess of cost over fair value of net assets resulting
from the purchase of Texas Monthly (approximately $32.4 million) is being
amortized over 15 years. Other intangibles are amortized using the
straight-line method over varying periods, not in excess of 10 years.
Subsequent to the acquisition of an intangible asset, Emmis
evaluates whether later events and circumstances indicate the remaining
estimated useful life of that asset may warrant revision or that the remaining
carrying value of such an asset may not be recoverable. When factors indicate
that an intangible asset should be evaluated for possible impairment, Emmis
uses an estimate of the related asset's undiscounted future cash flows over the
remaining life of that asset in measuring recoverability. If separately
identifiable cash flows are not available for an intangible asset (as would
generally be the case for the excess of cost over fair value of purchased
businesses), Emmis evaluates recoverability based on the expected undiscounted
cash flows of the specific business to which the asset relates. If such an
analysis indicates that impairment has in fact occurred, Emmis writes down the
remaining net book value of the intangible asset to its fair value. For
40
<PAGE> 41
this purpose, fair value is determined using quoted market prices (if
available), appraisals or appropriate valuation techniques.
j. Investments
Emmis has a 50% ownership interest in a partnership in which the
sole asset is land on which a transmission tower is located. The other owner
has voting control of the partnership. This investment of $5,114,000 is
accounted for on the equity method of accounting.
k. Deposits and Other Assets
Deposits and other assets include amounts due from officers,
including accrued interest, of $1,654,000 and $1,741,000 at February 28, 1998
and 1999, respectively. Officer loans bear interest at the Company's average
borrowing rate of approximately 6.60% and 7.09% for the years ended February
28, 1998 and 1999, respectively.
l. Deferred Revenue and Barter Transactions
Deferred revenue includes deferred magazine subscription revenue
and deferred barter revenue. Barter transactions are recorded at the estimated
fair value of the product or service received. Broadcast revenue from barter
transactions is recognized when commercials are broadcast. The appropriate
expense or asset is recognized when merchandise or services are used or
received.
m. Income Taxes
Income taxes are provided based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes." The liability method measures the
expected tax impact of future taxable income or deductions resulting from
differences in the tax and financial reporting bases of assets and liabilities
reflected in the consolidated balance sheets and the expected tax impact of
carryforwards for tax purposes.
n. Foreign Currency Translation
The functional currency of Slager Radio is the Hungarian forint.
Slager Radio's balance sheet has been translated from forints to the U.S.
dollar using the current exchange rate in effect at the balance sheet date.
Slager Radio's results of operations have been translated using an average
exchange rate for the period. The translation adjustment resulting from the
conversion of Slager Radio's financial statements was not significant for the
year ended February 28, 1998 and was $648,000 for the year ended February
28,1999. This adjustment is reflected in shareholders' equity in the
accompanying balance sheet.
o. Earnings Per Share
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share", requires dual presentation of basic and diluted earnings
per share ("EPS") on the face of the income statement for all entities with
complex capital structures like the Company's. Basic EPS excludes dilution and
is computed by dividing net income available to common shareholders by the
weighted-average number of common shares outstanding for the period
(10,942,996, 10,903,333 and 14,452,820 shares for the years ended February 28,
1997, 1998 and 1999, respectively). Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Weighted average common
equivalent shares outstanding for the period, considering the effect of
employee stock options, are 11,291,225, 11,361,881 and 14,848,171 for the years
ended February 28, 1997, 1998 and 1999, respectively. For the years ended
February 28, 1997, 1998 and 1999, the difference between the weighted-average
shares outstanding used to compute basic and diluted EPS is attributable to
dilution caused by stock options.
41
<PAGE> 42
p. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
q. Accounting Pronouncements
As of March 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". This statement establishes new rules for the reporting
and display of comprehensive income and its components. The Company has
reported, in addition to net income, the components of other comprehensive
income including foreign currency translation adjustments, in its consolidated
statements of shareholders' equity. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130. The adoption of
this disclosure standard had no impact on the Company's net income or financial
position.
Effective February 28, 1999, the Company adopted SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" (See Note
12). This pronouncement superseded SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise", and establishes new standards for reporting
information about operating segments and related disclosures about products,
geographic areas, and major customers in annual and interim financial
statements. The adoption of SFAS No. 131 does not affect results of operations
or financial operation.
In June 1998, SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", was issued, which establishes accounting
and reporting standards for derivative financial instruments and hedging
activities. This pronouncement, which is required to be adopted in fiscal years
beginning after June 15, 1999, will require, among other things, the Company to
recognize all derivatives as either assets or liabilities on the balance sheet
at fair value. Derivatives not qualifying as hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in its fair value will either be offset against the change
in fair value of the hedged assets, liabilities, or firm commitments through
income or recognized in other comprehensive income. Hedge ineffectiveness, the
amount by which the change in the value of a hedge does not exactly offset the
change in the value of the hedged item, will be immediately recognized in
earnings. Management has not yet determined what the effect of SFAS No. 133
will be on the Company.
r. Reclassifications
Certain reclassifications have been made to the February 28, 1997
and 1998 financial statements to be consistent with the February 28, 1999
presentation.
2. COMMON STOCK
Emmis has authorized 34,000,000 shares of Class A Common Stock, par
value $.01 per share, and 6,000,000 shares of Class B Common Stock, par value
$.01 per share. The rights of these two classes are essentially identical
except that each share of Class B Common Stock has 10 votes with respect to
substantially all matters. Class B Common Stock is owned by the principal
shareholder (Jeffrey H. Smulyan). All shares of Class B Common Stock convert to
Class A Common Stock upon sale or other transfer to a party unaffiliated with
the principal shareholder. The financial statements presented reflect the
establishment of the two classes of stock.
In June 1997, Emmis acquired 194,444 shares of its common stock from
Morgan Stanley, Dean Witter, Discover and Co. at $36 per share. The aggregate
purchase price of $7.0 million is reflected as a decrease to
42
<PAGE> 43
paid in capital in the accompanying financial statements and was financed
through additional borrowings under the Company's Credit Facility.
In June 1998, Emmis completed the sale of 4.6 million shares of its
Class A Common Stock at $42.00 per share resulting in total proceeds of $193.0
million. Net proceeds from the offering were used to repay outstanding
obligations under the Credit Facility.
3. PREFERRED STOCK
Emmis has authorized 10,000,000 shares of preferred stock which may be
issued with such designations, preferences, limitations and relative rights as
Emmis' Board of Directors may authorize. As of February 28, 1998 and 1999, no
shares of preferred stock are issued and outstanding.
4. CREDIT FACILITY AND SENIOR SUBORDINATED DEBT
The Credit Facility and Senior Subordinated Debt was comprised of the
following at February 28, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
-------- ---------
(dollars in thousands)
<S> <C> <C>
Credit Facility:
Revolving Credit Facility $ 115,000 $ 27,000
Term Note 100,000 250,000
8 1/8% Senior Subordinated Notes Due 2009 - 300,000
--------- ---------
Total debt $ 215,000 $ 577,000
========= =========
</TABLE>
Credit Facility
On July 16, 1998 the Company entered into an amended and restated Credit
Facility for $750 million, which may be increased up to $1.0 billion. As a
result of the early payoff of the refinanced debt, the Company recorded an
extraordinary loss of approximately $1.6 million, net of taxes, related to
unamortized deferred debt issuance costs. The amended and restated Credit
Facility expires on August 31, 2006, except for the Term Note which matures on
February 28, 2007, and is comprised of (1) a $400 million revolving credit
facility which is subject to certain adjustments as defined in the Credit
Facility, (2) a $250 million term note and (3) a $100 million revolving
acquisition credit facility/term note.
The amended and restated Credit Facility provides for letters of credit
to be made available to the Company not to exceed $50 million. The aggregate
amount of outstanding letters of credit and amounts borrowed under the
revolving credit facility cannot exceed the revolving credit facility
commitment. No letters of credit were outstanding at February 28, 1999.
All outstanding amounts under the Credit Facility bear interest, at the
option of Emmis, at a rate equal to the Eurodollar Rate or an alternative base
rate (as defined in the Credit Facility) plus a margin. The margin over the
Eurodollar Rate or the alternative base rate varies, depending on Emmis' ratio
of debt to earnings before interest, taxes, depreciation and amortization
(EBITDA), as defined in the agreement. The weighted-average interest rate on
borrowings outstanding under the Credit Facility at February 28, 1998 and 1999
was approximately 6.72% and 7.69%, respectively. Interest is due on a calendar
quarter basis under the alternative base rate and at least every three months
under the Eurodollar Rate. The Credit Facility requires the Company to maintain
interest rate protection agreements through July 2001. The notional amount
required varies based upon Emmis' ratio of adjusted debt to EBITDA, as defined
in the Credit Facility. The notional amount of the agreements at February 28,
1999 totaled $274 million. The agreements, which expire at various dates
ranging from April 2000 to February 2001, establish various ceilings on the
Credit Facility's underlying base rate approximating a weighted average rate of
7.1% on the three-month LIBOR interest rate. The cost of these
43
<PAGE> 44
agreements is being amortized over the lives of the agreements and the
amortization is included as a component of interest expense.
The aggregate amount of the revolving credit facility reduces quarterly
beginning August 31, 2001. Amortization of the outstanding principal amount
under the term note and revolving acquisition Credit Facility/term note is
payable in quarterly installments beginning August 31, 2001. The annual
amortization and reduction schedules as of February 28, 1999, assuming the
entire $750 million Credit Facility was outstanding prior to the scheduled
amortization payments are as follows:
SCHEDULED AMORTIZATION/REDUCTION OF CREDIT FACILITY AVAILABILITY
(In thousands)
<TABLE>
<CAPTION>
Revolving
Acquisition
Revolving Credit Facility/
Year Ended Credit Facility Term Note Term Note
February (29) 28 Amortization Amortization Amortization Total
---------------- ------------- ------------ ------------ -----
<S> <C> <C> <C> <C>
2002 $ 40,000 $ 1,875 $ 10,000 $ 51,875
2003 60,000 2,500 15,000 77,500
2004 80,000 2,500 20,000 102,500
2005 90,000 2,500 22,500 115,000
2006 70,000 2,500 17,500 90,000
2007 60,000 238,125 15,000 313,125
-------- -------- -------- --------
Total $400,000 $250,000 $100,000 $750,000
======== ======== ======== ========
</TABLE>
Commencing with the fiscal year ending February 28, 2002, in addition to
the scheduled amortization/reduction of the Credit Facility, within 60 days
after the end of each fiscal year, the Credit Facility is permanently reduced
by 50% of the Company's excess cash flow if the ratio of adjusted debt (as
defined in the Credit Facility) to EBITDA exceeds 4.5 to 1. Excess cash flow is
generally defined as EBITDA reduced by cash taxes, capital expenditures,
required debt service, increases in working capital (net of cash or cash
equivalents), and $5,000,000. The net proceeds from any sale of certain assets
must also be used to permanently reduce borrowings under the Credit Facility.
If the ratio of adjusted debt to EBITDA is less than 5.5 to 1 and certain other
conditions are met, the Company will be permitted in certain circumstances to
reborrow the amount of the net proceeds within nine months solely for the
purpose of funding an acquisition.
The Credit Facility contains various financial and operating covenants
and other restrictions with which Emmis must comply, including, among others,
restrictions on additional indebtedness, engaging in businesses other than
broadcasting and publishing, paying cash dividends, redeeming or repurchasing
capital stock of Emmis and use of borrowings, as well as requirements to
maintain certain financial ratios. The Company was in compliance with these
covenants at February 28, 1999. The Credit Facility also prohibits Emmis, under
certain circumstances, from making acquisitions and disposing of certain assets
without the prior consent of the lenders, and provides that an event of default
will occur if Jeffrey H. Smulyan ceases to maintain (i) a significant equity
investment in Emmis (as specified in the Credit Facility), (ii) the ability to
elect a majority of Emmis' directors or (iii) control of a majority of
shareholder voting power. Substantially all of Emmis' assets, including the
stock of Emmis' subsidiaries, are pledged to secure the Credit Facility.
SENIOR SUBORDINATED NOTES
On February 12, 1999, the Company issued $300 million of 8 1/8% Senior
Subordinated Notes. The Senior Subordinated Notes were sold at 100% of the face
amount. The proceeds were used to retire a $25 million promissory note and the
related $1.1 million accrued interest due to SF Broadcasting in connection with
the purchase of four television stations. The remainder of the proceeds was
used to reduce outstanding borrowings under the Credit Facility. In March 1999,
the Company filed an Exchange Offer Registration Statement with the SEC to
exchange the Senior Subordinated Notes for new Series B Notes ("the Notes")
44
<PAGE> 45
registered under the Securities Act. The terms of the new Series B Notes are
identical to the terms of the Senior Subordinated Notes.
Prior to March 15, 2002, the Company may, at its option, use the net
cash proceeds of one or more Public Equity Offerings (as defined), to redeem up
to 35% of the aggregate principal amount at a redemption price equal to
108.125% plus accrued and unpaid interest, provided that at least $195.0
million of the aggregate principal amount of the Notes originally issued
remains outstanding after such redemption. On or after March 15, 2004 and until
March 14, 2007, the Notes will be redeemable at the option of the Company in
whole or in part at prices ranging from 104.063% to 101.354% plus accrued and
unpaid interest. On or after March 15, 2007, the Notes may be redeemable at
100% plus accrued and unpaid interest. Upon a Change of Control (as defined),
the Company is required to make an offer to purchase the Notes then outstanding
at a purchase price equal to 101% plus accrued and unpaid interest. Interest on
the Notes is payable semi-annually. The Notes have no sinking fund requirements
and are due in full on March 15, 2009.
The Notes are general unsecured obligations of the Company and expressly
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined) of the Company. The Notes will rank pari passu with any future
Senior Subordinated Indebtedness (as defined) and senior to all Subordinated
Indebtedness (as defined) of the Company.
The indenture relating to the Notes contains covenants with respect to
the Company which include limitations of indebtedness, restricted payments,
transactions with affiliates, issuance and sale of capital stock of restricted
subsidiaries, sale/leaseback transactions and mergers, consolidations or sales
of substantially all of the Company's assets. The Company was in compliance
with these covenants at February 28, 1999.
5. OTHER LONG-TERM DEBT.
Other long term debt was comprised of the following at February 28, 1998
and 1999:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
(dollars in thousands)
<S> <C> <C>
Hungary:
License Obligation $ 11,800 $ 13,428
Bonds Payable 2,996 2,877
Notes Payable 1,448 784
Other 178 2,551
--------- ---------
Total Other Long-Term Debt 16,422 19,640
Less: Current Maturities 1,499 835
--------- ---------
Other Long Term Debt, Net of Current Maturities $14,923 $ 18,805
========= =========
</TABLE>
The License Obligation is payable to the Hungarian government in
Hungarian forints, by Emmis' Hungarian subsidiary in four equal annual
installments commencing November 2000. the License Obligation of $13.4 million
as of February 28, 1999, is reflected net of an unamortized discount of $1.3
million. The obligation is non-interest bearing, however, in accordance with
the license purchase agreement, a Hungarian cost of living adjustment is
calculated annually and is payable, concurrent with the principal payments, on
the outstanding obligation. the cost of living adjustment is estimated each
reporting period and is included in interest expense. Prevailing market
interest rates in Hungary exceed inflation by approximately 3%. Accordingly,
the License Obligation has been discounted at an imputed interest rate of
approximately 3% to reflect the obligation at its fair value.
The Bonds and Notes Payable are payable by Emmis' Hungarian subsidiary
to the minority shareholders of the subsidiary. The Bonds, payable in Hungarian
forints, are due on maturity at November 2004 and bear interest at the
Hungarian State Bill rate plus 3% (approximately 23.0% and 20.2% at February
28, 1998 and 1999, respectively). Interest is payable semi-annually. The Notes
Payable and accrued interest,
45
<PAGE> 46
payable in U.S. dollars, are due on demand and bear interest at prime plus 2%
(approximately 10.5% and 9.75% at February 28, 1998 and 1999, respectively).
6. TV PROGRAM RIGHTS PAYABLE.
Future payments required under TV program rights payable as of February
28, 1999, are as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 9,471
2001 7,260
2002 4,944
2003 3,450
2004 2,719
2005 and thereafter 6,788
--------
34,632
Less: Current Portion of TV Program Rights Payable 9,471
--------
TV Program Rights Payable, Net of Current Portion $25,161
========
</TABLE>
7. ACQUISITIONS
On March 31, 1997, Emmis completed its acquisition of substantially all
of the assets of radio stations WXTM-FM (formerly WKBQ-FM and WALC-FM), WALC-AM
(formerly WKBQ-AM) and WKKX-FM in St. Louis from Zimco, Inc. for approximately
$43.6 million in cash, plus an agreement to broadcast approximately $1.0
million in trade spots for Zimco, Inc., over a period of years. Concurrent with
the signing of the asset purchase agreement, Emmis entered into a time
brokerage agreement which permitted Emmis to operate the acquired stations
effective December 1, 1996 through the date of closing. Operating results of
these stations are reflected in the consolidated statements of operations
commencing December 1, 1996. The purchase price was financed through additional
bank borrowings. The acquisition was accounted for as a purchase. In February
1998, the Company donated WALC-AM to a church. The $4.8 million net book value
of the station at the time of donation was reflected as a loss on donation of
radio station in the accompanying consolidated statement of operations.
On October 1, 1997, the Company acquired the assets of Network Indiana
and AgriAmerica from Wabash Valley Broadcast Corporation for $.7 million in
cash. Emmis financed the acquisition through additional bank borrowings. The
acquisition was accounted for as a purchase.
On November 1, 1997, the Company completed its acquisition of
substantially all of the assets of WTLC-FM and AM in Indianapolis from Panache
Broadcasting, L.P. for approximately $15.3 million in cash. Emmis financed the
acquisition through additional bank borrowings. The acquisition was accounted
for as a purchase.
On November 1, 1997, the Company acquired substantially all of the net
assets of Cincinnati Magazine from CM Media, Inc. for approximately $2.0
million in cash. Emmis financed the acquisition through additional bank
borrowings. The acquisition was accounted for as a purchase.
Emmis owns a 54% interest in a Hungarian subsidiary (Slager Radio Rt.)
which was formed in August 1997. In November 1997, Slager Radio acquired a
radio broadcasting license from the Hungarian government at a cost of
approximately $19.2 million. The broadcast license has an initial term of seven
years and is subject to renewal for an additional five years. Slager Radio
began broadcasting on February 16, 1998.
On February 1, 1998, the Company acquired all of the outstanding capital
stock of Mediatex Communications Corporation for approximately $37.4 million in
cash plus assumed liabilities of $8.0 million. Mediatex Communications
Corporation owns and operates Texas Monthly, a regional magazine. The
acquisition was accounted for as a purchase and was financed through additional
bank borrowings.
46
<PAGE> 47
On June 5, 1998, the Company completed its acquisition of radio station
WQCD-FM in New York City (the "WQCD Acquisition") from Tribune New York Radio,
Inc. for a cash purchase price of $141.6 million (including transaction costs)
less approximately $13.0 million for cash purchase price adjustments relating
to taxes plus $20.0 million of net current tax liabilities, $52.5 million of
deferred tax liabilities and $0.3 million of assumed liabilities associated
with the acquisition. The acquisition was accounted for as a purchase and was
financed through additional bank borrowings under its Credit Facility.
Effective July 1, 1997 through the date of closing, the Company operated
WQCD-FM under a time brokerage agreement.
On July 16, 1998, the Company completed its acquisition of substantially
all of the assets of SF Broadcasting of Wisconsin, Inc. and SF Multistations,
Inc. and Subsidiaries (collectively the "SF Acquisition), the seller, for a
cash purchase price of $287.3 million (including transaction costs), a $25
million promissory note due to the former owner, plus assumed program rights
payable and other liabilities of approximately $34.7 million. The Company
financed the acquisition through a $25 million promissory note (due July15,
1999, bearing interest at 8%) and borrowings under the Credit Facility. The
promissory note was paid in full in February 1999. The SF Acquisition consists
of four Fox network affiliated television stations: WLUK-TV in Green Bay,
Wisconsin, WVUE-TV in New Orleans, Louisiana, WALA-TV in Mobile, Alabama, and
KHON-TV in Honolulu, Hawaii (including McHale Videofilm and satellite stations
KAII-TV, Wailuka, Hawaii, and KHAW-TV, Hilo, Hawaii).
Effective October 1, 1998, the Company completed its acquisition of
substantially all of the assets of Wabash Valley Broadcasting Corporation ("the
Wabash Acquisition"), the seller, for a cash purchase price of $88.9 million
(including transaction costs), plus assumed program rights payable and other
liabilities of approximately $12.2 million. The Company financed the
acquisition through borrowings under the Credit Facility. The Wabash
Acquisition consists of WFTX-TV, a Fox network affiliated television station in
Ft. Myers, Florida, WTHI-TV a CBS network affiliated television station in
Terre Haute, Indiana, WTHI-FM and AM and WWVR-FM, radio stations located in the
Terre Haute, Indiana area.
The appraisals used to allocate costs for the WQCD-FM Acquisition, the
SF Acquisition and the Wabash Acquisition have not been finalized.
8. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
A pro forma condensed consolidated statement of operations is presented
below for the years ended February 28, 1998 and 1999, assuming the acquisitions
of WXTM-FM, WKKX-FM, WTLC-FM and AM, Texas Monthly, and the WQCD Acquisition,
SF Acquisition and Wabash Acquisition all had occurred on the first day of the
year ended February 28, 1998. Pro forma results for the year ended February 28,
1998, include pro forma adjustments for March and actual results for April
through February for the acquisition of WXTM-FM and WKKX-FM, pro forma results
for March through June and actual results for July through February for the
operation of WQCD-FM under the time brokerage agreement, pro forma results for
March through October and actual results for November through February for the
acquisition of WTLC-FM and AM, pro forma results for March through January and
actual results for February for the acquisition of Texas Monthly, pro forma
results for March through February for the SF Acquisition and Wabash
Acquisition. Pro forma results for Cincinnati Magazine, Network Indiana and
AgriAmerica have been excluded as they are not significant to the consolidated
operating results of the Company. Pro forma results for the year ended February
28, 1999, include actual results for March through June 4, 1998 for the
operation of WQCD-FM under the time brokerage agreement and actual results from
June 5, 1998 through February 28, 1999 for the acquisition of WQCD-FM, pro
forma results from March through July 15, 1998 and actual results from July 16,
1998 through February 28, 1999 for the SF Acquisition, and pro forma results
from March through September and actual results from October through February
for the Wabash Acquisition. Pro forma interest expense, depreciation of
property and equipment and amortization expense related to the intangibles
resulting from the allocation of the purchase price for the above acquisitions
and pro forma amortization of television broadcast rights have been included in
the pro forma statements presented below (in thousands, except per
47
<PAGE> 48
share data). The appraisals used to allocate costs for the WQCD-FM Acquisition,
the SF Acquisition and the Wabash Acquisition have not been finalized.
<TABLE>
<CAPTION>
Pro Forma
-------------------------
1998 1999
-------- --------
<S> <C> <C>
NET REVENUES $241,472 $263,696
Operating expenses 157,952 165,862
International business
development expenses 999 1,477
Corporate expenses 7,846 10,828
Depreciation and amortization 30,699 35,695
Non-cash compensation 1,482 4,269
Time brokerage agreement fees - -
-------- --------
OPERATING INCOME 42,494 45,565
-------- --------
OTHER INCOME (EXPENSE):
Interest expense (48,147) (50,015)
Other income (expense), net (173) 1,680
-------- --------
Total other income (expense) (48,320) (48,335)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (5,826) (2,770)
PROVISION (BENEFIT) FOR INCOME TAXES (1,200) 2,100
-------- --------
NET INCOME (LOSS) $ (4,626) $ (4,870)
======== ========
Basic net income per share $ (0.30) $ (0.31)
======== ========
Diluted net income per share $ (0.30) $ (0.31)
======== ========
</TABLE>
The pro forma condensed consolidated statement of operations presented
above does not purport to be indicative of the results that actually would have
been obtained if the indicated transactions had been effective at the beginning
of the year presented, and is not intended to be a projection of future results
or trends.
9. EMPLOYEE BENEFIT PLANS
a. 1986 Stock Incentive Plan and 1992 Nonqualified Stock Option Plan
These stock plans provide for incentive stock options, nonqualified
stock options and stock appreciation rights equivalent to 1,112,500 shares of
common stock. The options and stock appreciation rights are generally
exercisable six months after the date of grant and expire not more than 10
years from the date the options or rights are granted. Stock appreciation
rights provide for the issuance of stock or the payment of cash equal to the
appreciation in market value of the allocated shares from the date of grant to
the date of exercise. When rights are issued with options, exercise of either
the option or the right results in the surrender of the other. As of February
28, 1998 and 1999, there were no stock appreciation rights outstanding nor were
there any stock appreciation rights issued with options outstanding. Certain
stock options awarded remain outstanding as of February 28, 1998 and 1999.
b. 1994 Equity Incentive Plan
Effective March 1, 1994, the shareholders of Emmis approved the 1994
Equity Incentive Plan. Under this Plan, awards equivalent to 1,000,000 shares
of common stock may be granted. The awards, which have
48
<PAGE> 49
certain restrictions, may be for incentive stock options, nonqualified stock
options, shares of restricted stock, stock appreciation rights, performance
units or limited stock appreciation rights. Under this Plan, all awards are
granted with an exercise price equal to the fair market value of the stock
except for shares of restricted stock which may be granted with an exercise
price at amounts greater than or equal to the par value of the underlying
stock. No more than 500,000 shares of Class B Common Stock are available for
grant and issuance under this Plan. As of February 28, 1998 and 1999, the only
awards granted under this Plan were for stock options and restricted shares of
stock. Certain stock options awarded remain outstanding as of February 28,
1998 and 1999. The stock options under this Plan are generally exercisable one
year after the date of grant and expire not more than 10 years from the date of
grant. The exercise price of these options are at the fair market value of the
stock on the grant date.
c. 1995 Equity Incentive Plan
Effective March 1, 1995, the shareholders of Emmis approved the 1995
Equity Incentive Plan. Under this Plan, awards equivalent to 650,000 shares of
common stock may be granted pursuant to employment agreements discussed in Note
10.
d. Non-Employee Director Stock Option Plan
Effective June 29, 1995, Emmis implemented a Non-Employee Director Stock
Option Plan. Under this Plan, each non-employee director, as of January 24,
1995, was granted an option to acquire 5,000 shares of the Company's Class A
Common Stock. Thereafter, upon election or appointment of any non-employee
director or upon a continuing director becoming a non-employee director, such
individual will also become eligible to receive a comparable option. In
addition, an equivalent option will be automatically granted on an annual basis
to each non-employee director. All awards are granted with an exercise price
equal to the fair market value of the stock on the date of grant. Under this
Plan, awards equivalent to 75,000 shares of Class A Common Stock are available
for grant at February 28, 1999.
e. 1997 Equity Incentive Plan
Effective March 1, 1997, the shareholders of Emmis approved the 1997
Equity Incentive Plan. Under this plan, awards equivalent to 1,000,000 shares
of common stock may be granted. The awards, which have certain restrictions,
may be for incentive stock options, nonqualified stock options, shares of
restricted stock, stock appreciation rights or performance units. Under this
Plan, all awards are granted with an exercise price equal to the fair market
value of the stock except for shares of restricted stock which may be granted
with an exercise price at amounts greater than or equal to the par value of the
underlying stock. No more than 500,000 shares of Class B Common Stock are
available for grant and issuance under this Plan. As of February 28, 1998,
there were no awards granted under this Plan. During fiscal 1999, Emmis granted
incentive and nonqualified stock options and restricted stock under this Plan.
The stock options under this Plan are generally exercisable one year after the
date of grant and expire not more than 10 years from the date of grant.
f. Other Disclosures Related to Stock Option and Equity Incentive
Plans
The Company has historically accounted for its Stock Option Plans in
accordance with APB Opinion No. 25 ("APB 25"), under which compensation expense
is recognized only to the extent the exercise price of the option is less than
the fair market value of the share of stock at the date of grant. During 1995,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS
123), which considers the stock options as compensation expense to the Company,
based on their fair value at the date of grant. Under this standard, the
Company has the option of accounting for employee stock option plans as it
currently does or under the new method. The Company has elected to continue to
use the APB 25 method for accounting, but has adopted the disclosure
requirements of SFAS 123. Accordingly, compensation expense reflected in
non-cash compensation in the consolidated statements of operations related to
the plans summarized above was $2,715,000, $732,000 and $3,269,000 for the
years ended February 1997, 1998 and 1999, respectively. Had compensation
expense
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<PAGE> 50
related to these plans been determined based on fair value at date of grant,
the Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended February 28,
------------------------------------------------
1997 1998 1999
------------- --------------- ------------
<S> <C> <C> <C>
Net Income:
As Reported $15,440,000 $11,084,000 $1,248,000
Pro Forma $11,545,000 $8,588,000 ($2,056,000)
Basic EPS:
As Reported $1.41 $ 1.02 $.09
Pro Forma $1.06 $ .79 ($.14)
Diluted EPS:
As Reported $1.37 $ .98 $.08
Pro Forma $1.02 $ .76 ($.14)
</TABLE>
Because the fair value method of accounting has not been applied to
options granted prior to March 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. The fair
value of each option granted is estimated on the date of grant using the
Black-Scholes option pricing model utilizing the following weighted average
assumptions:
<TABLE>
<CAPTION>
Year Ended February 28,
------------------------------------------------
1997 1998 1999
------------- --------------- ------------
<S> <C> <C> <C>
Risk-Free Interest Rate: 6.39% 5.78% 5.21%
Expected Life (Years): 7.1 7.5 8.0
Expected Volatility: 41.56% 38.65% 42.12%
</TABLE>
Expected dividend yields were zero for fiscal 1997, 1998 and 1999.
A summary of the status of options at February 1997, 1998 and 1999 and
the related activity for the year is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------------------- ---------------------- ----------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
Of Exercise Of Exercise Of Exercise
Options Price Options Price Options Price
------- ----- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of Year 893,888 15.88 1,232,335 23.42 1,340,630 26.95
Granted 439,862 35.54 225,200 44.06 586,500 33.14
Exercised (92,415) 10.01 (106,305) 21.09 (145,362) 21.90
Expired and other (9,000) 33.96 (10,600) 42.47 (10,000) 16.00
Outstanding at
End of Year 1,232,335 23.42 1,340,630 26.95 1,771,768 29.25
Exercisable at
End of Year 737,223 16.71 1,055,430 22.76 1,285,268 26.63
Available for Grant 1,385,150 2,671,350 2,074,850
</TABLE>
50
<PAGE> 51
During the years ended February 1997, 1998 and 1999 options were granted
with an exercise price equal to or less than fair market value of the stock on
the date of grant. A summary of the weighted average fair value and exercise
price of options granted during 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------------------- ---------------------- -------------------
Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average
Fair Exercise Fair Exercise Fair Exercise
Value Price Value Price Value Price
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
OPTIONS GRANTED WITH
AN EXERCISE PRICE:
Equal to Fair Market Value of the
Stock on the Date of Grant $ 24.46 $ 42.66 $ 22.85 $ 41.20 $ 20.74 $ 36.77
Less Than Fair Market Value of the
Stock on the Date of Grant $ 24.30 $ 15.50 $ - $ - $ 37.23 $ 15.50
</TABLE>
During fiscal 1997 and 1999, 14,800 and 5,000 shares of nonvested stock
were granted at a weighted average grant date fair value of $37.20 and $44.75,
respectively, under employment agreements. No nonvested stock was granted
during fiscal 1998.
The following information relates to options outstanding and exercisable
at February 28, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- -------------------------------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number of Exercise Remaining Number of Exercise
Prices Options Price Contract Life Options Price
----------- --------- --------- ------------- --------- --------
<S> <C> <C> <C> <C> <C>
3.75 31,250 3.75 3.2 years 31,250 3.75
9.90-14.85 52,900 12.30 4.6 years 52,900 12.30
14.85-19.80 602,915 15.55 7.4 years 602,915 15.55
24.75-29.70 88,925 28.88 6.6 years 88,925 28.88
29.70-34.65 442,500 33.24 9.4 years 71,000 34.50
34.65-39.60 87,678 38.50 7.0 years 87,678 38.50
39.60-44.55 148,800 44.00 7.3 years 148,800 44.00
44.55-49.50 316,800 46.64 8.4 years 201,800 45.30
</TABLE>
In addition to the benefit plans noted above, Emmis has the
following employee benefit plans:
g. Profit Sharing Plan
In December 1986, Emmis adopted a profit sharing plan that covers
all nonunion employees with one year of service. Contributions to the plan are
at the discretion of the Emmis Board of Directors. Contributions to the plan
can be made in the form of newly issued Emmis common stock or cash.
Historically, all contributions to the plan have been in the form of Emmis
common stock. Contributions reflected in non-cash compensation in the
consolidated statements of operations were $750,000 for the years ended
February 1997 and 1998, and $1,000,000 for the year ended February 1999.
h. 401(k) Retirement Savings Plan
Emmis sponsors two Section 401(k) retirement savings plans. One
covers substantially all nonunion employees age 18 years and older who have at
least one year of service and the other covers substantially all
51
<PAGE> 52
union employees that meet the same qualifications. The union plan became
effective August 1, 1998. Employees may make pretax contributions to the plans
up to 15% of their compensation, not to exceed the annual limit prescribed by
the Internal Revenue Service. Emmis may make discretionary matching
contributions to the plans in the form of shares of the Company's Class A
Common Stock. Effective March 1, 1996, Emmis began to match 50% of employee
contributions up to $2,000. Emmis' contributions to the plans totaled $273,000,
$315,000 and $599,000 for the years ended February 1997, 1998 and 1999,
respectively.
i. Defined Contribution Health and Retirement Plan
Emmis contributes to a multi-employer defined contribution health
and retirement plan for employees who are members of a certain labor union.
Amounts charged to expense related to the multi-employer plan were
approximately $297,000, $342,000 and $344,000 for the years ended February
1997, 1998 and 1999, respectively.
j. Employee Stock Purchase Plan
Effective March 1, 1995, the Company implemented an employee stock
purchase plan which permits employees to purchase, via payroll deduction,
shares of the Company's Class A Common Stock, at fair market value, up to an
amount not to exceed 10% of an employee's annual gross pay.
10. COMMITMENTS AND CONTINGENCIES
a. Operating Leases
Emmis leases certain office space, tower space, equipment and
automobiles under operating leases expiring at various dates through August
2009. Some of the lease agreements contain renewal options and annual rental
escalation clauses (generally tied to the Consumer Price Index or increases in
the lessor's operating costs), as well as provisions for payment of utilities
and maintenance costs.
The future minimum rental payments (exclusive of future
escalation costs) required by noncancelable operating leases which have
remaining terms in excess of one year as of February 28, 1999, are as follows:
<TABLE>
<CAPTION>
Payable in Year
Ending February Payments
---------------- --------------
(In Thousands)
<S> <C>
2000 $ 4,939
2001 4,324
2002 4,090
2003 3,826
2004 3,080
Thereafter 13,852
-------
$34,111
=======
</TABLE>
Minimum payments have not been reduced by minimum sublease
rentals of approximately $592,000 due in the future under noncancelable
subleases.
Rent expense totaled $3,025,000, $4,512,000 and $5,945,000 for
the years ended February 1997, 1998 and 1999, respectively. Rent expense for
the year ended February 1998 and 1999 is net of sublease income of
approximately $86,000 and $148,000, respectively.
52
<PAGE> 53
b. Radio Broadcast Agreements
Emmis has entered into agreements to broadcast certain syndicated
programs and sporting events. Future payments related to these radio broadcast
rights are summarized as follows: Year ended February 2000 - $1,564,000, 2001 -
$1,345,000, 2002 - $1,276,000, 2003 - $761,000, 2004 - $142,000, and thereafter
- - $48,000. Expense related to these broadcast rights totaled $1,383,000,
$1,400,000 and $1,492,000 for the years ended February 1997, 1998 and 1999,
respectively.
c. Litigation
Emmis currently and from time to time is involved in litigation
incidental to the conduct of its business, but Emmis is not currently a party
to any lawsuit or proceeding which, in the opinion of management, is likely to
have a material adverse effect on the financial position or results of
operations of Emmis.
d. Employment Agreements
The Company enters into employment agreements with certain
officers and employees. These agreements generally specify base salary, along
with bonuses and grants of stock and/or stock options based on certain
criteria. Options to purchase up to approximately 100,000 shares of the
Company's Class A Common Stock may be granted over the next three years under
agreements in place as of February 28, 1999. Additionally, the Company was
negotiating several new employment contracts at February 28, 1999 which were
expected to be finalized during fiscal 2000.
e. Construction of Office Building
In connection with the acquisition of KHON-TV in Honolulu,
Hawaii, in July 1998, Emmis acquired a commitment to complete the construction
of new operating facilities, including broadcast equipment, for the station.
The project is expected to be completed in the fall of 1999 for an estimated
cost of approximately $19.0 million of which $2.7 million has been incurred
through February 28, 1999.
11. INCOME TAXES
The provision for income taxes for the years ended February 1997, 1998
and 1999, consisted of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------ -----
(In Thousands)
<S> <C> <C> <C>
Current:
Federal $ 7,535 $6,474 $1,247
State 1,375 1,250 -
------- ------ ------
8,910 7,724 1,247
------- ------ ------
Deferred:
Federal 1,328 (759) 3,953
State 262 235 1,000
------- ------ ------
1,590 (524) 4,953
------- ------ ------
Provision for income taxes $10,500 $7,200 $6,200
======= ====== ======
</TABLE>
The provision for income taxes for the years ended February 1997,
1998 and 1999, differs from that computed at the Federal statutory corporate
tax rate as follows:
53
<PAGE> 54
<TABLE>
<CAPTION>
1997 1998 1999
-------- ------ ------
(In Thousands)
<S> <C> <C> <C>
Computed income taxes at 35% $ 9,079 $6,399 $3,166
State income tax 1,064 965 650
Foreign losses - - 1,334
Nondeductible goodwill - - 1,324
Other 357 (164) (274)
------- ------ ------
Net provision for income taxes $10,500 $7,200 $6,200
======= ====== ======
</TABLE>
The components of deferred tax assets and deferred tax liabilities
at February 28, 1998 and 1999, are as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Capital loss carryforwards $ 2,914 $ 439
Net operating loss carryforwards 2,587 2,142
Compensation relating to stock options 2,243 3,336
Other 2,739 2,219
Valuation allowance (2,914) (1,056)
-------- --------
Total deferred tax assets 7,569 7,080
-------- --------
Deferred tax liabilities:
Intangible assets (33,166) (88,071)
Other (1,962) (4,026)
-------- --------
Total deferred tax liabilities (35,128) (92,097)
-------- --------
Net deferred tax liability $(27,559) $(85,017)
======== ========
</TABLE>
A valuation allowance is provided when it is more likely than not
that some portion of the deferred tax asset will not be realized. A valuation
allowance has been provided for 100% of the capital loss carryforwards
available as of February 28, 1998 and 1999, since these loss carryforwards can
only be utilized to offset future capital gains with expiration of
approximately $730,000 in 2000, and $368,000 in 2002. The expiration of net
operating loss carryforwards approximate $692,000 in 2000, $1,486,000 in 2003,
$2,623,000 in 2004, and $2,133,000 thereafter.
12. SEGMENT INFORMATION
The Company's operations are aligned into three business segments:
Radio, Television and Publishing. These business segments are consistent with
the Company's management of these businesses and its financial reporting
structure.
The Radio segment includes all 17 of the company's radio stations. The
Radio segment derives its revenue from the sale of commercial broadcast
inventory. The Television segment consists of six television stations that
derive revenue from the sale of commercial broadcast inventory. The Company's
Publishing segment consists of four publishing entities which derive revenue
from subscriptions and the sale of print advertising inventory.
The category "Corporate and Other" represents the results of
insignificant operations and income and expense not allocated to reportable
segments.
The Company's segments operate primarily in the United States with one
radio station located in Hungary. Total revenues for the year-ended February
28, 1999 were $3.3 million and total assets as of february 28, 1998 and 1999
were $27.2 million and $20.4 million, respectively, related to the Hungarian
radio station. Total revenues for this station were not material for the year
ended February 28, 1998. The
54
<PAGE> 55
accounting policies as described in the summary of significant accounting
policies are applied consistently across segments.
The Company evaluates performance of its operating entities based on
broadcast cash flow (BCF) and publishing cash flow (PCF). Management believes
that BCF and PCF are useful because they provide a meaningful comparison of
operating performance between companies in the industry and serve as an
indicator of the market value of a group of stations or publishing entities.
BCF and PCF are generally recognized by the broadcast and publishing industries
as a measure of performance and are used by analysts who report on the
performance of broadcasting and publishing groups. BCF and PCF do not take into
account Emmis' debt service requirements and other commitments and,
accordingly, BCF and PCF are not necessarily indicative of amounts that may be
available for dividends, reinvestment in Emmis' business or other discretionary
uses. BCF and PCF are not a measure of liquidity or of performance in
accordance with generally accepted accounting principles, and should be viewed
as a supplement to and not a substitute for our results of operations presented
on the basis of generally accepted accounting principles.
<TABLE>
<CAPTION>
CORPORATE
YEAR ENDED FEBRUARY 28, 1999 RADIO TELEVISION PUBLISHING AND OTHER CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net revenues $155,028 $ 39,623 $36,476 $ 1,709 $ 232,836
Operating expenses 84,907 26,130 31,491 820 143,348
-------- ------- ------- --------- ----------
Broadcast/publishing cash flow 70,121 13,493 4,985 889 89,488
International business
development expenses - - - 1,477 1,477
Corporate expenses - - - 10,427 10,427
Time brokerage fee 2,220 - - - 2,220
Depreciation and amortization 13,990 8,352 4,813 1,159 28,314
Non-cash compensation - - - 4,269 4,269
-------- ------- ------- --------- ----------
Operating income 53,911 5,141 172 (16,443) 42,781
Total assets 460,065 439,279 44,171 71,316 1,014,831
</TABLE>
<TABLE>
<CAPTION>
CORPORATE
YEAR ENDED FEBRUARY 28, 1998 RADIO TELEVISION PUBLISHING AND OTHER CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net revenues $125,855 - $13,586 $ 1,142 $140,583
Operating expenses 67,646 - 12,600 924 81,170
--------- -- ------- ------- --------
Broadcast/publishing cash flow 58,209 - 986 218 59,413
International business
development expenses - - - 999 999
Corporate expenses - - - 6,846 6,846
Time brokerage fee 5,667 - - - 5,667
Depreciation and amortization 7,034 - 294 208 7,536
Non-cash compensation - - - 1,482 1,482
--------- -- ------- ------- --------
Operating income 45,508 - 692 (9,317) 36,883
Total assets 255,541 - 50,086 27,761 333,388
</TABLE>
55
<PAGE> 56
<TABLE>
<CAPTION>
CORPORATE
YEAR ENDED FEBRUARY 28, 1997 RADIO TELEVISION PUBLISHING AND OTHER CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net revenues $103,292 - $9,493 $ 935 $113,720
Operating expenses 52,839 - 8,957 637 62,433
--------- -- ------- ------- --------
Broadcast/publishing cash flow 50,453 - 536 298 51,287
International business
development expenses - - - 1,164 1,164
Corporate expenses - - - 5,929 5,929
Time brokerage fee - - - - -
Depreciation and amortization 5,098 - 158 225 5,481
Non-cash compensation - - - 3,465 3,465
--------- -- ------- ------- --------
Operating income 45,355 - 378 (10,485) 35,248
Total assets 168,730 - 3,652 17,334 189,716
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments of Emmis is estimated below
based on the methods and assumptions discussed therein.
a. Cash and Cash Equivalents
The carrying amounts approximate fair value because of the short
maturity of these instruments.
b. Long-Term Debt
Based upon borrowing rates currently available to the Company for
debt with similar terms and the same remaining maturities, the fair value of
long-term debt approximated the carrying value at February 28, 1999.
c. Interest Rate Cap Agreements
The unamortized cost of interest rate cap agreements included in
the February 28, 1999 consolidated balance sheet totals $231,000. The fair
value of interest rate caps is estimated by obtaining quotations from brokers
and approximates $166,000 at February 28, 1999.
d. Letter of Credit
Fees paid for the Company's $50 million letter of credit
approximate fair value based on fees currently charged for similar
arrangements.
14. RELATED PARTY TRANSACTIONS
Two officers of Emmis are partners in a law firm which provides legal
services to Emmis. Legal fees paid to this law firm were approximately
$296,000, $512,000 and $868,000 for the years ended February 1997, 1998 and
1999, respectively.
56
<PAGE> 57
15. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND SUBSIDIARY
NON-GUARANTOR
Emmis conducts a significant portion of its business through
subsidiaries. The Senior Subordinated Notes are fully and unconditionally
guaranteed, jointly and severally, by certain direct and indirect subsidiaries
(the "Subsidiary Guarantors"). One of Emmis' subsidiaries does not guarantee
the Senior Subordinated Notes (the "Non-Guarantor Subsidiary"). The claims of
creditors of the Non-Guarantor Subsidiary have priority over the rights of
Emmis to receive dividends or distributions from such subsidiary.
Presented below is condensed consolidating financial information for
Emmis, the Subsidiary Guarantors and the Non-Guarantor Subsidiary as of
February 28, 1999 and 1998 and for each of the three years in the period ended
February 28, 1999.
The equity method has been used by Emmis with respect to investments in
subsidiaries. Separate financial statements for Subsidiary Guarantors are not
presented based on management's determination that they do not provide
additional information that is material to investors.
57
<PAGE> 58
Emmis Communications Corporation
Condensed Consolidating Balance Sheet
As of February 28, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Eliminations
Parent and
Company Subsidiary Subsidiary Consolidating
Only Guarantors Non-Guarantor Entries Consolidated
-------- -------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 2,286 $ 3,146 $ 685 $ - $ 6,117
Accounts receivable, net - 50,436 1,043 - 51,479
Current portion of TV program rights - 3,646 - - 3,646
Income tax refunds receivable - - - - -
Prepaid expenses and other 5,720 4,048 72 - 9,840
-------- -------- ------- --------- ----------
Total current assets 8,006 61,276 1,800 - 71,082
Property and equipment, net 33,769 71,342 949 - 106,060
Intangible assets, net 151 785,219 16,937 - 802,307
Investment in affiliates 856,701 - - (856,701) -
Other assets, net 31,866 7,648 702 (4,834) 35,382
-------- -------- ------- --------- ----------
Total assets $930,493 $925,485 $20,388 $(861,535) $1,014,831
======== ======== ======= ========= ==========
Current Liabilities
Current maturities of other long-
term debt $ 34 $ 16 $ 2,239 $ (1,454) $ 835
Current portion of TV program
rights payable - 9,471 - - 9,471
Accounts payable 7,527 7,739 369 - 15,635
Collection of accounts receivable on
behalf of SF Broadcasting and
Wabash Valley Broadcasting - 9,016 - - 9,016
Accrued salaries and commissions 1,262 2,719 564 - 4,545
Accrued interest 6,222 1 - - 6,223
Income taxes payable 11,790 267 - - 12,057
Deferred revenue - 7,238 - - 7,238
Other 146 4,667 - - 4,813
-------- -------- ------- --------- ----------
Total current liabilities 26,981 41,134 3,172 (1,454) 69,833
Credit Facility and Senior
Subordinated Debt 577,000 - - - 577,000
TV program rights payable, net
of current portion - 25,161 - - 25,161
Other long-term debt, net of
current portion 2,543 (45) 19,687 (3,380) 18,805
Other noncurrent liabilities (4) 3,470 - - 3,466
Minority interest - - - - -
Deferred income taxes 87,776 (2,759) - - 85,017
-------- -------- ------- --------- ----------
Total liabilities 694,296 66,961 22,859 (4,834) 779,282
Shareholders' Equity
Class A common stock 132 - - - 132
Class B common stock 26 - - - 26
Additional paid-in capital 260,344 - 4,297 (4,297) 260,344
Subsidiary investment - 637,223 - (637,223) -
Retained earnings (accumulated deficit) (24,305) 221,301 (6,120) (215,181) (24,305)
Accumulated other comprehensive income - - (648) - (648)
-------- -------- ------- --------- ----------
Total shareholders' equity 236,197 858,524 (2,471) (856,701) 235,549
-------- -------- ------- --------- ----------
Total liabilities and
shareholders' equity $930,493 $925,485 $20,388 $(861,535) $1,014,831
======== ======== ======= ========= ==========
</TABLE>
58
<PAGE> 59
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Year Ended February 28, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Eliminations
Parent and
Company Subsidiary Subsidiary Consolidating
Only Guarantors Non-Guarantor Entries Consolidated
-------- -------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,709 $227,873 $ 3,254 $ - $232,836
Operating expenses 820 138,581 3,947 - 143,348
International business development expenses - 1,477 - - 1,477
Corporate expenses 10,427 - - - 10,427
Time brokerage agreement fee - 2,220 - - 2,220
Depreciation and amortization 1,159 24,336 2,819 - 28,314
Non-cash compensation 3,600 669 - - 4,269
-------- -------- ------- ------- --------
Operating income (14,297) 60,590 (3,512) - 42,781
-------- -------- ------- ------- --------
Other income (Expense)
Interest expense (33,667) (102) (3,171) 1,290 (35,650)
Other income (expense), net 74,865 (73,957) 421 585 1,914
-------- -------- ------- ------- --------
Total other income (expense) 41,198 (74,059) (2,750) 1,875 (33,736)
-------- -------- ------- ------- --------
Income (loss) before income taxes 26,901 (13,469) (6,262) 1,875 9,045
Provision (benefit) for income taxes 9,719 (3,377) (142) - 6,200
-------- -------- ------- ------- --------
17,182 (10,092) (6,120) 1,875 2,845
Extraordinary item, net of tax (1,597) - - - (1,597)
Equity in earnings (loss) of subsidiaries (14,337) - - 14,337 -
-------- -------- ------- ------- --------
Net income (loss) $ 1,248 $(10,092) $(6,120) $16,212 $ 1,248
======== ======== ======= ======= ========
</TABLE>
59
<PAGE> 60
Emmis Communications Corporation
Consolidating Statement of Cash Flows
For the Year Ended February 28, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Parent Company Subsidiary Subsidiary
Only Guarantors Non-Guarantor Eliminations Consolidated
-------------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income $ 1,248 $ (10,092) $(6,120) $ 16,212 $ 1,248
Adjustments to reconcile net income to net cash
provided (used) by operating activities -
Extraordinary item 1,597 - - - 1,597
Depreciation and amortization of property
and equipment 779 6,886 2,040 - 9,705
Amortization of debt issuance costs and
cost of interest rate cap agreements 839 - - - 839
Amortization of intangible assets 380 17,450 779 - 18,609
Amortization of TV program rights - 3,005 - - 3,005
Provision for bad debts - 1,745 - - 1,745
Provision (benefit) for deferred income taxes 4,953 - - - 4,953
Noncash compensation 3,600 669 - - 4,269
Cash paid for TV program rights - (1,469) - - (1,469)
Equity in earnings of subsidiaries 14,337 - - (14,337) -
Intercompany (522,788) 521,699 2,543 (1,454) -
Other 103 629 - (1,875) (1,143)
(Increase) decrease in certain assets (net
of dispositions and acquisitions) -
Accounts receivable 345 (21,835) 386 - (21,104)
Prepaid expenses and other current assets (4,725) 4,070 (72) - (727)
Increase (decrease) in certain current liabilities
(net of dispositions and acquisitions) -
Accounts payable 4,146 (2,057) (1,675) 1,454 1,868
Accrued salaries and commissions 236 537 564 - 1,337
Accrued interest 3,801 1 - - 3,802
Deferred revenue - (747) - - (747)
Other current liabilities (2,625) 6,320 791 - 4,486
(Increase) decrease in deposits and other assets 9,516 (6,408) 327 - 3,435
Increase (decrease) in other noncurrent liabilities 596 248 (1,431) - (587)
---------- --------- ------- -------- ----------
Net cash provided (used) by
operating activities (483,662) 520,651 (1,868) - 35,121
---------- --------- ------- -------- ----------
Investing Activities:
Acquisition of WQCD-FM - (128,550) - - (128,550)
Acquisition of SF Broadcasting - (287,293) - - (287,293)
Acquisition of Wabash Valley Broadcasting - (88,905) - - (88,905)
Purchases of property and equipment (21,363) (13,654) (2,366) - (37,383)
Other 7 654 - - 661
---------- --------- ------- -------- ----------
Net cash used in
investing activities (21,356) (517,748) (2,366) - (541,470)
---------- --------- ------- -------- ----------
Financing Activities:
Proceeds of credit facility and senior
subordinated notes 1,063,000 - - - 1,063,000
Payments on credit facility (723,500) - - - (723,500)
Purchase of interest rate cap agreements
and payment of loan fees (19,589) - - - (19,589)
Proceeds of the Company's Class A
common stock, net of transaction costs 182,640 - - - 182,640
Proceeds from exercise of stock options and
income tax benefits of certain
equity transactions 4,130 - - - 4,130
Other - - - - -
---------- --------- ------- -------- ----------
Net cash provided by
financing activities 506,681 - - - 506,681
---------- --------- ------- -------- ----------
Effect of exchange rates on cash - - - - -
Increase (decrease) in cash and cash equivalents 1,663 2,903 (4,234) - 332
Cash and cash equivalents
Beginning of year 623 243 4,919 - 5,785
---------- --------- ------- -------- ----------
End of year $ 2,286 $ 3,146 $ 685 $ $ 6,117
========== ========= ======= ======== ==========
</TABLE>
60
<PAGE> 61
Emmis Communications Corporation
Condensed Consolidating Balance Sheet
As of February 28, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Eliminations
Parent and
Company Subsidiary Subsidiary Consolidating
Only Guarantors Non-Guarantor Entries Consolidated
--------- ---------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 623 $ 243 $ 4,919 $ - $ 5,785
Accounts receivable, net 345 30,346 1,429 - 32,120
Income tax refunds receivable 4,968 - - - 4,968
Prepaid expenses and other 995 7,284 - - 8,279
-------- -------- ------- --------- --------
Total current assets 6,931 37,873 6,348 - 51,152
Property and equipment, net 13,295 19,528 623 - 33,446
Intangible assets, net 529 214,797 19,232 - 234,558
Investment in affiliates 257,816 - - (257,816) -
Other assets, net 17,892 1,593 1,029 (6,282) 14,232
-------- -------- ------- --------- --------
Total assets $296,463 $273,791 $27,232 $(264,098) $333,388
======== ======== ======= ========= ========
Current Liabilities
Current maturities of other long-
term debt $ 34 $ 17 $ 1,448 $ - $ 1 ,499
Accounts payable 3,381 9,169 590 - 13,140
Accrued salaries and commissions 1,026 1,867 - - 2,893
Accrued interest 2,421 - - - 2,421
Deferred revenue - 7,985 - - 7,985
Other current liabilities 1,189 390 - - 1,579
-------- -------- ------- --------- --------
Total current liabilities 8,051 19,428 2,038 - 29,517
Credit facility and senior
subordinated debt 215,000 - - - 215,000
Other long-term debt, net of
current portion 59 28 21,118 (6,282) 14,923
Other noncurrent liabilities 1,884 595 - (1,875) 604
Minority interest - - - 1,875 1,875
Deferred income taxes 27,559 - - - 27,559
-------- -------- ------- --------- --------
Total liabilities 252,553 20,051 23,156 (6,282) 289,478
Shareholders' Equity
Class A common stock 84 - - - 84
Class B common stock 26 - - - 26
Additional paid-in capital 69,353 - 4,076 (4,076) 69,353
Subsidiary investment - 22,347 - (22,347) -
Retained earnings/accumulated deficit (25,553) 231,393 - (231,393) (25,553)
-------- -------- ------- --------- --------
Total shareholders' equity 43,910 253,740 4,076 (257,816) 43,910
-------- -------- ------- --------- --------
Total liabilities and
shareholders' equity $296,463 $273,791 $27,232 $(264,098) $333,388
======== ======== ======= ========= ========
</TABLE>
61
<PAGE> 62
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Year Ended February 28, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Eliminations
Parent and
Company Subsidiary Consolidating
Only Guarantors Entries Consolidated
-------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Net revenues $ 1,142 $139,441 $ - $140,583
Operating expenses 924 80,246 - 81,170
International business development expenses - 999 - 999
Corporate expenses 6,846 - - 6,846
Time brokerage agreement fee - 5,667 - 5,667
Depreciation and amortization 171 7,365 - 7,536
Noncash compensation 818 664 - 1,482
-------- -------- -------- --------
Operating income (7,617) 44,500 - 36,883
-------- -------- -------- --------
Other income (expense)
Interest expense (13,766) (6) - (13,772)
Loss on donation of radio station (4,833) - - (4,833)
Other income (expense), net 15 (9) - 6
-------- -------- -------- --------
Total other income (expense) (18,584) (15) - (18,599)
-------- -------- -------- --------
Income (loss) before income taxes (26,201) 44,485 - 18,284
Provision for income taxes (10,480) 17,680 - 7,200
-------- -------- -------- --------
(15,721) 26,805 - 11,084
Equity in earnings (loss) of subsidiaries 26,805 - (26,805) -
-------- -------- -------- --------
Net income (loss) $ 11,084 $ 26,805 $(26,805) $ 11,084
======== ======== ======== ========
</TABLE>
62
<PAGE> 63
Emmis Communications Corporation
Consolidating Statement of Cash Flows
For the Year Ended February 28, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Parent Company Subsidiary Subsidiary
Only Guarantors Non-Guarantor Eliminations Consolidated
-------------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss) $ 11,084 $ 26,805 $ - $(26,805) $ 11,084
Adjustments to reconcile net income
to net cash provided (used) by
operating activities -
Depreciation and amortization of property
and equipment 155 2,425 - - 2,580
Amortization of debt issuance costs and
cost of interest rate cap agreements 2,183 - - - 2,183
Amortization of intangible assets 16 4,940 - - 4,956
Provision for bad debts 20 782 - - 802
Equity in earnings of subsidiaries (26,805) - - 26,805 -
Provision (benefit) for deferred income taxes (121) (403) - - (524)
Noncash compensation 818 664 - - 1,482
Loss on donation of radio station 4,833 - - - 4,833
Other 357 - - - 357
Intercompany (75,327) 68,642 8,560 (1,875) -
(Increase) decrease in certain assets (net
of dispositions and acquisitions) -
Accounts receivable 797 (7,757) (1,429) - (8,389)
Prepaid expenses and other current assets (5,234) 474 - - (4,760)
Increase (decrease) in certain current liabilities
(net of dispositions and acquisitions) -
Accounts payable 1,021 4,058 481 - 5,560
Accrued salaries and commissions 779 553 - - 1,332
Accrued interest 2,247 - - - 2,247
Deferred revenue - 292 - - 292
Other current liabilities 1,084 (968) - - 116
(Increase) decrease in deposits and other assets (951) (6,136) (1,027) 6,282 (1,832)
Increase (decrease) in other
noncurrent liabilities (28) 196 - - 168
--------- -------- ------- -------- ---------
Net cash provided (used in)
operating activities (83,072) 94,567 6,585 4,407 22,487
--------- -------- ------- -------- ---------
Investing Activities:
Acquisition of WXTM-FM, WALC-AM
and WKKX-FM - (36,964) - - (36,964)
Acquisition of WTLC-FM and WTLC-AM - (15,336) - - (15,336)
Acquisition of Texas Monthly - (37,389) - - (37,389)
Acquisition of Cincinnati Magazine - (1,979) - - (1,979)
Acquisition of Network Indiana and AgriAmerica - (709) - - (709)
Purchases of property and equipment (13,349) (3,019) (623) - (16,991)
Initial payment for purchase of Hungarian
broadcast license - - (7,325) - (7,325)
--------- -------- ------- -------- ---------
Net cash used in investing activities (13,349) (95,396) (7,948) - (116,693)
--------- -------- ------- -------- ---------
Financing Activities:
Proceeds of credit facility 288,378 - 6,282 (6,282) 288,378
Payments on credit facility (183,928) - - - (183,928)
Payment on loan fees (4,291) - - - (4,291)
Purchase of Company's Class A
common stock (7,000) - - - (7,000)
Proceeds from exercise of stock options
and income tax benefits of certain
equity transactions 3,922 - - - 3,922
Other (156) - - 1,875 1,719
--------- -------- ------- -------- ---------
Net cash provided (used) by
financing activities 96,925 - 6,282 (4,407) 98,800
--------- -------- ------- -------- ---------
Increase (decrease) in cash and cash equivalents 504 (829) 4,919 - 4,594
Cash and cash equivalents
Beginning of year 119 1,072 - - 1,191
--------- -------- ------- -------- ---------
End of year $ 623 $ 243 $ 4,919 $ - $ 5,785
========= ======== ======= ======== =========
</TABLE>
63
<PAGE> 64
Emmis Communications Corporation
Condensed Consolidating Statement of Operations
For the Year Ended February 28, 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
Eliminations
Parent and
Company Subsidiary Consolidating
Only Guarantors Entries Consolidated
---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Net revenues $ 935 $112,785 $ - $113,720
Operating expenses 638 61,795 - 62,433
International business development expenses - 1,164 - 1,164
Corporate expenses 5,929 - - 5,929
Depreciation and amortization 179 5,302 - 5,481
Non-cash compensation 2,702 763 - 3,465
---------- -------- -------- --------
Operating income ( 8,513) 43,761 - 35,248
---------- -------- -------- --------
Other income (expense)
Interest expense (9,573) (60) - (9,633)
Other income (expense), net 351 (26) - 325
---------- -------- -------- --------
Total other income (expense) (9,222) (86) - (9,308)
---------- -------- -------- --------
Income before income taxes (17,735) 43,675 - 25,940
Provision (benefit) for income taxes (7,094) 17,594 - 10,500
---------- -------- -------- --------
(10,641) 26,081 - 15,440
Equity in earnings of subsidiaries 26,081 - (26,081) -
---------- -------- -------- --------
Net income (loss) $ 15,440 $ 26,081 $(26,081) $ 15,440
========== ======== ======== ========
</TABLE>
64
<PAGE> 65
Emmis Communications Corporation
Consolidating Statement of Cash Flows
For the Year Ended February 28, 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
Parent Company Subsidiary
Only Guarantors Eliminations Consolidated
-------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Operating Activities:
Net income $ 15,440 $ 26,081 $(26,081) $ 15,440
Adjustments to reconcile net income
to net cash provided by
operating activities -
Depreciation and amortization of
property and equipment 161 1,478 - 1,639
Amortization of debt issuance costs and
cost of interest rate cap agreements 1,071 - - 1,071
Amortization of intangible assets 18 3,824 - 3,842
Provision of bad debts - 726 - 726
Equity in earnings of subsidiaries (26,081) - 26,081 -
Provision (benefit) for deferred income taxes - 1,590 - 1,590
Non cash compensation 2,702 763 - 3,465
Other (195) - - (195)
Intercompany 21,582 (21,582) - -
(Increase) decrease in certain current assets (net
of dispositions and acquisitions) -
Accounts receivable 615 (3,000) - (2,385)
Prepaid expenses and other current assets (517) (2,524) - (3,041)
Increase (decrease) in certain current liabilities
(net of dispositions and acquisitions) -
Accounts payable 2,020 737 - 2,757
Accrued salaries and commissions (532) (1,467) - (1,999)
Accrued interest (146) - - (146)
Deferred revenue - 395 - 395
Other current liabilities (57) 83 - 26
(Increase) decrease in deposits and other assets (1,353) 455 - (898)
Increase (decrease) in other noncurrent liabilities - (925) - (925)
-------- -------- -------- --------
Net cash provided by operating activities 14,728 6,634 - 21,362
Investing Activities:
Acquisition of WXTM-FM, WALC-AM and WKKX-FM (6,600) - - (6,600)
Purchases of property and equipment (1,102) (6,457) - (7,559)
Other 240 - - 240
-------- -------- -------- --------
Net cash used in investing activities (7,462) (6,457) - (13,919)
-------- -------- -------- --------
Financing Activities:
Proceeds of credit facility 19,000 - - 19,000
Payments on credit facility (28,102) - - (28,102)
Proceeds from exercise of stock options and
income tax benefits of certain
equity transactions 1,632 - - 1,632
-------- -------- -------- --------
Net cash used in financing activities (7,470) - - (7,470)
-------- -------- -------- --------
Increase (Decrease) in cash and cash equivalents (204) 177 - (27)
Cash and cash equivalents
Beginning of year 323 895 - 1,218
-------- -------- -------- --------
End of year $ 119 $ 1,072 $ - $ 1,191
======== ======== ======== ========
</TABLE>
65
<PAGE> 66
16. SUBSEQUENT EVENT - ACQUISITION
On April 1, 1999, the Company acquired substantially all the assets of
Country Sampler, Inc. for approximately $19.0 million in cash, $2.0 million
payable under contract with the principal shareholder through April 2003 and
assumed liabilities of approximately $3.4 million (the "Country Sampler
Acquisition"). The acquisition was accounted for as a purchase and was financed
through additional bank borrowings.
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------- Full
May 31 Aug. 31 Nov. 30 Feb. 28 Year
------ ------- ------- ------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1998:
Net revenues $31,330 $37,008 $39,809 $32,436 $140,583
Operating income 8,091 12,002 10,160 6,630 36,883
Net income (loss) 3,368 4,672 4,079 (1,035) 11,084
Basic net income per share $0.31 $0.43 $0.38 $(0.10) $1.02
Diluted net income per share $0.30 $0.41 $0.36 $(0.10) $0.98
Year ended February 28, 1999:
Net revenues $44,619 $57,874 $71,639 $58,704 $232,836
Operating income 8,173 14,807 18,085 1,716 42,781
Income before extraordinary item 1,788 4,161 3,012 (6,116) 2,845
Net income (loss) 1,788 2,564 3,012 (6,116) 1,248
Basic earnings per share:
Income before extraordinary item $0.16 $0.27 $0.19 $(0.39) $0.20
Net Income $0.16 $0.17 $0.19 $(0.39) $0.09
Diluted earnings per share:
Income before extraordinary item $0.16 $0.26 $0.19 $(0.39) $0.19
Net income $0.16 $0.16 $0.19 $(0.39) $0.08
</TABLE>
66
<PAGE> 67
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of EMMIS
COMMUNICATIONS CORPORATION (an Indiana corporation) and Subsidiaries as of
February 28, 1999 and 1998, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the
three years in the period ended February 28, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Emmis
Communications Corporation and Subsidiaries as of February 28, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended February 28, 1999 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
/s/ ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
April 30, 1999.
67
<PAGE> 68
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
68
<PAGE> 69
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item with respect to directors of Emmis
is incorporated by reference from the section entitled "Proposal No. 1:
Election of Directors" on pages 4-6 of the Emmis 1999 Proxy Statement and the
section entitled "Compliance with Section 16(a) of the Securities Exchange Act
of 1934" on page 14 of the Emmis 1999 Proxy Statement.
Listed below is certain information about the executive officers of
Emmis or its affiliates who are not directors.
<TABLE>
<CAPTION>
AGE AT YEAR FIRST
FEBRUARY 28, ELECTED
NAME POSITION 1999 OFFICER
---- -------- -------------- ---------
<S> <C> <C> <C>
Richard F. Cummings Executive Vice 47 1984
President-Programming
Norman H. Gurwitz Executive Vice President-Human 51 1987
Resources and Secretary
Walter Z. Berger Executive Vice President, Treasurer 43 1999
and Chief Financial Officer (1)
</TABLE>
- -------------
(1) Mr. Berger began serving in these positions on March 1, 1999.
Set forth below is the principal occupation for the last five years of
each executive officer of the Company or its affiliates who is not also a
director.
Richard F. Cummings was the Program Director of WENS from 1981 to March
1984, when he became the National Program Director and a Vice President of
Emmis. He became Executive Vice President--Programming in 1988.
Norman H. Gurwitz currently serves as Executive Vice President -- Human
Resources, a position he assumed in 1998. Previously he served as Corporate
Counsel for Emmis from 1987 to 1998 and as a Vice President from 1988 to 1995.
He became Secretary of Emmis in 1989 and became an Executive Vice President in
1995. Prior to 1987, he was a partner in the Indianapolis law firm of Scott &
Gurwitz.
Walter Z. Berger became Executive Vice President, Treasurer and Chief
Financial Officer of Emmis on March 1, 1999. Most recently, Mr. Berger served
as Group President of the Energy Marketing Division of LG&E Energy Corporation.
Prior to that appointment, he served as Executive Vice President and Chief
Financial Officer of LG&E Energy Corporation. From 1992 to 1996, he held
several senior financial and operating management positions at Enron
Corporation and its affiliates. Mr. Berger also spent seven years in various
financial management roles at Baker Hughes Incorporated.
69
<PAGE> 70
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference
from the section entitled "Executive Compensation" on pages 6-7 and 9-11 of the
Emmis 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference
from the section entitled "Voting Securities and Beneficial Owners" on pages
3-4 of the Emmis 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference
from the section entitled "Certain Transactions" on page 6 of the Emmis 1999
Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Financial Statements
The financial statements filed as a part of this report are set forth
under Item 8.
Financial Statement Schedules
The following financial statement schedule is filed as a part of this
report:
Report of Independent Public Accountants on Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts and Reserves for the fiscal
years in the three year period ended February 28, 1999.
Reports on Form 8-K
During its last fiscal quarter, Emmis filed a report on Form 8-K on
December 2, 1998, to report its acquisition of radio station WQCD-FM in New
York City.
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or related notes.
Exhibits
The following exhibits are filed or incorporated by reference as a part
of this report:
3.1 Amended and Restated Articles of Incorporation of Emmis Communications
Corporation, as amended, incorporated by reference to Exhibit 2.3 to
Emmis' Registration Statement on Form S-1, File No. 33-73218, as amended
(the "1994 Registration Statement"), and to Exhibit 3.1 to Emmis'
Quarterly Report on Form 10-Q for the quarter ended August 31, 1998.
70
<PAGE> 71
3.2 Amended and Restated Bylaws of Emmis Communications Corporation, as
amended, incorporated by reference to Exhibit 2.4 to Emmis' Quarterly
Report on Form 10-Q for the quarter ended May 31, 1995, and to Exhibit
3.2 to Emmis' Quarterly Report on Form 10-Q for the quarter ended August
31, 1998.
3.3 Form of stock certificate for Class A Common Stock, incorporated by
reference from Exhibit 3.5 to the 1994 Registration Statement.
4.1 Indenture dated February 12, 1999 among Emmis Communications
Corporation, certain subsidiary guarantors and IBJ Whitehall Bank and
Trust Company, as trustee, including as an exhibit thereto the form of
note, incorporated by reference to Exhibit 4.1 to Emmis' Registration
Statement on Form S-4, File No. 333-74377, as amended (the "1999
Registration Statement").
4.2 Registration Rights Agreement dated as of February 12, 1999, by and
among Emmis Communications Corporation and its Subsidiary Guarantors and
Donaldson, Lufkin & Jenrette Securities Corporation, BancBoston
Robertson Stephens Inc., First Union Capital Markets Corp., Goldman,
Sachs & Co. and TD Securities (USA) Inc., incorporated by reference to
Exhibit 4.2 to the 1999 Registration Statement.
10.1 Emmis Communications Corporation 1986 Stock Incentive Plan, as amended,
incorporated by reference from Exhibit 10.1 to the 1994 Registration
Statement.++
10.2 Emmis Communications Corporation 1992 Stock Option Plan, incorporated by
reference from Exhibit 10.3 to the 1994 Registration Statement.++
10.3 Emmis Communications Corporation Profit Sharing Plan, incorporated by
reference from Exhibit 10.4 to the 1994 Registration Statement.++
10.4 Emmis Communications Corporation 1994 Equity Incentive Plan,
incorporated by reference from Exhibit 10.5 to the 1994 Registration
Statement.++
10.5 The Emmis Communications Corporation 1995 Non-Employee Director Stock
Option Plan, incorporated by reference from Exhibit 10.15 to Emmis'
Annual Report on Form 10-K for the fiscal year ended February 28, 1995
(the "1995 10-K").++
10.6 The Emmis Communications Corporation 1995 Equity Incentive Plan
incorporated by reference from Exhibit 10.16 to the 1995 10-K.++
10.7 Emmis Communications Corporation 1997 Equity Incentive Plan,
incorporated by reference from Exhibit 10.5 to Emmis' Annual Report on
Form 10-K for the fiscal year ended February 28, 1998 (the "1998
10-K").++
10.8 Employment Agreement dated as of March 1, 1994, by and between Emmis
Broadcasting Corporation and Jeffrey H. Smulyan, incorporated by
reference from Exhibit 10.13 to Emmis' Annual Report on Form 10-K for
the fiscal year ended February 28, 1994.++
10.9 Employment Agreement dated as of March 1, 1999, by and between Emmis
Communications Corporation and Walter Z. Berger.* ++
10.10 Second Amended and Restated Revolving Credit and Term Loan Agreement,
and First Amendment to Second Amended and Restated Revolving Credit and
Term Loan Agreement, incorporated by reference to Exhibits 10.1 and
10.2, respectively, to Emmis' Quarterly Report on Form 10-Q for the
quarter ended August 31, 1998.
71
<PAGE> 72
10.11 Second Amendment to Second Amended and Restated Revolving Credit and
Term Loan Agreement.*
10.12 Asset Purchase Agreement dated October 31, 1997 between Emmis
Broadcasting Corporation and Zimco, Inc. (with exhibits omitted which
Emmis agrees to file supplementally upon request), incorporated by
reference from Exhibit 2 to Emmis' report on Form 8-K filed April 15,
1997.
10.13 Stock Purchase Agreement Among Emmis Broadcasting Corporation, and
Michael R. Levy, Dow Jones & Company, Inc., and Gregory Curtis, dated
February 6, 1998, incorporated by reference from Exhibit 10.14 to the
1998 10-K.
10.14 Asset Purchase Agreement by and between Emmis Broadcasting Corporation
and Wabash Valley Broadcasting Corporation, dated March 20, 1998,
incorporated by reference from Exhibit 10.15 to the 1998 10-K.
10.15 Asset Purchase Agreement by and among SF Broadcasting of Honolulu, Inc.,
SF Honolulu License Subsidiary, Inc., SF Broadcasting of New Orleans,
Inc., SF New Orleans License Subsidiary, Inc., SF Broadcasting of
Mobile, Inc., SF Mobile License Subsidiary, Inc., SF Broadcasting of
Green Bay, Inc., SF Green Bay License Subsidiary, Inc. and Emmis
Broadcasting Corporation, dated March 30, 1998, incorporated by
reference from Exhibit 10.16 to the 1998 10-K.
10.16 Asset Purchase Agreement by and among Emmis Communications Corporation,
Country Sampler, Inc. and Mark A. Nickel, dated as of February 23, 1999,
together with associated Consulting Agreement and Letter Agreement.*
21 Subsidiaries of Emmis.*
23 Consent of Accountants.*
24 Powers of Attorney.*
27 Financial Data Schedule (EDGAR-filed version only)
- --------------------
* Filed with this report.
++ Management contract or compensatory plan or arrangement.
72
<PAGE> 73
Signatures.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
EMMIS COMMUNICATIONS CORPORATION
Date: May 25, 1999 By: /s/ Jeffrey H. Smulyan
--------------------------
Jeffrey H. Smulyan
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C> <C>
Date: May 25, 1999 /s/ Jeffrey H. Smulyan President, Chairman of the Board
---------------------- and Director (Principal Executive
Jeffrey H. Smulyan Officer)
Date: May 25, 1999 /s/ Walter Z. Berger Executive Vice President, Treasurer
-------------------- and Chief Financial Officer
Walter Z. Berger (Principal Accounting Officer)
Date: May 25, 1999 Susan B. Bayh* Director
------------------
Susan B. Bayh
Date: May 25, 1999 Gary L. Kaseff* Executive Vice President, General
------------------- Counsel and Director
Gary L. Kaseff
Date: May 25, 1999 Richard A. Leventhal* Director
-------------------------
Richard A. Leventhal
Date: May 25, 1999 Greg A. Nathanson* Television Division President and
------------------- Director
Greg A. Nathanson
Date: May 25, 1999 Doyle L. Rose* Radio Division President and
------------------ Director
Doyle L. Rose
Date: May 25, 1999 Frank V. Sica* Director
------------------
Frank V. Sica
Date: May 25, 1999 Lawrence B. Sorrel* Director
-----------------------
Lawrence B. Sorrel
</TABLE>
*By: /s/ J. Scott Enright
---------------------
J. Scott Enright
Attorney-in-Fact
73
<PAGE> 74
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of
Emmis Communications Corporation and Subsidiaries:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of EMMIS COMMUNICATIONS CORPORATION AND
SUBSIDIARIES included in Item 8, in this Form 10-K, and have issued our report
thereon dated April 30, 1999. Our audit was made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. The
schedule listed in Item 14 is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
April 30, 1999.
<PAGE> 75
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS IN THE THREE YEAR PERIOD ENDED FEBRUARY 28, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Balance
Beginning At End
CLASSIFICATION Of Year Provision Write-Offs Other Of Year
- -------------- ---------- ---------- ---------- ----- --------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS,
Year ended February 28, 1997 $799 $726 $(705) $ - $820
Year ended February 28, 1998 820 802 (981) 705(1) 1,346
Year ended February 28, 1999 1,346 1,745 (1,393) - 1,698
</TABLE>
(1) Represents additions to the allowance for doubtful accounts associated
with certain acquisitions.
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of March 1, 1999,
by and between EMMIS COMMUNICATIONS CORPORATION, an Indiana corporation (the
"Employer"), and WALTER Z. BERGER, a Kentucky resident (the "Executive").
RECITALS
WHEREAS, Employer and its subsidiaries are engaged in the ownership and
operation of various radio and television stations, magazines, and related
operations (together, the "Emmis Group");
WHEREAS, Employer desires to employ Executive as an executive, and
Executive desires to be so employed.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, do hereby agree as follows:
1. EMPLOYMENT. Upon the terms and subject to the conditions of this
Agreement, Employer hereby employs Executive and Executive hereby accepts
employment by the Employer.
2. TERM. The term of Executive's employment hereunder (the "Term")
shall commence on March 1, 1999 and continue until February 28, 2002, unless
terminated earlier in accordance with the provisions herein. As used herein,
the term "Contract Year" means the twelve (12) month period commencing on March
1, 1999 and on each anniversary thereof. Notwithstanding the foregoing, if
Executive commences employment with Employer prior to March 1, 1999, Executive
shall receive a pro-rated portion of the Base Salary (as hereinafter defined)
in payment for services rendered during such period.
3. EXECUTIVE'S POSITION, DUTIES, AND AUTHORITY.
3.1 POSITION. Employer shall employ Executive, and Executive
shall serve as an executive of Employer and of any
successor by merger, acquisition of substantially all of
the assets or stock of Employer or otherwise. Executive
shall serve as Executive Vice President and Chief Financial
Officer of Employer or in such other position or positions
to which the Board of Directors of Employer (the "Board")
shall, with Executive's consent in his sole discretion,
appoint Executive; provided, however, that in the case of
any Change in Control (as hereinafter defined) involving
Employer, the
<PAGE> 2
Board may change Executive's title or duties without
Executive's consent so long as Executive's duties are not
substantially diminished in importance. The term "Change in
Control" means the acquisition by any person or group
(other than Jeffrey H. Smulyan or a group of which he is an
affiliate and an active participant) of beneficial
ownership by purchase, merger, or otherwise, of either more
than 50% of all classes of stock of Employer (such
percentage to be computed in accordance with Rule
13d-3(d)(1)(i) of the SEC under the Exchange Act) or
substantially all of the assets of the Employer or its
successors; "person" means such term as used in Rule 13d-5
of the SEC under the Exchange Act; "group" means such term
as defined in Section 13(d) of the Exchange Act;
"beneficial owner" means such term as defined in Rule 13d-3
of the SEC under the Exchange Act; and affiliate means such
term as defined in Rule 144of the SEC under the Securities
Act.
3.2 DUTIES AND AUTHORITY. Executive shall have executive
duties, functions, authority and responsibilities
commensurate with the office or offices he from time to
time holds with Employer.
3.3 EMMIS GROUP DIRECTORSHIPS AND OFFICES. If Executive is
elected as a director of Employer, Executive shall serve in
such position without additional remuneration other than
the indemnification provided for in Section 10 hereof.
Executive shall also serve without additional remuneration
as a director and/or officer of one or more of Employer's
subsidiaries if appointed to such position by Employer.
4. FULL-TIME SERVICES. Executive's services hereunder shall be
performed on a full-time basis in a diligent and competent fashion to the best
of his abilities. Executive shall not undertake any outside employment or
outside business activities without the consent of the Board; provided,
however, that subject to satisfaction of his obligations under the preceding
sentence, Executive shall be allowed to (i) manage his personal, financial and
legal affairs and (ii) serve on civic or charitable boards or committees.
5. LOCATION OF EMPLOYMENT. Unless Executive consents otherwise in
writing in his sole discretion, the headquarters for performance of his
services hereunder shall be the corporate headquarters of Employer in
Indianapolis, Indiana, and Executive shall not be required to relocate
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his office outside the metropolitan area of Indianapolis, Indiana, subject to
such reasonable travel as the performance of Executive's duties in the business
of the Emmis Group may require.
6. BASE COMPENSATION.
6.1 BASE SALARY. During each Contract Year hereunder, Employer
shall pay or cause to be paid to Executive a base salary per annum (the
"Base Salary") of Three Hundred Forty Thousand Dollars ($340,000.00),
payable in bi-weekly installments.
6.2 CAR ALLOWANCE. During the Term Executive shall receive a
car allowance paid monthly in the amount of One Thousand Dollars
($1,000.00).
7. ADDITIONAL COMPENSATION.
7.1 CASH INCENTIVE COMPENSATION. Executive shall be entitled
to receive a cash bonus up to a maximum of One Hundred Thousand Dollars
($100,000.00) each Contract Year (the "Bonus"). The exact amount of the
Bonus, if any, shall be determined by the Compensation Committee of the
Board of Directors (the "Compensation Committee") based on the
Compensation Committee's evaluation of the Executive's performance
during the Contract Year (with input from such sources as it deems
appropriate).
7.2 STOCK OPTIONS. On the first day of each Contract Year
during the Term, Executive shall be granted an option (the "Executive
Option") to acquire twenty thousand (20,000) shares of Class A Common
Stock of Employer ("Common Stock"). On the last day of each Contract
Year during the Term, Executive shall forfeit the Executive Option with
respect to two thousand five hundred (2,500) shares of Common Stock if
the average Fair Market Value (as defined in the Emmis Broadcasting
Corporation 1997 Equity Incentive Plan, or any subsequent equity
incentive plan adopted by Emmis and generally used to make equity-based
awards to station management employees of the Emmis Group (the "Plan"))
per share of Common Stock over the last ninety (90) days of the Contract
Year is not more than one hundred and twenty-five percent (125%) of the
average Fair Market Value per share of Common Stock over the ninety (90)
days immediately preceding the start of the Contract Year. On the last
day of each Contract Year during the Term, Executive shall also forfeit
the Executive Option with respect to an additional two thousand five
hundred (2,500) shares of Common Stock if the average Fair Market Value
per share of Common Stock over the last ninety (90) days of the Contract
Year is not more than one hundred and fifteen percent (115%) of the
average Fair Market Value per share of Common Stock over the ninety (90)
days immediately preceding the
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start of the Contract Year. Each Executive Option shall: (i) have an
exercise price per share equal to its Fair Market Value on the grant
date, (ii) notwithstanding any other provision in this Agreement be
granted and subject to the terms and conditions of the Plan; (iii) be
evidenced by a written grant agreement containing such terms and
conditions as are generally provided for other officers of the Emmis
Group (which agreement shall include provisions for an eight year term
and the lapse of the non-forfeited Executive Options covered by such
agreement at a rate of twenty percent (20%) per year commencing at the
end of the fourth year after grant); (iv) be exercisable for Common Stock
without restrictive legends on the certificates therefor (other than
those appearing on the Common Stock generally).
7.3 PERFORMANCE-BASED COMPENSATION. It is the intent of
Employer and Executive that all compensation paid pursuant to Section
7.2 of this Agreement will be performance-based compensation which will
qualify under Section 162(m) of the Internal Revenue Code of 1986, as
amended, to be deducted by Employer, and all provisions in Section 7.2
will be construed to permit the compensation paid thereunder to so
qualify. In addition, the Compensation Committee shall have the
discretion to structure any Bonus to qualify under Section 162(m) of the
Code. If the Compensation Committee so structures any Bonus, all
provisions under Section 7.1 shall also be construed to permit the
compensation paid thereunder to so qualify.
7.4 STOCK GRANT. If Executive completes the entire three-year
Term and is still an employee of Employer on February 28, 2002,
Executive will be entitled to a grant of ten thousand (10,000) shares of
Common Stock (the "Stock Grant"); provided, however, that Executive
shall be entitled to receive a prorated portion of the Stock Grant if
this Agreement is terminated by Employer without Cause prior to a Change
in Control or if Executive dies or becomes Disabled (as hereinafter
defined) during the Term. Such prorated number of shares shall be an
amount equal to ten thousand (10,000) times a fraction, the numerator of
which is the number of full months from the effective date of this
Agreement to the date Executive is so terminated, dies or becomes
Disabled, and the denominator of which is thirty-six (36). Any
fractional shares created by the pro-ration shall be rounded up to the
nearest whole share. Employer, at its option, may pay the Stock Grant
(or any prorated portion thereof) in Common Stock or in cash. If the
Stock Grant (or any prorated portion thereof) is paid in cash, such cash
payment shall be an
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amount equal to the Fair Market Value of the Stock Grant (or prorated
portion thereof) on the business day immediately preceding the payment
date.
8. EXPENSES. Employer shall pay or reimburse Executive for all
reasonable expenses actually incurred or paid by Executive during the Term in
the performance of Executive's services hereunder upon presentation of expense
statements or vouchers or such other supporting information as Employer may
reasonably require of Executive. Employer shall also reimburse Executive for
any reasonable expenses incurred by Executive in connection with his relocation
to Indianapolis as more particularly described in Exhibit A.
9. VACATION AND OTHER BENEFITS. Executive shall be entitled to four
(4) weeks of paid vacation per Contract Year in accordance with Employer's
company practices. In addition, during the Term, Executive shall be eligible to
participate in any pension or profit-sharing plan or program of Employer now or
hereafter existing in accordance with and to the extent that he is eligible
under the general provisions thereof. Executive shall also be eligible to
participate in any group life insurance, hospitalization, medical, health and
accident, disability or similar plan or program of Employer, now or hereafter
existing in accordance with and to the extent that he is eligible under the
general provisions thereof.
10. INDEMNIFICATION. Executive shall be entitled in connection with
his employment hereunder to the benefit of the indemnification provisions
contained in Employer's Amended and Restated Articles of Incorporation or
By-Laws or any corporate resolution, as the same may be amended from time to
time (not including any amendments or additions that limit or narrow, but
including any that add to or broaden, the protection afforded to Executive), to
the fullest extent permitted by applicable law. Employer shall in addition
cause Executive to be indemnified in accordance with Chapter 37 of the Indiana
Business Corporation Law, as the same may be amended from time to time, to the
fullest extent permitted by such chapter, to the extent required to make
Executive whole in connection with any loss, cost or expense indemnifiable
thereunder. Executive shall be insured under the Employer's Director's and
Officer's Liability Insurance Policy as in effect from time to time.
Notwithstanding any other provision of this Agreement to the contrary, any
termination of Executive's employment or of this Agreement shall have no effect
on the continuing operation of this Section 10.
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11. CONFIDENTIAL INFORMATION.
11.1 NON-DISCLOSURE. Executive acknowledges that certain
information concerning the business of Employer is of a confidential
nature and that as a result of his employment with Employer, Executive
may have received or may hereafter receive confidential information
concerning the business of Employer or its subsidiaries which, if known
to competitors of Employer, would damage Employer, its subsidiaries or
their respective businesses. Executive agrees that during the Term and
for a period of one (1) year from the expiration or earlier termination
of the Term (such additional one (1) year period, the "Applicable
Period"), Executive will not divulge or appropriate to his own use, or
to the use of any third party (other than Employer and its
representatives or as directed in writing by Employer), any information
or knowledge concerning the business of Employer or its subsidiaries
which is not generally available to the public other than through the
activities of Executive. Executive further agrees that upon termination
of his employment for any reason, Employee will surrender to Employer
all documents, brochures, writings, illustrations, price lists,
marketing plans, budgets and other such materials which he received from
or developed on behalf of Employer through his employment. Executive
acknowledges that all such materials are at all times property of
Employer.
11.2 INJUNCTIVE RELIEF. Executive acknowledges that his breach
of Section 11.1 will cause irreparable injury and damage to Employer,
the exact amount of which will be difficult to ascertain, that the
remedies at law for any such breach would be inadequate, and that the
provisions of this Section 11 have been negotiated and written to
prevent such irreparable injury and damage. Accordingly, if Executive
breaches Section 11.1, then Employer shall be entitled to injunctive
relief enforcing Section 11.1 to the extent reasonably necessary to
protect Employer's legitimate interests, without posting bond or other
security. If Executive violates Section 11.1 and Employer brings legal
action for injunctive or other relief, Employer shall not, as a result
of the time involved in obtaining such relief, be deprived of the
benefit of the full period of non-disclosure set forth herein.
Accordingly, the obligations set forth in Sections 11.1 shall be deemed
to have the duration set forth therein, computed from the date such
relief is granted but reduced by the time expired between the date the
Applicable Period began to run and the date of the first violation of
the covenants by Executive.
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12. NON-INTERFERENCE AND NON-COMPETITION.
12.1 NON-INTERFERENCE. During the Term and for the Applicable
Period, Executive will not, directly or indirectly, take any action (or
permit any action to be taken by an entity with which he is associated)
which has the effect of interfering with (i) on-air talent of Employer
or its subsidiaries or (ii) any other employee of Employer. Without
limiting the generality of the foregoing, Executive specifically agrees
that during the Term and for the Applicable Period neither he nor any
entity with which he is associated shall hire or engage any on-air
talent of Employer or any other employee of Employer to provide services
for any other business or solicit them to cease their employment with
Employer.
12.2 NON-COMPETITION (DURING EMPLOYMENT). During the Term,
Executive will not, without the prior written approval of the Board,
engage directly or indirectly in, or become employed by, serve as an
agent or consultant to or become an officer, director, partner,
principal or shareholder of any corporation, partnership or other entity
which is engaged in (i) the radio or television broadcasting business in
any ADI radio or television market in which any member of the Emmis
Group owns, operates or has an interest in (or has owned, operated or
had an interest in) any broadcasting station at such time or at any time
during the preceding two (2) years or (ii) publishing, selling or
distributing any local or regional magazine or other publication within
the smaller of (A) 50 miles of the principal place of publication of any
magazine or other publication of any member of the Emmis Group at such
time or (B) the geographic territory represented by a circle in which are
located seventy percent (70%) of the subscribers to any magazine or
other publication of any member of the Emmis Group at such time, or
(iii) operates any other business which directly competes with any
business of any member of the Emmis Group at such time. As long as
Executive does not engage in any other activity prohibited by the
immediately preceding sentence, Executive's ownership of less than five
percent (5%) of the issued and outstanding stock of any corporation
whose stock is traded on an established securities market shall not
constitute competition with Employer for the purpose of this Section
12.2.
12.3 NON-COMPETITION (POST-EMPLOYMENT). During the Applicable
Period, Executive will not, without the prior written approval of the
Board, engage directly or indirectly in, or become employed by, serve as
an agent or consultant to or become an officer, director, partner,
principal or shareholder of any corporation, partnership or other
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entity which is engaged in (i) the radio or television broadcasting
business in any ADI radio or television market in which any member of the
Emmis Group owns, operates or has an interest in (or has owned, operated
or had an interest in) any broadcasting station at such time or at any
time during the preceding two (2) years or (ii) publishing, selling or
distributing any local or regional magazine or other publication within
the smaller of (A) 50 miles of the principal place of publication of any
magazine or other publication of any member of the Emmis Group at such
time or (B) the geographic territory represented by a circle in which are
located seventy percent (70%) of the subscribers to any magazine or other
publication of any member of the Emmis Group at such time, or (iii)
operates any other business which directly competes with any business of
any member of the Emmis Group at such time. As long as Executive does not
engage in any other activity prohibited by the immediately preceding
sentence, Executive's ownership of less than five percent (5%) of the
issued and outstanding stock of any corporation whose stock is traded on
an established securities market shall not constitute competition with
Employer for the purpose of this Section 12.3.
12.4 INJUNCTIVE RELIEF. Executive acknowledges and agrees that
the provisions of this Section 12 have been specifically negotiated and
carefully worded in recognition of the opportunities which will be
afforded to Executive by Employer by virtue of his continued association
with Employer, and the influence that Executive will have over
Employer's employees, customers and suppliers by virtue of Executive's
relationships with such persons. Executive further acknowledges that his
breach of Section 12.1, 12.2 or 12.3 will cause irreparable injury and
damage to Employer, the exact amount of which will be difficult to
ascertain, that the remedies at law for any such breach would be
inadequate, and that the provisions of this Section 12 have been
negotiated and written to prevent such irreparable injury and damage.
Accordingly, if Executive breaches Section 12.1, Section 12.2 or Section
12.3, then Employer shall be entitled to injunctive relief enforcing
Section 12.1, 12.2 or 12.3, as the case may be, to the extent reasonably
necessary to protect Employer's legitimate interests, without posting
bond or other security. If Executive violates Section 12.1 or 12.3 and
Employer brings legal action for injunctive or other relief, Employer
shall not, as a result of the time involved in obtaining such relief, be
deprived of the benefit of the full period of non-interference or
non-competition set forth herein. Accordingly, the obligations set forth
in Sections 12.1 and 12.3 shall be deemed to have the duration set forth
therein, computed from the date such relief is granted but
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reduced by the time expired between the date the Applicable Period began
to run and the date of the first violation of the covenants by Executive.
12.5 CONSTRUCTION. In the event that, despite the express
agreement herein of Employer and Executive, any provisions of this
Section shall be determined by any court or other tribunal of competent
jurisdiction to be unenforceable for any reason whatsoever, the parties
agree that this Section 12 shall be interpreted to extend only to the
maximum extent as to which it may be enforceable, and that the Section
shall be severable into its component parts, all as determined by such
court or tribunal.
13. TERMINATION OF AGREEMENT BY EMPLOYER.
13.1 TERMINATION FOR CAUSE. Employer may, by action of the
Board, terminate Executive's employment hereunder for Cause (as defined
in Section 13.3 below) in accordance with the terms and conditions of
this Section. Following a determination by the Board that Executive
should be terminated for Cause, Employer shall give written notice (the
"Preliminary Notice") to Executive specifying the grounds for such
termination, and Executive shall have ten (10) days after receipt of the
Preliminary Notice to respond. If following expiration of such ten (10)
day period the Board reaffirms its determination that Executive should
be terminated for Cause, such termination shall be effective upon
delivery by Employer to Executive of a final notice of termination (the
"Final Notice").
13.2 EFFECT OF TERMINATION. In the event of termination for
Cause as provided in Section 13.1 above:
(i) Executive shall have no further obligations or
liabilities hereunder except his obligations under Sections 11 and 12,
which shall survive such termination of this Agreement.
(ii) Employer shall have no further obligations or
liabilities hereunder, except that Employer shall, not later than two
(2) weeks after the termination date:
(A) Pay to Executive all unpaid Base Salary with
respect to any period ending on or before the termination date, plus the
compensation equivalent of all unused vacation days earned in the then
current Contract Year prior to the termination date; and
(B) Pay to Executive any Bonus which may have
been earned for a Contract Year ending on or prior to the termination
date pursuant to Section 7.2 but which is unpaid as of the termination
date.
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13.3 DEFINITION OF CAUSE. As used herein, "Cause" means either (i)
action by Executive involving willful or repeated failure, neglect
or refusal to perform any material obligation under this Agreement
(or any duties assigned to Executive consistent with the terms of
this Agreement) at the time and in the manner set forth herein (or
in such assignment), and continuation of such breach after written
notice and the expiration of a thirty (30) day cure period
(provided, however, that it is not the parties' intention that
Employer shall be required to provide successive such notices, and
in the event Employer has provided Executive with a notice and
opportunity to cure pursuant to this clause (i), it may terminate
this Agreement for a subsequent breach similar or related to the
breach for which notice was previously given or for a continuing
series or pattern of breaches (whether or not similar or related)
without providing notice or an opportunity to cure); or (ii)
Executive's commission of a felony involving moral turpitude or
Executive's action, knowing allowance of actions, or omissions
which are in violation of the Communications Act of 1934, as
amended, or the rules and regulations of the Federal
Communications Commission (the "FCC") or which otherwise
jeopardize the FCC licenses granted to Employer or its
subsidiaries.
13.4 TERMINATION BY EMPLOYER OTHER THAN FOR CAUSE PRIOR TO A CHANGE IN
CONTROL. Prior to a Change in Control, Employer shall have the
right to terminate Executive's employment hereunder other than for
Cause, death or because Executive is Disabled. However, if
Employer terminates Executive's employment hereunder other than
for Cause, death or because Executive is Disabled, Employer shall
(i) pay Executive in bi-weekly payments the Base Salary for a
period of one year after the date of such termination, (ii) not
later than two (2) weeks after such termination date, grant to
Executive any Executive Option required to be granted under the
terms of Section 7.2 prior to such termination date but not yet
granted as of such date, and (iii) not later than two (2) weeks
after such termination date grant to Executive the prorated
portion of the Stock Grant.
13.5 TERMINATION OTHER THAN FOR CAUSE OR MATERIAL BREACH BY EMPLOYER
AFTER A CHANGE IN CONTROL. If, after any Change in Control,
Employer
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terminates Executive's employment other than for Cause or because
Executive dies or becomes Disabled, or if, after any Change in
Control Employer otherwise breaches any material provision of this
Agreement and fails to cure such breach within ten (10) business
days after written notice of such breach (which material
provisions shall include but not be limited to Sections 3.1 or 5),
(i) Employer shall pay Executive the Base Salary under Section 6
attributable to the remainder of the Term and the full portion of
the Bonus for the remainder of the Term as if such Bonus had been
awarded by the Compensation Committee, (ii) Employer shall grant
to Executive any Executive Option required to be granted under the
terms of Section 7.2 prior to such date but not yet granted as of
such date, (iii) any Executive Options granted prior to such date
which are subject to forfeiture pursuant to Section 7.2 shall
vest, (iv) Employer shall pay to Executive in cash the fair market
value (determined using the black-scholes option pricing method)
of any Executive Options not granted as of such date to which
Executive would have been entitled over the remainder of the Term
assuming that no such Executive Options would have been forfeited
under Section 7.2 and assuming a grant price equal to the Fair
Market Value per share on such date and (v) Executive shall be
automatically released from the restrictions under Section 12..
Any payments or grants required above shall be made by Employer
not later than two (2) weeks after such termination date or the
expiration of such cure period for which the material breach
remains uncured.
14. DISABILITY.
14.1 TERMINATION OF EMPLOYMENT. If Executive shall become
Disabled (as defined in Section 14.2), Employer shall continue to
compensate Executive under the terms of this Agreement without
diminution and otherwise without regard to such disability or
nonperformance of duties, until Executive has been disabled for a
cumulative period of six (6) months, at which time Executive's
employment shall automatically terminate on the last day of such six (6)
month period. The date that Executive's employment terminates pursuant
to this Section is referred to herein as the "Disability Termination
Date."
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14.2 DISABILITY DEFINITION. Executive shall be deemed to have
become "Disabled" for purposes of this Agreement if, during the Term,
because of ill health, physical or mental disability or for other causes
beyond his control he shall have been unable or unwilling or shall have
failed to perform his duties hereunder, as determined by the written
opinion of an independent medical physician designated by Employer and
reasonably acceptable to Executive.
14.3 OBLIGATIONS AFTER TERMINATION. Unless Employer exercises
its option under Section 14.6 below to reinstate Executive to his full
compensation, duties, functions, responsibilities and authority
hereunder for the then balance of the original Term, Executive shall
have no further obligations or liabilities hereunder after a Disability
Termination Date except his obligations under Sections 11 and 12 which
shall survive. After a Disability Termination Date, Employer shall have
no further obligations or liabilities hereunder except its obligations
under Sections 10, 14.4, 14.5 and 14.6 below which shall survive.
14.4 PAYMENT OF UNPAID SALARY AFTER TERMINATION. Employer
shall, not later than two (2) weeks after a Disability Termination Date,
pay to Executive all unpaid Base Salary with respect to any period
ending on or before the Disability Termination Date, plus the
compensation equivalent of all unused vacation days earned in the then
current Contract Year prior to the Disability Termination Date.
14.5 POST-TERMINATION COMPENSATION. Following a Disability
Termination Date, Employer shall (i) pay to Executive in bi-weekly
payments during each Contract Year or partial Contract Year remaining
under this Agreement an amount equal to fifty percent (50%) of the Base
Salary for such Contract Year or partial Contract Year and (ii) not
later than two (2) weeks after a Disability Termination Date, grant to
Executive any Executive Option required to be granted under the terms of
Section 7.2 prior to such Disability Termination Date but not yet
granted as of such date, and (iii) not later than two (2) weeks after a
Disability Termination Date grant to Executive the prorated portion of
the Stock Grant. The benefits required to be paid under this Section
14.5 (beginning with the Base Salary amount) shall be reduced by the
amount of any benefits payable to Executive under any group or
individual disability insurance plan or policy, the premiums for which
are paid by Employer.
14.6 REINSTATEMENT. If during the original Term and subsequent
to a Disability Termination Date, Executive shall fully recover from a
disability, Employer shall have the
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right (exercisable within sixty (60) days after written notice from
Executive of such recovery), but not the obligation, to reinstate
Executive to employment hereunder for the then balance of the original
Term. In the event of such reinstatement, Employer shall pay Executive
at his full level of compensation hereunder and otherwise employ
Executive in accordance with the terms and provisions of this Agreement,
and Executive shall be considered to have performed under this Agreement
during the period between the Disability Termination Date and the date
of such reinstatement for purposes of Sections 7.2 and 7.4 and any Stock
Grant or Executive Options granted thereunder (with any Executive
Options to have been granted during the period between the Disability
Termination date and the date of such reinstatement to be granted as of
the date of such reinstatement.).
15. DEATH OF EXECUTIVE.
15.1 TERMINATION OF AGREEMENT. This Agreement shall terminate
upon Executive's death. In the event of such termination, Employer shall
have no further obligations or liabilities hereunder (including, but not
limited to, any obligation to make payments under Section 14 for any
period after Executive's date of death) except its obligations under
Section 15.2 below which shall survive such termination.
15.2 COMPENSATION. Upon Executive's death, Employer shall:
(i) Not later than two (2) weeks after Executive's date
of death, pay to Executive's estate or designated beneficiary all unpaid
Base Salary with respect to any period ending on or before Executive's
date of death, plus the compensation equivalent of all unused vacation
days earned in the then current Contract Year prior to the termination
date;
(ii) Not later than two (2) weeks after Executive's date
of death, grant to Executive's estate or designated beneficiary any
Executive Option required to be granted under the terms of Section 7.2
prior to Executive's date of death but not yet granted as of such date;
and
(iii) Not later than two (2) weeks after Executive's date
of death, grant to Executive's estate or designated beneficiary the
prorated portion of the Stock Grant.
15.3 NO REDUCTION. Amounts payable pursuant to this Section
shall not be reduced by the value of any benefits payable to the
Executive's estate or designated beneficiary under any life insurance
plan or policy.
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15.4 DEATH AFTER TERMINATION. In the event Executive dies
after termination of this Agreement pursuant to Sections 13 or 14, all
amounts required to be paid by Employer prior to Executive's death in
connection with such termination that remain unpaid as of Executive's
date of death shall be paid to Executive's estate or designated
beneficiary.
16. RENEWAL AFTER CHANGE IN CONTROL. If upon the expiration of the
Term after the occurrence of a Change in Control Executive has not been offered
a multi-year contract on substantially comparable or better terms than those
set forth in this Agreement, Employer shall pay Executive after the Term a
prorated portion of his Base Salary for up to nine months; provided, however,
that Executive shall have a duty to mitigate Employer's obligations under this
Section and any amounts payable to Executive under this Section shall be
reduced by any compensation to Executive attributable to Executive's direct or
indirect employment (whether as employee, consultant or other agent) by any
person or entity during such nine month period.
17. NO MITIGATION REQUIRED. Executive shall not be required to
mitigate any damages suffered by him by reason of Employer's breach hereof.
Except as otherwise provided in this Agreement, no amounts payable to Executive
by reason of the termination of his employment hereunder shall be subject to
reduction or offset, or otherwise diminished, by reason of any other
compensation received by Executive.
18. NOTICES. All notices, requests, consents and other
communications, required or permitted to be given hereunder, shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by prepaid telegram, or mailed first-class, postage prepaid, by registered
or certified mail, as follows (or to such other or additional address as either
party shall designate by notice in writing to the other in accordance
herewith):
(a) If to Employer:
Emmis Communications Corporation
One Emmis Plaza, 7th Floor
40 Monument Circle
Indianapolis, Indiana 46204
Attn.: Board of Directors
(b) If to Executive, to him at his address on the personnel
records of Employer.
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19. GENERAL.
19.1 GOVERNING LAW. Employer and Executive acknowledge that
Employer is based in Indiana and that Executive may travel extensively
throughout the United States in the course of his duties for Employer.
This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Indiana. Employer and
Executive agree that any and all actions or suits in connection with,
arising out of or related to this Agreement or Executive's employment
with Employer will be litigated only in courts of record located in
Marion County, Indiana, and Employer and Executive each (i) consent and
submit to the personal jurisdiction of any state or federal court
located within Marion County, Indiana, (ii) waive any right to transfer
or change the venue of any such litigation to a court located outside
Marion County, Indiana and (iii) agree to service of process, to the
extent permitted by law, by registered or certified mail, return receipt
requested, addressed to such party's address as determined pursuant to
Section 18 of this Agreement. Each of the agreements in this Section
19.1 is irrevocable to the fullest extent permitted by applicable law.
19.2 CAPTIONS. The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
19.3 ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject
matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, between the parties.
19.4 SUCCESSORS AND ASSIGNS. This Agreement, and Executive's
rights and obligations hereunder, may not be assigned by Executive,
except that Executive may designate pursuant to Section 19.6 one or more
beneficiaries to receive any amounts that would otherwise be payable
hereunder to Executive's estate.
19.5 AMENDMENTS; WAIVERS. This Agreement cannot be changed,
modified or amended, and no provision or requirement hereof may be
waived, without the consent in writing of Executive and Employer. The
failure of a party at any time or times to require performance of any
provision hereof shall in no manner affect the right of such party at a
later time to enforce such provision. No waiver by a party of the breach
of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach or a
waiver of the breach of any other term or covenant contained in this
Agreement.
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19.6 BENEFICIARIES. Whenever this Agreement provides for any
payment to Executive's estate, such payment may be made instead to such
beneficiary or beneficiaries as Executive may have designated in a
writing filed with Employer. Executive shall have the right to revoke
any such designation and to redesignate a beneficiary or beneficiaries
by written notice to Employer (and to any applicable insurance company).
19.7 SEVERABILITY. If any provision of this Agreement shall be
declared invalid or unenforceable, the remainder of this Agreement will
continue in full force and effect so far as the intent of the parties
can be carried out.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
EMMIS COMMUNICATIONS CORPORATION
By: /s/ Jeffrey H. Smulyan
-----------------------------
Jeffrey H. Smulyan
Chairman of the Board and Chief Executive
Officer
"Employer"
/s/ Walter Z. Berger
---------------------------------
Walter Z. Berger
"Executive"
17
<PAGE> 18
Exhibit A
Relocation terms:
1. reasonable house hunting expenses for family for up to 7 days;
2. payment of prevailing market broker's commission (of up to 7%) and
typical seller's closing costs for sale of Louisville home;
3. payment of reasonable origination fee and points if required by the
mortgage lender without affecting the rate or terms (not to exceed 2 points)
for first mortgage loan on Indianapolis home;
4. reasonable packing and moving van expenses, including two vehicles;
5. reasonable temporary housing costs for up to 6 months;
6. for any period in which Walter is obligated to make regular monthly
payments on both his Louisville mortgage and the mortgage on his new
Indianapolis residence, Emmis shall reimburse Walter for the interest portion
of his Louisville mortgage, not to exceed $2,508 per month, for a period not to
exceed 6 months.
7. tax gross up on above amounts payable by Emmis to extent not qualified
moving or relocation expenses under IRC.
18
<PAGE> 1
EXHIBIT 10.11
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED
REVOLVING CREDIT AND TERM LOAN AGREEMENT
This SECOND AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT AND
TERM LOAN AGREEMENT dated as of February 11, 1999 (this "Amendment"), by and
among (a) EMMIS COMMUNICATIONS CORPORATION (f/k/a/ EMMIS BROADCASTING
CORPORATION), an Indiana corporation (the "Borrower"), (b) the lending
institutions party to the Credit Agreement (as defined below) and listed on
Schedule 1 thereto (collectively, the "Banks"), (c) TORONTO DOMINION (TEXAS),
INC., a Delaware corporation, as administrative agent (the "Administrative
Agent"), (d) BANKBOSTON, N.A., a national banking association, as documentation
agent (the "Documentation Agent"), and (e) FIRST UNION NATIONAL BANK, a national
banking association, as syndication agent (the "Syndication Agent" and,
collectively with the Administrative Agent and the Documentation Agent, the
"Agents"). Capitalized terms used herein without definition shall have the
meanings assigned to such terms in the Credit Agreement, defined below.
WHEREAS, the Borrower, the Banks and the Agents are parties to a Second
Amended and Restated Revolving Credit and Term Loan Agreement dated as of July
16, 1998 (as amended and in effect from time to time, the "Credit Agreement"),
pursuant to which the Banks have extended credit to the Borrower on the terms
and subject to the conditions set forth therein;
WHEREAS, the Borrower, the Banks and the Agents have agreed to amend the
Credit Agreement as set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree to amend the Credit Agreement as follows:
1. AMENDMENTS TO SECTION 1.1. OF THE CREDIT AGREEMENT.
(a) The definition of "Applicable Margin" is hereby amended by (i)
deleting the table in clause (a) of such definition and substituting in its
place the following table:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Base Rate Applicable Eurodollar Rate Applicable
Total Leverage Ratio Margin Margin
-------------------- ------ ------
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 7.00:1.00 1.625% 2.625%
- ------------------------------------------------------------------------------------------------
Less than 7.00:1.00 but greater 1.375% 2.375%
than or equal to 6.75:1.00
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Less than 6.75:1.00 but greater 1.125% 2.125%
than or equal to 6.50:1.00
- ------------------------------------------------------------------------------------------------
Less than 6.50:1.00 but greater 0.875% 1.875%
than or equal to 6.00:1.00
- ------------------------------------------------------------------------------------------------
Less than 6.00:1.00 but greater 0.375% 1.375%
than or equal to 5.50:1.00
- ------------------------------------------------------------------------------------------------
Less than 5.50:1.00 but greater 0.125% 1.125%
than or equal to 5.00:1.00
- ------------------------------------------------------------------------------------------------
Less than 5.00:1.00 but greater 0.000% 0.875%
than or equal to 4.50:1.00
- ------------------------------------------------------------------------------------------------
Less than 4.50:1.00 0.000% 0.625%
- ------------------------------------------------------------------------------------------------
</TABLE>
and (ii) deleting the table in clause (b) of such definition and
substituting in its place the following table:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Base Rate Applicable Eurodollar Rate Applicable
Total Leverage Ratio Margin Margin
-------------------- ------ ------
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 7.00:1.00 1.750% 2.750%
- ------------------------------------------------------------------------------------------------
Less than 7.00:1.00 but greater than or
equal to 5.00:1.00 1.500% 2.500%
- ------------------------------------------------------------------------------------------------
Less than 5.00:1.00 1.375% 2.375%
- ------------------------------------------------------------------------------------------------
</TABLE>
(b) The definition of "Borrower Security Agreement" is hereby amended
by inserting the word "Borrower" after the words "Second Amended and Restated"
and before the words "Security Agreement" contained in such definition.
(c) The definition of "Borrower Stock Pledge Agreement" is hereby
amended by inserting the word "Borrower" after the words "Second Amended and
Restated" and before the words "Stock Pledge Agreement" contained in such
definition.
(d) The definition of "Copyright Notice" is hereby amended by
deleting the word "Second" contained in such definition.
(e) The definition of "Guaranty" is hereby amended by deleting the
phrase "Second Amended and Restated Guaranty" contained in such definition and
substituting therefor the phrase "Third Amended and Restated Subsidiary
Guaranty".
<PAGE> 3
(f) The definition of "Partnership Pledge Agreement" is hereby
amended by inserting the words "Amended and Restated" after the word "The" and
before the words "Collateral Assignment of Partnership Interests" contained in
such definition.
(g) The definition of "Subsidiary Pledge Agreement" is hereby amended
by deleting the word "Second" contained in such definition and substituting
therefor the word "Third".
(h) The definition of "Subsidiary Security Agreement" is hereby
amended by deleting the phrase "Second Amended and Restated Security Agreement"
contained in such definition and substituting therefor the phrase "Third
Amended and Restated Subsidiary Security Agreement".
(i) The definition of "Trademark Assignment" is hereby amended by
deleting such definition in its entirety and restating it as follows:
"Trademark Assignments. Collectively, the Second Amended and
Restated Borrower Trademark Collateral Security and Pledge Agreement, dated as
of the date hereof, as the same may be amended from time to time hereafter,
between the Borrower and the Administrative Agent, and the Second Amended and
Restated Subsidiary Trademark Collateral Security and Pledge Agreement, dated as
of the date hereof, as the same may be amended from time to time hereafter,
among the Subsidiaries of the Borrower named therein and the Administrative
Agent, each in form and substance satisfactory to the Banks and the
Administrative Agent."
(j) The definition of "Excluded Subsidiary" is hereby amended by
deleting such definition in its entirety and restating it as follows:
"Excluded Subsidiaries. Radio Hungary, Emmis Pledge Corporation,
a Delaware corporation, a wholly owned Subsidiary of Emmis and any other
Subsidiary formed or acquired in the future and designated as an Excluded
Subsidiary by Borrower, so long as such designation would not cause a Default
or Event of Default."
(k) The definitions of "Holdco", "Senior Debt" and "Total Funded
Debt" are hereby amended by deleting the references to "Section 10.1(k)"
contained therein and substituting therefor "Sections 10.1(k) and 10.1(l)".
(l) The definition of "Leverage Ratio" is hereby amended, and all
references to such definition contained in the Credit Agreement and the other
Loan Documents are likewise amended, by substituting for the term "Leverage
Ratio" the phrase "Total Leverage Ratio". "Total Leverage Ratio" shall have the
same meaning as "Leverage Ratio" in the Credit Agreement as in effect
immediately prior to the Second Amendment Effective Date.
(m) The definition of "Restricted Payments" is hereby amended by
deleting such definition in its entirety and restating it as follows:
<PAGE> 4
"Restricted Payments. Collectively, distributions, dividends or
other payments in respect of the capital stock of the Borrower, whether in cash
or assets, other than distributions of shares of Borrower's common stock;
payments, defeasance or repurchases of, or in respect of, any subordinated debt
(including, without limitation, any Indebtedness permitted under Sections
10.1(k) or 10.1(l) hereof); and payments of management, consulting or similar
fees to Affiliates of the Borrower."
(n) The definition of "Tranche A Commitment Amount" shall be amended
by deleting the reference to "$150,000,000" contained therein and substituting
in its place a reference to "$400,000,000".
(o) Section 1.1 to the Credit Agreement is further amended by adding
the following definitions in correct alphabetical order:
"Second Amendment Effective Date. The date on which all
conditions to effectiveness set forth in Section 15 of the Second Amendment to
Second Amended and Restated Revolving Credit and Term Loan Agreement, dated as
of February 11, 1999, among the Borrower, the Agents and the Banks, are
satisfied."
"Subordinated Note Documents. Each of the documents, instruments
(including the Subordinated Notes) and other agreements entered into or
delivered by the Borrower (including, without limitation, the Subordinated Note
Indenture) and/or any Subsidiary of the Borrower relating to the issuance by
the Borrower of the Subordinated Notes and any guaranties or other documents
related thereto, as in effect on the Second Amendment Effective Date and as the
same may be supplemented, amended or modified from time to time in accordance
with the terms hereof (including, without limitation, Section 10.12) and
thereof."
"Subordinated Note Indenture. The Indenture, dated as of February
12, 1999, by and between the Borrower and IBJ Whitehall Bank & Trust Company,
as trustee thereunder, with respect to the Subordinated Notes, as in effect on
the Second Amendment Effective Date and as the same may be supplemented,
amended or modified from time to time in accordance with the terms hereof
(including, without limitation, Section 10.12) and thereof."
"Subordinated Notes. The 8.125% Subordinated Notes due 2009 in
the aggregate principal amount of $300,000,000 issued by the Borrower under the
Subordinated Note Indenture."
"Subordinated Note Proceeds. See Section 4.3(f) hereof."
"Surplus Proceeds. See Section 4.3(f) hereof."
2. AMENDMENT TO SECTION 2.1.2 OF THE CREDIT AGREEMENT. Section 2.1.2
of the Credit Agreement is hereby amended by inserting at the end of the first
sentence of such Section the following phrase:
<PAGE> 5
"; provided, however, in the event that during any calendar quarter in respect
of which a commitment fee is payable the average daily amount of outstanding
Tranche A Loans plus the sum of the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations is less than fifty percent (50%) of the Tranche A
Commitment Amount, then the commitment fee for such calendar quarter for Tranche
A Loans shall be increased above the otherwise applicable rate by 0.125% per
annum."
3. AMENDMENT TO SECTION 4.2 OF THE CREDIT AGREEMENT. Section 4.2 of
the Credit Agreement is hereby amended by deleting such Section in its entirety
and restating it as follows:
"4.2 OPTIONAL PREPAYMENT OF TERM LOANS. The Borrower shall have the right at any
time to prepay the Term Notes on or before the Maturity Date relating thereto,
as a whole, or in part, upon not less than three (3) Business Days' prior
written notice to the Administrative Agent, without premium or penalty; provided
that, (a) each partial prepayment shall be in the principal amount of $500,000
or in integral multiples of $100,000 in excess thereof, (b) any portion of the
Term Loans bearing interest at the Eurodollar Rate may only be prepaid pursuant
to this Section 4.2 on the last day of the Interest Period relating thereto, and
(c) each partial prepayment shall be allocated among the Banks, in proportion,
as nearly as practicable, to the respective outstanding amount of each Bank's
Tranche C Term Note and Fund Tranche Term Note, with adjustments to the extent
practicable to equalize any prior prepayments not exactly in proportion. Each
prepayment of principal of the Term Loans shall include all interest accrued to
the date of prepayment and shall be applied against the scheduled installments
of principal due on the Tranche C Term Loan and the Fund Tranche Term Loan, in
the inverse order of maturity. No amount repaid with respect to the Term Loans
may be reborrowed."
4. AMENDMENT OF SECTION 4.3(e) OF THE CREDIT AGREEMENT. Section
4.3(e) of the Credit Agreement is hereby amended by deleting such Section in
its entirety and restating it as follows:
"(e) If as of the last day of the fiscal quarter most recently ended prior to
the issuance of unsecured and subordinated debt by HoldCo, the Borrower or any
of its Subsidiaries pursuant to Section 10.1(l) hereof, the Total Leverage Ratio
calculated for the period of four consecutive fiscal quarters ending on such
last day as if such unsecured and subordinated debt were outstanding on such
date is greater than 6.50:1.00, then within ten (10) days after such issuance
the Borrower shall prepay the Loans by an amount equal to fifty percent (50%) of
the gross proceeds from such issuance. Such proceeds shall be applied (i) (A)
prior to the Tranche C Conversion Date, to the principal installments of the
Fund Tranche Term Loans and (B) after the Tranche C Conversion Date, pro rata to
the remaining principal installments of the Fund Tranche Term Loan and the
Tranche C Term Loan, and (ii) if the Term Loans have been paid in full, to repay
Tranche A Loans and the Tranche C Loans (if such repayment is prior to the
Tranche C Conversion Date). If the Term Loans have been paid in full, and all
outstanding borrowings under the Revolving Credit Loans have been paid in full,
the Tranche A Commitment Amount and
<PAGE> 6
Tranche C Commitment Amount shall be permanently reduced by the unapplied
portion of fifty percent (50%) of such gross proceeds. Any mandatory prepayment
of principal of the Loans required hereunder shall be accompanied by a payment
of all interest accrued to the date of such prepayment. Any mandatory prepayment
of Term Loans hereunder shall not reduce the scheduled repayment installments
required under Section 3.4 hereof. The Tranche A Commitment Amount and the
Tranche C Commitment Amount, respectively, shall be permanently reduced by the
amount of such proceeds applied to repay Tranche A Loans and Tranche C Loans (as
the case may be); provided that, such reduction shall not reduce the scheduled
Tranche A Commitment Amount reductions set forth in Section 2.1.3 above. Each
such mandatory prepayment shall be allocated among the Banks in proportion, as
nearly as practicable, to the respective aggregate amounts outstanding on each
Bank's Notes evidencing the Loan or Loans advanced under the applicable Tranche.
In the event that any Term Loan is required to be prepaid hereunder, all
principal amounts prepaid shall be applied against the scheduled installments of
principal due on such Term Loan in the inverse order of maturity.
(f) In the event the gross proceeds from the Subordinated Notes (the
"Subordinated Note Proceeds") exceed $300,000,000, in the aggregate, then within
ten (10) days after the issuance of the Subordinated Notes, the Borrower shall
prepay the Loans by an amount equal to the difference between the Subordinated
Note Proceeds and $300,000,000 (the "Surplus Proceeds"). The Surplus Proceeds
shall be applied pro rata to prepay outstanding Loans in all Tranches and to the
extent applied to repay Revolving Credit Loans, the Tranche A Commitment Amount
and the Tranche C Commitment Amount (as the case may be) shall be permanently
reduced by the amount of Revolving Credit Loans in such Tranche which were so
repaid. In the event all outstanding Loans have been paid in full, the Tranche A
Commitment Amount and Tranche C Commitment Amount shall be permanently reduced
by the amount of any remaining Surplus Proceeds. Any mandatory prepayment of
principal of the Loans required hereunder shall be accompanied by a payment of
all interest accrued to the date of such prepayment. Any mandatory prepayment of
Term Loans hereunder shall not reduce the scheduled repayment installments
required under Section 3.4 hereof. Any reductions in the Tranche A Commitment
Amount shall not reduce the scheduled Tranche A Commitment Amount reductions set
forth in Section 2.1.3. Each such mandatory prepayment shall be allocated among
the Banks in proportion, as nearly as practicable, to the respective aggregate
amounts outstanding on each Bank's Notes evidencing the Loan or Loans advanced
under the applicable Tranche. In the event that any Term Loan is required to be
prepaid hereunder, all principal amounts prepaid shall be applied against the
scheduled installments of principal due on such Term Loan in the inverse order
of maturity."
5. AMENDMENT TO SECTION 10.1 OF THE CREDIT AGREEMENT. Section 10.1 of
the Credit Agreement is hereby amended be deleting Sections 10.1(k) and 10.1(l)
in their entirety and inserting the following in substitution therefor:
"(k) unsecured Indebtedness in the aggregate principal amount of $300,000,000
evidenced by the Subordinated Notes and guaranteed by certain Subsidiaries of
the Borrower which guarantees are junior and subordinated to the obligations of
the
<PAGE> 7
Subsidiaries (other than the Excluded Subsidiaries) under the Guaranty on the
same basis and to the same extent as the Indebtedness evidenced by the
Subordinated Notes is subordinated to the Obligations; provided, that the
Surplus Proceeds are applied pursuant to Section 4.3(f) of this Credit
Agreement;
(l) Indebtedness of the Borrower and/or HoldCo (exclusive of Indebtedness
incurred in connection with the Subordinated Notes issued in February of 1999),
in an aggregate amount not to exceed $250,000,000; provided that (i) such
Indebtedness is unsecured and fully subordinated, on terms satisfactory to the
Agents and the Majority Banks, to the Obligations and the Agents' and the Banks'
rights hereunder and under the other Loan Documents and is subject to terms and
conditions which are in the judgement of the Agents and the Majority Banks, less
restrictive to the Borrower and its Subsidiaries than are the terms set forth
herein and in the other Loan Documents, (ii) no Default or Event of Default has
occurred and is continuing immediately prior to the incurrence thereof and no
Default or Event of Default will result therefrom, and (iii) the proceeds of
such Indebtedness are applied pursuant to Section 4.3(e) of this Credit
Agreement;
(m) other Indebtedness, contingent or otherwise, in an aggregate amount
outstanding at any one time not to exceed $10,000,000."
6. AMENDMENTS TO SECTION 10.3 OF THE CREDIT AGREEMENT. Section 10.3
of the Credit Agreement is hereby amended as follows:
(a) Section 10.3(d) is amended by deleting such Section in its
entirety and restating it as follows:
"(d) Investments existing on the Second Amendment Effective Date and listed on
Schedule 10.3 hereto, including the Investments described elsewhere in this
Section 10.3 and existing on the Second Amendment Effective Date;"
(b) Section 10.3(l) is amended by deleting the reference to
"$25,000,000" in such Section and substituting in its place "$50,000,000"; and
(c) Section 10.3(n) is amended by deleting the reference to
"$5,000,000" in such Section and substituting in its place "$10,000,000".
7. AMENDMENT TO SECTION 10.4. OF THE CREDIT AGREEMENT. Section 10.4.
of the Credit Agreement is hereby amended by deleting clause (d) of such
Section in its entirety and restating it as follows:
"(d) so long as no Default or Event of Default has occurred or is continuing or
would occur as a result thereof, scheduled payments of interest by the Borrower
on subordinated Indebtedness permitted by Sections 10.1(k) and 10.1(l) above."
8. AMENDMENTS TO SECTION 10.5 OF THE CREDIT AGREEMENT. Section 10.5
of the Credit Agreement is hereby amended as follows:
<PAGE> 8
(a) Section 10.5(g) of the Credit Agreement is hereby amended by
deleting the reference to "$1,000,000" contained therein and replacing the same
with "$10,000,000"; and
(b) Section 10.5(h) of the Credit Agreement is hereby amended by
deleting the references to "$50,000,000" and "$75,000,000" contained therein
and replacing the same with "$75,000,000" and "$100,000,000" respectively.
9. AMENDMENT TO SECTION 10.9 OF THE CREDIT AGREEMENT. Section 10.9 of
the Credit Agreement is hereby amended by deleting such Section in its entirety
and restating it as follows:
"10.9. SUBSIDIARY DISTRIBUTIONS. The Borrower will not, and will not permit any
of its Subsidiaries to, enter into any arrangement or otherwise become subject
to any restriction or requirement which has the effect of prohibiting or
limiting any Subsidiary's ability to (a) make Distributions to the Borrower, (b)
pay any Indebtedness owed to the Borrower or the Borrower's other Subsidiaries
(other than an Excluded Subsidiary), (c) make loans or advances to the Borrower
or the Borrower's other Subsidiaries (other than an Excluded Subsidiary), or (d)
transfer any of its properties or assets to the Borrower or the Borrower's other
Subsidiaries (other than an Excluded Subsidiary)."
10. AMENDMENT TO SECTION 10.10 OF THE CREDIT AGREEMENT. Section 10.10
of the Credit Agreement is hereby amended by deleting the reference to "Section
10.1(k)" contained therein and substituting in its place a reference to
"Section 10.1(l)".
11. AMENDMENT TO SECTION 10 OF THE CREDIT AGREEMENT. Section 10 of
the Credit Agreement is hereby further amended by inserting the following
Section 10.12 in its correct numerical position therein:
"10.12 AMENDMENTS TO SUBORDINATED NOTE DOCUMENTS. Borrower will not amend,
modify or change the terms of any Subordinated Note Document if the effect of
such amendment is to (a) increase the interest rate on the Subordinated Notes,
(b) change the dates upon which payments of principal or interest are due on the
Subordinated Notes (other than to extend such dates), (c) change any default or
event of default relating thereto other than to delete or make less restrictive
any default provision therein, or add any covenant with respect to any
Subordinated Note Document, (d) change the redemption or prepayment provisions
of the Subordinated Notes other than to extend the dates therefor or to reduce
the premiums payable in connection therewith, (e) grant any security or liens to
secure the Subordinated Notes, (f) change any subordination provisions, terms or
conditions, or (g) change or amend any other term if such change or amendment
would materially increase the obligations of the obligor or confer additional
material rights to the holders of the Subordinated Notes in a manner adverse to
the Borrower, its Subsidiaries, the Agents or the Banks."
<PAGE> 9
12. AMENDMENT TO SECTION 11.2 OF THE CREDIT AGREEMENT. Section 11.2 of
the Credit Agreement is hereby amended by deleting such Section in its entirety
and restating it as follows:
11.2. TOTAL LEVERAGE RATIO. The Borrower will not permit the Total
Leverage Ratio, determined as at the last day of any fiscal quarter
ending on any date or during any period described in the table set forth
below, to exceed the ratio set forth opposite such date or period in such
table:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
PERIOD RATIO
-----------------------------------------------------------------
<S> <C>
Closing Date - 11/30/98 7.35:1.00
-----------------------------------------------------------------
12/01/98 - 8/31/99 7.00:1.00
-----------------------------------------------------------------
9/01/99 - 2/29/00 6.75:1.00
-----------------------------------------------------------------
3/01/00 - 8/31/00 6.50:1.00
-----------------------------------------------------------------
9/01/00 - 2/28/01 6.25:1.00
-----------------------------------------------------------------
3/01/01 - 2/28/02 6.00:1.00
-----------------------------------------------------------------
Thereafter 5.00:1.00
-----------------------------------------------------------------
</TABLE>
13. AMENDMENT TO SECTION 11.5 OF THE CREDIT AGREEMENT. Section 11.5
of the Credit Agreement is hereby amended by deleting such Section in its
entirety and restating it as follows:
11.5 SENIOR LEVERAGE RATIO. The Borrower will not permit the Senior
Leverage Ratio, determined as of the last day of any fiscal quarter
ending on any date or during any period described in the table set
forth below, to exceed the ratio set forth opposite such date or period
in such table:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
PERIOD RATIO
-----------------------------------------------------------------
<S> <C>
Closing Date - 8/31/99 5.50:1.00
-----------------------------------------------------------------
9/01/99 - 2/29/00 5.25:1.00
-----------------------------------------------------------------
3/01/00 - 8/31/00 5.00:1.00
-----------------------------------------------------------------
9/01/00 - 2/28/01 4.75:1.00
-----------------------------------------------------------------
3/01/01 - 2/28/02 4.50:1.00
-----------------------------------------------------------------
Thereafter 3.50:1.00
-----------------------------------------------------------------
</TABLE>
14. AMENDMENTS TO SECTION 15.1 OF THE CREDIT AGREEMENT. Section 15.1
of the Credit Agreement is hereby amended as follows:
(a) Section 15.1.(e) of the Credit Agreement is hereby amended by
deleting Section 15.1.(e) in its entirety and restating it as follows:
"(e) any representation or warranty of the Borrower, any of its Subsidiaries or
HoldCo in this Credit Agreement, any other Loan Document, any Subordinated Note
Document
<PAGE> 10
or in any other document or instrument delivered pursuant to or in connection
with this Credit Agreement shall prove to have been false in any material
respect upon the date when made or deemed to have been made or repeated;"
(b) Section 15.1.(u) of the Credit Agreement is hereby amended by
deleting the reference to "Section 10.1(k)" contained therein and substituting
in its place "Section 10.1(l)";
(c) Section 15.1.(v) of the Credit Agreement is hereby amended by
deleting Section 15.1.(v) in its entirety and restating it as follows:
"(v) the holders of any part of the Indebtedness described in Sections 10.1(k)
or 10.1(l) hereof or the holders of the SF Broadcasting Seller Note shall
accelerate the maturity of all or any part of such Indebtedness or such
Indebtedness shall be prepaid, defeased, redeemed or repurchased in whole or in
part or any default shall occur with respect thereto or if the subordination
provisions of such Indebtedness are found by any court, or asserted by the
trustee in respect of, or any holder of, Subordinated Debt in a judicial
proceeding to be, invalid or unenforceable or in the case of the SF
Broadcasting Seller Note any portion of the principal and interest obligations
owing thereunder and/or any obligations under Section 2.5(e) of the SF Asset
Purchase Agreement as in effect on the Closing Date shall be paid in any manner
other than (i) by the issuance and delivery to the holder of the SF
Broadcasting Seller Note, or its nominee, of Class A Common Stock of the
Borrower or with cash proceeds from an issuance of such Class A Common Stock
which occurred after the Closing Date and prior to the date of such payment or
(ii) contemporaneously with the issuance of the Subordinated Notes, with the
Subordinated Note Proceeds or with cash proceeds from Loans advanced in
connection therewith; and"
(d) Section 15.1 of the Credit Agreement is hereby amended by
inserting the following in its entirety after clause (v) of such Section:
"(w) at any time, any of the Borrower's Subsidiaries shall provide a guaranty of
the Borrower's obligations under the Subordinated Notes if such Subsidiary is
not at such time guarantying the Obligations pursuant to the Guaranty or if such
guaranty of the Borrowers obligations under the Subordinated Note is not
subordinated to such Subsidiary's Obligations under the Guaranty;"
15. AMENDMENT TO SECTION 16.1 OF THE CREDIT AGREEMENT. Section 16.1
of the Credit Agreement is hereby amended by inserting the following clause (f)
in its entirety immediately following clause (e) in the first sentence of such
Section:
", and (f) the additional Indebtedness represented by such additional
commitments shall be considered "Senior Debt" under and as defined in the
Subordinated Note Documents and the Banks and the Administrative Agent shall
have received a legal opinion, in form and substance satisfactory to the Banks
and the Administrative Agent, from Borrower's counsel to such effect".
<PAGE> 11
16. AMENDMENTS TO SCHEDULES 1 AND 10.3 TO THE CREDIT AGREEMENT.
Schedules 1 and 10.3 to the Credit Agreement are hereby amended by deleting
such Schedules in their entirety and substituting therefor Schedules 1 and 10.3
attached hereto.
17. PAYMENT OF TRANCHE B TERM LOAN. The Borrower and the Banks hereby
agree that on the Effective Date hereof, the outstanding principal amount of
the Tranche B Term Loan shall be automatically converted to Tranche A Loans
owing to each of the Banks in the same proportion as the Tranche B Loans
advanced by each such Bank and outstanding immediately prior to such conversion
and the Tranche B Term Loan shall be deemed to be repaid with the proceeds of
such converted Tranche A Loans. The interest accrued on such Tranche B Loans
shall be paid in accordance with the terms of the Credit Agreement as though
such interest had accrued on Tranche A Loans and any Interest Period applicable
to the Tranche B Loan immediately prior to such conversion shall continue to be
applicable to the converted Tranche A Loans as though such Loans had been
Tranche A Loans when initially advanced.
18. AMENDMENT FEES. In consideration of the Banks and the Agents
amending the Credit Agreement as set forth herein, the Borrower hereby agrees
to pay an amendment fee in an amount equal to $812,500 (the "Amendment Fee") to
the Administrative Agent for the pro rata accounts of the Banks in accordance
with each such Bank's Commitment Percentage of the Tranche A Commitment Amount
(after giving effect to this Amendment) and the Fund Tranche Term Loan. The
Borrower also hereby acknowledges that the Amendment Fee shall be deemed fully
earned and payable upon satisfaction of the conditions to effectiveness set
forth in Section 19 hereof and shall constitute an Obligation of the Borrower
under the Credit Agreement.
19. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective (the "Effective Date") upon the satisfaction of the following
conditions:
(a) this Amendment shall have been executed and delivered to the
Administrative Agent by each of the Banks, the Agent and the Borrower and shall
have been acknowledged and agreed to by each Subsidiary party to the Guaranty;
(b) the Borrower shall have executed and delivered to the
Administrative Agent amended Tranche A Notes payable to each Bank in the
principal amount of each Bank's Tranche A Commitment Amount (as increased after
giving effect to this Amendment);
(c) the Administrative Agent shall have received copies of all
Subordinated Note Documents executed or delivered in connection with the
issuance of the Subordinated Notes (including, without limitation, any legal
opinions delivered in connection therewith) certified by an officer of the
Borrower to be true and complete copies of such Subordinated Note Documents;
<PAGE> 12
(d) the Administrative Agent shall have received evidence reasonably
satisfactory to the Administrative Agent that the Borrower has received gross
proceeds from the Subordinated Notes in an amount equal to or greater than
$300,000,000;
(e) the Administrative Agent shall have received a certificate signed
by duly authorized financial officer of the Borrower that each of the
representations and warranties of any of the Borrower and its Subsidiaries
contained in this Amendment, the Credit Agreement, the other Loan Documents,
the Subordinated Note Documents or in any document or instrument delivered
pursuant to or in connection herewith or therewith shall have been true as of
the date as of which they were originally made and shall also be true on the
date hereof, that no Default or Event of Default shall have occurred and be
continuing and that the Subordinated Notes have been issued in accordance with
the terms of the Subordinated Note Indenture;
(f) each of the Banks and the Administrative Agent shall have
received a favorable opinion addressed to the Banks and the Administrative
Agent, dated as of the date hereof, in form and substance satisfactory to the
Banks and the Administrative Agent, from Bose McKinney & Evans, counsel to the
Borrower and its Subsidiaries; and
(g) all corporate action necessary for the valid execution, delivery
and performance by the Borrower and each of its Subsidiaries of this Amendment,
the amended and restated Tranche A Notes and any Subordinated Note Document to
which it is or is to become a party shall have been duly and effectively taken,
and evidence thereof satisfactory to the Banks shall have been provided to each
of the Banks.
20. AFFIRMATION OF THE BORROWER. The Borrower hereby affirms all of
its Obligations under the Credit Agreement and under each of the other Loan
Documents to which it is a party and hereby affirms its absolute and
unconditional promise to pay to the Banks the Loans and all other amounts due
under the Credit Agreement and the other Loan Documents. The Borrower hereby
represents, warrants and confirms that the Obligations are and remain secured
pursuant to the Security Documents.
21. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants to the Banks and the Administrative Agent as follows:
(a) Representations and Warranties. Each of the representations and
warranties contained in Section 8 of the Credit Agreement were true and correct
in all material respects when made, and, after giving effect to this Amendment,
are true and correct on and as of the date hereof, except to the extent that
such representations and warranties relate specifically to a prior date.
(b) Enforceability. The execution and delivery by the Borrower of
this Amendment and the new Tranche A Notes, and the performance by the Borrower
of this Amendment, the Credit Agreement and the other Loan Documents, all as
amended hereby, are within the corporate authority of the Borrower and have
been duly authorized by all necessary corporate proceedings. This Amendment,
the Credit Agreement and the
<PAGE> 13
other Loan Documents, all as amended hereby, constitute valid and legally
binding obligations of the Borrower, enforceable against it in accordance with
their terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting the enforcement of
creditors' rights in general.
(c) No Default. No Default or Event of Default has occurred and is
continuing, and no Default or Event of Default will result from the execution,
delivery and performance by the Borrower of this Amendment.
22. NO OTHER AMENDMENTS, ETC. Except as expressly provided in this
Amendment, (a) all of the terms and conditions of the Credit Agreement and the
other Loan Documents remain unchanged and (b) all of the terms and conditions
of the Credit Agreement, as amended hereby, and of the other Loan Documents are
hereby ratified and confirmed and remain in full force and effect. Nothing
herein shall be construed to be an amendment, modification or waiver of any
requirements of the Borrower or of any other Person under the Credit Agreement
or any of the other Loan Documents except as expressly set forth herein.
23. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by each party on a separate counterpart, each of
which when so executed and delivered shall be an original, but all of which
together shall constitute one instrument. In proving this Amendment, it shall
not be necessary to produce or account for more than one such counterpart
signed by the party against whom enforcement is sought.
24. MISCELLANEOUS. This Amendment shall for all purposes be construed
in accordance with and governed by the laws of The State of New York. The
captions in this Amendment are for convenience of reference only and shall not
define or limit the provisions hereof. The Borrower agrees to pay to the
Administrative Agent, on demand by the Administrative Agent, all reasonable
out-of-pocket costs and expenses incurred or sustained by the Administrative
Agent in connection with the preparation of this Amendment, including
reasonable legal fees.
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
EMMIS COMMUNICATIONS
CORPORATION (f/k/a Emmis
Broadcasting Corporation)
By:
--------------------------------
Name:
Title:
<PAGE> 15
TORONTO DOMINION (TEXAS), INC.
By:
---------------------------
Title:
<PAGE> 16
BANKBOSTON, N.A.
By:
---------------------------
Title:
<PAGE> 17
FIRST UNION NATIONAL BANK
By:
--------------------------
Title:
<PAGE> 18
THE BANK OF NEW YORK
By:
-------------------------------
Title:
<PAGE> 19
PARIBAS (f/k/a BANQUE PARIBAS)
By:
-------------------------------
Title:
By:
-------------------------------
Title:
<PAGE> 20
BARCLAYS BANK PLC
By:
-------------------------------
Title:
<PAGE> 21
COMPAGNIE FINANCIERE DE CIC
ET DE L'UNION EUROPEENNE
By:
-------------------------------
Title:
<PAGE> 22
FLEET BANK, N.A.
By:
-------------------------------
Title:
<PAGE> 23
KEY CORPORATE CAPITAL INC.
By:
-------------------------------
Title:
<PAGE> 24
MELLON BANK, N.A.
By:
-------------------------------
Title:
<PAGE> 25
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND,"
NEW YORK BRANCH
By:
-------------------------------
Title:
By:
-------------------------------
Title:
<PAGE> 26
UNION BANK OF CALIFORNIA, N.A.
By:
-------------------------------
Title:
<PAGE> 27
FIRST DOMINION CAPITAL LLC
By:
-------------------------------
Title:
<PAGE> 28
BANK OF MONTREAL
By:
-------------------------------
Title:
<PAGE> 29
BANK ONE, INDIANA, N.A.
By:
-------------------------------
Title:
<PAGE> 30
SUNTRUST BANK, CENTRAL
FLORIDA, N.A.
By:
-------------------------------
Title:
<PAGE> 31
CITY NATIONAL BANK
By:
-------------------------------
Title:
<PAGE> 32
CREDIT LYONNAIS NEW YORK
BRANCH
By:
-------------------------------
Title:
<PAGE> 33
CREDIT SUISSE FIRST BOSTON
By:
-------------------------------
Title:
<PAGE> 34
FIRST HAWAIIAN BANK
By:
-------------------------------
Title:
<PAGE> 35
MERCANTILE BANK NATIONAL
ASSOCIATION
By:
-------------------------------
Title:
<PAGE> 36
NATIONAL CITY BANK OF INDIANA
By:
-------------------------------
Title:
<PAGE> 37
SUMMIT BANK
By:
-------------------------------
Title:
<PAGE> 38
AG CAPITAL FUNDING PARTNERS,
L.P.
BY: ANGELO, GORDON & CO., L.P.,
AS INVESTMENT ADVISER
By:
-------------------------------
Title:
<PAGE> 39
GCB INVESTMENT PORTFOLIO
BY: CITIBANK, N.A. AS MANAGER
By:
-------------------------------
Title:
<PAGE> 40
CYPRESSTREE INSTITUTIONAL
FUND, LLC
BY: CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC., ITS
MANAGING MEMBER
By:
-------------------------------
Title:
CYPRESSTREE SENIOR FLOATING
RATE FUND
BY: CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC., AS
PORTFOLIO MANAGER
By:
-------------------------------
Title:
CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC.
AS: ATTORNEY-IN-FACT AND ON
BEHALF OF FIRST ALLMERICA
FINANCIAL LIFE INSURANCE
COMPANY AS PORTFOLIO
MANAGER
By:
-------------------------------
Title:
<PAGE> 41
OCTAGON LOAN TRUST
BY: OCTAGON CREDIT INVESTORS,
AS MANAGER
By:
-------------------------------
Title:
<PAGE> 42
KZH CYPRESSTREE-1 LLC
By:
-------------------------------
Title:
KZH SHOSHONE LLC
By:
-------------------------------
Title:
KZH ING-1 LLC
By:
-------------------------------
Title:
<PAGE> 43
STEIN ROE & FARNHAM
INCORPORATED, AS AGENT FOR
KEYPORT LIFE INSURANCE
COMPANY
By:
-------------------------------
Title:
<PAGE> 44
THE TRAVELERS INSURANCE
COMPANY
By:
-------------------------------
Title:
<PAGE> 45
OXFORD STRATEGIC INCOME FUND
BY EATON VANCE
MANAGEMENT AS
INVESTMENT ADVISOR
By:
-------------------------------
Title:
<PAGE> 46
MORGAN STANLEY SENIOR
FUNDING, INC.
By:
-------------------------------
Title:
<PAGE> 47
MORGAN STANLEY DEAN WITTER
PRIME INCOME TRUST
By:
-------------------------------
Title:
<PAGE> 48
TCW LEVERAGED INCOME TRUST II, L.P.
BY: TCW ADVISERS (BERMUDA), LTD.,
AS GENERAL PARTNER
By:
-----------------------------------
Name: Mark L. Gold
Title: Managing Director
BY: TCW INVESTMENT MANAGEMENT COMPANY,
AS INVESTMENT ADVISER
By:
-----------------------------------
Name:
Title:
<PAGE> 49
VAN KAMPEN SENIOR INCOME TRUST
By:
-------------------------------
Title:
<PAGE> 50
MERRILL LYNCH SENIOR
FLOATING RATE FUND
By:
-------------------------------
Title:
MERRILL LYNCH PRIME RATE
PORTFOLIO
By:
-------------------------------
Title:
<PAGE> 51
SENIOR DEBT PORTFOLIO BY
BOSTON MANAGEMENT AND
RESEARCH AS INVESTMENT
ADVISOR
By:
-------------------------------
Title:
<PAGE> 52
PAM CAPITAL FUNDING L.P.
By:
-------------------------------
Title:
<PAGE> 53
ARCHIMEDES FUNDING II LTD.
By:
-------------------------------
Title:
<PAGE> 54
BANK OF HAWAII
By:
-------------------------------
Title:
<PAGE> 55
THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By:
-------------------------------
Title:
<PAGE> 56
FRANKLIN FLOATING RATE TRUST
By:
-------------------------------
Title:
<PAGE> 57
Each of the undersigned Subsidiaries hereby (a) acknowledges the foregoing
Amendment and (b) ratifies and confirms all of its obligations under the
Guaranty and under each of the other Loan Documents to which it is a party.
EMMIS BROADCASTING
CORPORATION OF NEW YORK
EMMIS FM BROADCASTING
CORPORATION OF
INDIANAPOLIS
EMMIS FM BROADCASTING
CORPORATION OF CHICAGO
EMMIS FM BROADCASTING
CORPORATION OF ST. LOUIS
KPWR, INC.
EMMIS PUBLISHING CORPORATION
EMMIS FM RADIO CORPORATION OF
INDIANAPOLIS
EMMIS AM RADIO CORPORATION OF
INDIANAPOLIS
EMMIS 104.1 FM RADIO
CORPORATION OF ST. LOUIS
EMMIS 106.5 FM BROADCASTING
CORPORATION OF ST.LOUIS
EMMIS INTERNATIONAL
BROADCASTING CORPORATION
EMMIS INTERNATIONAL
CORPORATION
EMMIS DAR, INC.
EMMIS 105.7 FM RADIO CORPORATION
OF INDIANAPOLIS
EMMIS 1310 AM RADIO
CORPORATION OF INDIANAPOLIS
EMMIS MEADOWLANDS CORPORATION
EMMIS 1380 AM RADIO
CORPORATION OF ST. LOUIS
MEDIATEX COMMUNICATIONS
CORPORATION
TEXAS MONTHLY, INC.
MEDIATEX DEVELOPMENT CORPORATION
EMMIS FM HOLDING CORPORATION OF
NEW YORK
EMMIS 101.9 FM RADIO CORPORATION OF
NEW YORK
EMMIS RADIO CORPORATION OF NEW YORK
(f/k/a Emmis Holding Corporation
of New York)
<PAGE> 58
EMMIS INDIANA BROADCASTING,
L.P. (f/k/a Emmis Indiana
Radio, L.P.)
By: Emmis Communications
Corporation (f/k/a Emmis
Broadcasting Corporation), its
General Partner
EMMIS PUBLISHING, L.P.
By: Emmis Communications
Corporation (f/k/a Emmis
Broadcasting Corporation), its
General Partner
EMMIS TELEVISION
BROADCASTING, L.P.
By: Emmis Communications
Corporation (f/k/a Emmis
Broadcasting Corporation), its
General Partner
By:
-------------------------------
Title:
EMMIS LICENSE CORPORATION
KPWR LICENSE, INC.
EMMIS FM LICENSE
CORPORATION OF ST. LOUIS
EMMIS TELEVISION LICENSE
CORPORATION OF MOBILE
EMMIS 104.1 FM RADIO LICENSE
CORPORATION OF ST. LOUIS
EMMIS FM LICENSE
CORPORATION OF
INDIANAPOLIS
EMMIS FM RADIO LICENSE
CORPORATION OF
INDIANAPOLIS
EMMIS AM RADIO LICENSE
CORPORATION OF
INDIANAPOLIS
EMMIS LICENSE CORPORATION
OF NEW YORK
EMMIS RADIO LICENSE
CORPORATION OF NEW YORK
<PAGE> 59
EMMIS 1310 AM RADIO LICENSE
CORPORATION OF
INDIANAPOLIS
EMMIS TELEVISION LICENSE
CORPORATION OF
HONOLULU
EMMIS 105.7 FM RADIO LICENSE
CORPORATION OF
INDIANAPOLIS
EMMIS TELEVISION LICENSE
CORPORATION OF NEW ORLEANS
EMMIS 106.5 FM LICENSE
CORPORATION OF ST. LOUIS
EMMIS FM LICENSE
CORPORATION OF CHICAGO
EMMIS TELEVISION LICENSE
CORPORATION OF GREEN BAY
By:
-------------------------------
Title:
<PAGE> 60
TRAVELERS CORPORATE LOAN
FUND, INC.
BY: TRAVELERS ASSET MANAGEMENT
INTERNATIONAL CORPORATION
By:
-------------------------------
Title:
<PAGE> 61
WEBSTER BANK
By:
------------------------
Title:
<PAGE> 1
EXHIBIT 10.16
ASSET PURCHASE AGREEMENT
(COUNTRY SAMPLER PUBLICATIONS)
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of February 23,
1999, by and among COUNTRY SAMPLER, INC., an Illinois corporation ("Seller"),
MARK A. NICKEL, an Illinois resident ("Owner") and EMMIS PUBLISHING, L.P., an
Indiana limited partnership ("Buyer").
RECITALS:
1. Seller owns, produces, publishes, sells, and offers for
distribution Country Sampler, Country Sampler Decorating Ideas, Decorating Ideas
Special Interest Publications, Country Sampler's Country Business, Country
Sampler Group Connections, and Country Sampler on the Web (together, the
"Publications").
2. Buyer desires to acquire substantially all the assets used or
useful in the business and operation of each of the Publications, and certain
ancillary businesses, and Seller is willing to convey such assets to Buyer, all
pursuant to the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants contained herein,
Seller, Owner and Buyer hereby agree as follows:
ARTICLE I
TERMINOLOGY
1.1 Defined Terms. As used herein, the following terms shall have
the meanings indicated:
Affiliate: With respect to any specified person or entity, another person
or entity which, or a member of an immediate family which, directly or
indirectly controls, is controlled by, or is under common control with, the
specified person or entity.
Consulting Agreement: The Consulting Agreement to be entered into by and
between Buyer and Owner on the Closing Date, the form of which is attached as
Exhibit A.
Benefit Plans: With respect to Seller or any employee or former employee
of Seller or the beneficiaries or dependents of such employee or former
employee, all compensation or benefit plans, policies, practices, arrangements
and agreements which are or have been established or maintained or to which
contributions have been made by Seller or by any other trade or business,
whether or not incorporated, which is or has been treated as a single employer
together with Seller under Section 414 of the Code (such other trades and
businesses referred to collectively as the "Related Persons") or
<PAGE> 2
to which Seller or any Related Person is or has been obligated to contribute
including, but not limited to, "employee benefit plans" within the meaning of
Section 3(3) of ERISA, employment, retention, change of control, severance,
stock option or other equity based, bonus, incentive compensation, deferred
compensation, retirement, fringe benefit and welfare plans, policies, practices,
arrangements and agreements.
Business: The business of owning, producing, publishing, selling and
offering for distribution the Publications, as well as the ownership and
operation of all the related ancillary businesses of Seller (other than Seller's
equity interest in The Country Sampler Store, L.L.C.).
Code: The Internal Revenue Code of 1986, as amended.
Documents: This Agreement and all Exhibits if any and Schedules hereto,
and each other agreement, certificate or instrument delivered pursuant to or in
connection with this Agreement.
HSR Act: The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
Lien: Any mortgage, deed of trust, pledge, hypothecation, title defect,
right of first refusal, security or other adverse interest, encumbrance, claim,
option, lien, lease or charge of any kind, whether voluntarily incurred or
arising by operation of law or otherwise, affecting any assets or property,
including any written or oral agreement to give or grant any of the foregoing,
any conditional sale or other title retention agreement, and the filing of or
agreement to give any financing statement with respect to any assets or property
under the Uniform Commercial Code or comparable law of any jurisdiction.
Loss: With respect to any person or entity, any and all costs,
obligations, liabilities, demands, claims, settlement payments, awards,
judgments, fines, penalties, damages and reasonable out-of-pocket expenses,
including court costs and reasonable attorneys' fees, whether or not arising out
of a third party claim.
Material Adverse Condition: A condition which would restrict, limit,
increase the cost or burden of or otherwise adversely affect or impair in any
material respect the right of Buyer to the ownership, use, control, enjoyment or
operation of the Business or the proceeds therefrom.
Material Adverse Effect: A material adverse effect on the assets,
business, operations, financial condition or results of operations of (i) the
Business or (ii) Seller.
Office Building: All of Seller's right, title and interest in the real
property and all improvements thereon at 707 Kautz Road, Saint Charles,
Illinois.
Permitted Lien: Any statutory lien which secures a payment not yet due
that arises, and is customarily discharged, in the ordinary course of Seller's
business; or any other imperfections in Seller's title to any of its assets or
properties that, individually and
2
<PAGE> 3
in the aggregate, are not material in character or amount and do not and could
not reasonably be expected to impair the value or interfere with the use of any
of the Sale Assets.
Seller's Knowledge: Actual knowledge, after reasonable investigation, of
Mark A. Nickel, Margaret Kernan, Stephen Borst, or John Dziewiatkowski.
Taxes: All federal, state, local and foreign taxes including, without
limitation, income, unemployment, withholding, payroll, social security, real
property, personal property, excise, sales, use and franchise taxes, levies,
assessments, imposts, duties, licenses and registration fees and charges of any
nature whatsoever, including interest, penalties and additions with respect
thereto and any interest in respect of such additions or penalties.
Tax Return: Any return, filing, report, declaration, questionnaire or
other document required to be filed for any period with any taxing authority
(whether domestic or foreign) in connection with any Taxes (whether or not
payment is required to be made with respect to such document).
1.2 Additional Defined Terms. As used herein, the following terms
shall have the meanings defined in the introduction, recitals or section
indicated below:
Acquisition Proposal Section 5.11
Adjustment Amount Section 2.6(a)
Arbitrating Firm Section 2.6(e)
Assumed Obligations Section 2.3(a)
Business Agreements Section 2.1(f)
Buyer's Trade Credit Section 2.6(b)(ii)
Closing Section 8.1
Closing Date Section 8.1
Effective Time Section 8.1
Excluded Assets Section 2.2
Indemnified Party Section 10.4(a)
Indemnifying Party Section 10.4(a)
Initial Adjusted Purchase Price Section 2.4
Intellectual Property Section 2.1(a)
Interim Balance Sheet Section 3.12(a)(iii)
License Agreement Section 12.7(b)
Other Permitted Exceptions Section 6.4.1
3
<PAGE> 4
Permitted Tax Lien Section 6.4.1
Preliminary Adjustment Report Section 2.6(d)
Publications Recitals
Purchase Price Section 2.4
Real Property Section 2.1(b)
Sale Assets Section 2.1
Seller's Trade Credit Section 2.6(b)(ii)
Standard Exceptions Section 6.4.1
Survey Section 6.4.2
Survival Period Section 10.1
Tangible Personal Property Section 2.1(c)
Title Commitment Section 6.4.1
Title Insurance Company Section 6.4.1
Trade Agreements Section 2.1(j)
ARTICLE II
PURCHASE AND SALE
2.1 Sale Assets. Upon and subject to the terms and conditions
provided herein, on the Closing Date, Seller will sell, transfer, assign and
convey to Buyer, and Buyer will purchase from Seller, all of Seller's right,
title and interest, legal and equitable, in and to all tangible and intangible
assets (except Excluded Assets) used or useful in the operation of the Business
as it has been and is now operated (the "Sale Assets"), including the following:
(a) Intellectual Property. All trade names, trademarks,
service marks, symbols, logos, copyrights, publishing rights, domain names,
websites, and any other proprietary material or trade right used in the
operation of the Business, all goodwill associated therewith, and all state and
federal registrations, applications and licenses for any of the foregoing,
including, without limitation, the trademarks and registrations listed in
Schedule 2.1(a) (the "Intellectual Property").
(b) Real Property. The Office Building (the legal description of
which is listed in Schedule 3.10) and all fixtures and improvements thereon,
together with such additional improvements and interests in real estate made or
acquired between the date hereof and the Closing Date (the "Real Property").
(c) Tangible Personal Property. All computers and office and
other equipment, furniture, fixtures, library and research materials, all copies
of past or current issues of any Publication now in the possession of or owned
by the Seller and other tangible personal property owned by Seller and used in
the operation of the Business as it has been and is now operated, including, but
not limited to, the items listed in Schedule 2.1(c) (the "Tangible Personal
Property").
(d) Inventory. All inventories, supplies, computer software (to
he extent of Seller's interests therein) and materials of any kind, including
without limitation all work in process (to the extent of Seller's interests
therein) on any issue of any Publication, photographs, layouts, advertising
materials, paper, film, stripped material, pre-press materials or transparencies
produced or designed for any past, present, or future issue of any Publication.
4
<PAGE> 5
(e) Business Records. The originals or true and complete copies
of all circulation records and other sales and distribution records and
documents, books, files, logs, and other business records or documents,
including but not limited to copies of current and expired advertising
contracts, in whatever existing form or format.
(f) Business Agreements. The agreements (other than trade or
barter), if any, relating principally to the operation of the Business
(including advertising contracts and personal property leases) if, and only if,
listed in Schedule 2.1(f) and the License Agreement (the "Business Agreements").
(g) Accounts Receivable. All accounts receivable relating to
subscriptions (i.e., unpaid subscriptions) to any Publication, all accounts
receivable relating to advertising (i.e., unpaid advertising) published in any
Publication, receivables related to Trade Agreements (as hereinafter defined),
and other receivables of any Publication such as newsstand receivables
(collectively, the "Accounts Receivable").
(h) Subscription Records. The current complete paid
subscription list, complimentary subscription list, and a list of all available
past subscribers (as maintained by or on behalf of Seller), including in each
case the subscriber's name, address, payment status and renewal date, and all
other relevant subscription information such as carrier routes, gift codes,
tracking codes, source codes, all other information relating to subscription
records, and all physical subscription records, including subscription cards,
telephone orders and any other physical subscription record documents, in
whatever existing form or format.
(i) Prepaid Expenses. Any and all rights to prepaid expenses of
Seller relating to items used in the operation of the Business.
(j) Trade or Barter Agreements. Trade or barter agreements
relating to the operation of any Publication if, and only if, listed in Schedule
2.1(j) (the "Trade Agreements").
(k) Miscellaneous Assets: Any other tangible or intangible
assets, properties or rights of any kind or nature not otherwise described above
in this Section 2.1 and now or hereafter owned or used by Seller in connection
with the operation of the Business, including but not limited to all goodwill of
the Business.
2.2 Excluded Assets. Notwithstanding any provision of this
Agreement to the contrary, Seller shall not transfer, convey or assign to Buyer,
but shall retain all of its right, title and interest in and to, the following
assets owned or held by it on the Closing Date (the "Excluded Assets"):
(a) Any and all cash, bank deposits and other cash equivalents,
cash deposits to secure contract obligations (except to the extent Seller
receives a credit therefor under Section 2.6, which excepted deposits are set
forth in the List of Deposits set forth in Schedule 2.2(a));
5
<PAGE> 6
(b) Any and all claims of Seller with respect to transactions
occurring or other matters arising prior to the Closing Date including, without
limitation, claims for tax refunds;
(c) A note owing to Seller from the Country Sampler Store,
L.L.C.;
(d) All Benefit Plans and collective bargaining agreements;
(e) All employment agreements;
(f) All policies of insurance owned by Seller;
(g) All tangible personal property disposed of or consumed
between the date hereof and the Closing Date in accordance with the terms and
provisions of this Agreement;
(h) Seller's corporate records except to the extent such records
pertain to or are used in the operation of the Business, in which case Seller
shall deliver true and accurate copies thereof to Buyer;
(i) Seller's equity interest in The Country Sampler Store,
L.L.C.; and
(j) Those assets specifically listed in Schedule 2.2(j).
2.3 Assumption of Liabilities.
(a) At the Closing, Buyer shall assume and agree to perform,
without duplication, the following liabilities and obligations of Seller (the
"Assumed Obligations"):
(i) The obligations of Seller arising under the Business
Agreements listed in Schedule 2.1(f) that are transferred to Buyer at Closing in
accordance with this Agreement, but only to the extent such obligations relate
to any period from and after the Closing Date.
(ii) The obligations of Seller to be performed on or after
the Closing Date under subscription agreements for any Publication in effect as
of the Closing Date.
(iii) The obligations of Seller to provide advertising in
any Publication after Closing under the Trade Agreements transferred to Buyer in
accordance with this Agreement.
(iv) Provided that Seller pays Buyer the amount, if any,
owed by Seller after Closing under Section 2.6, the Assumed Obligations shall
also include such other liabilities of Seller to the extent, and only to the
extent, the amount thereof is included as a credit to Buyer in calculating the
Adjustment Amount as ultimately determined pursuant to Section 2.6.
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(b) The Assumed Obligations shall in no event include any
liability or obligation arising (i) from the assignment to Buyer of any Business
Agreement in violation of its terms or (ii) from any other breach or default by
Seller upon or prior to Closing under any Business Agreement.
(c) Except for the Assumed Obligations, Buyer shall not assume
or in any manner be liable for any duties, responsibilities, obligations or
liabilities of Seller of any kind or nature, whether express or implied, known
or unknown, contingent or absolute, all of which Seller shall pay, discharge and
perform when due.
2.4 Purchase Price. The purchase price ("Purchase Price") shall
equal the sum (i) Sixteen Million Five Hundred Thousand ($16,500,000.00) in
consideration of the Sale Assets other than the Real Property, and One Million
Five Hundred Thousand Dollars ($1,500,000.00) in consideration of the purchase
of the Real Property, all subject to adjustment as provided in Section 2.6 (as
adjusted, the "Initial Adjusted Purchase Price"), plus (ii) Five Hundred
Thousand Dollars ($500,000.00) to be paid by the six-month anniversary of the
Closing Date as a holdback on the Purchase Price (the "Holdback"). The Initial
Adjusted Purchase Price shall be paid by Buyer to Seller at Closing by wire
transfer of immediately available funds. Seller shall furnish Buyer wire
instructions at least three (3) business days prior to the Closing Date. The
Holdback, subject to offset as provided in Section 2.6(g) and Article X, shall
be paid by Buyer to Seller by the six-month anniversary of the Closing Date by
wire transfer of immediately available funds.
2.5 Allocation of the Purchase Price. Seller and Buyer shall use
good faith efforts to agree, prior to Closing, upon an allocation of the
Purchase Price among the Sale Assets which, if agreed, will be incorporated in a
schedule to be executed by the parties prior to or at Closing. Buyer and Seller
each agree to report such allocation, if agreed upon, to the Internal Revenue
Service in the form required by Treasury Regulation 1.1060-IT and to use such
allocation for all other reporting purposes in connection with federal, state
and local income and, to the extent permitted under applicable law, franchise
taxes.
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2.6 Adjustment of Purchase Price.
(a) All operating income and operating expenses of the Business
shall be adjusted and allocated between Seller and Buyer, and an adjustment in
the Purchase Price shall be made as provided in this Section, to the extent
necessary to reflect the principle that all such income and expenses
attributable to any issue of the Publications prior to and including the Cut-Off
issues shall be attributable to Seller, and all income and expenses attributable
to the Publications subsequent to the Cut-Off issues shall be attributable to
the Buyer, provided further that any such income and expenses which cannot be
attributed to a specific issue of any Publication shall be allocated to reflect
the principle that all such all such income and expenses attributable to the
operation of the Business on or before the date preceding the Closing Date shall
be for the account of Seller, and all such income and expenses attributable to
the operation of the Business on and after the Closing Date shall be for the
account of Buyer. A list of Cut-Off issues for each Publication is set forth in
Schedule 2.6(a). The net amount by which the Purchase Price is to be increased
or decreased in accordance with this Section is herein referred to as the
"Adjustment Amount".
(b) Without limiting the generality of the foregoing:
(i) Seller shall receive a credit for the unapplied
portion, as of the Closing Date, of the security deposits made by Seller
under those Business Agreements assumed by Buyer at Closing in accordance
with Section 2.3.
(ii) Buyer shall be given a credit ("Buyer's Trade
Credit") in the amount equal to the financial value (determined in
accordance with generally accepted accounting principles consistently
applied) of all advertisements required to be published in the
Publications on or after the Closing Date under the Trade Agreements, and
Seller shall be given a credit ("Seller's Trade Credit") for the
financial value (determined in accordance with generally accepted
accounting principles consistently applied) of the goods and services to
be received on or after the Closing Date under the Trade Agreements;
provided that Seller's Trade Credit shall in no event exceed Buyer's
Trade Credit.
(iii) With respect to each vacation or personal day earned
but not taken or for which compensation has not been paid by Seller to
Employee in lieu of time off before the Closing Date by each Employee
hired by Buyer, Buyer shall receive a credit equal to the compensation
equivalent thereof, including applicable payroll taxes.
(iv) The credit given Seller for each prepaid expense
shall not exceed an amount commensurate with the benefit therefrom to be
received by Buyer after Closing.
(c) To the extent not inconsistent with the express
provisions of this Agreement, the allocations made pursuant to this
Section 2.6 shall be made in accordance with generally accepted accounting
principles.
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(d) Three (3) business days prior to the Closing Date, Seller
shall provide Buyer with a statement setting forth a detailed computation of
Seller's reasonable and good faith estimate of the Adjustment Amount as of the
Closing Date (the "Preliminary Adjustment Report"). The Preliminary Adjustment
Report shall include an itemization of all prepaid expenses included in
estimating the Adjustment Amount as of the Closing Date. If the Adjustment
Amount reflected on the Preliminary Adjustment Report is a credit to Buyer, then
the Purchase Price payable on the Closing Date shall be reduced by the amount of
the preliminary Adjustment Amount, and if the Adjustment Amount reflected on the
Preliminary Adjustment Report is a charge to Buyer, then the Purchase Price
payable on the Closing Date shall be increased by the amount of such preliminary
Adjustment Amount. Thereafter, Seller and its auditors and Buyer and its
auditors shall have ninety (90) days after the Closing Date to review the
Preliminary Adjustment Report and the related books and records of Seller, and
Buyer and Seller will in good faith seek to reach agreement on the computation
of the Adjustment Amount as of the Closing Date. If agreement is reached within
ninety (90) days after the Closing Date, then upon reaching such agreement,
Seller shall pay to Buyer or Buyer shall pay to Seller, as the case may be, an
amount equal to the difference between (i) the agreed Adjustment Amount and (ii)
the preliminary Adjustment Amount indicated in the Preliminary Adjustment
Report. Any such payment shall be made as provided in Section 2.6(g). If
agreement is not reached within such 90-day period, then the dispute resolutions
of Section 2.6(e) shall apply.
(e) If Seller and its auditors and Buyer and its auditors do
not, within the 90-day period specified in Section 2.6(d), reach an agreement on
the Adjustment Amount as of the Closing Date, then an independent accounting
firm of recognized national standing (the "Arbitrating Firm") selected by Seller
and Buyer shall resolve the disputed items. If Seller and Buyer are unable to
agree on the Arbitrating Firm, the Arbitrating Firm shall be a "national"
accounting firm selected by lot (after excluding one firm designated by Seller
and one firm designated by Buyer, as well as any firm with which either party
has or has had a business relationship, which relationship shall be promptly
disclosed by the relevant party). Buyer and Seller shall each inform the
Arbitrating Firm in writing as to their respective positions concerning the
Adjustment Amount as of the Closing Date, and each shall make readily available
to the Arbitrating Firm any books and records and work papers relevant to the
preparation of such firm's computation of the Adjustment Amount. Such firm shall
be instructed to complete its analysis within thirty (30) days from the date of
its engagement and upon completion to inform the parties in writing of its own
determination of the Adjustment Amount, and the basis for its determination. Any
determination by the Arbitrating Firm in accordance with this Section shall be
final and binding on the parties for purposes of this Section. Within five (5)
days after the Arbitrating Firm delivers to the parties its written
determination of the Adjustment Amount, Seller shall pay to Buyer, or Buyer
shall pay to Seller, as the case may be, an amount equal to the difference
between (i) the Adjustment Amount as determined by the Arbitrating Firm and (ii)
the preliminary Adjustment Amount indicated in the Preliminary Adjustment
Report. Any such payment shall be made as provided in Section 2.6(g).
(f) Seller and Buyer shall each pay one-half of the fees and
disbursements of the Arbitrating Firm in connection with its analysis.
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(g) Any payments required under foregoing Subsection (d) or (e)
shall be paid by wire transfer in immediately available funds to the account of
the payee with a financial institution in the United States and shall for all
purposes be deemed an adjustment to the Purchase Price; provided however, that
if such payment is to be made to Buyer, Buyer may setoff such amount against the
Holdback.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
3.1 Organization, Good Standing and Corporate Power. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Illinois, and has all requisite power to own, operate and lease
its properties and carry on its business. Seller is duly licensed, qualified to
do business and in good standing in each jurisdiction, domestic and foreign,
where the failure to be so licensed or qualified would have a Material Adverse
Effect, which jurisdictions are set forth in Schedule 3.1.
3.2 Ownership. All of the issued and outstanding capital stock of
Seller is owned beneficially and of record by Owner.
3.3 Authorization and Binding Effect of Documents. Seller has all
requisite corporate power and authority to enter into this Agreement and the
other Documents and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and each of the other
Documents by Seller and the consummation by Seller of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action (including shareholder approval) on the part of Seller. This
Agreement has been, and each of the other Documents at or prior to Closing will
be, duly executed and delivered by Seller. This Agreement constitutes (and each
of the other Documents, when executed and delivered, will constitute) the valid
and binding obligation of Seller enforceable against Seller in accordance with
its terms.
3.4 Absence of Conflicts. Except as set forth in Schedule 3.4, the
execution, delivery and performance by Seller of this Agreement and the other
Documents, and consummation by Seller of the transactions contemplated hereby
and thereby, do not and will not (i) conflict with or result from any breach of
any of the terms, conditions or provisions of, (ii) constitute a default under,
(iii) result in a violation of, (iv) give any third party the right to modify,
terminate or accelerate any obligation under, or (v) result in the creation of
any material Lien upon the Sale Assets under, the provisions of the articles of
incorporation and by-laws of Seller, any material indenture, mortgage, lease,
loan agreement or other agreement or instrument to which Seller is bound or
affected, or any law, statute, rule, judgment, order or decree to which Seller
is subject.
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3.5 Consents. Except as set forth in Schedule 3.5 and except for the
filing required by the HSR Act, the execution, delivery and performance by
Seller of this Agreement and the other Documents, and consummation by Seller of
the transactions contemplated hereby and thereby, do not and will not require
the authorization, consent, approval, exemption, clearance or other action by or
notice or declaration to, or filing with, any court or administrative or other
governmental body, or the consent, waiver or approval of any other person or
entity.
3.6 Sale Assets; Title. The Sale Assets include all of the assets,
properties and rights of every type and description, real, personal and mixed,
tangible and intangible, that are used in the operation of the Business in the
manner in which it is now conducted, with the exception of the Excluded Assets.
Other than as noted in Schedule 3.6, which Liens will be removed prior to or at
Closing, Seller has good and marketable title to, or a valid lessee's interest
in, all of the Sale Assets free and clear of all Liens except Permitted Liens.
3.7 Circulation. For those of the Publications which are so audited,
Seller has provided or caused to be provided to Buyer (i) the audited
circulation reports (the "White Sheet") of the Audit Bureau of Circulations
("ABC") with respect to each Publication for the twelve months ended December
31, 1997, and (ii) the unaudited publisher's circulation statement (the "Pink
Sheet") published by ABC with respect to each Publication for the six months
ended June 30, 1998. Such White Sheet and Pink Sheet fairly present the
information shown thereon in all material respects. Schedule 3.7 sets forth
which Publications are audited and which are not.
3.8 Business Agreements.
(a) Schedule 3.8(a) lists all agreements, contracts,
understandings and commitments as of the date indicated thereon for advertising
in any Publication of the Business for other than monetary consideration ("Trade
Agreements") as of January 31, 1999, and sets forth the parties thereto, the
financial value of the advertisements required to be provided from and after the
date of such Schedule and the financial value of the goods or services to be
received by Seller from and after the date of such Schedule. True and complete
copies of all written Trade Agreements in effect as of such date, including all
amendments, modifications and supplements thereto, have been delivered to Buyer
and each Trade Agreement hereafter entered into prior to Closing shall be
promptly delivered to Buyer.
(b) Schedule 3.8(b) lists all the following types of Business
Agreements now in effect, whether written or oral relating to the Business or
the Sale Assets:
(i) Agreements for sale of advertising in any Publication
for monetary consideration;
(ii) All affiliation agreements;
(iii) All sales agency, advertising representation, or
distribution contracts;
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(iv) Each lease of any Sale Asset (including a description
of the Sale Asset leased thereunder);
(v) All employment agreements and agreements with
independent contractors;
(vi) All agreements to which an Affiliate of Seller is a
party;
(vii) Each of the other Business Agreements (other than
Trade Agreements) involving a commitment by any party thereto with a fair
market value of, or requiring any party thereto to pay over the life of
the contract, more than Five Thousand Dollars ($5,000); and
(viii) Any other Business Agreement that is material to the
business, operations or financial condition of any Publication or the
Business.
True and complete copies of all the foregoing Business Agreements that are in
writing, and true and accurate summaries of all the foregoing Business
Agreements that are oral, including all amendments, modifications and
supplements thereto, have been delivered to Buyer. The Business Agreements
(other than Trade Agreements) that are not listed in Schedule 3.8(b) do not
involve commitments by parties thereto with an aggregate fair market value of
more than Fifty Thousand Dollars ($50,000).
(c) Except as set forth in Schedule 3.8(c), (i) all Business
Agreements which are, individually or in the aggregate, material to the
business, operations or financial condition of any Publication or the Business
are valid and in full force and effect; (ii) neither Seller nor, to the Seller's
Knowledge, any other party is in material default under, and no event has
occurred which (after the giving of notice or the lapse of time or both) would
constitute a material default under, any Business Agreements which are,
individually or in the aggregate, material to the business, operations or
financial condition of the Business; (iii) neither Seller nor an Affiliate has
granted or been granted any material waiver or forebearance with respect to any
Business Agreements which are, individually or in the aggregate, material to the
business, operations or financial condition of the Business; (iv) Seller holds
the right to enforce and receive the benefits under all the Business Agreements
which are, individually or in the aggregate, material to the business,
operations or financial condition of the Business, free and clear of Liens
(other than Permitted Liens) but subject to the terms and provisions of each
such agreement; (v) none of the rights of Seller or an Affiliate under Business
Agreements which are, individually or in the aggregate, material to the
business, operations or financial condition of the Business is subject to
termination or modification as a result of the consummation of the transactions
contemplated by this Agreement; and (vi) no consent or approval by any party to
Business Agreements which are, individually or in the aggregate, material to the
business, operations or financial condition of the Business is required
thereunder for the consummation of the transactions contemplated hereby.
3.9 Tangible Personal Property. Except as set forth in Schedule 3.9:
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(a) Such Schedule lists all Tangible Personal Property (other
than office supplies and other incidental items) material to the conduct of the
Business and operations of any Publication or the Business in the manner in
which it has been and is now operated.
(b) The Tangible Personal Property has been properly maintained
in accordance with industry practices in all material respects, is in a good
state of repair and operating condition (normal wear and tear excepted), and
complies in all material respects with applicable laws, rules, regulations and
ordinances.
3.10 Real Property. The list of Real Property set forth in Schedule
3.10 is a true and correct list of all of the interests in real estate which
Seller holds which are used to any material extent in the operation of any
Publication or the Business in the manner in which it has been and is now
operated.
3.11 Intellectual Property. Schedule 3.11 lists all of the Intellectual
Property, including all registrations, applications and licenses for any of the
Intellectual Property. Except as disclosed in Schedule 3.11:
(a) To the Seller's Knowledge, Seller owns, free and clear of
Liens, all right and interest in, and right and authority to use in connection
with the conduct of the Business as presently conducted, all of the Intellectual
Property listed in Schedule 3.11, and all of the rights and properties
constituting a part of the Intellectual Property are in full force and effect;
(b) There are no outstanding or, to the Seller's Knowledge,
threatened judicial or adversary proceedings with respect to any of the
Intellectual Property;
(c) Seller has not granted to any other person or entity any
license or other right or interest in or to any of the Intellectual Property or
to the use thereof;
(d) Seller has no knowledge of any infringement or unlawful use
of any of the Intellectual Property;
(e) Seller has not knowingly violated any provisions of the
Copyright Act of 1976, 17 U.S.C. Section 101, et. seq., in any material respect;
and
(f) Seller has delivered to Buyer copies of all state or federal
registrations, applications, and other material documents, if any, establishing
any of the rights and properties constituting a part of the Intellectual
Property.
3.12 Financial Statements.
(a) Seller has delivered to Buyer:
(i) The reviewed balance sheets of the Business as of
December 31, 1997 and 1996;
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(ii) The reviewed statements of income of the Business for
the years ended December 31, 1997 and 1996;
(iii) The unaudited balance sheet of the Business as of
December 31, 1998 (the "Interim Balance Sheet"); and
(iv) The unaudited statement of income of the Business for
the interim period ended December 31, 1998.
All such statements (i) are in accordance with the books and records of Seller
and (ii) have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis and fairly present the assets and
liabilities of Seller as of the dates stated and accurately reflect the results
of operations of Seller for the periods covered by the statements, with the
exceptions, as to the Interim Balance Sheet and related unaudited statement of
income, that (A) statements of cash flows are not included (B) federal income
tax, expense or benefit are not reflected therein, (C) such statements do not
contain the disclosures required by generally accepted accounting principles in
notes accompanying financial statements, and (D) such statements are subject to
normal year-end adjustments.
(b) With respect to the Business or the Sale Assets, Seller has
no debt, liability or obligation, secured or unsecured (whether absolute,
accrued, contingent or otherwise, and whether due or to become due), of a nature
required by generally accepted accounting principles to be reflected in a
corporate balance sheet or disclosed in the notes thereto, except such debts,
liabilities and obligations which (i) are fully accrued or fully reserved
against in the Interim Balance Sheet, or (ii) are incurred after the date of the
Interim Balance Sheet in the ordinary course of business consistent with past
practices and in an amount not material to the business or financial condition
of Seller.
(c)(i) Seller is not now, and, on the date of Closing, after
giving effect to the transactions contemplated by this Agreement, Seller will
not be insolvent as such term is defined in the Bankruptcy Code of 1978, as
amended; (ii) after giving effect to the transactions contemplated by this
Agreement, the property remaining with Seller shall not constitute an
unreasonably small capital to conduct its current business or its business as
proposed to be conducted after consummation of the transactions contemplated
hereby; and (iii) Seller does not intend to incur, or believe that Seller will
incur, concurrently with or after consummation of the transactions contemplated
hereby, debts beyond Seller's ability to pay as debts mature.
3.13 Absence of Certain Changes or Events. Since the date of the
Interim Balance Sheet, other than as described in Schedule 3.13:
(a) There has not been any damage, destruction or other
casualty loss with respect to the Sale Assets (whether or not covered by
insurance) which, individually or in the aggregate has, or could reasonably be
expected to have, a Material Adverse Effect.
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(b) Neither Seller nor the Business has suffered any adverse
change or development which, individually or in the aggregate, has had or could
reasonably be expected to have a Material Adverse Effect.
(c) Seller has not, with respect to the Business or the Sale
Assets:
(i) amended or terminated any Business Agreement set
forth in Schedule 3.8(a), 3.8(b) or 3.8(c) except in the ordinary course
of business;
(ii) mortgaged, pledged or subjected to any Lien, any of
its properties or assets, tangible or intangible, except for Permitted
Liens;
(iii) acquired or disposed of any assets or properties or
entered into any agreement or other arrangement for such acquisition or
disposition, except in the ordinary course of business;
(iv) with the exception of this Agreement, entered into
any agreement, commitment or other transaction other than in the ordinary
course of business;
(v) paid any bonus to any officer, director or employee
or granted to any officer, director or employee any other increase in
compensation in any form, except in the ordinary course of business
consistent with past practices;
(vi) adopted or amended any collective bargaining, bonus,
profit-sharing, compensation, stock option, pension, retirement, deferred
compensation, severance or other plan, agreement, trust, fund or
arrangement for the benefit of employees (whether or not legally binding)
or made any material changes in its policies of employment;
(vii) entered into any agreement (other than agreements
that will be terminated prior to Closing) with any Affiliate of Seller;
or
(viii) operated other than in the ordinary course.
3.14 Litigation. Except as described in Schedule 3.14, (i) there are
no actions, suits, claims, investigations or administrative, arbitration or
other proceedings pending or, to the Seller's Knowledge, threatened against
Seller before or by any court, arbitration tribunal or governmental department
or agency, domestic or foreign; (ii) neither Seller nor, to the Seller's
Knowledge, any of the officers or employees of Seller, has been charged with, or
is under investigation with respect to, any violation of any provision of any
federal, state, foreign or other applicable law or administrative regulation in
respect of the business of Seller; and (iii) neither Seller nor any properties
or assets of Seller nor, to the Seller's Knowledge, any officer or employee of
Seller is a party to or bound by any order, arbitration award, judgment or
decree of any court, arbitration tribunal or governmental department or agency,
domestic or foreign, in respect of any business practices, the acquisition of
any property, or the conduct of any
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business, of Seller, which, individually or in the aggregate, has or could
reasonably be expected to have, a Material Adverse Effect or materially impair
the ability of Seller to perform its obligations hereunder and consummate the
transactions contemplated hereby.
3.15 Labor Matters.
(a) Except as listed in Schedule 3.15(a):
(i) To the Seller's Knowledge, no present or former
employee (or independent contractor) of the Business has a pending claim
or charge which has been asserted or threatened against Seller for (A)
overtime pay; (B) wages, salaries or profit sharing; (C) vacations, time
off or pay in lieu of vacation or time off; (D) any violation of any
statute, ordinance, contract or regulation relating to minimum wages,
maximum hours of work or the terms or conditions of employment; (E)
discrimination against employees on any basis; (F) unlawful or wrongful
employment or termination practices; (G) unlawful retirement, termination
or labor relations practices or breach of contract; or (H) any violation
of occupational safety or health standards.
(ii) There is not pending or, to the Seller's Knowledge,
threatened against Seller any labor dispute, strike or work stoppage that
affects or interferes with, or is likely to affect or interfere with, the
operation of any Publication or the Business. Seller has no knowledge of
any organizational effort currently being made or threatened by or on
behalf of any labor union with respect to employees of any Publication or
the Business. There are no unresolved unfair labor charges against
Seller. Seller has not experienced any strike, work stoppage or other
similar significant labor difficulties within the past twelve (12)
months.
(b) Seller is not a signatory or a party to, or otherwise bound
by, a collective bargaining agreement which covers employees or former employees
of Seller or who are involved in the operation of any Publication or the
Business, (ii) Seller has not agreed to recognize any union or other collective
bargaining unit with respect to any employees of any Publication or the
Business, and (iii) no union or other collective bargaining unit has been
certified as representing any employees of any Publication or the Business.
(c) Schedule 3.15(c) sets forth a true and complete list of all
persons employed by Seller or at any Publication or the Business as of the date
of this Agreement, and states for each such employee (i) the compensation paid
to such employee and the termination pay or other severance benefits, if any,
that may be payable to such employee upon termination of employment, (ii)
accrued but unused vacation and personal days, (iii) whether such employee is
employed under a written contract, and (iv) the policies applicable to the
employee if not employed under a written contract. A true and complete copy of
each written employment agreement and of any handbook, policy manual or similar
written guidelines furnished to employees of any Publication or the Business has
been delivered to Buyer.
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3.16 Employee Benefit Plans. Buyer will not acquire any rights or
interests in, or assume any obligations under, any Benefit Plan. Buyer shall
not, as a result of the transactions contemplated by this Agreement (or the
employment of any of Seller's current employees), become liable for any
contribution, tax, lien, penalty, cost, interest, damage or other similar type
of liability or expense of Seller with regard to any Benefit Plan.
3.17 Compliance with Law. Seller has operated and is operating in
all material respects in compliance with all federal, state, local or other
laws, statutes, ordinances, regulations, licenses, permits or exemptions
therefrom and all applicable orders, writs, injunctions and decrees of any
court, commission, board, agency or other instrumentality, and Seller has not
received any notice of noncompliance pertaining to Seller's operations that has
not been cured.
3.18 Tax Returns and Payments.
(a) Seller has accurately prepared and is not delinquent in the
filing of any Tax Returns required to be filed by Seller, including filings
regarding employees, sales, operations or assets. All Taxes due and payable
pursuant thereto and all other Taxes or assessments due and payable by Seller or
chargeable as a Lien upon its assets have been paid.
(b) Except as set forth in Schedule 3.18, (i) no outstanding
unsatisfied deficiency, delinquency or default for any Tax has been claimed,
proposed or assessed against Seller, (ii) Seller has not received notice of any
such deficiency, delinquency or default, and (iii) to the Seller's Knowledge, no
taxing authority is now threatening to assert any such deficiency, delinquency
or default and, to the Seller's Knowledge, there is no reasonable basis for any
such assertion.
(c) No Tax is required to be withheld pursuant to Section 1445
of the Code as a result of the transactions contemplated by this Agreement.
(d) Seller has withheld any Tax required to be withheld under
applicable law and regulations, and such withholdings have either been paid to
the proper governmental agency or set aside in accounts for such purpose, or
accrued, reserved against and entered upon the books of Seller.
3.19 Environmental Matters. To the Seller's Knowledge, there are no
conditions or circumstances associated with the Sale Assets which may give rise
to any material liability or cost under applicable environmental law.
3.20 Broker's or Finder's Fees. Except for The Jordan Edmiston Group,
Inc., whose fee is the sole responsibility of Seller, no agent, broker,
investment banker or other person or firm acting on behalf of or under the
authority of Seller or any Affiliate of Seller is or will be entitled to any
broker's or finder's fee or any other commission or similar fee, directly or
indirectly, in connection with the transactions contemplated by this Agreement.
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3.21 Insurance. There is now in full force and effect with reputable
insurance companies fire and extended coverage insurance with respect to all
tangible Sale Assets and public liability and publisher's liability insurance,
all in amounts consistent with past practices.
3.22 Year 2000 Compliance. To the Seller's Knowledge, the technology
embodied in the Business' operating systems, other computer programs, and
websites is Year 2000 Compliant (to the extent applicable). "Year 2000
Compliant" means that the technology will accurately and without interruption
process (including but not limited to calculate, compare, interpret, and
sequence) (i) date and time data before, during and after the year 2000, (ii)
year dates in a manner that is explicit and unambiguous for operation with
interfacing software and for data storage, (iii) year 2000 as a leap year, and
(iv) year dates specified as "99" and "00" regardless of any other meanings that
may be given to those numbers. The Seller has received from each material vendor
listed on Schedule 3.22 a year 2000 compliance certificate, and has provided
copies of them to Buyer.
3.23 Disclosure. To the Seller's Knowledge, no representation or
warranty by Seller in this Agreement or any other Document furnished by Seller
or on its behalf contains any untrue statement of a material fact, or omits to
state a material fact, necessary to make any statement contained herein or
therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 Organization and Good Standing. Buyer is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of Indiana. Buyer has all requisite partnership power to own, operate and
lease its properties and carry on its business as it is now being conducted and
as the same will be conducted following the Closing.
4.2 Authorization and Binding Effect of Documents. Buyer has all
requisite partnership power and authority to enter into this Agreement and the
other Documents and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and each of the other
Documents by Buyer and the consummation by Buyer of the transactions
contemplated by this Agreement have been duly authorized by all necessary
partnership action on the part of Buyer. This Agreement has been, and each of
the other Documents at or prior to Closing will be, duly executed and delivered
by Buyer. This Agreement constitutes (and each of the other Documents, when
executed and delivered, will constitute) the valid and binding obligation of
Buyer enforceable against Buyer in accordance with its terms.
4.3 Absence of Conflicts. Except for obtaining all necessary approvals
under the HSR Act, the execution, delivery and performance by Buyer of this
Agreement and the other Documents, and consummation by Buyer of the transactions
contemplated hereby and thereby, do not and will not (i) conflict with or result
from any
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breach of any of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in a violation of, (iv) give any third party the
right to modify, terminate or accelerate any obligation under, the provisions of
the articles of partnership or limited partnership agreement of Buyer, any
indenture, mortgage, lease, loan agreement or other agreement or instrument to
which Buyer is bound or affected, or any law, statute, rule, judgment, order or
decree to which Buyer is subject.
4.4 Consents. Except for obtaining all necessary approvals under
the HSR Act, the execution, delivery and performance by Buyer of this Agreement
and the other Documents, and consummation by Buyer of the transactions
contemplated hereby and thereby, do not and will not require the authorization,
consent, approval, exemption, clearance or other action by or notice or
declaration to, or filing with, any court or administrative or other
governmental body, or the consent, waiver or approval of any other person or
entity.
4.5 Broker's or Finder's Fees. No agent, broker, investment banker, or
other person or firm acting on behalf of Buyer or under its authority is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee, directly or indirectly, from Buyer in connection with the transactions
contemplated by this Agreement.
4.6 Litigation. There are no legal, administrative, arbitration or
other proceedings or governmental investigations pending or, to the knowledge of
Buyer, threatened against Buyer that would give any third party the right to
enjoin the transactions contemplated by this Agreement.
ARTICLE V
OTHER COVENANTS
5.1 Conduct of the Business Prior to the Closing Date. Seller
covenants and agrees with Buyer that from the date hereof through the Closing
Date, unless Buyer otherwise agrees in writing, and provided that none of the
following shall impede Seller's ability to conduct the Business consistent with
past practices, Seller shall:
(a) Operate each Publication and the Business only in the
ordinary course of business, including (i) incurring promotional expenses
consistent with the amount currently budgeted, (ii) the use of reasonable
commercial efforts to preserve each Publication's and the Business' present
business operations, organization and goodwill and its relationships with
material customers, employees, advertisers, suppliers and other contractors, and
(iii) the continuance of each Publication's and the Business' usual and
customary policy with respect to extending credit and collection of accounts
receivable and the maintenance of its facilities and equipment;
(b) Operate each Publication and the Business in all material
respects in accordance with the terms or conditions of all rules, regulations,
laws and orders of all governmental authorities having jurisdiction over any
aspect of the operation of each Publication and the Business;
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(c) Maintain Seller's books and records in accordance with
generally accepted accounting principles on a basis consistent with prior
periods;
(d) Promptly notify Buyer in writing of any event or condition
which, with notice or the lapse of time or both, would constitute an event of
material default under any of the Business Agreements which are, individually or
in the aggregate, material to the Sale Assets or the operations, financial
condition or results of operations of any Publication or the Business;
(e) Timely comply in all material respects with the Business
Agreements which are, individually or in the aggregate, material to the Sale
Assets or the operations, financial condition or results of operations of any
Publication or the Business;
(f) Not sell, lease, grant any rights in, or to otherwise
dispose of, or agree to sell, lease or otherwise dispose of, any of the Sale
Assets except for dispositions of assets that (A) are in the ordinary course of
business consistent with past practice and (B) if material, are replaced by
similar assets of substantially equal or greater value and utility;
(g) Not amend or enter into any employment contracts or other
Business Agreements except on terms comparable to those of Business Agreements
now in existence and otherwise in the ordinary course of business consistent
with past practice;
(h) Maintain its technical equipment currently in use in normal
operating condition and repair, except for ordinary wear and tear;
(i) Not increase in any manner the compensation (including
severance pay or plans) or benefits of any employees, independent contractors,
consultants or commission agents of the Business, except in the ordinary course
of business consistent with past practice;
(j) Not introduce any material change with respect to the
operation of any Publication or the Business;
(k) Not enter into any agreement (other than agreements that
will be terminated prior to Closing) with any Affiliate of Seller which pertain
to the Business or the Sale Assets;
(l) Not voluntarily enter into any collective bargaining
agreement applicable to any employees of any Publication or the Business or
otherwise voluntarily recognize any union as the bargaining representative of
any such employees; and not enter into or amend any collective bargaining
agreement applicable to any employees of any Publication or the Business to
provide that it shall be binding upon any "successor" employer or such
employees; and
(m) Not take or agree to take any action inconsistent with
consummation of the Closing as contemplated by this Agreement.
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5.2 Notification of Certain Matters. Seller shall give prompt notice
to Buyer, and Buyer shall give prompt notice to Seller, of (i) the occurrence,
or failure to occur, of any event that would be likely to cause any of their
respective representations or warranties contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Closing Date, and (ii) any failure on their respective parts to comply with
or satisfy, in any material respect, any covenant, condition or agreement to be
complied with or satisfied by any of them under this Agreement.
5.3 HSR Filing. Within ten (10) days after the execution of this
Agreement, Seller and Buyer shall make the filings required to be made under the
HSR Act in connection with the transactions contemplated herein. As promptly as
practicable, Seller and Buyer shall make the additional filings, if any,
required to be made under the HSR Act, or other applicable laws, in connection
with the purchase and sale of the Sale Assets and shall otherwise take all
commercially reasonable actions necessary and proper to comply with any requests
for additional information with respect to such HSR Act filings.
5.4 Title; Additional Documents. At the Closing, Seller shall transfer
and convey to Buyer good and marketable title to all of the Sale Assets free and
clear of any Liens except Permitted Liens. Seller shall execute or cause to be
executed such documents, in addition to those delivered at the Closing, as may
be necessary to confirm in Buyer such title to the Sale Assets and to carry out
the purposes and intent of this Agreement.
5.5 Other Consents. Seller shall use its best efforts to obtain the
consents or waivers to the transactions contemplated by this Agreement required
under the Business Agreements.
5.6 Inspection and Access. Seller will, prior to the Closing Date,
open the assets, books, accounting records, correspondence and files of Seller
(to the extent related to the operation of the Business) for examination by
Buyer, its officers, attorneys, accountants and agents, with the right to make
copies of such books, records and files or extracts therefrom. Such access will
be available during normal business hours, upon reasonable notice and in such
manner as will not unreasonably interfere with the conduct of the Business.
Seller will furnish to Buyer monthly unaudited financial statements of Seller
prepared in a manner consistent with the unaudited statements identified in
Section 3.12. Seller will furnish to Buyer such additional financial and
operating data and other available information regarding Seller as Buyer may
reasonably request. Those books, records and files the possession of which is
not being transferred to Buyer pursuant to this Agreement which relate to the
Sale Assets shall be preserved and maintained by Seller for four (4) years after
the Closing and those books, records and files relating to the Sale Assets the
possession of which is being transferred to Buyer hereunder shall be maintained
and preserved by Buyer for a period of four (4) years after the Closing. Each
such party shall give to the other party and its authorized representatives,
during normal business hours, such access to, and
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the opportunity at the other party's expense to copy, such books and records
retained by it as may be reasonably requested by the other party.
5.7 Confidentiality. The parties shall continue to be bound by the
Non-Disclosure Agreement executed on November 2, 1998; subject thereto, all
information delivered to Buyer and otherwise disclosed in writing as
confidential by Seller (or its representatives) before or after the date hereof,
in connection with the transactions contemplated by this Agreement, shall be
kept confidential by Buyer and its representatives and shall not be used other
than as contemplated by this Agreement, except to the extent that such
information (i) was otherwise publicly available or known by the recipient when
received, (ii) is or hereafter becomes lawfully obtainable from third parties
not related to Buyer or its Affiliates, (iii) is necessary to disclose to a
governmental authority, (iv) is required by law or the rules of any stock
exchange to be disclosed or (v) to the extent such duty as to confidentiality is
waived in writing by Seller.
5.8 Publicity. The parties agree that no public release or
announcement concerning the transactions contemplated hereby shall be issued by
any party without the prior written consent of the other party, except as such
release or announcement may be required by law or applicable regulations, in
which event the party so required will give prior written notice to the other
party.
5.9 Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, each party will use its reasonable best efforts to take all
action and to do all things necessary, proper or advisable to satisfy any
condition hereunder in its power to satisfy and to consummate and make effective
as soon as practicable the transactions contemplated by this Agreement.
5.10 Tax Returns and Payments. Seller will timely file with the
appropriate governmental agencies all Tax Returns required to be filed by Seller
and timely pay all Taxes owed by Seller that could result in a lien on the Sale
Assets.
5.11 No Solicitation. From the date hereof until the earlier of Closing
or termination of this Agreement, neither Seller nor any Affiliate of Seller
shall directly or indirectly (i) solicit or encourage submission of any proposal
or offer from any person relating to the acquisition or purchase of any interest
in Seller or any material assets of Seller or any merger, consolidation or other
business combination with Seller (each an "Acquisition Proposal"), or (ii)
otherwise assist or participate in any effort or attempt by any person to make
or effect an Acquisition Proposal. Seller shall promptly notify Buyer in writing
if an Acquisition Proposal is made in writing after the date of this Agreement.
5.12 Certified Resolutions.
(a) Within five (5) business days after the date hereof, Seller
shall furnish Buyer with certified resolutions of the Board of Directors of
Seller evidencing the authorization and approval of the execution and delivery
of this Agreement and each of the other Documents and the consummation of the
transactions contemplated hereby and thereby.
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(b) Within five (5) business days after the date hereof, Buyer
shall furnish Seller with certified resolutions of the general partner of Buyer
evidencing the authorization and approval of the execution and delivery of this
Agreement and each of the other Documents and the consummation of the
transactions contemplated hereby and thereby.
5.13 Audited Financial Statements. Seller recognizes that Buyer's
general partner is a publicly reporting company and agrees that notwithstanding
the restrictions in Section 5.7, that entity shall be entitled at its expense,
following Closing, to cause audited and unaudited financial statements of the
Business to be prepared for such periods and filed with the Securities and
Exchange Commission, and included in a prospectus distributed to prospective
investors, as required by laws and regulations applicable to Buyer's general
partner as a publicly reporting company or registrant. Seller agrees to
cooperate with Buyer and the auditing accountants as reasonably requested by
Buyer in connection with the preparation and filing of such financial
statements, including providing a customary management representation letter in
the form prescribed by generally accepted auditing standards.
5.14 Post-Closing Assistance. Following Closing, Buyer shall cooperate
with Seller and make available to Seller, at Seller's reasonable request and at
no expense to Seller, such facilities, equipment, personnel and assistance as
shall be necessary to enable Seller to carry out its post-closing obligations
under this Agreement and to otherwise effectuate the transfers and transition
contemplated hereunder. Buyer further agrees to cooperate with and assist Seller
to the extent reasonably necessary to permit Seller to adequately prosecute or
defend itself in connection with any claim, demand, action, lawsuit, proceeding,
investigation, audit, or other similar matter brought by or against any third
party or governmental entity relative to the Business or the Sale Assets, and
Buyer shall make available to Seller such facilities, equipment, personnel and
assistance as reasonably requested by Seller in that regard. Notwithstanding the
foregoing, nothing in this Section shall require Buyer to expend any significant
amounts of money, or require any of its employees to expend any significant
amounts of time, to fulfill Buyer's obligations in this Section.
ARTICLE VI
CONDITIONS PRECEDENT TO THE
OBLIGATION OF BUYER TO CLOSE
Buyer's obligation to close the transaction contemplated by this
Agreement is subject to the satisfaction, on or prior to the Closing Date, of
each of the following conditions, unless waived by Buyer in writing:
6.1 Accuracy of Representations and Warranties; Closing Certificate.
(a) The representations and warranties of Seller contained in
this Agreement or in any other Document shall be true and correct in all
material respects on the date hereof, and at the Closing Date with same effect
as though made at such time except for changes permitted hereunder.
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(b) Seller shall have delivered to Buyer on the Closing Date a
certificate that the conditions specified in Sections 6.1(a), 6.2, 6.7, and 7.5
are satisfied as of the Closing Date.
6.2 Performance of Agreement. Seller shall have performed in all
material respects all of its covenants, agreements and obligations required by
this Agreement and each of the other Documents to be performed or complied with
by it prior to or upon the Closing Date.
6.3 HSR Act. The waiting period (including any extension thereof)
under the HSR Act applicable to the sale and purchase of the Sale Assets
pursuant to this Agreement shall have expired or been terminated.
6.4 Title Insurance and Survey.
6.4.1 Seller shall have obtained, at Seller's expense, a title
commitment (the "Title Commitment") on the current ALTA form from a title
insurance company (the "Title Insurance Company") wherein the Title Insurance
Company shall agree to insure in Buyer fee simple title to the Real Property.
The exceptions to title specified in the Title Commitment shall be limited to
the preprinted or standard exceptions to title (the "Standard Exceptions"), the
lien for taxes not yet due and payable (the "Permitted Tax Lien") and such other
exceptions (the "Other Permitted Exceptions") that will neither (1) materially
impair Buyer's ability to use the Real Property in the operation of the Business
in the manner in which it is now used, nor (2) constitute or evidence a mortgage
or other lien (other than a Permitted Tax Lien) against such title, except
mortgages or other liens that will be released at Closing at Seller's expense.
6.4.2 Seller shall have obtained, at Seller's expense, a current
"as built" survey (each, a "Survey") of the Real Property. Such Survey shall be
prepared by a registered surveyor, shall comply with current ALTA Minimum
Standard Detail Requirements, shall be accompanied by a certification sufficient
for the Title Insurance Company's deletion of the Standard Exceptions relating
to survey matters, and shall not disclose any matters which would materially
impair Buyer's ability to use any of the Real Property in the operation of the
Business in the manner in which it is now used.
6.4.3 On the Closing Date, the Title Insurance Company shall have
unconditionally agreed in writing to issue pursuant to the Title Commitment a
final title policy as of the Closing Date insuring fee simple title in Buyer to
the Real Property, subject only to the Permitted Tax Lien and Other Permitted
Exceptions. On or before the Closing Date, Seller shall execute and deliver to
the Title Insurance Company an affidavit regarding mechanic's liens sufficient
to allow deletion of such liens as a Standard Exception in the final title
policy.
6.4.4 If within sixty (60) days after the date hereof:
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6.4.4.1 A Title Commitment has not been obtained for the
Real Property, Buyer shall be deemed to have waived the conditions precedent in
foregoing Subsections 6.4.1 and 6.4.3 with respect to the Real Property.
6.4.4.2 A Survey has not been obtained by Seller and
provided to Buyer for the Real Property, Buyer shall be deemed to have waived
the condition precedent in foregoing Subsection 6.4.2 with respect to the Real
Property, and shall be deemed to have waived the condition precedent in
foregoing Subsection 6.4.3 to the extent satisfaction of such condition with
respect to the Real Property would require such Survey.
6.4.4.3 Buyer does not by written notice to Seller
specifically identify and object to a defect or exception to title to the Real
Property, Buyer shall be deemed to have waived its right to object to such
defect or exception.
6.5 Environmental Inspection. At Buyer's expense, Buyer shall have
caused an environmental inspection to be performed by a reputable environmental
engineering company of the Real Property, and the inspection report shall not
disclose a reasonable basis for a determination that the Real Property in its
current condition would cause Buyer as the owner thereof to incur a material
liability under any applicable environmental law, rule or regulation. Buyer
shall cause the environmental consultant to deliver to Seller a copy of each
such inspection report at the same time such report is delivered to Buyer. In
the event that within sixty (60) days after the date hereof, Buyer shall have
failed to give Seller written notice specifying in detail the manner in which
such report discloses a reasonable basis for a determination that the Real
Property in its current condition would cause Buyer as the owner thereof to
incur a material liability under applicable environmental laws, rules or
regulations, Buyer shall be deemed to have waived the condition precedent set
forth in this Section 6.5.
6.6 Opinion of Seller's Counsel. Buyer shall have received the written
opinion of Seller's and Owner's outside counsel, dated as of the Closing Date,
that (i) Seller is a corporation duly formed and in good standing under the laws
of Illinois, (ii) the execution, delivery and performance of the Agreement and
each of the other Documents have been duly authorized by all requisite corporate
action (including all necessary shareholder approval) on the part of Seller,
(iii) the Agreement and each of the other Documents have been duly and validly
executed and delivered by Seller and Owner and constitute valid and legally
binding obligations enforceable against Seller and Owner in accordance with
their terms, subject to bankruptcy, insolvency and other laws affecting the
enforcement of creditors' rights generally and general principles of equity, and
(iv) the execution, delivery and performance by Seller and Owner of this
Agreement and the other Documents do not violate or contravene, to counsel's
knowledge, any judgment, order, or material agreement to which Seller or Owner
is subject or a party or to which the Sale Assets are bound.
6.7 Other Consents. Seller shall have obtained in writing (in form
reasonably satisfactory to Buyer's counsel) and provided to Buyer on or before
the Closing Date, without any condition materially adverse to Buyer, any
Publication, or the
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Business, the consents or waivers to the transactions contemplated by this
Agreement required under each Business Agreement.
6.8 Delivery of Closing Documents. Seller shall have delivered or
caused to be delivered to Buyer on the Closing Date each of the documents
required to be delivered pursuant to Section 8.2.
6.9 No Adverse Proceedings. No judgment or order shall have been
rendered, and no action or proceeding shall be pending, against Buyer that would
restrain or make unlawful the purchase and sale of the Sale Assets as
contemplated by this Agreement.
6.10 No Material Adverse Change. There shall have been no change nor
development affecting the Seller, any Publication or the Business after the date
hereof which has resulted in, or could reasonably be expected to result in, a
Material Adverse Condition.
6.11 The Country Sampler Store, L.L.C. Seller shall have delivered to
Buyer the written consent of the Managers of the LLC (as hereinafter defined) as
to the assignment of the License Agreement to Buyer contemplated in Section
12.7(b).
ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATION OF SELLER TO CLOSE
The obligation of Seller to close the transaction contemplated by this
Agreement is subject to the satisfaction, on or prior to the Closing Date, of
each of the following conditions, unless waived by Seller in writing:
7.1 Accuracy of Representations and Warranties.
(a) The representations and warranties of Buyer contained in
this Agreement shall be true and correct in all material respects on the date
hereof and at the Closing Date with the same effect as though made at such time,
except for changes that are not materially adverse to Seller.
(b) Buyer shall have delivered to Seller on the Closing Date a
certificate that the conditions specified in Sections 7.1(a), 7.2, and 6.9 are
satisfied as of the Closing Date.
7.2 Performance of Agreements. Buyer shall have performed in all
material respects all of its covenants, agreements and obligations required by
this Agreement and each of the other Documents to be performed or complied with
by it prior to or upon the Closing Date.
7.3 HSR Act. The waiting period (including any extension thereof)
under the HSR Act applicable to the sale and purchase of the Sale Assets
pursuant to this Agreement shall have expired or been terminated.
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7.4 Opinion of Buyer's Counsel. Seller shall have received the written
opinion of Buyer's counsel, dated as of the Closing Date, that (i) Buyer is a
limited partnership duly formed and in good standing under the laws of the State
of Indiana, (ii) the execution, delivery and performance of the Agreement and
each of the other Documents have been duly authorized by all requisite
partnership action on the part of Buyer, (iii) the Agreement and each of the
other Documents have been duly and validly executed and delivered by Buyer and
constitute valid and legally binding obligations enforceable against Buyer in
accordance with their terms, subject to bankruptcy, insolvency and other laws
affecting the enforcement of creditors' rights generally and general principles
of equity, and (iv) the execution, delivery and performance by Buyer of this
Agreement and the other Documents do not violate or contravene, to counsel's
knowledge, any judgment, order or agreement to which Buyer is subject or a party
or to which Buyer's assets are bound.
7.5 No Adverse Proceedings. No judgment or order shall have been
rendered, and no action or proceeding shall be pending, against Seller that
would restrain or make unlawful the purchase and sale of the Sale Assets as
contemplated by this Agreement.
7.6 Delivery of Closing Documents. Buyer shall have delivered or cause
to be delivered to Seller on the Closing Date each of the Documents required to
be delivered pursuant to Section 8.3.
ARTICLE VIII
CLOSING
8.1 Time and Place. Closing of the purchase and sale of the Sale
Assets pursuant to this Agreement (the "Closing") shall take place at the
offices of Bose McKinney & Evans, 135 North Pennsylvania Street, Suite 2700,
Indianapolis, Indiana, at 10:00 o'clock A.M. on the date (the "Closing Date")
that is the fifth business day following satisfaction or waiver of the
conditions precedent hereunder to Closing, effective as of 12:01 AM on the
Closing Date (the "Effective Time").
8.2 Documents to be Delivered to Buyer by Seller. At the Closing,
Seller shall deliver or cause to be delivered to Buyer the following, in each
case in form and substance reasonably satisfactory to Buyer:
(a) The opinion of Seller's counsel, dated the Closing Date, to
the effect set forth in Section 6.6;
(b) Governmental certificates, dated as of a date as near as
practicable to the Closing Date, showing that Seller is duly formed and in good
standing in the State of Illinois and is qualified to do business and in good
standing under the laws of the jurisdictions listed in Schedule 3.1;
(c) A certificate of the Secretary of Seller attesting as to the
incumbency of each officer of Seller who executes this Agreement and any of the
other Documents and to similar customary matters;
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(d) A bill of sale and other instruments of transfer and
conveyance transferring the Sale Assets (except the Real Property) to Buyer;
(e) A general warranty deed, in a form recordable in the State
of Illinois, for the Real Property, which deed shall convey insurable, fee
simple title for that parcel free and clear of all Liens except the Permitted
Tax Lien and the Other Permitted Exceptions.
(f) A certificate of nonforeign status under Section 1445 of the
Code, complying with the requirements of the Income Tax Regulations promulgated
pursuant to such section;
(g) The Consulting Agreement executed by Owner;
(h) The certificate described in Section 6.1(b); and
(i) Such additional information and materials as Buyer shall
have reasonably requested to evidence the satisfaction of the conditions to its
obligations hereunder, including without limitation, evidence that all consents
and approvals required as a condition to Buyer's obligation to close hereunder
have been obtained, and any other documents expressly required by this Agreement
to be delivered by Seller at Closing.
8.3 Deliveries to Seller by Buyer. At the Closing, Buyer shall deliver
or cause to be delivered to Seller the following, in each case in form and
substance reasonably satisfactory to Seller:
(a) The Initial Adjusted Purchase Price in accordance with
Section 2.4, as adjusted under Section 2.6(d);
(b) The certificate described in Section 7.1(b);
(c) The opinion of Buyer's counsel, dated the Closing Date, to
the effect set forth in Section 7.4;
(d) An agreement by Buyer assuming the Assumed Obligations;
(e) The Consulting Agreement executed by Buyer; and
(f) Such additional information and materials as Seller shall
have reasonably requested to evidence satisfaction of the conditions to its
obligations hereunder, and any other documents expressly required by this
Agreement to be delivered by Buyer at Closing.
ARTICLE IX
RESTRICTIVE AGREEMENT
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9.1 Covenant Not to Compete. Neither Seller nor Owner shall, during
the period of three (3) years after the Closing Date (which period shall be
extended by any amount of time this covenant is violated), engage directly or
indirectly (whether as owner, employee, or otherwise) in the business of (i)
producing or publishing, managing, selling or offering for distribution a
magazine or periodical publication the content of which primarily pertains to
the craft industry or craft enthusiasts anywhere within North America or (ii)
maintaining a website with a craft focus on the Internet (or similar medium).
Notwithstanding the foregoing, Buyer, Seller and Owner each acknowledge that
Owner has an ownership interest in Independent Direct Distributors, Inc. and
Store Level Service Group, Inc. and that Seller is the majority owner of County
Sampler Store, L.L.C., and that the conduct of the business or operations of
such entities consistent with past activities shall not constitute a violation
of this Covenant Not to Compete by Seller or Owner. Each of Seller and Owner
acknowledges that this covenant not to compete constitutes material
consideration for Buyer's agreement to purchase the Sale Assets in accordance
with this Agreement.
9.2. Remedies for Violation. Each of Seller and Owner acknowledges and
agrees that Buyer will be irreparably harmed by a violation of Seller's
restrictive covenant set forth in Section 9.1, and that Buyer shall be entitled
in the event of such a violation to obtain an injunction in a court of competent
jurisdiction restraining any such violation, without prejudice to other remedies
available to Buyer at law or in equity and without the necessity of posting a
bond, and shall be entitled to reimbursement of reasonable attorneys' fees and
related costs and expenses in enforcing its rights in this Section.
ARTICLE X
INDEMNIFICATION
10.1 Survival. All representations, warranties, covenants and
agreements in this Agreement or any other Document shall survive the Closing
regardless of any investigation, inquiry or knowledge on the part of either
party, and the Closing shall not be deemed a waiver by either party of the
representations, warranties, covenants or agreements of the other party in this
Agreement or any other Document; provided however, that the period of survival
shall in all cases end two (2) years after the Closing Date (the "Survival
Period") with the exception of tax and environmental matters, with respect to
which the period of survival (the "Environmental and Tax Survival Period") shall
be three (3) years. No claim may be brought under this Agreement or any other
Document unless written notice describing in reasonable detail the nature and
basis of such claim is given on or prior to the last day of the applicable
Survival Period. In the event such notice of a claim is so given, the right to
indemnification with respect to such claim shall survive the Survival Period
until the claim is finally resolved and any obligations with respect to the
claim are fully satisfied. The rights to indemnification set forth in this
Article X shall be exclusive of all other rights to monetary damages that any
party (or the party's successors or assigns) would otherwise have by statute or
common law in connection with the transactions contemplated by this Agreement or
any other Document.
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10.2 Indemnification by Seller.
(a) Subject to Section 10.1 and Sections 10.2(b) and (c), Seller
shall indemnify, defend, and hold harmless Buyer and its officers, directors,
employees, Affiliates, successors and assigns from and against, and pay or
reimburse each of them for and with respect to, any Loss relating to, arising
out of or resulting from:
(i) Any breach by Seller of any of its representations,
warranties, covenants or agreements in this Agreement or any other
Document; or
(ii) Any obligation, indebtedness or liability of Seller
(other than the Assumed Obligations) regardless of whether disclosed to
Buyer and regardless of whether constituting a breach by Seller of any
representation, warranty, covenant or agreement hereunder or under any
other Document; or
(iii) Noncompliance by Seller with the provisions of the
Bulk Sales Act, if applicable, in connection with the transactions
contemplated by this Agreement.
(b) Seller shall not be obligated to indemnify Buyer unless and
until the aggregate amount of Buyer's Losses exceeds Twenty-Five Thousand
Dollars ($25,000.00) (the "Basket"), in which case Buyer shall then be entitled
to indemnification in the entire amount of Buyer's Losses (i.e., back to the
first dollar of Loss), provided that any adjustment to the Purchase Price
pursuant to Section 2.6 or any payment owed by Seller to Buyer for any Liability
pursuant to or under Section 10.2(a)(ii) shall not be counted in determining
whether the Basket limitation is satisfied, and Buyer shall have the right to
recover any such payment without regard to such limitation.
(c) The aggregate amount of all payments made by Seller in
satisfaction of claims for indemnification pursuant to this Section 10.2 shall
not exceed Eighteen Million Five Hundred Thousand Dollars ($18,500,000.00) (the
"Cap"), provided that any payment owed by Seller to Buyer pursuant to Section
2.6 or any payment owed by Seller to Buyer for any Liability pursuant to or
under Section 10.2(a)(ii) shall not be counted in determining whether the Cap
has been met.
10.3 Indemnification by Buyer. Subject to Section 10.1, Buyer shall
indemnify and hold harmless Seller and its officers, directors, employees,
agents, representatives, Affiliates, successors and assigns from and against,
and pay or reimburse each of them for and with respect to any Loss relating to,
arising out of or resulting from:
(i) Any breach by Buyer of any of its representations,
warranties, covenants or agreements in this Agreement or any other
Document;
(ii) The Assumed Obligations; and
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(iii) Unless Seller is obligated to indemnify Buyer
pursuant to Section 10.2, all other obligations and liabilities
associated with the operation of the Business after Closing.
10.4 Administration of Indemnification. For purposes of administering
the indemnification provisions set forth in Sections 10.2 and 10.3, the
following procedure shall apply:
(a) Whenever a claim shall arise for indemnification under this
Article, the party entitled to indemnification (the "Indemnified Party") shall
reasonably promptly give written notice to the party from whom indemnification
is sought (the "Indemnifying Party") setting forth in reasonable detail, to the
extent then available, the facts concerning the nature of such claim and the
basis upon which the Indemnified Party believes that it is entitled to
indemnification hereunder. The parties agree to negotiate in good faith in order
to attempt to resolve any claim for indemnification with as small as possible
liability of the Indemnifying Party, and the Indemnified Party shall take no
action in connection with such indemnification claim until thirty (30) days have
expired from the day the notice of the indemnification claim is given to the
Indemnifying Party.
(b) In the event of any claim for indemnification resulting from
or in connection with any claim by a third party, the Indemnifying Party shall
be entitled, at its sole expense, either (i) to participate in defending against
such claim or (ii) to assume the entire defense with counsel which is selected
by it and which is reasonably satisfactory to the Indemnified Party provided
that (A) the Indemnifying Party agrees in writing that it does not and will not
contest its responsibility for indemnifying the Indemnified Party in respect of
such claim or proceeding and (B) no settlement shall be made and no judgment
consented to without the prior written consent of the Indemnified Party which
shall not be unreasonably withheld (except that no such consent shall be
required if the claimant is entitled under the settlement to only monetary
damages actually paid by the Indemnifying Party). If, however, (i) the claim,
action, suit or proceeding would, if successful, result in the imposition of
damages for which the Indemnifying Party would not be solely responsible, or
(ii) representation of both parties by the same counsel would otherwise be
inappropriate due to actual or potential differing interests between them, then
the Indemnifying Party shall not be entitled to assume the entire defense and
each party shall be entitled to retain counsel who shall cooperate with one
another in defending against such claim. In the case of Clause (i) of the
preceding sentence, the Indemnifying Party shall be obligated to bear only that
portion of the expense of the Indemnified Party's counsel that is in proportion
to the damages indemnifiable by the Indemnifying Party compared to the total
amount of the third-party claim against the Indemnified Party.
(c) If the Indemnifying Party does not choose to defend against
a claim by a third party, the Indemnified Party may defend in such manner as it
deems appropriate or settle the claim (after giving notice thereof to the
Indemnifying Party) on such terms as the Indemnified Party may deem appropriate,
and the Indemnified Party shall be entitled to periodic reimbursement of defense
expenses incurred and prompt indemnification from the Indemnifying Party in
accordance with this Article.
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(d) Failure or delay by an Indemnified Party to give a
reasonably prompt notice of any claim (if given prior to expiration of the
applicable Survival Period) shall not release, waive or otherwise affect an
Indemnifying Party's obligations with respect to the claim, except to the extent
that the Indemnifying Party can demonstrate actual loss or prejudice as a result
of such failure or delay. Buyer shall not be deemed to have notice of any claim
by reason of any knowledge acquired on or prior to the Closing Date by an
employee of the Business.
(e) To the extent the Holdback has not been paid to Seller,
Buyer shall be entitled to setoff against the Holdback the amount of any
indemnifiable Loss pursuant to Section 10.2 (subject to the Basket), provided
that Buyer has complied with the applicable obligations in this Section 10.4.
ARTICLE XI
TERMINATION
11.1 Right of Termination. This Agreement may be terminated prior to
Closing:
(a) By written agreement of Seller and Buyer; or
(b) By written notice from Seller or Buyer, provided such
terminating party is not then in material breach of this Agreement if:
(i) The other party has continued in material breach of
this Agreement for twenty (20) days after written notice of such breach
from the terminating party; or
(ii) Closing does not occur within sixty (60) days after
the date hereof other than due to a failure to satisfy the condition
precedent set forth in Section 6.3 and Section 7.3.
11.2 Obligations Upon Termination. Upon termination of this
Agreement, each party shall thereafter remain liable for breach of this
Agreement prior to such termination and remain liable to pay and perform its
indemnity obligation under Article X.
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ARTICLE XII
POST CLOSING
12.1 Termination of Employees. Seller shall pay, discharge and be
solely responsible for all liabilities, obligations, costs and expenses which
arise or become payable as a result of or in connection with Seller's
termination of any of its employees before, upon or after Closing, including,
without limitation, all severance or termination pay and all accrued vacation
and personal days, salary, wages and other compensation payments or benefits, if
any, which arise or become payable as a result of or in connection with such
terminations, except to the extent included as a credit to Buyer in determining
the Adjustment Amount. Seller acknowledges and agrees that Buyer shall not
acquire any rights or interest in, or assume or have any obligations or
liabilities under, any employment agreements or Benefit Plans between Seller and
its employees, except to the extent included as part of the Assumed Obligations.
12.2 Employee Benefit Plans. Buyer shall not acquire any rights or
interest in, or assume or have any obligations or liabilities under, any of the
Benefit Plans, and Seller or the Benefit Plans, as applicable, will retain all
assets and liabilities in respect of Seller's employees under the Benefit Plans.
Seller shall comply with the provisions of the Continuation Coverage Under Group
Health Plan of ERISA, Title I, Part 6, to the extent applicable in connection
with the transactions contemplated by this Agreement.
12.3 Offer of Employment. Buyer hereby agrees to offer employment
(effective as of the Effective Time) to all current employees of Seller on terms
and conditions generally offered and imposed on other prospective employees of
Buyer and its Affiliates. Furthermore, as to such employees who accept
employment with Buyer, Buyer will (i) waive benefit eligibility waiting periods
and pre-existing condition exclusions consistent with its other acquisitions of
publication companies and to the extent permitted under the applicable plan and
(ii) consider the employees' tenure, or a portion of such tenure, with Seller in
computing vacation eligibility and other tenure-based benefits (subject to
limitations imposed by Buyer pursuant to applicable company policies).
12.4 Change of Corporate Name. Seller agrees to deliver to Buyer,
within three (3) business days of the Closing Date, copies of articles of
amendment changing the Seller's corporate name to not include "Country Sampler"
or any similar name thereto, certified by the Office of the Secretary of State
of Illinois.
12.5 Stay Bonus. Seller shall comply with and pay all amounts due
and owing under the stay bonus program Seller adopted, prior to entering into
this Agreement, for the benefit of certain of Seller's key employees.
12.6 Accounts Receivable.
(a) For a period of one-hundred twenty (120) days after the
Closing Date (the "Collection Period"), Buyer will use its usual and customary
procedures to collect the Accounts Receivable outstanding as of the Effective
Time, provided that Buyer shall not be required to commence litigation, employ
legal counsel or a collection
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agency or make any other extraordinary collection efforts. For the purpose of
determining amounts collected by Buyer with respect to the Accounts Receivables,
each payment by an account debtor shall be applied to the older or oldest
accounts receivable of such account debtor unless the account debtor identifies
such an account in writing as being in dispute and directs in writing that a
particular payment be applied to a specific newer account receivable.
(b) Seller shall be required to purchase from Buyer all unpaid
Accounts Receivable for the full amount thereof at the expiration of the
Collection Period, less an amount equal to the product of (i) two percent (2%)
multiplied by (ii) the aggregate amount of the Accounts Receivable as of the
Effective Time (as adjusted, the "Adjusted Receivables Amount"). Within ten (10)
business days after the expiration of the Collection Period, Buyer shall provide
such written evidence as reasonably requested by Seller as to the calculation
and documentation of the Adjusted Receivables Amount. Seller shall, with ten
(10) business days receipt of such materials, pay the Adjusted Receivables
Amount in cash to Buyer, and Buyer shall assign all such unpaid Accounts
Receivable to Seller.
12.7 Possible Purchase of Seller's Interest in Country Sampler Store,
L.L.C. Each of the parties agrees and acknowledges that various discusses have
occurred as to Buyer purchasing Seller's fifty-one percent (51.0%) equity
interest (the "Equity Interest") in The Country Sampler Store, L.L.C. (the
"LLC"), but that no agreement has been reached as to if, and upon what terms,
such purchaser would occur. In order that such discussions can continue and
Buyer can continue to learn more about the operations of the LLC, the parties
hereto agree as follows:
(a) From the period from the date hereof and ending on the
three-month anniversary of the Closing Date (the "CSS Period"), as long as Buyer
desires to pursue the possible purchase of the Equity Interest, Buyer and Seller
shall continue the discussions as to Buyer's possible purchase of the Equity
Interest. (Buyer agrees to promptly notify Seller if Buyer no longer desires to
pursue the possible purchase of the Equity Interest, and the CSS Period shall
end upon delivery of such notice to Seller.) During the CSS Period, Buyer shall
have a right of first refusal to match any offer, the terms of which are
acceptable to Seller (the "Offer"), to purchase all or any portion of the Equity
Interest on the same terms (including the form of consideration and the timing
of payments of such consideration) as offered by the potential purchaser.
Promptly upon receipt of any Offer during the CSS Period, Seller shall promptly
give written notice to Buyer of all of the terms of the Offer, and Buyer shall
have thirty (30) days in which to match the Offer by providing written
acceptance to Seller. If such acceptance is given, the purchase of the Equity
Interest (or portion thereof) by Buyer shall close within thirty (30) days of
the Seller's receipt of the acceptance.
(b) Seller agrees and acknowledges that one of the Business
Agreements transferred to Buyer pursuant Section 2.1(f) is the License Agreement
between Seller's predecessor, Sampler Publications, Inc., and the LLC, dated as
of June 30, 1997 (the "License Agreement"). Accordingly, as long as Seller owns
the Equity Interest, Seller agrees to cause the LLC to make all payments
required to be
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made under the License Agreement to be paid to Buyer and to otherwise fulfill
its obligations under the License Agreement.
(c) During the CSS Period, Buyer shall cause the employees of
Seller who become employed by Buyer to provide the same administrative and
managerial services to the LLC as currently provided or required to be provided
pursuant to the LLC's operative documents (the "CSS Services"). Buyer shall be
reimbursed by Seller for all of its wage and benefit costs incurred in providing
the CSS Services, to the extent quantifiable, without any mark-up for corporate
or other overhead expenses. On a monthly basis, Buyer shall provide to Seller
written documentation as to such costs, and Seller shall promptly reimburse
Buyer in cash for such costs.
ARTICLE XIII
MISCELLANEOUS
13.1 Further Actions. From time to time before, at and after the
Closing, each party, at its expense and without further consideration, will
execute and deliver such documents as reasonably requested by the other party in
order more effectively to consummate the transactions contemplated hereby.
13.2 Payment of Expenses.
(a) All sales, use, stamp, transfer, grant and other similar
taxes payable in connection with consummation of the transactions contemplated
hereby shall be paid by Seller.
(b) Seller and Buyer shall split equally payment of all filing
fees under the HSR Act.
(c) Except as otherwise expressly provided in this Agreement,
each of the parties shall bear its own expenses, including the fees of any
attorneys and accountants engaged by such party, in connection with this
Agreement and the consummation of the transactions contemplated herein.
13.3 Specific Performance. Seller acknowledges that each Publication is
of a special, unique and extraordinary character, and that damages alone are an
inadequate remedy for a breach of this Agreement by Seller. Accordingly, as an
alternative to termination of this Agreement under Section 11.1, Buyer shall be
entitled in the event of Seller's breach to enforcement of this Agreement
(subject to obtaining any required approval of the HSR Act) by a decree of
specific performance or injunctive relief requiring Seller to fulfill its
obligations under this Agreement. Such right of specific performance or
injunctive relief shall be in addition to, and not in lieu of, Buyer's right to
recover damages and to pursue any other remedies available to Buyer for Seller's
breach. In any action to specifically enforce Seller's obligation to close the
transactions contemplated by this Agreement, Seller shall waive the defense that
there is an adequate remedy at law or in equity and agrees that Buyer shall be
entitled to obtain specific performance of Seller's obligation to close without
being required to prove actual damages. As a condition to seeking specific
performance, Buyer shall not be
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required to tender the Purchase Price as contemplated by Section 2.4 but shall
be required to demonstrate that Buyer is ready, willing and able to tender the
Purchase Price as contemplated by such Section.
13.4 Notices. All notices, demands or other communications given
hereunder shall be in writing and shall be sufficiently given if delivered by
courier (including overnight delivery service) addressed as follows:
(a) if to Buyer, to:
Emmis Publishing, L.P.
c/o Emmis Communications Corporation
One Emmis Plaza, Suite 700
40 Monument Circle
Indianapolis, Indiana 46204
Attention: J. Scott Enright, Vice President and
Associate General Counsel
Copy to:
Bose McKinney & Evans
2700 First Indiana Plaza
Indianapolis, Indiana 46204
Attention: Dwight L. Miller, Esq.
(b) if to Seller, to:
Country Sampler, Inc.
c/o Rooks, Pitts and Poust
4200 Commerce Court, #300
Lisle, Illinois 60532
Attention: David Bressler, Esq.
Copy to:
Rooks Pitts & Poust
4200 Commerce Court, #300
Lisle, Illinois 60532
Attention: David Bressler, Esq.
or such other address as a party may from time to time notify the other party in
writing (as provided above). Any such notice, demand or communication shall be
deemed to have been given (i) if so mailed, as of the close of the third
business day following the date so mailed, and (ii) if delivered by courier, on
the date received.
13.5 Entire Agreement. This Agreement, the Schedules, Exhibits
and the other Documents constitute the entire agreement and understanding
between the parties with respect to the subject matter hereof and supersede any
prior negotiations,
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agreements, understandings or arrangements between the parties hereto with
respect to the subject matter hereof.
13.6 Binding Effect; Benefits. Except as otherwise provided herein,
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors or permitted assigns. Except to the
extent specified herein, nothing in this Agreement, express or implied, shall
confer on any person other than the parties hereto and their respective
successors or permitted assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
13.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder may be assigned by either party without the
prior written consent of the other party, provided that:
(a) Either party may assign its rights under this Agreement as
collateral security to any lender providing financing to the party or any of its
Affiliates; and
(b) Buyer may assign all of its rights under this
Agreement to an Affiliate, provided that (i) the representations and
warranties of Buyer hereunder shall be true and correct in all material respects
as applied to the assignee, (ii) both Buyer and the assignee shall execute and
deliver to Seller a written instrument in form and substance satisfactory to
Seller within its reasonable judgment in which both Buyer and the assignee agree
to be jointly and severally liable for performance of all of Buyer's obligations
under this Agreement, and (iii) Buyer and the assignee shall deliver such other
documents and instruments as reasonably requested by Seller, including
appropriate certified resolutions of the boards of directors of Buyer and the
assignee.
13.8 Governing Law. This Agreement shall in all respects be governed by
and construed in accordance with the laws of the State of Indiana without regard
to its principles of conflicts of laws.
13.9 Amendments and Waivers. No term or provision of this Agreement may
be amended, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against whom the enforcement of such amendment,
waiver, discharge or termination is sought. Any waiver shall be effective only
in accordance with its express terms and conditions.
13.10 Severability. Any provision of this Agreement which is
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without invalidating the remaining
provisions hereof, and any such unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. To
the extent permitted by applicable law, the parties hereto hereby waive any
provision of law now or hereafter in effect which renders any provision hereof
unenforceable in any respect.
13.11 Attorneys' Fees. If one party brings suit against the other
in connection with this Agreement or any other Document and the party against
whom suit is brought
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(the "Defendant") is successful in denying substantially all the relief sought
by the claimant, then the Defendant shall be entitled to recover from the
claimant the reasonable attorneys' fees and other costs and expenses incurred by
the Defendant in connection with such suit regardless of whether such suit is
prosecuted to judgment.
13.12 Headings. The captions in this Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
13.13 Counterparts. This Agreement may be executed in any number of
counterparts, and by either party on separate counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
13.14 References. All references in this Agreement to Articles and
Sections are to Articles and Sections contained in this Agreement unless a
different document is expressly specified.
13.15 Schedules and Exhibits. Unless otherwise specified herein, each
Schedule and Exhibit referred to in this Agreement is attached hereto, and 4each
such Schedule and Exhibit is hereby incorporated by reference and made a part
hereof as if fully set forth herein.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as of the date first written above.
COUNTRY SAMPLER, INC.
By: /s/ MARK A. NICKEL
------------------
Mark A. Nickel, Chief Executive Officer
"Seller"
/s/ MARK A. NICKEL
------------------
Mark A. Nickel, Individually
"Owner"
EMMIS PUBLISHING, L.P.
By: Emmis Communications Corporation,
Its General Partner
By: /s/ JEFFREY H. SMULYAN
----------------------
Jeffrey H. Smulyan, Chairman
"Buyer"
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CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement"), made this 1st day of
April, 1999, by and between EMMIS PUBLISHING, L.P., an Indiana limited
partnership (the "Company"), and MARK A. NICKEL, an Illinois resident
("Consultant").
W I T N E S S E T H: THAT
WHEREAS, of even date herewith, the Company purchased substantially all
the assets of Country Sampler, Inc., of which Consultant was an owner and by
which the Consultant was employed, pursuant to an Asset Purchase Agreement,
dated as of February 23, 1999, by and among Country Sampler, Inc. (to be known
as "Archdale Holding, Inc. ("Archdale"), the Company and Consultant; and
WHEREAS, the Company desires to obtain future services of Consultant,
and to safeguard the Company against disclosure of confidential data.
NOW, THEREFORE, in consideration of the engagement of Consultant by the
Company and the other benefits provided him under this Agreement and the mutual
covenants herein contained, and in consideration of other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereby
agree as follows:
1. Consulting. During the Term (as hereinafter defined), Consultant,
individually or through Archdale, shall serve as a consultant to the Company
with such reasonable duties and responsibilities as are specified by the
Company's chief executive officer or his designee (collectively, the "Duties")
from time to time consistent with Consultant's prior position with Country
Sampler, Inc. In fulfilling his Duties, Consultant shall be required (i) to
travel only as reasonably requested by the Company and (ii) to provide his
services on an as-available basis.
2. Best Efforts. Consultant shall at all times faithfully and
diligently perform his obligations under this Agreement, and in connection with
the performance of his duties hereunder shall act in the best interest of the
Company and its affiliated companies including any parent or subsidiaries
(hereinafter, where applicable, the reference to the "Company" shall include the
Company and such affiliated companies together).
3. Consulting Fees. On the date hereof and on each April 1 of 2000,
2001, 2002, and 2003, the Company shall pay to Consultant, or to Archdale if
designated by Consultant, consulting fees of Five Hundred Thousand Dollars
($500,000.00), payable in cash. Consultant shall be responsible for all Federal,
State and local taxes applicable to the amounts paid by the Company under this
Agreement. In no case shall the Company be liable for any additional payments to
Consultant due to any tax liability incurred by Consultant as a result of this
Agreement. Consultant agrees to indemnify the Company, and its officers,
directors, employees and agents, for any and all tax liability (including but
not limited to, fines, penalties, interest and costs and expenses
<PAGE> 41
including attorneys' fees) arising from or relating to any amounts paid pursuant
to this Agreement. Consultant is at all times during this Agreement an
independent contractor and shall not be considered an employee of the Company.
4. Expenses. Consultant shall be entitled to reimbursement for such
reasonable expenses as shall be determined in accordance with the Company's
policies regarding reimbursement of expenses and pursuant to the prior
determinations of the Company's officers.
5. Fringe Benefits. Consultant will be entitled to no benefits of any
type as he is an independent contractor.
6. Use of Office and Storage Space. During the period of this
Consulting Agreement, the Company shall provide and make available to
Consultant, the occupancy and use of the office and storage space and equipment
and furniture that is currently available to Consultant at 707 Kautz Road, St.
Charles, Illinois.
7. Non-Disclosure of Confidential Information.
(a) As used herein, the term "Confidential Information" means: any
oral or written information disclosed to Consultant or known by Consultant which
relates to the Company's business, products, processes, or services, including,
but not limited to, information relating to research, sales, development,
inventions, computer program designs, programming techniques, flow charts,
source code, object code, passwords, access codes, products under development,
costs, pricing, purchasing, accounting, technical data, marketing, business
plans, and objectives of the Company and its affiliates; identity and
requirements of customers of the Company and its affiliates; and the
documentation thereof, provided that Confidential Information shall not include:
(i) information which is published or is or becomes publicly known through no
wrongful action of the publisher or the recipient; (ii) information obtained
from or by a third party within such third party's legal rights; or (iii)
information developed independently by Consultant or any third party. It will be
presumed that information supplied to Consultant from affiliates of the Company
and other outside sources is Confidential Information unless and until it is
designated otherwise.
(b) Consultant acknowledges that all Confidential Information
shall at all times remain the property of the Company, and the Company shall
have free and unlimited access at all times to all materials containing
Confidential Information and shall have the right to claim and take possession
of such materials on demand.
(c) Consultant will not, during Consultant's consulting with the
Company or thereafter, directly or indirectly use, divulge, disseminate,
disclose, lecture upon, or publish any Confidential Information without having
first obtained written permission from the Company to do so.
(d) Consultant will safeguard and maintain secret all Confidential
Information and all documents and things that include or embody Confidential
Information.
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(e) Upon termination of Consultant's consulting, for whatever
reason, or upon request by the Company, Consultant will deliver to the Company
all notes, computer program listings, flow charts, drawings, memoranda,
correspondence, documents, records, notebooks, tapes, disks, and similar
repositories of Confidential Information, including all copies thereof then in
Consultant's possession or under Consultant's control, whether prepared by
Consultant or by others.
(f) Consultant acknowledges that the legal remedy available to the
Company for any breach of covenants in this Agreement on the part of Consultant
may be inadequate, and therefore, in the event of any threatened or actual
breach of this Agreement and in addition to any other right or remedy which the
Company may have, the Company shall be entitled to specific enforcement of this
Agreement through injunctive or other equitable relief in a court with
appropriate jurisdiction. Further, in addition to other equitable and legal
relief available to the Company, Consultant shall pay the Company's costs and
reasonable attorney fees incurred in enforcing this Agreement or in seeking
relief from Consultant's breach of this Agreement.
8. Term. The term of this Agreement is from the date hereof and until
March 31, 2004.
9. Obligation to Make Payments. In the event of Consultant's death or
his sustaining a condition which disables him from performing the obligations
imposed by this Agreement (which condition is expected to be permanent or of
greater than two years duration), within thirty (30) days of the Consultant's
death or disability, as additional consideration for services rendered, Company
shall pay the balance of the unpaid consulting fees which will become due under
the remaining term of this Agreement to Archdale, unless otherwise directed by
Consultant during his lifetime, his guardian or his estate, as appropriate.
10. Entire Agreement. This Agreement contains the entire agreement of
the parties relating to the consulting by Consultant for the Company,
superseding any and all such prior agreements and cannot be amended, modified or
supplemented in any respect except by subsequent written agreement entered into
by the parties.
11. Assignment. Consultant acknowledges that the services to be
rendered by Consultant are unique and personal; accordingly, Consultant may not
assign any of the Consultant's rights or delegate any of the Consultant's duties
or obligations under this Agreement. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and be binding upon the legal
representatives, successors and assigns of the Company.
12. No Waiver. No failure on the part of either party to require the
performance by the other party of any term of this Agreement shall be taken or
held to be a waiver of such term or in any way affecting such party's right to
enforce such term, and no waiver on the part of either party of any term in this
Agreement shall be taken or held to be a waiver of any other term hereof or the
breach thereof.
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13. Severability. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision had not been contained herein.
14. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the law of the State of Indiana.
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IN WITNESS WHEREOF, executed as of the date and year first above
written.
EMMIS PUBLISHING, L.P.
By: Emmis Communications
Corporation,
Its General Partner
By: /s/ J. Scott Enright
--------------------------------------
J. Scott Enright, Vice President
The "Company"
/s/ Mark A. Nickel
--------------------------------------
"Consultant"
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EMMIS COMMUNICATIONS CORPORATION
April 1, 1999
Mr. Mark A. Nickel
RE: Consulting Agreement (the "Agreement") between Emmis Publishing,
L.P. and you, dated as of the date hereof.
Dear Mark:
This letter will augment and clarify Section 1 in the Agreement and
your obligation to fulfill your Duties (as defined in the Agreement) and Emmis
Publishing's obligation to make the payments to you required in Section 3 of the
Agreement. Specifically, if you fail to fulfill the Duties for any reason
besides your death or disability (which situations are covered in Section 9 of
the Agreement), the Company will remain obligated to make the payments in the
amounts and at the times provided in Section 3 of the Agreement.
If you have any questions about this, please call the undersigned.
Thank you.
Sincerely,
EMMIS PUBLISHING, L.P.
By: Emmis Communications
Corporation, Its General Partner
By: /s/ J. Scott Enright
-------------------------------
J. Scott Enright, Vice President
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF EMMIS COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
Other Names
Jurisdiction of Under Which
Subsidiary Organization Business is Done
---------- ------------ ----------------
<S> <C> <C>
Emmis FM Broadcasting Corporation of Indianapolis Indiana --
Emmis FM Broadcasting Corporation of St. Louis Indiana KSHE-FM
KPWR, Inc. Indiana --
Emmis Broadcasting Corporation of New York Indiana WQHT-FM
Emmis FM Broadcasting Corporation of Chicago Indiana WKQX-FM
Emmis Meadowlands Corporation Indiana --
Emmis Publishing Corporation Indiana --
Emmis AM Radio Corporation of Indianapolis Indiana --
Emmis FM Radio Corporation of Indianapolis Indiana --
Emmis Broadcasting Corporation Indiana --
Emmis 104.1 FM Radio Corporation of St. Louis Indiana WXTM-FM
Emmis 106.5 FM Broadcasting Corporation of St. Louis Indiana WKKX-FM
Emmis 1310 AM Radio Corporation of Indianapolis Indiana --
Emmis 105.7 FM Radio Corporation of Indianapolis Indiana --
Emmis DAR, Inc. Indiana --
Emmis International Corporation Indiana -
Emmis 1380 AM Radio Corporation of St. Louis Indiana -
Duncan American Radio, LLC Indiana -
Emmis Publishing, L.P. Indiana Indianapolis Monthly
Cincinnati
Atlanta
Country Sampler
Emmis Indiana Broadcasting, L.P. Indiana WENS
WIBC
WNAP
WTLC-FM
WTLC-AM
WTHI-FM
WTHI-AM
WWVR-FM
Emmis Television Broadcasting, L.P. Indiana WVUE-TV
WALA-TV
WLUK-TV
KHON-TV
WFTX-TV
WTHI-TV
Emmis FM License Corporation of Indianapolis California --
Emmis FM License Corporation of St. Louis California --
KPWR License, Inc. California --
Emmis License Corporation of New York California --
Emmis FM License Corporation of Chicago California --
Emmis AM Radio License Corporation of Indianapolis California --
Emmis FM Radio License Corporation of Indianapolis California --
Emmis Radio License Corporation of New York California -
Emmis 104.1 FM Radio License Corporation of St. Louis California -
Emmis 106.5 FM License Corporation of St. Louis California -
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Emmis 1310 AM Radio License Corporation of Indianapolis California -
Emmis 105.7 FM License Corporation of Indianapolis California -
Emmis License Corporation California --
Emmis International Broadcasting Corporation California -
Emmis 1480 AM Radio License Corporation of Terre Haute California --
Emmis 99.9 FM Radio License Corporation of Terre Haute California --
Emmis 105.5 FM Radio License Corporation of Terre Haute California --
Emmis Television License Corporation of Honolulu California --
Emmis Television License Corporation of Mobile California --
Emmis Television License Corporation of Cape Coral California --
Emmis Television License Corporation of Green Bay California --
Emmis Television License Corporation of Terre Haute California --
Emmis Television License Corporation of New Orleans California --
Emmis FM Holding Corporation of New York Delaware --
Emmis Radio Corporation of New York Delaware WRKS-FM
Emmis 101.9 FM Radio Corporation of New York Michigan WQCD-FM
Mediatex Communications Corporation Texas --
Mediatex Development Corporation Texas --
Texas Monthly, Inc. Texas --
Radio Hungaria Co. Ltd. Hungary --
Big Hit Marketing, Inc. Illinois Big Hit Marketing
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File Numbers 33-83890, 333-14657 and 333-74377.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
May 25, 1999.
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW BY THESE PRESENTS, that the person whose signature appears below,
hereby constitutes and appoints Jeffrey H. Smulyan, J. Scott Enright, Walter Z.
Berger and Norman H. Gurwitz, or any of them, his or her attorneys-in-fact and
agents, with full power of substitution and resubstitution for him or her in any
and all capacities, to sign the annual report of Emmis Communications
Corporation on Form 10-K under the Securities Exchange Act of 1934 for the
fiscal year ended February 28, 1999, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that each of such attorneys-in-fact and agents or his or her substitute or
substitutes may do or cause to be done by virtue hereto.
Dated: May 8, 1999 /s/ Susan B. Bayh
-----------------------------
Susan B. Bayh
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Jeffrey H. Smulyan, J. Scott Enright,
Walter Z. Berger and Norman H. Gurwitz, or any of them, his attorneys-in-fact
and agents, with full power of substitution and resubstitution for him in any
and all capacities, to sign the annual report of Emmis Communications
Corporation on Form 10-K under the Securities Exchange Act of 1934 for the
fiscal year ended February 28, 1999, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that each of such attorneys-in-fact and agents or his substitute or
substitutes may do or cause to be done by virtue hereto.
Dated: May 12, 1999 /s/ Gary L. Kaseff
-----------------------------
Gary L. Kaseff
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Jeffrey H. Smulyan, J. Scott Enright,
Walter Z. Berger and Norman H. Gurwitz, or any of them, his attorneys-in-fact
and agents, with full power of substitution and resubstitution for him in any
and all capacities, to sign the annual report of Emmis Communications
Corporation on Form 10-K under the Securities Exchange Act of 1934 for the
fiscal year ended February 28, 1999, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that each of such attorneys-in-fact and agents or his substitute or
substitutes may do or cause to be done by virtue hereto.
Dated: May 7, 1999 /s/ Richard A. Leventhal
-----------------------------
Richard A. Leventhal
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Jeffrey H. Smulyan, J. Scott Enright,
Walter Z. Berger and Norman H. Gurwitz, or any of them, his attorneys-in-fact
and agents, with full power of substitution and resubstitution for him in any
and all capacities, to sign the annual report of Emmis Communications
Corporation on Form 10-K under the Securities Exchange Act of 1934 for the
fiscal year ended February 28, 1999, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that each of such attorneys-in-fact and agents or his substitute or
substitutes may do or cause to be done by virtue hereto.
Dated: May 21, 1999 /s/ Greg Nathanson
-----------------------------
Greg Nathanson
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Jeffrey H. Smulyan, J. Scott Enright,
Walter Z. Berger and Norman H. Gurwitz, or any of them, his attorneys-in-fact
and agents, with full power of substitution and resubstitution for him in any
and all capacities, to sign the annual report of Emmis Communications
Corporation on Form 10-K under the Securities Exchange Act of 1934 for the
fiscal year ended February 28, 1999, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that each of such attorneys-in-fact and agents or his substitute or
substitutes may do or cause to be done by virtue hereto.
Dated: May 21, 1999 /s/ Doyle L.Rose
-----------------------------
Doyle L. Rose
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Jeffrey H. Smulyan, J. Scott Enright,
Walter Z. Berger and Norman H. Gurwitz, or any of them, his attorneys-in-fact
and agents, with full power of substitution and resubstitution for him in any
and all capacities, to sign the annual report of Emmis Communications
Corporation on Form 10-K under the Securities Exchange Act of 1934 for the
fiscal year ended February 28, 1999, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that each of such attorneys-in-fact and agents or his substitute or
substitutes may do or cause to be done by virtue hereto.
Dated: May 21, 1999 /s/ Frank V. Sica
-----------------------------
Frank V. Sica
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints J. Scott Enright, Walter Z. Berger and
Norman H. Gurwitz, or any of them, his attorneys-in-fact and agents, with full
power of substitution and resubstitution for him in any and all capacities, to
sign the annual report of Emmis Communications Corporation on Form 10-K under
the Securities Exchange Act of 1934 for the fiscal year ended February 28, 1999,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his substitute or substitutes may do or cause to
be done by virtue hereto.
Dated: May 21, 1999 /s/ Jeffrey H. Smulyan
-----------------------------
Jeffrey H. Smulyan
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below, hereby constitutes and appoints Jeffrey H. Smulyan, J. Scott Enright,
Walter Z. Berger and Norman H. Gurwitz, or any of them, his attorneys-in-fact
and agents, with full power of substitution and resubstitution for him in any
and all capacities, to sign the annual report of Emmis Communications
Corporation on Form 10-K under the Securities Exchange Act of 1934 for the
fiscal year ended February 28, 1999, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that each of such attorneys-in-fact and agents or his substitute or
substitutes may do or cause to be done by virtue hereto.
Dated: May 21, 1999 /s/ Lawrence B. Sorrel
-----------------------------
Lawrence B. Sorrel
<TABLE> <S> <C>
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<NAME> EMMIS BROADCASTING CORPORATION
<S> <C>
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<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> FEB-28-1999
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<RECEIVABLES> 53,177
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<INCOME-PRETAX> (11,266)
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