pre14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
þ Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o Definitive Proxy Statement
o Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
EMMIS COMMUNICATIONS CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12. |
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Title of each class of securities to which transaction applies: |
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Per unit price or other underlying value of transaction computed pursuant to Exchange
Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it
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Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing. |
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Form, Schedule or Registration Statement No.: |
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,
2010
Dear Preferred and Common Shareholders:
As you may know, on May 25, 2010, Emmis Communications
Corporation signed a Merger Agreement, which will result in
Emmis being taken private by Jeffrey H. Smulyan, our Chairman,
Chief Executive Officer and President. The attached Proxy
Statement/Offer to Exchange describes the steps that are being
proposed to take Emmis private and provides information that
will help you to make certain decisions with respect to your
Emmis stock. While this letter provides some background on the
transactions, our boards determinations and the mechanics
of what to do with your shares, I urge you to carefully read the
entire Proxy Statement/Offer to Exchange.
The
Transactions
On May 24, 2010, Mr. Smulyan and two companies formed
by him, JS Acquisition Inc. (JS Acquisition) and JS
Acquisition, LLC (JS Parent), signed a Securities
Purchase Agreement with various entities affiliated with Alden
Global Capital (together with its affiliates and related
parties, Alden), under which Alden will provide
financing for the going-private transaction. The next day, Emmis
signed a Merger Agreement, which provides for a series of
transactions, all of which are conditioned upon one another (the
Transactions):
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A cash tender offer (the JS Acquisition Tender
Offer) by JS Acquisition, Inc. for all of the shares of
Emmis Class A Common Stock for $2.40 per share in cash
(without interest and less any applicable withholding taxes).
JS Acquisition has distributed to holders of Class A
Common Stock a separate Offer to Purchase with respect to the JS
Acquisition Tender Offer. This Proxy Statement/Offer to Exchange
is not the Offer to Purchase for the JS Acquisition Tender
Offer.
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An Exchange Offer by Emmis to issue up to
$84.275 million of new 12% PIK Senior Subordinated
Notes due 2017 (the New Notes) in exchange for its
existing 6.25% Series A Cumulative Convertible Preferred Stock,
par value $0.01 per share (the Existing Preferred
Stock) at a rate of $30.00 principal amount of New Notes
for each $50.00 liquidation preference of Existing Preferred
Stock. This Proxy Statement/Offer to Exchange describes
the Exchange Offer.
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The solicitation of proxies with respect to a special meeting of
the holders of Emmis Common Stock and Existing Preferred Stock,
which will be held
on ,
2010,
at
local time, at One Emmis Plaza, 40 Monument Circle,
Indianapolis, Indiana 46204, to vote on a proposal to adopt
certain amendments (the Proposed Amendments) to the
terms of the Existing Preferred Stock, which are necessary for
the completion of the Transactions. The Proposed Amendments will
not become effective unless all conditions precedent to the
Completion of the Exchange Offer (other than the adoption and
effectiveness of the Proposed Amendments) have been satisfied or
waived. This Proxy Statement/Offer to Exchange describes
the Proposed Amendments.
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If the other Transactions are completed, a merger of JS
Acquisition with and into Emmis (the Merger), in
which, among other things, each outstanding share of
Class A Common Stock that is not owned by JS Acquisition
will be converted into the right to receive from Emmis $2.40 in
cash (without interest and less any applicable withholding
taxes), and each share of Existing Preferred Stock owned by
anyone other than Alden will be converted into the right to
receive from Emmis $5.856 in cash (without interest and less any
applicable withholding taxes), which is equal to the conversion
rate of the Existing Preferred Stock of 2.44 shares of
Class A Common Stock per share times the $2.40 in cash
(without interest and less any applicable withholding taxes) per
share of Class A Common Stock that is being offered in the
JS Acquisition Tender Offer. This Proxy Statement/Offer to
Exchange
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does not pertain to the Merger. The Merger will not be
considered at the special meeting.
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The Exchange Offer and the JS Acquisition Tender Offer are
expected to be completed simultaneously, as soon as practicable
following the approval of the Proposed Amendments at the special
meeting. If another special meeting is required under Indiana
Law, the Merger is expected to occur shortly after the requisite
vote for the Merger is received from Emmis shareholders at the
second special meeting. If a second special meeting is not
required for the Subsequent Merger, the Merger will occur
shortly after the completion of the Exchange Offer and the JS
Acquisition Tender Offer.
Board
Determinations
A Committee of Disinterested Directors of Emmis (the
Committee), which does not include Mr. Smulyan
or any non-independent members of the board of directors, was
formed on April 29, 2010. The Committee has unanimously
determined that the Merger Agreement, including the JS
Acquisition Tender Offer and the Merger, were advisable and fair
to, and in the best interest of, Emmis and the holders (the
Unaffiliated Shareholders), other than Mr. Smulyan,
JS Acquisition, JS Parent, Alden and the other holders of
Class A Common Stock who will be investors in JS Parent.
The Committee unanimously determined to recommend that the board
adopt resolutions, on terms and subject to the conditions of the
Merger Agreement and the IBCL:
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determining that it was advisable and fair to and in the best
interests of Emmis and the Unaffiliated Shareholders for JS
Parent to acquire Emmis on the terms and subject to the
conditions set forth in the Merger Agreement;
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approving and adopting the Merger Agreement, the JS Acquisition
Tender Offer and the Merger; and
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recommending that the Unaffiliated Shareholders accept the JS
Acquisition Tender Offer, tender their Class A Common Shares in
the JS Acquisition Tender Offer and approve the Merger and the
Merger Agreement,
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but has not made any determinations or recommendations with
respect to the Exchange Offer or the Proposed Amendments.
The full Emmis board of directors unanimously determined that
the Exchange Offer is fair to Unaffiliated Shareholders who hold
Existing Preferred Stock and Unaffiliated Shareholders who hold
Class A Common Stock. Nevertheless, the Emmis board of directors
is not making any recommendation as to whether holders of
Existing Preferred Stock should participate in the Exchange
Offer or vote for the Proposed Amendments. The Emmis board of
directors believes that, because of the circumstances
surrounding the Transactions, including the background of the
Transactions, the conflicts of interest inherent in the
Transactions and the lack of a recommendation by the Emmis board
of directors, each holder of Existing Preferred Stock should not
rely on the fairness determination of the Emmis board of
directors and should make its own independent analysis.
Voting
and Exchange Mechanics
This document is a combined Proxy Statement/Offer to Exchange.
It describes the Proposed Amendments to be voted upon at the
special meeting, as well as the terms of the Exchange Offer by
Emmis to issue New Notes in exchange for your Existing Preferred
Stock.
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FOR HOLDERS OF COMMON STOCK: With this
document, you are only being asked to vote on the Proposed
Amendments at the special meeting. The tender of your shares
will be addressed through the JS Acquisition Tender Offer
documents. Please complete, sign, date and return the enclosed
proxy card as soon as possible, even if you currently plan to
attend the meeting. Returning a proxy card will not prevent you
from attending the special meeting and voting in person but will
ensure that your vote is counted if you are unable to attend the
meeting.
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As of the date of this Proxy Statement/Offer to Exchange,
Mr. Smulyan owns shares of common stock entitling him to
cast approximately 60.0% of the votes able to be cast by holders
of Common Stock at the special meeting, and Alden owns shares of
Common Stock entitling it to cast approximately 1.7% of the
votes able to be cast by holders of Common Stock at the special
meeting. Mr. Smulyan and
Alden have each agreed to vote their shares of Common Stock in
favor of the proposal to adopt the Proposed Amendments.
Therefore, the Proposed Amendments will be approved by the
holders of the Common Stock.
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FOR HOLDERS OF EXISTING PREFERRED STOCK: You
are being asked to vote on the Proposed Amendment at the special
meeting. You are also being asked to consider an offer by Emmis
to issue New Notes in exchange for your Existing Preferred Stock.
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To vote your Existing Preferred Stock, please complete, sign,
date and return the enclosed proxy card as soon as possible,
even if you currently plan to attend the meeting. Returning a
proxy card will not prevent you from attending the special
meeting and voting in person but will ensure that your vote is
counted if you are unable to attend the meeting.
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To tender your Existing Preferred Stock, you must tender your
shares in accordance with the letters of transmittal and
instruction letters you will be receiving in a separate package.
You must tender your shares as you have been instructed in order
to validly tender your shares into the Exchange Offer.
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Voting your shares of Existing Preferred Stock in favor of
the Proposed Amendments is not sufficient to tender your shares
of Existing Preferred Stock into the Exchange Offer. Similarly,
tendering your shares of Existing Preferred Stock in the
Exchange Offer is not sufficient to vote those shares in favor
of the Proposed Amendments.
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Your vote is important regardless of the number of shares you
own. We urge you to complete, sign, date and return the enclosed
proxy card as soon as possible, even if you currently plan to
attend the meeting. Returning a proxy card will not prevent you
from attending the special meeting and voting in person but will
ensure that your vote is counted if you are unable to attend the
meeting.
Thank you for your interest and participation.
By order of the Board of Directors,
J. Scott Enright
Executive Vice President, General Counsel and Secretary
Neither the Securities and Exchange Commission nor any state
securities regulatory agency has approved or disapproved or
passed upon the merits or fairness of the Exchange Offer or
passed upon the adequacy or accuracy of the disclosure in this
document. Any representation to the contrary is a criminal
offense.
This Proxy Statement/Offer to Exchange is
dated ,
2010 and is first being mailed, along with the associated proxy
card and means to tender, to our shareholders on or
about ,
2010.
EMMIS
COMMUNICATIONS CORPORATION
INDIANAPOLIS, INDIANA
NOTICE
OF SPECIAL MEETING OF SHAREHOLDERS
The special meeting of the shareholders of Emmis Communications
Corporation will be held
on ,
2010,
at ,
local time, at One Emmis Plaza, 40 Monument Circle,
Indianapolis, Indiana 46204.
The holders of Emmis Class A common stock, par value $0.01
per share (the Class A Common Stock), and
Class B common stock, par value $0.01 per share
(Class B Common Stock, and, together with the
Class A Common Stock, the Common Stock), voting
together as a single class, and the holders of Emmis 6.25%
Series A Cumulative Convertible Preferred Stock (the
Existing Preferred Stock) will be asked to consider
and to vote on the following matters (the Proposed
Amendments):
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a proposal to amend the terms of the Existing Preferred Stock
that are set forth in Emmis second amended and restated
articles of incorporation (the Articles of
Incorporation) to:
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eliminate the rights of the holders of the Existing Preferred
Stock to require Emmis to redeem all or a portion of their
shares on the first anniversary after the occurrence of certain
going private transactions and to nominate directors to
Emmis board of directors; and
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provide for the automatic conversion upon the proposed merger of
JS Acquisition with and into Emmis, with Emmis surviving the
merger (the Merger) (i) of the Existing
Preferred Stock (other than the Existing Preferred Stock held by
Alden Global Capital and its affiliates (collectively,
Alden)) not exchanged for the new 12% PIK
Senior Subordinated Notes due 2017 (the New Notes)
into that amount of consideration that would be paid to holders
of Class A Common Stock into which the Existing Preferred
Stock was convertible immediately prior to the Merger and
(ii) of the Existing Preferred Stock held by Alden into the
New Notes at a rate of $30.00 principal amount of New Notes per
$50.00 of liquidation preference of Existing Preferred Stock, as
described in the accompanying Proxy Statement/Offer to
Exchange; and
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transaction of any other business that may properly come before
the meeting and any adjournments or postponements of the meeting.
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While the holders of Emmis Existing Preferred Stock have the
right to nominate and elect two directors to Emmis board
of directors under § 7.2 of Exhibit A of the
Articles of Incorporation, no nominations were timely received
for this meeting of shareholders. Accordingly, the holders of
the Existing Preferred Stock will not be voting on the election
of directors at the special meeting. We are also not asking our
shareholders to vote at this special meeting on the merger of JS
Acquisition with and into Emmis. We expect that, if required by
Indiana law, we will call another special meeting after the
completion of the exchange offer and other transactions
described in the accompanying Proxy Statement/Offer to Exchange
to consider the merger proposal.
We describe each of these proposals in more detail in the
accompanying Proxy Statement/Offer to Exchange, which you should
read in its entirety before voting.
The affirmative vote of:
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more shares of Common Stock, voting together as a single class,
voting in favor than against the Proposed Amendments, assuming a
quorum is present and
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holders of at least 2/3 of the outstanding Existing Preferred
Stock, voting as a separate class, will be required in order to
adopt the Proposed Amendments. The text of the Proposed
Amendments is attached to this Proxy Statement/Offer to Exchange
as Schedule B. You should read the text of the Proposed
Amendments in their entirety.
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The full Emmis board of directors unanimously determined that
the Exchange Offer is fair to Unaffiliated Shareholders who hold
Existing Preferred Stock and Unaffiliated Shareholders who hold
Class A Common Stock. Nevertheless, the Emmis board of
directors is not making any recommendation as to whether holders
of
Existing Preferred Stock should participate in the Exchange
Offer or vote for the Proposed Amendments. The Emmis board of
directors believes that, because of the circumstances
surrounding the Transactions, including the background of the
Transactions, the conflicts of interest inherent in the
Transactions and the lack of a recommendation by the Emmis board
of directors, each holder of Existing Preferred Stock should not
rely on the fairness determination of the Emmis board of
directors and should make its own independent analysis.
Only holders of record of Common Stock or Existing Preferred
Stock at the close of business
on ,
2010 are entitled to notice of and to vote at this meeting and
any adjournments or postponements of this meeting. The Proxy
Statement/Offer to Exchange and proxy card(s) are enclosed.
By order of the Board of Directors,
J. Scott Enright
Executive Vice President,
General Counsel and Secretary
Indianapolis, Indiana
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2010
IMPORTANT: Whether or not you plan to attend the special
meeting, please promptly either complete, sign, date and mail
the enclosed form of proxy or submit your proxy or voting
instructions by telephone or Internet. A self-addressed envelope
is enclosed for your convenience. Details are outlined in the
enclosed proxy card. If you hold your shares of Common Stock or
Existing Preferred Stock through a broker, dealer, trustee, bank
or other nominee, you may be also able to submit your proxy or
voting instructions by telephone or by Internet in accordance
with the instructions your broker, dealer, trustee, bank or
other nominee provides. Returning a signed proxy will not
prevent you from attending the meeting and voting in person, if
you wish to do so. Please note that if you execute multiple
proxies, the last proxy you execute revokes all previous
proxies.
FOR HOLDERS OF EXISTING PREFERRED STOCK: This document is
also an Offer to Exchange, which sets forth the terms of an
offer by Emmis to issue New Notes in exchange for your Existing
Preferred Stock. Record holders of Existing Preferred Stock may
be receiving letters of transmittal and instruction letters in a
separate package. If you hold Existing Preferred Stock, you must
tender your shares of Existing Preferred Stock as you have been
instructed in order to validly tender your shares into the
Exchange Offer. Separately, in order to vote your shares of
Existing Preferred Stock, you must send in the proxy card you
have provided or give voting instructions, as you have been
instructed. Voting your shares of Existing Preferred Stock in
favor of the Proposed Amendments is not sufficient to tender
your shares of Existing Preferred Stock into the Exchange Offer.
Similarly, tendering your shares of Existing Preferred Stock in
the Exchange Offer is not sufficient to vote those shares in
favor of the Proposed Amendments.
This
Proxy Statement/Offer to Exchange is preliminary and may be
changed.
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Preliminary
Proxy Statement/Offer to Exchange
EMMIS
COMMUNICATIONS CORPORATION
PROXY
STATEMENT/OFFER TO EXCHANGE
Any and All Shares of Outstanding 6.25% Series A Cumulative
Convertible Preferred Stock
THE EXCHANGE OFFER WILL TERMINATE AT 11:59 P.M., NEW
YORK CITY TIME,
ON ,
2010, UNLESS EXTENDED BY EMMIS IN ITS SOLE DISCRETION. DURING
ANY EXTENSION OF THE EXCHANGE OFFER, ALL SHARES OF THE
6.25% SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
PREVIOUSLY TENDERED AND NOT YET EXCHANGED WILL REMAIN SUBJECT TO
THE EXCHANGE OFFER (SUBJECT TO WITHDRAWAL RIGHTS SPECIFIED IN
THIS PROXY STATEMENT/OFFER TO EXCHANGE) AND MAY BE ACCEPTED FOR
EXCHANGE BY EMMIS.
This Proxy Statement/Offer to Exchange and the related letter of
transmittal relate to an offer (the Exchange Offer)
by Emmis Communications Corporation to exchange any and all of
its outstanding 6.25% Series A Cumulative Convertible
Preferred Stock, par value $0.01 per share, (the Existing
Preferred Stock) for $84,275,100 principal amount of newly
issued 12% PIK Senior Subordinated Notes due 2017 (the
New Notes), at a rate of $30.00 principal amount of
New Notes for each $50.00 of liquidation preference (excluding
accrued and unpaid dividends) of Existing Preferred Stock. The
Exchange Offer is being made in connection with a series of
transactions proposed by Mr. Jeffrey H. Smulyan, the
Chairman, Chief Executive Officer and President of Emmis, to
take Emmis private, including a cash tender offer (the JS
Acquisition Tender Offer) by JS Acquisition, Inc.
(JS Acquisition) for the outstanding shares of
Class A Common Stock, par value $0.01 per share, of Emmis.
The Exchange Offer is conditioned on the satisfaction of certain
conditions as specified in The Exchange Offer
Conditions to the Exchange Offer, including, among other
things:
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obtaining the requisite 2/3 vote of the holders of Existing
Preferred Stock and the affirmative vote of more shares of Emmis
common stock voting in favor than against the Proposed
Amendments, which are described in more detail in this Proxy
Statement/Offer to Exchange, and
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the acceptance by JS Acquisition of a minimum number of shares,
which as of May 17, 2010 would equal 32.8% of the
outstanding Class A Common Stock, in the JS Acquisition
Tender Offer; and
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Tendering holders of Existing Preferred Stock will not be
entitled to receive any dividends with respect to their tendered
shares, including unpaid dividends accumulated to date.
You should consider the risk factors beginning on
page 28 of this Proxy Statement/Offer to Exchange before
you decide whether to participate in the Exchange Offer.
Neither the Securities and Exchange Commission nor any state
securities regulatory agency has approved or disapproved or
passed upon the merits or fairness of the Exchange Offer or
passed upon the adequacy or accuracy of the disclosure in this
Proxy Statement/Offer to Exchange. Any representation to the
contrary is a criminal offense.
The New Notes are exempt from the registration requirements
of the Securities Act of 1933 (the Securities Act)
under Section 3(a)(9) of the Securities Act. The Exchange
Offer is exempt from state securities law requirements by virtue
of Section 18(b)(4)(C) of the Securities Act.
If your shares of Existing Preferred Stock are freely
transferable without registration under the Securities Act, any
New Notes you receive in the Exchange Offer will also be freely
transferable.
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2010
Table
of Contents
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SCHEDULES
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Schedule A
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Information Concerning the Directors and Executive Officers of
JS Acquisition and JS Parent
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A-1
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Schedule B
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Text of Proposed Amendments
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B
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APPENDICES
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Appendix I
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Emmis Annual Report on
Form 10-K
for the fiscal year ended February 28, 2010
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I
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Appendix II
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Securities Purchase Agreement, dated May 24, 2010, by and
among Alden Global Distressed Opportunities Master Fund, L.P.,
Alden Global Value Recovery Master Fund, L.P., Alden Media
Holdings, LLC, JS Parent and Jeffrey H. Smulyan
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II
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Appendix III
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Form of Amended and Restated Operating Agreement, to be entered
into by and among Alden Media Holdings, LLC, Jeffrey H. Smulyan,
JS Parent and certain other parties
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III
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Appendix IV
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Agreement and Plan of Merger, dated May 25, 2010, by and
among Emmis, JS Parent and JS Acquisition
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IV
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SUMMARY
TERM SHEET
Summary
of the Proposed Transactions
On April 26, 2010, JS Acquisition, Inc. (JS
Acquisition), a corporation then owned entirely by our
Chairman, Chief Executive Officer and President,
Mr. Jeffrey H. Smulyan, and Alden Global Capital (together
with its affiliates and related parties, Alden)
entered into a non-binding Letter of Intent (the Letter of
Intent) with respect to a series of transactions relating
to the equity securities of Emmis.
On May 6, 2010, JS Acquisition was recapitalized so that
Mr. Smulyan held all 10 shares of Class B Common
Stock, par value $0.01 per share (the JS Acquisition
Class B Common Stock), of JS Acquisition and all
1,000,000 shares of the Class A Non-Voting Common
Stock, par value $0.01 per share (the JS Acquisition
Class A Common Stock) of JS Acquisition. Also on
May 6, 2010, Mr. Smulyan contributed the JS
Acquisition Class A Common Stock to JS Acquisition, LLC, a
newly-formed Indiana limited liability company (JS
Parent) that is wholly owned by Mr. Smulyan.
Based on the framework laid out in the Letter of Intent, Alden
Global Distressed Opportunities Master Fund, L.P. (the
Alden Fund), Alden Global Value Recovery Master
Fund, L.P., Alden Media Holdings, LLC (Alden Media),
JS Parent and Mr. Smulyan, entered into a Securities
Purchase Agreement, dated May 24, 2010 (the Alden
Purchase Agreement), and Emmis Communications Corporation
(Emmis), JS Parent and JS Acquisition entered into
an Agreement and Plan of Merger, dated May 25, 2010 (the
Merger Agreement). The transactions contemplated by
the Alden Purchase Agreement and the Merger Agreement
(collectively, the Transactions) will result in
Emmis being taken private by JS Parent. In connection with the
Transactions, some shares of Class A common stock, par
value $0.01 per share (the Class A Common
Stock) of Emmis will be contributed to Emmis by the
parties to the Rollover Agreement (the Rollover
Shares and such parties, the Rolling
Shareholders), dated May 24, 2010, by and among JS
Parent and the shareholders set forth therein (the
Rollover Agreement).
The Transactions include the following:
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JS Acquisition Tender Offer (pages
to ): JS Acquisition will launch a
tender offer (the JS Acquisition Tender Offer) for
all of the outstanding Class A Common Stock, other than the
shares beneficially owned by JS Parent, JS Acquisition,
Mr. Smulyan, his affiliates (collectively, the
Purchaser Group), the Alden Fund and the Rollover
Shares. The offer price is $2.40 per share in cash (without
interest and less any applicable withholding taxes). The
completion of the JS Acquisition Tender Offer is conditioned on,
among other things:
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the effectiveness of the Proposed Amendments, and
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the tender of shares of Class A Common Stock, that, when
combined with the Rollover Shares and the shares of Common Stock
beneficially owned by the Purchaser Group and the Alden Fund,
will constitute a majority of the votes able to be cast with
respect to the Merger (as defined below). Based on the number of
outstanding shares as of May 17, 2010, a minimum of
approximately 32.8% of our Class A Common Stock would need
to be tendered and not withdrawn for this condition to be
satisfied;
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Alden Purchase Agreement (pages
to ): Simultaneously with completion
of the JS Acquisition Tender Offer, Alden Media will provide all
necessary funds for the JS Acquisition Tender Offer and the
other Transactions under the Alden Purchase Agreement, under
which it will purchase for an aggregate of $90 million in
cash, subject to adjustment as described below:
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Series A Convertible Redeemable PIK Preferred Interests
(the JS Parent Preferred Interests) of JS Parent,
with an initial preferred unrecovered balance of
$96.9 million and having a preferred return of 5% per annum
until the second anniversary of the closing and 15% per annum
thereafter; and
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common interests (the JS Parent Common Interests) of
JS Parent initially having a percentage interest of JS Parent
equal to 24%, subject to adjustment as provided in the JS Parent
operating agreement;
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The amount of funds provided by Alden Media, the initial
preferred unrecovered capital balance of Alden Medias JS
Parent Preferred Interests and Alden Medias initial
percentage interest of JS Parent may be subject to adjustment,
to the extent funds are required to provide cash consideration
in the Merger (as defined below) to holders of Existing
Preferred Stock that do not tender their shares in the Exchange
Offer and/or
to pay certain expenses in connection with the Transactions.
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Exchange Offer (pages
to ): In this Exchange Offer, we are
offering to issue an aggregate of $84,275,100 principal amount
of new 12% PIK Senior Subordinated Notes due 2017 (the
New Notes), which will be offered in exchange for
all of the outstanding 6.25% Series A Cumulative
Convertible Preferred Stock, par value $0.01 per share (the
Existing Preferred Stock) at a rate of $30.00
principal amount of New Notes for each $50.00 of liquidation
preference (excluding accrued and unpaid dividends) of Existing
Preferred Stock, as described in more detail in this Proxy
Statement/Offer to Exchange, which is conditioned on, among
other things:
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obtaining the requisite 2/3 vote of the holders of Existing
Preferred Stock and the affirmative vote of more shares of
Class A Common Stock and Class B common stock, par
value $0.01 per share (Class B Common Stock,
and, together with the Class A Common Stock, the
Common Stock) voting together as a single class
(with each share of Class A Common Stock entitled to one
vote per share and each share of Class B Common Stock
entitled to 10 votes per share), voting in favor than against
the Proposed Amendments, assuming a quorum is present,
(collectively, the Required Vote), and
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the minimum number, which as of May 17, 2010 would equal
32.8% of the outstanding shares of Class A Common Stock,
having been validly tendered and not validly withdrawn in the JS
Acquisition Tender Offer;
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Proxy Solicitations (pages
to ): Using this Proxy Statement/Offer
to Exchange, we are also soliciting proxies (the Proxy
Solicitations) from holders of Existing Preferred Stock
and Common Stock to vote for the Proposed Amendments, as
described in more detail in this Proxy Statement/Offer to
Exchange. We are not seeking proxies with respect to the Merger
(as defined below). As of the date of this Proxy Statement/Offer
to Exchange, Mr. Smulyan directly owns shares of Common
Stock entitling him to cast approximately 60.0% of the votes
able to be cast by holders of Common Stock at the special
meeting, and the Alden Fund directly owns shares of Common Stock
entitling it to cast approximately 1.7% of the votes able to be
cast by holders of Common Stock at the special meeting. Under
the Alden Purchase Agreement, Mr. Smulyan has agreed to
vote his shares of Common Stock in favor of the proposal to
adopt the Proposed Amendments, and the Alden Fund has agreed to
vote its shares of Common Stock in favor of the proposal to
adopt the Proposed Amendments, so the proposal will be approved
by the holders of the Common Stock. As of the date of this Proxy
Statement/Offer to Exchange, the Alden Fund directly owns
approximately 41.4% of the outstanding Existing Preferred Stock.
Under the Alden Purchase Agreement, the Alden Fund has agreed to
vote its shares of Existing Preferred Stock in favor of the
proposal to adopt the Proposed Amendments;
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Merger Proxy Solicitation (pages
to ): If the JS Acquisition Tender
Offer and this Exchange Offer are completed and the Proposed
Amendments are adopted and effected, to the extent required by
Indiana law, we will seek the affirmative votes of holders of
Common Stock (a majority of which will be beneficially owned,
following the JS Acquisition Tender Offer, by JS Acquisition) to
approve a merger of JS Acquisition with and into Emmis, with
Emmis surviving the merger as a subsidiary of JS Parent, with
Mr. Smulyan holding all of the shares of a newly issued
class of voting common stock of Emmis and JS Parent holding all
of the shares of a newly issued class of non-voting common stock
of Emmis.
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The Merger (pages
to ): Once the Merger is approved, we
will complete the Merger, in which:
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immediately prior to the effective time of the Merger:
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Mr. Smulyan will retain 9,755 shares of Class A
Common Stock directly, 190,245 shares of Class B
Common Stock directly (which he will convert into Class A
Common Stock immediately prior to the Merger) and
8,441 shares of Class A Common Stock in Emmis
401(k) plan, and The Smulyan Family Foundation will retain
30,625 shares of Class A Common Stock (collectively,
the Retained Shares);
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all shares of Class A Common stock held by the Purchaser
Group (other than Retained Shares) and each Rollover Share of
the Rolling Shareholders will be contributed to Emmis and
cancelled, in satisfaction of eachs respective obligations
under the Alden Purchase Agreement and the Rollover Agreement
and in consideration for JS Parent Common Interests; and
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all shares of Class B Common Stock (other than Retained
Shares), all of which are held by Mr. Smulyan, and all of
the stock options held by Mr. Smulyan, will be contributed
to Emmis and cancelled, in satisfaction of his obligations to
under the Alden Purchase Agreement, and in consideration for JS
Parent Common Interests.
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each share of Class A Common Stock remaining outstanding,
including the Retained Shares, will be converted into the right
to receive $2.40 in cash (without interest and less any
applicable withholding taxes) from Emmis;
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all remaining outstanding options to purchase Class A
Common Stock, will vest if unvested, and each option with an
exercise price of less than $2.40 per share (without interest
and less any applicable withholding taxes) will be converted
into the right to receive an amount of cash per option equal to
$2.40 (without interest and less any applicable withholding
taxes) minus the exercise price of the option, and all other
options will be cancelled;
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each outstanding share of Existing Preferred Stock held by the
Alden Fund will be converted into New Notes at a rate of $30.00
principal amount of New Notes per $50.00 of liquidation
preference of Existing Preferred Stock, excluding accrued and
unpaid dividends;
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each other outstanding share of Existing Preferred Stock will be
converted into the right to receive $5.856 in cash (without
interest and less any applicable withholding taxes) from Emmis,
which is equal to the conversion rate of the Existing Preferred
Stock of 2.44 shares of Class A Common Stock per share
times the $2.40 in cash (without interest and less any
applicable withholding taxes) per share of Class A Common
Stock that is being offered in the JS Acquisition Tender Offer;
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each share of JS Acquisition Class A Common Stock will be
converted into one share of new nonvoting common stock of
Emmis; and
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each share of JS Acquisition Class B Common Stock will be
converted into one share of new voting common stock of Emmis.
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In this Proxy Statement/Offer to Exchange, where we present
information on an as-adjusted basis, we mean that
such information is presented after giving effect to the
Transactions described above and assuming that all holders of
Existing Preferred Stock tender all of their shares of Existing
Preferred Stock into the Exchange Offer.
3
Information
regarding Emmis
Emmis was incorporated in 1980 and is a diversified media
company, principally focused on radio broadcasting. Emmis
operates the 8th largest publicly traded radio portfolio in
the United States based on total listeners. As of
February 28, 2010, Emmis owned and operated seven FM radio
stations serving the nations top three markets
New York, Los Angeles and Chicago, although one of its FM radio
stations in Los Angeles is operated pursuant to a Local
Marketing Agreement (LMA) whereby a third party provides the
programming for the station and sells all advertising within
that programming. Additionally, Emmis owns and operates fourteen
FM and two AM radio stations with strong positions in
St. Louis, Austin (Emmis has a 50.1% controlling interest
in its radio stations located there), Indianapolis and Terre
Haute, IN.
In addition to Emmis domestic radio properties, Emmis
operates an international radio business and publishes several
city and regional magazines. Internationally, Emmis owns and
operates national radio networks in Slovakia and Bulgaria.
Emmis publishing operations consist of Texas Monthly, Los
Angeles, Atlanta, Indianapolis Monthly, Cincinnati, Orange
Coast, and Country Sampler and related magazines. Emmis also
engages in various businesses ancillary to its broadcasting
business, such as website design and development, broadcast
tower leasing and operating a news information radio network in
Indiana.
The address and telephone number of Emmis principal
executive offices are One Emmis Plaza 40, Monument Circle,
Suite 700, Indianapolis, Indiana 46204,
(317) 266-0100.
For more information regarding Emmis, please see the Emmis
Annual Report on
Form 10-K
for the year ended February 28, 2010, which is attached to
this Proxy Statement/Offer to Exchange as Appendix I.
Information
regarding Jeffrey H. Smulyan, JS Parent and JS Acquisition
and Alden
Jeffrey H.
Smulyan, JS Parent and JS Acquisition
JS Parent is an Indiana limited liability company formed on
May 6, 2010 that is wholly owned by Mr. Jeffrey H.
Smulyan, the Chairman, Chief Executive Officer and President of
Emmis. JS Parent was formed for the sole purpose of
engaging in the Transactions and has carried on no other
activities other than in connection with the Transactions.
JS Acquisition is an Indiana corporation and subsidiary owned by
JS Parent and Mr. Smulyan that was formed on April 29,
2009. JS Acquisition was formed for the sole purpose of engaging
in a going private transaction with Emmis and has carried on no
other activities other than in connection with the JS
Acquisition Tender Offer, the Merger and prior potential going
private transactions.
For information regarding the executive officers and directors
of JS Acquisition and JS Parent, see Schedule A to this
Proxy Statement/Offer to Exchange.
None of Emmis, JS Parent, JS Acquisition or any of the persons
listed in the table under the caption Management in
this Proxy Statement/Offer to Exchange has been convicted in a
criminal proceeding during the past five years (excluding
traffic violations or similar misdemeanors), nor have any of
them been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment, decree
or final order enjoining them from future violations of, or
prohibiting activities subject to, federal or state securities
laws or a finding of any violation of federal or state
securities laws.
The address and telephone number of the principal executive
offices of Mr. Smulyan, JS Parent and JS Acquisition are
One Indiana Square, Suite 3500, Indianapolis, Indiana
46204,
(317) 713-3500.
We refer to JS Parent, JS Acquisition and Mr. Smulyan and
his affiliates (which, for avoidance of doubt, exclude the
Rolling Shareholders), collectively as the Purchaser
Group.
Alden
Alden Global Capital Limited is a Jersey (Channel Islands) based
private asset management company, which together with its
affiliates and related entities, has over $3 billion under
management. Alden Global Capital, a division of Smith Management
LLC, is a New York based private asset management company
4
which, together with Alden Global Capital Limited, manages the
Alden funds, which have over $3 billion in assets. Alden
Global Distressed Opportunities Master Fund, L.P., is a fund
managed by Alden Global Capital Limited and Alden Global
Capital. The principal business address of Alden Global Capital
Limited is First Floor, Liberation Station, Esplanade, St.
Helier, Jersey JE2 3AS and the other Alden entities are located
at 885 Third Avenue, 43th Floor, New York, NY 10022
and Alden Global Capitals business telephone number is
(212) 888-5500.
Share
Ownership Information
The following table shows the beneficial ownership of members of
the Purchaser Group, the Rolling Shareholders and the Alden Fund
of the various securities of Emmis as of the date of this Proxy
Statement/Offer to Exchange:
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Class A
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Class B
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Existing
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Common Stock
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Common Stock
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Preferred Stock
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JS Parent
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JS Acquisition
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Jeffrey H. Smulyan
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62,941
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(1)
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4,930,680
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Rolling Shareholders
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1,714,431
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(1)
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The Alden Fund
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1,406,500
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(2)
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1,162,737
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(1)
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Does not include any shares all
options. See Principal Shareholders for more
information regarding these shares.
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(2)
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Does not include shares of
Class A Common Stock beneficially owned that underly
outstanding Existing Preferred Stock or other derivatives. See
Principal Shareholders for more information
regarding these shares.
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The Alden Fund has agreed not to tender any of its shares of
Class A Common Stock into the JS Acquisition Tender Offer
or any of its shares of Existing Preferred Stock in the Exchange
Offer but will vote those securities in favor of the Proposed
Amendments. In the Merger:
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each share of Class A Common Stock held by the Alden Fund
will be converted into the right to receive $2.40 in cash
(without interest and less any applicable withholding taxes)
from Emmis, which is equivalent to the consideration offered by
JS Acquisition in the JS Acquisition Tender Offer, and
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each share of Existing Preferred Stock held by the Alden Fund
will be converted into New Notes at the same rate as in the
Exchange Offer.
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5
HISTORICAL
AND AS-ADJUSTED CORPORATE AND CAPITAL STRUCTURE
The following chart illustrates our corporate and capital
structure as of February 28, 2010:
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(1)
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As of February 28, 2010, there
were $339.2 million of term loans, $2.0 million of
revolving borrowings and $0.9 million of outstanding
letters of credit outstanding under the Credit Facility, with
$17.1 million available for borrowing under the revolving
facility.
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The following chart illustrates our corporate and capital
structure on an as adjusted basis, as of February 28, 2010,
after giving effect to the Transactions:
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(1)
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As of February 28, 2010, there
were $339.2 million of term loans, $2.0 million of
revolving borrowings and $0.9 million of outstanding
letters of credit outstanding under the Credit Facility, with
$17.1 million available for borrowing under the revolving
facility.
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6
QUESTIONS
AND ANSWERS ABOUT THE PROPOSED AMENDMENTS,
THE TRANSACTIONS AND THE SPECIAL MEETING
The summary information provided below in question and
answer format is for your convenience only and is merely a
brief description of material information contained in this
Proxy Statement/Offer to Exchange. You should carefully read
this proxy statement in its entirety.
Questions
and Answers Regarding the Transactions that are Applicable to
All Emmis Shareholders Receiving these Materials
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Q:
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What
is this document, and why am I receiving it?
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Holders of Common Stock or Existing Preferred
Stock: This document is a Proxy Statement with
respect to a solicitation of proxies from holders of the Common
Stock and the Existing Preferred Stock of Emmis. If you hold
either Common Stock or Existing Preferred Stock, we are asking
you to provide proxies with respect to a proposal to make the
Proposed Amendments to the terms of the Existing Preferred
Stock. Under Indiana law, holders of common stock must be
allowed to vote on a proposal to amend a companys articles
of incorporation, even if the amendment only affects rights of
preferred shareholders. The requisite votes of holders of both
the Common Stock and the Existing Preferred Stock are required
in order to adopt the Proposed Amendments.
Holders of Existing Preferred Stock: This
document is also an Offer to Exchange, which sets forth the
terms of an offer by Emmis to issue New Notes in exchange for
your Existing Preferred Stock. Record holders of Existing
Preferred Stock may be receiving letters of transmittal and
instruction letters in a separate package. If you hold
Existing Preferred Stock, you must tender your shares of
Existing Preferred Stock as you have been instructed in order to
validly tender your shares into the Exchange Offer. Separately,
in order to vote your shares of Existing Preferred Stock, you
must send in the proxy card you have provided or give voting
instructions, as you have been instructed.
The Merger will not be considered at the special meeting.
Voting your shares of Existing Preferred Stock in favor of
the Proposed Amendments is not sufficient to tender your shares
of Existing Preferred Stock into the Exchange Offer. Similarly,
tendering your shares of Existing Preferred Stock in the
Exchange Offer is not sufficient to vote those shares in favor
of the Proposed Amendments.
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Q:
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What
is Emmis seeking to accomplish?
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The adoption of the Proposed Amendments and the completion of
the Exchange Offer are part of a series of transactions, which
we refer to as the Transactions, that have been
proposed to us by Mr. Jeffrey H. Smulyan and
JS Acquisition. If the Transactions are completed,
Mr. Smulyan or entities controlled by Mr. Smulyan will
own all of Emmis outstanding capital stock.
The Transactions primarily consist of:
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a cash tender offer by JS Acquisition, a company indirectly
owned by Mr. Smulyan, for all of the shares of Emmis
Class A Common Stock, other than those held by the
Purchaser Group, the Alden Fund and the Rollover Shares held by
the Rolling Shareholders, for $2.40 per share in cash (without
interest and less any applicable withholding taxes);
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the purchase of preferred equity interests in JS Parent by Alden
Media in order to finance the tender offer by
JS Acquisition and the other Transactions, which amount
will be adjusted, to the extent funds are required to provide
cash consideration to holders of Existing Preferred Stock that
do not tender their shares in the Exchange Offer
and/or to
pay various expenses in connection with the Transactions;
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the Exchange Offer to issue New Notes to holders of
Existing Preferred Stock that is described in this Proxy
Statement/Offer to Exchange;
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the solicitation of proxies from holders of Common Stock and
Existing Preferred Stock to vote in favor of a proposal to adopt
the Proposed Amendments to the terms of the Existing Preferred
Stock, as described in this Proxy Statement/Offer to
Exchange; and
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if the other Transactions are completed, the Merger of JS
Acquisition with and into Emmis, in which, among other things,
most shares of Class A Common Stock not held by the
Purchaser Group will be converted into the right to receive
$2.40 in cash (without interest and less any applicable
withholding taxes) from Emmis, and each share of Existing
Preferred Stock owned by anyone other than the Alden Fund will
be converted into the right to receive $5.856 in cash (without
interest and less any applicable withholding taxes) from Emmis,
which is equal to the conversion rate of the Existing Preferred
Stock of 2.44 shares of Class A Common Stock per share
times the $2.40 in cash (without interest and less any
applicable withholding taxes) per share of Class A Common
Stock that is being offered in the JS Acquisition Tender Offer,
and each share of Existing Preferred stock owned by the Alden
Fund will be converted into the right to receive New Notes at
the same rate as in the Exchange Offer.
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See The Transactions for more information on the
Transactions.
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Q:
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When
are the Transactions expected to be completed?
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The Exchange Offer and the JS Acquisition Tender Offer are
expected to be completed simultaneously, and the funding of the
preferred equity investment in JS Parent by Alden Media will
also occur at the time the conditions to completion of both
offers are satisfied. The Exchange Offer and the JS Acquisition
Tender Offer are expected to be completed within 20 business
days after the date of this Proxy Statement/Offer to Exchange.
If a vote is required for the Merger, the Merger is expected to
occur shortly after the requisite vote for the Merger is
received from Emmis shareholders. If a vote is not required for
the Merger, it will occur shortly after the completion of the
Exchange Offer and the JS Acquisition Tender Offer.
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Q:
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Are
the Transactions conditioned on one other, and if so,
how?
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All of the Transactions are conditioned on the completion of one
or more of the other Transactions.
The Exchange Offer is conditioned on, among other things:
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obtaining the required votes for the Proposed Amendments;
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the adoption and effectiveness of the Proposed Amendments;
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the acceptance by JS Acquisition of a minimum number of shares,
which as of May 17, 2010 would equal 32.8% of the
outstanding Class A Common Stock, in the JS Acquisition
Tender Offer; and
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the Alden Purchase Agreement remaining in full force and effect
and Alden Media funding its obligations under the Alden Purchase
Agreement when due.
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The Exchange Offer is also subject to various general
conditions, including the absence of court or other governmental
actions prohibiting the Transactions, general market conditions
and the condition of our business. See The Exchange
Offer Conditions to the Exchange Offer for
more information regarding the conditions to the Exchange Offer.
The JS Acquisition Tender Offer for the Class A Common
Stock is conditioned on, among other things:
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there being validly tendered and not withdrawn prior to the
expiration of the JS Acquisition Tender Offer a minimum number
of shares, which as of May 17, 2010 would equal at least
32.8% of the outstanding Class A Common Stock;
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the payment to JS Parent by Alden Media of the purchase price
for its investment in JS Parent under the Alden Purchase
Agreement;
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obtaining the required votes for the Proposed
Amendments; and
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the adoption and effectiveness of the Proposed Amendments.
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The minimum tender condition cannot be waived by JS Acquisition
without the consent of Emmis.
The investment by Alden Media in JS Parent is conditioned on,
among other things, the satisfaction or waiver of the conditions
to the JS Acquisition Tender Offer.
The Merger will not occur unless the Exchange Offer and the JS
Acquisition Tender Offer are completed.
See The Transactions for more information regarding
the conditions to the Transactions other than the Exchange Offer.
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Q:
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What
are the Proposed Amendments?
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The Proposed Amendments would:
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eliminate the rights of the holders of the Existing Preferred
Stock to require Emmis to redeem all or a portion of their
shares on the first anniversary after the occurrence of certain
going private transactions and nominate directors to Emmis
board of directors; and
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provide for the automatic conversion, upon the Merger,
(i) of the Existing Preferred Stock (other than the
Existing Preferred Stock held by Alden) not exchanged for the
New Notes into that amount of consideration that would be paid
to holders of Class A Common Stock into which the Existing
Preferred Stock was convertible immediately prior to the Merger
and (ii) of the Existing Preferred Stock held by Alden into
the New Notes, as described in this Proxy Statement/Offer to
Exchange.
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The Transactions would likely constitute a going private
transaction under the terms of the Existing Preferred Stock that
would, in the absence of the Proposed Amendments, require the
redemption of the Existing Preferred Stock. No such redemption
will occur if the Proposed Amendments become effective.
The Existing Preferred Stock currently has the right to nominate
directors to our board of directors. The Proposed Amendments
would eliminate that right.
If the Proposed Amendments are adopted and become effective, the
Merger will result in the conversion of each share of Existing
Preferred Stock, other than the shares held by the Alden Fund,
into the right to receive $5.856 in cash (without interest and
less any applicable withholding taxes), which is equal to the
$2.40 in cash (without interest and less any applicable
withholding taxes) per share that holders of the Class A
Common Stock will receive in the Merger times 2.44, which is the
number of shares of Class A Common Stock into which each
share of Existing Preferred Stock can be converted.
JS Acquisition has conditioned the completion of the JS
Acquisition Tender Offer on the adoption and effectiveness of
the Proposed Amendments, so the Transactions will not occur
unless the Proposed Amendments are adopted and become effective.
The Proposed Amendments will not become effective unless all
conditions precedent to the completion of the Exchange Offer
(other than the adoption and effectiveness of the Proposed
Amendments) have been satisfied or waived.
See The Proposal and Schedule B for
more information regarding the Proposed Amendments.
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Q:
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What
shareholder vote is required to adopt the proposal to make the
Proposed Amendments?
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The proposal to adopt the Proposed Amendments requires the
affirmative votes of:
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more shares of Common Stock, voting together as a single class,
voting in favor than against the Proposed Amendments, assuming a
quorum is present, with the shares of Class B Common Stock being
entitled to ten votes per share, and
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holders of at least 2/3 of the outstanding Existing Preferred
Stock, voting as a separate class.
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As of the date of this Proxy Statement/Offer to Exchange,
Mr. Smulyan directly owns shares of Common Stock entitling
him to cast approximately 60.0% of the votes able to be cast by
holders of Common Stock at the special meeting, and the Alden
Fund directly owns shares of Common Stock entitling it to cast
approximately 1.7% of the votes able to be cast by holders of
Common Stock at the special meeting. Under the Alden Purchase
Agreement, Mr. Smulyan has agreed to vote his shares of
Common Stock in favor of the proposal to adopt the Proposed
Amendments, and the Alden Fund has agreed to vote its shares of
Common Stock in favor of the proposal to adopt the Proposed
Amendments, so the proposal will be approved by the holders of
the Common Stock.
As of the date of this Proxy Statement/Offer to Exchange, the
Alden Fund directly owns approximately 41.4% of the outstanding
Existing Preferred Stock. Under the Alden Purchase Agreement,
the Alden Fund has agreed to vote its shares of Existing
Preferred Stock in favor of the proposal to adopt the Proposed
Amendments.
|
|
Q:
|
Am I
being asked to vote to approve the Merger?
|
No. You are only voting on the proposal to adopt the Proposed
Amendments. If the Exchange Offer and the JS Acquisition Tender
Offer are completed, we will, if required by Indiana law, call
another special meeting following the completion of those offers
to vote on the Merger.
|
|
Q:
|
Has a
special committee of the Emmis board of directors been formed?
Is Mr. Smulyan voting on or participating in any of the
deliberations of the Emmis board of directors with respect to,
the Transactions?
|
In response to the proposal by Mr. Smulyan and JS
Acquisition, on April 29, 2010, the board of directors of
Emmis formed a Committee of Disinterested Directors (the
Committee), consisting of Ms. Susan B. Bayh and
Messrs. Peter A. Lund and Lawrence B. Sorrel, all of whom
qualify as Independent Directors under NASDAQ
Listing Rule 5605. The Committee did consider or make a
determination or recommendation with respect to the Exchange
Offer or the Proposed Amendments.
Mr. Smulyan did not participate in the deliberations of the
Committee, although he did participate in the deliberations of
the full board of directors as described below.
The members of the Committee will not be members of the board of
directors of Emmis after the Merger. Shortly after the Committee
was formed, the Committee retained Davis Polk &
Wardwell LLP and Barnes & Thornburg LLP to serve as
counsel to the Committee. On May 5, the Committee retained
Morgan Stanley & Co. Incorporated (Morgan
Stanley) to act as its financial advisor.
|
|
Q:
|
Do the
Transactions involve any conflicts of interest?
|
Yes. The board of directors of Emmis has determined, based on
the recommendation of the Committee, that the JS Acquisition
Tender Offer and the Merger are in the best interests of the
holders (the Unaffiliated Shareholders) of the
Class A Common Stock other than Mr. Smulyan,
JS Acquisition, JS Parent, Alden and the other holders
who will be investors in JS Parent. See Special
Factors Background. The Exchange Offer and
Proposed Amendments are conditions to the completion of the JS
Acquisition Tender Offer. Emmis would not seek to complete the
Exchange Offer and Proposed Amendments absent the other
Transactions, and JS Acquisition Parent would not complete the
other Transactions absent commencement of the Exchange Offer and
effectuation of the Proposed Amendments. As a result, there is
an inherent structural conflict of interest for the board of
directors of Emmis. The Committee (the members of which are
disinterested in the Transactions other than as to ownership of
Class A Common Stock) would be unable to make an
independent determination of whether the Exchange Offer and the
Proposed Amendments are in the best interests of the holders of
Existing Preferred Stock due to the effect that such
determination could have on its determination of what is best
for Emmis and the Unaffiliated Shareholders who hold
Class A Common Stock. For a discussion of the
Committees and full board of directors
determinations with respect to the Exchange Offer and the
Proposed Amendments see Special Factors
Fairness of the Exchange Offer Emmis.
10
In addition to the structural conflicts of interest for the
board of directors as between holders of Class A Common
Stock and holders of Existing Preferred Stock, the Transactions
involve other significant conflicts of interests as a result of
the interests of directors and officers of Emmis in the
Purchasing Group, Alden and the Rolling Shareholders.
Mr. Smulyan, our Chairman, CEO and controlling shareholder,
will own a majority of the common equity interests in JS Parent
upon completion of the Transaction. Other officers and directors
will also own common equity interests in JS Parent upon
completion of the Transaction. In addition, Mr. Heath
Freeman, a Managing Director of Alden Global Capital, became a
member of the Emmis board of directors at the same meeting at
which the Merger Agreement and other Transactions were approved
and, although he did not participate in any deliberations of the
board of directors and was not present at that meeting, the
Alden Fund holds approximately 41.4% of the Existing Preferred
Stock and has agreed with JS Parent to vote in favor of the
Proposed Amendments. Alden Media will also hold substantial
common interests and preferred interests in JS Parent upon
completion of the Transactions.
For these and other reasons, neither the Committee nor the board
of directors of Emmis is making any recommendation to holders of
Existing Preferred Stock as to whether to vote to approve the
Proposed Amendments or participate in the Exchange Offer.
|
|
Q:
|
Has
the Committee made any fairness determination or recommendation
with respect to the Exchange Offer or the Proxy
Solicitation?
|
No. While the Committee has unanimously determined that the
Merger Agreement, including the JS Acquisition Tender Offer and
the Merger, were advisable and fair to and in the best interest
of Emmis and the Unaffiliated Shareholders, the Committee has
not made any determinations or recommendations with respect to
the Exchange Offer or the Proposed Amendments.
|
|
Q:
|
Has
the full board of directors made any fairness determination or
recommendation with respect to the Exchange Offer or the Proxy
Solicitation?
|
Yes. The full board of directors unanimously determined that the
Exchange Offer is fair to Unaffiliated Shareholders who hold
Existing Preferred Stock and to Unaffiliated Shareholders who
hold Class A Common Stock. Nevertheless, the board of
directors is not making any recommendation as to whether holders
of Existing Preferred Stock should participate in the Exchange
Offer or vote for the Proposed Amendments. The board of
directors believes that, because of the circumstances
surrounding the Transactions, including the background of the
Transactions, the conflicts of interest inherent in the
Transactions and the lack of a recommendation by the board of
directors, each holder of Existing Preferred Stock should not
rely on the fairness determination of the board of directors and
should make its own independent analysis.
|
|
Q:
|
Has JS
Acquisition or Mr. Smulyan made any fairness determination
or recommendation with respect to the Exchange Offer or the
Proxy Solicitation?
|
As a member of the Emmis board of directors, Mr. Smulyan
voted in favor of the determination that the Exchange Offer is
fair to Unaffiliated Shareholders who hold Existing Preferred
Stock and to Unaffiliated Shareholders who hold Class A
Common Stock. Neither he, nor the Emmis board of directors is
making any recommendation as to whether holders of Existing
Preferred Stock should participate in the Exchange Offer or vote
for the Proposed Amendments. The board of directors believes
that, because of the circumstances surrounding the Transactions,
including the background of the Transactions, the conflicts of
interest inherent in the Transactions and the lack of a
recommendation by the board of directors, each holder of
Existing Preferred Stock should not rely on the fairness
determination of the board of directors and should make its own
independent analysis.
|
|
Q:
|
Did
the board of directors and the Committee consider alternatives
to the Transactions?
|
The Committee took into account that Mr. Smulyan and his
affiliates owned, as of May 25, 2010, shares of Common
Stock representing approximately 60.0% of the total voting power
of Common Stock, and that Mr. Smulyan has publicly stated
that he is not interested in selling his shares of Emmis.
Accordingly, the
11
Committee concluded that an acquisition of Emmis by a third
party was not a feasible alternative, nor is the Committee aware
of any other party making a proposal to buy Emmis or any
significant minority stock ownership position since
Mr. Smulyan made its initial proposal to acquire Emmis in
2006.
The board of directors of Emmis considered the same factors and
came to the same conclusion.
|
|
Q:
|
Will
Mr. Smulyan be willing to complete only some of the
Transactions?
|
No. Mr. Smulyan, in his proposal to our board of directors,
stated that he would not be willing to complete any of the
individual Transactions unless the other Transactions were also
completed. Therefore, a failure to complete any of the
Transactions will result in none of the Transactions being
completed.
|
|
Q:
|
Will
Mr. Smulyan be willing to support a competing
transaction?
|
No. Mr. Smulyan, in his capacity as the controlling
shareholder of Emmis, has informed us that he would not be
willing to approve any other transaction that competes with or
impedes the Transactions.
|
|
Q:
|
Will
Emmis be willing to complete only some of the
Transactions?
|
No. Emmis will not complete any of the individual Transactions
unless the other Transactions will also be completed.
|
|
Q:
|
Will
the Transactions result in a change of control of
Emmis?
|
No. Mr. Smulyan currently directly owns shares of Common
Stock entitling him to cast more than a majority of the votes of
the outstanding Common Stock on most matters. Mr. Smulyan
will directly own all of the voting securities of Emmis
following the Transactions.
|
|
Q.
|
Why
has Mr. Heath Freeman been appointed to the board of
directors of Emmis? Did he vote on or participate in any of the
deliberations with respect to, the Transactions?
|
Mr. Freeman is a managing director of Alden Global Capital,
which, along with Alden Global Capital Limited, manages the
Alden Fund, and, as contemplated by the Letter of Intent, has
been appointed to be a director of Emmis and will act as the
representative of Alden on the board of directors. Based on its
public filings, the Alden Fund currently beneficially owns more
than 10% of the Class A Common Stock, in the form of
Class A Common Stock, Class A Common Stock that would be
issued upon conversion of Existing Preferred Stock and various
derivative securities. For purposes of
Rule 16b-3
of the Exchange Act, the Emmis board of directors has approved
any of the Transactions in which the Alden Fund will be
disposing of or acquiring the equity securities of Emmis,
including the Merger. He has agreed to resign from the Emmis
board of directors if the Alden Purchase Agreement is terminated.
Mr. Freeman is not a member of the Committee and has not
voted or participated in any deliberations with respect to the
Transactions.
12
|
|
Q:
|
Do
Mr. Smulyan, JS Acquisition or Alden own shares of stock
that can be voted at the special meeting? Will they vote their
shares in favor of the proposal to adopt the Proposed
Amendments?
|
Yes. The following table shows the beneficial ownership of
Mr. Smulyan, the other members of the Purchaser Group and
the Alden Fund of the various securities of Emmis as of the date
of this Proxy Statement/Offer to Exchange:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Existing
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
JS Acquisition, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
JS Acquisition, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey H. Smulyan
|
|
|
62,941
|
(1)
|
|
|
4,930,680
|
|
|
|
|
|
The Rolling Shareholders
|
|
|
1,714,431
|
(1)
|
|
|
|
|
|
|
|
|
The Alden Fund
|
|
|
1,406,500
|
(2)
|
|
|
|
|
|
|
1,162,730
|
|
|
|
|
(1)
|
|
Does not include any shares
underlying any options. See Principal Shareholders
for more information regarding these shares.
|
(2)
|
|
Does not include shares of Class A
Common Stock beneficially owned that underly outstanding
Existing Preferred Stock or other derivatives. See
Principal Shareholders for more information
regarding these shares.
|
As of the date of this Proxy Statement/Offer to Exchange,
Mr. Smulyan owns shares of Common Stock entitling him to
cast approximately 60.0% of the votes able to be cast by holders
of Common Stock at the special meeting, and the Alden Fund owns
shares of Common Stock entitling it to cast approximately 1.7%
of the votes able to be cast by holders of Common Stock at the
special meeting. Under the Alden Purchase Agreement,
Mr. Smulyan has agreed to vote his shares of Common Stock
in favor of the proposal to adopt the Proposed Amendments, and
the Alden Fund has agreed to vote its shares of Common Stock in
favor of the proposal to adopt the Proposed Amendments, so the
proposal will be approved by the holders of the Common Stock.
As of the date of this Proxy Statement/Offer to Exchange, the
Alden Fund owns approximately 41.4% of the outstanding Existing
Preferred Stock. Under the Alden Purchase Agreement, the Alden
Fund has agreed to vote its shares of Existing Preferred Stock
in favor of the proposal to adopt the Proposed Amendments.
JS Acquisition owns no shares of Common Stock but will own
shares of Class A Common Stock if the JS Acquisition Tender
Offer is completed.
|
|
Q:
|
What
effect will the Transactions have on the listing and Exchange
Act registration of the securities of Emmis? Will Emmis be a
reporting company under the Exchange Act after the closing of
the Transactions?
|
The completion of the Transactions is expected to result in the
delisting of the Class A Common Stock and the Existing
Preferred Stock from the NASDAQ.
The completion of the Transaction is expected to result in all
classes of securities of Emmis being held by fewer than 300
holders of record, so it is likely that Emmis will no longer be
required by the Exchange Act to file periodic or current reports
with the SEC.
Questions
and Answers Regarding the Transactions that are Primarily
Applicable to Holders of Common Stock
|
|
Q:
|
Will
anything happen to my Class A Common Stock if I vote in
favor of the Proposed Amendments?
|
No.
Nevertheless, if the JS Acquisition Tender Offer and the
Exchange Offer are completed, and the Proposed Amendments are
adopted and effected, the Merger of JS Acquisition with and into
Emmis will occur, and any shares of Class A Common Stock
that you hold will be converted into the right to receive $2.40
in cash (without interest and less any applicable withholding
taxes) from Emmis, which is the same as the
13
consideration being offered in the JS Acquisition Tender Offer.
If you wish to, you can tender your shares of Class A
Common Stock into the JS Acquisition Tender Offer.
|
|
Q:
|
Can I
tender my shares of Class A Common Stock into the JS
Acquisition Tender Offer and still submit a proxy or vote my
shares at the special meeting?
|
Yes. If you were a holder of your shares of Class A Common
Stock as of the record date for the special meeting, which
was ,
2010, you will be able to submit a proxy or vote your shares of
Class A Common Stock at the special meeting, regardless of
whether you have tendered your shares into the JS Acquisition
Tender Offer.
|
|
Q:
|
Will
the Class A Common Stock vote on the proposal separately
from the Class B Common Stock?
|
No. The shares of Class A Common Stock and Class B
Common Stock will vote together on the proposal as a single
class.
|
|
Q:
|
What
happens to outstanding stock options?
|
If the Transactions are completed, all of
Mr. Smulyans outstanding options will be contributed
to Emmis and cancelled immediately prior to the Merger. Any
outstanding options to purchase Class A Common Stock held
by persons other than Mr. Smulyan, will vest if unvested,
and each such option with an exercise price of less than $2.40
per share (without interest and less any applicable withholding
taxes) will be converted in the Merger into the right to receive
an amount of cash per option equal to $2.40 (without interest
and less any applicable withholding taxes) minus the exercise
price of the option. All other options will be cancelled.
|
|
Q:
|
What
happens to restricted stock and restricted stock
units?
|
Immediately prior to the Merger, each share of restricted stock
and each restricted stock unit, whether or not vested, will vest
and be cancelled, and the holders of restricted stock and
restricted stock units will be entitled to receive $2.40
(without interest and less any applicable withholding taxes) for
each share of restricted stock and each share underlying any
restricted stock units (whether or not vested).
Questions
and Answers Regarding the Transactions that are Primarily
Applicable to Holders of Existing Preferred Stock
|
|
Q:
|
Where
is the means to tender my Existing Preferred
Stock?
|
Record holders of Existing Preferred Stock may be receiving
letters of transmittal and instruction letters in a separate
package. If you hold Existing Preferred Stock, you must tender
your shares of Existing Preferred Stock as you have been
instructed in order to validly tender your shares into the
Exchange Offer. Voting your shares of Existing Preferred
Stock in favor of the Proposed Amendments is not sufficient to
tender your shares of Existing Preferred Stock.
|
|
Q:
|
If I
tender my shares of Existing Preferred Stock into the Exchange
Offer, will that also constitute a vote in favor of the Proposed
Amendments?
|
No. Unlike a tender offer/consent solicitation relating
to debt securities, in order to vote your shares of Existing
Preferred Stock, you must also sign and mail in the provided
proxy card or follow the instructions given to you by your
broker or other nominee in order to vote in favor of the
Proposed Amendments. Failure to vote your shares of Existing
Preferred Stock in favor of the Proposed Amendments will make it
less likely that the Exchange Offer will be completed.
|
|
Q:
|
Will
the Proposed Amendments become effective if the Exchange Offer
is not completed?
|
No. The Proposed Amendments will not become effective unless all
conditions precedent to the completion of the Exchange Offer
(other than the adoption and effectiveness of the Proposed
Amendments) have been satisfied or waived.
14
|
|
Q:
|
Will
anything happen to my Existing Preferred Stock if I vote in
favor of the Proposed Amendments?
|
Yes. The Proposed Amendments will amend the rights and
privileges of the Existing Preferred Stock. You should read the
sections of this Proxy Statement/Offer to Exchange relating to
the Proposed Amendments to determine whether to submit a proxy
or vote your shares of Existing Preferred Stock in favor of the
proposal to adopt the Proposed Amendments. See The
Proposal and Schedule B.
In addition, the Exchange Offer is conditioned on, among other
things, the adoption and effectiveness of the Proposed
Amendments. If you wish to receive New Notes in exchange for
your shares of Existing Preferred Stock, you should tender your
shares in the Exchange Offer and submit a proxy or vote your
shares in favor of the proposal to adopt the Proposed
Amendments. Failure to vote your shares of Existing Preferred
Stock in favor of the Proposed Amendments will make it less
likely that the Exchange Offer will be completed.
|
|
Q:
|
If I
do not tender my shares of Existing Preferred Stock, what will
happen to those shares?
|
If the Exchange Offer is not completed or if the Proposed
Amendments are not approved and do not become effective, nothing
will happen to your shares of Existing Preferred Stock.
If the Proposed Amendments become effective, the Merger will
result in the conversion of each share of Existing Preferred
Stock, other than the shares held by the Alden Fund, into the
right to receive $5.856 in cash (without interest and less any
applicable withholding taxes), which is equal to the $2.40 in
cash (without interest and less any applicable withholding
taxes) per share that holders of the Class A Common Stock
will receive in the Merger times 2.44, which is the number of
shares of Class A Common Stock into which each share of
Existing Preferred Stock can be converted.
|
|
Q:
|
Will
there be significant differences between the rights and
privileges of the New Notes, compared to the rights and
privileges of the Existing Preferred Stock?
|
Yes. The two securities are significantly different from each
other.
The New Notes will be debt securities of Emmis, with a final
contractual maturity date but no conversion feature or rights to
receive cash interest or nominate directors. The Existing
Preferred Stock is an equity security with no final contractual
maturity date that is convertible into Class A Common Stock
and may, under certain circumstances, nominate directors to our
board of directors. See The Exchange Offer
Comparison of Rights of Holders of Existing Preferred Stock to
Rights of Holders of New Notes.
|
|
Q:
|
Will
holders of Existing Preferred Stock be entitled to
dissenters rights?
|
Holders of Existing Preferred Stock are not entitled to
dissenters rights under Indiana law with respect to the JS
Acquisition Tender Offer, the Exchange Offer, the Proposed
Amendments or the Merger. The JS Acquisition Tender Offer, the
Exchange Offer and the Proposed Amendments are not among the
transactions for which dissenters rights are provided
under § 23-1-44-8 Ind. BCL.
With respect to the Merger, holders of shares are entitled to
dissenters rights only if they have a right to vote on the
Merger or they are entitled to dissenters rights under the
Articles of Incorporation, Emmis bylaws or a resolution of
the board of directors of Emmis. Holders of Existing Preferred
Stock do not have a right to vote on the Merger. Neither the
Articles of Incorporation nor Emmis bylaws contains any
provision providing the holders of Existing Preferred Stock with
dissenters rights with respect to the Merger, nor has the
board of directors adopted a resolution to that effect.
General
Questions and Answers
|
|
Q:
|
Who
will serve as the information agent with respect to the special
meeting and the Exchange Offer? Who will serve as Exchange Agent
with respect to the Exchange Offer?
|
BNY Mellon Shareowner Services will serve as Information Agent
in connection with the special meeting and the Exchange Offer.
The Information Agents telephone number is
(201) 680-6579
or
(866) 301-0524
15
(toll free). See The Exchange Offer-Information
Agent and the information set forth on the back cover of
this proxy statement. The Information Agent can help answer your
questions.
BNY Mellon Shareowner Services will serve as Exchange Agent with
respect to the Exchange Offer. The Exchange Agents
telephone number is
(201) 680-6579
or
(800) 777-3674
(toll free). See The Exchange Offer-Exchange Agent
and the information set forth on the back cover of this proxy
statement.
|
|
Q:
|
When
and where is the special meeting?
|
The special meeting will be held
on ,
2010, at , local time, at One Emmis
Plaza, 40 Monument Circle, Indianapolis, Indiana 46204.
|
|
Q:
|
What
will be voted on at the special meeting?
|
Shareholders will vote on the proposal to adopt the Proposed
Amendments at the special meeting. The special meeting will also
allow the transaction of any other business that may properly
come before the special meeting and any adjournments or
postponements of the special meeting.
|
|
Q:
|
Who is
entitled to vote at the special meeting?
|
Only holders of record of our Common Stock or Existing Preferred
Stock at the close of business
on ,
2010 are entitled to notice of and to vote at the special
meeting and any adjournments or postponements of the special
meeting.
You may attend the special meeting and vote in person or you can
vote by proxy. To vote by proxy, sign and date each proxy card
you receive and return it in the prepaid envelope. If you return
your signed proxy card but do not indicate your voting
preferences, we will vote on your behalf FOR the proposal to
adopt the Proposed Amendments.
If you mark abstain on your proxy card, your shares
will be counted as present for purposes of determining the
presence of a quorum. You have the right to revoke your proxy at
any time before the meeting by either notifying our corporate
secretary or returning a later-dated proxy. You may also revoke
your proxy by voting in person at the special meeting.
If you hold your shares through a broker, you should contact
your broker to determine the procedure by which you can vote on
these proposals. If your shares are held in the name of a bank,
broker or other holder of record, you must obtain a proxy,
executed in your favor, from the holder of record to be able to
vote in person at the meeting.
|
|
Q:
|
If my
shares are held in street name by my broker, will my
broker vote my shares for me?
|
Your broker will vote your shares only if you provide written
instructions on how to vote. You should follow the directions
provided by your broker regarding how to instruct your broker to
vote your shares.
|
|
Q:
|
What
does it mean if I get more than one proxy card?
|
If you receive more than one proxy card, it means you hold
shares registered in more than one account or may hold more than
one class of shares. Sign and return ALL proxy cards to ensure
that all your shares are voted.
|
|
Q:
|
What
are the voting rights of the Class A Common Stock and the
Class B Common Stock?
|
For all matters to be addressed at the special meeting, each
share of Class A Common Stock is entitled to one vote and
each share of Class B Common Stock is entitled to ten
votes. In this case, the Class A and Class B Common
Stock vote together as a single class.
16
|
|
Q:
|
What
are the voting rights of the Existing Preferred
Stock?
|
Each share of the Existing Preferred Stock is entitled to one
vote, voting separately as a class. The Existing Preferred Stock
has no voting rights with respect to any other matter that might
come up at the special meeting.
|
|
Q:
|
What
constitutes a quorum?
|
A majority of the combined voting power of the outstanding
Class A and Class B Common Stock, and a majority of
the combined voting power of the Existing Preferred Stock,
entitled to vote at the meeting constitutes a quorum for the
special meeting (i.e., counting one vote for each share
of outstanding Class A Common Stock, ten votes for each
share of outstanding Class B Common Stock and one vote for
each share of outstanding convertible preferred stock, present
in person or represented by proxy). No additional quorum
requirements apply to matters on which the holders of
Class A and Class B Common Stock will vote together as
a single class.
|
|
Q:
|
What
do I need to do now?
|
First, read this Proxy Statement/Offer to Exchange carefully.
Then, you should complete, sign and mail your proxy card in the
enclosed return envelope as soon as possible. If you wish to
tender shares of Existing Preferred Stock, you should also send
in the tender documents you may be receiving separately from
this Proxy Statement/Offer to Exchange or follow the
instructions for tendering given to you by your broker or other
nominee holder.
|
|
Q:
|
May I
Change My Vote After I Have Mailed In My Signed Proxy Card Or
Otherwise Voted?
|
Yes. To change your vote you can:
|
|
|
|
|
send in a later-dated, signed proxy card or a written revocation
before the special meeting; or
|
|
|
|
attend the meeting in person and give oral notice of your
intention to vote in person.
|
Simply attending the meeting will not in and of itself
constitute a revocation of your proxy.
|
|
Q:
|
What
do I do if I have additional questions?
|
If you have any questions prior to the special meeting, please
call our Investor Relations Department
toll-free at
(866) 366-4703.
You may also contact BNY Mellon Shareowner Services, Emmis
Information Agent for the Special Meeting, toll-free at
(866) 301-0524.
17
SUMMARY
OF THE EXCHANGE OFFER
The following is a summary of the terms of the Exchange
Offer. Please refer to The Exchange Offer for
complete information regarding the terms of the Exchange
Offer.
|
|
|
Securities Sought |
|
We are offering to issue New Notes in exchange for any and all
outstanding shares of Existing Preferred Stock. As of
May 17, 2010, there were 2,809,170 shares of Existing
Preferred Stock outstanding. |
|
|
|
The Existing Preferred Stock is listed on the NASDAQ Global
Select Market under the ticker symbol, EMMSP. See
Price Range and Other Information with Respect to the
Existing Preferred Stock for trading price, dividend and
other information regarding the Existing Preferred Stock. |
|
Is it Sufficient to Send in a Proxy
Card if I Wish to Participate in the Exchange Offer? |
|
Voting your shares of Existing Preferred Stock in favor of
the Proposed Amendments is NOT sufficient to tender your shares
of Existing Preferred Stock into the Exchange Offer. In order to
participate in the Exchange Offer, you must tender your shares
of Existing Preferred Stock as instructed. |
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Exchange Ratio |
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We will issue New Notes at a rate of $30.00 aggregate principal
amount of New Notes for each $50.00 liquidation preference of
Existing Preferred Stock (excluding accrued and unpaid
dividends). |
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Accrued and Unpaid Dividends |
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Accrued and unpaid dividends will not be paid on any shares of
Existing Preferred Stock tendered into the Exchange Offer, and
you will no longer have the right to receive such dividends
after your shares of Existing Preferred Stock are accepted and
paid for in the Exchange Offer. As of April 15, 2010, $4.87
per share of unpaid dividends had accrued on the Existing
Preferred Stock. |
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Fairness; Recommendation |
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The full Emmis board of directors unanimously determined that
the Exchange Offer is fair to Unaffiliated Shareholders who hold
Existing Preferred Stock and Unaffiliated Shareholders who hold
Class A Common Stock. Nevertheless, the Emmis board of directors
is not making any recommendation as to whether holders of
Existing Preferred Stock should participate in the Exchange
Offer or vote for the Proposed Amendments. |
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The Emmis board of directors believes that, because of the
circumstances surrounding the Transactions, including the
background of the Transactions, the conflicts of interest
inherent in the Transactions and the lack of a recommendation by
the Emmis board of directors, each holder of Existing Preferred
Stock should not rely on the fairness determination of the Emmis
board of directors and should make its own independent
analysis. |
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Proposed Amendments |
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We are simultaneously soliciting proxies from holders of at
least 2/3 of
outstanding Existing Preferred Stock to vote in favor of the
Proposed Amendments at the special meeting. Holders of Existing
Preferred Stock must submit proxies in the Preferred Proxy
Solicitation in order to vote in favor of the Proposed
Amendments. |
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Under the Alden Purchase Agreement, the Alden Fund, which holds
approximately 41.4% of the votes eligible to be cast by holders
of the Existing Preferred Stock with respect to the Proposed
Amendments, has agreed to vote in favor of the Proposed
Amendments. |
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We are also simultaneously soliciting proxies to obtain the
affirmative votes of more shares of Common Stock, voting
together as a single class, voting in favor than against the
Proposed Amendments, assuming a quorum is present, at the
special meeting. We will not complete the Exchange Offer unless
the Required Vote for the Proposed Amendments is received and
the Proposed Amendments are effected. As of the date of this
Proxy Statement/Offer to Exchange, Mr. Smulyan directly
owns shares of Common Stock entitling him to cast approximately
60.0% of the votes able to be cast by holders of Common Stock at
the special meeting, and the Alden Fund directly owns shares of
Common Stock entitling it to cast approximately 1.7% of the
votes able to be cast by holders of Common Stock at the special
meeting. Under the Alden Purchase Agreement, Mr. Smulyan
has agreed to vote his shares of Common Stock in favor of the
proposal to adopt the Proposed Amendments, and the Alden Fund
has agreed to vote its shares of Common Stock in favor of the
proposal to adopt the Proposed Amendments, so the proposal will
be approved by the holders of the Common Stock. |
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We will not complete the Exchange Offer unless the Proposed
Amendments are adopted and effected. |
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Conditions to the Exchange Offer |
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Our obligation to complete this Exchange Offer, to accept your
shares of Existing Preferred Stock tendered in the Exchange
Offer and to issue the New Notes in exchange for such shares of
Existing Preferred Stock is conditioned on, among other things: |
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the Proposed Amendments having been adopted by the
holders of Common Stock and Existing Preferred Stock;
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not less than a minimum number of shares, which as
of May 17, 2010 would equal 32.8% of the outstanding shares
of Class A Common Stock, having been validly tendered and
not validly withdrawn in the JS Acquisition Tender Offer and
having been simultaneously accepted for payment by JS
Acquisition;
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the payment to JS Parent by Alden Media of the
purchase price for its investment in JS Parent under the Alden
Purchase Agreement; and
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other customary conditions precedent.
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See The Exchange Offer Conditions to the
Exchange Offer. |
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Eligible Offerees; Transfer Restrictions |
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The Exchange Offer will be exempt from registration under the
Securities Act under Section 3(a)(9) of that Act. All
holders of Existing Preferred Stock are eligible to participate
in the Exchange Offer. |
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If your shares of Existing Preferred Stock are freely
transferable without registration under the Securities Act, any
New Notes you receive in the Exchange Offer will also be freely
transferable. |
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Expiration Date |
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The offers will expire at 11:59 p.m., New York City time,
on ,
2010, unless extended by Emmis with respect to any or all series
of old notes (such date and time, as the same may be extended,
the Expiration Date). We, in our sole discretion,
may extend the Expiration Date for any offer for any purpose,
including in order to permit the satisfaction or waiver of any
or all conditions to any offer. See The Exchange
Offer Expiration Time, Extensions, Termination and
Amendments. |
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Settlement Date |
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The settlement date of the Exchange Offers will be as soon as
practicable following the Expiration Date. |
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Procedures for Tendering |
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The means to tender your shares of Existing Preferred Stock
may be sent to you separately from the proxy card and proxy
instructions. Voting your shares of Existing Preferred Stock in
favor of the Proposed Amendments is not sufficient to tender
your shares of Existing Preferred Stock into the Exchange
Offer. If you wish to participate in the Exchange Offer and
your Existing Preferred Stock is held by a custodial entity,
such as a bank, broker, dealer, trust company or other nominee,
you must instruct that custodial entity to tender your Existing
Preferred Stock on your behalf pursuant to the procedures of
that custodial entity. If your Existing Preferred Stock is
registered in your name, you must complete, sign and date the
accompanying letter of transmittal, or a facsimile of the letter
of transmittal, according to the instructions contained in this
Proxy Statement/Offer to Exchange and the letter of transmittal.
See The Exchange Offer How to Tender. |
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Withdrawal Deadline |
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You may withdraw your tendered shares of Existing Preferred
Stock at any time prior to the Expiration Date. |
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Withdrawal of Tenders and Revocation of Proxies |
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You may withdraw the tender of your Existing Preferred Stock
prior to the Expiration Date by submitting a notice of
withdrawal to the exchange agent using ATOP procedures and/or
upon compliance with the other procedures described in this
Proxy Statement/Offer to Exchange. |
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Proper withdrawal of your Existing Preferred Stock will not be
deemed to revoke the related proxy in favor of the Proposed
Amendments. You must separately revoke your proxy in order to
not have your shares of Existing Preferred Stock voted in favor
of the Proposed Amendments. |
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Consequences of Failure to Tender |
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If the Exchange Offer is completed, a failure to tender your
shares of Existing Preferred Stock in the Exchange Offer could
have the following consequences, among others: |
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claims with respect to your shares of Existing
Preferred Stock would be junior in right of payment to all of
the New Notes issued in the Exchange Offer;
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your Existing Preferred Stock would no longer have
the covenant protections, such as the right to nominate
directors and protections against going private transactions,
that were removed by the Proposed Amendments; and
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if the Merger is completed, you will not receive New
Notes for your shares of Existing Preferred Stock, but, instead,
each share of your Existing Preferred Stock will be converted
into the right to receive $5.856 in cash (without interest and
less any applicable withholding taxes), which is equal to the
conversion rate of the Existing Preferred Stock of
2.44 shares of Class A Common Stock per share times
the $2.40 in cash (without interest and less any applicable
withholding taxes) per share of Class A Common Stock that
is being offered in the JS Acquisition Tender Offer.
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For a description of the consequences of failing to exchange
your old notes, see Risk Factors Risks
Applicable to Existing Preferred Stock Not Tendered in the
Exchange Offer. |
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Taxation |
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For a summary of the material U.S. federal income tax
consequences of the Exchange Offer, see Certain Material
U.S. Federal Income Tax Consequences. |
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Accounting Treatment |
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The Transactions will not be accounted for as a purchase,
because there is no change of ownership involved.
Mr. Jeffrey H. Smulyan, who beneficially owned
approximately 60.0% of the total voting power of the outstanding
Common Stock of Emmis as of May 17, 2010, will own all of
Emmis voting stock after the completion of the
Transactions. |
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Interests of Certain Persons in the Transactions |
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A number of directors and executive officers of Emmis have
interests in the Transactions, which may be different from
yours. See The Exchange Offer Executive
Officer and Director Participation; Interests of Certain Persons
in the Transactions. |
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Dealer Managers and Solicitation Agents |
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No dealer managers or solicitation agents have been retained to
solicit tenders or proxies. |
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Exchange Agent and Information Agent |
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BNY Mellon Shareowner Services. The addresses and telephone
numbers of BNY Mellon Shareowner Services are listed on the back
cover page of this Proxy Statement/Offer to Exchange. |
21
SUMMARY
OF THE PROXY SOLICITATIONS
The following is a summary of certain aspects of the Proxy
Solicitations. Please refer to The Special Meeting
and The Proposal for complete information regarding
the terms of the Proxy Solicitations.
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Special Meeting |
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The special meeting of the shareholders of Emmis Communications
Corporation will be held
on , ,
2010, at , local time, at One Emmis
Plaza, 40 Monument Circle, Indianapolis, Indiana 46204. The
shareholders of Emmis will consider the Proposed Amendments at
the special meeting. The text of the Proposed Amendments is
attached to this Proxy Statement/Offer to Exchange as Schedule
B. Shareholders should read the text of the Proposed Amendments
in their entirety. |
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Does a Tender of my Existing Preferred Stock in the
Exchange Offer Constitute a Vote in Favor of the
Proposed Amendments? |
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Unlike a tender offer/consent solicitation relating to debt
securities, in order to vote your shares of Existing Preferred
Stock, you must also sign and mail in the provided proxy card or
follow the instructions given to you by your broker or other
nominee in order to vote in favor of the Proposed Amendments.
Failure to vote your shares of Existing Preferred Stock in
favor of the Proposed Amendments will make it less likely that
the Exchange Offer will be completed. |
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Recommendation |
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The full Emmis board of directors unanimously determined that
the Exchange Offer is fair to Unaffiliated Shareholders who hold
Existing Preferred Stock and Unaffiliated Shareholders who hold
Class A Common Stock. Nevertheless, the Emmis board of directors
is not making any recommendation as to whether holders of
Existing Preferred Stock should participate in the Exchange
Offer or vote for the Proposed Amendments. |
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The Emmis board of directors believes that, because of the
circumstances surrounding the Transactions, including the
background of the Transactions, the conflicts of interest
inherent in the Transactions and the lack of a recommendation by
the Emmis board of directors, each holder of Existing Preferred
Stock should not rely on the fairness determination of the Emmis
board of directors and should make its own independent
analysis. |
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Record Date |
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Holders of record of Class A Common Stock, Class B
Common Stock and/or Preferred Stock as
of ,
2010 will be entitled to vote those shares of stock at the
special meeting. |
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Condition to Effectiveness of the Proposed Amendments |
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The Proposed Amendments will not become effective unless all
conditions precedent to the completion of the Exchange Offer
(other than the adoption and effectiveness of the Proposed
Amendments) have been satisfied or waived. |
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Existing Preferred Stock |
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We are soliciting proxies from holders of record, as
of ,
2010, of the Existing Preferred Stock to vote at the special
meeting in favor of the following Proposed Amendments: |
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to eliminate the rights of the holders of the
Existing Preferred Stock to require Emmis to redeem all or a
portion of their shares on the first anniversary after the
occurrence of certain going private transactions and nominate
directors to Emmis board of directors; and
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provide for the automatic conversion upon the
proposed merger of JS Acquisition with and into Emmis, with
Emmis surviving the merger (i) of the Existing Preferred
Stock (other than the Existing Preferred Stock held by Alden)
not exchanged for the New Notes into that amount of
consideration that would be paid to holders of Class A
Common Stock into which the Existing Preferred Stock was
convertible immediately prior to the Merger and (ii) of the
Existing Preferred Stock held by Alden into the New Notes.
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The affirmative vote of holders of at least 2/3 of the
outstanding shares of Existing Preferred Stock will be required
in order to adopt the Proposed Amendments. Holders of Existing
Preferred Stock must submit proxies in the Proxy Solicitation in
order to vote in favor of the Proposed Amendments. As of the
record date, there were 2,809,170 shares of Existing
Preferred Stock outstanding. |
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Under the Alden Purchase Agreement, the Alden Fund, which holds
approximately 41.4% of the votes eligible to be cast by holders
of the Existing Preferred Stock with respect to the Proposed
Amendments, has agreed to vote in favor of the Proposed
Amendments. |
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Common Stock |
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We are also soliciting proxies from holders of record, as
of ,
2010, of Class A and Class B Common Stock, voting
together as a single class, to vote at the special meeting in
favor of the following Proposed Amendments: |
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to eliminate the rights of the holders of the
Existing Preferred Stock to require Emmis to redeem all or a
portion of their shares on the first anniversary after the
occurrence of certain going private transactions and nominate
directors to Emmis board of directors; and
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provide for the automatic conversion upon the
proposed merger of JS Acquisition with and into Emmis, with
Emmis surviving the merger (i) of the Existing Preferred
Stock (other than the Existing Preferred Stock held by Alden)
not exchanged for the New Notes into that amount of
consideration that would be paid to holders of Class A
Common Stock into which the Existing Preferred Stock was
convertible immediately prior to the Merger and (ii) of the
Existing Preferred Stock held by Alden into the New Notes.
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The affirmative vote of more shares of Common Stock, voting
together as a single class, voting in favor than against the
Proposed Amendments, assuming a quorum is present, will be
required in order to adopt the Proposed Amendments. As of the
record date, there were
outstanding shares
of Class A Common Stock, with one vote per share on the
Proposed Amendments,
and |
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shares of Class B Common Stock, with ten votes per
share on the Proposed Amendments. |
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As of the date of this Proxy Statement/Offer to Exchange,
Mr. Smulyan directly owns shares of Common Stock entitling
him to cast approximately 60.0% of the votes able to be cast by
holders of Common Stock at the special meeting, and the Alden
Fund directly owns shares of Common Stock entitling it to cast
approximately 1.7% of the votes able to be cast by holders of
Common Stock at the special meeting. Under the Alden Purchase
Agreement, Mr. Smulyan has agreed to vote his shares of
Common Stock in favor of the proposal to adopt the Proposed
Amendments, and the Alden Fund has agreed to vote its shares of
Common Stock in favor of the proposal to adopt the Proposed
Amendments, so the proposal will be approved by the holders of
the Common Stock. |
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Abstentions and Broker Non-Votes |
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If you mark abstain on your proxy card, your shares
will be counted as present for purposes of determining the
presence of a quorum. If your shares of Common Stock or Existing
Preferred Stock are held in street name or through
nominees, brokers and other nominees will not be permitted to
vote on the Proposed Amendments unless instructed by you since
the Proposed Amendments are not routine matters for
purposes of the NASDAQ rules. Proxies submitted by brokers and
other nominees who do not indicate a vote for the proposal
because the holders do not have discretionary voting authority
and have not received instructions from the beneficial owners on
how to vote on those proposals are called broker
non-votes. Abstentions and broker non-votes will not
affect the voting on the Proposed Amendments for shares of
Class A and Class B Common Stock, but will have the
same effect as voting against the Proposed Amendments for shares
of Existing Preferred Stock. |
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Required Vote in order to Complete the Exchange Offer |
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In order to adopt the Proposed Amendments, the requisite vote of
holders of both the Existing Preferred Stock and the Common
Stock, as described above, will be required. It is a
condition precedent to the completion of the Exchange Offer that
the Required Vote be obtained and the Proposed Amendments be
adopted and effected. |
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Revocation of Proxies |
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You may change your vote if you send in a later-dated, signed
proxy card or a written revocation with respect to your shares
of Common Stock or Existing Preferred Stock, as applicable,
prior to the special meeting. You can also attend the special
meeting in person and give oral notice of your intention to vote
in person. |
24
SUMMARY
OF THE NEW NOTES
The following is a summary of the terms of the New Notes.
Please refer to Description of the New Notes and the
form of indenture for the New Notes, which is filed as an
exhibit to the Statement on Schedule TO of which this Proxy
Statement/Offer to Exchange is a part, for complete information
regarding the terms of the New Notes.
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Issuer |
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Emmis Communications Corporation |
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Title of Security |
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12% PIK Senior Subordinated Notes due 2017 |
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Maximum Aggregate Principal Amount |
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$84,275,100, assuming all holders of the Existing Preferred
Stock tender their shares. |
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Maturity |
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,
2017, unless redeemed earlier by Emmis as described under the
heading Description of the New Notes Optional
Redemption. |
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Interest |
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12.00% per annum accruing from the date of issuance, payable in-
kind, in arrears, annually on
each ,
beginning
on ,
2011. |
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Subsidiary Guarantees |
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The New Notes will not be guaranteed by any of Emmis
subsidiaries. |
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Security |
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The New Notes will not be secured by any assets. |
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Mandatory Redemption |
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Except as provided below, Emmis is not required to make
mandatory redemption or sinking fund payments with respect to
the New Notes. |
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If the New Notes would otherwise constitute applicable
high yield discount obligations within the meaning of
Section 163(i)(1) of the Internal Revenue Code of 1986, as
amended (the Code), at the end of each accrual
period ending after the fifth anniversary of the New Notes
issuance (each, an AHYDO Redemption Date), Emmis
will be required to redeem for cash a portion of each New Note
then outstanding equal to the mandatory principal
redemption amount (such redemption, a mandatory
principal redemption). The redemption price for the
portion of each New Note redeemed pursuant to a mandatory
principal redemption will be 100% of the principal amount of
such portion plus any accrued interest thereon to the date of
redemption. The mandatory principal redemption
amount means the portion of a New Note required to be
redeemed to prevent such New Note from being treated as an
applicable high yield discount obligation within the
meaning of Section 163(i)(1) of the Code. No partial
redemption or repurchase of the New Notes prior to any AHYDO
Redemption Date pursuant to any other provision of the Indenture
will alter Emmis obligations to make the mandatory
principal redemption with respect to any New Notes that remain
outstanding on any AHYDO Redemption Date. |
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Optional Redemption |
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Emmis may redeem the New Notes, in whole at any time or in part
from time to time, at our option on not less than 30 nor more
than 60 days notice, at a price equal to 100% of
their principal amount, plus accrued and unpaid interest to, but
not including, the date of |
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redemption. See Description of the New Notes
Optional Redemption. |
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Ranking |
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The New Notes will be senior subordinated obligations of Emmis
and will rank upon liquidation: |
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senior in right of payment to any of Emmis
existing and future indebtedness that is expressly subordinated
in right of payment to the New Notes, including the 15% PIK
Junior Subordinated Notes due 2017 (Junior Subordinated
Notes) that may be issued in connection with a redemption
of the Exchanged ECC Shares;
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senior in right of payment to any shares of Existing
Preferred Stock not tendered in the Exchange Offer;
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subordinated in right of payment to any of
Emmis existing and future senior indebtedness, including
Emmis guarantee of the Credit Facility;
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equal in right of payment with any of Emmis
existing and future senior subordinated indebtedness;
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effectively subordinated to any of Emmis
future secured indebtedness, to the extent of the assets
securing such indebtedness; and
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effectively subordinated to all indebtedness,
liabilities (including trade payables) and preferred stock of
Emmis subsidiaries, including under the Credit Facility.
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On an as-adjusted basis, as of February 28, 2010, the New
Notes would be effectively subordinated to $341.2 million
of indebtedness under the Credit Facility, with
$17.1 million of additional indebtedness available for
borrowing under the Credit Facility, net of $0.9 million of
letters of credit, and $146.1 million of other liabilities.
Because of Emmis guarantee of the Credit Facility, the New
Notes would also be subordinated in right of payment to that
guarantee. |
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The ability of Emmis to prepay the New Notes (including its
right to optionally redeem New Notes or the requirement that it
mandatorily redeem the New Notes) is also subject to
limitations, as described under Description of the New
Notes Subordination. |
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Covenants |
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The indenture for the New Notes will not contain any material
restrictive covenants. See Description of the New
Notes. |
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Reports |
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The indenture for the New Notes will not contain any requirement
to file with the SEC or provide periodic or current reports,
except as may be required under the Trust Indenture Act of
1939. Based on currently applicable interpretations of the TIA
and the lack of rules promulgated thereunder, we would not be
required to file or provide any such reports. See Risk
Factors Risks Related to the Exchange
Notes After completion of the Transactions, we
may no longer be a company that has any classes of securities
listed on a stock exchange or registered under the Exchange Act,
and we |
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will not be required, under the indenture governing the New
Notes, to provide any such reports to holders of the New
Notes. |
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Effects on Rights of Holders |
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The rights of holders of New Notes, which will be indebtedness
of Emmis, will be significantly different from those of holders
of Existing Preferred Stock, which are equity securities of
Emmis. For more information on these differences, please see
The Exchange Offer Comparison of Rights of
Holders of Existing Preferred Stock to Rights of Holders of New
Notes. |
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Form and Denomination |
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The New Notes will be represented by one or more global notes,
deposited with a trustee as a custodian for the Depository
Trust Company and registered in the name of
Cede & Co., DTCs nominee. Beneficial interests
in the global notes will be shown on, and any transfers will be
effective only through, records maintained by DTC and its
participants. Interests in the global notes will be issued in
minimum denominations of $1.00 and integral multiples of $1.00.
No cash will be paid in lieu of any fractional New Notes that
would otherwise be issuable. |
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Securities Law Restrictions |
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The Exchange Offer will be exempt from registration under the
Securities Act under Section 3(a)(9) of that Act. All
holders of Existing Preferred Stock are eligible to participate
in the Exchange Offer. |
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If your shares of Existing Preferred Stock are freely
transferable without registration under the Securities Act, any
New Notes you receive in the Exchange Offer will also be freely
transferable. |
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No Registration Rights |
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The New Notes will not have any registration rights. |
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Trust Indenture Act of 1939 |
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The indenture governing the New Notes will be qualified under
the Trust Indenture Act of 1939 (the TIA), and
the terms of the New Notes and the indenture governing the New
Notes will include those stated in the New Notes and such
indenture and those made part of such indenture by reference to
the TIA. Emmis expects to file an application on
Form T-3
to qualify the indenture under the TIA. |
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No Listing |
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We will not list the New Notes for trading on any securities
exchange or automated quotation system. |
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Use of Proceeds |
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We will not receive any proceeds from the Exchange Offer. |
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Governing Law |
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The indenture for the New Notes will be governed by New York law. |
For a description of certain of certain considerations that
should be taken into account in connection with the Exchange
Offer and in connection with an investment in the New Notes, see
Risk Factors.
27
RISK
FACTORS
Investing in the New Notes involves risk. You should
carefully consider the following risks, the information set
forth under Managements Discussion and Analysis of
Financial Condition and Results of Operations and other
information in this Proxy Statement/Offer to Exchange before
deciding to invest in the New Notes by tendering your shares of
Existing Preferred Stock. The following risks and uncertainties
could materially and adversely affect our business, financial
condition or operating results.
The risks below are not the only ones that we face. Some
risks may not yet be known to Emmis and some that we do not
currently believe to be material could later turn out to be
material. Any of these risks could materially affect our
business, financial condition and results of operations. Past
financial performance may not be a reliable indicator of future
performance, and historical trends should not be used to
anticipate results or trends in future periods.
Risks
Related to Our Capital Structure and the Transactions
The
substantial level of our indebtedness may limit the cash flow
available to invest in the ongoing needs of our business and may
have a material, adverse effect on our business and results of
operations.
We have substantial indebtedness. As of February 28, 2010,
on an as-adjusted basis, we would have approximately
$425.5 million of total consolidated indebtedness
outstanding, including $84.3 million aggregate principal
amount of New Notes offered in this Exchange Offer and
$341.2 million under the Credit Facility, with
$17.1 million available for borrowing, net of
$0.9 million of letters of credit.
Our substantial indebtedness could have important consequences.
For example, it could:
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require Emmis to dedicate a substantial portion of our cash flow
from operations to interest and principal payments on our
indebtedness, reducing the availability of our cash flow for
other purposes, such as capital expenditures, acquisitions or
working capital;
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limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
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increase our vulnerability to general adverse economic and
industry conditions;
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place Emmis at a disadvantage compared to our competitors who
have less debt; and
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limit our ability to borrow additional funds.
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We expect to obtain the money necessary to pay our expenses,
fund working capital and capital expenditures, and to pay the
interest on our various debt instruments from cash flow from our
operations and from our existing and available borrowings under
the Credit Facility. Our ability to meet our debt obligations
and other expenses thus depends on our future performance, which
will be affected by financial, business, economic and other
factors. We will not be able to control many of these factors,
such as economic conditions in the industry in which we operate
and competitive pressures. Our cash flow may not be sufficient
to allow Emmis to pay interest on our debt and to meet our other
obligations. If we do not have enough cash flow, we may be
required to refinance all or part of our existing debt, sell
assets or borrow additional money. We may not be able to do so
on terms acceptable to Emmis or at all. In addition, the terms
of existing or future debt agreements may restrict Emmis from
adopting any of these alternatives. The failure to generate
sufficient cash flow or to achieve such alternatives could
reduce the value of the New Notes and limit Emmis ability
to pay principal and interest, including PIK interest, on the
New Notes.
We may
not be able to refinance our outstanding indebtedness that is
due prior to the 2017 maturity date of the New Notes, including
that under the Credit Facility, which is due in November 2012
and November 2013.
As of February 28, 2010, on an as-adjusted basis, we would
have had $2.0 million of outstanding indebtedness under the
revolving facility of the Credit Facility, which is due in
November 2012, and $339.2 million of outstanding term loans
under the Credit Facility, which are due November 2013.
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Therefore, prior to the maturity of the New Notes, we will need
to repay, refinance, extend the maturity of or otherwise amend
the terms of this indebtedness under the Credit Facility. Our
ability to refinance the Credit Facility is dependent upon,
among other things, business conditions and our financial
performance. The indenture governing the New Notes will not
limit our ability to pay fees or interest on any permitted
refinancing, and therefore, the indebtedness issued in any
refinancing of the Credit Facility could have a significantly
higher rate of interest and costs than the Credit Facility has
currently. We may not be able to refinance, extend the maturity
of or otherwise amend the terms of the Credit Facility, and any
refinancing, extension or amendment may not be on commercially
reasonable terms. The financial terms or covenants of any new or
replacement credit facility or other indebtedness issued to
refinance the Credit Facility may be more stringent than those
existing under the Credit Facility currently.
Our ability to complete a refinancing of our indebtedness under
the Credit Facility prior to its maturity is also subject to a
number of conditions beyond our control. For example, if a
disruption in the financial markets were to occur at the time
that we intended to refinance this indebtedness, we might be
restricted in our ability to access the financial markets. If we
are unable to refinance this indebtedness, our alternatives
would consist of negotiating an extension of the Credit Facility
and seeking or raising new capital. General economic conditions
and lack of availability of capital may also prevent Emmis from
completing a successful refinancing or extension. A failure to
refinance the Credit Facility prior to its maturity date would
have a material adverse effect on our financial condition and
would materially and adversely impact our ability to make
payments on the New Notes.
Despite
our current indebtedness levels, we may still be able to incur
substantially more debt. This additional debt could exacerbate
further the risks associated with our substantial
leverage.
Emmis and its subsidiaries may be able to incur substantial
additional indebtedness, including additional secured
indebtedness, in the future. The terms of the Credit Facility
restrict, but do not completely prohibit, Emmis and its
subsidiaries from doing so. In addition, the indenture governing
the New Notes contains no restrictive covenants and therefore
will not prevent Emmis or its subsidiaries from incurring
additional indebtedness, all of which may be pari passu or
senior in right of payment to the New Notes, and any
indebtedness incurred by the subsidiaries of Emmis will be
structurally senior to the New Notes. See Description of
Other Indebtedness Credit Facility and
Description of New Notes.
Furthermore, upon completion of this Exchange Offer and the
Transactions, the JS Parent Preferred Interests held by Alden
Media may be converted, through a series of steps, into Junior
Subordinated Notes of Emmis upon the occurrence of certain
events. If new debt or other liabilities are added to our
current debt levels, the related risks that we now face could
intensify.
Certain
restrictions in the Credit Facility and in the documents
governing the JS Parent Preferred Interests that will be issued
to Alden Media will limit Emmis operating and financial
flexibility.
Although the indenture governing the New Notes does not contain
any restrictive covenants and will therefore not limit our
operational activities, the Credit Facility and the JS Parent
operating agreement contain restrictive covenants.
Under the JS Parent operating agreement, Alden Media will have
the right to consent to:
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any merger, liquidation or sale of all or substantially all
assets of JS Parent, Emmis or Emmis Operating Company
(Emmis Operating);
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the incurrence of indebtedness by JS Parent, Emmis, Emmis
Operating, or any of their subsidiaries or the issuance of
equity securities by Emmis or Emmis Operating, or any of their
subsidiaries, except in specified circumstances including
indebtedness incurred or equity securities issued to redeem or
otherwise refinance the Credit Facility, the Junior Subordinated
Notes, the New Notes, the JS Parent Preferred Interests or the
JS Parent Common Interests;
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amendments to the operating agreement, charter, by-laws or
similar document of JS Parent, Emmis or Emmis Operating;
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as long as Alden Media and its permitted transferees own JS
Parent Preferred Interests or own or have the right to acquire
Junior Subordinated Notes, the payment of distributions by
JS Parent;
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commencing any proceedings in bankruptcy with respect to JS
Parent, Emmis, Emmis Operating or any subsidiary of Emmis
Operating;
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transactions with affiliates (other than existing arrangements
and amendments and replacements of those arrangements) other
than Emmis and its subsidiaries;
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any redemption or repurchase of equity securities of JS Parent
or Emmis, subject to specified exceptions;
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acquiring specified assets, including any assets or businesses
for an aggregate price in excess of $5 million;
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any sale of assets other than in the ordinary course of business
or as permitted under and applied in accordance with the Credit
Facility in which the net cash proceeds are used to repay,
redeem, exchange or refinance the Credit Facility, the New
Notes, the Junior Subordinated Notes or the JS Parent Preferred
Interests; and
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permitting liens on any of the common stock of Emmis or any of
its subsidiaries, except in specified circumstances, any
activity which would pose a material risk that JS Parent may be
treated as engaged in a trade or business for federal income tax
purposes.
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Covenants in the JS Parent operating agreement also require JS
Parent to use commercially reasonable efforts to cause Emmis to
dispose of assets to modify or refinance the Credit Facility so
as to allow the redemption of the JS Parent Preferred Interests,
the New Notes or the Junior Subordinated Notes and to effect
such redemptions promptly after any such modification or
refinancing.
The agreement governing the Credit Facility also contains
covenants that, among other things, restrict Emmis
Operatings and its subsidiaries ability to:
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incur additional indebtedness;
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incur liens;
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enter into negative pledges;
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make investments;
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make restricted payments;
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amend, prepay, redeem or repurchase indebtedness;
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merge, consolidate or sell assets or enter into other business
combination transactions;
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enter into sale and leaseback arrangements;
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use land or permit land to be used in violation of environmental
law; and
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enter into transactions with affiliates.
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Such covenants also limit Emmis ability to make issuances
of equity, to amend, prepay, redeem or repurchase specified
indebtedness, to incur indebtedness or to conduct activities
other than holding company activities.
The Credit Facility also contains financial maintenance
covenants, including a total leverage ratio, a fixed charge
coverage ratio, a minimum liquidity covenant and a minimum
EBITDA covenant. The total leverage ratio and fixed charge
coverage ratio have been suspended until at least September
2011, unless Emmis Operating elects to end the suspension
earlier.
These restrictions could significantly limit our operational
flexibility and our ability to respond to changing business
conditions or to change our business strategy. A failure to
adapt to changing business
30
conditions or make timely changes to business strategies may
have a material, adverse effect on our business, financial
condition and results of operations. A failure to comply with
the covenants in the Credit Facility could result in a default
under the Credit Facility, which could result in all amounts
outstanding under the Credit Facility being declared immediately
due and payable. Any such event would have a material, adverse
effect on our business, results of operations and financial
condition.
We may
be unable to generate sufficient cash to service all of our
indebtedness, including under the New Notes, and we may be
forced to take other actions to satisfy our obligations under
such indebtedness, which may not be successful. In addition,
since Emmis is a holding company with no business or operations
apart from those of its subsidiaries, it may be unable to
service its indebtedness, including under the New Notes, due to
being unable to access the cash flows of its
subsidiaries.
Our ability to make scheduled payments on or to refinance our
debt obligations depends on the financial condition and
operating performance of our subsidiaries, which is subject to
prevailing economic and competitive conditions and to financial,
business and other factors beyond our control. We and our
subsidiaries may not be able to maintain a level of cash flows
from operating activities sufficient to permit Emmis to pay or
refinance our indebtedness, including the New Notes and our
indebtedness under the Credit Facility. If the cash flows and
capital resources of Emmis and our subsidiaries are insufficient
to fund our debt service obligations, we and our subsidiaries
could face substantial liquidity problems and may be forced to
reduce or delay capital expenditures or growth strategies, sell
assets, seek additional capital or restructure or refinance our
indebtedness, including the New Notes and the Credit Facility.
These alternative measures may not be successful and may not
permit Emmis to meet our scheduled debt service obligations. A
failure to meet these obligations would have a material, adverse
effect on our financial condition and our ability to pay our
obligations under the New Notes.
Emmis is a holding company, and all of its operations are
conducted through its subsidiaries, but none of its subsidiaries
are obligated to make funds available to it for payment of the
New Notes. Accordingly, Emmis ability to make payments on
the New Notes is dependent entirely on the earnings and
distributions of funds from its subsidiaries. The agreements
governing the Credit Facility contain significant restrictions
on Emmis subsidiaries to pay dividends or otherwise
transfer assets to Emmis, with only very limited exceptions. If
Emmis is unable to access the cash flows of its subsidiaries, it
may not be able to pay its obligations under the New Notes when
they come due.
The
New Notes will not be secured or guaranteed by any of the
subsidiaries of Emmis, and the subsidiaries of Emmis hold
substantially all of its operations and assets, so the New Notes
will be effectively subordinated to any indebtedness of the
subsidiaries of Emmis, including under the Credit
Facility.
The New Notes are only obligations of Emmis and will not be
secured or guaranteed by any of the subsidiaries of Emmis. Emmis
conducts substantially all of its operations through its
subsidiaries and has no material assets or operations outside of
those of its subsidiaries. The New Notes will therefore be
effectively subordinated to all of the indebtedness, preferred
stock and other liabilities (including trade payables) of the
subsidiaries of Emmis, including all of the indebtedness under
the Credit Facility. As of February 28, 2010, on an
as-adjusted basis, Emmis subsidiaries would have had
$341.2 million of outstanding indebtedness under the Credit
Facility, with an additional $17.1 million available for
borrowing under the Credit Facility, net of $0.9 million of
letters of credit, and $146.1 million of other liabilities
outstanding. In an insolvency proceeding, holders of the
liabilities and preferred stock of the subsidiaries of Emmis,
including under the Credit Facility, will be entitled to be paid
in full before any payment may be made on the New Notes. In
these cases, we may not have sufficient assets to satisfy all of
our creditors, and holders of the New Notes may receive less,
ratably, than the holders of the indebtedness of the
subsidiaries of Emmis.
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The
indenture governing the New Notes will not contain any material
restrictive covenants, so it will not restrict us from taking
actions that may not be in the best interests of the holders of
the New Notes.
While other instruments, such as the Credit Facility and the JS
Parent operating agreement will contain restrictive covenants,
the indenture governing the New Notes will not contain any
material restrictive covenants. As a result, it will not
restrict us from taking actions that may not be in the best
interests of the holders of the New Notes, including, without
limitation:
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incurring additional indebtedness;
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making dividends, including to pay dividends on, or to
repurchase or retire, the JS Parent Preferred or JS Parent
Common Interests;
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repurchasing or retiring our or our direct or indirect
parents equity interests, including the JS Parent
Preferred Interests;
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prepaying or paying cash interest on, junior indebtedness,
including the Junior Subordinated Notes;
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incurring liens;
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making investments;
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selling or otherwise disposing of assets;
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acquiring assets or businesses;
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permitting restrictions on dividends by subsidiaries of Emmis;
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entering into transactions with affiliates;
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merging, consolidating or selling all or substantially all of
our assets;
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experiencing a change of control; or
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entering additional lines of business.
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Some of the actions we will be permitted to take under the
indenture governing the New Notes may result in material and
adverse consequences for holders of the New Notes, and the value
of the New Notes may decrease as a result.
There
is no established trading market for the New Notes, and you may
not be able to sell them quickly or at the price that you
paid.
The New Notes are a new issue of securities, and there is no
established trading market for the New Notes. We do not intend
to apply for the New Notes to be listed on any securities
exchange or to arrange for their quotation on any automated
dealer quotation system. We also cannot assure you that you will
be able to sell your New Notes at a particular time or that the
prices that you receive when you sell will be favorable. Future
trading prices of the New Notes will depend on many factors,
including:
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our operating performance and financial condition;
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the interest of securities dealers in making a market; and
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the market for similar securities.
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Historically, the market for non-investment grade debt has been
subject to disruptions that have caused volatility in prices. It
is possible that the market for the New Notes will be subject to
disruptions. Any disruptions may have a negative effect on
holders of the New Notes, regardless of our prospects and
financial performance.
32
The
New Notes will be subordinated in right of payment to all
unsubordinated indebtedness of Emmis, including its guarantee of
the Credit Facility.
Emmis obligations under the New Notes will be expressly
subordinated in right of payment to all senior indebtedness of
Emmis, including its guarantee under the Credit Facility. As of
February 28, 2010, on an as-adjusted basis, we would have
had $341.2 million of outstanding indebtedness under the
Credit Facility, with $17.1 million available for
borrowing, net of $0.9 million of letters of credit. In an
insolvency proceeding, the holders of obligations that are
senior in right of payment to the New Notes will be entitled to
be paid in full before any payment may be made on the New Notes.
In these cases, we may not have sufficient assets to satisfy all
of our creditors, and holders of the New Notes may receive less,
ratably, than the holders of Emmis senior indebtedness.
Since there will be no restrictive covenants limiting
Emmis ability to incur additional senior indebtedness, the
amount of indebtedness to which the New Notes will be
subordinated may increase in the future, which could exacerbate
this risk.
The
New Notes may be prepaid by Emmis at any time, without premium,
which could prevent you from realizing interest income
associated with the New Notes.
The New Notes are subject to redemption at our option in whole
at any time or in part from time to time, without penalty or
premium, upon notice to the holders of the New Notes. As a
result, holders of the New Notes will be subject to a risk of
prepayment at a time when interest rates may be generally
declining. In such a case, holders of New Notes will no longer
have the right to receive interest and may be forced to reinvest
the redemption proceeds in securities with a lower rate of
interest.
A
court could deem the issuance of the New Notes a fraudulent
conveyance and void all or a portion of the obligations
represented by the New Notes.
In a bankruptcy proceeding, a trustee, debtor in possession, or
someone else acting on behalf of the bankruptcy estate may seek
to recover transfers made or void obligations incurred prior to
the bankruptcy proceeding on the basis that such transfers and
obligations constituted fraudulent conveyances. Fraudulent
conveyances are generally defined to include transfers made or
obligations incurred for inadequate consideration when the
debtor was insolvent, inadequately capitalized or in similar
financial distress, or transfers made or obligations incurred
with the intent of hindering, delaying or defrauding current or
future creditors. A trustee or such other parties may recover
such transfers and avoid such obligations made within two years
prior to the commencement of a bankruptcy proceeding.
Furthermore, under certain circumstances, creditors may recover
transfers or void obligations under state fraudulent conveyance
laws, within the applicable limitation period, which may be
longer than two years, even if the debtor is not in bankruptcy.
In bankruptcy, a representative of the estate may also assert
such state law claims.
If a court were to find that Emmis issued the New Notes under
circumstances constituting a fraudulent conveyance, the court
could void all or a portion of the obligations under the New
Notes. In addition, under such circumstances, the value of any
consideration holders received with respect to the New Notes
could also be subject to recovery from such holders and possibly
from subsequent transferees, or holders might be returned to the
same position they held as holders of the Existing Preferred
Stock.
A New Note could be voided, or claims in respect of a New Note
could be subordinated to all other debts of Emmis, if Emmis at
the time it incurred the indebtedness evidenced by the New Notes:
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received less than reasonably equivalent value or fair
consideration for the issuance of the New Notes or the
incurrence of the guarantee and was insolvent or rendered
insolvent by reason of such issuance or incurrence;
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was engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital; or
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intended to incur, or believed that it would incur, debts beyond
its ability to pay those debts as they mature.
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The measures of insolvency for purposes of these fraudulent
transfer laws will vary depending upon the law applied in any
proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, a debtor would be considered
insolvent if:
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the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all of its assets;
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the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they
become absolute and mature; or
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it could not pay its debts as they become due.
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We cannot assure you as to what standard a court would apply in
determining whether Emmis would be considered to be insolvent.
If a court determined that Emmis was insolvent after giving
effect to the issuance of the New Notes, it could void the New
Notes and require you to return any payments received in respect
of the New Notes.
If a
bankruptcy petition were filed by or against Emmis, holders of
the New Notes may receive a lesser amount for their claim than
they would be entitled to receive under the indenture governing
the New Notes.
If a bankruptcy petition were filed by or against Emmis under
the U.S. Bankruptcy Code after the issuance of the New
Notes, the claim by any holder of the New Notes for the
principal amount of the New Notes may be limited to an amount
equal to the sum of:
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the original issue price for the Notes; and
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that portion of the original issue discount that does not
constitute unmatured interest for purposes of the
U.S. Bankruptcy Code.
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Any OID that was not amortized as of the date of the bankruptcy
filing would constitute unmatured interest. Accordingly, holders
of the New Notes under these circumstances may receive a lesser
amount than they would be entitled to under the terms of New
Notes, even if sufficient funds are available.
By
tendering your Existing Preferred Stock for the new notes, you
will lose rights associated with your Existing Preferred Stock,
including the right to receive accrued and unpaid
dividends.
To the extent that shares of your Existing Preferred Stock you
tender are accepted by Emmis, you will be relinquishing rights
available to you as a shareholder. If your Existing Preferred
Stock is validly tendered and accepted for exchange, upon
acceptance of the shares by Emmis at the closing of the Exchange
Offer, you will lose the right to share in any capital
appreciation of Existing Preferred Stock, will not be entitled
to vote upon any matters submitted to our shareholders for which
you might otherwise be eligible to vote, and will no longer be
entitled to dividends, including all accrued and unpaid
dividends to date, on Existing Preferred Stock. As of
April 15, 2010, an aggregate of $4.87 of dividends per
share of Existing Preferred Stock were accrued and unpaid.
After
completion of the Transactions, we may no longer be a company
that has any classes of securities listed on a stock exchange or
registered under the Exchange Act, and we will not be required,
under the indenture governing the New Notes, to provide any such
reports to holders of the New Notes.
After the Transactions are completed, we expect that we will no
longer be subject to requirements under the Exchange Act to file
periodic or current reports with the SEC. In addition, the
indenture governing the New Notes will not contain any covenants
requiring Emmis to file such reports. As a result, we will no
longer be required to provide financial and other information in
filings on
Forms 10-K,
10-Q or
8-K.
Furthermore, we expect that none of our securities will be
listed on a stock exchange after completion of the Exchange
34
Offer. As a result, we will no longer be subject to SEC and
stock exchange regulations with respect to financial reporting,
internal control over financial reporting, disclosure controls,
audit committee independence, short-swing profits reporting,
beneficial ownership reporting or any other similar requirements
to which public companies are subject. Our status as a private
company may have an adverse effect on the value of our
securities and evidences of our indebtedness, including the New
Notes.
This
Exchange Offer is subject to certain contingencies that may
prevent its consummation.
The consummation of this Exchange Offer is subject to certain
conditions that are not within our control. For example,
consummation of this Exchange Offer is conditioned upon
obtaining a
2/3
vote of the holders of Existing Preferred Stock and the
affirmative votes of more shares of Common Stock voting in favor
than against the Proposed Amendments, assuming a quorum is
present, and the closing of the JS Acquisition Tender
Offer. The consummation of this Exchange Offer is also
conditioned on, among other things, there being no material
adverse changes in our business, no pending or threatened action
by a governmental body challenging this Exchange Offer and no
general suspension of trading in the securities markets. Any of
the conditions to the completion of this Exchange Offer may not
be fulfilled, in which case we will not be required to complete
the Exchange Offer.
Review
by the SEC of this Proxy Statement/Offer to Exchange may require
modification or revision of the information we have included in
this Proxy Statement/Offer to Exchange.
This Proxy Statement/Offer to Exchange is subject to review by
the SEC. In the course of the SECs review, we may make
changes to the various information included in this Proxy
Statement/Offer to Exchange. Such changes may have an impact on
the manner, timing and terms of the Exchange Offer or Proxy
Solicitations.
After
the Transactions are completed, we will be controlled by a
single shareholder, Mr. Jeffrey H. Smulyan, and Alden Media
will have significant consent rights with respect to various
actions we might wish to take and, under certain circumstances,
may obtain control of Emmis. The interests of those parties may
conflict with the interests of holders of the New
Notes.
If the Transactions are completed, all of Emmis voting
stock will be held by Mr. Jeffrey H. Smulyan.
Mr. Smulyan will therefore be in a position to exercise
sole control over Emmis, subject to various consent rights of
Alden Media, as described under Certain
restrictions in the Credit Facility and in the documents
governing the JS Parent Preferred Interests that will be held by
Alden Media will limit our operating and financial
flexibility.
Accordingly, Mr. Smulyan, subject to Alden Medias
consent rights, can determine the outcomes of the elections of
members of our board of directors and the outcome of corporate
actions requiring shareholder approval, including mergers,
consolidations and the sale of all or substantially all of our
assets. Subject to Alden Medias consent rights,
Mr. Smulyan also controls our management, policies and
financing decisions and is in a position to prevent or cause a
change of control. Under certain circumstances, Alden Media may
obtain control of Emmis because of an increase in its equity
stake in JS Parent either as a result of accretion on their
common equity over time, upon a change of control of Emmis
and/or
through acquisition from Mr. Smulyan or certain other
members of JS Parent. See The Transactions
Subsequent Merger Adjustment of Alden Media
Ownership Interest. The interests of Mr. Smulyan or
Alden Media could conflict with those of the holders of the New
Notes. For example, if we encounter financial difficulties or
are unable to pay our debts as they come due, the interests of
Mr. Smulyan or Alden Media as an equity holder might
conflict with the interests of holders of the New Notes.
Mr. Smulyan or Alden Media may have an interest in pursuing
acquisitions, divestitures, dividend payments, equity
repurchases or financings or other transactions that, in their
judgment, could enhance their equity investments, even though
such transactions may involve significant risks to holders of
the New Notes. In addition, Mr. Smulyan, Alden Media and
their respective affiliates may in the future own interests in
businesses that compete with ours.
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In addition JS Parent has agreed to use commercially
reasonable efforts following completion of the Transactions to
cause Emmis to sell assets in order to refinance debt of
Emmis operating subsidiary to allow the redemption of
Alden Medias preferred investment and/or the New Notes or
the Junior Subordinated Notes (described below). Such asset
sales and refinancing may be on terms that are not in the best
interests of the New Notes and the proceeds of such asset sales
may ultimately be used to refinance junior securities, such as
the Junior Subordinated Notes or the Series A Preferred
interests of JS Parent.
The
exchange ratio for the Exchange Offer does not reflect any
independent valuation of the Existing Preferred Stock or the New
Notes.
Neither we nor our board of directors have obtained or requested
a fairness opinion from any banking or other firm as to the
fairness of the exchange ratio or the relative values of
Existing Preferred Stock and New Notes. If you tender your
Existing Preferred Stock, you may or may not receive more or as
much value than if you choose to keep it.
It is
possible that the New Notes will be issued with original issue
discount, or OID, for U.S. federal income tax
purposes.
Because interest on the New Notes is not unconditionally payable
in cash or in property (other than debt instruments of Emmis) at
least annually and therefore does not represent qualified
stated interest, the New Notes are considered issued with
OID for U.S. federal income tax purposes to the extent that
the stated principal amount of the notes exceeds their issue
price. In such a case, U.S. Holders will be required to
include such OID in gross income on a constant yield to maturity
basis in advance of the receipt of cash payment thereof and
regardless of such holders method of accounting for
U.S. federal income tax purposes. See Certain
Material U.S. Federal Income Tax Consequences.
If you
do not tender your shares of Existing Preferred Stock, your
shares of Existing Preferred Stock may be converted into the
right to receive a cash payment, which may be worth less than
the New Notes that would be issued to you in the Exchange
Offer.
If the JS Acquisition Tender Offer and this Exchange Offer
are completed and the Proposed Amendments are adopted and
effected, we will seek the affirmative votes of holders of
Common Stock (a majority of which will be beneficially owned,
following the JS Acquisition Tender Offer, by
Mr. Smulyan and the Alden Fund) to approve the Merger of
JS Acquisition with and into Emmis, with Emmis surviving
the merger as a subsidiary of JS Parent. Mr. Smulyan will
hold all of the shares of a newly issued class of voting common
stock of Emmis, and JS Parent will hold all of the shares of a
newly issued class of non-voting common stock of Emmis. In the
Subsequent Merger, each outstanding share of Existing Preferred
Stock not held by the Alden Fund will be converted into the
right to receive $5.856 in cash (without interest and less any
applicable withholding taxes) from Emmis, which is equal to the
conversion rate of the Existing Preferred Stock of
2.44 shares of Class A Common Stock per share times
the $2.40 in cash (without interest and less any applicable
withholding taxes) per share of Class A Common Stock that
is being offered in the JS Acquisition Tender Offer, and
may be less than the value of the New Notes you would receive in
the Exchange Offer.
To the
extent the Existing Preferred Stock remains outstanding
following the completion of the Exchange Offer, it will no
longer have the protections of the covenants amended or removed
by the Proposed Amendments, and it will be subordinated in right
of payment to the New Notes issued to holders of Existing
Preferred Stock who elect to tender their shares into the
Exchange Offer.
If the Proposed Amendments are adopted and effected, holders of
the Existing Preferred Stock will no longer be entitled to
appoint directors to our board of directors if sufficient
dividends on the Existing Preferred Stock are accrued and
unpaid. The Proposed Amendments would also remove the
requirement for Emmis to redeem the Existing Preferred Stock
following specified going-private transactions.
36
The Proposed Amendments would also provide for the automatic
conversion upon the proposed merger of JS Acquisition with
and into Emmis, with Emmis surviving the merger,
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of the Existing Preferred Stock (other than the Existing
Preferred Stock held by Alden) not exchanged for the New Notes
into that amount of consideration that would be paid to holders
of Class A Common Stock into which the Existing Preferred
Stock was convertible immediately prior to the Merger, and
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of the Existing Preferred Stock held by Alden into the New Notes.
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Following the completion of the Exchange Offer, any shares of
Existing Preferred Stock that remain outstanding would be
subordinated in right of payment to the New Notes and any other
indebtedness of Emmis. Therefore, in an insolvency proceeding,
such New Notes and other Emmis indebtedness will be entitled to
be paid in full before any payment may be made on the Existing
Preferred Stock. In these cases, we may not have sufficient
funds to pay all of our creditors, and holders of the Existing
Preferred Stock may receive less, ratably, than the holders of
the indebtedness of Emmis, including the New Notes.
For more information regarding the Proposed Amendments, see
The Proposal.
Our
results of operations could be negatively impacted by weak
economic conditions and instability in financial
markets.
We believe that advertising is a discretionary business expense.
Spending on advertising tends to decline disproportionately
during an economic recession or downturn as compared to other
types of business spending. Consequently, a downturn in the
United States economy generally has an adverse effect on our
advertising revenue and, therefore, our results of operations. A
recession or downturn in the economy of any individual
geographic market, particularly a major market such as Los
Angeles or New York, also generally has a significant effect on
us. The recent recession in the global economy negatively
impacted our results of operations. While economic conditions
appear to be improving, we can not ensure that our results of
operations wont be negatively impacted by future economic
downturns or by delays in economic recovery.
Even with a recovery from the recent recession in the economy,
an individual business sector (such as the automotive industry)
that tends to spend more on advertising than other sectors might
be forced to maintain a reduced level of advertising
expenditures if that sector experiences a slower recovery than
the economy in general, or might reduce its advertising
expenditures further if additional downturns occur. If that
sectors spending represents a significant portion of our
advertising revenues, any reduction in its advertising
expenditures may affect our revenue.
We may
lose audience share and advertising revenue to competing radio
stations or other types of media.
We operate in highly competitive industries. Our radio stations
compete for audiences and advertising revenue with other radio
stations and station groups, as well as with other media. Shifts
in population, demographics, audience tastes, consumer use of
technology and forms of media and other factors beyond our
control could cause us to lose market share. Any adverse change
in a particular market, or adverse change in the relative market
positions of the stations located in a particular market, could
have a material adverse effect on our revenue or ratings, could
require increased promotion or other expenses in that market,
and could adversely affect our revenue in other markets. Other
radio broadcasting companies may enter the markets in which we
operate or may operate in the future. These companies may be
larger and have more financial resources than we have. Our radio
stations may not be able to maintain or increase their current
audience ratings and advertising revenue in the face of such
competition.
We routinely conduct market research to review the competitive
position of our stations in their respective markets. If we
determine that a station could improve its operating performance
by serving a different demographic within its market, we may
change the format of that station. Our competitors may respond
to our actions by more aggressive promotions of their stations
or by replacing the format we vacate, limiting our options if we
do not achieve expected results with our new format.
37
From time to time, other stations may change their format or
programming, a new station may adopt a format to compete
directly with our stations for audiences and advertisers, or
stations might engage in aggressive promotional campaigns. These
tactics could result in lower ratings and advertising revenue or
increased promotion and other expenses and, consequently, lower
earnings and cash flow for us. Any failure by us to respond, or
to respond as quickly as our competitors, could also have an
adverse effect on our business and financial performance.
Arbitron Inc., the supplier of ratings data for United States
radio markets, has developed technology to passively collect
data for its ratings service. The Portable People
Metertm
is a small, pager-sized device that does not require any active
manipulation by the end user and is capable of automatically
measuring radio, television, Internet, satellite radio and
satellite television signals that are encoded for the service by
the broadcaster. Our New York, Los Angeles, Chicago and
St. Louis market ratings are being measured by the
PPMtm.
In each market, there has been a compression in the relative
ratings of all stations in the market, enhancing the competitive
pressure within the market for advertising dollars. In addition,
ratings for certain stations when measured by the
PPMtm
as opposed to the traditional diary methodology can be
materially different.
PPMtm
based ratings are scheduled to be introduced in Indianapolis and
Austin by Spring 2010. We anticipate Terre Haute will remain a
diary ratings market.
Because of the competitive factors we face and the introduction
of the
PPMtm,
we cannot assure investors that we will be able to maintain or
increase our current audience ratings and advertising revenue.
Our
domestic radio operations are heavily concentrated in the New
York and Los Angeles markets.
Our radio operations in New York and Los Angeles account for
approximately 50% of our domestic radio revenues. Our results
from operations can be materially affected by decreased ratings
or resulting revenues in either one of these markets.
We
must respond to the rapid changes in technology, services and
standards that characterize our industry in order to remain
competitive.
The radio broadcasting industry is subject to rapid
technological changes, evolving industry standards and the
emergence of competition from new technologies and services. We
cannot assure that we will have the resources to acquire new
technologies or to introduce new services that could compete
with these new technologies. Various media technologies and
services that have been developed or introduced in the recent
years include:
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satellite-delivered digital audio radio service, which has
resulted in subscriber-based satellite radio services with
numerous niche formats;
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audio programming by cable systems, direct-broadcast satellite
systems, personal communications systems, Internet content
providers and other digital audio broadcast formats;
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personal digital audio devices (e.g., audio via Wi-Fi, mobile
phones,
iPods®,
iPhones®,
WiMAX, the Internet and MP3 players);
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in-band on-channel digital radio (i.e., HD digital radio), which
provides multi-channel, multi-format digital radio services in
the same bandwidth currently occupied by traditional AM and FM
radio services; and
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low-power FM radio, which could result in additional FM radio
broadcast outlets.
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New media has resulted in fragmentation in the advertising
market, but we cannot predict the effect, if any, that
additional competition arising from new technologies may have on
the radio broadcasting industry or on our financial condition
and results of operations. We also cannot ensure that our
investments in HD digital radio and other technologies will
produce the desired returns.
Our
business depends on maintaining our licenses with the FCC. We
could be prevented from operating a radio station if we fail to
maintain its license.
The radio broadcasting industry is subject to extensive and
changing regulation. The Communications Act and FCC rules and
policies require FCC approval for transfers of control and
assignments of FCC licenses.
38
The filing of petitions or complaints against FCC licensees
could result in the FCC delaying the grant of, or refusing to
grant, its consent to the assignment of licenses to or from an
FCC licensee or the transfer of control of an FCC licensee. In
certain circumstances, the Communications Act and FCC rules and
policies will operate to impose limitations on alien ownership
and voting of our common stock. There may be changes in the
current regulatory scheme, additional regulations may be
imposed, and new regulatory agencies may be created, which
changes could restrict or curtail our ability to acquire,
operate and dispose of stations or, in general, to compete
profitably with other operators of radio and other media
properties.
Each of our radio stations operates pursuant to one or more
licenses issued by the FCC. Under FCC rules, radio licenses are
granted for a term of eight years. Our licenses expire at
various times through June 2014. The licenses for three of our
stations WKQX in the Chicago market, KPNT in the
St. Louis market and WIBC in the Indianapolis
market have expired by their terms, but continue in
effect under applicable law pending action by the FCC on the
stations renewal applications. The license renewal
applications of WKQX and KPNT are subject to third-party
objections relating primarily to alleged broadcast of indecent
programming. WIBC is subject to an FCC inquiry concerning
possible violation of laws concerning sponsorship identification
and payola.
Except for the three stations listed above, all of our radio
stations licenses are in effect. Although we will apply to
renew these licenses upon their expiration, third parties may
challenge our renewal applications. While we are not aware of
facts or circumstances that would prevent us from having our
current licenses renewed, there can be no assurance that the
licenses will be renewed or that renewals will not include
conditions or qualifications that could adversely affect our
business and operations. Failure to obtain the renewal of any of
our broadcast licenses may have a material adverse effect on our
business and operations. In addition, if we or any of our
officers, directors or significant shareholders materially
violates the FCCs rules and regulations or the
Communications Act, is convicted of a felony, or is found to
have engaged in unlawful employment discrimination, unlawful
anticompetitive conduct or fraud upon another government agency,
the FCC may, in response to a petition from a third party or on
its own initiative, in its discretion, commence a proceeding to
impose sanctions upon us which could involve the imposition of
monetary fines, the revocation of our broadcast licenses or
other sanctions. In the case of any such violations by a person
or entity other than the licensee itself, the impact is
dependent on the severity of the violation and the nature and
extent of the violators ownership interest, control and
involvement in the broadcast operations of the licensee. If the
FCC were to issue an order denying a license renewal application
or revoking a license, we would be required to cease operating
the applicable radio station only after we had exhausted all
rights to administrative and judicial review without success.
The
FCC has begun more vigorous enforcement of its indecency rules
against the broadcast industry, which could have a material
adverse effect on our business.
The FCCs rules prohibit the broadcast of obscene material
at any time and indecent material between the hours of
6 a.m. and 10 p.m. Broadcasters risk violating the
prohibition on the broadcast of indecent material because of the
FCCs broad definition of such material, coupled with the
spontaneity of live programming.
Congress has dramatically increased the penalties for
broadcasting obscene, indecent or profane programming and
broadcasters can potentially face license revocation, renewal or
qualification proceedings in the event that they broadcast
indecent material. In addition, the FCCs heightened focus
on indecency, against the broadcast industry generally, may
encourage third parties to oppose our license renewal
applications or applications for consent to acquire broadcast
stations. As a result of these developments, we have implemented
certain measures that are designed to reduce the risk of
broadcasting indecent material in violation of the FCCs
rules. These and other future modifications to our programming
in an effort to reduce the risk of indecency violations could
have an adverse effect on our competitive position.
Any
changes in current FCC ownership regulations may negatively
impact our ability to compete or otherwise harm our business
operations.
The FCC is required to review all of its broadcast ownership
rules every four years and to repeal or modify any of its rules
that are no longer necessary in the public interest.
We cannot predict the impact of
39
these reviews on our business or their effect on our ability to
acquire broadcast stations in the future or to continue to own
and freely transfer stations that we have already acquired.
In 2003, we acquired a controlling interest in five FM stations
and one AM station in the Austin, Texas market. Under ownership
regulations released after the date of our acquisition, it
appears that we would be permitted to own or control only four
FM stations in the Austin market (ownership of one AM station
would continue to be allowed). The new rules do not require
divestiture of existing non-conforming station combinations, but
do provide that such clusters may be transferred only to defined
small business entities or to buyers that commit to selling any
excess stations to such entities within one year. Consequently,
if we wish to sell our interest in the Austin stations, we will
have to either sell to an entity that meets those FCC
requirements or exclude at least one FM station from the
transaction.
Changes
in current Federal regulations could adversely affect our
business operations.
Congress and the FCC have under consideration, and may in the
future consider and adopt, new laws, regulations and policies
that could, directly or indirectly, affect the profitability of
our broadcast stations. In particular, Congress is considering a
revocation of radios exemption from paying royalties to
performing artists for use of their recordings (radio already
pays a royalty to songwriters). A requirement to pay additional
royalties could have an adverse effect on our business
operations and financial performance.
Our
business strategy and our ability to operate profitably depend
on the continued services of our key employees, the loss of whom
could materially adversely affect our business.
Our ability to maintain our competitive position depends to a
significant extent on the efforts and abilities of our senior
management team and certain key employees. Although our
executive officers are typically under employment agreements,
their managerial, technical and other services would be
difficult to replace if we lose the services of one or more of
them or other key personnel. Our business could be seriously
harmed if one of them decides to join a competitor or otherwise
competes directly or indirectly against us.
Our radio stations employ or independently contract with several
on-air personalities and hosts of syndicated radio programs with
significant loyal audiences in their respective broadcast areas.
These on-air personalities are sometimes significantly
responsible for the ranking of a station and, thus, the ability
of the station to sell advertising. These individuals may not
remain with our radio stations and may not retain their
audiences.
Last year, we reduced salaries of most employees in a cost
reduction effort. Most of our employees with employment
agreements voluntarily participated in the salary reduction.
These salary reductions may make it more difficult to retain our
key employees.
Future
operation of our business may require significant additional
capital.
The continued development, growth and operation of our
businesses may require substantial capital. In particular,
additional acquisitions may require large amounts of capital. We
intend to fund our growth, including acquisitions, if any, with
cash generated from operations, borrowings under the Credit
Facility, and proceeds from future issuances of debt and equity,
both public and private. Our ability to raise additional debt or
equity financing is subject to market conditions, our financial
condition and other factors. If we cannot obtain financing on
acceptable terms when needed, our results of operations and
financial condition could be adversely impacted.
Our
current and future operations are subject to certain risks that
are unique to operating in a foreign country.
We currently have international operations in Slovakia and
Bulgaria. Therefore, we are exposed to risks inherent in
international business operations. The risks of doing business
in foreign countries include the following:
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changing regulatory or taxation policies, including changes in
tax policies that have been proposed by the Obama Administration
related to foreign earnings;
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currency exchange risks;
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changes in diplomatic relations or hostility from local
populations;
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seizure of our property by the government or restrictions on our
ability to transfer our property or earnings out of the foreign
country;
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potential instability of foreign governments, which might result
in losses against which we are not insured; and
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difficulty of enforcing agreements and collecting receivables
through some foreign legal systems.
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Broadcast licenses in many foreign countries do not necessarily
confer the same renewal expectancy as U.S. radio stations
broadcast licenses. While we believe that we have reasonable
prospects for securing extensions of our remaining international
broadcast licenses, we cannot be sure that such extensions will
be granted or that the terms and conditions of such extensions
will not have a material adverse effect on our international
operations. For instance, on October 28, 2009, the
Hungarian National Radio and Television Board (ORTT) announced
that it was awarding to another bidder the national radio
license then held by our majority-owned subsidiary, Slager.
Slager ceased broadcasting effective November 19, 2009.
Slager filed a lawsuit in Hungary claiming the award of the
license by the ORTT to the other bidder violated the Hungarian
Media Law. In February 2010, the Hungarian trial court agreed
with Slager that the ORTTs award was unlawful. The ORTT
and the winning bidder appealed the courts decision. A
hearing on the appeal is scheduled for July 1, 2010. While
we believe the trial courts ruling was correct, we cannot
guarantee that the ruling will be upheld on appeal or that a
favorable ruling by the appellate court will result in the award
of the license or monetary damages to Slager. We expect to
continue to explore Hungarian, European Union, and international
arbitration forums to seek a favorable resolution to this matter.
Exchange
rates may cause future losses in our international
operations.
Because we own assets in foreign countries and derive revenue
from our international operations, we may incur currency
translation losses due to changes in the values of foreign
currencies and in the value of the United States dollar. We
cannot predict the effect of exchange rate fluctuations upon
future operating results.
We
have incurred losses over the past two years and we may incur
future losses.
We have reported net losses in our consolidated statement of
operations over the past three years as a result of recording
non-cash impairment charges, mostly related to FCC licenses and
goodwill. In fiscal 2010, we recorded an impairment charge of
$174.6 million, $160.9 of which related to radio FCC
licenses, $8.9 million of which related to goodwill at an
international radio network and a magazine publication, and
$4.8 million of which related to other definite-lived
intangible assets. As of February 28, 2010, our FCC
licenses and goodwill comprise 72% of our total assets. If
events occur or circumstances change that would reduce the fair
value of the FCC licenses and goodwill below the amount
reflected on the balance sheet, we may be required to recognize
impairment charges, which may be material, in future periods.
Our
failure to comply under the Sarbanes-Oxley Act of 2002 could
cause a loss of confidence in the reliability of our financial
statements.
In connection with the preparation of our financial statements
for the period ended August 31, 2009, we discovered a
material weakness in its internal control over financial
reporting. As disclosed in our
Form 10-Q
Report for the period ended November 30, 2009, we
remediated the material weakness. As such, as of
November 30, 2009, based upon the controls evaluation, our
Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls were once again effective to
provide reasonable assurance that information relating to Emmis
that is required to be disclosed by us in the reports that we
file or submit, is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange
Commissions rules and forms, and is accumulated and
communicated to our management, including our principal
executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. In future periods we
may have additional material weaknesses that will be required to
be reported, and we may not be able to comply with the reporting
deadline
41
requirements of Section 404. A reported material weakness
or the failure to meet the reporting deadline requirements of
Section 404 could result in an adverse reaction in the
financial markets due to a loss of confidence in the reliability
of our financial statements. This loss of confidence could cause
a decline in the market price of our securities.
Our
operating results have been and may again be adversely affected
by acts of war, terrorism and natural
catastrophes.
Acts of war and terrorism against the United States, and the
countrys response to such acts, may negatively affect the
U.S. advertising market, which could cause our advertising
revenues to decline due to advertising cancellations, delays or
defaults in payment for advertising time, and other factors. In
addition, these events may have other negative effects on our
business, the nature and duration of which we cannot predict.
For example, after the September 11, 2001 terrorist
attacks, we decided that the public interest would be best
served by the presentation of continuous commercial-free
coverage of the unfolding events on our stations. This temporary
policy had a material adverse effect on our advertising revenues
and operating results for the month of September 2001. Future
events like those of September 11, 2001 may cause us
to adopt similar policies, which could have a material adverse
effect on our advertising revenues and operating results.
Additionally, the attacks on the World Trade Center on
September 11, 2001 resulted in the destruction of the
transmitter facilities that were located there. Although we had
no transmitter facilities located at the World Trade Center,
broadcasters that had facilities located in the destroyed
buildings experienced temporary disruptions in their ability to
broadcast. Since we tend to locate transmission facilities for
stations serving urban areas on tall buildings or other
significant structures, such as the Empire State Building in New
York, further terrorist attacks or other disasters could cause
similar disruptions in our broadcasts in the areas affected. If
these disruptions occur, we may not be able to locate adequate
replacement facilities in a cost-effective or timely manner or
at all. Failure to remedy disruptions caused by terrorist
attacks or other disasters and any resulting degradation in
signal coverage could have a material adverse effect on our
business and results of operations.
Similarly, hurricanes, floods, tornadoes, earthquakes, wild
fires and other natural disasters can have a material adverse
effect on our operations in any given market. While we generally
carry property insurance covering such catastrophes, we cannot
be sure that the proceeds from such insurance will be sufficient
to offset the costs of rebuilding or repairing our property or
the lost income.
FORWARD-LOOKING
STATEMENTS
This Proxy Statement/Offer to Exchange includes or incorporates
forward-looking statements. You can identify these
forward-looking statements by our use of words such as
intend, plan, may,
will, project, estimate,
anticipate, believe, expect,
continue, potential,
opportunity and similar expressions, whether in the
negative or affirmative. We cannot guarantee that we will
achieve these plans, intentions or expectations. All statements
regarding our expected financial position, business and
financing plans are forward-looking statements.
Actual results or events could differ materially from the plans,
intentions and expectations disclosed in the forward-looking
statements we make. We have included important facts in various
cautionary statements in this report that we believe could cause
our actual results to differ materially from forward-looking
statements that we make. These include, but are not limited to,
the factors described in Risk Factors.
The forward-looking statements do not reflect the potential
impact of any future acquisitions, mergers or dispositions. We
undertake no obligation to update or revise any forward-looking
statements because of new information, future events or
otherwise.
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On April 26, 2010, JS Acquisition entered into the Letter
of Intent with respect to the Transactions. On May 6, 2010,
JS Acquisition was recapitalized so that Mr. Smulyan held
all 10 shares of JS Acquisition Class B Common Stock
and all 1,000,000 shares of JS Acquisition Class A
Common Stock. Also on May 6, 2010, Mr. Smulyan
contributed the JS Acquisition Class A Common Stock to JS
Parent.
Based on the framework laid out in the Letter of Intent, JS
Parent and Alden have structured the Transactions, which may
result in Emmis being taken private by JS Parent. The
Transactions are described below.
JS
Acquisition Tender Offer
JS Acquisition has launched the JS Acquisition Tender Offer,
which is an offer to purchase, for cash, all of the outstanding
shares of Class A Common Stock not beneficially owned by
the Purchaser Group (other than the Retained Shares) and Alden
and the Rollover Shares. The offer price is $2.40 per share in
cash, without interest and less applicable withholding taxes.
The JS Acquisition Tender Offer is made upon the terms and
subject to the conditions set forth in the combined Third-Party
Tender Offer Statement and
Rule 13e-3
Transaction Statement filed by JS Acquisition and JS Parent on
Schedule TO with the SEC (the Schedule To).
JS Acquisitions obligation to complete the JS Acquisition
Tender Offer is conditioned on:
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the Merger agreement not having been terminated in accordance
with its terms;
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no material breach by Emmis of its representations and
warranties under the Merger agreement having occurred;
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Emmis having performed and complied in all material respects
with all covenants and agreements required by the Merger
agreement;
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the tender of shares of Class A Common Stock, that, when
combined with the Rollover Shares and the shares of Common Stock
beneficially owned by the Purchaser Group and the Alden Fund,
will constitute a majority of the votes able to be cast with
respect to the Merger (as defined below). Based on the number of
outstanding shares as of May 17, 2010, a minimum of
approximately 32.8% of our Class A Common Stock would need
to be tendered and not withdrawn for this condition to be
satisfied;
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the Committee not having made an adverse recommendation or an
adverse change in its recommendation with respect to the JS
Acquisition Tender Offer;
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the payment to JS Parent by Alden Media of the purchase price
for its investment in JS Parent under the Alden Purchase
Agreement;
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obtaining the required votes for the Proposed
Amendments; and
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the effectiveness of the Proposed Amendments.
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there shall not have been instituted any action, proceeding or
application by any U.S. or non-US. court, government or
governmental authority or other U.S. or non-US. regulatory
or administrative agency or commission (each, a
Governmental Entity) which, directly or indirectly:
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challenges the acquisition by JS Acquisition of the Class A
Common Stock, seeks to restrain, delay, enjoin, make illegal or
otherwise prohibit the consummation of the JS Acquisition Tender
Offer, the Exchange Offer or the Merger or seeks to obtain any
material damages as a result of, or otherwise adversely affects,
the JS Acquisition Tender Offer, the Exchange Offer or the
Merger,
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seeks to prohibit or impose material limitations on JS
Acquisitions acquisition, ownership or operation of all or
any material portion of its or Emmis business or assets
(including the business or assets of their respective affiliates
and subsidiaries), or of all or any of the Class A Common
Stock
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(including, without limitation, the right to vote the
Class A Common Stock purchased by JS Acquisition, on an
equal basis with all other shares of Class A Common Stock,
on all matters presented to the shareholders of Emmis), or seeks
to compel JS Acquisition to dispose of or hold separate all or
any material portion of its own or Emmis business or
assets (including the business or assets of their respective
affiliates and subsidiaries) as a result of the JS Acquisition
Tender Offer, the Exchange Offer or the Merger,
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reasonably would be expected to have a material adverse effect
on Emmis, or result in a diminution in the value of the
Class A Common Stock or in the value of Emmis or JS
Acquisitions assets, in each case by more than
$5 million or
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seeks to impose any condition to the JS Acquisition Tender
Offer, the Exchange Offer or the Merger that is materially
burdensome to JS Acquisition;
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there shall not have been entered or issued any preliminary or
permanent judgment, order, decree, ruling or injunction or any
other action taken by any Governmental Entity which, directly or
indirectly:
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restrains, delays, enjoins, makes illegal or otherwise prohibits
the consummation of the Offer or the Merger or awards material
damages as a result of, or otherwise adversely affects, the JS
Acquisition Tender Offer, the Exchange Offer or the Merger,
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prohibits or imposes material limitations on JS
Acquisitions acquisition, ownership or operation of all or
any material portion of its or Emmis business or assets
(including the business or assets of their respective affiliates
and subsidiaries), or of all or any of the Class A Common
Stock (including, without limitation, the right to vote the
Class A Common Stock purchased by JS Acquisition, on an
equal basis with all other shares of Class A Common Stock,
on all matters presented to the shareholders of Emmis), or
compels JS Acquisition to dispose of or hold separate all or any
material portion of its own or Emmis business or assets
(including the business or assets of their respective affiliates
and subsidiaries) as a result of the JS Acquisition Tender
Offer, the Exchange Offer or the Merger,
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reasonably would be expected to have a material adverse effect
on Emmis, or result in a diminution in the value of the
Class A Common Stock or in the value of Emmis or JS
Acquisitions assets, in each case by more than
$5 million or
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imposes any condition to the JS Acquisition Tender Offer, the
Exchange Offer or the Merger that is materially burdensome to JS
Acquisition;
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there shall not have been any statute, including without
limitation any state anti-takeover statute, or any rule, decree,
regulation, order or injunction, that is enacted, entered,
enforced or deemed applicable or has become applicable or is
asserted to be applicable directly or indirectly to the JS
Acquisition Tender Offer, the Exchange Offer or the Merger that
would, directly or indirectly, result in any of the consequences
referred to in the
sub-bullets
of the preceding bullet;
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JS Acquisition shall not have become aware that governmental or
third-party consents, waivers or approvals necessary for the
consummation of the JS Acquisition Tender Offer, the Exchange
Offer or the Merger have not been obtained and the failure to
obtain such consents, waivers or approvals would reasonably be
expected to have a material adverse effect on Emmis; or
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there shall have occurred any change, event or occurrence
arising since the date that the JS Acquisition Tender Offer
commenced that had or would reasonably be expected to have,
individually or in the aggregate, a material adverse effect on
Emmis.
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The minimum tender condition cannot be waived by JS Acquisition.
44
Alden
Purchase Agreement
Simultaneously with completion of the JS Acquisition Tender
Offer, Alden Media will provide all necessary funds for the JS
Acquisition Tender Offer and the other Transactions, under the
Alden Purchase Agreement. A conformed copy of the Alden Purchase
Agreement is attached to this Proxy Statement/Offer to Exchange
as Appendix II, and this summary is qualified in its
entirety by reference to the Alden Purchase Agreement. You
should read the Alden Purchase Agreement in its entirety.
Alden
Purchase Agreement
General. Under the Alden Purchase
Agreement, Alden Media has agreed, and the Alden Fund and Alden
Global Value Recovery Master Fund, L.P. (the Alden
Funds) have agreed to cause Alden Media, to purchase from
JS Parent and JS Parent has agreed to sell to Alden JS Parent
Preferred Interests and JS Parent Common Interests for an
aggregate purchase price of $90,000,000. The purchase price
payable by Alden Media may be increased to the extent funds are
required to provide cash consideration in the Merger to holders
of Existing Preferred Stock that do not tender their shares in
the Exchange Offer or convert their shares into shares of
Class A Common Stock prior to the Merger and/or to pay
certain expenses in connection with the Transactions. The Alden
Funds agreed to provide Alden Media with sufficient funds to
satisfy its purchase price obligations. JS Parent will use the
proceeds of the transaction to finance the Offer and the Merger.
Each of JS Parent the Alden Funds and Alden Media made
representations and warranties relating to, among other things:
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due organization, valid existence and, to the extent applicable,
good standing;
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corporate power and authority to enter into and perform its
obligations under, and the enforceability of, the Alden Purchase
Agreement;
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the absence of conflicts with or defaults under organizational
documents, other contracts and applicable law;
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the absence of governmental authorization needed to approve the
Alden Purchase Agreement and the Transactions;
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the absence of litigation that would materially impair its
ability to complete the Transactions;
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the absence of any agreement to pay broker or other similar
fees; and
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the exclusivity of the representations and warranties made.
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In addition, JS Parent made representations and warranties
relating to, among other things:
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its capital structure;
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the operations of newly-formed entities;
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the organization and qualification of Emmis and its subsidiaries;
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the capital structure and existence of Emmis and its
subsidiaries and the absence of conflicts with or defaults under
applicable law or the organizational documents, by-laws or
governmental permits of Emmis or its subsidiaries;
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the completeness and accuracy of Emmis filings with the
SEC;
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the absence of certain related party transactions;
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the filing of material tax returns and payment of taxes by Emmis
and its subsidiaries;
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the controls and procedures that Emmis maintains with respect to
financial reporting;
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the ownership of or possession of valid licenses to use various
intellectual property that is material to the business of Emmis
and its subsidiaries;
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the validity of Emmis and its subsidiaries ownership
interests in their respective owned properties, assets and
rights and the validity of their leasehold or licensed interests
in their respective leasehold or licensed properties, assets and
rights;
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the absence of any material changes in the business of Emmis and
its subsidiaries;
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the absence of any undisclosed liabilities on the balance sheets
of Emmis or its subsidiaries that are required to be disclosed
by generally accepted accounting principles in the United States;
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the absence of litigation involving Emmis or its subsidiaries
that would have a materially adverse effect on JS Parent, Emmis
or any of Emmis subsidiaries; and
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the sufficiency of the assets of Emmis and its subsidiaries to
operate and conduct their business.
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Finally Alden Media represented and warranted, among other
things, that:
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it and its affiliates have good title to their shares of
Class A Common Stock and that they have full power and
authority to vote them;
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it has, and the Alden Funds will cause Alden Media to have
sufficient cash on hand
and/or
unexpired and unconditioned capital commitments from its
investors that are sufficient to enable it to pay the purchase
price; and
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it meets the necessary requirements to own the JS Parent
Preferred Interests and the JS Parent Common Interests.
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Covenants and Agreements; Conditions
Precedent. JS Parent, the Alden Funds and
Alden Media agreed to make all filings and submissions required
by law and cooperate with each other to ensure such filings and
submissions are timely made. The parties also agreed to use
reasonable best efforts and to act in good faith to take all
actions reasonably necessary, proper or advisable under
applicable law to consummate the transactions contemplated by
the Alden Purchase Agreement. JS Parent and Mr. Smulyan, to
the extent Mr. Smulyan believes in good faith that such
action would not constitute a breach of his fiduciary duties,
agreed to cause Emmis and Emmis Operating Company to conduct
their respective businesses in the ordinary course of business
consistent with past practice, to preserve them intact and not
to take certain actions, including and with various exceptions:
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amending certain organizational documents,
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issuing certain new equity interests,
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paying certain dividends or distributions,
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making changes to governmental permits,
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granting severance or termination pay,
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making certain acquisitions,
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incurring certain indebtedness,
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making certain changes to their accounting practices,
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making certain changes to their capital structures,
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making certain capital expenditures,
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settling certain claims,
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adopting a plan of liquidation, dissolution, merger or other
reorganization or commencing any proceedings in bankruptcy,
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transferring or encumbering certain assets, or
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entering into transactions with affiliates or engaging in
activity which would pose a material risk that JS Parent may be
treated, for U.S. federal income tax purposes, as engaged
in a trade or business.
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Notwithstanding anything to the contrary in the Alden Purchase
Agreement, Mr. Smulyan has executed the Alden Purchase Agreement
in his capacity as a shareholder of Emmis and the Alden Purchase
Agreement does not restrict Mr. Smulyans ability to
exercise his fiduciary duties as a director or officer of Emmis.
In addition, JS Parent agreed not to amend or waive any of the
conditions to the Offer or otherwise amend any of the material
terms and conditions of the JS Acquisition Tender Offer without
Alden Medias prior written approval. Mr. Smulyan has
covenanted to vote and to cause his affiliates to vote all of
his and their shares of Common Stock except for
Mr. Smulyans options to purchase shares of Common
Stock, in favor of the Proposed Amendments, the Merger and any
other actions required to complete the Transactions and to grant
and appoint Alden Media as its proxy and attorney-in-fact to
vote its shares of Common Stock to that effect. The Alden Funds
and Alden Media have also covenanted to vote all of their shares
of Class A Common Stock in favor of the Proposed
Amendments, the Merger and any other actions required to
complete the Transactions and to grant and appoint JS
Acquisition as its proxy and attorney-in-fact to vote its shares
of Class A Common Stock to that effect. The Alden Funds and
Alden Media have also covenanted not to trade in the shares of
Common Stock or other securities of Emmis pending the successful
completion of the Offer.
The parties obligations to consummate the transactions
under the Alden Purchase Agreement are conditioned upon the
representations and warranties being true and correct and
compliance with the covenants (subject to materiality
qualifications), the absence of governmental orders preventing
the consummation of the Transactions, the appointment or
election of a person nominated by Alden to the Board, the
continuation of Mr. Smulyan as Chief Executive Officer of
Emmis, certain amendments to Emmis articles of
incorporation, the delivery of an opinion of JS Parents
counsel to Alden Media, the satisfaction or waiver of the
conditions to the Offer and the execution and delivery of the
Merger Agreement.
Indemnification. JS Acquisition and
Alden Media agreed to, and the Alden Funds agreed to cause Alden
Media to, indemnify each other for (i) any inaccuracy in or
breach of any representation or warranty made in the Alden
Purchase Agreement, (ii) any failure to perform under the
Alden Purchase Agreement or (iii) any actions, suits,
proceedings, demands, assessments, judgments, damages, awards,
costs and expenses related to the foregoing, except that neither
party has any liability unless the losses for which the other
party seeks indemnification exceed $7,500,000 (the
Deductible). In addition, no individual loss or
series of related losses is applied toward the Deductible if the
loss or series of related losses amounts to less than $50,000.
Except with respect to fraud or other intentional conduct or
representations regarding due organization, authority to execute
and perform the Alden Purchase Agreement, JS Parents
capital structure, the Alden Funds title to their shares
of Class A Common Stock and the absence of any agreement to pay
broker or other similar fees, for which the indemnifications do
not terminate, the indemnifications under the Alden Purchase
Agreement will terminate on June 30, 2011.
Termination. The Alden Purchase
Agreement may be terminated:
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by mutual agreement of JS Acquisition and Alden Media (with the
consent of Emmis);
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by JS Acquisition or Alden Media upon prior written notice, if
(i) JS Parent has not commenced the JS Acquisition Tender
Offer or (ii) Emmis has not commenced the Exchange Offer,
in each case as of the close of business on the date which is
ten (10) business days after the effective date of the
Alden Purchase Agreement;
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by JS Parent or Alden Media upon prior written notice, if any of
the conditions have not been satisfied as of the close of
business on September 24, 2010 (the Outside
Date);
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by JS Parent or Alden Media if any final, non-appealable order,
decree or ruling is issued that prohibits the consummation of
any of the transactions contemplated by the Alden Purchase
Agreement;
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by JS Parent or Alden Media if there has been a material
inaccuracy in or material breach by the other of any
representation or warranty or material breach of any covenant or
agreement that causes any condition to be incapable of being
satisfied by the Outside Date; or
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by JS Parent, if as a result of the action or inaction by Alden
Media, the closing of the transactions contemplated by the Alden
Purchase Agreement has not occurred on or prior to two
(2) business days after the satisfaction or waiver of the
conditions.
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Expenses. The parties also agreed that,
at the closing, JS Parent will reimburse Alden Media and
Mr. Smulyan for their respective expenses related to the
transactions contemplated, except that JS Parent will not
reimburse Alden Media for any expenses in excess of $1,000,000.
In addition, if the Alden Purchase Agreement is terminated by
Alden Media because of a material inaccuracy in or breach of any
representation or warranty or a material breach of or failure to
perform any covenant or agreement contained in the Alden
Purchase Agreement, then JS Parent has agreed to, and Mr.
Smulyan has agreed to cause JS Parent to, reimburse Alden Media
for its expenses not in excess of $1,000,000. If the Alden
Purchase Agreement is terminated for any other reason listed
above, then each party will bear its own expenses.
The
Merger
On May 25, 2010, Emmis, JS Parent and JS Acquisition
entered into the Merger Agreement, under which
JS Acquisition will merge with and into Emmis, with Emmis
remaining as the surviving corporation as a subsidiary of JS
Parent and Mr. Smulyan (the Surviving Corporation).
A conformed copy of the Merger Agreement is attached to this
Proxy Statement/Offer to Exchange as Appendix III, and this
summary is qualified in its entirety by reference to the Merger
Agreement. You should read the Merger Agreement in its entirety.
Mr. Smulyan will hold all of the shares of a newly issued
class of voting common stock of Emmis, and JS Acquisition will
hold all of the shares of a newly issued class of non-voting
common stock of Emmis. Shares of Class A Common Stock that
are not tendered in the JS Acquisition Tender Offer would
be converted into the right to receive $2.40 in cash, without
interest and less any applicable withholding taxes, (or any
higher price per share of Class A Common Stock that is paid
in the JS Acquisition Tender Offer) upon consummation of
the Subsequent Merger.
If the JS Acquisition Tender Offer and this Exchange Offer
are completed and the Proposed Amendments are adopted and
effected, to the extent required by Indiana law, we will seek
the affirmative votes of holders of Common Stock (a majority of
which will be beneficially owned, following the
JS Acquisition Tender Offer, by Mr. Smulyan and the
Alden Fund) to approve the Merger. The Merger is subject to the
satisfaction or waiver of certain conditions, including the
adoption of the Merger Agreement by the Emmis shareholders by
the affirmative vote of a majority of all votes entitled to be
cast. If the various minimum conditions in the
JS Acquisition Tender Offer are satisfied, the Purchaser
Group and the Alden Fund would have sufficient voting power to
approve the Merger without the affirmative vote of any other
shareholder of Emmis.
The Committee, at a meeting duly called and held, has
(i) determined that the JS Acquisition Tender Offer
and the Merger are advisable and fair to and in the best
interests of Emmis and the holders of shares of Class A
Common Stock (other than the shares of Class A Common Stock
beneficially owned by the Purchaser Group, the Rolling
Shareholders and Alden) (such holders, the Unaffiliated
Shareholders) and (ii) recommended that the Board
unanimously adopt resolutions, on the terms and subject to the
conditions of the Merger Agreement and in accordance with the
IBCL (a) determining that it is advisable and fair to and
in the best interests of Emmis and the Unaffiliated Shareholders
for JS Parent to acquire Emmis on the terms and subject to the
conditions set forth in the Merger Agreement, (b) approving
and adopting the Merger Agreement, the JS Acquisition
Tender Offer and the Merger and (c) recommending that the
Unaffiliated Shareholders accept the JS Acquisition Tender
Offer, tender their shares of Class A Common Stock in the
JS Acquisition Tender Offer and approve the Merger and the
Merger Agreement (to the extent required by the IBCL) (the
Committee Recommendation).
The Board, acting on the Committee Recommendation, at a meeting
duly called and held, has unanimously, on the terms and subject
to the conditions of the Merger Agreement and in accordance with
the IBCL (i) determined that it is advisable and fair to
and in the best interests of Emmis and the Unaffiliated
Shareholders for JS Parent to acquire Emmis on the terms and
subject to the conditions set forth in the Merger Agreement,
(ii) approved and adopted the Merger Agreement, the
JS Acquisition Tender Offer and the Merger and
(iii) recommended that the Unaffiliated Shareholders accept
the JS Acquisition Tender Offer, tender their
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shares of Class A Common Stock in the JS Acquisition Tender
Offer and approve the Merger and the Merger Agreement (to the
extent required by the IBCL) (the Board
Recommendation).
Merger
Agreement
The JS Acquisition Tender
Offer. Provided that no event has occurred
that, had the JS Acquisition Tender Offer been commenced, would
give rise to a right to terminate the JS Acquisition Tender
Offer under the Merger Agreement, JS Acquisition has agreed to
commence the JS Acquisition Tender Offer no later than
5:00 p.m., New York City time on June 3, 2010. On the
date of commencement of the JS Acquisition Tender Offer, JS
Acquisition will (i) file or cause to be filed with the SEC
the Schedule TO, the related offer to purchase, letter of
transmittal and other related documents relating to the JS
Acquisition Tender Offer (collectively, the JS Acquisition
Tender Offer Documents) and (ii) cause the JS
Acquisition Tender Offer Documents to be disseminated to the
holders of the Class A Common Stock as and to the extent
required by applicable law. Subject to the terms and conditions
thereof, the JS Acquisition Tender Offer will remain open for at
least 20 business days following the commencement of the JS
Acquisition Tender Offer. JS Acquisition may waive or make
changes to any of the conditions to the JS Acquisition Tender
Offer, except that, without Emmis prior consent, which
consent requires the approval of the Committee, it will not:
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decrease the amount or change the form of the consideration to
be paid or decrease the number of shares of Class A Common
Stock sought in the JS Acquisition Tender Offer;
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waive the Minimum Tender Condition;
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amend any other term of the JS Acquisition Tender Offer in a
manner adverse to the Unaffiliated Shareholders;
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add to, amend or modify the conditions to the JS Acquisition
Tender Offer in a manner adverse to the Unaffiliated
Shareholders;
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extend the expiration date of the JS Acquisition Tender Offer,
other than (i) for successive periods not to exceed 10
business days each, until the conditions to the JS Acquisition
Tender Offer are satisfied or waived, if any of the conditions
is not satisfied or waived on any scheduled expiration date of
the JS Acquisition Tender Offer, and (ii) for the minimum
period required by any rule, regulation, interpretation or
position of the SEC applicable to the JS Acquisition Tender
Offer or any period otherwise required by applicable law, but in
no event beyond the End Date (as defined below).
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JS Acquisition will accept for payment and pay for, promptly
after the expiration of the JS Acquisition Tender Offer, all
shares of Class A Common Stock (i) validly tendered
and not withdrawn pursuant to the JS Acquisition Tender Offer
and (ii) validly tendered in any subsequent offering period
(the date on which shares of Class A Common Stock are first
accepted for payment, the Acceptance Date).
Each of JS Acquisition, JS Parent and Emmis will promptly
correct any information provided by it or any of its affiliates
for use in the Schedule TO and the JS Acquisition Tender
Offer Documents, if and to the extent that such information
shall have become false or misleading in any material respect,
and will use reasonable best efforts to cause the
Schedule TO as so corrected to be filed with the SEC and
the JS Acquisition Tender Offer Documents as so corrected to be
disseminated to holders of shares of Class A Common Stock,
in each case as and to the extent required by applicable
U.S. federal securities laws.
Action by Emmis. Pursuant to the Merger
Agreement, Emmis approves of and consents to the Offer and
Merger and represents and warrants that the Board acting on the
Committee Recommendation, at a meeting duly called and held, has
made the Board Recommendation.
Emmis will file with the SEC on the date that JS Acquisition
files the JS Acquisition Tender Offer Documents, a
Solicitation/Recommendation Statement on
Schedule 14D-9
pertaining to the JS Acquisition Tender Offer (together with any
amendments or supplements thereto, the
Schedule 14D-9).
Emmis will use its reasonable best efforts to mail such
Schedule 14D-9
to the shareholders of Emmis concurrently with the mailing of
the JS Acquisition Tender Offer Documents. The
Schedule 14D-9
will comply in all material
49
respects with the provisions of applicable federal securities
laws and, on the date filed with the SEC and on the date first
published, sent or given to Emmis shareholders and at the
Acceptance Time, shall not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. No representation is made by Emmis with
respect to information supplied by JS Parent or JS Acquisition
in writing for inclusion in the
Schedule 14D-9.
Emmis, JS Parent and JS Acquisition each will promptly correct
any information provided by it for use in the
Schedule 14D-9,
if and to the extent that such information shall have become
false or misleading in any material respect. Emmis will take all
steps necessary to cause the
Schedule 14D-9,
as so corrected to be filed with the SEC and disseminated to the
holders of Class A Common Stock as and to the extent
required by applicable federal securities laws.
The Exchange Offer. Provided that no
event shall have occurred and be continuing that, had the
Exchange Offer been commenced, would give rise to a right to
terminate the Exchange Offer under the Merger Agreement, Emmis
will file with the SEC this Proxy Statement/Offer to Exchange
and the related letter of transmittal (together with amendments
or supplements thereto, the Exchange Offer
Documents) no later than 5:00 p.m., New York City
time on June 3, 2010. Immediately following the receipt by
Emmis of SEC clearance of the Exchange Offer Documents, Emmis
will (i) commence the Exchange Offer and (ii) cause
the Exchange Offer Documents to be disseminated to its
shareholders as and to the extent required by applicable law. In
accordance with the IBCL, the Articles of Incorporation, Second
Amended and Restated Code of By-laws of Emmis (as amended and
restated from time to time, the By-laws), the
Exchange Act and any applicable rules of NASDAQ, Emmis will, as
promptly as possible after the date of the Merger Agreement,
call a special meeting of its shareholders to vote on the
Proposed Amendments. Emmis will set as the record date for such
meeting, a date that is satisfactory to JS Acquisition. Subject
to the terms and conditions thereof, the Exchange Offer will
remain open for at least 20 business days following the
commencement of the Exchange Offer. Upon receipt of the approval
of Emmis shareholders of the Proposed Amendments and
subject to the satisfaction of the other conditions of the
JS Acquisition Tender Offer, Emmis will file the Proposed
Amendments with the Secretary of State of the State of Indiana
and use its reasonable best efforts to make the Proposed
Amendments effective. Emmis may waive or make changes to any of
the conditions to the Offer, except that, without the prior
consent of JS Acquisition, it will not:
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decrease the amount or change the form of the consideration to
be paid or decrease the number of shares of Existing Preferred
Stock sought in the Exchange Offer;
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add to, amend or modify the conditions to the Exchange Offer in
a manner adverse to the Unaffiliated Shareholders and the
holders of Existing Preferred Stock (other than Alden);
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amend any other term of the Exchange Offer in a manner adverse
to the Unaffiliated Shareholders and the holders of shares of
Existing Preferred Stock (other than Alden); and
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extend the expiration date of the Exchange Offer, other than
(i) from time to time for successive periods not to exceed
10 business days each, until the conditions to the Exchange
Offer are satisfied or waived if any of the conditions is not
satisfied or waived on any scheduled expiration date of the
Exchange Offer, and (ii) for the minimum period required by
any rule, regulation, interpretation or position of the SEC or
the staff thereof applicable to the Exchange Offer or any period
otherwise required by applicable law, but in no event may Emmis
extend the Exchange Offer beyond the End Date (as defined below).
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Emmis will accept for exchanging and exchange for, promptly
after the expiration of the Exchange Offer, all shares of
Existing Preferred Stock validly tendered and not withdrawn
pursuant to the Exchange Offer. Each of Emmis, JS Parent and JS
Acquisition will promptly correct any information provided by it
or any of its affiliates for use in the Exchange Offer Documents
if and to the extent that such information shall have become
false or misleading in any material respect. Emmis will use
reasonable best efforts to cause the Exchange Offer Documents as
so corrected to be filed with the SEC and the Exchange Offer
Documents as so corrected to be disseminated to its
shareholders, in each case as and to the extent required by
applicable U.S. federal securities laws.
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The Merger. After the consummation of
the JS Acquisition Tender Offer, and subject to the satisfaction
or waiver of certain conditions set forth in the Merger
Agreement, the Merger will be consummated. The Surviving
Corporation will then possess all the rights, powers, privileges
and franchises and be subject to all of the obligations,
liabilities, restrictions and disabilities of Emmis and JS
Acquisition, all as provided under Indiana law.
Immediately prior to the effective time of the Merger (the
Effective Time):
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each share of Class A Common Stock held by the Purchaser
Group (except for the Retained Shares) and each Rollover Share
of the Rolling Shareholders will be contributed to Emmis in
consideration for JS Parent Common Interests; and
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all shares of Class B Common Stock (other than the Retained
Shares), all of which are held by Mr. Smulyan, will be
contributed to Emmis and cancelled, in consideration for JS
Parent Common Interests.
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At the Effective Time of the Merger:
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each share of Class A Common Stock remaining outstanding,
including outstanding restricted stock with respect to shares of
Class A Common Stock that became fully vested immediately
prior to the Effective Time (other than Class A Common
Stock held by JS Parent or Emmis), will be converted into the
right to receive $2.40 in cash (without interest and less any
applicable withholding taxes) from Emmis (Common Merger
Consideration);
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each outstanding share of Existing Preferred Stock held by the
Alden Fund will be converted into New Notes at a rate of $30.00
principal amount of New Notes per $50.00 of liquidation
preference of Existing Preferred Stock, excluding accrued and
unpaid dividends (Alden Preferred Merger
Consideration);
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each other outstanding share of Existing Preferred Stock will be
converted into the right to receive $5.856 in cash (without
interest and less any applicable withholding taxes) from Emmis,
which is equal to the conversion rate of the Existing Preferred
Stock of 2.44 shares of Class A Common Stock per share
times the $2.40 in cash (without interest and less any
applicable withholding taxes) per share of Class A Common
Stock that is being offered in the JS Acquisition Tender Offer
(the Preferred Merger Consideration, and together
with the Common Merger Consideration, the Cash Merger
Consideration and the Cash Merger Consideration together
with the Alden Preferred Merger Consideration, the Merger
Consideration);
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each share of Class A Common Stock and each share of
Class B Common Stock held by JS Acquisition or Emmis shall
be cancelled without consideration;
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each share of JS Acquisition Class A Common Stock will be
converted into one share of new nonvoting common stock of Emmis;
and
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each share of JS Acquisition Class B Common Stock will be
converted into one share of new voting common stock of Emmis.
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As of the Effective Time, all shares of Class A Common
Stock and Class B Common Stock, stock options that were
held by Mr. Smulyan, Existing Preferred Stock, shares of JS
Acquisition Class A Common Stock and shares of
JS Acquisition Class B Common Stock outstanding
immediately prior to the Effective Time will be cancelled and
retired.
Dissenting Shares. To the extent
S23-1-44 IBCL is applicable, shares of Class A Common Stock
outstanding immediately prior to the Effective Time and held by
a holder of record who has not voted in favor of the Merger or
consented thereto in writing and who has notified Emmis in
writing of his or her intent to dissent prior to the taking of
the vote on the Merger and complied with other requirements
under Indiana law, shall not be converted into the right to
receive the applicable Merger Consideration, but will instead
only have certain rights under Indiana law to dissent and demand
payment of the fair value of their shares of Class A Common
Stock. However, if such shareholder fails to perfect, withdraws
or loses the right to dissent, then,
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such holders shares of Class A Common Stock shall
automatically be converted into the right to receive the
applicable Merger Consideration.
Stock Options. At or immediately prior
to the Effective Time, each option to purchase shares of
Class A Common Stock outstanding under any stock option or
compensation plan or arrangement of Emmis, other than those held
by Mr. Smulyan, whether or not vested or exercisable, will
vest and be cancelled. Emmis will pay the holder of such option
at or promptly after the Effective Time an amount in cash equal
to the product of (i) the excess, if any, of the Common
Merger Consideration over the applicable exercise price per
share of Class A Common Stock of such option and
(ii) the number of shares of Class A Common Stock such
holder could have purchased (assuming full vesting of such
option) had such holder exercised such option in full
immediately prior to the Effective Time.
Restricted Stock Units. At or
immediately prior to the Effective Time, each restricted stock
unit with respect to shares of Class A Common Stock
outstanding under any stock option or compensation plan or
arrangement of Emmis (a RSU), whether or not vested,
shall vest and be cancelled, and Emmis shall pay the holder of
any such RSU at or promptly after the Effective Time an amount
in cash equal to the product of (i) the Common Merger
Consideration and (ii) the number of shares of Class A
Common Stock such holder could have received (assuming full
vesting of such RSU) had such RSU been settled immediately prior
to the Effective Time.
Articles of Incorporation; By-laws. At
the Effective Time, the Articles of Incorporation and By-laws of
Emmis will be amended to be identical to the articles of
incorporation and by-laws of JS Acquisition in effect
immediately prior to the Effective Time, except that references
to JS Acquisition will be replaced with references to
Emmis Communications Corporation, and as so amended
will be the articles of incorporation and by-laws of the
Surviving Corporation until thereafter amended in accordance
with Indiana law.
Directors and Officers. Until
successors are duly elected or appointed and qualified in
accordance with Indiana law, the directors and officers of JS
Acquisition will be the directors and officers of the Surviving
Corporation.
Representations and Warranties. Subject
to certain conditions specified in the Merger Agreement, each of
Emmis, JS Parent and JS Acquisition will make representations
and warranties relating to, among other things:
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due organization, valid existence and, to the extent applicable,
good standing;
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corporate power and authority to enter into and perform its
obligations under, and the enforceability of, the Merger
Agreement;
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the absence of governmental authorization needed to approve the
Merger Agreement and the transactions contemplated thereby;
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the absence of conflicts with or defaults under organizational
documents, other contracts and applicable law; and
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the absence of any agreement to pay finders fees or other
similar fees.
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Emmis will also make representations and warranties relating to,
among other things:
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its capital structure and the capital structure of its
subsidiaries;
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Emmis SEC filings, including the Exchange Offer Documents
and other disclosure documents to be filed by Emmis in
connection with the Merger Agreement;
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the Committee Recommendation and the Board Recommendation;
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the absence of certain related party transactions;
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the filing of material tax returns and payment of taxes by Emmis
and its subsidiaries;
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the controls and procedures that Emmis maintains with respect to
financial reporting;
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the ownership of or possession of valid licenses to use various
intellectual property that is material to the business of Emmis
and its subsidiaries;
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the validity of Emmis and its subsidiaries ownership
interests in their respective owned properties, assets and
rights and the validity of their leasehold or licensed interests
in their respective leasehold or licensed properties, assets and
rights;
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the absence of any material changes in the business of Emmis and
its subsidiaries;
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the absence of any undisclosed liabilities on the balance sheets
of Emmis or its subsidiaries that are required to be disclosed
by generally accepted accounting principles in the United States;
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the absence of litigation involving Emmis or its subsidiaries
that would have a materially adverse effect on Emmis or any of
Emmis subsidiaries;
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the receipt by the Committee of an opinion of the financial
advisor to the Committee to the effect that, as of the date of
such opinion, the Offer Price to be received by the Unaffiliated
Shareholders pursuant to the JS Acquisition Tender Offer and the
Merger is fair from a financial point of view to such
Shareholders;
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the inapplicability of state takeover statutes or regulations to
the JS Acquisition Tender Offer or the Merger;
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the sufficiency of the assets of Emmis and its subsidiaries to
operate and conduct their business;
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the adoption by the Board of certain resolutions; and
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the exclusivity of the representations and warranties made.
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Each of JS Parent and JS Acquisition will also make customary
representations and warranties to Emmis with respect to, among
other things:
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JS Parent and JS Acquisitions SEC filings, including the
JS Acquisition Tender Offer Documents and other disclosure
documents to be filed by JS Parent and JS Acquisition;
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information furnished to Emmis to be included in its SEC
filings, including the Exchange Offer Documents and other
disclosure documents to be filed by Emmis in connection with the
Merger Agreement; and
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sufficiency of funds to complete the JS Acquisition Tender
Offer, the Merger and the other transactions contemplated by the
Merger Agreement, and payment of all fees and expenses relating
to such transactions.
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Interim Operating Covenants. From the
date of the Merger Agreement until the Acceptance Date, Emmis
will conduct its operations and its subsidiaries
operations in all material respects in the ordinary course of
business consistent with past practice and use its reasonable
best efforts to preserve intact its businesses and relationships
with key customers, regulators, suppliers, lessors, licensors,
creditors, officers and employees, in all material respects. In
addition, during that same period, except as expressly permitted
by the terms of the Merger Agreement, Emmis will not, and will
not permit its subsidiaries to, take certain actions with
respect to the following, subject to specified thresholds and
exceptions, without JS Parents prior written consent,
which consent shall not be unreasonably withheld, delayed or
conditioned:
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amendments to the Articles of Incorporation, the By-laws or
other similar organizational documents, except with respect to
the Proposed Amendments;
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sales or issuances of additional shares of capital stock, any
securities convertible into, or any rights, warrants or options
to acquire, any such shares of capital stock;
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dividends, distributions or redemptions of stock;
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changes in its maintenance of governmental permits;
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the modification of employee benefits, compensation or other
employment arrangements;
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any acquisition of assets or businesses for a purchase price in
excess of $10 million individually, or $20 million in
the aggregate;
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the incurrence of indebtedness for borrowed money;
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changes in financial accounting principles;
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changes to the terms of its capital stock;
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the incurrence of capital expenditures in excess of
$5 million in the aggregate;
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the waiver, release, assignment, settlement or compromise of
certain claims;
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the adoption of a plan of liquidation;
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the transfer or encumbrance of any of its assets;
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entering into certain transactions with affiliates; or
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resolutions, commitments or agreements to do any of the
foregoing.
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Adverse Recommendation Change. Emmis
has covenanted that each of the Committee and the Board will
make the Committee Recommendation and the Board Recommendation,
respectively. Subject to certain conditions, at any time prior
to the Acceptance Date, if the Committee determines in good
faith that it would be inconsistent with its fiduciary duties
under Indiana law to continue to recommend that the Unaffiliated
Shareholders accept the JS Acquisition Tender Offer, tender
their shares of Class A Common Stock in the JS Acquisition
Tender Offer, and to the extent required by Indiana law, approve
the JS Acquisition Tender Offer, the Merger and the Merger
Agreement, then the Committee and the Board (acting upon the
recommendation of the Committee) may withhold, withdraw, qualify
or modify in a manner adverse to JS Parent the Committee
Recommendation or the Board Recommendation or publicly recommend
or announce its intention to take any action or make any
statement inconsistent with the Committee Recommendation or the
Board Recommendation (collectively, an Adverse
Recommendation Change). The Committee or the Boards
making of an Adverse Recommendation Change will not affect
Emmis obligation to call the Merger Meeting (as defined
below), file the Merger Proxy (as defined below) with the SEC,
deliver the Merger Proxy to the shareholders and comply with its
other obligations under Section 6.05 of the Merger
Agreement.
Other Covenants of Emmis. Emmis will
promptly notify JS Parent of consents required from any
additional persons, governmental notice or communications
relating to the Merger Agreement or the transactions
contemplated thereby, and any suits or proceedings commenced
against Emmis or any of its subsidiaries that relate to the
consummation of the Transactions. To the extent required under
Indiana law, the Board will call a special meeting of Emmis
shareholders to approve the Merger (the Merger
Meeting) and will set a record date for such meeting
immediately following the successful completion of the JS
Acquisition Tender Offer and promptly file with the SEC and mail
to the Emmis shareholders a proxy statement with respect to such
meeting.
To the extent that approval of Emmis shareholders is
required by Indiana law in order to consummate the Merger other
than pursuant to § 23-1-40-4 of the IBCL, then, in
accordance with the IBCL, the Articles of Incorporation and
By-laws, the Exchange Act and any applicable rules of NASDAQ, as
soon as practicable following the later of the Acceptance Time
or the expiration of any subsequent offering period provided in
accordance with
Rule 14d-11
promulgated under the Exchange Act and permitted hereby, Emmis,
in consultation with JS Parent, will, subject to the
satisfaction of the Minimum Tender Condition, following the
successful completion of the JS Acquisition Tender Offer, call
the Merger Meeting and set as the record date for such meeting,
the date that is one business day following the successful
completion of the JS Acquisition Tender Offer and promptly file
with the SEC a proxy statement, letter to shareholders, notice
of meeting and form of proxy accompanying the proxy statement
that will be provided to the shareholders in connection with the
solicitation of proxies for use at the Merger Meeting, and any
schedules required to be filed with the SEC in connection
therewith (collectively, as amended or supplemented, the
Merger Proxy). Emmis, JS Parent or
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JS Acquisition, as the case may be, will furnish all information
concerning Emmis, JS Parent or JS Acquisition as the other party
hereto may reasonably request in connection with the preparation
and filing with the SEC of the Merger Proxy. Subject to
applicable law, Emmis will use reasonable best efforts to cause
the Merger Proxy to be disseminated to its shareholders as
promptly as practicable after the SEC clears the Merger Proxy.
Emmis will cause the Merger Proxy, when filed with the SEC, to
comply as to form in all material respects with the applicable
requirements of the Exchange Act. At the time the Merger Proxy
is first mailed to Emmis shareholders and at the time of
the Merger Meeting, Emmis will cause the Merger Proxy not to
contain any untrue statement of material fact or omit to state
any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. Further Emmis will make no filing of, or
amendment or supplement to, or correspondence with the SEC or
its staff with respect to the Merger Proxy without providing JS
Parent a reasonable opportunity to review and comment thereon.
In addition, prior to the Effective Time, Emmis will take all
such steps as may be required to cause any disposition or
conversion of shares of Class A Common Stock in connection
with the transactions contemplated by the Merger Agreement
(including derivative securities with respect to such shares of
Class A Common Stock) by each individual who is subject to
the reporting requirements of Section 16(a) of the Exchange
Act with respect to Emmis to be exempt under
Rule 16b-3
promulgated under the Exchange Act.
Covenants of JS Parent and JS
Acquisition. JS Parent and JS Acquisition
will vote their shares of Class A Common Stock in favor of
the Proposed Amendments, the Merger and any other actions
required to complete the Transactions. Subject to certain
conditions, between the Effective Time and the sixth anniversary
of the Effective Time, the Surviving Corporation will, and JS
Parent will cause it to, agree to indemnify each of Emmis
and its subsidiaries present and former directors and
officers against any costs, expenses, judgments, fines, losses,
claims, damages or liabilities incurred in connection with any
claim, action, suit, proceeding or investigation, arising out of
or related to such persons service as a director or
officer at or prior to the Effective Time, to the fullest extent
permitted under Indiana law, an the articles of incorporation
and by-laws of the Surviving Corporation will contain provisions
regarding limitations on personal liability of directors and
indemnification and advancement of expenses of officers and
directors in respect of acts or omissions for six years after
the Effective Time. The Surviving Corporation also will purchase
directors and officers liability insurance coverage
for Emmis directors and officers for a period of six years
after the Effective Time which provides the same coverage as the
directors and officers liability insurance
previously provided by Emmis. Notwithstanding anything in the
Merger Agreement or the Alden Purchase Agreement, JS Parent will
not, without Emmis prior written consent (which consent
shall not be unreasonably withheld, conditioned or delayed)
terminate the Alden Purchase Agreement pursuant to
Section 8.1(a) thereof.
Covenants of JS Parent and Emmis. Each
of Emmis, JS Parent and JS Acquisition will make all filings and
submissions required by law and cooperate with each other to
ensure such filings and submissions are timely made. Emmis, JS
Parent and JS Acquisition will also use reasonable best efforts
and act in good faith to take all actions reasonably necessary,
proper or advisable under applicable law to consummate the
transactions contemplated by the Merger Agreement and delist the
shares of Class A Common Stock from the NASDAQ.
Conditions Precedent. The parties
obligations to consummate the transactions under the Merger
Agreement are conditioned upon:
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obtaining shareholder approval of the Merger at the Merger
Meeting;
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the absence of any law, order or injunction prohibiting the
consummation of the Merger; and
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JS Acquisition having purchased shares of Class A Common
Stock pursuant to the JS Acquisition Tender Offer.
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Termination. Subject to certain
exceptions and conditions specified in the Merger Agreement, the
Merger Agreement may be terminated prior to the Effective Time
(notwithstanding receipt of shareholder approval of the Merger):
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by mutual written agreement of Emmis and JS Parent;
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by Emmis or JS Parent upon prior written notice if the
Acceptance Date has not occurred on or before September 24,
2010 (the End Date);
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by Emmis or JS Parent if any final, non-appealable order, decree
or ruling is issued that prohibits the consummation of JS
Acquisition Tender Offer and the Merger;
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by JS Parent, if prior to the Acceptance Date, the Board has
made an Adverse Recommendation Change; or
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by JS Parent, if prior to the Acceptance Date, Emmis has
breached any representation or warranty or failed to perform any
covenant or agreement that would cause certain conditions to the
JS Acquisition Tender Offer to exist and be incapable of being
by cured the End Date.
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If the Merger Agreement is terminated in accordance with its
terms, the Merger Agreement will become null and void and,
subject to certain exceptions described below and in the Merger
Agreement, there will be no liability on the part of Emmis, JS
Parent or JS Acquisition. Nonetheless, no party will be relieved
of any liability for its willful breach of the Merger Agreement.
JS
Acquisition Operating Agreement
In connection with the Transactions, at the completion of the
Exchange Offer and the JS Acquisition Tender Offer (which
is at the time Alden Media purchases the JS Parent
Preferred Interests and JS Parent Common Interests),
Mr. Smulyan, Alden Media, the Rolling Shareholders, and
JS Parent will enter into the amended and restated
operating agreement for JS Parent. The form of the
JS Parent amended and restated operating agreement, is
attached to this Proxy Statement/Offer to Exchange as
Appendix IV, and this summary is qualified in its entirety
by reference to that agreement. You should read the amended and
restated JS Parent operating agreement in its entirety.
JS
Parent Preferred Interests
As part of the Transactions, JS Parent will issue to Alden
Media, and Alden Media will purchase JS Parent Preferred
Interests, with an initial preferred unrecovered capital of
$96.9 million, subject to adjustment. The initial preferred
unrecovered capital may be increased, to the extent funds are
required to provide cash consideration in the Subsequent Merger
to holders of Existing Preferred Stock that do not tender their
shares in the Exchange Offer or convert the Existing Preferred
Stock to Class A Common Stock or to pay certain expenses in
connection with the Transactions. The JS Parent Preferred
Interests will rank senior to all other classes of outstanding
equity of JS Parent as to liquidation, dividends,
redemptions and any other payment or distribution with respect
to its equity interests.
The JS Parent Preferred Interests will be entitled to
receive, at such time as the board of directors of
JS Parent may determine, priority distributions at a rate
of 5% per annum until the second anniversary of the date of the
JS Parent operating agreement and 15% per annum from and
after the second anniversary of the date of the JS Parent
operating agreement in each case, accruing monthly and
compounding on a quarterly basis.
The JS Parent Preferred Interests will have an aggregate
liquidation preference equal to the initial preferred
unrecovered capital described above plus the amount
distributable to such interests, as discussed in the prior
paragraph. The JS Parent Preferred Interests may be
redeemed at any time by JS Parent in whole or in part at a
price equal to the liquidation preference and shall be
automatically redeemed in full immediately following the seventh
anniversary of the JS Parent operating agreement.
On the date of the repayment in full or refinancing of the
indebtedness under the Credit Facility under an agreement
permitting such an exchange, the JS Parent Preferred
Interests will become exchangeable into non-voting stock of
Emmis (Exchanged ECC Shares), and such Exchanged ECC
Shares can be later redeemed either at the option of the holder,
or at the option of Emmis for Junior Subordinated Notes. The
Junior Subordinated Notes and the New Notes owned by Alden Media
or its permitted transferees (the Alden Members)
will be callable at any time by Emmis without penalty or premium
at a price equal to their
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principal amount plus the accrued and unpaid interest, including
the pro rata interest for any partial interest period.
JS Parent
Common Interests
As part of the Transactions, JS Parent will issue to Alden
Media, and Alden Media will purchase JS Parent Common
Interests initially having a percentage interest of
JS Parent equal to 24%, subject to adjustment as provided
in the JS Parent operating agreement;
Covenants
Under the JS Acquisition operating agreement, for as long as the
Alden Members beneficially own (i) a percentage interest of
JS Parent Common Interests of at least 10% or (ii) at least
10% of the JS Parent Preferred Interests issued in the
Transactions (the Ownership Minimum) Alden Media
will have the right to consent to:
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any merger, liquidation or sale of all or substantially all
assets of JS Parent, Emmis or Emmis Operating;
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the incurrence of indebtedness by JS Acquisition, Emmis, Emmis
Operating, or any of their subsidiaries or the issuance of
equity securities by Emmis or Emmis Operating, or any of their
subsidiaries, except in specified circumstances including
indebtedness incurred or equity securities issued to redeem or
otherwise refinance the Credit Facility, the Junior Subordinated
Notes, the New Notes, the JS Parent Preferred Interests or the
JS Parent Common Interests;
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amendments to the operating agreement, charter, by-laws or
similar document of JS Parent, Emmis or Emmis Operating;
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as long as the Alden Members own and JS Parent Preferred
Interests or own or have the right to acquire Junior
Subordinated Notes, the payment of distributions by JS Parent;
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commencing any proceedings in bankruptcy with respect to JS
Parent, Emmis, Emmis Operating or any subsidiary of Emmis
Operating;
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transactions with affiliates (other than existing arrangements
and amendments and replacements of those arrangements) other
than Emmis and its subsidiaries;
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any redemption or repurchase of equity securities of JS Parent
or Emmis, subject to specified exceptions;
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acquiring specified assets, including any assets or businesses
for an aggregate price in excess of $5 million;
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any sale of assets other than in the ordinary course of business
or as permitted under and applied in accordance with the Credit
Facility in which the net cash proceeds are used to repay,
redeem, exchange or refinance the Credit Facility, the New
Notes, the Junior Subordinated Notes or the JS Parent Preferred
Interests;
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permitting liens on any of the common stock of Emmis or any of
its subsidiaries, except in specified circumstances; and
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any activity which would pose a material risk that JS Parent may
be treated as engaged in a trade or business for federal income
tax purposes.
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Covenants in the JS Parent operating agreement require JS Parent
to use commercially reasonable efforts to complete a modifying
or refining of the Credit Facility so as to allow the redemption
of the JS Parent Preferred Interests or the New Notes or the
Junior Subordinated Notes and to effect such redemptions
promptly after any such modification or refinancing. Upon the
completion of such a modification or refinancing, JS Parent will
provide Alden Media with a one-time deal fee of
$3.0 million in cash.
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The JS Parent operating agreement also will require Emmis to
provide Alden Media with annual financial statements audited by
a nationally recognized independent accounting firm, monthly
internal financial statements, an annual budget for at least the
next fiscal year prior to the end of the previous fiscal year.
Board
Representation
As long as Alden Members maintain the Ownership Minimum, Alden
Media will be entitled to appoint at least two of seven members
of JS Parents board of directors and at least one
representative on each committee of its board of directors,
except if the Alden Members percentage interest of JS
Parent Common Interests equals or exceeds 40%, Alden Media will
be entitled to appoint three of seven board members and if the
Alden Members percentage interest of JS Parent Common
Interests equals or exceeds 50% after seven years after the date
of the JS Parent operating agreement (or earlier, if there is a
change of control of the Company, Emmis or Emmis Operating
Company or through acquisition of JS Parent Common Interests
from Mr. Smulyan or certain other members of JS Parent),
Alden Media will be entitled to appoint four of seven members of
our board of directors. Mr. Smulyan is generally entitled
to appoint the remaining members of our board of directors. If
the Alden Members percentage interest of JS Parent Common
Interests equals or exceeds 50% after seven years,
Mr. Smulyan will be entitled to appoint a reduced number of
directors.
IPO
Registration Rights
Mr. Smulyan may cause an initial public offering of
JS Parent at any time following the date of the
JS Parent operating agreement except that Mr. Smulyan
may only cause an IPO if there are no JS Parent Preferred
Interests outstanding or the net cash proceeds of such IPO are
used to repay, redeem, exchange, refinance or amend indebtedness
under the Credit Facility, the JS Parent Preferred
Interests, the Junior Subordinated Notes or the Senior
Subordinated Notes or satisfy JS Parents obligations
pursuant to certain of the Alden Members and the
transferees liquidation rights.
Alden Media shall have the right to cause an IPO of
JS Parent at any time following the fifth anniversary of
date of the JS Parent operating agreement as long as it
maintains the Ownership Minimum. Customary registration rights
are provided to the members under a registration rights
agreement.
Adjustment
of Alden Media Ownership Interests
From the fourteenth month of the date of the JS Parent
operating agreement and until there are no JS Parent
Preferred Interests outstanding, an IPO, or the seventh
anniversary of the JS Parent operating agreement, the Alden
Members percentage of the JS Parent Common Interests
will continue to increase over time according to a negotiated
schedule, with any such increases to be reduced or otherwise
adjusted to reflect issuances or repurchases of JS Parent
Common Interests, and distributions redemptions, or transfers of
JS Acquisition Preferred Trustees or Junior Subordinated
Notes. As a result, it is possible that the Alden Members could
acquire a majority of the Common Interests of JS Parent.
Transfer
Restrictions; Investor Liquidity
The members are subject to certain restrictions on the transfer
of equity interests in JS Parent other than to affiliates
or other permitted transferees. The members are also entitled to
certain rights in connection with certain transfers of equity
interests by other members, including tag-along rights and, for
certain members, rights of first refusal as described in the
operating agreement. In addition, Mr. Smulyan and
JS Parent have certain call rights and drag-along rights as
described in the operating agreement.
Alden Media and its transferees are entitled to various
liquidity rights as described in the JS Acquisition operating
agreement including buy/sell rights. As a result, JS Parent
may be obligated to purchase the common equity interest of Alden
Media and its transferees in accordance with procedures
described in the operating agreement.
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Distribution
Agreement
Emmis is entering into an agreement in connection with the
Transactions that will not become effective if the Alden
Purchase Agreement is terminated prior to the purchase of
Class A Common Stock in the JS Acquisition Tender
Offer. Under this agreement, Emmis will have the right and
obligation to repurchase any shares of Emmis non-voting common
stock that are issued by JS Parent, as determined by the
JS Parent board of directors, to redeem or in exchange for
JS Parent Preferred Interests. Such rights and obligations
will be subject to any applicable restrictions under the Credit
Facility.
Registration
Rights Agreement
General. At the closing under the Alden
Purchase Agreement, JS Parent, Alden Media, Mr. Smulyan and
certain other parties will enter into the Registration Rights
Agreement. Under to the Registration Rights Agreement, JS Parent
will grant registration rights to Alden Media (from and after
the earlier of the fifth anniversary of the Operating Agreement
or when JS Parent is taken public at Mr. Smulyans
request), Mr. Smulyan and their permitted transferees (the
Designated Holders).
Demand Registration. Under the
Registration Rights Agreement, JS Parent has agreed, upon
request from the Designated Holders (the Initiating
Holders), after an initial public offering to register the
sale of common equity securities issued in exchange for JS
Parent Common Interests (Registrable Securities)
under the Securities Act (a Demand Registration), at
the election of the Initiating Holders. However, JS Acquisition
is only obligated to effect a Demand Registration under certain
customary circumstances, including if the Initiating Holders
propose to sell their Registrable Securities to the public at an
anticipated aggregate offering price of more than $25,000,000,
in the case of a registration on
Form S-1,
or $15,000,000, in the case of a registration on
Form S-3.
JS Parent has agreed to use its commercially reasonable
efforts to cause any Demand Registration to become effective not
later than (i) 180 days after it receives a request
for a registration on
Form S-1
and (ii) 45 days after it receives a request for a
registration on
Form S-3,
and in each case to remain effective thereafter.
Piggy-Back Rights. Upon the request of
any Initiating Holder for a Demand Registration, each other
Designated Holder may piggy-back on such
Registration Statement and offer such Designated Holders
Registrable Securities under such Demand Registration (an
Incidental Registration), except that, until such
time as Alden no longer own any JS Parent Preferred Interests or
Junior Subordinated Notes, Smulyan and his permitted transferees
may not register Registrable Securities representing in excess
of 5% of the outstanding Registrable Securities in any such
Incidental Registration.
Expenses. Except for any reimbursements
to the Designated Holders or their counsel for fees incurred in
excess of $50,000 and any brokers commission or
underwriters discount or commission relating to the
registration or sale of such Designated Holders
Registrable Securities, JS Parent has agreed to pay all expenses
in connection with a Demand Registration.
This summary of the Registration Rights Agreement is qualified
in its entirety by reference to the Registration Rights
Agreement, which is incorporated herein by reference.
Rollover
Agreement
General. The Rolling Shareholders
consist of friends, family and other associates of
Mr. Smulyan, including certain officers and employees of
Emmis. Under the Rollover Agreement, each Rolling Shareholder
will be issued a percentage of JS Parent Common Interests at the
time of the closing under the Alden Purchase Agreement in
exchange for contributing its Rollover Shares to Emmis for
cancellation immediately prior to the Effective Time. Upon the
closing under the Rollover Agreement, each Rolling Shareholder
will be required to enter into the Operating Agreement and the
Registration Rights Agreement.
Contributions. Each Rolling Shareholder
will be entitled to be issued a percentage of the JS Parent
Common Interests that are not issued to Alden Media in a ratio
of 1:3 for each Rollover Share contributed to Emmis relative to
the percentage of JS Parent Common Interests that Mr.
Smulyan will receive for each share of Common Stock that Mr.
Smulyan contributes to Emmis for cancellation.
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The Rolling Shareholder JS Parent Common Interests will have the
rights, preferences, privileges and restrictions set forth in
the Operating Agreement. If any Rolling Shareholder fails to
contribute any Rollover Shares prior to the Effective Time, the
JS Parent Common Interests issued to such Rolling Shareholder
will be cancelled and become null and void.
Grant of Proxy; Voting Agreement. Until
the termination of the Rollover Agreement, each Rolling
Shareholder has agreed to vote to the fullest extent its
Rollover Shares are entitled to be voted:
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in favor of the approval and adoption of the Merger Agreement;
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in favor of any proposal to adjourn or postpone any shareholders
meeting at which the Merger Agreement is submitted for a vote if
there are not sufficient votes for the approval of the Merger
Agreement on the date on which the meeting is held;
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against (A) any proposal by any person other than JS
Parent, its affiliates or Mr. Smulyan to acquire the
company through any transactions that would result in a change
of control of Emmis, (B) any reorganization,
recapitalization, liquidation or
winding-up
of the Company or any other extraordinary transaction involving
Emmis or (C) any corporate action that would frustrate,
prevent or delay the Merger Agreement.
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The Rolling Shareholders and JS Acquisition made customary
representations, warranties and acknowledgments regarding the
rollover.
Covenants. Except pursuant to the
Rollover Agreement or the Merger Agreement, the Rolling
Shareholders have agreed not to:
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grant any proxies or enter into any other agreements with
respect to the voting of any Rollover Shares, or
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encumber any Rollover Shares, during the term of the Rollover
Agreement. In addition, the Rolling Shareholders will not
knowingly:
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solicit or initiate any Emmis acquisition proposal, or
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disclose or afford access to information to any Person that is
considering making, or has made, or has agreed to endorse an
Emmis acquisition proposal.
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Shareholder Capacity. Each Rolling
Shareholder entered into the Rollover Agreement solely in its
capacity as the beneficial owner of the Rollover Shares and the
Rollover Agreement will not limit or affect any actions taken by
an individual solely in his or her capacity as an officer or
director of Emmis.
Termination. The Rollover Agreement
will terminate automatically upon the termination of the Alden
Purchase Agreement.
This summary of the Rollover Agreement is qualified in its
entirety by reference to the Rollover Agreement, which is
incorporated herein by reference.
60
SPECIAL
FACTORS
Background
In Mr. Smulyans Statement on Schedule 13D, as
amended, with respect to his beneficial ownership of the
Class A Common Stock, Mr. Smulyan has stated that he
does not intend to sell his Class A Common Stock or
Class B Common Stock but may seek to acquire additional
Class A Common Stock or engage in an extraordinary
corporate transaction with respect to Emmis. Accordingly, during
the last two years, Mr. Smulyan has had preliminary
discussions with various hedge funds, private equity funds and
other strategic investors with respect to providing financing in
connection with a going private transaction of Emmis. The board
of directors of Emmis required that any such parties enter into
confidentiality agreements with Emmis prior to Emmis providing
them with non-public information. In connection with such
discussions, Emmis entered into confidentiality agreements with
20 such parties over the course of the last two years, but none
of those discussions proceeded beyond the preliminary stage.
On May 12, 2009, JS Acquisition, which was formed by
Mr. Smulyan in April 2009 for the purposes of exploring
potential going private transactions with Emmis, entered into an
engagement letter with Party A, an investment bank. Under the
engagement letter, Party A would act as a financial intermediary
in connection with such potential transactions with a list of
specified parties. No discussions other than preliminary
discussions resulted from this arrangement.
On October 2, 2009, JS Acquisition engaged BIA Capital
Strategies, LLC (BIA), another investment bank, to
assist the company with regards to strategic advice and
fundraising related to going private. BIA provided these
services to Mr. Smulyan and Emmis through April 2010.
During November 2009, Mr. Smulyan also discussed the
framework of a potential going private transaction with a
private equity investor, Party C, and its legal advisors. Party
C conducted a preliminary due diligence investigation with
respect to Emmis but no firm offers to provide financing for a
going private transaction materialized.
In early January 2010, Mr. Heath Freeman, Managing Director
of Alden Global Capital, and Messrs. Ryan A. Hornaday
and J. Scott Enright of Emmis had a series of discussions
regarding the terms and provisions of the Existing Preferred
Stock held by Alden.
During March and April 2010, BIA continued to advise JS
Acquisition with respect to possible going private transactions
and continued to seek financing sources for such transactions.
On March 23, 2010, Mr. Freeman and
Messrs. Hornaday and Enright of Emmis had further
discussions regarding the terms and provisions of the Existing
Preferred Stock and a preliminary discussion regarding the
required vote of the holders of the Existing Preferred Stock
that would enable a possible exchange offer for the Existing
Preferred Stock.
On April 11, 2010, Mr. John Momtazee of
Moelis & Company (Moelis) indicated to
Mr. Smulyan and Patrick M. Walsh that Alden was
interested in discussing a potential exchange of the Existing
Preferred Stock for debt. Mr. Smulyan indicated at that
time that an exchange of Existing Preferred Stock for debt
without a concurrent going-private transaction was unattractive
because it would curtail Emmis access to the financing
markets.
This exchange of views led to a meeting in Indianapolis on
April 15, 2010 among Mr. Freeman, Mr. Smulyan,
Messrs. Walsh, Enright and Hornaday of Emmis and
Messrs. Momtazee and Navid Mahmoodzadegan of Moelis.
At this meeting, Mr. Freeman and Mr. Smulyan first
discussed the possibility of Alden providing one or more forms
of financing for a going private transaction with respect to
Emmis in which Mr. Smulyan or an entity controlled by him
would acquire all of the outstanding stock of Emmis not already
controlled by Mr. Smulyan.
JS Acquisition engaged Moelis as its financial advisor,
effective as of April 21, 2010.
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Beginning on April 22, 2010, Mr. Smulyan and Alden,
together with their respective legal advisors, Paul, Weiss,
Rifkind, Wharton & Garrison LLP and Skadden, Arps,
Slate, Meagher & Flom LLP, their respective Indiana
counsel, Taft Stettinius & Hollister LLP and Krieg
DeVault LLP, and Moelis, began negotiating the terms of a letter
of intent relating to the proposed going private transaction and
a related financing by Alden.
The negotiations continued throughout the weekend of April 24 to
25, 2010.
On April 26, 2010, JS Acquisition and Alden entered into
the non-binding Letter of Intent. Based on the framework laid
out in the Letter of Intent, Mr. Smulyan, Alden, their
respective legal advisors and Moelis began to prepare definitive
documentation with respect to the Transactions designed to
result in Emmis being taken private by JS Acquisition.
On April 28, 2010, JS Acquisition sent the following letter
to the board of directors:
JS Acquisition, Inc.
April 28, 2010
Board of Directors
Emmis Communications Corporation
One Emmis Plaza
40 Monument Circle, Suite 700
Indianapolis, Indiana 46204
Ladies and Gentlemen:
We would like to take this opportunity to brief you on the terms
of the letter of intent (the LOI) entered into
between JS Acquisition, Inc. (JS Acquisition) and
Alden Global Capital (Alden) relating to a going
private transaction (the Transaction) involving
Emmis Communications Corporation (Emmis). Pursuant
to the LOI, JS Acquisition intends to purchase all of the shares
of Class A common stock of Emmis (excluding shares owned by
JS Acquisition, Mr. Jeffrey H. Smulyan and his affiliates)
at a price per share of $2.40. The consideration to be offered
for Emmis Class A common stock represents a 74%
premium over the 30-trading day average closing price of the
Class A common stock and a 118% premium over the
180-trading day average closing price of the Class A common
stock. Our offer will be conditioned upon, among other things
including regulatory approvals and other customary conditions, a
number of shares of Class A common stock of Emmis being
tendered for purchase that, when combined with the Class A
and Class B common stock owned by Mr. Smulyan and his
affiliates and the Class A common stock owned by Alden,
represents a majority of the aggregate number of shares of
outstanding Class A and Class B common stock of Emmis
(the Minimum Condition for the Common Stock Tender
Offer). Following the closing of our offer to purchase,
the remaining outstanding Class A common stock (excluding
shares held by Mr. Smulyan and his affiliates) would be
cashed out in a merger (the Back-end Merger) at the
same price per share as our offer.
The LOI also contemplates an offer to exchange all of the
outstanding shares of preferred stock of Emmis (the
Preferred Stock) for newly-issued 12% senior
subordinated notes due 2017 of Emmis (the Debt) with
an aggregate principal amount equal to 60% of the aggregate
liquidation preference (excluding accrued and unpaid dividends)
of the Preferred Stock. The consideration offered for the
Preferred Stock represents a 73% premium over the 30-trading day
average closing price of the Preferred Stock and a 133% premium
over the 180-trading day average closing price of the Preferred
Stock.
The exchange offer is expected to be exempt from registration
under the Securities Act of 1933 pursuant to
Section 3(a)(9). In connection with the exchange offer,
exchanging
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holders will be required to consent to (i) eliminate
Section 11 of Exhibit A to Emmis Articles of
Incorporation (providing for a Going Private Redemption),
(ii) provide for the automatic conversion upon the Back-end
Merger of (X) the Preferred Stock (other than the Preferred
Stock held by Alden) into that amount of consideration that
would be paid to holders of shares of the Class A common
stock into which the Preferred Stock was convertible immediately
prior to the Back-end Merger and (Y) the Preferred Stock
held by Alden into Debt, (iii) eliminate the right of the
holders of the Preferred Stock to nominate directors to
Emmis board of directors and (iv) any further
amendments as may be necessary or appropriate to avoid any
requirement for Emmis to register the Debt under the Securities
Exchange Act of 1934, as amended (the Preferred Stock
Amendments). The Preferred Stock Amendments will require
approval of two-thirds of the holders of the Preferred Stock.
Alden, which currently holds 42% of the Preferred Stock, has
agreed to consent to such amendments and exchange its Preferred
Stock for Debt as part of the Back-end Merger. Our offer to
purchase will also be conditioned upon the tender in the
exchange offer of a number of shares of Preferred Stock that,
when combined with the Preferred Stock being exchanged by Alden
in the Back-end Merger, represents at least two-thirds of the
outstanding Preferred Stock and the effectiveness of the
Preferred Stock Amendments (the Minimum Condition for the
Preferred Stock Exchange Offer).
In order to provide this opportunity to Emmis common
shareholders, we will require the following from the Emmis board
of directors (the Board) prior to our launch of our
offer to purchase:
1. the Board approving the Transaction as contemplated by
§§ 23-1-43-1
to
23-1-43-24
of the Ind. BCL prior to the contribution to JS Acquisition of
any shares of Emmis stock by Mr. Smulyan and the purchase
by JS Acquisition of shares tendered in the offer, the
effectiveness of which is conditioned upon satisfaction of the
Minimum Condition of the Common Stock Tender Offer and the
Minimum Condition of the Preferred Stock Exchange Offer;
2. the Board authorizing Emmis to enter into a merger
agreement providing for the Back-end Merger, adopting the plan
of merger contemplated thereby and agreeing to utilize Ind. BCL
§ 23-1-40-3(b)(1)
to submit such agreement and plan of merger directly to the
Emmis common shareholders for approval without a Board
recommendation, the effectiveness of such authorization,
adoption and agreement being conditioned upon satisfaction of
the Minimum Condition of the Common Stock Tender Offer and the
Minimum Condition of the Preferred Stock Exchange Offer;
3. the Board causing the appointment of Mr. Heath
Freeman, as designee of Alden, to serve as an additional
director on the Board (Mr. Freemans bio is attached
for your review);
4. the Board approving, promptly following such
appointment, the exemption pursuant to
Rule 16b-3
under the Exchange Act of the consideration to be delivered to
Alden in respect of the Class A common stock and Preferred
Stock owned by it in the Back-end Merger; and
5. the Board approving Emmis cooperation with all
other documentation and filings necessary or appropriate to
effectuate the Transaction subject to satisfaction of the
Minimum Condition for the Common Stock Tender Offer, including,
in particular, cooperation with launching the exchange offer and
obtaining the necessary approvals of the Preferred Stock
Amendments.
We look forward to working with the Board to provide Emmis
common shareholders this exciting opportunity. Just as a
reminder, Jeff Smulyan is not interested in any
63
transaction involving the sale of his Class A or
Class B common stock and will not support another
transaction in his capacity as controlling common shareholder.
Timing is critical to the success of the Transaction and our
plan is for each of the offers to be launched as soon as
possible. Accordingly, we encourage the Board to form an
independent committee to engage independent legal counsel to
consider the foregoing requests and respond to us as soon as
possible.
Very truly yours,
JS Acquisition, Inc.
President & CEO
On April 29, 2010, the board of directors of Emmis formed a
Committee of Disinterested Directors consisting of
Ms. Susan B. Bayh and Messrs. Peter A. Lund and
Lawrence B. Sorrel, all of whom qualify as Independent
Directors under NASDAQ Listing Rule 5605 and have no
interest in the Transactions other than as holders of
Class A Common Stock and outstanding options to purchase
shares of Class A Common Stock. None of the members of the
Committee will be a director of Emmis following the completion
of the Transactions. Shortly after the Committee was formed, the
Committee retained Davis, Polk & Wardwell, LLP and
Barnes & Thornburg LLP to serve as council to the
Committee.
Over the next several weeks, Morgan Stanley met with the
Companys management and conducted due diligence. The
Committee also negotiated the terms of Morgan Stanleys
engagement during this time.
On May 6, 2010, JS Acquisition was recapitalized so that
Mr. Smulyan held all 10 shares of JS Acquisition
Class B Common Stock and all 1,000,000 shares of JS
Acquisition Class A Common Stock. Also on May 6, 2010,
Mr. Smulyan contributed the JS Acquisition Class A
Common Stock to JS Parent.
From April 26, 2010 to May 24, 2010, representatives
of JS Acquisition and Alden Media, together with their
respective counsel and Moelis, negotiated the terms of the
various agreements governing the Transactions. On May 24,
2010, JS Parent, the Alden Funds and Alden Media entered into
the Alden Purchase Agreement, under which Alden Media will,
among other things, purchase from JS Parent the JS Parent
Preferred Interests and the JS Parent Common Interests to
finance the cash consideration to be paid in the JS Acquisition
Tender Offer and the Merger and to fund other cash used in the
Transactions.
On May 19, 2010, an engagement letter with the Committee
was executed by Morgan Stanley. Also on this date Paul, Weiss
delivered draft Transaction documents to Davis Polk, including a
draft of the Merger Agreement. Over the next six days, the
representatives of the Committee and JS Acquisition negotiated
the terms of the Merger Agreement.
At a meeting held on May 25, 2010, the Committee
unanimously determined that the Merger Agreement, including the
JS Acquisition Tender Offer and the Merger, were advisable and
fair to and in the best interests of Emmis and the Unaffiliated
Shareholders, and unanimously determined to recommend that the
board of directors adopt resolutions, on terms and subject to
the conditions of the Merger Agreement and the IBCL:
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determining that it was advisable and fair to and in the best
interests of Emmis and the Unaffiliated Shareholders for JS
Acquisition Parent to acquire Emmis on the terms and subject to
the conditions set forth in the Merger Agreement,
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approving and adopting the Merger Agreement, the JS Acquisition
Tender Offer and the Merger, and
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recommending that the Unaffiliated Shareholders accept the JS
Acquisition Offer, tender their shares of Class A Common
Stock in the JS Acquisition Tender Offer and approve the Merger
and the Merger Agreement.
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Following the meeting of the Committee, the board of directors
of Emmis met to, among other things, receive the recommendation
of the Committee with respect to the JS Acquisition Tender
Offer. Following receipt of the Committees recommendation,
the Board unanimously:
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determined that it was advisable and fair to and in the best
interests of Emmis and the Unaffiliated Shareholders who own
Common Stock for JS Acquisition Parent to acquire Emmis on the
terms and subject to the conditions set forth in the Merger
Agreement,
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approved and adopted the Merger Agreement and the Merger and
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recommended that the Unaffiliated Shareholders who own Common
Stock accept the JS Acquisition Tender Offer, tender their
shares of Class A Common Stock in the JS Acquisition Tender
Offer and approve the Merger and the Merger Agreement. At that
same meeting, the board of directors of Emmis also unanimously
adopted various other resolutions and granted authority and
approval with respect to various other matters in connection
with the Transactions including, among other things, the
determinations required under the Merger Agreement with respect
to the Indiana anti-takeover statutes.
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At that meeting the board of directors of Emmis approved the
Exchange Offer and the issuance of the New Notes, authorized
Emmis to submit the Proposed Amendments to shareholders without
a recommendation from the board of directors and approved all
other actions needed to effectuate the Proposed Amendments,
subject to receipt of requisite shareholder approval. For a
summary of factors considered by the board of directors in
making its determinations to approve the Exchange Offer and
authorize the submission of the Proposed Amendments to
shareholders without a recommendation See Purposes,
Alternatives and Reasons and Effects Emmis.
On May 25, 2010, Emmis, JS Acquisition and JS Parent
entered into the Merger Agreement. That same day, Emmis issued a
press release announcing the execution of the Merger Agreement.
Purposes,
Alternatives and Reasons and
Effects Emmis
Purposes
The Committee has determined that the JS Acquisition Tender
Offer and the Merger were advisable and fair to and in the best
interest of Emmis and the Unaffiliated Shareholders who own
Class A Common Stock and, based on the Committees
recommendation, the board of directors of Emmis has recommended
that holders of Class A Common Stock tender their shares
into the JS Acquisition Tender Offer. Because JS Acquisition has
conditioned its obligation to accept shares in the JS
Acquisition Tender Offer on, among other things, the
commencement of the Exchange Offer, Emmis purpose in
commencing the Exchange Offer is to permit the holders of the
Class A Common Stock to tender their shares into the JS
Acquisition Tender Offer.
Alternatives
Mr. Smulyan, in his capacity as the controlling shareholder
of Emmis, has informed Emmis that he would not be willing to
approve any other transaction that competes with or impedes the
Transactions. For this reason, the board of directors of Emmis
did not consider alternative transactions.
Reasons
The board of directors of Emmis has approved the Exchange Offer
in order to permit the holders of the Class A Common Stock
to tender their shares into the JS Acquisition Tender Offer.
Effects
The Exchange Offer will have both positive and negative effects
on the holders of the Existing Preferred Stock. A holder of
shares of Existing Preferred Stock who accepts the Exchange
Offer will hold a New Note,
65
which will be a different instrument from the Existing Preferred
Stock. The following table compares certain rights of holders of
the Existing Preferred Stock with those of holders of the New
Notes:
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Existing Preferred
Stock
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New Notes
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Equity; liquidation preference senior to that of Common Stock,
but subordinated in right of payment to indebtedness and other
liabilities, including trade payables, of Emmis, including the
New Notes and the Junior Subordinated Notes, if any.
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Debt; holders have a right to receive a specified principal
amount with that is senior in right of payment to holders of
Emmis equity, including the Existing Preferred Stock,
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No maturity date.
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The New Notes mature
on ,
2017, unless redeemed earlier by Emmis. A failure to pay
principal when due is an event of default under the New Notes.
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No interest is payable on the Existing Preferred Stock, but,
holders of Existing Preferred Stock are entitled to cumulative
cash dividends prior to any payment of dividends on Common
Stock; Emmis is in arrears in the payment of dividends to
holders of the Existing Preferred Stock and is currently
precluded from paying dividends under the Credit Facility. There
is no remedy for the failure to pay dividends on the Existing
Preferred Stock other than the right to nominate directors to
the Emmis board of directors, as described below.
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Interest will accrue at 12.00% per annum from the date of
issuance, payable in arrears, payable in kind, annually on
each ,
beginning
on ,
2011. A failure to pay interest when due may result in an event
of default under the New Notes if not cured within the
applicable grace period.
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As of April 15, 2010, an aggregate of $4.87 of dividends
per share of Existing Preferred Stock had accrued and had not
been paid.
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Any holder of Existing Preferred Stock who is issued New Notes
in the Exchange Offer will not be paid any accrued and unpaid
dividends on the Exsiting Preferred Stock that is tendered into
the Exchange Offer.
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Holders of Existing Preferred Stock have the right to require
Emmis to redeem all or a portion of their shares on the first
anniversary after the occurrence of certain going private
transactions. This right is proposed to be removed as part of
the Proposed Amendments.
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Holders of New Notes will have no corresponding right.
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Holders of Existing Preferred Stock have the right to nominate
directors to Emmis board of directors if the dividends
payable on the Existing Preferred Stock are in arrears for six
consecutive quarterly periods. This right is proposed to be
removed as part of the Proposed Amendments.
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Holders of New Notes will have no corresponding right, although
a failure to pay interest when due may result in an event of
default under the New Notes if not cured within the applicable
grace period.
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Holders of Existing Preferred Stock have the right to convert
each share of Existing Preferred Stock into 2.44 shares of
Class A Common Stock. The Proposed Amendments will add a
provision that will, upon a merger, cause each share of Existing
Preferred Stock to be converted automatically into the
consideration to which the holder of such share would be
entitled had it converted such share into Class A Common
Stock immediately prior to such merger.
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Holders of New Notes will have no conversion rights and will not
be subject to any mandatory conversion provisions.
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Holders of Existing Preferred Stock have voting rights on
certain matters submitted to shareholders of Emmis.
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Holders of New Notes will have no voting rights with respect to
matters submitted to shareholders of Emmis.
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Existing Preferred
Stock
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New Notes
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The Existing Preferred Stock is listed on the NASDAQ Global
Select Market.
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The New Notes will not be listed on any securities exchange or
automated quotation system, and there is no assurance that a
liquid trading market in the New Notes will develop.
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The above table is provided for informational purposes only and
does not take into account all factors relating to a comparison
of the shares of Existing Preferred Stock to the New Notes, nor
does it take into account any factors relating to the tax
consequences of accepting the Exchange Offer. For a more
complete description of the New Notes and the Existing Preferred
Stock, see Description of New Notes included in this
Proxy Statement/Offer to Exchange and the Description of
the Existing Preferred Stock attached to this Proxy
Statement/Offer to Exchange as Schedule C. See also
Material United States Federal Income Tax
Consequences. The New Notes are also subject to various
risks, including those set forth in Risk
Factors Risks Related to the New Notes. Any
shares of Existing Preferred Stock acquired by Emmis in the
Exchange Offer will be cancelled.
After the Transactions are completed, we expect that we will no
longer be subject to requirements under the Exchange Act to file
periodic or current reports with the SEC because no class of our
securities will be held by more than 300 holders of record. In
addition, the indenture governing the New Notes will not contain
any covenants requiring Emmis to file such reports. As a result,
we will no longer be required to provide financial and other
information in filings on
Forms 10-K,
10-Q or
8-K.
Furthermore, we expect that none of our securities will be
listed on a stock exchange after completion of the Exchange
Offer. As a result, we will no longer be subject to SEC and
stock exchange regulations with respect to financial reporting,
internal control over financial reporting, disclosure controls,
audit committee independence, short-swing profits reporting,
beneficial ownership reporting or any other similar requirements
to which public companies are subject. Our status as a private
company may have an adverse effect on the value of our
securities and evidences of our indebtedness, including the New
Notes.
If the Proposed Amendments are adopted and effected, holders of
the Existing Preferred Stock will no longer be entitled to
appoint directors to the Emmis board of directors if sufficient
dividends on the Existing Preferred Stock are accrued and
unpaid. The Proposed Amendments would also remove the
requirement for Emmis to redeem the Existing Preferred Stock
following specified going-private transactions. If the JS
Acquisition Tender Offer and this Exchange Offer are completed
and the Proposed Amendments are adopted and effected, we will
seek the affirmative votes of holders of Common Stock (a
majority of which will be beneficially owned, following the JS
Acquisition Tender Offer, by Mr. Smulyan and the Alden
Fund) to approve the Merger of JS Acquisition with and into
Emmis, with Emmis surviving the merger as a subsidiary of JS
Parent. Mr. Smulyan will hold all of the shares of a newly
issued class of voting common stock of Emmis, and JS Parent will
hold all of the shares of a newly issued class of non-voting
common stock of Emmis. In the Merger, each outstanding share of
Existing Preferred Stock not held by the Alden Fund will be
converted into the right to receive $5.856 in cash (without
interest and less any applicable withholding taxes) from Emmis,
which is equal to the conversion rate of the Existing Preferred
Stock of 2.44 shares of Class A Common Stock per share
times the $2.40 in cash (without interest and less any
applicable withholding taxes) per share of Class A Common
Stock that is being offered in the JS Acquisition Tender Offer,
and may be less than the value of the New Notes you would
receive in the Exchange Offer and each share of Existing
Preferred Stock owned by the Alden Fund will be converted into
the right to receive New Notes at the same rate as in the
Exchange Offer.
Following the completion of the Transactions, Mr. Smulyan,
through JS Parent, will beneficially own securities that would
entitle him to an approximately 67.9% indirect common equity
interest in Emmis.
Fairness
of the Exchange Offer Emmis
Indiana law does not impose any duty upon Emmis or its board of
directors or executive officers to seek or obtain any particular
price or a fair price for the Existing Preferred Stock in the
Exchange Offer. Under Indiana law the duties of a board of
directors or executive officers are first to the corporation
itself. In
67
considering, what is in the best interests of the corporation,
the directors may take into account the interests of
constituents, including shareholders, employees, customers,
communities or anything else they deem relevant. Likewise,
Indiana law does not impose on the directors or executive
officers any duty to make a recommendation to holders of
Existing Preferred Stock as to whether to participate in the
Exchange Offer or, in special circumstances which would include
the Proposed Amendments as a result of the conflicts of
interests, whether to vote to approve the Proposed Amendments.
Furthermore, Indiana law does not impose any duty on any such
persons to obtain advice from or retain any outside person or
financial advisor to prepare any report, opinion or appraisal
relating the Exchange Offer or the Proposed Amendments.
Federal securities laws and regulations, however, require
disclosure of the board of directors position as to the
fairness of the Exchange Offer to the unaffiliated shareholders
of Emmis. Accordingly, the board of directors considered and
reviewed the terms, purposes, alternatives and effects of the
proposed Exchange Offer and Proposed Amendments in order to
determine what its position was with respect to the question of
whether the Exchange Offer is fair to Unaffiliated Shareholders
who hold Existing Preferred Stock, other than Mr. Smulyan,
JS Acquisition, JS Parent, Alden and the other holders who will
be investors in JS Parent, of the Class A Common Stock.
Since the Proposed Amendments and the Exchange Offer are
necessary steps to completion of the JS Acquisition Tender
Offer, an inherent conflict of interest was created for the
Emmis board of directors, as not even the Committee, who is
disinterested in the Transactions other than as a result of
their ownership of Class A Common Stock, could be asked to
fairly represent the interests of the holders of Existing
Preferred Stock while at the same time serving the best interest
of Emmis and its holders of Class A Common Stock other than
Unaffiliated Shareholders.
Indiana law contemplates just such a conflict and has provided
that under this special circumstance a board of directors need
not recommend amendments to the articles of incorporation and
can adopt such amendments subject to the requisite shareholder
vote and submit the amendments directly to shareholders without
a recommendation.
In light of the special circumstances described above,
management recommended to the Emmis board of directors that it
consider the fairness to Unaffiliated Shareholders who hold
Common Stock and Existing Preferred Stock of the Exchange Offer
and Proposed Amendments for purposes of making disclosure of
that determination in compliance with federal securities law but
that it not provide a recommendation to holders of Existing
Preferred Stock as to how to vote on the Proposed Amendments.
Emmis senior management, all of whom are interested in the
Transactions, also assisted the board of directors of Emmis in
determining the considered factors described below.
The board of directors of Emmis did not engage an independent
financial advisor to advise on the fairness of the Exchange
Offer or to appraise or otherwise calculate the value of our
Existing Preferred Stock or the New Notes or the exchange ratio
being used in the Exchange Offer.
Factors
Considered
The board of directors considered a number of factors, including
the following, when determining whether the Exchange Offer is
fair to Unaffiliated Shareholders who hold Common Stock and
Existing Preferred Stock:
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the effectiveness of the Proposed Amendments are a condition to
the JS Acquisition Tender Offer which can only occur if the
Proposed Amendments are adopted;
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the Exchange Offer is designed to increase the likelihood that
the Proposed Amendments will be adopted;
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current and historical trading prices for our Existing Preferred
Stock;
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the possible decline in the market price of our Existing
Preferred Stock if the JS Acquisition Tender Offer is withdrawn
and the Transactions are abandoned;
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68
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the amount by which the principal amount of the New Notes to be
delivered in the Exchange Offer exceeds recent trading prices
and estimated trading values of the Existing Preferred Stock;
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over the past two years, the Existing Preferred Stock has never
traded at a per share price above the $30.00 principal amount of
New Notes to be delivered in respect of each share of Existing
Preferred Stock in the Exchange Offer;
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the stated interest rate on the New Notes is significantly
higher than the present dividend rate on our Existing Preferred
Stock;
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the improved contractual ranking, as a debt claim, upon
liquidation of the New Notes compared to the Existing Preferred
Stock and the fixed contractual maturity date of the New Notes
compared to the perpetual nature of the our Existing Preferred
Stock;
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the fact that the indenture for the New Notes contain events of
default, acceleration provisions and other customary remedies
available to subordinated debt holders, compared to the power to
elect board members as the sole remedy for failure to pay
dividends on the Existing Preferred Stock;
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the fact that, except in the Exchange Offer, holders of our
Existing Preferred Stock will not likely have an opportunity in
the foreseeable future to dispose of their shares at prices
other than those available in private or open market
transactions (to the limited extent that our trading market may
continue to exist) because we plan to continue to operate Emmis
as a going concern and have no current plans of disposing of the
entire business or causing a liquidation of our assets;
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the fact that Emmis is unable to achieve a going private
transaction or a liquidation of all or substantially all of our
assets without the approval of Mr. Smulyan, in his capacity
as controlling shareholder, and Mr. Smulyan has stated
that, in such capacity, he will not approve a competing
transaction to the Transaction;
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the fact that Emmis had received no firm offers for the
acquisition of Emmis in the past two years;
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the extremely limited trading market for the Existing Preferred
Stock, including limited liquidity, relatively low prices and
trading volume;
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the considerable costs associated with remaining a public
company and maintaining the NASDAQ listing of the Existing
Preferred Stock and that based on the current number of holders
of our Existing Preferred Stock we would be permitted to
terminate our Exchange Act registration and the NASDAQ listing
of the Existing Preferred Stock even without the Exchange Offer
or the Proposed Amendments;
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the likely further reduction in the liquidity for our Existing
Preferred Stock should we terminate our Exchange Act
registration;
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the fact that Emmis is presently prohibited from paying
dividends on the Existing Preferred Stock as a result of
restrictions in Emmis Operatings Credit Facility and that
it is unlikely that the holders of our Existing Preferred Stock
will receive payment of dividends or that Emmis will have the
ability to redeem the Existing Preferred Stock in the
foreseeable future;
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the fact that the Exchange Offer is a voluntary transaction in
which the holders of two-thirds of the Existing Preferred Stock,
voting as a separate class, may choose whether to participate;
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the Exchange Offer and Proposed Amendments fully comply with the
provisions of our amended and restated articles of incorporation
governing the rights of holders of our Existing Preferred Stock;
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no dissenters or appraisal rights are available to holders
of Existing Preferred Stock who do not participate in the
Exchange Offer;
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the fact that, based on public filings, more than 80% of our
Existing Preferred Stock is held by just 11 institutional owners
who are capable of evaluating the financial and other
ramifications of both the Exchange Offer and the
Proposed Amendments;
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69
The board of directors of Emmis also considered a number of
negative factors that would result from the Exchange Offer when
determining whether it was fair, including the following:
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the possible significant decrease in the value of the Existing
Preferred Stock following the completion of the Exchange Offer;
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the likely reduction in the liquidity for any remaining shares
of our Existing Preferred Stock and the potential significant
reduction in the value of our Existing Preferred Stock that
remains pending the Merger;
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the fact that Emmis will likely no longer be a company required
to file current or periodic reports with the SEC following
completion of the Transactions;
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holders of our Existing Preferred Stock who do not participate
in the Exchange Offer will receive a different type of
consideration in the Merger than those who participate which
could be considerably less than the value of the New Notes
received by those who participate in the Exchange Offer;
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that if the Proposed Amendments are adopted and effected, the
Merger will result in the conversion of each share of Existing
Preferred Stock, other than the shares held by the Alden Fund,
into the right to receive $5.856 in cash (without interest and
less any applicable withholding taxes), which is equal to the
$2.40 in cash (without interest and less any applicable
withholding taxes) per share that holders of the Class A
Common Stock will receive in the Merger times 2.44, which is the
number of shares of Class A Common Stock into which each
share of Existing Preferred Stock can be converted and that such
amount may be less than the value of the New Notes offered in
the Exchange Offer;
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that if the Proposed Amendments are adopted and effected,
holders of the Existing Preferred Stock will no longer be
entitled to appoint directors to our board of directors if
sufficient dividends on the Existing Preferred Stock are accrued
and unpaid;
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that the Proposed Amendments would also remove the requirement
for Emmis to redeem the Existing Preferred Stock following
specified going-private transactions;
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that the New Notes may be considered to have been issued with
original issue discount for U.S. federal income tax
purposes, in which case U.S. holders will be required to
include such OID in gross income on a constant yield to maturity
basis in advance of the receipt of cash payment thereof and
regardless of such holders method of accounting. See
Certain Material U.S. Federal Income Tax
Consequences;
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that the New Notes, like the Existing Preferred Stock, contain
no material restrictive covenants;
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that the New Notes contain no cash payment requirement prior to
maturity; and
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the conflicts of interest involved in the Transaction and the
fact that the terms of Exchange Offer and Proposed Amendments
were delivered to the board of directors of Emmis by JS
Acquisition as a condition of the JS Acquisition Tender Offer
and did not result from arms-length negotiations, and no
representative of any of the holders of Existing Preferred Stock
was involved in the deliberations of the board of directors of
Emmis.
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The board of directors did not consider going concern value or
liquidation value of our assets because the board of directors
does not consider a liquidation or sale of the entire company
(other than as a result of the Transactions) to be a viable
course of action, particularly given the intentions expressed by
our controlling shareholder in his capacity as such. While the
board of directors considered that the Existing Preferred Stock
does have a conversion feature that allows conversion to
Class A Common Stock, the board of directors did not
consider that residual value as material to its consideration of
the value of the Existing Preferred Stock given the extent to
which the cost of conversion is in excess of the current value
of the Class A Common Stock. The board of directors also did not
consider net book value because it does not believe net book
value is material or relevant to its determination, since it is
an accounting concept based on specific accounting methodologies
that is historical in nature and therefore not forward-looking.
70
The foregoing discussion of the information and factors
considered is not intended to be exhaustive. In view of the wide
variety of factors considered in connection with its evaluation
of the Exchange Offer, the board of directors of Emmis has found
it impractical to, and therefore has not, quantified or
otherwise attempted to assign relative weights to the specific
factors considered in reaching a decision to approve of the
Exchange Offer.
Conclusions
The board of directors unanimously determined that the Exchange
Offer is fair to the Unaffiliated Shareholders who hold Common
Stock or Existing Preferred Stock. However, our board of
directors is not making any recommendation as to whether holders
of Existing Preferred Stock should participate in the Exchange
Offer or vote for the Preferred Amendments and believes that
because of the circumstances surrounding the Transactions,
including the background of the Transactions, the conflicts of
interest inherent therein and the lack of a recommendation by
the board of directors of Emmis, each such holder should not
rely on the fairness determination of the board of directors and
should make its own independent analysis.
Reports,
Opinions, Appraisals and Negotiations
Emmis
The board of directors of Emmis did not engage an independent
financial advisor to advise on the fairness of the Exchange
Offer or to appraise or otherwise calculate the value of the
Existing Preferred Stock or the New Notes or the exchange ratio
being used in the Exchange Offer.
Purposes,
Alternatives, Reasons and Effects Purchaser
Group
Purpose
From the point of view of the Purchaser Group, the purpose of
the Exchange Offer is to facilitate the Transactions, of which
the Exchange Offer is a part. The completion of the Exchange
Offer is a condition precedent to the completion of the JS
Acquisition Tender Offer and the Merger, and the Purchaser Group
wishes to complete the JS Acquisition Tender Offer and the
Merger. In addition, the adoption and effectiveness of the
Proposed Amendments are necessary in order to complete the JS
Acquisition Tender Offer and the Merger without triggering a
repurchase right in favor of the holders of the Existing
Preferred Stock, and JS Acquisition views the Exchange
Offer as a form of inducement to holders of Existing Preferred
Stock to approve the Proposed Amendments.
In addition, under the Alden Purchase Agreement, Alden Media has
conditioned its purchase obligations, which are the sole source
of financing for the JS Acquisition Tender Offer and the
Merger, on the commencement of the Exchange Offer and the
effectiveness of the Proposed Amendments.
The purpose of the JS Acquisition Tender Offer is to acquire all
of the shares of Class A Common Stock that are not
beneficially owned by the Purchaser Group or the Alden Fund,
other than the Rollover Shares. The purpose of the Merger is to
acquire all outstanding shares of Class A Common Stock not
tendered and purchased in the JS Acquisition Tender Offer or
contributed to Emmis under the Alden Purchase Agreement or the
Rollover Agreement.
Plans
for Emmis after the Exchange Offer and the Other
Transactions.
Upon the successful completion of the JS Acquisition Tender
Offer and the Exchange Offer, JS Parent, together with the
Alden Fund, Mr. Smulyan and the holders of the Rollover
Shares, will own a majority of the outstanding shares of Common
Stock and will have sufficient voting power to approve the
Merger without the affirmative vote of any other shareholders of
Emmis. If a meeting is necessary under applicable law in order
to complete the Merger, JS Acquisition, the other members of the
Purchaser Group, the Rolling Shareholders and the Alden Fund
intend to vote their shares of Common Stock in favor of the
Merger at a special meeting of Emmis shareholders.
71
Under the Alden Purchase Agreement, the Alden Fund has agreed to
vote all of its shares of Class A Common Stock in favor of
the Merger and pursuant to the Rollover Agreement, the Rolling
Shareholders have agreed to vote their Rollover Shares in favor
of the Merger.
In the Merger, the Retained Shares and all of the other
outstanding shares of Class A Common Stock (except for the
shares of Class A Common Stock held by the Purchaser Group
and the Rollover Shares), will be converted into the right to
receive $2.40 in cash. Immediately prior to the effective time
of the Merger, each share of Common Stock held by the Purchaser
Group (other than the Retained Shares) and the Rollover Shares
will be contributed to Emmis and cancelled in satisfaction of
the respective obligations under the Alden Purchase Agreement or
the Rollover Agreement, as applicable, and in consideration for
JS Parent Common Interests. Each share of Class B Common
Stock (other than any converted to Retained Shares before the
Merger), all of which are held by Mr. Smulyan, and all of
Mr. Smulyans options to acquire Common Stock will be
contributed to Emmis and cancelled in satisfaction of his
obligations under the Alden Purchase Agreement, and in
consideration for JS Parent Common Interests. Each outstanding
share of the Existing Preferred Stock not held by the Alden Fund
will be converted into the right to receive $5.856 in cash from
JS Parent, and each share of Existing Preferred Stock held by
the Alden Fund will be converted into the right to receive New
Notes at a rate of $30 principal amount of New Notes per $50 of
liquidation preference of Existing Preferred Stock, excluding
accrued and unpaid dividends. In the Merger, each share of JS
Acquisition Class A Common Stock, all of which are held by
JS Parent will be converted into one share of new Nonvoting
Class A Common Stock, par value $0.01 per share (New
Class A Common Stock) of Emmis and each share of JS
Acquisition Class B Common Stock, which are all held by
Mr. Smulyan will be converted into one share of new
Class B Common Stock, par value $0.01 per share (New
Class B Common Stock) of Emmis.
JS Acquisition is not offering to acquire outstanding options in
the JS Acquisition Tender Offer. Under the Merger Agreement, all
options not exercised, other than shares of restricted stock or
restricted stock units held by Mr. Smulyan, will be
cancelled in exchange for the payment of the excess, if any, of
the Offer Price over the exercise price for such options, less
any applicable income and employment taxes required to be
withheld by applicable law. Each share of restricted stock units
will vest and be cancelled and the holders of restricted stock
and restricted stock units will be entitled to receive $2.40 for
each share of such restricted stock and each share underlying
its restricted stock units.
Except as otherwise described in this Proxy Statement/Offer to
Exchange, JS Parent, JS Acquisition and Mr. Smulyan have no
current plans or proposals which relate to or would result in:
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an extraordinary corporate transaction, such as a merger,
reorganization or liquidation involving Emmis,
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any material change in the present dividend rate or policy or
indebtedness or capitalization of Emmis or
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any other material change in Emmis corporate structure or
business.
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If the Offer and the Merger are successfully completed, and the
Amended and Restated Operating Agreement of JS Acquisition, LLC,
to be entered into upon the Closing of the Alden Purchase
Agreement by and among Alden Media, Mr. Smulyan, JS Parent
and certain other parties (the Operating Agreement)
is entered into, the members of the board of the surviving
corporation will be composed of five members nominated by Mr.
Smulyan and two members nominated by Alden Media. In addition,
Mr. Smulyan has agreed that following completion of the Merger
he will vote the New Class B Common Stock held by him in
favor of amendments to the Articles of Incorporation of Emmis
and Emmis Operating Agreement to mirror the governance
provisions in the Operating Agreement.
In addition, pursuant to the Operating Agreement JS Parent must
use its commercially reasonable efforts to cause Emmis to sell
assets of Emmis and its subsidiaries for purposes of
refinancings in order to allow for redemption of Alden
Medias preferred investment. The proceeds of such sales
will be used to refinance existing indebtedness of Emmis
subsidiaries in order to permit the redemption of the New Notes,
the JS Parent Preferred Interests
and/or
Junior Subordinated Notes. Emmis has had discussions with
various third parties and financing sources in the past
regarding potential asset sales, but such discussions have not
resulted in any firm offers.
72
JS Parent further expects to operate Emmis as a going concern
under its control and to review Emmis assets, corporate
structure, capitalization, operations, properties, policies,
management and personnel to determine which changes may be
necessary following the completion of the Exchange Offer and the
other Transactions to best organize and integrate the activities
of JS Parent and Emmis (and its affiliates). JS Parent and
Mr. Smulyan expressly reserve the right to make any changes
to future plans that they deem necessary or appropriate in light
of its review or future developments.
Reasons
of the Purchaser Group for the Exchange Offer
As discussed above, the Exchange Offer is a necessary
transaction in order to complete the other Transactions,
including the JS Acquisition Tender Offer and the Merger.
In connection with the Transactions, the Purchaser Group
considered the following material factors:
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as a privately-held company, Emmis will have greater ability to
take larger risks and more aggressively pursue opportunities in
the industry than it is able to do while being a public company
without risk-adjusted capital investments;
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as a privately-held company, Emmis will have greater flexibility
to operate with a view to the long-term without focusing on
short-term operating earnings and its associated implications to
public shareholders, and such long-term focus will allow Emmis
to make investments in digital media and make other long-term
capital expenditures;
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by ceasing to be a public company, Emmis will benefit from the
elimination of the additional burdens on Emmis management,
as well as the expenses associated with being a public company,
including the burdens of preparing periodic reports under
federal securities laws and complying with other applicable
securities law requirements (including the Sarbanes-Oxley Act of
2002), complying with stock exchange listing requirements and
maintaining investor relations functions; and
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as a privately-held company, less information will be required
to be provided publicly for use by Emmis competitors.
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Certain
Effects of the Exchange Offer
As a result of the completion of the Exchange Offer and the JS
Acquisition Tender Offer, the direct and indirect interest of
the Purchaser Group and Alden in Emmis net book value and
net earnings will increase to the extent of the number of Shares
acquired under the JS Acquisition Tender Offer.
Immediately following completion of the Merger, the Purchaser
Group, the Rolling Shareholders and Alden Medias indirect
interest in such items will increase to 100%, and the Purchaser
Group, the Rolling Shareholders and Alden Media will be entitled
to all benefits resulting from that interest, including all
income generated by Emmis operations and any future
increase in Emmis value. The Purchaser Group, the Rolling
Shareholders and Alden Media will also bear the risk of losses
generated by Emmis operations and any decrease in the
value of Emmis after the Merger. Upon completion of the Merger,
Emmis will become a privately-held corporation. Accordingly,
former shareholders of Emmis, other than the Purchaser Group,
Alden and the Rolling Shareholders, will not have the
opportunity to participate in the earnings and growth of Emmis
after the Merger and will not have any right to vote on
corporate matters. Similarly, such former shareholders of Emmis
will not face the risk of losses generated by Emmis
operations or decline in the value of Emmis after the Merger.
Alternatives
to the Exchange Offer and the Transactions
The Purchaser Group, having come to a determination to pursue
the acquisition of the remaining shares of Common Stock of
Emmis, considered various alternative transaction structures by
which the acquisition might be achieved and determined to make
the Exchange Offer, coupled with the JS Acquisition Tender Offer
73
followed by the Merger. In choosing this transaction structure,
the Purchaser Group considered the following material factors:
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a cash tender offer followed by a merger is a transaction
structure that is commonly used to effect an acquisition of the
majority interests in a publicly traded company by a controlling
shareholder;
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Emmis shareholders that tender their shares of Common
Stock in the JS Acquisition Tender Offer or that tender their
shares of Existing Preferred Stock in the Exchange Offer would
likely receive their consideration sooner in a tender offer than
in a negotiated merger transaction with Emmis that is not
preceded by a tender offer;
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the JS Acquisition Tender Offer does not compel any Emmis
shareholder to sell its Shares, and the JS Acquisition Tender
Offer and the Merger will not be effected unless a minimum
tender condition is satisfied;
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for a controlling shareholder, such as Mr. Smulyan, who is
seeking to acquire shares of Common Stock from a large number of
public shareholders, open-market or privately-negotiated
purchases would be less efficient, more complex and more time
consuming than a tender offer; and
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an exchange offer, such as the Exchange Offer, could be an
inducement for holders of Existing Preferred Stock to vote in
favor of the Proposed Amendments, which are necessary for the
Transactions to be completed.
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These factors represent all of the material factors considered
by the Purchaser Group in deciding to structure the proposed
Transactions as a cash tender offer, coupled with an exchange
offer, followed by a merger. The Purchaser Group did not
consider any structures other than a negotiated merger,
open-market purchases and privately-negotiated purchases.
Fairness
of the Exchange Offer Purchaser Group
Because Mr. Smulyan, who controls the Purchaser Group, is a
member of the board of directors of Emmis, he participated in
the deliberations of the board of directors with respect to the
fairness of the Exchange Offer to the Unaffiliated Shareholders
who hold Common Stock or Existing Preferred Stock.
Mr. Smulyan voted, together with the rest of the members of
Emmis board of directors, in favor of the determination
that the Exchange Offer is fair to the Unaffiliated Shareholders
who hold Common Stock or Existing Preferred Stock for the same
reasons and after considering the same factors as the Emmis
board of directors as a whole. The Purchaser Group has made no
recommendation as to the Exchange Offer. See
Fairness of the Exchange Offer
Emmis.
Reports,
Opinions, Appraisals and Negotiations Purchaser
Group
The Purchaser Group did not engage an independent financial
advisor to advise on the fairness of the Exchange Offer or to
appraise or calculate the value of the Existing Preferred Stock
or the New Notes or the exchange ratio being used in the
Exchange Offer.
Agreements
Involving Emmis Securities
The Merger Agreement contains provisions relating to the
treatment of the various outstanding Emmis securities following
the completion of the Exchange Offer. See The
TransactionsMerger.
The amended and restated operating agreement of JS Parent
contains provisions under which JS Parent Preferred Interests
may, through a series of steps, be converted into Junior
Subordinated Notes of Emmis. See The TransactionsJS
Parent Operating Agreement.
In the Transactions, some executive officers of Emmis will be
receiving securities of JS Parent in respect of their shares of
Class A Common Stock, as described more fully below, under
the caption Executive Officer and Director
Participation; Interests of Certain Persons in the
Transactions.
74
Under the Alden Purchase Agreement, Mr. Smulyan and the
Alden Fund have agreed to vote their securities for the Proposed
Amendments. See The Special MeetingAgreements to
Vote by the Members of the Purchaser Group and Alden.
Under the Alden Purchase Agreement, Mr. Smulyan is also
agreeing to cancel all of his outstanding options.
Pursuant to the Rollover Agreement, each of the Rolling
Shareholders is required to contribute its Rollover Shares to
Emmis immediately prior to the Merger and, in exchange for this
commitment, JS Parent will issue to each Rolling Shareholder
common interests in JS Parent (the Rolling Shareholder
Parent Interests) at the closing of the transactions
contemplated by the Alden Purchase Agreement. Each Rolling
Shareholder has also agreed in the Rollover Agreement to grant
JS Acquisition an irrevocable proxy to vote in favor of the
Merger Agreement and the Merger at any meeting of Emmis
shareholders called to vote on the Merger Agreement and the
Merger.
Executive
Officer and Director Participation; Interests of Certain Persons
in the Transactions
The required votes of the holders of Common Stock and the
holders of the Existing Preferred Stock must be obtained in
order for the Transactions to be completed. None of the members
of the Emmis board of directors will be participating in the
Proxy Solicitations or the solicitation of tenders into the
Exchange Offers other than Messrs. Smulyan, Walsh and
Freeman.
Each of the following executive officers of Emmis is
participating in the Proxy Solicitations:
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Name
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Position
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Jeffrey H. Smulyan
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Director, Chairman of the Board of Directors, Chief Executive
Officer and President
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Patrick M. Walsh
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Director, Executive Vice President, Chief Financial Officer and
Chief Operating Officer
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Richard F. Cummings
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President of Radio Programming
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J. Scott Enright
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Executive Vice President, General Counsel and Secretary
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Gregory T. Loewen
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Chief Strategy Officer and President Publishing
Division
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The above-listed executive officers may have interests in the
Transactions that are different from those of holders of Common
Stock or Existing Preferred Stock.
If the Transactions are completed, each of the above-listed
executive officers is expected to remain as an executive officer
of Emmis following completion of the Transactions, subject to
the terms of each executive officers existing employment
agreement. See Compensation Table Employment
Agreements. The executive officers who remain at Emmis are
expected to receive incentive compensation or equity awards
under a new management incentive plan to be adopted after the
completion of the Transactions, although the terms of the equity
awards have not yet been determined.
Each of the above-listed executive officers and the directors of
Emmis will also receive consideration in respect of his equity
awards as described in the following table:
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Class A Common
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Merger Cash
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Name
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Stock Options
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Exercise Price
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Consideration
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Bayh, Susan B.
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7,317
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0.28
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$
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15,512
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7,317
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1.70
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5,122
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|
|
|
|
7,317
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|
|
|
8.71
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|
|
|
0
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|
|
|
|
7,317
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|
|
|
8.84
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|
|
|
0
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|
|
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|
7,317
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|
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|
12.19
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0
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|
|
|
|
14,635
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|
|
|
13.56
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|
|
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0
|
|
|
|
|
14,635
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|
|
|
14.21
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|
|
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0
|
|
|
|
|
14,635
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|
|
|
15.48
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|
|
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0
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|
75
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Class A Common
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|
|
|
Merger Cash
|
|
Name
|
|
Stock Options
|
|
|
Exercise Price
|
|
|
Consideration
|
|
|
Cummings, Richard F.
|
|
|
87,500
|
|
|
|
0.30
|
|
|
$
|
184,188
|
|
|
|
|
87,500
|
|
|
|
1.14
|
|
|
|
110.250
|
|
|
|
|
43,904
|
|
|
|
2.95
|
|
|
|
0
|
|
|
|
|
43,904
|
|
|
|
8.21
|
|
|
|
0
|
|
|
|
|
43,904
|
|
|
|
11.17
|
|
|
|
0
|
|
|
|
|
73,174
|
|
|
|
11.21
|
|
|
|
0
|
|
|
|
|
43,904
|
|
|
|
12.80
|
|
|
|
0
|
|
|
|
|
73,174
|
|
|
|
17.44
|
|
|
|
0
|
|
|
|
|
73,174
|
|
|
|
19.82
|
|
|
|
0
|
|
|
|
|
73,174
|
|
|
|
19.90
|
|
|
|
0
|
|
Enright, J. Scott
|
|
|
30,000
|
|
|
|
0.30
|
|
|
$
|
63,150.00
|
|
|
|
|
120,000
|
|
|
|
0.36
|
|
|
|
245,400.00
|
|
|
|
|
10,000
|
|
|
|
2.95
|
|
|
|
0
|
|
|
|
|
7,900
|
|
|
|
8.21
|
|
|
|
0
|
|
|
|
|
7,317
|
|
|
|
11.17
|
|
|
|
0
|
|
|
|
|
13,903
|
|
|
|
11.22
|
|
|
|
0
|
|
|
|
|
7,317
|
|
|
|
12.81
|
|
|
|
0
|
|
|
|
|
14,378
|
|
|
|
17.45
|
|
|
|
0
|
|
|
|
|
11,707
|
|
|
|
19.82
|
|
|
|
0
|
|
|
|
|
13,170
|
|
|
|
19.90
|
|
|
|
0
|
|
Fiddick, Paul W.
|
|
|
55,000
|
|
|
|
0.30
|
|
|
$
|
115,775
|
|
|
|
|
55,000
|
|
|
|
1.14
|
|
|
|
69,300
|
|
|
|
|
21,952
|
|
|
|
2.95
|
|
|
|
0
|
|
|
|
|
21,952
|
|
|
|
8.21
|
|
|
|
0
|
|
|
|
|
21,952
|
|
|
|
11.17
|
|
|
|
0
|
|
|
|
|
10,976
|
|
|
|
11.21
|
|
|
|
0
|
|
|
|
|
38,416
|
|
|
|
12.80
|
|
|
|
0
|
|
|
|
|
38,416
|
|
|
|
17.44
|
|
|
|
0
|
|
Kaseff, Gary L.
|
|
|
175,000
|
|
|
|
0.30
|
|
|
$
|
368,375
|
|
|
|
|
36,587
|
|
|
|
2.95
|
|
|
|
0
|
|
|
|
|
36,587
|
|
|
|
8.21
|
|
|
|
0
|
|
|
|
|
36,587
|
|
|
|
11.17
|
|
|
|
0
|
|
|
|
|
73,174
|
|
|
|
11.21
|
|
|
|
0
|
|
|
|
|
36,587
|
|
|
|
12.80
|
|
|
|
0
|
|
|
|
|
73,174
|
|
|
|
17.44
|
|
|
|
0
|
|
|
|
|
58,539
|
|
|
|
19.82
|
|
|
|
0
|
|
|
|
|
73,174
|
|
|
|
19.90
|
|
|
|
0
|
|
|
|
|
58,539
|
|
|
|
24.17
|
|
|
|
0
|
|
Leventhal, Richard A.
|
|
|
7,317
|
|
|
|
0.28
|
|
|
$
|
15,512
|
|
|
|
|
7,317
|
|
|
|
1.70
|
|
|
|
5,122
|
|
|
|
|
7,317
|
|
|
|
8.71
|
|
|
|
0
|
|
|
|
|
7,317
|
|
|
|
8.84
|
|
|
|
0
|
|
|
|
|
7,317
|
|
|
|
12.19
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
13.56
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
14.21
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
15.48
|
|
|
|
0
|
|
Loewen, Gregory
|
|
|
40,000
|
|
|
|
0.30
|
|
|
$
|
84,200
|
|
|
|
|
70,000
|
|
|
|
0.90
|
|
|
|
105,000
|
|
|
|
|
40,000
|
|
|
|
1.14
|
|
|
|
50,000
|
|
|
|
|
16,500
|
|
|
|
2.95
|
|
|
|
0
|
|
|
|
|
16,500
|
|
|
|
8.21
|
|
|
|
0
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common
|
|
|
|
|
|
Merger Cash
|
|
Name
|
|
Stock Options
|
|
|
Exercise Price
|
|
|
Consideration
|
|
|
Lund, Peter
|
|
|
7,317
|
|
|
|
0.28
|
|
|
$
|
15,512
|
|
|
|
|
7,317
|
|
|
|
1.70
|
|
|
|
5,122
|
|
|
|
|
7,317
|
|
|
|
8.71
|
|
|
|
0
|
|
|
|
|
7,317
|
|
|
|
8.84
|
|
|
|
0
|
|
|
|
|
7,317
|
|
|
|
12.19
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
14.21
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
15.48
|
|
|
|
0
|
|
Nathanson, Greg
|
|
|
7,317
|
|
|
|
0.28
|
|
|
$
|
15,512
|
|
|
|
|
7,317
|
|
|
|
1.70
|
|
|
|
5,122
|
|
|
|
|
7,317
|
|
|
|
8.71
|
|
|
|
0
|
|
|
|
|
7,317
|
|
|
|
8.84
|
|
|
|
0
|
|
|
|
|
7,317
|
|
|
|
12.19
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
13.56
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
14.21
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
15.48
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
19.82
|
|
|
|
0
|
|
Smulyan, Jeffrey(1)
|
|
|
150,000
|
|
|
|
0.30
|
|
|
$
|
315,750
|
|
|
|
|
150,000
|
|
|
|
1.14
|
|
|
|
189,000
|
|
|
|
|
146,349
|
|
|
|
2.95
|
|
|
|
0
|
|
|
|
|
146,349
|
|
|
|
8.21
|
|
|
|
0
|
|
|
|
|
292,699
|
|
|
|
11.17
|
|
|
|
0
|
|
|
|
|
292,699
|
|
|
|
12.80
|
|
|
|
0
|
|
|
|
|
439,049
|
|
|
|
17.44
|
|
|
|
0
|
|
Sorrel, Lawrence B.
|
|
|
7,317
|
|
|
|
0.28
|
|
|
$
|
15,512
|
|
|
|
|
7,317
|
|
|
|
1.70
|
|
|
|
5,122
|
|
|
|
|
7,317
|
|
|
|
8.71
|
|
|
|
0
|
|
|
|
|
7,317
|
|
|
|
8.84
|
|
|
|
0
|
|
|
|
|
7,317
|
|
|
|
12.19
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
13.56
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
14.21
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
15.48
|
|
|
|
0
|
|
Thoe, Gary A.
|
|
|
35,000
|
|
|
|
0.30
|
|
|
$
|
73,675
|
|
|
|
|
35,000
|
|
|
|
1.14
|
|
|
|
44,100
|
|
|
|
|
12,806
|
|
|
|
2.95
|
|
|
|
0
|
|
|
|
|
12,806
|
|
|
|
8.21
|
|
|
|
0
|
|
|
|
|
10,976
|
|
|
|
11.17
|
|
|
|
0
|
|
|
|
|
21,953
|
|
|
|
11.21
|
|
|
|
0
|
|
|
|
|
10,976
|
|
|
|
12.80
|
|
|
|
0
|
|
|
|
|
21,953
|
|
|
|
17.44
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
19.82
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
19.90
|
|
|
|
0
|
|
Walsh, Patrick M.
|
|
|
250,000
|
|
|
|
0.42
|
|
|
$
|
493,750
|
|
|
|
|
29,269
|
|
|
|
2.95
|
|
|
|
0
|
|
|
|
|
29,269
|
|
|
|
8.21
|
|
|
|
0
|
|
|
|
|
14,635
|
|
|
|
8.30
|
|
|
|
0
|
|
|
|
(1) |
All of the stock options held by Mr. Smulyan will be
contributed to Emmis and cancelled immediately prior to the
effective time of the Merger.
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Possible
|
|
|
|
|
|
|
|
|
Shares of
|
|
|
Consideration if
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Tendered in
|
|
|
|
|
|
|
|
|
Common
|
|
|
JS Acquisition
|
|
|
Number of
|
|
Name
|
|
Ownership Form
|
|
Stock Held
|
|
|
Tender Offer
|
|
|
Rollover Shares
|
|
|
Bayh, Susan B.
|
|
Direct
|
|
|
65,785
|
|
|
$
|
157,884.00
|
|
|
|
0
|
|
Cummings, Richard F.
|
|
Indirect
(For the Benefit of Children)
|
|
|
8,260
|
|
|
$
|
19,824.00
|
|
|
|
0
|
|
|
|
Indirect
(By 401(k) Plan)
|
|
|
6,429
|
|
|
|
15,430.18
|
|
|
|
0
|
|
|
|
Direct
|
|
|
155,840
|
|
|
|
374,016.00
|
|
|
|
142,669
|
|
Enright, J. Scott
|
|
Indirect
(By 401(k) Plan)
|
|
|
3,402
|
|
|
$
|
8,165.37
|
|
|
|
0
|
|
|
|
Direct
|
|
|
6,807
|
|
|
|
16,336.80
|
|
|
|
3,807
|
|
Fiddick, Paul W.
|
|
Indirect
(By 401(k) Plan)
|
|
|
739
|
|
|
$
|
1,772.40
|
|
|
|
0
|
|
|
|
Direct
|
|
|
36,132
|
|
|
|
86,716.80
|
|
|
|
29,547
|
|
Kaseff, Gary L.
|
|
Indirect
(For the Benefit of Children)
|
|
|
1,346
|
|
|
$
|
3,230.40
|
|
|
|
0
|
|
|
|
Indirect
(For the Benefit of Spouse)
|
|
|
3,411
|
|
|
|
8,186.40
|
|
|
|
3,411
|
(1)
|
|
|
Indirect
(By 401(k) Plan)
|
|
|
2,395
|
|
|
$
|
5,748.74
|
|
|
|
0
|
|
|
|
Direct
|
|
|
134,887
|
|
|
|
323,728.80
|
|
|
|
123,911
|
|
Leventhal, Richard A.
|
|
Indirect
(By Spouse)
|
|
|
3,000
|
|
|
$
|
7,200.00
|
|
|
|
3,000
|
(2)
|
|
|
Indirect
(By Davstan Trading)
|
|
|
17,600
|
|
|
$
|
42,240.00
|
|
|
|
0
|
|
|
|
Direct
|
|
|
196,321
|
|
|
|
471,170.40
|
|
|
|
191,925
|
|
Loewen, Gregory
|
|
Indirect
(By 401(k) Plan)
|
|
|
223
|
|
|
$
|
535.06
|
|
|
|
0
|
|
|
|
Direct
|
|
|
25,377
|
|
|
|
60,904.80
|
|
|
|
20,427
|
|
Lund, Peter
|
|
Direct
|
|
|
190,905
|
|
|
$
|
458,172.00
|
|
|
|
0
|
|
Nathanson, Greg
|
|
Indirect
(By Trusts for Children)
|
|
|
44,000
|
|
|
$
|
105,600.00
|
|
|
|
0
|
|
|
|
Indirect
(By Family Trust)
|
|
|
256,312
|
|
|
|
615,149.00
|
|
|
|
256,312
|
|
|
|
Direct
|
|
|
82,861
|
|
|
|
198,866.40
|
|
|
|
76,276
|
|
Smulyan, Jeffrey
|
|
Direct
|
|
|
9,755
|
|
|
$
|
23,412.00
|
|
|
|
0
|
|
|
|
Indirect
(By 401(k) Plan)
|
|
|
8,441
|
|
|
|
20,259.38
|
|
|
|
0
|
|
|
|
Indirect
(By Trusts for Children)
|
|
|
11,120
|
|
|
|
26,688.00
|
|
|
|
0
|
|
|
|
Indirect
(by Trusts for Niece)
|
|
|
3,000
|
|
|
|
7,200.00
|
|
|
|
0
|
|
|
|
Smulyan Family Foundation
|
|
|
30,625
|
|
|
|
73,500.00
|
|
|
|
0
|
|
Sorrel, Lawrence B.
|
|
Direct
|
|
|
219,867
|
|
|
$
|
527,680.80
|
|
|
|
0
|
|
Thoe, Gary A.
|
|
Indirect
(By 401(k) Plan)
|
|
|
650
|
|
|
$
|
1,559.47
|
|
|
|
0
|
|
|
|
Direct
|
|
|
30,664
|
|
|
|
73,593.60
|
|
|
|
0
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Possible
|
|
|
|
|
|
|
|
|
Shares of
|
|
|
Consideration if
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Tendered in
|
|
|
|
|
|
|
|
|
Common
|
|
|
JS Acquisition
|
|
|
Number of
|
|
Name
|
|
Ownership Form
|
|
Stock Held
|
|
|
Tender Offer
|
|
|
Rollover Shares
|
|
|
Walsh, Patrick M.
|
|
Direct
|
|
|
39,608
|
|
|
$
|
95,059.20
|
|
|
|
30,828
|
|
|
|
Indirect
(By 401(k) Plan)
|
|
|
4,017
|
|
|
|
9,641.36
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Rollover shares held by Vicky Myers-Kaseff. |
|
(2) |
|
Rollover shares held by Barbara Leventhal. |
After completion of the Transactions, Mr. Smulyan will be
the sole holder of the voting stock of Emmis, and he will own
approximately 67.9% of the outstanding JS Parent Common
Interests. The Rolling Shareholders, who currently own Common
Stock of Emmis, will also own approximately 8.1% of the
outstanding JS Parent Common Interests after completion of the
Transactions. As a result, Mr. Smulyan will control Emmis,
subject to certain consent rights of Alden Media. See The
Transactions JS Parent Preferred Interests.
Alden
Media and its Affiliates and related entities
After the Transactions are completed, Alden Media is expected to
beneficially own $96.9 million of JS Parent Preferred
Interests and approximately 24% of the outstanding JS Parent
Common Interests. As of the date of this Proxy Statement/Offer
to Exchange, the Alden Fund holds 1,406,500 shares of
Class A Common Stock, which will be converted in the Merger
into the right to receive $2.40 per share in cash (without
interest and less any applicable withholding taxes) from Emmis,
and 1,162,737 shares of Existing Preferred Stock, which
will be converted in the Merger into $34.9 million
aggregate principal amount of New Notes. Based on its public
filings, the Alden Fund currently beneficially owns more than
10% of the Class A Common Stock, calculated based on the
number of shares of Class A Common Stock held or subject to
derivative contracts and the number of shares of Class A
Common Stock into which the shares of Existing Preferred Stock
held by Alden Fund may be converted.
Mr. Heath Freeman has been appointed to be a director of
Emmis and will act as the representative of the Alden Fund on
the board of directors, as contemplated by the Letter Agreement.
For purposes of
Rule 16b-3
of the Exchange Act, the Emmis board of directors has approved
of any of the Transactions in which the Alden Fund director or
officer of Emmis will be required to dispose of or acquire the
equity securities of Emmis. Mr. Freeman will resign from
the board of directors of Emmis if the Alden Purchase Agreement
is terminated.
Source
and Amount of Funds
There will be no cash consideration in the Exchange Offer.
Payment of the costs and expenses of this Exchange Offer will be
funded from cash provided to Emmis through JS Acquisition under
the Alden Purchase Agreement. Payment of the costs and expenses
of the Proxy Solicitation will be funded from Emmis cash
from operations. At February 28, 2010, our cash and cash
equivalents were approximately $6.8 million. We expect to
make all payments on the New Notes from cash flow from
operations. For the year ended February 28, 2010, our cash
flow from operations was approximately $25.7 million.
Emmis ability to make payments on the New Notes is
dependent entirely on the earnings and distributions of funds
from its subsidiaries. The agreements governing the Credit
Facility contain significant restrictions on the ability of
Emmis subsidiaries to pay dividends or otherwise transfer
assets to Emmis, with only very limited exceptions. If Emmis is
unable to access the cash flows of its subsidiaries, it may not
be able to pay its obligations under the New Notes when they
come due.
The terms and conditions of the funding under the Alden Purchase
Agreement are set forth under the caption The
Transactions Alden Purchase Agreement.
79
Fees and
Expenses
The estimated fees and expenses payable by Emmis and JS
Acquisition in connection with the Exchange Offer and the
Proposed Amendments are set forth in the table below. Emmis and
JS Acquisition have allocated 30% of the total fees and expenses
set forth below to the Exchange Offer and have agreed that such
fees and expenses will be borne by JS Acquisition.
|
|
|
|
|
Legal, Accounting and Other Professional Fees
|
|
$
|
500,000
|
|
Printing and Mailing Costs
|
|
$
|
100,000
|
|
Information Agent
|
|
$
|
40,000
|
|
Filings Fees
|
|
$
|
25,000
|
|
Miscellaneous
|
|
$
|
35,000
|
|
|
|
|
|
|
Total
|
|
$
|
700,000
|
|
|
|
|
|
|
Interest
in Securities of Emmis
The beneficial ownership in the securities of Emmis by JS
Acquisition, the executive officers and directors of Emmis is
set forth under the caption, Principal Shareholders.
Such persons have engaged in no transactions in the Existing
Preferred Stock during the past 60 days.
As of May 24, 2010, the Alden Fund beneficially owned
1,406,500 shares of Class A Common Stock and
1,162,737 shares of Existing Preferred Stock.
Budgeted
and Projected Results for the Year Ending February 28,
2011
General
Emmis does not, as a matter of course, publicly disclose
long-term forecasts or internal projections as to future
performance, earnings or other results, and Emmis is
particularly concerned with making such forecasts and
projections due to the unpredictability of the underlying
assumptions and estimates. The projected and budgeted financial
information summarized below was prepared in the ordinary course
of Emmis business operations and was not prepared with a
view toward public disclosure. Nevertheless, because
Mr. Smulyan had access to such information and because
Morgan Stanley was provided such information to be used in
connection with its evaluation of the JS Acquisition Tender
Offer and the Merger, Emmis is presenting the information set
forth below in order to provide its shareholders with access to
the same information. Emmis did not provide the information to
Alden prior to executing the Alden Purchase Agreement.
The projected and budgeted financial information includes
assumptions as to certain business decisions that are subject to
change, as well as assumptions related to industry performance
and general economic conditions, each of which assumptions are
inherently subjective and beyond the control of Emmis.
The forecasts and budgets presented below were reviewed with the
Committee and were provided to Morgan Stanley in connection with
its financial analysis of the JS Acquisition Tender Offer and
the Merger. The full board of directors, including
Mr. Smulyan, had previously been provided with the
information in the course of its normal budget oversight and
planning activities.
The inclusion of the information set forth below in this Proxy
Statement/Offer to Exchange should not be regarded as an
indication that Emmis, the Committee or the Emmis board of
directors considered, or now considers, such information to be
material to the Emmis shareholders or necessarily indicative of
actual future results. You should not place undue reliance on
the information set forth below.
Projected
and Budgeted Financial Information
As part of its normal operations, Emmis prepares an annual
operating budget. The budget for the year ending
February 28, 2011 was completed in late February 2010. On
May 7, 2010 Emmis prepared an updated forecast for the year
ending February 28, 2011. The table below shows financial
results for the year ended
80
February 28, 2010 as well as our operating budget for the
year ending February 28, 2011 and the forecast as of
May 7, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending February 28,(1)
|
|
|
|
2011 Projected
|
|
|
2011 Budget
|
|
|
2010 Actual
|
|
|
|
(Dollars in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio
|
|
$
|
187,013
|
|
|
$
|
189,467
|
|
|
$
|
177,566
|
|
Publishing
|
|
|
66,672
|
|
|
|
65,685
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
253,685
|
|
|
|
255,152
|
|
|
|
242,566
|
|
Station Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio
|
|
|
135,440
|
|
|
|
136,314
|
|
|
|
138,780
|
|
Publishing
|
|
|
62,758
|
|
|
|
62,638
|
|
|
|
62,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Station Operating Expenses
|
|
|
198,198
|
|
|
|
198,952
|
|
|
|
201,525
|
|
Less: Corporate Overhead
|
|
|
11,514
|
|
|
|
10,909
|
|
|
|
11,594
|
|
Less: Minority Interest
|
|
|
4,391
|
|
|
|
4,241
|
|
|
|
4,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP EBITDA
|
|
$
|
39,582
|
|
|
$
|
41,050
|
|
|
$
|
25,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The financial information reflected
above is not prepared in accordance with generally accepted
accounting principles (GAAP). The expenses shown above do not
include depreciation and amortization expense of $12,000 for the
projected and budget 2011 fiscal year or noncash compensation
expense of $2,400 for the projected and budget 2011 fiscal year.
The financial information for fiscal 2011 does not include
expenses detailed under Fees and
Expenses and transaction expenses associated with the work
of the Committee. Also, for comparison purposes, we have
excluded severance-related costs totaling $7,584 in the actual
year ended February 28, 2010.
|
Assumptions
When preparing radio revenue budgets for the year ending
February 2011, we made certain assumptions regarding market
revenue growth. In addition, we consider the position of our
stations in each market to determine the expected revenue growth
rates of our stations in each market. The table below summarizes
our key assumptions.
|
|
|
|
|
|
|
|
|
|
|
Projected Market
|
|
|
Projected Emmis
|
|
|
|
Revenue Growth Rate
|
|
|
Revenue Growth Rate
|
|
|
New York
|
|
|
3
|
%
|
|
|
8
|
%
|
Los Angeles
|
|
|
3
|
%
|
|
|
9
|
%
|
Chicago
|
|
|
2
|
%
|
|
|
2
|
%
|
Austin
|
|
|
2
|
%
|
|
|
3
|
%
|
St. Louis
|
|
|
1
|
%
|
|
|
3
|
%
|
Indianapolis
|
|
|
(2
|
)%
|
|
|
8
|
%
|
Terre Haute
|
|
|
2
|
%
|
|
|
4
|
%
|
Our fiscal 2011 revenue assumptions for our radio division
assume our domestic markets grow 2%. This forecast is based on
U.S. GDP growth generating improvement in advertising
spending by key local and national radio advertising categories
including: automotive, retail, financial services and
entertainment. We expected these forecasted improvements to lead
to increased demand for radio advertising inventory in our
markets resulting in modest improvement in average unit rates
without requiring increases in the amount of available
inventory. The improvement in the general economy and
advertising environment was also assumed to yield an improved
market for national advertising, increased non-traditional
revenue from concerts and other station events, and accelerated
growth in the digital segment. Our budget reflects an assumption
of 5% growth in our U.S. radio operations for fiscal 2011,
outpacing market growth.
81
Our assumption that we would outpace market growth is based on
several factors including: (1) our initial success in
programming stations for improved PPM ratings leading to
improved average quarter hour ratings for our portfolio in
fiscal 2010, (2) a budgeted increase in investments in
brand marketing for our large market stations, and
(3) increased audience research expenditures. We assumed
that the programming insights and increased marketing
expenditures would allow us to: (1) improve our already
strong ratings position at our two largest revenue generating
stations KPWR and WQHT, (2) improve ratings significantly
on WLUP and WKQX in Chicago and WRXP in New York, and
(3) show some improvements in ratings in St. Louis,
Austin and Indianapolis, our middle markets, where we hold
larger relative market shares and strong competitive positions.
In addition to additional brand marketing and research
expenditures, our budget assumed additional expenditures on
outside consultants to train and develop our sales managers and
account executives to drive superior future sales performance.
The sales training and development and improved ratings are the
primary drivers of our budgeted assumption that average unit
rates will increase without requiring us to increase inventory.
In addition to our assumptions for U.S. radio growth
discussed above, we assumed that our stations in Slovakia and
Bulgaria would show low single digit growth in local currency
based on GDP growth and general economic improvement in Eastern
Europe with a steady USD against the Euro. We assumed our Emmis
Interactive business would continue to show significant growth
as this development-stage company adds customers and continues
to evolve its business model. As of May 7, 2010, all of our
radio clusters are performing generally in-line with budgeted
results with the exception of our Los Angeles and Bulgarian
radio stations. Our Los Angeles station accounts for most of the
shortfall in projected revenues versus budgeted revenues.
Our Publishing revenues were budgeted to be flat year-over-year
with US GDP growth generating modest improvements in demand for
advertising pages in our magazine markets offset by continued
rate pressure. We budgeted for circulation trends to remain
consistent with the prior year. Year-to-date, we have seen
above-budget strength principally at our Texas Monthly and Los
Angeles Magazine titles.
We continue to aggressively manage our expense base and expect
overall expenses to decrease modestly in fiscal 2011. The
aforementioned forecasted increases in marketing, research and
sales training are more than offset by the full year impact of
prior year employee terminations, salary reductions, and
reductions in non-personnel expense categories including music
licensing fees, sports rights fees, and lease expenses.
Cautionary
Considerations
While the above information was prepared in good faith, no
assurance can be made regarding future events. The estimates and
assumptions underlying the above information involve judgments
with respect to, among other things, future economic,
competitive, regulatory and financial market conditions and
future business decisions that may not be realized and that are
inherently subject to significant business, economic,
competitive and regulatory uncertainties and contingencies,
including, among others, the risks and uncertainties described
under the sections entitled Risk Factors and
Forward-Looking Statements, all of which are
difficult to predict and many of which are beyond the control of
Emmis. The underlying assumptions used in preparing the above
information may not prove to be accurate. Forecasted results may
not be realized, and actual results may differ materially from
those reflected in the information provided above, whether or
not the Transactions are completed.
The Emmis financial forecasts and budgets summarized in this
section were prepared solely for internal use by Emmis and not
with a view toward public disclosure or with a view toward
complying with the guidelines established by the American
Institute of Certified Public Accountants for preparation and
presentation of prospective financial data, published guidelines
of the SEC regarding forward-looking statements or non-GAAP
financial measures. Emmis senior management believes the
above information was prepared in good faith and on a reasonable
basis based on the best information available to senior
management at the time of its preparation. The Emmis financial
forecasts and budgets (as well as the assumptions set forth
above), however, are not fact and should not be relied upon as
being necessarily indicative of actual future results, and you
should not place undue reliance on the forecasts and budgets.
82
All of the Emmis financial forecasts and budgets summarized in
this section were prepared by and are the responsibility of the
management of Emmis, as indicated. Ernst & Young LLP,
Emmis independent registered public accounting firm, did
not provide any assistance in preparing such information and has
not examined, compiled or otherwise performed any procedures
with respect to such information. Accordingly, Ernst &
Young has not expressed any opinion or given any other form of
assurance with respect thereto, and it assumes no responsibility
for such information. The Ernst & Young reports
incorporated by reference into this Proxy Statement/Offer to
Exchange relate solely to the historical financial information
of Emmis. Such reports do not extend to the information set
forth above in this section and should not be read to do so.
By including in this Proxy Statement/Offer to Exchange a summary
of the Emmis financial forecasts and budgets, neither Emmis nor
any of its representatives has made or makes any representation
to any person regarding the ultimate performance of Emmis
compared to the information contained in such financial
forecasts and budgets. Emmis has made no representation to any
other party concerning such information. The Emmis financial
forecasts and budgets summarized in this section were prepared
during the periods described above and have not been updated to
reflect any changes since the date of this Proxy Statement/Offer
to Exchange or any actual results of operations of Emmis. Emmis
undertakes no obligation, except as required by law, to update
or otherwise revise the Emmis financial forecasts and budgets to
reflect circumstances existing since their preparation or to
reflect the occurrence of unanticipated events, even in the
event that any or all of the underlying assumptions are shown to
be in error, or to reflect changes in general economic or
industry conditions.
The foregoing summary of the Emmis financial forecasts and
budgets is not included in this Proxy Statement/Offer to
Exchange in order to induce any shareholder to vote in favor of
the Proposed Amendments or to accept the Exchange Offer.
83
This Proxy Statement/Offer to Exchange is being furnished to the
holders of Emmis Common Stock and Emmis Existing
Preferred Stock in connection with the solicitation by its board
of directors of proxies to be used at a special meeting of its
shareholders.
The
Proposed Amendments
The holders of Class A Common Stock and Class B Common
Stock, voting together as a single class, and the holders of
Existing Preferred Stock will be asked to consider and to vote
on the following matters:
|
|
|
|
(1)
|
a proposal to amend the terms of the Existing Preferred Stock
that are set forth in Emmis second amended and restated
articles of incorporation to:
|
|
|
|
|
|
eliminate the rights of the holders of the Existing Preferred
Stock to require Emmis to redeem all or a portion of their
shares on the first anniversary after the occurrence of certain
going private transactions and nominate directors to Emmis
board of directors; and
|
|
|
|
provide for the automatic conversion upon the proposed merger of
JS Acquisition with and into Emmis, with Emmis surviving the
merger (i) of the Existing Preferred Stock (other than the
Existing Preferred Stock held by Alden) not exchanged for the
New Notes into that amount of consideration that would be paid
to holders of Class A Common Stock into which the Existing
Preferred Stock was convertible immediately prior to the Merger
and (ii) of the Existing Preferred Stock held by Alden into
the New Notes, as described in this Proxy Statement/Offer to
Exchange; and
|
|
|
|
|
(2)
|
transaction of any other business that may properly come before
the meeting and any adjournments or postponements of the meeting.
|
Record
Dates, Quorum and Required Vote
Holders of record of Class A Common Stock, Class B
Common Stock
and/or
Preferred Stock as
of ,
2010 will be entitled to vote those shares of stock at the
special meeting.
As
of ,
2010, shares of Class A Common
Stock, shares
of Class B Common Stock and 2,809,170 shares of
Existing Preferred Stock were issued and outstanding.
A majority of the combined voting power of the outstanding
Class A and Class B Common Stock, and a majority of
the combined voting power of the Existing Preferred Stock
entitled to vote at the special meeting, constitutes a quorum
(i.e., counting one vote for each share of outstanding
Class A Common Stock, ten votes for each share of
outstanding Class B Common Stock and one vote for each
share of outstanding Existing Preferred Stock, present in person
or represented by proxy). No additional quorum requirements
apply to matters on which the holders of Class A and
Class B Common Stock will vote together as a single class.
The proposal to adopt the Proposed Amendments requires the
affirmative votes of:
|
|
|
|
|
more shares of Common Stock, voting together as a single class,
voting in favor than against the Proposed Amendments, assuming a
quorum is present, and
|
|
|
|
holders of at least 2/3 of the outstanding Existing Preferred
Stock, voting as a separate class.
|
Holders of Existing Preferred Stock must submit proxies in the
Preferred Proxy Solicitation in order to vote in favor of the
Proposed Amendments.
If you mark abstain on your proxy card, your shares
will be counted as present for purposes of determining the
presence of a quorum. Abstentions and broker non-votes will not
affect the calculation of votes cast on the proposal for shares
of Class A and Class B Common Stock, but will count as
a negative votes with respect to shares of Existing Preferred
Stock.
84
Agreements
to Vote by the Members of the Purchaser Group and
Alden
As of the date of this Proxy Statement/Offer to Exchange,
Mr. Smulyan owns shares of Common Stock entitling him to
cast approximately 60.0% of the votes able to be cast by holders
of Common Stock at the special meeting, and the Alden Fund owns
shares of Common Stock entitling it to cast approximately 1.7%
of the votes able to be cast by holders of Common Stock at the
special meeting. Under the Alden Purchase Agreement,
Mr. Smulyan has agreed to vote his shares of Common Stock
in favor of the proposal to adopt the Proposed Amendments, and
the Alden Fund has agreed to vote its shares of Common Stock in
favor of the proposal to adopt the Proposed Amendments, so the
proposal will be approved by the holders of the Common Stock.
As of the date of this Proxy Statement/Offer to Exchange, the
Alden Fund owns approximately 41.4% of the outstanding Existing
Preferred Stock. Under the Alden Purchase Agreement, the Alden
Fund has agreed to vote its shares of Existing Preferred Stock
in favor of the proposal to adopt the Proposed Amendments.
JS Acquisition owns no shares of Common Stock but will own
shares of Class A Common Stock if the JS Acquisition Tender
Offer is completed.
Required
Vote in order to Complete the Exchange Offer
It is a condition precedent to the completion of the Exchange
Offer that the Required Vote be obtained and the Proposed
Amendments be adopted and effected.
Revocation
of Proxies
You may change your vote if you send in a later-dated, signed
proxy card or a written revocation with respect to your shares
of Common Stock or Existing Preferred Stock prior to the special
meeting. You can also attend the special meeting in person and
give oral notice of your intention to vote in person.
Withdrawal
of Tenders of Existing Preferred Stock
You may withdraw the tender of your Existing Preferred Stock
prior to the Expiration Date by submitting a notice of
withdrawal to the exchange agent using ATOP procedures
and/or upon
compliance with the other procedures described in this Proxy
Statement/Offer to Exchange.
Proper withdrawal of your Existing Preferred Stock will not be
deemed to revoke the related proxy in favor of the Proposed
Amendments. You must separately revoke your proxy in order to
not have your shares of Existing Preferred Stock voted in favor
of the Proposed Amendments.
Solicitation
of Proxies
The entire expense of soliciting proxies, including preparing,
assembling, printing and mailing the proxy form and the material
used in the solicitation of proxies, will be paid by Emmis.
Emmis has retained BNY Mellon Shareowner Services to act as
information agent for the special meeting, but BNY Mellon
Shareowner Services will not actively solicit proxies for the
special meeting and we will not pay any fees to a third party to
assist in the solicitation of proxies. We also will request
record holders of shares beneficially owned by others to forward
this proxy statement and related materials to the beneficial
owners of such shares, and will reimburse those record holders
for their reasonable expenses incurred in doing so.
85
Background
In connection with the Transactions, which are discussed in more
detail under The Transactions, we are holding a
special meeting of the shareholders of Emmis to consider a
proposal to adopt the Proposed Amendments described in more
detail below under Proposed Amendments.
The text of the Proposed Amendments is attached to this Proxy
Statement/Offer to Exchange as Schedule B. This summary of
the terms of the Proposed Amendments is qualified in its
entirety by reference to Schedule B.
The proposal to adopt the Proposed Amendments requires the
affirmative votes of:
|
|
|
|
|
more shares of Common Stock, voting together as a single class,
voting in favor than against the Proposed Amendments, assuming a
quorum is present, and
|
|
|
|
holders of at least 2/3 of the outstanding Existing Preferred
Stock, voting as a separate class.
|
While the holders of Emmis Existing Preferred Stock have the
right to nominate and elect two directors to Emmis board
of directors under § 7.2 of Exhibit A of the
Articles of Incorporation, no nominations were timely received
for the special meeting, and accordingly the holders of the
Existing Preferred Stock will not be voting on the election of
directors at the special meeting.
Proposed
Amendments
The proposal is to adopt the following Proposed Amendments to
the terms of the Existing Preferred Stock that are set forth in
Emmis second amended and restated articles of
incorporation, which would:
|
|
|
|
|
eliminate the rights of the holders of the Existing Preferred
Stock to require Emmis to redeem all or a portion of their
shares on the first anniversary after the occurrence of certain
going private transactions and nominate directors to Emmis
board of directors; and
|
|
|
|
provide for the automatic conversion upon the proposed merger of
JS Acquisition with and into Emmis, with Emmis surviving
the merger (i) of the Existing Preferred Stock (other than
the Existing Preferred Stock held by Alden) not exchanged for
the New Notes into that amount of consideration that would be
paid to holders of Class A Common Stock into which the
Existing Preferred Stock was convertible immediately prior to
the Merger and (ii) of the Existing Preferred Stock held by
Alden into the New Notes, as described in this Proxy
Statement/Offer to Exchange.
|
The Proposed Amendments will not become effective unless all
conditions precedent to the completion of the Exchange Offer
(other than the adoption and effectiveness of the Proposed
Amendments) have been satisfied or waived.
Changes
in the Going Private Redemption Transaction
Terms
If the Proposed Amendments are adopted, the holders of the
Existing Preferred Stock will no longer be entitled to require
Emmis to redeem all or a portion of Existing Preferred Stock
upon the first anniversary after a Going Private
Redemption Transaction, which is defined to include
going private transactions that are not otherwise changes of
control, in which Mr. Jeffrey H. Smulyan, his affiliates or
others associated with him participate. The proposed
Transactions would be a Going Private
Redemption Transaction.
If this amendment is adopted, the completion of the
Transactions, which would otherwise be a Going Private
Redemption Transaction, would not trigger the requirement
for Emmis to redeem all or a portion of Existing Preferred Stock
at the prices specified in the articles of incorporation.
Changes
in the Manner of Election of the Board of
Directors
Currently, Emmis has not paid any dividends on the Existing
Preferred Stock since October 15, 2008, and, under the
terms of the articles of incorporation, the holders of the
Existing Preferred Stock have the right
86
to nominate two directors to Emmis board of directors. The
Proposed Amendments would delete that provision.
If the Proposed Amendments are approved, the holders of the
Existing Preferred Stock will no longer be entitled to nominate
directors to Emmis board of directors, regardless of
whether Emmis has paid dividends on the Existing Preferred Stock.
Additional
Mandatory Conversion Provision
If adopted, the Proposed Amendments will add a provision that
provides for the automatic conversion upon the proposed merger
of JS Acquisition with and into Emmis, with Emmis surviving
the merger (i) of the Existing Preferred Stock (other than
the Existing Preferred Stock held by the Alden Fund) not
exchanged for the New Notes into that amount of consideration
that would be paid to holders of Class A Common Stock into
which the Existing Preferred Stock was convertible immediately
prior to the Merger and (ii) of the Existing Preferred
Stock held by the Alden Fund into the New Notes.
The proposed Transactions include the Merger, which will be a
merger of JS Acquisition with and into Emmis, with Emmis
surviving the transaction as a subsidiary of JS Parent.
Mr. Smulyan will hold all of the shares of a newly issued
class of voting common stock of Emmis, and JS Parent will hold
all of the shares of a newly issued class of non-voting common
stock of Emmis. If the Proposed Amendments are approved and a
holder of Existing Preferred Stock does not tender its Existing
Preferred Stock into the Exchange Offer, in the Merger each
share of that holders Existing Preferred Stock will be
automatically converted into $5.856 in cash (without interest
and less any applicable withholding taxes), which equals the
2.44 shares of Class A Common Stock into which one
share of Existing Preferred Stock would convert times $2.40 in
cash (without interest and less any applicable withholding
taxes), which is the amount per share being paid to holders of
Class A Common Stock in the Merger.
No
Recommendation of the Board of Directors
The Emmis board of directors believes that, because of the
circumstances surrounding the Transactions, including the
background of the Transactions, the conflicts of interest
inherent in the Transactions and the lack of a recommendation by
the Emmis board of directors, each holder of Existing Preferred
Stock should not rely on the fairness determination of the Emmis
board of directors and should make its own independent
analysis.
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General
We invite holders of Existing Preferred Stock to tender their
shares to Emmis under the terms set forth below. Tendering
holders of Existing Preferred Stock will not be entitled to
receive any dividends with respect to their tendered shares,
including unpaid dividends accumulated to date. Shares of
Existing Preferred Stock must be tendered on the terms and
subject to the conditions set forth in this Exchange Offer and
in the related letter of transmittal.
The
Exchange Offer
We are offering to issue up to $84.3 million aggregate
principal amount of New Notes in exchange for all of the
outstanding Emmis Existing Preferred Stock. We are seeking
tenders of all outstanding shares of Existing Preferred Stock.
Under the Exchange Offer, we will issue New Notes at a rate of
$30.00 aggregate principal amount of New Notes for each $50.00
liquidation preference of Existing Preferred Stock (excluding
accrued and unpaid dividends). The New Notes will be issued only
in denominations of $1.00 and integral multiples of $1.00. No
cash will be paid in lieu of any fractional New Notes that would
otherwise be issuable. For a more detailed description of the
terms of the New Notes being offered, please see
Description of the New Notes.
Shareholders tendering Existing Preferred Stock will not be
obligated to pay brokerage commissions, solicitation fees, or,
upon the terms and subject to the conditions of the Exchange
Offer, stock transfer taxes on the acceptance of shares of
Existing Preferred Stock by Emmis. However, any tendering
shareholder or other payee that is bound by the terms of the
letter of transmittal who fails to complete fully and sign the
box captioned Substitute
Form W-9
included in the letter of transmittal may be subject to a
required federal backup withholding tax of 28% of the gross
proceeds paid to the shareholder or other payee pursuant to the
Exchange Offer. See Material United States Federal Income
Tax Consequences. Emmis will pay all charges and expenses
of the exchange agent and the information agent incurred in
connection with the Exchange Offer.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved the Exchange
Offer, passed upon the merits or fairness of the Exchange Offer,
or passed upon the adequacy or accuracy of the disclosure in
this Proxy Statement/Offer to Exchange. Any representation to
the contrary is a criminal offense.
Any shareholder of record wishing to tender all or any portion
of his, her or its shares of Existing Preferred Stock must have
or establish an account with, and tender those shares through, a
broker, dealer, bank or other financial institution that either
clears through or maintains a custodial relationship with a
direct or indirect participant in the book entry and transfer
system of the DTC, because the New Notes issued pursuant to this
Exchange Offer will be issued in book-entry form only. A
shareholder having shares registered in the name of a broker or
a dealer, commercial bank, trust company or other nominee (each,
a nominee) must contact that nominee if such
shareholder desires to tender such shares. Nominees may also
tender shares in accordance with the Automated Tender Offer
Program procedures of The Depository Trust Company. See
The Exchange Offer How to Tender
Tender Procedure for Shareholders of Record and
Tender Procedure for Nominees.
Shareholders that desire to tender shares of Existing Preferred
Stock pursuant to the Exchange Offer but that cannot complete
the procedures for book-entry transfer (including delivery of an
Agents Message) on or prior to the Expiration Date should
tender their shares by following the procedures for guaranteed
delivery described in The Exchange Offer How
to Tender.
Trading
Price Information and Treatment of Dividends
The Existing Preferred Stock is listed for trading on the NASDAQ
Global Select Market under the ticker symbol EMMSP.
The Letter of Intent was signed and announced to the public by
JS Acquisition and Alden prior the commencement of trading
on April 26, 2010. As of April 23, 2010 (the last
trading day ending prior
88
to such announcement), the closing per share sales price of the
Existing Preferred Stock, as reported on the NASDAQ Global
Select Market, was $21.01. We urge shareholders to obtain
current market quotations for the shares of Existing Preferred
Stock. See Price Range and Other Information With Respect
to the Existing Preferred Stock.
Tendering holders of Existing Preferred Stock will not be
entitled to receive any dividends with respect to such shares,
including the $4.87 per share of accrued and unpaid dividends
that have accumulated to date.
Expiration
Time, Extensions, Termination and Amendments
The Exchange Offer will terminate at 11:59 p.m., New York
City time,
on ,
2010, unless extended by Emmis in its sole discretion. During
any extension of the Exchange Offer, all shares of Existing
Preferred Stock previously tendered and not yet exchanged will
remain subject to the Exchange Offer (subject to withdrawal
rights specified in this Proxy Statement/Offer to Exchange) and
may be accepted for exchange by Emmis. The later of
11:59 p.m., New York City time,
on ,
2010, or the latest time and date to which the Exchange Offer
may be extended by Emmis, is referred to as the Expiration
Time. Emmis expressly reserves the right, at any time or
from time to time, to extend the period of time for which the
Exchange Offer is to remain open by giving oral or written
notice to the exchange agent of such extension prior to
9:00 a.m., New York City time, on the business day after
the previously scheduled Expiration Time. We will issue a press
release by 9:00 a.m., New York City time, no later than the
business day after the previously scheduled Expiration Time if
we decide to extend the Exchange Offer.
Emmis expressly reserves the right, in its sole discretion, at
any time and from time to time, and regardless of whether or not
any of the events set forth under The Exchange
Offer Conditions to the Exchange Offer shall
have occurred or shall be deemed by Emmis to have occurred, to
extend the period of time during which the Exchange Offer is
open and thereby delay acceptance for payment of, and payment
for, and issuance of New Notes for, any shares by giving oral or
written notice of such extension to the exchange agent and
making a public announcement thereof. Emmis also expressly
reserves the right, in its sole discretion, to terminate the
Exchange Offer and not accept for payment or pay for, or issue
New Notes for, any shares not previously accepted for payment or
paid for, or with respect to which New Notes were issued or,
subject to applicable law, to postpone payment for shares upon
the occurrence of any of the conditions specified herein under
The Exchange Offer Conditions to the Exchange
Offer by giving oral or written notice of such termination
or postponement to the exchange agent and making a public
announcement thereof. Emmis reservation of the right to
delay payment for shares which it has accepted for payment is
limited by
Rule 13e-4(f)(5)
promulgated under the Exchange Act, which requires that Emmis
must pay the consideration offered or return the shares tendered
promptly after termination or withdrawal of the Exchange Offer.
Subject to compliance with applicable law, Emmis further
reserves the right, in its sole discretion, and regardless of
whether any of the events set forth herein under The
Exchange Offer Conditions to the Exchange
Offer shall have occurred or shall be deemed by Emmis to
have occurred, to amend the Exchange Offer in any respect
(including, without limitation, by decreasing or increasing the
consideration offered in the Exchange Offer to holders of shares
or by decreasing or increasing the number of shares being sought
in the Exchange Offer). Amendments to the Exchange Offer may be
made at any time and from time to time by public announcement
thereof. In the case of an extension, such announcement will be
issued no later than 9:00 a.m., New York City time, on the
next business day after the last previously scheduled or
announced Expiration Time. Any material change to the terms of
the Exchange Offer will be disseminated promptly to shareholders
in a manner reasonably designed to inform shareholders of such
change. Without limiting the manner in which Emmis may choose to
inform shareholders, except as required by applicable law, Emmis
shall have no obligation to publish, advertise or otherwise
communicate any such change other than by making a release to
the Dow Jones News Service. If Emmis materially changes the
terms of the Exchange Offer or the information concerning the
Exchange Offer, or if it waives a material condition of the
Exchange Offer, Emmis will extend the Exchange Offer to the
extent required by
Rules 13e-4(d)(2)
and
13e-4(e)(3)
promulgated under the Exchange Act. Under these rules, the
minimum period during which an offer must remain open following
material changes in the terms of the Exchange Offer or
information concerning the Exchange Offer will depend on the
facts and circumstances, including the relative materiality of
such terms or information. If
89
(i) Emmis increases or decreases the price to be paid for
shares, increases or decreases the number of shares being sought
in the Exchange Offer or, in the event of an increase in the
number of shares being sought, such increase exceeds 2% of the
number of outstanding shares of a series of Existing Preferred
Stock, and (ii) the Exchange Offer is scheduled to expire
at any time earlier than the expiration of a period ending on
the tenth business day from, and including, the date that such
notice of an increase or decrease is first published, sent or
given in the manner specified herein, the Exchange Offer will be
extended until the expiration of such period of ten business
days. For the purposes of the Exchange Offer, a business
day means any day other than a Saturday, Sunday or Federal
holiday and consists of the time period from 12:00 a.m.
through 11:59 p.m., New York City time.
How to
Tender
A shareholder whose shares are registered in the name of a
nominee must contact that nominee for information on how to
tender shares. All other shareholder must comply with the
procedures set forth below. A tender of Existing Preferred Stock
(and Emmis subsequent acceptance of a tender pursuant to
the procedures set forth below) will constitute a binding
agreement between the tendering shareholder and Emmis in
accordance with the terms and subject to the conditions set
forth herein and in the related letter of transmittal.
Tender
Procedure for Shareholders of Record
The New Notes will be issued solely in global form and be
registered in the name of Cede & Co., Inc., the
nominee of DTC. Consequently, shareholders who wish to tender
any shares of the Existing Preferred Stock for New Notes must
have or establish an account with, and tender those shares
through, a broker, dealer, bank or other financial institution
that either clears through or maintains a custodial relationship
with a direct or indirect participant in the book entry and
transfer system of DTC in order to be eligible to receive the
New Notes. The DTC participant will then tender the shares on
behalf of the shareholders using the procedures set forth below
in How to Tender Tender Procedure for
Nominees. Shareholders that desire to tender shares of
Existing Preferred Stock pursuant to the Exchange Offer but that
cannot complete the procedures for book-entry transfer
(including delivery of an Agents Message) on or prior to
the Expiration Date should tender their shares by following the
procedures for guaranteed delivery described in The
Exchange Offer How to Tender.
Tender
Procedure for Nominees
The exchange agent will establish an account with respect to the
shares of each series subject to this Exchange Offer, for
purposes of the Exchange Offer, at The Depository
Trust Company (the Book-Entry Transfer
Facility) within two business days after the date of this
Exchange Offer. Any nominee that is a participant in the
Book-Entry Transfer Facilitys system may tender shares in
accordance with the Book-Entry Transfer Facilitys
Automated Tender Offer Program (ATOP) to the extent
it is available to participants for the shares they wish to
tender by making book-entry delivery of the shares by causing
the Book-Entry Transfer Facility to transfer shares into the
exchange agents account in accordance with the Book-Entry
Transfer Facilitys procedures for transfer. Timely
book-entry delivery requires receipt by the exchange agent of a
confirmation (a Book-Entry Confirmation) at or prior
to the Expiration Time. Although delivery of the Existing
Preferred Stock may be effected through book-entry transfer into
the exchange agents account at DTC, an Agents
Message in connection with the book-entry transfer together with
any other documents required by the letter of transmittal, must,
in any case, be transmitted to and received by the exchange
agent at or prior to the Expiration Time to receive
consideration for the Existing Preferred Stock. Delivery of a
document to DTC does not constitute delivery to the exchange
agent. In order to tender shares by means of ATOP, the
procedures for ATOP delivery must be duly and timely completed
prior to the Expiration Time. Holders desiring to tender
Existing Preferred Stock at the Expiration Time must allow
sufficient time for completion of the book-entry transfer ATOP
procedures during normal business hours of DTC on that date.
90
The term Agents Message means a message
transmitted by DTC to, and received by, the exchange agent and
forming a part of the Book-Entry Confirmation, which states that:
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DTC has received an express acknowledgement from each
participant in DTC tendering the Existing Preferred Stock;
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shareholders have received the letter of transmittal and agree
to be bound by the terms of the letter of transmittal; and
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Emmis may enforce the terms of the letter of transmittal against
the shareholder.
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Notwithstanding any other provision of the Exchange Offer,
payment for shares of Existing Preferred Stock tendered and
accepted for payment pursuant to the Exchange Offer will, in all
cases, be made only after receipt by the exchange agent of
Book-Entry Confirmation, including by means of an Agents
Message, of the transfer of Existing Preferred Stock into the
exchange agents account at DTC as described above,
together with any other documents required by the letter of
transmittal or ATOP.
Issuance
of New Notes
The New Notes issued pursuant to this Exchange Offer will be
issued in book-entry form only; therefore, physical certificates
representing the New Notes will not be issued as a result of the
exchange offer. As described in How to Tender
Tender Procedure for Shareholders of Record set forth
above, shareholders who wish to tender their Existing Preferred
Stock for New Notes must have or establish an account with, and
tender those shares through, a broker, dealer, bank or other
financial institution that either clears through or maintains a
custodial relationship with a direct or indirect participant in
the book-entry and transfer system of DTC in order to be
eligible to receive the New Notes. Rather than issuing physical
certificates, tendering shareholders will receive through their
nominee accounts, credit for the number of book-entry New Notes
into which their tendered shares of Existing Preferred Stock are
exchanged.
The delivery of all documents required for tendering shares of
Existing Preferred Stock is at the election and risk of the
tendering shareholder and its nominee.
Guaranteed
Delivery
If a shareholder desires to tender shares of Existing Preferred
Stock pursuant to the Exchange Offer and the procedures for
book-entry transfer (including delivery of an Agents
Message) cannot be completed on or prior to the Expiration Time,
the holder may nevertheless tender shares of Existing Preferred
Stock with the effect that the tender will be deemed to have
been received on or prior to the Expiration Time if the
following conditions are satisfied:
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prior to the Expiration Time, the Exchange Agent receives
through the DTC ATOP system a notice setting forth the name(s)
and address(es) of the holder(s) and the number and series of
shares being tendered, and stating that the tender is being made
thereby and guaranteeing that the Exchange Agent will receive
within three business days after the date of the notice, an
Agents Message and confirmation of book-entry transfer of
the Existing Preferred Stock into the Exchange Agents
account with DTC, and any other documents required by the letter
of transmittal; and
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within three business days after the date of the DTC ATOP
notice, the Exchange Agent receives a Book-Entry Confirmation of
the transfer of the Existing Preferred Stock into the Exchange
Agents account at DTC as described above and a properly
transmitted Agents Message.
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The exchange consideration for shares of Existing Preferred
Stock tendered pursuant to the guaranteed delivery procedures
will be the same as that for shares of Existing Preferred Stock
tendered before the Expiration Time.
91
Return
of Tendered and Unaccepted Shares of Existing Preferred
Stock
If any tendered shares of Existing Preferred Stock are not
accepted, or if fewer than all shares evidenced by a
shareholders certificates are tendered, the shares will be
credited to the appropriate account maintained by the tendering
shareholder at the Book-Entry Transfer Facility without expense
to the shareholder.
Determination
of Validity; Rejection of Shares of Existing Preferred Stock;
Waiver of Defects; No Obligation to Give Notice of
Defects
All questions as to the number of shares of Existing Preferred
Stock to be accepted and the validity, form, eligibility
(including time of receipt) and acceptance for payment of any
tender of shares will be determined by Emmis, in its sole
discretion, and its determination shall be final and binding on
all parties. Emmis reserves the absolute right to reject any or
all tenders of any shares that it determines are not in proper
form or the acceptance for payment of or payment for which may,
in the opinion of Emmis counsel, be unlawful. Emmis also
reserves the absolute right to waive any of the conditions of
the Exchange Offer or any defect or irregularity in any tender
with respect to any particular shares or any particular
shareholder and Emmis interpretation of the terms of the
Exchange Offer will be final and binding on all parties. No
tender of shares will be deemed to have been properly made until
all defects or irregularities have been cured by the tendering
shareholder or waived by Emmis. None of Emmis, the exchange
agent, the information agent or any other person will be
obligated to give notice of any defects or irregularities in
tenders, nor will any of them incur any liability for failure to
give any notice.
Tendering
Shareholders Representation and Warranty; Emmis Acceptance
Constitutes an Agreement
A tender of shares pursuant to any of the procedures described
above will constitute the tendering shareholders
acceptance of the terms and conditions of the Exchange Offer, as
well as the tendering shareholders representation and
warranty to Emmis that (a) the shareholder has a net long
position in the shares of the series of Existing Preferred Stock
tendered or equivalent securities at least equal to the number
of shares tendered, within the meaning of
Rule 14e-4
promulgated by the SEC under the Exchange Act and (b) the
tender of shares complies with
Rule 14e-4.
It is a violation of
Rule 14e-4
for a person, directly or indirectly, to tender shares for that
persons own account unless, at the time of tender
(including any extensions thereof), the person so tendering
(i) has a net long position equal to or greater than the
amount of (x) shares of the series of Existing Preferred
Stock tendered or (y) other securities convertible into or
exchangeable or exercisable for the shares of the series
tendered and will acquire the shares of the series of Existing
Preferred Stock for tender by conversion, exchange or exercise
and (ii) will deliver or cause to be delivered the shares
of the series tendered in accordance with the terms of the
Exchange Offer.
Rule 14e-4
provides a similar restriction applicable to the tender or
guarantee of a tender on behalf of another person. Emmis
acceptance for payment of shares tendered pursuant to the
Exchange Offer will constitute a binding agreement between the
tendering shareholder and Emmis upon the terms and conditions of
the Exchange Offer.
Lost
or Destroyed Certificates
Shareholders whose certificates for part or all of their shares
have been lost, stolen, misplaced or destroyed may contact the
exchange agent at (800)-301-0524, for instructions as to the
documents which will be required to be submitted in order to
receive certificate(s) representing the shares. A bond may be
required to be posted by the shareholder to secure against the
risk that the certificates may be subsequently recirculated.
Shareholders are urged to contact the exchange agent immediately
in order to permit timely processing of this documentation and
to determine if the posting of a bond is required.
Delivery
of Documents
All materials related to a shareholders tender of
Existing Preferred Stock pursuant to the Exchange Offer must be
delivered to the shareholders nominee for tendering in
accordance with the instructions set forth in How to
Tender Tender Procedure for Nominees as set
forth above. Shareholders should not send documents related to
the Exchange Offer to Emmis. Any documents
92
delivered to Emmis will not be forwarded to the exchange
agent and therefore will not be deemed to be properly
tendered.
Withdrawal
Rights
Except as otherwise provided in this section, tenders made
pursuant to the Exchange Offer are irrevocable. Shares of
Existing Preferred Stock tendered pursuant to this Exchange
Offer may be withdrawn:
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at any time prior to the Expiration Time; or
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if not yet accepted for payment,
after ,
2010.
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For a withdrawal to be effective, shareholders must contact the
broker, dealer, bank or other financial institution that either
clears through or maintains a custodial relationship with a
direct or indirect participant in the book entry and transfer
system of DTC through which the shareholder tendered its shares
of Existing Preferred Stock and request the DTC participating
institution to send an ATOP notice of withdrawal so that it is
received by the Exchange Agent before the Expiration Time. The
notice of withdrawal must specify the name of the person that
tendered the shares to be withdrawn, the number of shares
tendered, the number of shares to be withdrawn and the name and
the number of the account at the Book-Entry Transfer Facility to
be credited with the withdrawn shares and must otherwise comply
with the Book-Entry Transfer Facilitys procedures.
Proper withdrawal of your Existing Preferred Stock will not
be deemed to revoke the related proxy in favor of the Proposed
Amendments. You must separately revoke your proxy in order to
not have your shares of Existing Preferred Stock voted in favor
of the Proposed Amendments.
All questions as to the form and validity (including the time of
receipt) of notices of withdrawal will be determined by Emmis in
its sole discretion, and its determination shall be final and
binding on all parties. None of Emmis, the information agent or
the exchange agent or any other person is or will be obligated
to give notice of any defects or irregularities in any notice of
withdrawal, and none of them will incur any liability for
failure to give any such notice.
Withdrawals may not be rescinded, and shares properly withdrawn
shall not be deemed to be duly tendered for purposes of the
Exchange Offer. Withdrawn shares, however, may be re-tendered
before the Expiration Time by again following the procedures
described under The Exchange Offer How to
Tender.
If Emmis extends the Exchange Offer, is delayed in its purchase
of Existing Preferred Stock or is unable to accept shares
pursuant to the Exchange Offer for any reason, then, without
prejudice to Emmis rights under the Exchange Offer, the exchange
agent may, subject to applicable law, retain tendered shares on
behalf of Emmis, and such shares may not be withdrawn except to
the extent tendering shareholders are entitled to withdrawal
rights as described herein.
Acceptance
of Shares of Existing Preferred Stock for Exchange; Delivery of
Shares of Preferred Stock to be Exchanged
Upon the terms and subject to the conditions of the Exchange
Offer, promptly following the Expiration Time, Emmis will accept
for exchange shares properly tendered prior to the Expiration
Time. Emmis shall issue the New Notes for shares of Existing
Preferred Stock that are properly tendered and not properly
withdrawn only when, as and if it gives oral or written notice
to the exchange agent of its acceptance of shares for exchange
pursuant to the Exchange Offer. That notice, subject to the
provisions of the Exchange Offer, may be given at any time after
the Expiration Time.
Upon the terms and subject to the conditions of the Exchange
Offer, promptly following the Expiration Time, Emmis will accept
any and all shares of Existing Preferred Stock properly tendered
or such lesser number of shares as are properly tendered and not
properly withdrawn.
The New Notes will be issued to DTC in the name of its nominee,
Cede & Co., and the accounts of its participants
appropriately credited. Issuance of the New Notes is expected to
occur no later than the date of
93
entry into the Indenture. Certificates for all tendered shares
not purchased will be credited after the Expiration Time or
termination of the Exchange Offer to the account maintained with
the Book-Entry Transfer Facility by the participant who so
delivered the shares without expense to the tendering
shareholder. In addition, if certain events occur, Emmis may not
be obligated to purchase any shares in the Exchange Offer. See
The Exchange Offer Conditions to the Exchange
Offer.
Emmis will pay all stock transfer taxes, if any, payable on the
transfer to it of shares acquired pursuant to the Exchange Offer
by shareholders of record. However, if the New Notes are to be
registered in the name of any person other than the shareholder
of record, or if tendered shares are registered in the name of
any person other than the person bound by the respective letter
of transmittal, the amount of any stock transfer taxes (whether
imposed on the shareholder of record or such other person)
payable on account of the transfer to such person will be
deducted from the exchange price (i.e., the principal amount of
the New Notes issued in the Exchange Offer), unless satisfactory
evidence of the payment of such taxes or exemption therefrom is
submitted.
Any tendering shareholder of record (or other payee) who
fails to complete fully and sign the Substitute
Form W-9
included as part of the respective letter of transmittal may be
subject to required
back-up
federal income tax withholding of 28% of the gross proceeds paid
to such shareholder or other payee pursuant to the Exchange
Offer. See Material United States Federal Income Tax
Consequences.
Denominations
The New Notes will be issued only in denominations of $1.00 and
integral multiples of $1.00. No cash will be paid in lieu of any
fractional New Notes that would otherwise be issuable.
Conditions
to the Exchange Offer
We will complete the Exchange Offer only if:
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the Proposed Amendments are adopted by the holders of Common
Stock and Existing Preferred Stock;
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the tender of shares of Class A Common Stock, that, when
combined with the Rollover Shares and the shares of Common Stock
beneficially owned by the Purchaser Group and the Alden Fund,
will constitute a majority of the votes able to be cast with
respect to the Merger. Based on the number of outstanding shares
as of May 17, 2010, a minimum of approximately 32.8% of our
Class A Common Stock would need to be tendered and not
withdrawn for this condition to be satisfied;
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the Alden Purchase Agreement remains in full force and effect
and Alden Media funding its obligations under the Alden Purchase
Agreement when due;
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there is no change in the laws and regulations which would
reasonably be expected to impair Emmis ability to proceed
with the Exchange Offer;
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the Indenture under which the New Notes will be issued is
qualified under the Trust Indenture Act of 1939;
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there is no action or proceeding instituted or threatened in any
court or before any governmental agency or body that would
reasonably be expected to prohibit, prevent or otherwise impair
Emmis ability to proceed with the Exchange Offer; and
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we obtain all governmental approvals that we deem in our sole
discretion necessary to complete the Exchange Offer.
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These conditions are for our sole benefit. We may assert any one
of these conditions regardless of the circumstances giving rise
to it and may also waive any one of them, in whole or in part,
at any time and from time to time, if we determine in our
reasonable discretion that it has not been satisfied, subject to
applicable law. Notwithstanding the foregoing, all conditions to
the Exchange Offer must be satisfied or waived before the
expiration of the Exchange Offer. If we waive a condition to the
Exchange Offer, the waiver will be
94
applied equally to all shareholders. We will not be deemed to
have waived our rights to assert or waive these conditions if we
fail at any time to exercise any of them. Each of these rights
will be deemed an ongoing right which we may assert at any time
and from time to time.
Any determination by Emmis concerning any events described in
this section and any related judgment or decision by Emmis
regarding the inadvisability of proceeding with the Exchange
Offer shall be final and binding upon all parties. The foregoing
conditions are for the sole benefit of Emmis and may be asserted
by Emmis in circumstances giving rise to those conditions or may
be waived by Emmis in whole or in part. Emmis failure at
any time to exercise any of the above conditions shall not be
deemed a waiver of any such right, and each such right shall be
deemed an ongoing right that may be asserted at any time and
from time to time until the expiration or termination of the
Exchange Offer. However, unless sooner terminated, the Exchange
Offer will remain open until all conditions have been satisfied
or waived. Moreover, Emmis cannot waive the conditions requiring
the requisite approvals of the holders of Existing Preferred
Stock and Common Stock.
Exchange
Agent
The name and address of the exchange agent are set forth on the
back cover of this Proxy Statement/Offer to Exchange.
Information
Agent
The name and address of the information agent are set forth on
the back cover of this Proxy Statement/Offer to Exchange.
Letters of transmittal and certificates representing the shares
of Existing Preferred Stock tendered should not be sent to the
information agent. See The Exchange Offer How
to Tender.
Exemption
from Registration Requirements
The New Notes to be included in the Exchange Offer will be
issued pursuant to an exemption from the registration
requirements of the Securities Act under Section 3(a)(9) of
the Securities Act. Section 3(a)(9) provides for an
exemption from registration for any security exchanged by an
issuer with its existing security holders exclusively where no
commission or other remuneration is paid or given directly or
indirectly for soliciting such exchange. When securities are
exchanged for other securities of an issuer under
Section 3(a)(9), the securities received in essence assume
the character of the exchanged securities for purposes of the
Securities Act. Accordingly, if tendering shareholders tender
shares of Existing Preferred Stock that are restricted
securities within the meaning of Rule 144 under the
Securities Act because of their status as an affiliate of Emmis,
the New Notes those tendering shareholders will receive in the
Exchange Offer will not be freely tradable and any resale would
have to comply with applicable exemptions under the securities
laws, including without limitation, Rule 144(k) under the
Securities Act. If the shares of Existing Preferred Stock
tendering shareholders tender are not so restricted,
the New Notes that those tendering shareholders receive will be
freely tradable.
Certain
Legal Matters; Regulatory Approvals
Emmis is not aware of any license or regulatory permit material
to its business that is reasonably likely to be adversely
affected by Emmis acquisition of shares of Existing
Preferred Stock as contemplated herein or of any approval or
other action by any government or governmental, administrative
or regulatory authority, agency or tribunal, domestic or
foreign, that would be required for the acquisition or ownership
of shares by Emmis as contemplated herein. Should any such
approval or other action be required, Emmis presently
contemplates that such approval or other action will be sought
or taken. Emmis is unable to predict whether it will be required
to delay the acceptance for payment of or payment for shares
tendered pursuant to the Exchange Offer pending the outcome of
any such matter. There can be no assurance that any such
approval or other action, if needed, would be obtained or would
be obtained without substantial conditions or that the failure
to obtain any such approval or other action might not result in
adverse consequences to Emmis
95
business. Emmis obligations under the Exchange Offer to
accept for payment, and pay for and issue New Notes for, shares
are subject to certain conditions. See The Exchange
Offer Conditions to the Exchange Offer.
Miscellaneous
Matters
Emmis is not aware of any jurisdiction in which the making of
the Exchange Offer is not in compliance with applicable law. If
Emmis becomes aware of any jurisdiction where the making of the
Exchange Offer or the acceptance or purchase of the shares is
not in compliance with any valid applicable law, Emmis will make
a good faith effort to comply with such law. If, after such good
faith effort, Emmis cannot comply with such law, the Exchange
Offer will not be made to (nor will tenders be accepted from or
on behalf of) the holders of shares residing in such
jurisdiction. In any jurisdiction where the securities, blue sky
or other laws require the Exchange Offer to be made by a
licensed broker or dealer, the Exchange Offer shall be deemed to
be made on Emmis behalf by one or more registered brokers
or dealers licensed under the laws of the jurisdiction.
Payment
of Expenses
The Exchange Offer is being made by Emmis in reliance on the
exemption from the registration requirements of the Securities
Act of 1933, as amended, afforded by Section 3(a)(9)
thereof.
Therefore, Emmis will not pay any commission or other
remuneration to any broker, dealer, salesman or other person for
soliciting tenders of the Existing Preferred Stock. However,
regular employees of Emmis (who will not be additionally
compensated therefor) may solicit tenders and will answer
inquiries concerning the Exchange Offer.
Emmis has retained BNY Mellon Shareowner Services to act as
information agent and BNY Mellon Shareowner Services to act as
exchange agent in connection with the Exchange Offer. The
information agent may contact holders of shares by mail,
telephone, facsimile, telex, telegraph and personal interviews
and may request nominees to forward materials relating to the
Exchange Offer to beneficial owners. The information agent and
the exchange agent will each receive reasonable and customary
compensation for their respective services.
No fees or commissions will be payable by Emmis to brokers,
dealers or other persons (other than fees to the information
agent and exchange agent as described above) for soliciting
tenders of shares pursuant to the Exchange Offer. A shareholder
holding shares through a nominee is urged to consult such
nominee to determine whether transaction costs are applicable if
such shareholder tenders shares through such nominee and not
directly to the exchange agent. Emmis, through
JS Acquisition, will, however, upon request, reimburse
nominees for customary mailing and handling expenses incurred by
them in forwarding the Exchange Offer and related materials to
the beneficial owners of shares held by them as a nominee or in
a fiduciary capacity. No nominee has been authorized to act as
the agent of Emmis, the information agent or the exchange agent
for purposes of the Exchange Offer. Emmis will pay or cause to
be paid all stock transfer taxes, if any, on its purchase of
shares except as otherwise provided under The Exchange
Offer Acceptance of Shares of Existing Preferred
Stock for Exchange; Delivery of New Notes to be Exchanged.
96
Price
Range
Emmis shares of Existing Preferred Stock are listed for
trading on the NASDAQ Global Select Market under the symbol
EMMSP. The following table sets forth for the
calendar quarters indicated the range of the high and low sale
prices for the Existing Preferred Stock on the NASDAQ Global
Select Market since the first quarter of 2008.
|
|
|
|
|
|
|
|
|
|
|
Stock Prices
|
|
|
|
Existing Preferred Stock
|
|
|
|
High
|
|
|
Low
|
|
|
2008
|
|
|
|
|
|
|
|
|
1st
Quarter
|
|
$
|
38.84
|
|
|
$
|
24.00
|
|
2nd
Quarter
|
|
|
27.38
|
|
|
|
23.05
|
|
3rd
Quarter
|
|
|
25.25
|
|
|
|
16.00
|
|
4th
Quarter
|
|
|
18.40
|
|
|
|
1.21
|
|
2009
|
|
|
|
|
|
|
|
|
1st
Quarter
|
|
$
|
3.29
|
|
|
$
|
0.90
|
|
2nd
Quarter
|
|
|
2.70
|
|
|
|
0.90
|
|
3rd
Quarter
|
|
|
11.00
|
|
|
|
1.23
|
|
4th
Quarter
|
|
|
17.43
|
|
|
|
6.36
|
|
2010
|
|
|
|
|
|
|
|
|
1st
Quarter
|
|
$
|
17.14
|
|
|
$
|
12.56
|
|
2nd
Quarter
|
|
|
29.88
|
|
|
|
15.61
|
|
Dividend
Information
The terms of the Existing Preferred Stock provide for a
quarterly dividend payment of $0.78125 per share on each
January 15, April 15, July 15 and October 15.
Emmis has not declared a dividend on the Existing Preferred
Stock since October 15, 2008. Emmis did declare and pay
dividends of $0.78125 per share on the Existing Preferred Stock
on October 15, 2008, July 15, 2008 and April 15,
2008.
As of April 15, 2010, cumulative preferred dividends in
arrears total $13.7 million, or $4.87 per share. Failure to
pay the dividend is not a default under the terms of the
Existing Preferred Stock. Nevertheless, if dividends remain
unpaid for more than six quarters, the holders of the Existing
Preferred Stock are entitled to elect two persons to Emmis
board of directors. The holders of the Existing Preferred Stock
are currently entitled to do so.
The Credit Facility prohibits Emmis from paying dividends on the
Existing Preferred Stock during the period during which the
fixed charge coverage ratio and total leverage ratio covenants
are suspended. We are currently in that Suspension
Period. See Managements Discussion and
Analysis of Results of Operations and Financial
Condition Liquidity and Capital Resources.
Payment of future Existing Preferred Stock dividends is at the
discretion of Emmis board of directors.
Repurchases
of Existing Preferred Stock
Within the past two years, Emmis has not repurchased any shares
of Existing Preferred Stock.
Book
Value per Share
As of February 28, 2010, Emmis book value per share
of Common Stock was $(5.06), and Emmis book value per
share of Existing Preferred Stock was $(13.71).
97
The table below sets forth Emmis actual cash and cash
equivalents, long-term debt (including current maturities) and
shareholders equity at February 28, 2010, and as
adjusted to give effect to the Transactions (assuming that all
of the shares of Existing Preferred Stock are tendered into the
Exchange Offer), and assuming the closing of all of the
Transactions occurred on February 28, 2010. See The
Transactions.
The table below should be read in conjunction with Emmis
consolidated financial statements and related notes, which are
included elsewhere in this Proxy Statement/Offer to Exchange.
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2010
|
|
|
|
|
|
|
As Adjusted
|
|
|
|
Actual
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
6,814
|
|
|
$
|
6,814
|
|
Deferred debt issuance costs, net of accumulated
amortization1
|
|
|
4,227
|
|
|
|
4,437
|
|
Indebtedness of Emmis Operating and its subsidiaries:
|
|
|
|
|
|
|
|
|
Credit Facility (including current maturities)(1):
|
|
|
|
|
|
|
|
|
Revolving facility
|
|
$
|
2,000
|
|
|
$
|
2,000
|
|
Term loans
|
|
|
339,150
|
|
|
|
339,150
|
|
Capitalized lease obligations
|
|
|
24
|
|
|
|
24
|
|
Other indebtedness of Emmis Communications Corporation:
|
|
|
|
|
|
|
|
|
New Notes
|
|
|
|
|
|
|
84,275
|
|
|
|
|
|
|
|
|
|
|
Total consolidated indebtedness
|
|
$
|
341,174
|
|
|
$
|
425,449
|
|
Existing Preferred Stock, $0.01 par value, $50.00
liquidation preference per share, 2,809,170 actual shares
outstanding, no shares outstanding as-adjusted
|
|
$
|
140,459
|
|
|
|
|
|
Shareholders deficit:
|
|
|
|
|
|
|
|
|
Class A Common Stock, $0.01 par value, 32,661,550
actual shares outstanding, no shares outstanding as-adjusted
|
|
$
|
327
|
|
|
$
|
|
|
Class B Common Stock, $0.01 par value, 4,930,680
actual shares outstanding, no shares outstanding as-adjusted
|
|
|
49
|
|
|
|
|
|
New Voting Common Stock, $0.01 par value, no actual shares
outstanding, 10 shares outstanding as-adjusted
|
|
|
|
|
|
|
|
|
New Non-Voting Common Stock, $0.01 par value, no actual
shares outstanding, 1,000,000 shares outstanding as-adjusted
|
|
|
|
|
|
|
10
|
|
Additional paid-in capital
|
|
|
527,120
|
|
|
|
538,224
|
|
Accumulated deficit
|
|
|
(705,135
|
)
|
|
|
(659,479
|
)
|
Accumulated other comprehensive loss
|
|
|
(1,320
|
)
|
|
|
(1,320
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders deficit
|
|
$
|
(178,959
|
)
|
|
$
|
(122,565
|
)
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
302,674
|
|
|
$
|
302,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Credit Facility consists of a $20,000 revolving facility,
with $2,000 outstanding and $17,100 available for borrowing, net
of $900 of outstanding letters of credit, and $339,150 of term
loans. The revolving facility and the term loans mature on
November 2, 2012 and November 1, 2013, respectively.
The term loans are subject to quarterly amortization payments of
$848. |
98
The following table sets forth summary historical consolidated
financial data for Emmis as of and for each of the fiscal years
ended February 28, 2009 and 2010.
This data set forth below are extracted from, and should be read
in conjunction with, the audited consolidated financial
statements contained in Emmis Annual Report on
Form 10-K
(attached as Appendix I) for each of the fiscal years
ended February 28, 2009 and February 28, 2010,
including the notes thereto. More comprehensive financial
information is included in Emmis Annual Report on
Form 10-K
(including managements discussion and analysis of
financial condition and results of operation) and other
documents filed by Emmis with the SEC, and the following summary
is qualified in its entirety by reference to those reports and
such other documents. Emmis Annual Report on
Form 10-K
is attached as Appendix I to this Proxy Statement/Offer to
Exchange, and you should read the Annual Report in its entirety.
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
February 28,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except
|
|
|
|
per share data)
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
307,931
|
|
|
$
|
242,566
|
|
Station operating expenses excluding depreciation and
amortization expense
|
|
|
239,007
|
|
|
|
206,160
|
|
Corporate expenses excluding depreciation and amortization
expense
|
|
|
18,503
|
|
|
|
13,634
|
|
Depreciation and amortization
|
|
|
12,403
|
|
|
|
10,393
|
|
Impairment losses(1)
|
|
|
373,137
|
|
|
|
174,642
|
|
Restructuring charge
|
|
|
4,208
|
|
|
|
3,350
|
|
(Gain) loss on disposal of fixed assets
|
|
|
14
|
|
|
|
(127
|
)
|
Operating loss
|
|
|
(339,341
|
)
|
|
|
(165,486
|
)
|
Interest expense
|
|
|
25,067
|
|
|
|
24,820
|
|
Gain on debt extinguishment(2)
|
|
|
|
|
|
|
(31,362
|
)
|
Other (income) expense, net
|
|
|
1,315
|
|
|
|
(170
|
)
|
Loss before income taxes and discontinued operations
|
|
|
(365,723
|
)
|
|
|
(158,774
|
)
|
Loss from continuing operations
|
|
|
(299,875
|
)
|
|
|
(118,934
|
)
|
Discontinued operations(3)
|
|
|
4,922
|
|
|
|
442
|
|
Consolidated net loss
|
|
|
(294,953
|
)
|
|
|
(118,492
|
)
|
Net loss available to common shareholders
|
|
|
(309,202
|
)
|
|
|
(131,777
|
)
|
Basic and diluted net income (loss) per share attributable to
common shareholders:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(8.57
|
)
|
|
$
|
(3.56
|
)
|
Discontinued operations
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(8.50
|
)
|
|
$
|
(3.56
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
36,374
|
|
|
|
37,041
|
|
Diluted
|
|
|
36,374
|
|
|
|
37,041
|
|
99
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
February 28,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except
|
|
|
|
per share data)
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
43,639
|
|
|
$
|
25,662
|
|
Investing activities
|
|
|
17,701
|
|
|
|
(603
|
)
|
Financing activities
|
|
|
(33,277
|
)
|
|
|
(58,328
|
)
|
Net repayments of long-term debt
|
|
|
17,338
|
|
|
|
47,425
|
|
Capital expenditures
|
|
|
20,518
|
|
|
|
4,779
|
|
Cash paid for interest
|
|
|
27,488
|
|
|
|
22,396
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 28,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Cash(4)
|
|
$
|
40,746
|
|
|
$
|
6,814
|
|
Working Capital
|
|
|
71,382
|
|
|
|
17,722
|
|
Net intangible assets
|
|
|
536,413
|
|
|
|
363,809
|
|
Total assets
|
|
|
739,211
|
|
|
|
498,168
|
|
Credit Facility debt
|
|
|
421,355
|
|
|
|
341,150
|
|
Shareholders deficit
|
|
|
(60,000
|
)
|
|
|
(178,959
|
)
|
|
|
|
(1)
|
|
The impairment losses in fiscal
2009 and fiscal 2010 mostly related to Emmis interim and
annual impairment tests conducted in accordance with Accounting
Standards Codification Topic 350.
|
|
(2)
|
|
In April 2009, Emmis commenced a
series of Dutch auction tenders to purchase term loans of Emmis
Operating under the Amended and Restated Revolving Credit and
Term Loan Agreement, by and among Emmis Operating, Emmis, the
lenders thereto, Bank of America, N.A., as administrative agent
for itself and other lenders, Deutsche Bank Trust Company
Americas, as syndication agent, General Electric Capital
Corporation, Cooperatieve Centrale Raiffeisen-Boerenleenbank
B.A., New York Branch and SunTrust Bank, as co-documentation
agents. The cumulative effect of all of the debt tenders
resulted in the purchase of $78.5 million in face amount of
Emmis Operatings outstanding term loans for
$44.7 million in cash. As a result of these purchases,
Emmis recognized a gain on extinguishment of debt of
$31.9 million in the quarter ended May 31, 2009, which
is net of transaction costs of $1.0 million and a write-off
of deferred debt costs. In August 2009, Emmis reduced its
revolver and recorded a loss on debt extinguishment of
$0.5 million related to the write-off of deferred debt
costs.
|
|
(3)
|
|
Emmis television division, Tu
Ciudad Los Angeles, Emmis Books and our international radio
operations in Belgium and Hungary have been classified as
discontinued operations.
|
|
(4)
|
|
Cash held at February 28, 2009
was mostly used to fund Emmis Dutch auction tenders
that commenced in April 2009.
|
100
The following table sets forth certain historical data on the
ratio of earnings to fixed charges for Emmis, presented for each
of the fiscal years ended February 28, 2009 and 2010.
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
February 28,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(Unaudited, in thousands)
|
|
|
Earnings:
|
|
|
|
|
|
|
|
|
Pre-tax loss from continuing operations before adjustment for
income or loss from equity investees
|
|
$
|
(299,922
|
)
|
|
$
|
(118,275
|
)
|
Add:
|
|
|
|
|
|
|
|
|
Fixed charges
|
|
|
36,575
|
|
|
|
36,660
|
|
Less:
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
8,933
|
|
|
|
9,123
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
$
|
(272,280
|
)
|
|
$
|
(90,738
|
)
|
|
|
|
|
|
|
|
|
|
Fixed Charges:
|
|
|
|
|
|
|
|
|
Interest expense (including amortization of debt expenses)
|
|
$
|
25,067
|
|
|
$
|
24,820
|
|
Portion of rents representative of the interest factor
|
|
|
2,575
|
|
|
|
2,717
|
|
Preferred stock dividends
|
|
|
8,933
|
|
|
|
9,123
|
|
|
|
|
|
|
|
|
|
|
Fixed Charges
|
|
$
|
36,575
|
|
|
$
|
36,660
|
|
|
|
|
|
|
|
|
|
|
Ratio of Earnings to Fixed Charges
|
|
|
N/A
|
|
|
|
N/A
|
|
Deficiency
|
|
$
|
308,855
|
|
|
$
|
127,398
|
|
101
Please see Item 7 Managements
Discussion and Analysis of Results of Operations and Financial
Condition in our annual report on
Form 10-K
for the year ended February 28, 2010, which is attached to
this Proxy Statement/Offer to Exchange as Appendix I.
Emmis does not anticipate any material changes to its liquidity
and capital resources following completion of the Transactions,
since no dividends were being paid on the Existing Preferred
Stock, and Emmis will not be required to pay cash interest on
the New Notes after they are issued. The Credit Facility will
continue to be outstanding, although Emmis anticipates that it
will amend, refinance or replace the Credit Facility within the
next 24 months. In addition, Emmis will be actively trying
to sell certain assts and use the proceeds to repay outstanding
indebtedness under the Credit Facility with a view towards
amending, refinancing or replacing the Credit Facility.
Please see Item 7A Quantitative and
Qualitative Disclosures About Market Risk in our annual
report on
Form 10-K
for the year ended February 28, 2010, which is attached to
this Proxy Statement/Offer to Exchange as Appendix I.
102
Please see Item 1 Business,
Item 2 Properties, and
Item 3 Legal Proceedings in our
annual report on
Form 10-K
for the year ended February 28, 2010, which is attached to
this Proxy Statement/Offer to Exchange as Appendix I.
103
The following table sets forth information certain information
regarding the current directors and executive officers of Emmis.
Unless otherwise specified, each person listed below is a
citizen of the United States and has his or her principal
business address at One Emmis Plaza, 40 Monument Circle,
Indianapolis, Indiana 46204. The telephone number for each
director and executive officer is
(317) 266-0100.
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Name
|
|
Age
|
|
Position
|
|
Jeffrey H. Smulyan
|
|
|
63
|
|
|
Chairman of the Board of Directors, Chief Executive Officer and
President
|
Patrick M. Walsh
|
|
|
43
|
|
|
Director, Executive Vice President and Chief Financial Officer
|
Richard F. Cummings
|
|
|
58
|
|
|
President of Radio Programming
|
J. Scott Enright
|
|
|
47
|
|
|
Executive Vice President, General Counsel and Secretary
|
Gregory T. Loewen
|
|
|
39
|
|
|
Chief Strategy Officer and President Publishing
Division
|
Susan B. Bayh
|
|
|
50
|
|
|
Director
|
Heath B. Freeman
|
|
|
30
|
|
|
Director
|
Gary L. Kaseff
|
|
|
62
|
|
|
Director
|
Richard A. Leventhal
|
|
|
63
|
|
|
Director
|
Peter A. Lund
|
|
|
69
|
|
|
Director
|
Greg A. Nathanson
|
|
|
63
|
|
|
Director
|
Lawrence B. Sorrel
|
|
|
51
|
|
|
Director
|
Set forth below is certain additional information concerning the
persons listed above.
Jeffrey H. Smulyan. Mr. Smulyan founded
Emmis in 1979 and is Chairman, Chief Executive Officer and
President of Emmis. Mr. Smulyan began working in radio in
1973, and has owned one or more radio stations since then.
Formerly, he was also the owner and chief executive officer of
the Seattle Mariners Major League Baseball team. He is former
Chairman of the Radio Advertising Bureau and serves as a Trustee
of his alma mater, the University of Southern California. He was
a director of The Finish Line, a sports apparel manufacturer,
until July 2008. Mr. Smulyan has been Chairman of the Board
of Directors since 1981 and President since 1994.
Patrick M. Walsh. Mr. Walsh became
Executive Vice President and Chief Financial Officer of Emmis in
September 2006 and added the position of Chief Operating Officer
in December 2008. Mr. Walsh came to Emmis from iBiquity
Digital Corporation, the developer and licensor of HD Radio
technology, where he served as Chief Financial Officer and
Senior Vice President from 2002 to 2006. Prior to joining
iBiquity, Mr. Walsh was a management consultant for
McKinsey & Company, and served in various management
positions at General Motors Acceptance Corporation and
Deloitte & Touche LLP.
Richard Cummings. Mr. Cummings became
President of Programming for our domestic radio group in 2009.
He previously served as President, Radio Division from 2001 to
2009 and as Executive Vice President of Programming from 1998 to
2001. Mr. Cummings joined Emmis Broadcasting as its first
Program Director at flagship station
WENS-FM,
97.1 Indianapolis in 1981. Mr. Cummings sits on the boards
of the National Association of Broadcasters and Radio
Advertising Bureau and is a member of the Board of Trustees at
Butler University. He is also on the Board of Directors of
Project Sunshine.
J. Scott Enright. Mr. Enright is
Executive Vice President, General Counsel and Secretary of
Emmis. Prior to joining Emmis as Associate General Counsel in
October 1998, Mr. Enright was a partner in the Indianapolis
law firm of Bose McKinney & Evans, LLP and worked in
the Office of Indianas Lt. Governor John M. Mutz.
Mr. Enright is on the Board of Managers of The Broadcast
Traffic Consortium, LLC, a joint venture among several radio
broadcasters to build a
first-of-its-kind
network to distribute traffic data in North
104
America via radio technology. Mr. Enright is also the
Secretary for the Foundation for Educational Choice, Inc. (f/k/a
The Milton & Rose D. Friedman Foundation, Inc.).
Gregory T. Loewen. Mr. Loewen has served
as Emmis Chief Strategy Officer since 2007 and as the
President of its Publishing Division since March 2010. Prior to
joining Emmis, Mr. Loewen worked at The Toronto Star, where
he served the dual role of Vice President of Digital
Media & Strategy and Publisher of the newspapers
website from 2004 to 2007. Prior to joining the Toronto Star,
Mr. Loewen was a Global Account Manager in the Toronto
office of Monitor Group, a leading global strategy consultancy.
Susan B. Bayh. Mrs. Bayh was the
Commissioner of the International Joint Commission of the
United States and Canada until 2001. She served as a
Distinguished Visiting Professor at the College of Business
Administration at Butler University from 1994 through 2003.
Previously, she was an attorney with Eli Lilly &
Company. She is a director of Wellpoint, Inc., a Blue Cross/Blue
Shield company; Curis, Inc., a therapeutic drug development
company; Dendreon Corporation, a biotechnology company; and Dyax
Corp., a biopharmaceutical company. Previously, she served as a
director for Esperion Therapeutics, Inc., Novavax, Inc., Cubist
Pharmaceuticals, Inc. and MDRNA (formerly Nastech), each of
which is a pharmaceutical company. Mrs. Bayh has served as
a director of Emmis since 1994.
Heath B. Freeman. Mr. Freeman joined
Smith Management LLC in 2006 and was instrumental in the
creation of Alden in 2007. At Smith Management, he has been
investing in distressed securities, value equities and the
emerging markets. Prior to joining Smith Management,
Mr. Freeman was at Peter J. Solomon Company, a boutique
investment bank, working on mergers & acquisitions,
restructurings and refinancing assignments. Mr. Freeman
graduated from Duke University in 2002.
Gary L. Kaseff. Mr. Kaseff served as the
Executive Vice President and General Counsel of Emmis until his
resignation in March 2009. He remains employed by Emmis. Before
becoming general counsel, Mr. Kaseff practiced law in
Southern California. Previously, he was President of the Seattle
Mariners Major League Baseball team and partner with the law
firm of Epport & Kaseff. Mr. Kaseff has served as
a director of Emmis since 1994.
Richard A. Leventhal. Mr. Leventhal is
President and majority owner of LMCS, LLC, an investment,
management and consulting company. Previously,
Mr. Leventhal co-owned and operated Top Value Fabrics,
Inc., a wholesale fabric and textile company in Carmel, Indiana,
for 27 years. Mr. Leventhal has served as a director
of Emmis since 1992.
Peter A. Lund. Mr. Lund is a private
investor and media consultant who formerly served as Chairman
and Chief Executive Officer of Eos International, Inc., a
holding company. Mr. Lund has over 40 years of
broadcasting experience and most recently served as President
and Chief Executive Officer of CBS Inc., and President and Chief
Executive Officer of CBS Television and Cable. He is a director
of The DIRECTV Group, Inc., a communications company; Crown
Media Holdings, Inc., an owner and operator of cable television
channels; and Eos International, Inc., a library automation and
knowledge management company.
Greg A. Nathanson. Mr. Nathanson served
as the Television Division President of Emmis before
resigning in October 2000. He is currently a media consultant.
Mr. Nathanson has over 30 years of television
broadcasting experience, having served as President of
Programming and Development for Twentieth Television from 1996
to 1998; as General Manager of
KTLA-TV in
Los Angeles, California from 1992 to 1996; and as General
Manager of the Fox television station KTTV from 1988 to 1992. In
addition, he was President of all the Fox Television stations
from 1990 to 1992. Mr. Nathanson has served as a director
of Emmis since 1998.
Lawrence B. Sorrel. Mr. Sorrel is
Managing Partner and Co-CEO of Tailwind Capital Group, an
independent private equity firm that has approximately
$2 billion of assets under management through private
equity funds TWCP, L.P. and Tailwind Capital Partners, L.P. and
their related funds. Mr. Sorrel is also a member of the
board of directors of several private companies. Mr. Sorrel
was a general partner of Welsh, Carson, Anderson &
Stowe from
1998-2002.
Prior to May 1998, he was a Managing Director of Morgan Stanley
and the firms private equity affiliate, Morgan Stanley
Capital Partners, where he had been employed since 1986.
Mr. Sorrel has served as a director of Emmis since 1993.
105
Corporate
Governance
Independent
Directors
The board of directors of Emmis currently consists of eight
members. Of these, Emmis board has determined that four
(Mrs. Bayh and Messrs. Leventhal, Lund and Sorrel)
qualify as independent directors under the listing
standards of The NASDAQ Stock Market, Inc. Emmis is a
Controlled Company as defined in the NASDAQ listing
standards because more than 50% of Emmis voting power is
held by Mr. Smulyan. Emmis is therefore, pursuant to NASDAQ
Marketplace Rule 5615(c)(2), exempt from certain aspects of
NASDAQs listing standards relating to independent
directors. Nevertheless, as a matter of good corporate
governance, Emmis has voluntarily complied with such rules. The
only variance in Emmis practices from the NASDAQ listing
standards relating to independent directors is that one-half,
rather than a majority, of the members of the board of directors
are independent directors under NASDAQ rules.
Certain
Committees of the Board of Directors
The Emmis board of directors currently has several committees,
including an Audit Committee, a Corporate Governance and
Nominating Committee and a Compensation Committee.
Audit Committee. The Audit Committees
primary responsibility is to engage Emmis independent
auditors and otherwise to monitor and oversee the audit process.
The Audit Committee also undertakes other related
responsibilities as summarized in the Report of the Audit
Committee below and detailed in the Audit Committee Charter,
which is available in the Corporate Governance section of
Emmis website (www.emmis.com) located under the
Investors heading. The board of directors has determined that
the members of the Audit Committee, Richard A. Leventhal
(chair), Peter A. Lund and Lawrence B. Sorrel, are independent
directors under the Securities Exchange Act of 1934 and the
NASDAQ listing standards. The board of directors has also
determined that Lawrence B. Sorrel is an Audit Committee
financial expert as defined in rules adopted under the
Securities Exchange Act of 1934. The Audit Committee held four
meetings during the last fiscal year.
Corporate Governance and Nominating
Committee. The Corporate Governance and
Nominating Committees primary responsibility is to assist
the board of directors by (1) identifying individuals
qualified to become members of the board of directors and
recommending nominees to the board of directors for the next
annual meeting of shareholders and (2) evaluating and
assessing corporate governance issues affecting Emmis. The
Corporate Governance and Nominating Committee charter is
available in the Corporate Governance section of Emmis
website (www.emmis.com) located under the Investors
heading. The Corporate Governance and Nominating Committee
evaluates current members of the board of directors and
potential candidates with respect to their independence,
business, strategic and financial skills, as well as overall
experience in the context of the needs of the board of directors
as a whole. The Corporate Governance and Nominating Committee
concentrates its focus on candidates with the following
characteristics and qualifications, though not necessarily
limited thereto:
|
|
|
|
|
chief executive officers or senior executives, particularly
those with experience in broadcasting, finance, marketing and
information technology.
|
|
|
|
individuals representing diversity in gender and ethnicity.
|
|
|
|
individuals who meet the current criteria to be considered as
independent directors.
|
The Corporate Governance and Nominating Committee will consider
and evaluate potential nominees submitted by holders of
Emmis Class A Common Stock to Emmis corporate
secretary on or before the date for shareholder nominations
specified in the Shareholder Proposals section of
this proxy statement. These potential nominees will be
considered and evaluated using the same criteria as potential
nominees obtained by the Corporate Governance and Nominating
Committee from other sources.
In its assessment of each potential candidate, including those
recommended by shareholders, the Corporate Governance and
Nominating Committee takes into account all factors it considers
appropriate, which may include (a) ensuring that the board
of directors, as a whole, is diverse and consists of individuals
106
with various and relevant career experience, relevant technical
skills, industry knowledge and experience, financial expertise
(including expertise that could qualify a director as an
audit committee financial expert, as that term is
defined by the rules of the SEC), local or community ties, and
(b) minimum individual qualifications, including strength
of character, mature judgment, familiarity with Emmis
business and related industries, independence of thought and an
ability to work collegially. The Corporate Governance and
Nominating Committee also may consider the extent to which the
candidate would fill a present need on the board of directors.
Typically, after conducting an initial evaluation of a
candidate, the Corporate Governance and Nominating Committee
will interview that candidate if it believes the candidate might
be suitable to be a director and may ask the candidate to meet
with other directors and management. If the Corporate Governance
and Nominating Committee believes a candidate would be a
valuable addition to the board of directors, it will recommend
to the full board that candidates nomination as a director.
The members of the Corporate Governance and Nominating Committee
are Susan B. Bayh (chair) and Richard A. Leventhal, both of whom
are independent directors under NASDAQ standards.
The Corporate Governance and Nominating Committee held two
meetings during the last fiscal year.
Compensation Committee. The Compensation
Committee provides a general review of Emmis compensation
and benefit plans to ensure that Emmis corporate
objectives are met, establishes compensation arrangements and
approves compensation payments to Emmis executive
officers, and generally administers Emmis stock option and
incentive plans. The Compensation Committees charter is
available in the Corporate Governance section of Emmis
website (www.emmis.com) located under the Investors
heading. The members of the Compensation Committee are Peter A.
Lund (chair), Susan B. Bayh and Lawrence B. Sorrel, all of whom
are independent directors under NASDAQ standards. The
Compensation Committee held seven meetings during the last
fiscal year.
Compensation
of Directors
Directors who are not officers of Emmis are compensated for
their services at the rate of $3,000 per regular meeting
attended in person, $1,500 per regular meeting attended by phone
and $2,000 per committee meeting attended, whether in person or
by phone. These fees are paid in the form of Class A Common
Stock at the end of each calendar year. The per share price used
for payment of these fees is established using the market value
of the Class A Common Stock prior to the end of the
previous fiscal year, discounted by 20% to the extent the
director attends at least 75% of the board and committee
meetings applicable to the director. In addition, each director
who is not an officer or employee of Emmis receives a $30,000
annual retainer, the chair of the Emmis Audit Committee receives
a $10,000 annual retainer, the chair of the Emmis Compensation
Committee receives a $5,000 annual retainer, the chair of the
Emmis Corporate Governance and Nominating Committee receives a
$3,000 annual retainer, and the Lead Director receives a $3,000
annual retainer. These annual retainers were paid in cash. In
addition, directors who are not officers of Emmis are entitled
to receive annually 2,195 shares of restricted stock and
options to purchase 7,317 shares of Class A Common
Stock. The options are granted on the date of the Emmis annual
meeting of shareholders at the fair market value of the
underlying shares on that date and are to vest annually in three
equal installments. Restricted stock is also granted on the date
of the Emmis annual meeting of shareholders and will vest on the
earlier of the end of the directors three-year term or the
third anniversary of the date of grant.
Included in the table below is information regarding the
compensation for the fiscal year ended February 28, 2010,
received by each of Emmis directors as of
February 28, 2010 who is not an officer of Emmis. The
dollar amounts in the table below for stock and option awards
are the grant date fair market values associated with such
awards.
107
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Fees Earned
|
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|
|
|
|
|
|
|
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or Paid
|
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Stock
|
|
Option
|
|
All Other
|
|
|
Name
|
|
in Cash
|
|
Awards(1)(2)
|
|
Awards(3)
|
|
Compensation(4)
|
|
Total
|
|
Susan B. Bayh
|
|
$
|
36,000
|
|
|
$
|
160,645
|
|
|
$
|
1,627
|
|
|
$
|
|
|
|
$
|
162,272
|
|
Gary L. Kaseff
|
|
|
30,000
|
|
|
|
84,000
|
|
|
|
|
|
|
|
1,253,745
|
|
|
|
1,337,745
|
|
Richard A. Leventhal
|
|
|
40,000
|
|
|
|
162,645
|
|
|
|
1,627
|
|
|
|
|
|
|
|
164,272
|
|
Peter A. Lund
|
|
|
35,000
|
|
|
|
162,645
|
|
|
|
1,627
|
|
|
|
|
|
|
|
164,272
|
|
Lawrence B. Sorrel
|
|
|
30,000
|
|
|
|
186,645
|
|
|
|
1,627
|
|
|
|
|
|
|
|
188,272
|
|
Greg A. Nathanson
|
|
|
30,000
|
|
|
|
90,645
|
|
|
|
1,627
|
|
|
|
|
|
|
|
92,272
|
|
|
|
|
(1) |
|
On July 14, 2009, each director named in the table above
other than Mr. Kaseff received a grant of 2,195 restricted
shares, having an aggregate date of grant fair value of $645.
The following table includes information regarding the number of
unrestricted shares each named director received on
January 4, 2010, for meeting fees for the fiscal year ended
2010: |
|
|
|
|
|
Name
|
|
Shares
|
|
Mrs. Bayh
|
|
|
129,032
|
|
Mr. Kaseff
|
|
|
67,742
|
|
Mr. Leventhal
|
|
|
130,645
|
|
Mr. Lund
|
|
|
130,645
|
|
Mr. Sorrel
|
|
|
150,000
|
|
Mr. Nathanson
|
|
|
72,581
|
|
|
|
|
(2) |
|
At February 28, 2010, each named director other than
Mrs. Bayh, Mr. Kaseff and Mr. Nathanson held
restricted stock awards for an aggregate of 4,390 shares,
having an aggregate fair market value of $3,951. Mrs. Bayh
and Mr. Nathanson each held 6,585 restricted shares having
a fair market value of $5,927. As of February 28, 2010,
Mr. Kaseff had not received any restricted stock awards in
his capacity as a director. Restricted stock awards vest on the
earlier of the end of the directors three-year term or the
third anniversary of the date of grant. With respect to
Mrs. Bayh and Mr. Nathanson, 2,195 restricted shares
will vest on the earlier of July 11, 2010, or the day
before the Emmis annual meeting for fiscal year 2010, 2,195 will
vest on the earlier of July 15, 2011, or the day before the
Emmis annual meeting for fiscal year 2011, and 2,195 will vest
on the earlier of July 14, 2012, or the day before the
Emmis annual meeting for fiscal year 2012. With respect to each
of Messrs. Leventhal, Lund and Sorrel, 2,195 restricted
shares will vest on the earlier of July 15, 2011, or the
day before the Emmis annual meeting for fiscal year 2011, and
2,195 will vest on the earlier of July 14, 2012, or the day
before the Emmis annual meeting for fiscal year 2012. |
|
(3) |
|
The following table includes information regarding options held
by each named director as of February 28, 2010. Options
vest on the earlier of the dates shown, or the day before the
Emmis annual meeting for the fiscal year in which the date shown
falls. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
|
|
Underlying
|
|
Option Exercise
|
|
Option Expiration
|
|
|
Name
|
|
Options #
|
|
Price $
|
|
Date
|
|
Option Vesting Date
|
|
Mrs. Bayh
|
|
|
7,317
|
|
|
|
0.28
|
|
|
|
7/14/19
|
|
|
|
1/3 on each of 7/14/10, 11 & 12
|
|
|
|
|
7,317
|
|
|
|
1.70
|
|
|
|
7/15/18
|
|
|
|
1/3 on each of 7/15/09, 10 & 11
|
|
|
|
|
7,317
|
|
|
|
8.84
|
|
|
|
7/11/17
|
|
|
|
1/3 on each of 7/11/08, 09 & 10
|
|
|
|
|
7,317
|
|
|
|
8.71
|
|
|
|
2/13/17
|
|
|
|
Fully Vested
|
|
|
|
|
7,317
|
|
|
|
12.19
|
|
|
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7/13/15
|
|
|
|
Fully Vested
|
|
|
|
|
14,635
|
|
|
|
14.21
|
|
|
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6/30/14
|
|
|
|
Fully Vested
|
|
|
|
|
14,635
|
|
|
|
15.48
|
|
|
|
6/5/13
|
|
|
|
Fully Vested
|
|
|
|
|
14,635
|
|
|
|
13.56
|
|
|
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6/24/12
|
|
|
|
Fully Vested
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
|
|
Underlying
|
|
Option Exercise
|
|
Option Expiration
|
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|
Name
|
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Options #
|
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Price $
|
|
Date
|
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Option Vesting Date
|
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Mr. Kaseff
|
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|
175,000
|
|
|
|
0.295
|
|
|
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3/2/19
|
|
|
|
3/2/2012
|
|
|
|
|
36,587
|
|
|
|
2.95
|
|
|
|
3/1/18
|
|
|
|
1/3 on each of 3/1/09, 10 & 11
|
|
|
|
|
36,587
|
|
|
|
8.21
|
|
|
|
3/1/17
|
|
|
|
1/3 on each of 3/1/08, 09 & 10
|
|
|
|
|
36,587
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|
|
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11.17
|
|
|
|
3/1/16
|
|
|
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Fully Vested
|
|
|
|
|
36,587
|
|
|
|
12.81
|
|
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3/1/15
|
|
|
|
Fully Vested
|
|
|
|
|
73,174
|
|
|
|
17.45
|
|
|
|
3/1/14
|
|
|
|
Fully Vested
|
|
|
|
|
73,174
|
|
|
|
11.22
|
|
|
|
3/4/13
|
|
|
|
Fully Vested
|
|
|
|
|
73,174
|
|
|
|
19.90
|
|
|
|
3/1/12
|
|
|
|
Fully Vested
|
|
|
|
|
58,539
|
|
|
|
19.82
|
|
|
|
3/1/11
|
|
|
|
Fully Vested
|
|
|
|
|
58,539
|
|
|
|
24.18
|
|
|
|
3/1/10
|
|
|
|
Fully Vested
|
|
Mr. Leventhal
|
|
|
7,317
|
|
|
|
0.28
|
|
|
|
7/14/19
|
|
|
|
1/3 on each of 7/14/10, 11 & 12
|
|
|
|
|
7,317
|
|
|
|
1.70
|
|
|
|
7/15/18
|
|
|
|
1/3 on each of 7/15/09, 10 & 11
|
|
|
|
|
7,317
|
|
|
|
8.84
|
|
|
|
7/11/17
|
|
|
|
1/3 on each of 7/11/08, 09 & 10
|
|
|
|
|
7,317
|
|
|
|
8.71
|
|
|
|
2/13/17
|
|
|
|
Fully Vested
|
|
|
|
|
7,317
|
|
|
|
12.19
|
|
|
|
7/13/15
|
|
|
|
Fully Vested
|
|
|
|
|
14,635
|
|
|
|
14.21
|
|
|
|
6/30/14
|
|
|
|
Fully Vested
|
|
|
|
|
14,635
|
|
|
|
15.48
|
|
|
|
6/5/13
|
|
|
|
Fully Vested
|
|
|
|
|
14,635
|
|
|
|
13.56
|
|
|
|
6/24/12
|
|
|
|
Fully Vested
|
|
Mr. Lund
|
|
|
7,317
|
|
|
|
0.28
|
|
|
|
7/14/19
|
|
|
|
1/3 on each of 7/14/10, 11 & 12
|
|
|
|
|
7,317
|
|
|
|
1.70
|
|
|
|
7/15/18
|
|
|
|
1/3 on each of 7/15/09, 10 & 11
|
|
|
|
|
7,317
|
|
|
|
8.84
|
|
|
|
7/11/17
|
|
|
|
1/3 on each of 7/11/08, 09 & 10
|
|
|
|
|
7,317
|
|
|
|
8.71
|
|
|
|
2/13/17
|
|
|
|
Fully Vested
|
|
|
|
|
7,317
|
|
|
|
12.19
|
|
|
|
7/13/15
|
|
|
|
Fully Vested
|
|
|
|
|
14,635
|
|
|
|
14.21
|
|
|
|
6/30/14
|
|
|
|
Fully Vested
|
|
|
|
|
14,635
|
|
|
|
15.48
|
|
|
|
6/5/13
|
|
|
|
Fully Vested
|
|
Mr. Nathanson
|
|
|
7,317
|
|
|
|
0.28
|
|
|
|
7/14/19
|
|
|
|
1/3 on each of 7/14/10, 11 & 12
|
|
|
|
|
7,317
|
|
|
|
1.70
|
|
|
|
7/15/18
|
|
|
|
1/3 on each of 7/15/09, 10 & 11
|
|
|
|
|
7,317
|
|
|
|
8.84
|
|
|
|
7/11/17
|
|
|
|
1/3 on each of 7/11/08, 09 & 10
|
|
|
|
|
7,317
|
|
|
|
8.71
|
|
|
|
2/13/17
|
|
|
|
Fully Vested
|
|
|
|
|
7,317
|
|
|
|
12.19
|
|
|
|
7/13/15
|
|
|
|
Fully Vested
|
|
|
|
|
14,635
|
|
|
|
14.21
|
|
|
|
6/30/14
|
|
|
|
Fully Vested
|
|
|
|
|
14,635
|
|
|
|
15.48
|
|
|
|
6/5/13
|
|
|
|
Fully Vested
|
|
|
|
|
14,635
|
|
|
|
13.56
|
|
|
|
6/24/12
|
|
|
|
Fully Vested
|
|
|
|
|
14,634
|
|
|
|
19.82
|
|
|
|
8/01/11
|
|
|
|
Fully Vested
|
|
Mr. Sorrel
|
|
|
7,317
|
|
|
|
0.28
|
|
|
|
7/14/19
|
|
|
|
1/3 on each of 7/14/10, 11 & 12
|
|
|
|
|
7,317
|
|
|
|
1.70
|
|
|
|
7/15/18
|
|
|
|
1/3 on each of 7/15/09, 10 & 11
|
|
|
|
|
7,317
|
|
|
|
8.84
|
|
|
|
7/11/17
|
|
|
|
1/3 on each of 7/11/08, 09 & 10
|
|
|
|
|
7,317
|
|
|
|
8.71
|
|
|
|
2/13/17
|
|
|
|
Fully Vested
|
|
|
|
|
7,317
|
|
|
|
12.19
|
|
|
|
7/13/15
|
|
|
|
Fully Vested
|
|
|
|
|
14,635
|
|
|
|
14.21
|
|
|
|
6/30/14
|
|
|
|
Fully Vested
|
|
|
|
|
14,635
|
|
|
|
15.48
|
|
|
|
6/05/13
|
|
|
|
Fully Vested
|
|
|
|
|
14,635
|
|
|
|
13.56
|
|
|
|
6/24/12
|
|
|
|
Fully Vested
|
|
|
|
|
(4) |
|
For Mr. Kaseff, who was an employee but not an officer
during the fiscal year ended 2010, this total included a 401(k)
match in the amount of $398 and severance payments in the amount
of $1,253,347. |
Compensation
Tables
The following table sets forth the compensation awarded to,
earned by, or paid to the chief executive officer, the two most
highly compensated executive officers other than the chief
executive officer and two other individuals who were not
executive officers at the end of the 2010 fiscal year
(collectively, the Named
109
Executive Officers) during the fiscal years ended
February 28, 2010, February 28, 2009 and
February 29, 2008.
2010
Summary Compensation Table(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
All Other
|
|
|
|
|
|
|
Salary(3)
|
|
Bonus(4)(5)
|
|
Awards(6)
|
|
Awards(6)
|
|
Compensation(4)
|
|
Compensation(7)
|
|
Total
|
Name and Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Jeffrey H. Smulyan,
|
|
|
2010
|
|
|
|
613,322
|
|
|
|
407,384
|
|
|
|
|
|
|
|
27,181
|
|
|
|
|
|
|
|
39,483
|
|
|
|
1,087,370
|
|
Chief Executive Officer
|
|
|
2009
|
|
|
|
459,711
|
|
|
|
438,213
|
|
|
|
|
|
|
|
212,791
|
|
|
|
|
|
|
|
65,844
|
|
|
|
1,176,559
|
|
|
|
|
2008
|
|
|
|
1
|
|
|
|
339,375
|
|
|
|
|
|
|
|
619,056
|
|
|
|
|
|
|
|
73,391
|
|
|
|
1,031,823
|
|
Patrick M. Walsh,
|
|
|
2010
|
|
|
|
387,051
|
|
|
|
326,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,378
|
|
|
|
730,544
|
|
Executive Vice President,
|
|
|
2009
|
|
|
|
214,912
|
|
|
|
427,989
|
|
|
|
25,901
|
|
|
|
103,332
|
|
|
|
|
|
|
|
18,474
|
|
|
|
790,608
|
|
Chief Financial Officer and Chief Operating Officer
|
|
|
2008
|
|
|
|
400,000
|
|
|
|
60,000
|
|
|
|
72,962
|
|
|
|
123,808
|
|
|
|
|
|
|
|
110,268
|
|
|
|
767,038
|
|
Richard F. Cummings,
|
|
|
2010
|
|
|
|
330,327
|
|
|
|
274,277
|
|
|
|
|
|
|
|
89,381
|
|
|
|
|
|
|
|
12,000
|
|
|
|
705,985
|
|
President Radio
|
|
|
2009
|
|
|
|
264,231
|
|
|
|
236,288
|
|
|
|
38,854
|
|
|
|
63,836
|
|
|
|
|
|
|
|
18,074
|
|
|
|
621,283
|
|
Programming
|
|
|
2008
|
|
|
|
495,000
|
|
|
|
102,450
|
|
|
|
109,451
|
|
|
|
185,714
|
|
|
|
|
|
|
|
19,074
|
|
|
|
911,689
|
|
Paul W. Fiddick,
|
|
|
2010
|
|
|
|
174,626
|
|
|
|
80,219
|
|
|
|
|
|
|
|
56,183
|
|
|
|
|
|
|
|
575,008
|
|
|
|
886,036
|
|
Former International
|
|
|
2009
|
|
|
|
193,942
|
|
|
|
172,500
|
|
|
|
19,426
|
|
|
|
31,918
|
|
|
|
196,686
|
|
|
|
1,000
|
|
|
|
615,472
|
|
Division President
|
|
|
2008
|
|
|
|
350,000
|
|
|
|
242,583
|
|
|
|
54,271
|
|
|
|
92,587
|
|
|
|
|
|
|
|
6,111
|
|
|
|
745,552
|
|
Gary A. Thoe,
|
|
|
2010
|
|
|
|
137,172
|
|
|
|
61,047
|
|
|
|
|
|
|
|
35,753
|
|
|
|
|
|
|
|
547,613
|
|
|
|
781,585
|
|
Former President Publishing Division(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Emmis has adjusted the exercise prices and numbers of shares
subject to options referred to in this and the following tables
and accompanying text and footnotes for the effect of the $4.00
per share special dividend Emmis paid on November 22, 2006.
Emmis has also adjusted the numbers of restricted shares granted
or to be granted after that date to reflect a 2 for 1 stock
split in 2000. The shares Emmis refers to in this and the
following tables are the shares of Class A Common Stock of
Emmis, except with respect to Mr. Smulyan, whose shares are
shares of Class B Common Stock for fiscal 2008, and
Class A shares for fiscal 2009 and 2010. |
|
(2) |
|
Mr. Thoe was not a named executive officer prior to the
fiscal year ended 2010. |
|
(3) |
|
In fiscal 2008, Mr. Smulyan elected to voluntarily forgo
all but $1 of his contractual base salary of $905,000. |
|
(4) |
|
Under the Emmis 2008 Corporate Incentive Plan, Emmis paid
discretionary performance bonuses and non-equity incentive plan
awards to executive officers in stock valued at the fair market
value of Emmis shares on the day the shares are issued.
The number of shares issued to each executive officer under the
plan, is as follows: Mr. Smulyan, 102,841; Mr. Walsh,
18,182; Mr. Cummings, 31,045; and Mr. Fiddick, 73,510.
Under the Emmis 2009 Corporate Incentive Plan and 2010 Corporate
Incentive Plan, no executive officer received a discretionary
performance bonus for the fiscal years ended 2009 or 2010.
During the fiscal year ended 2010, Mr. Smulyan received a
$200,000 cash signing bonus in connection with his new
employment agreement. |
|
(5) |
|
Under the Emmis TV Proceeds Quarterly Bonus Program, Emmis paid
quarterly bonuses to certain employees to offset salary
reductions. All of Emmis executive officers participated
in the TV Proceeds Quarterly Bonus Program. Effective
September 1, 2008, Emmis reduced to approximately $15,000
the salaries of certain of Emmis highly compensated
employees, including Emmis named executive officers, in
order to increase defined consolidated operating cash flow under
Emmis Credit Facility. Under the TV Proceeds Quarterly
Bonus Program, Emmis paid the employees affected by the salary
reduction quarterly bonuses in amounts equivalent to the forgone
salary. The bonus was paid at the beginning of each fiscal
quarter either (i) in cash out of the net proceeds from the
sale of
WVUE-TV if
certain performance targets from a prior quarter were met, or
(ii) in shares of Emmis Class A Common Stock
under Emmis 2004 Equity Compensation Plan if the
performance targets were not met. In fiscal 2009 and 2010, all
amounts |
110
|
|
|
|
|
paid under the TV Proceeds Quarterly Bonus Program were paid in
cash. The TV Proceeds Quarterly Bonus Plan was terminated as of
June 1, 2009. The amount paid in fiscal 2009 to each
executive officer under the TV Proceeds Quarterly Bonus Program
was as follows: Mr. Smulyan, $438,213; Mr. Walsh,
$221,589; Mr. Cummings, $236,288; and Mr. Fiddick,
$172,500. The amount paid in fiscal 2010 to each executive
officer under the TV Proceeds Quarterly Bonus Program was as
follows: Mr. Smulyan, $207,384; Mr. Walsh, $126,115;
Mr. Cummings, $109,277; Mr. Fiddick, $80,219; and
Mr. Thoe, $61,047. |
|
(6) |
|
A discussion of the assumptions used in calculating these values
may be found in Note 4 to the Emmis audited financial
statements beginning on page 72 of the Emmis annual report
on Form 10-K
for the fiscal year ended February 28, 2010 for fiscal year
2010 awards, in Note 5 to the Emmis audited financial
statements beginning on page 78 of the Emmis annual report
on Form 10-K
for the fiscal year ended February 28, 2009 for fiscal year
2009 awards and in Note 5 to the Emmis audited financial
statements beginning on page 79 of the Emmis annual report
on Form 10-K
for the fiscal year ended February 29, 2008 for fiscal year
2008 awards. |
|
(7) |
|
The following table sets forth the items comprising All
Other Compensation for each named executive officer. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions
|
|
|
|
|
|
|
|
|
|
|
Perquisites
|
|
|
|
|
|
to Retirement
|
|
Dividends
|
|
|
|
|
|
|
|
|
and Other
|
|
|
|
|
|
and
|
|
Paid on
|
|
|
|
|
|
|
|
|
Personal
|
|
Tax
|
|
Insurance
|
|
401(k) Plans
|
|
Restricted
|
|
Severance
|
|
|
Name
|
|
Year
|
|
Benefits(A) ($)
|
|
Reimbursements ($)
|
|
Premiums(B) ($)
|
|
($)
|
|
Stock(C) ($)
|
|
Payments($)
|
|
Total ($)
|
|
Jeffrey H. Smulyan
|
|
|
2010
|
|
|
|
27,655
|
|
|
|
201
|
|
|
|
10,000
|
|
|
|
1,627
|
|
|
|
|
|
|
|
|
|
|
|
39,483
|
|
|
|
|
2009
|
|
|
|
64,144
|
|
|
|
700
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
65,844
|
|
|
|
|
2008
|
|
|
|
70,794
|
|
|
|
759
|
|
|
|
|
|
|
|
1,838
|
|
|
|
|
|
|
|
|
|
|
|
73,391
|
|
Patrick M. Walsh
|
|
|
2010
|
|
|
|
13,218
|
|
|
|
110
|
|
|
|
1,896
|
|
|
|
2,154
|
|
|
|
|
|
|
|
|
|
|
|
17,378
|
|
|
|
|
2009
|
|
|
|
13,793
|
|
|
|
61
|
|
|
|
3,620
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
18,474
|
|
|
|
|
2008
|
|
|
|
83,741
|
|
|
|
24,124
|
|
|
|
403
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
110,268
|
|
Richard F. Cummings
|
|
|
2010
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
|
2009
|
|
|
|
12,000
|
|
|
|
74
|
|
|
|
5,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
18,074
|
|
|
|
|
2008
|
|
|
|
12,000
|
|
|
|
74
|
|
|
|
5,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
19,074
|
|
Paul W. Fiddick
|
|
|
2010
|
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
7,260
|
|
|
|
46,089
|
|
|
|
512,659
|
|
|
|
575,008
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
2008
|
|
|
|
4,051
|
|
|
|
60
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
6,111
|
|
Gary A. Thoe
|
|
|
2010
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
546,613
|
|
|
|
547,613
|
|
|
|
|
(A) |
|
Perquisites and other personal benefits for named executive
officers other than Mr. Fiddick includes an automobile
allowance. The 2008 figures for Mr. Walsh include
relocation expenses, including approximately $8,000 of
relocation expenses that were over and above the amount included
in Mr. Walshs contract. This additional amount, which
was approved by the Compensation Committee, was reimbursement
for unanticipated rent and travel expenses incurred by
Mr. Walsh due to a delay in selling his primary residence.
The 2008 and 2009 figures for Messrs. Smulyan and Walsh
include the incremental cost to Emmis of personal use of
Emmis airplane. From time to time, family members and
guests of the named executives accompanied the executives on
business flights on Emmis airplane, at no incremental cost
to Emmis. |
|
(B) |
|
Emmis paid premiums for life, disability or long-term care
insurance for Messrs. Walsh and Cummings. |
|
(C) |
|
The figure shown reflects dividends paid on restricted shares
held by the named executive that were not included in the
calculation of compensation expense set forth in the Stock
Awards column above. |
Employment
Agreements
Effective March 1, 2008, Emmis entered into a one-year
employment agreement with Mr. Smulyan, who serves as
Chairman, Chief Executive Officer and President of Emmis, which
automatically renews each year following the initial one-year
term for additional one-year terms unless either Emmis or
Mr. Smulyan provides the other with written notice of
non-renewal prior to December 31 of the then-current term. When
neither Emmis nor Mr. Smulyan delivered such notice of
non-renewal prior to December 31, 2008, the employment
111
agreement automatically renewed for an additional one-year term
ending February 28, 2010. Mr. Smulyans base
salary for the initial term of the employment agreement was
$905,000; however, effective December 1, 2008,
Mr. Smulyan consented to a 3% decrease to his base salary
and waived any increase provided for in the employment agreement
for the one-year term ending February 28, 2010. He also
agreed to an additional 5% decrease to his base salary for the
fiscal year ended February 28, 2010.
Mr. Smulyans base salary upon any subsequent annual
renewal will increase at a rate equal to the greater of 3%, the
annual percentage increase in the CPI (All Urban Consumers-U.S
Cities Average, all items (1982/84 = 100) as published by
the Bureau of Labor Statistics), U.S. Department of Labor
or such other amount as approved by the Emmis Compensation
Committee. Mr. Smulyans annual incentive compensation
target is 125% of his base salary and will be paid, if at all,
based upon achievement of certain performance goals to be
determined by the Emmis Compensation Committee. Emmis retains
the right to pay any annual incentive compensation in cash or
shares of Class A Common Stock. Each year the agreement
remains in effect, Mr. Smulyan is entitled to receive an
option to acquire 146,349 shares of Class A Common
Stock. Mr. Smulyan will continue to receive an automobile
allowance of $24,000 annually and will continue to be reimbursed
for up to $10,000 per year in premiums for life and disability
insurance and retains the right to participate in all of
Emmis employee benefit plans for which he is otherwise
eligible.
Effective December 15, 2009, Emmis entered into a new
three-year employment agreement with Mr. Smulyan, who
serves as Chairman, Chief Executive Officer and President of
Emmis. The term of the agreement commenced on March 1,
2010. Mr. Smulyans base salary will be reduced from
$833,957 to $792,259 for the first year, then increase to
$825,000 for the second year, and $850,000 for the third year.
Mr. Smulyan will receive a $200,000 signing bonus in
connection with execution of the agreement, as well as
performance units having a value, if earned, of $700,000. The
performance units will be earned quarterly during the first year
of the term, depending upon whether Emmis meets certain
consolidated EBITDA requirements set forth in the Credit
Facility. Both the signing bonus and any earned performance
units will be repayable to Emmis in full in the event that
Mr. Smulyan is terminated for cause or resigns without good
reason prior to completion of the term. Mr. Smulyans
employment agreement will automatically renew each year
following the initial three-year term for additional one-year
terms unless either Emmis or Mr. Smulyan provides the other
with written notice of non-renewal prior to December 31 of the
final year of the initial or subsequent term, as applicable.
Mr. Smulyans base salary upon any such annual renewal
will increase by $25,000. Mr. Smulyans annual
incentive compensation target remains 125% of his base salary
and will be paid, if at all, based upon achievement of certain
performance goals to be determined by the Emmis Compensation
Committee. Emmis retains the right to pay any annual incentive
compensation in cash, forgiveness of indebtedness or shares of
Class A Common Stock. Mr. Smulyan will not be entitled
to stock options during the first year of the term, but will be
entitled to receive an option to acquire 150,000 shares of
Class A Common Stock in each of the second and third years
of the term, as well as in any additional one-year renewal term.
Mr. Smulyan will continue to receive an automobile
allowance and will continue to be reimbursed for up to $10,000
per year in premiums for life and disability insurance and
retains the right to participate in all of Emmis employee
benefit plans for which he is otherwise eligible.
Effective December 15, 2008, Emmis entered into an
employment agreement with Patrick Walsh, who serves as Chief
Financial Officer and Chief Operating Officer of Emmis,
extending his employment through September 3, 2011. Under
the terms of his employment agreement, Mr. Walshs
annual base compensation for the first year of the employment
agreement is $540,000, and is $556,200 for the remainder of the
term. However, Mr. Walsh agreed to a 5% decrease to his
base salary for the fiscal year ended February 28, 2010.
Mr. Walshs annual incentive compensation targets for
fiscal years 2010, 2011, and 2012 are 100% of his base
compensation. In the event that Mr. Walshs employment
terminates upon expiration of the employment agreement,
Mr. Walshs annual incentive compensation for fiscal
year 2012 will be pro-rated based upon the seven months he will
have been employed during the 2012 fiscal year. The award of
annual incentive compensation is to be based upon achievement of
certain performance goals to be determined each year by the
Emmis Compensation Committee, and Emmis retains the right to pay
any annual incentive compensation in cash or shares of
Class A Common Stock. For the remainder of the 2009 fiscal
year, Mr. Walshs annual incentive compensation target
was $400,000, with $200,000 to be earned based upon the
performance goals established in the spring under his prior
employment agreement, $100,000 to be earned depending upon the
112
extent to which Emmis met certain radio station operating income
targets during the fiscal year, and the final $100,000 to be
earned in the discretion of the Compensation Committee based
upon Mr. Walshs performance in transitioning to his
new position. Since Mr. Walsh continued to be employed as
of September 3, 2009, his existing completion bonus of
20,000 shares of Class A Common Stock and $200,000 was
awarded and paid as previously provided under his previous
employment agreement. Mr. Walsh is also scheduled to
receive a completion bonus upon the expiration of the agreement
equal to at least 100% of his annual base compensation minus
$200,000, with additional targets (inclusive of the minimum
completion bonus amount) of $750,000 and $1,100,000 based upon
certain levels of total shareholder return set forth in the
employment agreement. Mr. Walsh will receive an automobile
allowance of $12,000 annually and will be reimbursed for up to
$5,000 per year in premiums for life and disability insurance
and retains the right to participate in all of Emmis
employee benefit plans for which he is otherwise eligible.
Effective March 1, 2008, Emmis entered into a one-year
employment agreement with Mr. Cummings, which automatically
renews each year following the initial one-year term for
additional one-year terms unless either Emmis or
Mr. Cummings provides the other with written notice of
non-renewal prior to December 31 of the then-current term. Prior
to December 31, 2008, Emmis delivered such notice of
non-renewal to Mr. Cummings; and, therefore, the employment
agreement terminated as of February 28, 2009. Under the
employment agreement, Mr. Cummings was eligible for a
completion bonus payable upon his continued employment for a
period through February 28, 2011 in an amount equal to
Mr. Cummings average annual base salary over such
three-year period. The employment agreement provided that, in
the event that, prior to expiration of such three-year term,
Emmis elected not to renew the employment agreement,
Mr. Cummings was entitled to a pro-rata portion of such
completion bonus. Effective March 1, 2009, Emmis entered
into a one-year employment agreement with Mr. Cummings to
serve as President Emmis Radio Programming.
On March 2, 2010, Emmis entered into a new one-year
employment agreement with Mr. Cummings to serve as
President of Emmis Radio Programming, effective March 1,
2010. Mr. Cummings employment agreement will
automatically renew each year following the initial one-year
term for additional one-year terms unless either Emmis or
Mr. Cummings provides the other with written notice of
non-renewal prior to December 31 of the initial or subsequent
term, as applicable. Under the agreement,
Mr. Cummings base salary is $446,500 and his annual
incentive compensation target is 60% of his base salary. The
annual incentive bonus will be paid, if at all, based upon
achievement of certain performance goals to be determined by
Emmis. Emmis retains the right to pay such annual incentive
compensation in cash or shares of Class A Common Stock.
Mr. Cummings will continue to receive an automobile
allowance and will continue to be reimbursed for up to $5,000
per year in premiums for life or other insurance and retains the
right to participate in all of Emmis employee benefit
plans for which he is otherwise eligible. He will also be
entitled to severance equal to his previous base salary in the
event he is not offered substantially similar employment upon
the expiration of the term and his employment terminates. If he
is entitled to severance, Mr. Cummings will be offered a
four year part-time programming role with total payments over
the four years of $530,000. The switch from full-time to
part-time employment is designed to constitute a
separation from service within the meaning of
section 409A of the Internal Revenue Code.
Effective March 1, 2009, Emmis entered into a one-year
employment agreement with Paul W. Fiddick, who served as
President International Division of Emmis, which
automatically renews each year following the initial one-year
term for additional one-year terms unless either Emmis or
Mr. Fiddick provides the other with written notice of
non-renewal prior to December 31 of the then-current term.
Mr. Fiddicks base salary for the initial term of the
employment agreement was $360,000. However, Mr. Fiddick
agreed to a 5% decrease in his annual base salary for the fiscal
year ended February 28, 2010. Mr. Fiddicks base
salary upon any subsequent annual renewal would have increased
at a rate equal to the greater of 3%, the annual percentage
increase in the CPI (All Urban Consumers-U.S Cities Average, all
items (1982/84 = 100) as published by the Bureau of Labor
Statistics, U.S. Department of Labor) or such other amount
as approved by the Emmis Compensation Committee.
Mr. Fiddicks annual incentive compensation target was
58.33% of his base salary and was to be paid, if at all, based
upon achievement of certain performance goals to be determined
each year by the Emmis Compensation Committee. Emmis retained
the right to pay any annual incentive compensation in cash or
shares of Class A Common Stock. Each year the agreement
remained in
113
effect, Mr. Fiddick was entitled to receive an option to
acquire 21,952 shares of Class A Common Stock and
6,585 restricted shares of Class A Common Stock.
Mr. Fiddick was also eligible for a completion bonus
payable upon his continued employment for a period through
February 29, 2012 in an amount equal to
Mr. Fiddicks average annual base salary over such
three-year period. In the event that, prior to expiration of
such three-year term, Mr. Fiddick died or became disabled,
Emmis terminated Mr. Fiddicks employment other than
for Cause (as defined in the agreement) or Emmis elected not to
renew the employment agreement, Mr. Fiddick was entitled to
a pro-rata portion of such completion bonus. Mr. Fiddick
was to continue to receive an automobile allowance of $12,000
annually and retained the right to participate in all of
Emmis employee benefit plans for which he was otherwise
eligible.
Effective December 15, 2009, Emmis entered into an
agreement with Mr. Fiddick under which he resigned as
International Division President and terminated his
employment agreement dated March 1, 2009 and his change in
control severance agreement dated January 1, 2008. Under
the agreement, Mr. Fiddick received a lump sum payment of
approximately $509,000. While Mr. Fiddick no longer has day
to day involvement in the operations of Emmis
international radio stations, he will continue as a director of
Emmis International, providing strategic advisory services with
respect to Emmis international division in a manner that
is designed to constitute a separation from service
within the meaning of section 409A of the Internal Revenue
Code.
Effective March 1, 2008, Emmis entered into a one-year
employment agreement with Gary A. Thoe, who served as
Emmis President Publishing Division until
December 2009. Mr. Thoes base salary was $275,000.
Mr. Thoes employment agreement automatically renewed
each year following the initial one-year term for additional
one-year terms unless either Emmis or Mr. Thoe provided the
other with written notice of non-renewal prior to December 31 of
the initial or subsequent term, as applicable.
Mr. Thoes base salary upon any annual renewal was to
increase at a rate equal to the greater of 3%, the annual
percentage increase in the CPI (All Urban Consumers-U.S Cities
Average, all items (1982/84 = 100) as published by the
Bureau of Labor Statistics, U.S. Department of Labor) or
such other amount as approved by the Emmis Compensation
Committee. Mr. Thoes annual incentive compensation
target was 45.45% of his base salary and was to be paid, if at
all, based upon achievement of certain performance goals to be
determined each year by the Emmis Compensation Committee. Emmis
retained the right to pay any annual incentive compensation in
cash or shares of Class A Common Stock. Each year the
agreement remained in effect, Mr. Thoe was entitled to
receive an option to acquire 12,806 shares of Class A
Common Stock and a grant of 4,940 restricted shares of
Class A Common Stock. Mr. Thoe was also eligible for a
completion bonus payable upon his continued employment for a
period through February 28, 2011 in an amount equal to
Mr. Thoes average annual base salary over such
three-year period. In the event that, prior to expiration of
such three-year term, Mr. Thoe died or became disabled,
Emmis terminated Mr. Thoes employment other than for
Cause (as defined in the agreement) or Emmis elected not to
renew the employment agreement, Mr. Thoe was entitled to a
pro-rata portion of such completion bonus. Mr. Thoe was to
continue to receive an automobile allowance and retained the
right to participate in all of Emmis employee benefit
plans for which he was otherwise eligible.
In December, 2009, Emmis entered into an agreement with
Mr. Thoe under which his employment agreement and his
change in control severance agreement were terminated. Under the
agreement, Mr. Thoe received a lump sum payment of
approximately $547,000.
It is expected that the existing employment agreements of Emmis
with its executive officers will continue in full force and
effect following the Transactions, which will not constitute a
change of control under any of those agreements, since
Mr. Smulyan will continue to control Emmis after the
Transactions through holding 100% of the voting stock of Emmis.
114
2010
Outstanding Equity Awards At Fiscal Year-End Table
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Option Awards
|
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Stock Awards
|
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Market
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Number of
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Value of
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|
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Number of
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Number of
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Shares or
|
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Shares or
|
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Securities
|
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Securities
|
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Units of
|
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Units of
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Underlying
|
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Underlying
|
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Option
|
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Option
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Stock That
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Stock That
|
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Unexercised
|
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Unexercised
|
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Exercise
|
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Expiration
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Have Not
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Have Not
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Name
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Options (#)
|
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Options(1) (#)
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Price ($)
|
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Date
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Vested (#)
|
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Vested(4) ($)
|
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Exercisable
|
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Unexercisable
|
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Jeffrey H. Smulyan
|
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150,000
|
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0.295
|
|
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3/02/19
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150,000
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1.14
|
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|
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11/02/19
|
|
|
|
|
|
|
|
|
|
|
|
|
48,783
|
|
|
|
97,566
|
|
|
|
2.95
|
|
|
|
3/01/18
|
|
|
|
|
|
|
|
|
|
|
|
|
97,566
|
|
|
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48,783
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8.21
|
|
|
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3/01/17
|
|
|
|
|
|
|
|
|
|
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|
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292,699
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|
|
|
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11.17
|
|
|
|
3/01/16
|
|
|
|
|
|
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|
|
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292,699
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|
|
|
|
|
|
12.81
|
|
|
|
3/01/15
|
|
|
|
|
|
|
|
|
|
|
|
|
439,049
|
|
|
|
|
|
|
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17.45
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|
|
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3/01/14
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|
|
|
|
|
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Patrick M. Walsh
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250,000
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0.425
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12/15/18
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|
|
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|
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9,756
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|
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19,513
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|
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2.95
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3/01/18
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19,513
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9,756
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8.21
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|
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3/01/17
|
|
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|
|
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|
|
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14,635
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8.30
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9/04/16
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|
|
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8,780
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(2)
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7,902
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8,780
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(3)
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7,902
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Richard F. Cummings
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87,500
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0.295
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|
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3/02/19
|
|
|
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|
|
|
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|
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87,500
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1.14
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11/02/19
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14,635
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29,269
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2.95
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3/01/18
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29,269
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14,635
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8.21
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3/01/17
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43,904
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11.17
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3/01/16
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43,904
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12.81
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3/01/15
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73,174
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17.45
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3/01/14
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73,174
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11.22
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3/04/13
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73,174
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19.90
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3/06/12
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73,174
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19.82
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3/01/11
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13,171
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(2)
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11,854
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13,171
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(3)
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11,854
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Paul W. Fiddick
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55,000
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0.295
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3/02/19
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55,000
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1.14
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11/02/19
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13,169
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26,339
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2.95
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3/01/18
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|
|
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|
|
14,634
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|
|
|
7,318
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|
|
|
8.21
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|
|
3/01/17
|
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|
|
|
|
|
|
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|
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21,952
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|
|
|
|
|
|
|
11.17
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|
|
|
3/01/16
|
|
|
|
|
|
|
|
|
|
|
|
|
38,416
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|
|
|
|
|
|
|
12.81
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|
|
|
3/01/15
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|
|
|
|
|
|
|
|
|
|
|
|
38,416
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|
|
|
|
|
|
|
17.45
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|
|
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3/01/14
|
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|
|
|
|
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|
|
|
|
|
|
10,976
|
|
|
|
|
|
|
|
11.22
|
|
|
|
3/04/13
|
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|
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|
|
|
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|
|
|
|
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|
|
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|
|
6,585
|
(2)
|
|
|
5,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,585
|
(3)
|
|
|
5,927
|
|
Gary A. Thoe
|
|
|
|
|
|
|
35,000
|
|
|
|
0.295
|
|
|
|
3/02/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
1.14
|
|
|
|
11/02/19
|
|
|
|
|
|
|
|
|
|
|
|
|
4,269
|
|
|
|
8,537
|
|
|
|
2.95
|
|
|
|
3/01/18
|
|
|
|
|
|
|
|
|
|
|
|
|
8,537
|
|
|
|
4,269
|
|
|
|
8.21
|
|
|
|
3/01/17
|
|
|
|
|
|
|
|
|
|
|
|
|
10,976
|
|
|
|
|
|
|
|
11.17
|
|
|
|
3/01/16
|
|
|
|
|
|
|
|
|
|
|
|
|
10,976
|
|
|
|
|
|
|
|
12.81
|
|
|
|
3/01/15
|
|
|
|
|
|
|
|
|
|
|
|
|
21,952
|
|
|
|
|
|
|
|
17.45
|
|
|
|
3/01/14
|
|
|
|
|
|
|
|
|
|
|
|
|
21,952
|
|
|
|
|
|
|
|
11.22
|
|
|
|
3/04/13
|
|
|
|
|
|
|
|
|
|
|
|
|
14,634
|
|
|
|
|
|
|
|
19.90
|
|
|
|
3/06/12
|
|
|
|
|
|
|
|
|
|
|
|
|
14,634
|
|
|
|
|
|
|
|
19.82
|
|
|
|
3/01/11
|
|
|
|
|
|
|
|
|
|
|
|
|
14,634
|
|
|
|
|
|
|
|
24.18
|
|
|
|
3/01/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,940
|
(2)
|
|
|
4,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,842
|
(3)
|
|
|
3,458
|
|
115
|
|
|
(1) |
|
Options expiring 3/01/18 became exercisable 1/3 on March 1,
2009, and 1/3 on March 1, 2010, and will become exercisable
1/3 on March 1, 2011. Options expiring 3/01/17 became
exercisable 1/3 on March 1, 2008, 1/3 on March 1,
2009, and 1/3 on March 1, 2010. Options expiring 3/01/16
became exercisable 1/3 on March 1, 2007, 1/3 on
March 1, 2008, and 1/3 on March 1, 2009. Options
expiring 3/2/19 and 11/2/19 become exercisable on March 2,
2012. Mr. Walshs options expiring 9/04/16 became
exercisable 1/3 on September 4, 2007, 1/3 on
September 4, 2008, and 1/3 on September 4, 2009.
Mr. Walshs options expiring 12/15/18 will become
exercisable on September 3, 2011. |
|
(2) |
|
Shares vest on March 1, 2011. |
|
(3) |
|
Shares vest on March 1, 2010. |
|
(4) |
|
Calculated based on the $0.90 per share closing market price of
Emmis shares on February 26, 2010. |
Retirement
Plan
Emmis sponsors a Section 401(k) retirement savings plan
that is available to substantially all employees
age 18 years and older who have at least 30 days
of service. Employees may make pretax contributions to the plans
up to 50% 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
cash or shares of Class A Common Stock. During the year
ended February 29, 2008, Emmis elected to match annual
employee 401(k) contributions up to a maximum of $2,000 per
employee, one-half of the contribution made in Emmis stock.
During the year ended February 28, 2009, Emmis suspended
the cash match, but continued to make the discretionary stock
match. During the year ended February 28, 2010, Emmis also
suspended the discretionary stock match. Emmis
discretionary contributions to the plan for continuing
operations totaled $1.8 million, $1.7 million and
$0.9 million for the years ended February 28, 2007,
February 29, 2008 and February 28, 2009, respectively.
In April 2010, Emmis reinstated the stock match, retroactive to
January 1, 2010, with a revised matching formula.
Potential
Payments upon Termination or Change in Control
The employment agreements Emmis entered into with
Messrs. Smulyan, Cummings, Walsh, Fiddick and Thoe provide
for certain payments and benefits to the named executive officer
in the event that executive officer is terminated by Emmis
without cause,
and/or
terminates his own employment with good reason.
Mr. Smulyan is also entitled to certain payments upon his
death or disability.
Emmis has also entered into a Change in Control Severance
Agreement with each of the executives named in the preceding
tables. Each such agreement provides that if the
executives employment is terminated by Emmis within two
years after a change in control of Emmis (or, in certain
instances, in anticipation of a change in control), other than
for cause, or is terminated by the executive for good reason,
the executive is entitled to (1) a payment equal to the
executives base salary through the termination date, plus
a pro-rata portion of the executives target bonus for the
year and accrued vacation pay; (2) a severance payment
equal in the case of Messrs. Smulyan, Walsh and Cummings to
three times, and in the case of Messrs. Fiddick and Thoe to
1.5 times, the executives highest annual base salary and
highest annual incentive bonus during the preceding three years;
(3) continued accident and life insurance benefits for
three years; (4) reimbursement for COBRA premiums for
continuation of medical and dental benefits for 18 months
and reimbursement for private medical and dental benefits of an
equivalent level for 18 months following termination of the
COBRA reimbursement; and (5) if the payments to the
executive exceed certain limits, additional tax gross
up payments to compensate the executive for the excise tax
imposed by section 4999 of the Internal Revenue Code;
provided, however that the amount of the gross up
payment may be reduced by up to 10% if such reduction would
prevent payment of the excise tax. In each case, the executive
is obligated not to voluntarily leave employment with Emmis
during the pendency of (and prior to the consummation or
abandonment of) a change in control other than as a result of
disability, retirement or an event that would constitute good
reason if the
change-of-control
had occurred. In addition, under the Emmis 2004 Equity
Compensation Plan, all outstanding restricted shares held by the
executive vest immediately upon a change in control.
116
Under the Change in Control Severance Agreement, change in
control, cause and good reason are defined as follows:
Change in Control. A change in
control of Emmis occurs if:
|
|
|
|
|
any individual, entity or group other than Mr. Smulyan or
his affiliates becomes the beneficial owner of 35% or more of
Emmis outstanding shares, or of the voting power of the
outstanding shares;
|
|
|
|
the current members of the board of directors of Emmis (or
persons approved by two-thirds of the current directors) cease
to constitute at least a majority of the board;
|
|
|
|
Emmis is a party to a merger that results in less than 60% of
the outstanding shares or voting power of the surviving
corporation being held by persons who were not Emmis
shareholders immediately prior to the merger;
|
|
|
|
Emmis shareholders approve a liquidation or dissolution of
Emmis; or
|
|
|
|
any other event is determined by the Emmis board to constitute a
change in control.
|
Cause. Cause generally means:
|
|
|
|
|
the willful and continual failure of the executive to perform
substantially his duties; or
|
|
|
|
the willful engaging in illegal conduct or gross misconduct
which is materially injurious to Emmis.
|
Good Reason. Good Reason generally
means:
|
|
|
|
|
any materially adverse change in the duties or responsibilities
of the executive;
|
|
|
|
a material breach by Emmis of the executives employment
agreement or Change in Control Severance Agreement;
|
|
|
|
a material reduction or series of reductions that result in the
executives annual base salary being decreased by more than
5%;
|
|
|
|
any requirement that the executive relocate more than
35 miles from the office where the executive works; and
|
|
|
|
except with respect to Mr. Fiddick and Mr. Thoe,
voluntary termination by the executive during a
30-day
period commencing one year after the occurrence of a change in
control.
|
In addition to the occurrence of one of more of the events
constituting Good Reason set forth above, in order
to resign his employment, each of the executives named above is
also required to give Emmis notice of the occurrence of any such
event (except during the
30-day
period commencing one year after the occurrence of a change in
control, which is not so limited) within 90 days of such
occurrence; and Emmis has the right to cure such occurrence
within 30 days of such notice.
When Emmis board of directors determines that it is in the
best interest of Emmis, Emmis may negotiate severance
arrangements with a departing executive in addition to or in
place of the arrangements described above. Circumstances under
which the board may negotiate additional or different severance
arrangements include but are not limited to:
|
|
|
|
|
to avoid or settle litigation with the executive;
|
|
|
|
to reduce an adverse financial effect on Emmis;
|
|
|
|
to reduce adverse tax consequences on the executive; or
|
|
|
|
to reward meritorious service by the executive.
|
117
Emmis has engaged in certain transactions and is a party to
certain arrangements with Mr. Smulyan and his affiliates,
the summaries of which are qualified by reference to the
summaries contained in Emmis Annual Report on
Form 10-K
for the year ended February 28, 2010 under Note 16 to
the Consolidated Financial Statements (attached as
Appendix I), and Item 13 of Part III,
Certain Relationships and Related Transactions,
included in that report and Emmis annual proxy statement
on Schedule 14A for 2009 dated June 8, 2009 under the
sections entitled Corporate Governance Certain
Transactions.
Although Emmis no longer makes loans to executive officers and
directors, it currently has a loan outstanding to
Mr. Jeffrey H. Smulyan, its Chairman, Chief Executive
Officer and President, that is grandfathered under the
Sarbanes-Oxley Act of 2002. The largest aggregate amount
outstanding on this loan at any month-end during fiscal 2010 was
approximately $1,046,818 and the balance at February 28,
2009 and 2010 was approximately $1,010,592 and $1,046,818,
respectively. This loan bears interest at Emmis cost of
debt under the Credit Facility, which at February 28, 2009
and 2010 was approximately 4.8% and 7.6% per annum, respectively.
Prior to 2002, Emmis had made certain life insurance premium
payments for the benefit of Mr. Smulyan. Emmis discontinued
making such payments in 2001. However, pursuant to a Split
Dollar Life Insurance Agreement and Limited Collateral
Assignment dated November 2, 1997, Emmis retains the right,
upon Mr. Smulyans death, resignation or termination
of employment, to recover all of the premium payments it has
made, which total $1,119,000.
During the years ended February 29, 2008 and
February 28, 2009, Emmis leased an airplane and was party
to a timeshare agreement with Mr. Smulyan with respect to
his personal use of the airplane. Emmis purchased the airplane
in December 2008, and on April 14, 2009, Emmis sold the
airplane and the timeshare agreement terminated. Under the
timeshare agreement, whenever Mr. Smulyan used the airplane
for non-business purposes, he paid Emmis for the aggregate
incremental cost to Emmis of operating the airplane up to the
maximum amount permitted by Federal Aviation Authority
regulations (which maximum generally approximates the total
direct cost of operating the airplane for the applicable trip).
With respect to the personal flights during the years ended
February 29, 2008 and February 28, 2009,
Mr. Smulyan paid Emmis approximately $171,213 and $31,186
respectively, for expenses under the timeshare arrangement. In
addition, under IRS regulations, to the extent Mr. Smulyan
or any other officer or director allows non-business guests to
travel on the airplane on a business trip or takes the airplane
on a non-business detour as part of a business trip, additional
compensation is attributed to Mr. Smulyan or the applicable
officer or director. Generally, these trips on which
compensation is assessed pursuant to IRS regulations do not
result in any material additional cost or expense to Emmis.
The sister of Richard Leventhal, one of Emmis independent
directors, owns Simon Seyz, an Indianapolis business that
provides corporate gifts and specialty items. During the three
years ended February 2010, Emmis made purchases from Simon Seyz
of approximately $127,666, $149,970 and $31,668, respectively.
The Merger Agreement involves transactions by Emmis with JS
Parent and JS Acquisition, both of which are affiliates of
Mr. Smulyan. For more information regarding the Merger
Agreement, see The Transactions Merger.
118
As of May 17, 2010, there were 32,910,753 shares of
Class A Common Stock and 4,930,680 shares of
Class B Common Stock issued and outstanding. The holders of
Class A Common Stock are entitled to an aggregate of
32,910,753 votes, and the holder of Class B Common
Stock, Mr. Jeffrey H. Smulyan, is entitled to an aggregate
of 49,306,800 votes.
On an as-adjusted basis, all 10 shares of voting Common
Stock of Emmis will be held by Mr. Smulyan, and all
1,000,000 shares of non-voting common stock of Emmis will
be held by JS Parent. After the completion of the Transactions,
it is expected that JS Parent will have 21,023,818 JS Parent
Common Interests outstanding of which Mr. Smulyan will own
14,263,665, Alden Media will own 5,045,716 and the Rolling
Shareholders will hold 1,714,431. Alden Media will have consent
rights over a number of actions of JS Parent and Emmis. See
The Transactions JS Acquisition Operating
Agreement JS Parent Preferred Interests.
The following table shows, as of May 17, 2010, the number
and percentage of shares of Emmis Common Stock held by each
person known to us to own beneficially more than five percent of
the issued and outstanding Common Stock, by Emmis
executive officers and directors, and by Emmis executive
officers and directors as a group. None of Emmis executive
officers or directors beneficially owned any Existing Preferred
Stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
Class B
|
|
|
|
|
Common Stock
|
|
Common Stock
|
|
|
|
|
Amount and
|
|
|
|
Amount and
|
|
|
|
Percent of
|
Five Percent Shareholders,
|
|
Nature of
|
|
|
|
Nature of
|
|
|
|
Total
|
Directors and Certain
|
|
Beneficial
|
|
Percent
|
|
Beneficial
|
|
Percent
|
|
Voting
|
Executive Officers
|
|
Ownership
|
|
of Class
|
|
Ownership
|
|
of Class
|
|
Power
|
|
Jeffrey H. Smulyan
|
|
|
6,118,515
|
(1)
|
|
|
17.1
|
%
|
|
|
6,101,476
|
(20)
|
|
|
100.0
|
%
|
|
|
69.3
|
%
|
Susan B. Bayh
|
|
|
138,959
|
(2)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Richard F. Cummings
|
|
|
624,206
|
(3)
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
*
|
|
J. Scott Enright
|
|
|
92,568
|
(4)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Paul W. Fiddick
|
|
|
183,218
|
(5)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Gary L. Kaseff
|
|
|
612,791
|
(6)
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Richard A. Leventhal
|
|
|
290,095
|
(7)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Gregory T. Loewen
|
|
|
53,100
|
(8)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Peter A. Lund
|
|
|
249,444
|
(9)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Greg A. Nathanson
|
|
|
470,980
|
(10)
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Lawrence B. Sorrel
|
|
|
293,041
|
(11)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Gary A. Thoe
|
|
|
147,785
|
(12)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Patrick M. Walsh
|
|
|
107,042
|
(13)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Martin Capital Management, LLP
|
|
|
1,428,259
|
(14)
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
1.7
|
%
|
Luther King Capital Management Corporation
|
|
|
3,009,896
|
(15)
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
3.7
|
%
|
Amalgamated Gadget, L.P.
|
|
|
1,882,426
|
(16)
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
2.3
|
%
|
Alden Global Capital Limited
|
|
|
6,118,515
|
(17)
|
|
|
17.1
|
%
|
|
|
6,101,476
|
(17)
|
|
|
100
|
%
|
|
|
69.3
|
%
|
Dimensional Fund Advisors LP
|
|
|
1,756,575
|
(18)
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
2.1
|
%
|
All Executive Officers and Directors as a Group (13 persons)
|
|
|
9,381,744
|
(19)
|
|
|
25.0
|
%
|
|
|
6,101,476
|
(20)
|
|
|
100.0
|
%
|
|
|
71.4
|
%
|
|
|
|
* |
|
Less than 1%. |
|
(1) |
|
The shares shown as beneficially owned and the calculated
percentages of ownership of Class A Common Stock and
Class B Common Stock and total voting power include shares
beneficially owned by Alden and the Rollover Shareholders
because Mr. Smulyan and Alden, and the Rollover
Shareholders (with respect to Rollover Shares) might be
considered a group within the meaning of applicable
regulations under the Securities Exchange Act of 1934.
Mr. Smulyan disclaims beneficial ownership of all shares of |
119
|
|
|
|
|
Class A Common Stock and Existing Preferred Stock owned by
Alden and all shares of Class A Common Stock owned by the
Rollover Shareholders. The balance of 160,506 shares of
Class A Common Stock includes 8,441 shares held in the
401(k) Plan, 9,755 shares owned individually,
11,120 shares held by Mr. Smulyan as trustee for his
children over which Mr. Smulyan exercises or shares voting
control, 3,000 shares held by Mr. Smulyan as trustee
for his niece over which Mr. Smulyan exercises or shares
voting control, 30,625 shares held by The Smulyan Family
Foundation, over which Mr. Smulyan shares voting control
and 97,565 shares represented by stock options exercisable
currently or within 60 days of May 17, 2010. |
|
(2) |
|
Consists of 65,785 shares owned individually and
73,174 shares represented by stock options exercisable
currently or within 60 days of May 17, 2010. Of the
shares owned individually, 2,195 are restricted stock subject to
forfeiture if certain conditions are not satisfied. |
|
(3) |
|
Consists of 155,840 shares owned individually,
8,260 shares owned for the benefit of
Mr. Cummings children, 6,429 shares held in the
401(k) Plan and 453,677 shares represented by stock options
exercisable currently or within 60 days of May 17,
2010. Of the shares owned individually, 13,171 are restricted
stock subject to forfeiture if certain employment agreement or
other conditions are not satisfied. |
|
(4) |
|
Consists of 6,807 shares owned individually, 3,402 shares
held in the 401(k) Plan and 82,359 shares represented by stock
options exercisable currently or within 60 days of May 17, 2010.
Of the shares owned individually, 3,000 are restricted stock
subject to forfeiture if certain employment agreement or other
conditions are not satisfied. |
|
(5) |
|
Mr. Fiddick is no longer employed by Emmis. Information
concerning these shares was obtained from Mr. Fiddick and
current share ownership records available to Emmis in connection
with employee benefit plan shares. Based on this information,
these holdings consist of 36,132 shares owned individually,
739 shares held in the 401(k) Plan and 146,347 shares
represented by stock options exercisable currently or within
60 days of May 17, 2010. Of the shares owned
individually, 6,585 are restricted stock subject to forfeiture
if certain employment agreement or other conditions are not
satisfied. |
|
(6) |
|
Consists of 134,887 shares owned individually by
Mr. Kaseff, 3,411 shares owned by
Mr. Kaseffs spouse, 1,346 shares held by
Mr. Kaseffs spouse for the benefit of their children,
2,395 shares held in the 401(k) Plan, and
470,752 shares represented by stock options exercisable
currently or within 60 days of May 17, 2010. Of the
shares owned individually, 10,976 are restricted stock subject
to forfeiture if certain employment agreement or other
conditions are not satisfied. |
|
(7) |
|
Consists of 196,321 shares owned individually,
3,000 shares owned by Mr. Leventhals spouse,
17,600 shares owned by a corporation of which
Mr. Leventhal is a 50% shareholder and 73,174 shares
represented by stock options exercisable currently or within
60 days of May 17, 2010. Of the shares owned
individually, 4,390 are restricted stock subject to forfeiture
if certain conditions are not satisfied. |
|
(8) |
|
Consists of 25,377 shares owned individually, 223 shares
held in the 401(k) Plan and 27,500 shares represented by stock
options exercisable currently or within 60 days of May 17, 2010.
Of the shares owned individually, 4,950 are restricted stock
subject to forfeiture if certain employment agreement or other
conditions are not satisfied. |
|
(9) |
|
Consists of 190,905 shares owned individually and
58,539 shares represented by stock options exercisable
currently or within 60 days of May 17, 2010. Of the
shares owned individually, 4,390 are restricted stock subject to
forfeiture if certain conditions are not satisfied. |
|
(10) |
|
Consists of 339,173 shares owned individually or jointly
with his spouse, 44,000 shares owned by trusts for the
benefit of Mr. Nathansons children and
87,807 shares represented by stock options exercisable
currently or within 60 days of May 17, 2010. Of the
shares owned individually, 6,585 are restricted stock subject to
forfeiture if certain conditions are not satisfied. |
|
(11) |
|
Consists of 219,867 shares owned individually and
73,174 shares represented by stock options exercisable
currently or within 60 days of May 17, 2010. Of the
shares owned individually, 4,390 are restricted stock subject to
forfeiture if certain conditions are not satisfied. |
|
(12) |
|
Mr. Thoe is no longer employed by Emmis. Information
concerning these shares was obtained from the last ownership
filings made by Mr. Thoe and current share ownership
records available to Emmis in |
120
|
|
|
|
|
connection with employee benefit plan shares. Based on this
information, these holdings consist of 30,664 shares owned
individually, 650 shares held in the 401(k) Plan and
116,471 shares represented by stock options exercisable
currently or within 60 days of May 17, 2010. Of the
shares owned individually, 4,940 are restricted stock subject to
forfeiture if certain employment agreement or other conditions
are not satisfied. |
|
(13) |
|
Consists of 39,608 shares owned individually,
4,017 shares held in the 401(k) Plan and 63,417 shares
represented by stock options exercisable currently or within
60 days of May 17, 2010. Of the shares owned
individually, 8,780 are restricted stock subject to forfeiture
if certain employment agreement or other conditions are not
satisfied. |
|
(14) |
|
Information concerning these shares was obtained from a
Schedule 13D/A filed on May 11, 2010 by Martin Capital
Management, LLP on behalf of itself and various affiliates
(including Frank K. Martin), each of which has a mailing address
of 300 NIBCO Parkway, Suite 301, Elkhart, Indiana 46516. |
|
(15) |
|
Information concerning these shares was obtained from a
Schedule 13D/A filed on January 6, 2010, by Luther
King Capital Management Corporation on behalf of itself and
various affiliates, each of which has a mailing address of 301
Commerce Street, Suite 1600, Fort Worth, Texas 76102.
The shares shown as beneficially owned include
2,765,934 shares of Class A Common Stock owned
directly and 243,962 shares of Class A Common Stock
issuable upon conversion of 100,000 shares of Existing
Preferred Stock. |
|
(16) |
|
Information concerning these shares was obtained from a
Schedule 13G/A filed on May 6, 2010, by Amalgamated
Gadget, L.P., on behalf of itself,
R2
Investments, LDC and various affiliates, each of which has a
mailing address of 800 Brazos, Suite 1100, Austin, Texas
78701. The shares shown as beneficially owned include
1,060,153 shares of Class A Common Stock owned
directly and 822,273 shares of Class A Common Stock
issuable upon conversion of 337,050 shares of Existing
Preferred Stock. |
|
(17) |
|
Information concerning these shares was obtained from a
Schedule 13D/A filed on May 27, 2010, by Alden Global
Capital Limited on behalf of itself and various affiliates,
which has a mailing address of First Floor, Liberation Station,
Esplanade, St. Helier, Jersey, JE2 3AS and each of which
affiliate has a mailing address of 885 Third Avenue, New York,
New York 10022. The shares shown as beneficially owned and the
calculated percentages of ownership of Class A Common Stock
and total voting power include the shares beneficially owned by
Jeffrey H. Smulyan and the Rollover Shareholders because the
reporting persons and Mr. Smulyan and the Rollover
Shareholders might be considered to be a group
within the meaning of applicable regulations under the
Securities Exchange Act of 1934. The balance attributable to
Alden of 4,243,578 shares of Class A Common Stock
consist of 1,406,500 shares that Alden holds and
2,837,078 shares issuable upon conversion of
1,162,737 shares of Existing Preferred Stock. Alden
disclaims beneficial ownership of all shares of Class A
Common Stock and Class B Common Stock owned by
Mr. Smulyan and all shares of Class A Common Stock
owned by the Rollover Shareholders. If Mr. Smulyans
and the Rollover Shareholders shares are excluded, Alden
would beneficially own 10.7% of the Class A Common Stock
(assuming the conversion of all Existing Preferred Stock
outstanding into Class A Common Stock) and have 4.8% of the
total voting power. |
|
(18) |
|
Information concerning these shares was obtained from an amended
Schedule 13G/A filed on February 8, 2010, by
Dimensional Fund Advisors LP, on behalf of itself and
various affiliates, each of which has a mailing address of
Palisades West, Building One, 6300 Bee Cave Road, Austin, Texas
78746. |
|
(19) |
|
The shares shown as beneficially owned and the calculated
percentages of ownership of Class A Common Stock and total
voting power include the shares beneficially owned by Alden and
the Rollover Shares because Mr. Smulyan and Alden and
Mr. Smulyan and the Rolling Shareholders (with respect to
the Rollover Shares) might be considered a group
within the meaning of applicable regulations under the
Securities Exchange Act of 1934. The balance of 3,423,735 shares
of Class A Common Stock includes 1,823,957 shares
represented by stock options exercisable currently or within
60 days of May 17, 2010 and 2,837,078 shares issuable
upon conversion of 1,162,737 shares of Existing Preferred Stock
held by Alden. |
|
(20) |
|
Consists of 4,930,680 shares owned individually and
1,170,796 shares represented by stock options exercisable
currently or within 60 days of May 17, 2010. |
121
The following summary description of our other indebtedness and
preferred stock does not purport to be complete and is qualified
in its entirety by reference to the provisions of the various
related agreements, some of which are on file with the SEC and
to which reference is made.
Credit
Facility
The Credit Facility consisted of the following at
February 28, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Revolver
|
|
$
|
|
|
|
$
|
2,000
|
|
Term Loan B
|
|
|
421,355
|
|
|
|
339,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
421,355
|
|
|
|
341,150
|
|
Less: current maturities
|
|
|
(4,214
|
)
|
|
|
(3,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
417,141
|
|
|
$
|
337,758
|
|
|
|
|
|
|
|
|
|
|
On November 2, 2006, Emmis Operating, amended and restated
its Credit Facility to provide for total borrowings of up to
$600 million, including a $145 million revolver, of
which $50 million may be used for letters of credit. At
February 28, 2009 and 2010, $1.8 million and
$0.9 million, in letters of credit were outstanding,
respectively. Substantially all of Emmis assets, including
the stock of most of Emmis wholly-owned, domestic
subsidiaries are pledged to secure the Credit Facility. The
Credit Facility was amended twice during the year ended
February 28, 2010 as discussed below.
2009
Credit Facility Amendment
On March 3, 2009, Emmis and Emmis Operating, entered into
the First Amendment and Consent to Amended and Restated
Revolving Credit and Term Loan Agreement (the First
Amendment) by and among Emmis, Emmis Operating and Bank of
America, N.A., as administrative agent for itself and other
lenders, to the Amended and Restated Revolving Credit and Term
Loan Agreement, dated November 2, 2006 (the Credit
Facility). Among other things, the First Amendment
|
|
|
|
|
permitted Emmis to purchase a portion of the Tranche B Term
Loan (as defined in the Credit Facility) at an amount less than
par for an aggregate purchase price not to exceed
$50 million,
|
|
|
|
reduced the Total Revolving Credit Commitment (as defined in the
Credit Facility) from $145 million to $75 million,
|
|
|
|
excluded from Consolidated Operating Cash Flow (as defined in
the Credit Facility) up to $10 million in cash severance
and contract termination expenses incurred for the period
commencing March 1, 2008 and ending February 28, 2010,
|
|
|
|
made Revolving Credit Loans (as defined in the Credit Facility)
subject to a pro forma incurrence test, and
|
|
|
|
tightened the restrictions on the ability of Emmis to perform
certain activities, including restricting the amount that can be
used to fund our TV Proceeds Quarterly Bonus Program, and of
Emmis Operating to conduct transactions with affiliates.
|
Subsequent to the execution of the First Amendment, in April and
May 2009, Emmis completed a series of Dutch auction tenders that
purchased term loans of Emmis Operating under the Credit
Facility as amended. The cumulative effect of all of the debt
tenders resulted in the purchase of $78.5 million in face
amount of Emmis Operatings outstanding term loans for
$44.7 million in cash. As a result of these purchases,
Emmis recognized a gain on extinguishment of debt of
$31.9 million in the quarter ended May 31, 2009, which
is net of transaction costs of $1.0 million. The Credit
Facility, as amended, permitted us to pay up to $50 million
(less amounts paid after February 1, 2009 under our TV
Proceeds Quarterly Bonus Program) to purchase Emmis
Operatings outstanding term loans through tender offers
and required a minimum offer of $5 million
122
per tender. Since we paid $44.7 million in debt tenders and
paid $4.1 million under the TV Bonus Program in March 2009,
we are not permitted to effect further tenders under the Credit
Facility.
August 19,
2009 Credit Facility Amendment
On August 19, 2009, Emmis and Emmis Operating entered into
the Second Amendment to Amended and Restated Revolving Credit
and Term Loan Agreement (the Second Amendment), by and
among Emmis Operating, Emmis, the lending institutions party to
the Credit Facility referred to below (collectively, the
Lenders) and Bank of America, N.A., as
administrative agent (the Administrative Agent) for
itself and the other Lenders party to the Amended and Restated
Revolving Credit and Term Loan Agreement, dated November 2,
2006 (as amended, supplemented, and restated or otherwise
modified and in effect from time to time, the Credit
Facility), by and among Emmis Operating, Emmis, the
Lenders, the Administrative Agent, Deutsche Bank
Trust Company Americas, as syndication agent, General
Electric Capital Corporation, Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., Rabobank Nederland,
New York Branch and SunTrust Bank, as co-documentation agents.
Among other things, the Second Amendment:
|
|
|
|
|
suspends the applicability of the total leverage ratio and the
fixed charge coverage ratio financial covenants for a suspension
period that will end no later than September 1, 2011,
|
|
|
|
provides that during the suspension period, Emmis Operating must
maintain Minimum Consolidated EBITDA (as defined by the Credit
Facility) for the trailing twelve month periods as follows:
|
|
|
|
|
|
Period Ended
|
|
Amount (in 000s)
|
|
August 31, 2009
|
|
$
|
22,800
|
|
November 30, 2009
|
|
$
|
21,600
|
|
February 28, 2010
|
|
$
|
23,400
|
|
May 31, 2010
|
|
$
|
23,200
|
|
August 31, 2010
|
|
$
|
22,400
|
|
November 30, 2010
|
|
$
|
22,700
|
|
February 28, 2011
|
|
$
|
22,900
|
|
May 31, 2011
|
|
$
|
23,600
|
|
August 31, 2011
|
|
$
|
25,000
|
|
|
|
|
|
|
provides that during the suspension period, Emmis Operating will
not permit Liquidity (as defined in the Credit Facility) as of
the last day of each fiscal quarter of Emmis Operating ending
during the Suspension Period to be less than $5 million,
|
|
|
|
reduces the total revolving credit commitment from
$75 million to $20 million,
|
|
|
|
sets the applicable margin at 3% per annum for base rate loans
and at 4% per annum for Eurodollar rate loans,
|
|
|
|
provides that during the suspension period, Emmis Operating:
(1) must make certain prepayments from funds attributable
to debt or equity issuances, asset sales and extraordinary
receipts, and (2) must make quarterly payments of certain
excess cash,
|
|
|
|
provides that during the suspension period, Emmis Operating may
not: (1) make certain investments or effect material
acquisitions, (2) make certain restricted payments
(including but not limited to restricted payments to fund equity
repurchases or dividends on Existing Preferred Stock), or (3)
access the additional financing provisions of the Credit
Facility (though Emmis Operating has access to the total
revolving credit commitment of $20 million),
|
|
|
|
excludes from the definition of Consolidated EBITDA up to an
additional $5 million in severance and contract termination
expenses incurred after the effective date of the Second
Amendment,
|
|
|
|
grants the lenders a security interest in certain previously
excluded real estate and other assets,
|
123
|
|
|
|
|
permits the repurchase of debt under the Credit Facility at a
discount using proceeds of certain equity issuances, and
|
|
|
|
modifies certain financial definitions and other restrictions on
Emmis and Emmis Operating.
|
The Second Amendment contains other terms and conditions
customary for financing arrangements of this nature. We recorded
a loss on debt extinguishment during the year ended
February 28, 2010 of $0.5 million related to the
write-off of deferred debt costs associated with the revolver
reduction.
The term loan and revolver mature on November 1, 2013 and
November 2, 2012, respectively. The borrowings under the
term loan are payable in equal quarterly installments equal to
0.25% of the term loan, with the remaining balance payable
November 1, 2013. The annual amortization schedule for the
Credit Facility, based upon amounts outstanding at
February 28, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Revolver
|
|
|
Term Loan B
|
|
|
Total
|
|
February 28 (29),
|
|
Amortization
|
|
|
Amortization
|
|
|
Amortization
|
|
|
2011
|
|
$
|
|
|
|
$
|
3,392
|
|
|
$
|
3,392
|
|
2012
|
|
|
|
|
|
|
3,392
|
|
|
|
3,392
|
|
2013
|
|
|
2,000
|
|
|
|
3,392
|
|
|
|
5,392
|
|
2014
|
|
|
|
|
|
|
328,974
|
|
|
|
328,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,000
|
|
|
$
|
339,150
|
|
|
$
|
341,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from raising additional equity, issuing additional
subordinated debt or from asset sales, as well as excess cash
flow, may be required to be used to repay amounts outstanding
under the Credit Facility. Whether these mandatory repayment
provisions apply depends, in certain instances, on Emmis
total leverage ratio, as defined under the Credit Facility.
As discussed above, during the Suspension Period we must
maintain a minimum amount of trailing twelve-month Consolidated
EBITDA (as defined in the Credit Facility) and at least
$5 million in Liquidity (as defined in the Credit
Facility). The Credit Facility also contains certain other
non-financial covenants. We were in compliance with all
financial and non-financial covenants as of February 28,
2010. Our Liquidity (as defined in the Credit Facility) as of
February 28, 2010 was $18.9 million. Our Minimum
Consolidated EBITDA (as defined in the Credit Facility)
requirement and actual amount as of February 28, 2010 was
as follows:
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2010
|
|
|
|
|
Actual Trailing
|
|
|
Covenant
|
|
Twelve-Month
|
|
|
Requirement
|
|
Consolidated EBITDA
|
|
Trailing Twelve-month consolidated EBITDA (as defined in the
Credit Facility)
|
|
$
|
23,400
|
|
|
$
|
25,925
|
|
124
You can find the definitions of certain terms used in this
description under the subheading Certain
Definitions. Certain other capitalized terms are defined
in an Indenture governing the New Notes, which will be entered
into at the closing of the Exchange Offer (the
Indenture) between Emmis and U.S. Bank National
Association as Trustee (the Trustee).
The New Notes will be issued pursuant to the Indenture, a form
of which has been filed as an exhibit to our application on Form
T-3, filed with the SEC on the date hereof. The statements set
forth below are brief summaries of certain provisions contained
in the Indenture, which summaries do not purport to be complete
and are qualified in their entirety by reference to the
Indenture. The Indenture will be qualified under the
Trust Indenture Act of 1939 (the TIA), and the
terms of the New Notes and the Indenture will include those
stated in the New Notes and the Indenture and those made part of
the indenture by reference to the TIA. We urge you to read the
Indenture because it, and not this description, defines your
rights as holders of the New Notes.
The registered holder of a New Note will be treated as the owner
of it for all purposes. Only registered holders will have rights
under the Indenture.
References in this Description of the New Notes to
we, us, and similar terms are references
only to Emmis Communications Corporation and not to any of its
subsidiaries.
Brief
Description of the New Notes
The New Notes:
|
|
|
|
|
will be general unsecured obligations of Emmis;
|
|
|
|
will be subordinated in right of payment to all existing and
future Senior Debt of Emmis, including, without limitation,
Obligations under the Credit Facility;
|
|
|
|
will be pari passu in right of payment to any additional senior
subordinated Indebtedness incurred by Emmis in the future;
|
|
|
|
will be senior in right of payment to any future subordinated
Indebtedness of Emmis that expressly provides by its terms that
it is subordinated in right of payment to the New Notes,
including, without limitation, any Junior Subordinated
Notes; and
|
|
|
|
will be effectively junior to (i) all liabilities of
Emmis subsidiaries and (ii) all secured obligations,
to the extent of the collateral securing such obligations,
including any borrowings under any future secured credit
facilities of Emmis.
|
Guarantees
The New Notes will not be guaranteed by any subsidiaries of
Emmis. See Risks Related to Our Capital Structure and the
Transactions.
Principal,
Maturity and Interest
We will issue up to $84,275,100 million aggregate principal
amount of New Notes in the Exchange Offer. The Indenture does
not limit the amount of New Notes that may be issued thereunder,
and additional New Notes may be issued thereunder up to the
aggregate principal amount that may be authorized from time to
time by Emmis. We may issue New Notes of any series at various
times and we may reopen any series for further issuances from
time to time without notice to existing holders of securities of
that series. The New Notes will be issued in denominations of
$1.00 and integral multiples of $1.00.
We will pay interest on the New Notes at the rate of 12% per
annum, payable on an annual basis, payable by increasing the
amount of the New Notes by an amount equal to the amount of
interest then due (PIK Interest). Interest will be
computed on the basis of a
360-day year
of twelve
30-day
months.
125
The New Notes will mature
on ,
2017.
Methods
of Receiving Payments on the New Notes
If a holder of New Notes has given wire transfer instructions to
Emmis, Emmis will pay all principal on that holders New
Notes in accordance with those instructions. All other payments
on the New Notes will be made at the office or agency of the
paying agent and registrar within the City and State of New York.
Paying
Agent and Registrar for the New Notes
The Trustee will initially act as paying agent and registrar.
Emmis may change the paying agent or registrar without prior
notice to the holders of the New Notes, and Emmis or any of its
Subsidiaries may act as paying agent or registrar.
Subordination
The payment of Emmis Obligations under the New Notes and
the Indenture is subordinated, to the extent and in the manner
set forth in this section, to the prior payment in full in cash
of all Senior Debt of Emmis, including Senior Debt incurred
after the date of the Indenture, and each holder by accepting a
New Note agrees that the subordination is for the benefit of,
and enforceable by, the holders of such Senior Debt.
The holders of Senior Debt are entitled to receive payment in
full in cash of all Obligations due in respect of Senior Debt
(including interest after the commencement of any such
proceeding described below at the rate specified in the
applicable Senior Debt) before the holders of New Notes are
entitled to receive any payment (other than in the form of
Permitted Junior Securities) with respect to the New Notes, in
the event of any distribution to creditors of Emmis:
(1) in a total or partial liquidation or dissolution of
Emmis;
(2) in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to Emmis, or any of
its respective property;
(3) in an assignment for the benefit of creditors of Emmis
or any of its Subsidiaries; or
(4) in any marshalling of Emmis assets and
liabilities.
Emmis also may not make any payment in respect of the New Notes
if:
(1) a payment default with respect to any principal,
interest, premium or fees due on Designated Senior Debt occurs
and is continuing beyond any applicable grace period; or
(2) any other default occurs and is continuing on
Designated Senior Debt that currently, or with the passage of
time or the giving of notice, permits holders of the Designated
Senior Debt to accelerate its maturity and the Trustee receives
a notice of such default (a Payment Blockage Notice)
from Emmis or the Representative.
Payments on the New Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on
which such default is cured or waived in writing by the
Representative; and
(2) in case of a nonpayment default, upon the earlier of
the date on which such nonpayment default is cured or waived in
writing by the Representative or 179 days after the date on
which the applicable Payment Blockage Notice is received by the
Trustee, unless the maturity of any Designated Senior Debt has
been accelerated.
No new Payment Blockage Notice may be delivered unless and until
360 days have elapsed since the commencement of the
immediately prior Payment Blockage Notice and all scheduled
payment of principal, interest and premium, if any, on the New
Notes that have come due have been paid in full.
126
No nonpayment default that existed or was continuing on the date
of delivery of any Payment Blockage Notice to the Trustee shall
be, or be made, the basis for a subsequent Payment Blockage
Notice unless such default shall have been cured or waived for a
period of not less than 90 days.
If the Trustee or any holder of the New Notes receives a payment
in respect of the New Notes when:
(1) the payment is prohibited by these subordination
provisions; and
(2) the Trustee or the holder has actual knowledge that the
payment is prohibited,
The Trustee or the holder, as the case may be, will hold the
payment in trust for the benefit of the holders of Senior Debt.
Upon the proper written request of the holders of Senior Debt,
the Trustee or the holder, as the case may be, will deliver the
amounts in trust to the holders of Senior Debt or their proper
representative. Upon such delivery, the Trustee or the holder,
as the case may be, shall be released from all further liability
with respect to such amounts.
Emmis must promptly notify the Representative if payment of the
New Notes is accelerated because of an Event of Default.
Notwithstanding anything to the contrary, payments and
distributions made from the trusts established pursuant to the
provisions described under Satisfaction and
Discharge will be permitted and will not be subordinated
so long as the payments into the trusts were made in accordance
with the requirements described under or
Satisfaction and Discharge and did not
violate these subordination provisions when they were made.
The subordination provisions described above define the relative
rights of the holders of the New Notes and holders of Senior
Debt of Emmis. Nothing in the Indenture shall:
(1) impair, as between Emmis and the holders of the New
Notes , the obligation of Emmis, which is absolute and
unconditional, to pay principal of and interest on the New Notes
in accordance with their terms; or
(2) prevent the Trustee or any holder of the New Notes from
exercising its available remedies upon a Default, subject to the
rights of holders of Senior Debt of Emmis to receive
distributions otherwise payable to the holders of the New Notes.
Each holder by accepting a New Note acknowledges and agrees that
the foregoing subordination provisions are, and are intended to
be, an inducement and a consideration to each holder of Senior
Debt of Emmis, whether such Senior Debt was created or acquired
before or after the issuance of the New Notes, to acquire and
hold, or to continue to hold, such Senior Debt and such holder
of such Senior Debt shall be deemed conclusively to have relied
on such subordination provisions in acquiring and continuing to
hold, or in continuing to hold, such Senior Debt.
Notwithstanding anything to the contrary described under
Optional Redemption and
Mandatory Redemption, no prepayments of
the New Notes (including, without limitation, under
Optional Redemption and
Mandatory Redemption) may be made by
Emmis or any of its Subsidiaries unless: (a) (i) the
Obligations (as defined in the Credit Agreement)
have been paid in full (or the Reimbursement
Obligations (as defined in the Credit Agreement) have been
cash collateralized on terms reasonably acceptable to the
Administrative Agent under the Credit Agreement) and the
Total Commitment (as defined in the Credit
Agreement) has been reduced to zero and terminated; or
(ii) the Credit Agreement otherwise permits the
prepayments; and (b) no other Credit Facility that
constitutes Senior Debt prohibits such prepayments. Nothing in
this paragraph shall limit or restrict Emmiss obligation
to repay the New Notes upon their acceleration (in accordance
with these subordination provisions).
As a result of the subordination provisions described above, in
the event of a bankruptcy, liquidation or reorganization of
Emmis, holders of these New Notes may recover less ratably than
creditors of Emmis who are holders of Senior Debt. See
Risk Factors Risks Related to the New
Notes If a bankruptcy petition were filed by or
against Emmis, holders of the New Notes may receive a lesser
amount for their claim than they would be entitled to receive
under the indenture governing the New Notes.
127
Optional
Redemption
We may redeem some or all of the New Notes at any time and from
time to time, as a whole or in part, at our option, on at least
30 days, but not more than 60 days, prior notice
mailed to the registered address of each holder of the New Notes
to be redeemed at a price equal to 100% of the principal amount
thereof plus the amount of all accrued and unpaid interest
thereon, including the pro rata interest for any partial
interest period.
Mandatory
Redemption
Except as provided below, Emmis is not required to make
mandatory redemption or sinking fund payments with respect to
the New Notes.
If the New Notes would otherwise constitute applicable
high yield discount obligations within the meaning of
Section 163(i)(1) of the Internal Revenue Code of 1986, as
amended (the Code), at the end of each accrual
period ending after the fifth anniversary of the New Notes
issuance (each, an AHYDO Redemption Date),
Emmis will be required to redeem for cash a portion of each New
Note then outstanding equal to the mandatory principal
redemption amount (such redemption, a mandatory
principal redemption). The redemption price for the
portion of each New Note redeemed pursuant to a mandatory
principal redemption will be 100% of the principal amount of
such portion plus any accrued interest thereon to the date of
redemption. The mandatory principal redemption
amount means the portion of a New Note required to be
redeemed to prevent such New Note from being treated as an
applicable high yield discount obligation within the
meaning of Section 163(i)(1) of the Code. No partial
redemption or repurchase of the New Notes prior to any AHYDO
Redemption Date pursuant to any other provision of the
Indenture will alter Emmis obligations to make the
mandatory principal redemption with respect to any New Notes
that remain outstanding on any AHYDO Redemption Date.
Restriction
on Certain Indebtedness
Emmis will not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness ranking senior in
right of payment to the New Notes but junior in right of payment
to the Indebtedness under the Credit Facility, except for
Indebtedness that is incurred to repurchase, refinance, replace,
defease or otherwise retire the New Notes, the Junior
Subordinated Notes (if any) and the JS Parent Preferred
Interests. For the avoidance of doubt, no Indebtedness will be
considered to be senior to other Indebtedness by virtue of being
secured, having security interests of higher priority than those
securing such other Indebtedness or by virtue of being
structurally senior to such other Indebtedness.
Events of
Default
An Event of Default will occur under the Indenture
if:
(1) there shall be a default in the payment of any interest
on any New Note when it becomes due and payable, and such
default shall continue for a period of 30 days;
(2) there shall be a default in the payment of the
principal of (or premium, if any, on) any New Note at its
maturity (upon acceleration, optional redemption, if any, or
otherwise);
(3) there shall be a default in the performance, or breach,
of any covenant or agreement of Emmis under the Indenture (other
than a breach or default described in clauses (1) or
(2) above) and such default or breach shall continue for a
period of 60 days after a Notice of Default (as
defined below) has been given; and
(4) the occurrence of certain events of bankruptcy,
insolvency or reorganization with respect to Emmis or any
Significant Subsidiary; and
A Notice of Default is a written notice given by
certified mail (1) to Emmis by the Trustee or (2) to
Emmis and the Trustee by the holders of at least 25% in
aggregate principal amount of the then outstanding New Notes
specifying a default in the performance or breach, of any
covenant or agreement of Emmis under
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the Indenture. If an Event of Default (other than as specified
in clause (4) of the prior paragraph) shall occur and be
continuing with respect to the Indenture, the Trustee or the
holders of not less than 25% in aggregate principal amount of
the New Notes then outstanding may, and the Trustee at the
request of such holders shall, declare all unpaid principal and
accrued interest on all New Notes to be due and payable
immediately, by a notice in writing to Emmis (and to the Trustee
if given by the holders of the New Notes) and upon any such
declaration, such unpaid principal and accrued interest shall
become due and payable immediately. If an Event of Default
specified in clause (4) of the prior paragraph occurs and
is continuing, then all the New Notes shall ipso facto become
and be due and payable immediately in an amount equal to the
principal amount of the New Notes, together with accrued and
unpaid interest, if any, to the date the New Notes become due
and payable, without any declaration or other act on the part of
the Trustee or any holder. Thereupon, the Trustee may, at its
discretion, proceed to protect and enforce the rights of the
holders of notes by appropriate judicial proceedings.
After a declaration of acceleration, but before a judgment or
decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount
of notes outstanding by written notice to Emmis and the Trustee,
may rescind and annul such declaration and its consequences if
(a) Emmis has paid or deposited with the Trustee a sum
sufficient to pay (1) all sums paid or advanced by the
Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents
and counsel, (2) all overdue interest on all New Notes then
outstanding, (3) the principal of, and premium, if any, on
any New Notes then outstanding which have become due otherwise
than by such declaration of acceleration and interest thereon at
the rate borne by the New Notes and (4) to the extent that
payment of such interest is lawful, interest upon overdue
interest at the rate borne by the New Notes; (b) the
rescission would not conflict with any judgment or decree of a
court of competent jurisdiction; and (c) all Events of
Default, other than the non-payment of principal of and interest
on the New Notes which have become due solely by such
declaration of acceleration, have been cured or waived as
provided in the Indenture. No such rescission shall affect any
subsequent default or impair any right consequent thereon.
The holders of not less than a majority in aggregate principal
amount of the New Notes outstanding may on behalf of the holders
of all outstanding New Notes waive any past default under the
Indenture and its consequences, except a default (1) in the
payment of the principal of or interest on, any New Note (which
may only be waived with the consent of each holder of New Notes
affected) or (2) in respect of a covenant or provision
which under the Indenture cannot be modified or amended without
the consent of the holder of each New Note affected by such
modification or amendment.
No holder of any of the New Notes has any right to institute any
proceedings with respect to the Indenture or any remedy
thereunder, unless the holders of at least 25% in aggregate
principal amount of the outstanding New Notes have made written
request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as Trustee under the New Notes and the
Indenture, the Trustee has failed to institute such proceeding
within 60 days after receipt of such notice and the
Trustee, within such
60-day
period, has not received directions inconsistent with such
written request by holders of a majority in aggregate principal
amount of the outstanding New Notes. Such limitations do not,
however, apply to a suit instituted by a holder of a New Note
for the enforcement of the payment of the principal of or
interest on such New Note on or after the respective due dates
expressed in such note.
Emmis is required to notify the Trustee within 10 business days
after knowledge of the occurrence of any Default. Emmis is
required to deliver to the Trustee, on or before a date not more
than 120 days after the end of each fiscal year, a written
statement as to compliance with the Indenture, including whether
or not any Default has occurred. The Trustee is under no
obligation to exercise any of the rights or powers vested in it
by the Indenture at the request or direction of any of the
holders of the notes unless such holders offer to the Trustee
security or indemnity satisfactory to the Trustee against the
costs, expenses and liabilities which might be incurred thereby.
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No
Personal Liability of Directors, Officers, Employees and
Shareholders
No director, officer, employee, incorporator or shareholder of
Emmis, as such, will have any liability for any obligations of
Emmis under the New Notes or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or
their creation. Each holder of New Notes by accepting a New Note
waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the New Notes. The
waiver may not be effective to waive liabilities under the
federal securities laws, and it is the view of the SEC that such
a waiver is against public policy.
Modification
of the Indenture
We and the Trustee may, without the consent of the holders of
the New Notes, enter into indentures supplemental to the
Indenture for, among others, one or more of the following
purposes:
Except as provided in the next two succeeding paragraphs, the
Indenture and the New Notes may be amended or supplemented with
the consent of the holders of at least a majority in aggregate
principal amount of the New Notes then outstanding (including,
without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, New Notes),
and any existing Default or Event of Default or compliance with
any provision of the Indenture or the New Notes may be waived
with the consent of the holders of a majority in aggregate
principal amount of the then outstanding New Notes (including,
without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, New Notes).
Without the consent of each holder of New Notes affected, an
amendment, supplement or waiver may not (with respect to any New
Notes held by a non-consenting holder):
(1) reduce the principal amount of New Notes whose holders
must consent to an amendment, supplement or waiver;
(2) reduce the principal of or extend the fixed maturity of
any New Note;
(3) reduce the rate of or extend the time for payment of
interest, including default interest, on any New Note;
(4) waive a Default or Event of Default in the payment of
principal of, or interest on, the New Notes (except a rescission
of acceleration of the New Notes by the holders of at least a
majority in aggregate principal amount of the then outstanding
New Notes and a waiver of the payment Default that resulted from
such acceleration) or in respect of a covenant or provision
contained in the Indenture that cannot be amended or modified
without the consent of all holders;
(5) make any New Note payable in money other than that
stated in the New Notes;
(6) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of holders of
New Notes to receive payment of principal of, or interest on,
the New Notes;
(7) make any change in these amendment and waiver
provisions; or
(8) impair the right of any holder to receive payment of
principal of, or interest on, such holders New Notes on or
after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such
holders New Notes.
In addition to the consents required above, the consents of the
Alden Entities will be required if any amendment or supplement
adversely affects the Alden Entities as holders of, or holders
of a beneficial interest in, the New Notes in any material
respect.
Notwithstanding the preceding, without the consent of any holder
of New Notes, Emmis and the Trustee may amend or supplement the
Indenture or the New Notes:
(1) to cure any ambiguity, defect, inconsistency or
omission;
(2) to provide for uncertificated New Notes in addition to
or in place of certificated New Notes;
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(3) to provide for the assumption of the Obligations of a
current obligor on the Notes to holders of New Notes in the case
of a merger or consolidation or sale of all or substantially all
of Emmis assets;
(4) to make any change that would provide any additional
rights or benefits to the holders of New Notes or that does not
adversely affect the rights in any material respect under the
Indenture of any such holder;
(5) to add covenants for the benefit of the holders or to
surrender any right or power conferred upon Emmis or its
subsidiaries;
(6) to comply with requirements of the SEC in order to
effect or maintain the qualification of the Indenture under the
TIA;
(7) to conform the text of the Indenture or the New Notes
to any provision of this Description of the New Notes to the
extent that such provision in this Description of the New Notes
was intended to be a verbatim recitation of a provision of the
Indenture or the New Notes;
(8) to provide for the issuance of additional New Notes in
accordance with the limitations set forth in the Indenture;
(9) to allow any guarantor or other obligor to execute a
supplemental indenture
and/or a
guarantee with respect to the New Notes;
(10) to make any amendment to the provisions of the
Indenture relating to the transfer and legending of New Notes
that is required by applicable laws;
(11) to evidence and provide the acceptance of the
appointment of a successor trustee under the Indenture; or
(12) to comply with the rules of any applicable securities
depositary.
The consent of the holders of New Notes is not necessary under
the Indenture to approve the particular form of any proposed
amendment. It is sufficient if such consent approves the
substance of the proposed amendment. After an amendment to the
Indenture becomes effective, Emmis will be required to provide
to the holders of New Notes a notice briefly describing such
amendment.
Satisfaction
and Discharge
The indenture will be discharged and will cease to be of further
effect as to all New Notes issued thereunder, when:
(1) either:
(a) all New Notes that have been authenticated, except
lost, stolen or destroyed New Notes that have been replaced or
paid and New Notes for whose payment money has been deposited in
trust and thereafter repaid to Emmis, have been delivered to the
trustee for cancellation; or
(b) all New Notes that have not been delivered to the
trustee for cancellation have become due and payable or will
become due and payable or may be called for redemption within
one year or have been called for redemption pursuant to the
provisions described under Optional
Redemption and Emmis has irrevocably deposited or caused
to be deposited with the trustee as trust funds in trust solely
for the benefit of the holders, cash in U.S. dollars,
non-callable Government Securities, or a combination of cash in
U.S. dollars and non-callable Government Securities, in
amounts as will be sufficient, without consideration of any
reinvestment of interest, to pay and discharge the entire
Indebtedness on the New Notes not delivered to the trustee for
cancellation for principal and accrued interest to the date of
maturity or redemption;
(2) no Default or Event of Default has occurred and is
continuing on the date of the deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be
applied to such deposit)
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and the deposit will not result in a breach or violation of, or
constitute a default under, the Credit Agreement or any other
material instrument to which Emmis is a party or by which Emmis
is bound;
(3) Emmis has paid or caused to be paid all sums payable by
it under the indenture; and
(4) Emmis has delivered irrevocable instructions to the
trustee under the indenture to apply the deposited money toward
the payment of the New Notes at maturity or on the redemption
date, as the case may be.
In addition, Emmis must deliver an officers certificate
and an opinion of counsel to the trustee stating that all
conditions precedent to satisfaction and discharge have been
satisfied.
Concerning
the Trustee
U.S. Bank National Association is the Trustee under the
Indenture. The Trustee is a depository for funds and performs
other services for, and transacts other banking business with,
Emmis in the normal course of business.
If the Trustee becomes a creditor of Emmis, the Indenture limits
its right to obtain payment of claims in certain cases, or to
realize property received in respect of any such claim as
security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting
interest it must eliminate such conflict within 90 days,
apply to the SEC for permission to continue or resign.
The holders of a majority in aggregate principal amount of the
then outstanding New Notes will have the right to direct the
time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event
of Default shall occur and be continuing, the Trustee will be
required, in the exercise of its power, to use the degree of
care of a prudent person in the conduct of his or her own
affairs. Subject to such provisions, the Trustee will be under
no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of New Notes, unless such
holder shall have offered to the Trustee security and indemnity
satisfactory to it, in its sole discretion, against any loss,
liability or expense.
Governing
Law
The Indenture will be governed by, and construed in accordance
with, the laws of the State of New York.
Certain
Definitions
The following are certain of the terms defined in the indenture:
Alden Entities means Alden Global Distressed
Opportunities Master Fund, L.P. and any of its affiliates
(excluding Emmis and its Subsidiaries) that may be a holder of,
or hold a beneficial interest in, the New Notes.
Credit Agreement means the Amended and
Restated Revolving Credit and Term Loan Agreement, dated as of
November 2, 2006 and amended on March 3, 2009 and
August 19, 2009, by and among Emmis Operating, Emmis, the
lending institutions listed on Schedule 1 thereof (together
with any institution that becomes a lender pursuant to
Section 15 or Section 17 thereof), Bank of America,
N.A. as administrative agent, Deutsche Bank Trust Company
Americas, as syndication agent, General Electric Capital
Corporation, Cooperatieve Centrale Raiffeisen-Boerenleenbank
B.A., Rabobank Nederland, New York Branch and
Suntrust Bank, as co-documentation agents and Banc of America
Securities LLC and Deutsche Bank Securities Inc. as joint lead
arrangers and joint book managers, as such Credit Agreement may
be amended, supplemented, restated or otherwise modified from
time to time.
Credit Facility means the Credit Agreement,
as such Credit Agreement, in whole or in part, in one or more
instances, may be amended, renewed, extended, substituted,
refinanced, restructured, replaced, supplemented, restated or
otherwise modified from time to time (including any successive
amendments, renewals, extensions, substitutions, refinancings,
restructurings, replacements, restatements, supplementations or
other
132
modifications of the foregoing and including any amendment
increasing the amount of Indebtedness incurred or available to
be borrowed thereunder, extending the maturity of any
Indebtedness incurred thereunder or contemplated thereby or
deleting, adding or substituting one or more parties thereto
(whether or not such added or substituted parties are banks or
other institutional lenders)), including into one or more debt
facilities, commercial paper facilities or other debt
instruments, indentures or agreements (including by means of
sales of debt securities to institutional investors), providing
for revolving credit loans, term loans, letters of credit or
other debt obligations, whether any such amendments, renewal,
extension, substitution, refinancing, restructuring,
replacement, supplementation, restatement or other modification
(1) occurs simultaneously or not with the termination or
repayment of a prior Credit Facility or (2) occurs on one
or more separate occasions; in each case, to the extent that any
such amendment, renewal, extension, substitution, refinancing,
restructuring, replacement, restatement, supplement or other
modification expressly states that it is a Credit
Facility for purposes of the Indenture.
Default means any event that is, or with the
passage of time or the giving of notice or both would be, an
Event of Default.
Designated Senior Debt means (1) Senior
Debt under or in respect of the Credit Facilities and
(2) any other Indebtedness constituting Senior Debt which,
at the time of determination, has an aggregate commitment or
principal amount, or both, of at least $25.0 million and is
specifically designated in the instrument evidencing such Senior
Debt as Designated Senior Debt.
Exchanged ECC Shares has the meaning assigned
thereto in the JS Parent operating agreement.
Guarantee means a guarantee other than by
endorsement of negotiable instruments for collection in the
ordinary course of business, direct or indirect, in any manner
including, without limitation, by way of a pledge of assets or
through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
Hedging Obligations means, with respect to
any specified Person, the net obligations of such Person under:
(1) interest rate swap agreements (whether from fixed to
floating or from floating to fixed), interest rate cap
agreements, forward purchase agreements and interest rate collar
agreements;
(2) other agreements or arrangements designed to protect
against interest rate risk; and
(3) other agreements or arrangements designed to protect
such Person against fluctuations in currency exchange rates or
commodity prices, in any case either generally or under specific
contingencies.
Indebtedness means, without duplication, with
respect to any specified Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money
or evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect
thereof).
Notwithstanding the foregoing, for the avoidance of doubt,
Indebtedness shall not include:
(1) trade accounts payable and other similar accrued
liabilities arising in the ordinary course of business;
(2) obligations of such Person other than principal;
(3) any liability for federal, state, local or other taxes
owed or owing to any governmental entity;
(4) obligations of such Person with respect to performance
and surety bonds and completion guarantees in the ordinary
course of business; or
(5) in connection with the purchase by such Person of any
business, any post-closing payment adjustments to which the
seller may become entitled to the extent such payment is
determined by a final closing balance sheet or such payment
depends on the performance of such business after the closing;
provided, however, that, at the time of closing, the amount of
any such payment is not determinable and,
133
to the extent such payment thereafter becomes fixed and
determined, the amount is paid within 30 days thereafter.
JS Parent Preferred Interests means JS
Acquisition, LLCs Series A Convertible Redeemable PIK
Preferred Interests.
Junior Subordinated Notes means Emmis
15% PIK junior subordinated notes due 2017, which may be issued
in exchange for the Exchanged ECC Shares.
Lien means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset, whether or not filed,
recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any
lease in the nature thereof.
Merger means the merger of JS Acquisition,
Inc. into Emmis in accordance with Indiana law, whereupon the
separate existence of JS Acquisition, Inc. shall cease, and
Emmis shall be the surviving corporation, pursuant to the
Agreement and Plan of Merger, dated as of May 25, 2010,
among Emmis, JS Acquisition, LLC and JS Acquisition, Inc.
Obligations means any principal, interest,
penalties, fees, indemnifications, reimbursements, damages and
other liabilities payable under the documentation governing any
Indebtedness.
Permitted Junior Securities means
(i) any and all shares or other equity interests (including
common stock, preferred stock, limited liability company
interests and partnership interests) in Emmis and (ii) all
rights to purchase, warrants or options (whether or not
currently exercisable), participations or other equivalents of
or interests in (however designated) such shares or other
interests in Emmis.
Person means any individual, corporation,
partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, limited liability company or
government or other entity.
Representative means any agent or
representative in respect of any Designated Senior Debt;
provided that if, and for so long as, any Designated Senior Debt
lacks such representative, then the Representative for such
Designated Senior Debt shall at all times constitute the holders
of a majority in outstanding principal amount of such Designated
Senior Debt.
Senior Debt means:
(1) all Indebtedness outstanding under the Credit Agreement
or any Credit Facility and all Hedging Obligations of Emmis and
any Guarantees thereof with respect thereto of Emmis whether
outstanding on the issue date or thereafter incurred;
(2) any other Indebtedness and related Hedging Obligations
of Emmis, unless the instrument under which such Indebtedness or
Hedging Obligations are incurred expressly provides that it is
on a parity with or subordinated in right of payment to the New
Notes; and
(3) all Obligations with respect to the items listed in the
preceding clauses (1) and (2) (including any interest
accruing subsequent to the filing of a petition of bankruptcy at
the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under
applicable law).
Notwithstanding anything to the contrary in the preceding,
Senior Debt will not include:
(1) any liability for federal, state, local or other taxes
owed or owing by Emmis;
(2) any Indebtedness of Emmis to any of its
Subsidiaries; or
(3) any trade payables.
Significant Subsidiary means any Subsidiary
that would be a significant subsidiary as defined in
Article 1,
Rule 1-02
of
Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation
is in effect on the date of the Indenture governing the New
Notes.
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Subsidiary means, with respect to any Person:
(1) any corporation, association or other business entity
of which more than 50% of the total voting power of shares of
capital stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners
of which are such Person or one or more Subsidiaries of such
Person (or any combination thereof).
Book-Entry,
Delivery and Form
Except as described below, we will initially issue the exchange
debt securities in the form of one or more registered exchange
debt securities in global form without coupons. We will deposit
each global debt security on the date of the closing of this
exchange offer with, or on behalf of, The Depository
Trust Company in New York, New York, and register the
exchange debt securities in the name of The Depository
Trust Company or its nominee, or will leave these debt
securities in the custody of the trustee.
Trust Company
Procedures
For your convenience, we are providing you with a description of
the operations and procedures of The Depository
Trust Company, the Euroclear System and Clearstream
Banking, S.A. These operations and procedures are solely within
the control of the respective settlement systems and are subject
to changes by them. We are not responsible for these operations
and procedures and urge you to contact the system or its
participants directly to discuss these matters.
The Depository Trust Company has advised Emmis that it is a
limited-purpose trust company created to hold securities for its
participating organizations and to facilitate the clearance and
settlement of transactions in those securities between its
participants through electronic book entry changes in the
accounts of these participants. These direct participants
include securities brokers and dealers, banks, trust companies,
clearing corporations and other organizations. Access to The
Depository Trust Companys system is also indirectly
available to other entities that clear through or maintain a
direct or indirect, custodial relationship with a direct
participant. The Depository Trust Company may hold
securities beneficially owned by other persons only through its
participants and the ownership interests and transfers of
ownership interests of these other persons will be recorded only
on the records of the participants and not on the records of The
Depository Trust Company.
The Depository Trust Company has also advised Emmis that,
in accordance with its procedures,
(1) upon deposit of the global debt securities, it will
credit the accounts of the direct participants with an interest
in the global debt securities, and
(2) it will maintain records of the ownership interests of
these direct participants in the global debt securities and the
transfer of ownership interests by and between direct
participants.
The Depository Trust Company will not maintain records of
the ownership interests of, or the transfer of ownership
interests by and between, indirect participants or other owners
of beneficial interests in the global debt securities. Both
direct and indirect participants must maintain their own records
of ownership interests of, and the transfer of ownership
interests by and between, indirect participants and other owners
of beneficial interests in the global debt securities.
Investors in the global debt securities may hold their interests
in the debt securities directly through The Depository
Trust Company if they are direct participants in The
Depository Trust Company or indirectly through
organizations that are direct participants in The Depository
Trust Company. Investors in the global debt securities may
also hold their interests in the debt securities through
Euroclear and Clearstream if they are direct participants in
those systems or indirectly through organizations that are
participants in those
135
systems. Euroclear and Clearstream will hold omnibus positions
in the global debt securities on behalf of the Euroclear
participants and the Clearstream participants, respectively,
through customers securities accounts in Euroclears
and Clearstreams names on the books of their respective
depositories, which are Morgan Guaranty Trust Company of
New York, Brussels office, as operator of Euroclear, and
Citibank, N.A. and The Chase Manhattan Bank, N.A., as operators
of Clearstream. These depositories, in turn, will hold these
positions in their names on the books of DTC. All interests in a
global debt security, including those held through Euroclear or
Clearstream, may be subject to the procedures and requirements
of The Depository Trust Company. Those interests held
through Euroclear or Clearstream may also be subject to the
procedures and requirements of those systems.
The laws of some states require that some persons take physical
delivery in definitive certificated form of the securities that
they own. This may limit or curtail the ability to transfer
beneficial interests in a global debt security to these persons.
Because The Depository Trust Company can act only on behalf
of direct participants, which in turn act on behalf of indirect
participants and others, the ability of a person having a
beneficial interest in a global debt securities to pledge its
interest to persons or entities that are not direct participants
in The Depository Trust Company or to otherwise take
actions in respect of its interest, may be affected by the lack
of physical certificates evidencing the interests.
Except as described below, owners of interests in the global
debt securities will not have debt securities registered in
their names, will not receive physical delivery of debt
securities in certificated form and will not be considered the
registered owners or holders of these debt securities under the
Indenture for any purpose.
Payments with respect to the principal of and interest on any
debt securities represented by a global debt securities
registered in the name of The Depository Trust Company or
its nominee on the applicable record date will be payable by the
trustee to or at the direction of The Depository
Trust Company or its nominee in its capacity as the
registered holder of the global debt security representing these
debt securities under the Indenture. Under the terms of the
Indenture, we and the trustee will treat the person in whose
names the debt securities are registered, including debt
securities represented by global debt securities, as the owners
of the debt securities for the purpose of receiving payments and
for any and all other purposes whatsoever. Payments in respect
of the principal and interest on global debt securities
registered in the name of The Depository Trust Company or
its nominee will be payable by the trustee to The Depository
Trust Company or its nominee as the registered holder under
the Indenture. Consequently, none of The Bank of New York, the
trustee or any of our agents, or the trustees agents has
or will have any responsibility or liability for:
(1) any aspect of The Depository Trust Companys
records or any direct or indirect participants records
relating to, or payments made on account of, beneficial
ownership interests in the global debt securities or for
maintaining, supervising or reviewing any of The Depository
Trust Companys records or any direct or indirect
participants records relating to the beneficial ownership
interests in any global debt securities or
(2) any other matter relating to the actions and practices
of The Depository Trust Company or any of its direct or indirect
participants.
The Depository Trust Company has advised Emmis that its
current practice, upon receipt of any payment in respect of
securities such as the debt securities, including principal and
interest, is to credit the accounts of the relevant participants
with the payment on the payment date, in amounts proportionate
to their respective holdings in the principal amount of
beneficial interest in the security as shown on its records,
unless it has reasons to believe that it will not receive
payment on the payment date. Payments by the direct and indirect
participants to the beneficial owners of interests in the global
debt securities will be governed by standing instructions and
customary practice and will be the responsibility of the direct
or indirect participants and will not be the responsibility of
The Depository Trust Company, the Trustee or Emmis.
Neither we nor the Trustee will be liable for any delay by The
Depository Trust Company or any direct or indirect
participant in identifying the beneficial owners of the debt
securities and Emmis and the Trustee may conclusively rely on,
and will be protected in relying on, instructions from The
Depository Trust Company
136
or its nominee for all purposes, including with respect to the
registration and delivery, and the respective principal amounts,
of the debt securities.
Transfers between participants in The Depository
Trust Company will be effected in accordance with The
Depository Trust Companys procedures, and will be
settled in same day funds, and transfers between participants in
Euroclear and Clearstream will be effected in accordance with
their respective rules and operating procedures.
Cross-market transfers between the participants in The
Depository Trust Company, on the one hand, and Euroclear or
Clearstream participants, on the other hand, will be effected
through The Depository Trust Company in accordance with The
Depository Trust Companys rules on behalf of
Euroclear or Clearstream, as the case may be, by its respective
depositary; however, such cross-market transactions will require
delivery of instructions to Euroclear or Clearstream, as the
case may be, by the counterparty in such system in accordance
with the rules and procedures and within the established
deadlines (Brussels time) of such system. Euroclear or
Clearstream, as the case may be, will, if the transaction meets
its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement
on its behalf by delivering or receiving interests in the
relevant global debt security in The Depository
Trust Company, and making or receiving payment in
accordance with normal procedures for
same-day
funds settlement applicable to The Depository
Trust Company. Euroclear participants and Clearstream
participants may not deliver instructions directly to the
depositories for Euroclear or Clearstream.
The Depository Trust Company has advised Emmis that it will
take any action permitted to be taken by a holder of debt
securities only at the direction of one or more participants to
whose account The Depository Trust Company has credited the
interests in the global debt securities and only in respect of
the portion of the aggregate principal amount of the debt
securities as to which the participant or participants has or
have given that direction. However, if there is an Event of
Default with respect to the debt securities, The Depository
Trust Company reserves the right to exchange the global
debt securities for legended debt securities in certificated
form and to distribute them to its participants.
Although The Depository Trust Company has agreed to these
procedures to facilitate transfers of interests in the global
debt securities among participants in The Depository
Trust Company, they are under no obligation to perform or
to continue to perform these procedures and may discontinue them
at any time. Neither we nor the trustee or any of our or the
trustees respective agents will have any responsibility
for the performance by The Depository Trust Company or its
participants or indirect participants of their respective
obligations under the rules and procedures governing their
operations.
Exchange
of Book-Entry Debt Securities for Certificated Debt
Securities
A global debt security will be exchangeable for definitive debt
securities in registered certificated form if:
(1) The Depository Trust Company notifies Emmis that
it is unwilling or unable to continue as depository for the
global debt securities and we fail to appoint a successor
depository within 90 days,
(2) The Depository Trust Company ceases to be a
clearing agency registered under the Exchange Act and we fail to
appoint a successor within 90 days,
(3) we elect to cause the issuance of the certificated debt
securities upon a notice of the Trustee, or
(4) an Event of Default under the Indenture has occurred
and is continuing with respect to a series of the debt
securities entitling the holders of the debt securities of such
series to accelerate the maturity of such debt securities.
In addition, beneficial interests in global debt securities may
be exchanged for certificated debt securities upon prior written
notice given to the Trustee by or on behalf of the Depository
Trust Company in accordance with the Indenture. In all
cases, certificated debt securities delivered in exchange for
any global note or beneficial interests in a global debt
security will be registered in the name, and issued in any
approved denominations, requested by or on behalf of The
Depository Trust Company, in accordance with its customary
procedures.
137
Exchange
of Certificated Debt Securities for Book-Entry Debt
Securities
Initial debt securities issued in certificated form may be
exchanged for beneficial interests in the global debt securities.
Same
Day Settlement
We expect that the interests in the global debt securities will
be eligible to trade in The Depository Trust Companys
Same-Day
Funds Settlement System. As a result, secondary market trading
activity in these interests will settle in immediately available
funds, subject in all cases to the rules and procedures of The
Depository Trust Company and its participants. We expect
that secondary trading in any certificated debt securities will
also be settled in immediately available funds.
Because of time zone differences, the securities account of a
Euroclear or Clearstream participant purchasing an interest in a
global debt security from a participant in The Depository
Trust Company will be credited, and any such crediting will
be reported to the relevant Euroclear or Clearstream
participant, during the securities settlement processing day
(which must be a business day for Euroclear and Clearstream)
immediately following the settlement date of The Depository
Trust Company. The Depository Trust Company has
advised Emmis that cash received in Euroclear or Clearstream as
a result of sales of interests in a global debt security by or
through a Euroclear or Clearstream participant to a participant
in The Depository Trust Company will be received with value
on the settlement date of The Depository Trust Company but
will be available in the relevant Euroclear or Clearstream
cash account only as of the business day for Euroclear or
Clearstream following The Depository Trust Companys
settlement date.
Payment
We will make all payments of principal and interest on the debt
securities at the office of the Trustee and at the agency of the
Trustee maintained for that purpose within the city and state of
New York. This office will initially be the office of the Paying
Agent maintained for that purpose. At our option however, we may
make these installments of interest by check mailed to the
holders of debt securities at their respective addresses
provided in the register of holders of debt securities.
138
The following is a discussion of the material federal income tax
consequences of the Exchange Offer to holders of Existing
Preferred Stock, and the ownership and disposition by holders of
New Notes acquired pursuant to the Exchange Offer. The
discussion of the tax consequences of the ownership and
disposition of the New Notes is limited to holders that acquired
the New Notes in the Exchange Offer. This discussion is not a
complete analysis or discussion of all of the possible tax
consequences of such transactions and does not address all tax
considerations that might be relevant to particular holders in
light of their specific circumstances or to persons that are
subject to special tax rules. The discussion assumes that
holders of Existing Preferred Stock hold their shares as capital
assets for U.S. federal income tax purposes (generally,
property held for investment). In addition, this description of
the material U.S. federal income tax consequences does not
address the tax treatment of special classes of Existing
Preferred Stock Shareholders, such as financial institutions,
regulated investment companies, real estate investment trusts,
tax-exempt entities, insurance companies, persons holding the
Existing Preferred Stock as part of a hedging, integrated or
conversion transaction, constructive sale or
straddle, persons who acquired Existing Preferred
Stock through the exercise or cancellation of employee stock
options or otherwise as compensation for their services, persons
holding, actually or constructively, for U.S. federal
income tax purposes, 10% or more of the total combined voting
power of all classes of our stock entitled to vote,
U.S. expatriates, persons subject to the alternative
minimum tax, dealers or traders in securities or currencies,
holders whose functional currency is not the U.S. dollar.
This summary does not address inheritance, estate and gift tax
consequences or tax consequences under any state, local or
foreign laws. We urge you to consult your own tax advisor as to
the specific tax consequences of the Exchange Offer, including
the applicable federal, state, local and foreign tax
consequences to you.
The following discussion is based upon the Internal Revenue Code
of 1986, as amended (the Code), U.S. judicial
decisions, administrative pronouncements, and existing and
proposed Treasury regulations, all of which are subject to
change, possibly with retroactive effect, so as to result in
U.S. federal income tax consequences different from those
discussed below. We have not requested, and will not request, a
ruling from the U.S. Internal Revenue Service (the
IRS) with respect to any of the U.S. federal
income tax consequences described below. As a result there can
be no assurance that the IRS will not disagree with or challenge
any of the conclusions we have reached and describe herein.
U.S.
Holder
For purposes of this section, you are a
U.S. Holder if you are: (1) an individual
citizen of the United States or a resident alien of the
United States as determined for U.S. federal income tax
purposes; (2) a corporation (or other entity treated as a
corporation for U.S. federal income tax purposes) created
or organized under the laws of the United States or any state
thereof or the District of Columbia; (3) an estate the
income of which is subject to U.S. federal income taxation
regardless of its source; or (4) a trust (A) if a
court within the United States is able to exercise primary
jurisdiction over its administration and one or more
U.S. persons have authority to control all substantial
decisions of the trust or (B) that has a valid election in
effect under applicable Treasury regulations to be treated as a
U.S. person.
For purposes of this discussion, you are a
Non-U.S. Holder
if you are neither a U.S. Holder nor a partnership (or
other entity treated as a partnership) for U.S. federal
income tax purposes.
If a partnership or other pass-through entity is a beneficial
owner of the Existing Preferred Stock, the tax treatment of a
partner or other owner will generally depend upon the status of
the partner (or other owner) and the activities of the entity.
If you are a partner (or other owner) of a partnership or other
pass-through entity that holds Existing Preferred Stock, you
should consult your tax advisor regarding the tax consequences
of the Exchange Offer and of owning and disposing of the New
Notes.
139
Tax
Considerations to the Company
Applicable
High-Yield Discount Obligations
If the New Notes have significant OID, and the yield
to maturity of the New Notes equals or exceeds the sum of
(x) the applicable federal rate (as determined
under Section 1274(d) of the Code) in effect for the
calendar month in which the New Notes are issued (the
AFR) and (y) 5 percentage points, the New
Notes will be considered applicable high yield discount
obligations (AHYDOs). If the New Notes are
AHYDOs, we will not be allowed a deduction for interest
(including OID) accrued on the New Notes for U.S. federal
income tax purposes until such time as we actually pay such
interest (including OID) in cash or in other property (other
than our stock or debt issued by us or by a person deemed to be
related to us under Section 453(f)(1) of the Code, which
are considered paid only when the stock or debt is redeemed for
cash or property other than such stock or debt). In addition, to
the extent the yield to maturity on the New Notes exceeds the
sum of (x) the AFR in effect for the calendar month in
which the New Notes are issued, and (y) 6 percentage
points (any such excess constituting the disqualified
yield), we will not be entitled to deduct the portion of
the OID corresponding to the disqualified yield at any time.
Because the Indenture provides for mandatory principal
redemptions (as described under Description of New
Notes), we do not expect that the New Notes will have
significant OID, and therefore, we anticipate that the AHYDO
restrictions will not apply to limit our OID deductions on the
New Notes, although there can be no assurances in this regard.
Tax
Considerations for U.S. Holders
This subsection applies to you if you are a U.S. Holder.
The
Exchange Offer
The exchange of Existing Preferred Stock for New Notes will be a
taxable transaction for U.S. federal income tax purposes.
Such exchange generally will be treated as a sale or exchange of
the shares of Existing Preferred Stock that are redeemed, rather
than a distribution, if the redemption satisfies one of the
tests set forth in Section 302(b) of the Code. The exchange
will be treated as a sale or exchange under Section 302(b)
if it (i) results in a complete termination of
your interest in Emmis, (ii) is substantially
disproportionate with respect to you (which could be the
case only if you also own shares of Common Stock that are sold
in connection with your exchange of Existing Preferred Stock),
or (iii) is not essentially equivalent to a
dividend with respect to you, all within the meaning of
Section 302(b) of the Code. In determining whether any of
these tests has been met, shares of Common Stock or Existing
Preferred Stock deemed owned by you by reason of certain
constructive ownership rules, as well as shares actually owned
by you, must be taken into account. A redemption of Existing
Preferred Stock held by you generally will qualify for sale or
exchange treatment if you do not own (actually or
constructively) any shares of any classes of common or preferred
stock following the redemption, or if you own (actually or
constructively) only an insubstantial percentage of common or
preferred stock, the redemption has the effect of decreasing
such ownership percentage and you do not participate in our
control or management. However, the determination as to whether
any of the tests of Section 302(b) of the Code will be
satisfied with respect to any particular U.S. Holder
depends upon the facts and circumstances at the time of the
redemption and you urged to consult your tax advisors to
determine such tax treatment .
If a redemption of Existing Preferred Stock is treated as a sale
or exchange, you generally will recognize gain or loss upon the
exchange of Existing Preferred Stock in an amount equal to the
difference between (i) the amount realized upon the sale or
exchange, measured by the issue price of the New
Notes (as defined below), and (ii) your adjusted tax basis
in the Existing Preferred Stock. Generally, such gain or loss
will be capital gain or loss and will be long-term capital gain
or loss if, on the date of the exchange, you have held the
Existing Preferred Stock for more than one year. Long-term
capital gains of an individual taxpayer are subject to tax at
favorable rates; the deductibility of capital losses is subject
to limitations under the Code.
140
If a redemption of Existing Preferred Stock is treated as a
distribution, the entire amount of the distribution, measured by
the issue price of the New Notes (as defined below),
will be taxable as a dividend for U.S. federal income tax
purposes to the extent paid from our current or accumulated
earnings and profits (as determined under U.S. federal
income tax principles). If the amount of a distribution exceeds
our current and accumulated earnings and profits, such excess
first will be treated as a tax-free return of capital to the
extent of your tax basis in Existing Preferred Stock, and
thereafter will be treated as capital gain. If a redemption of
Existing Preferred Stock is treated as a distribution , your
adjusted tax basis in the redeemed Existing Preferred Stock
generally will be transferred to any remaining shares of common
or preferred stock held by you immediately after the redemption.
If you do not own any other shares of common or preferred stock
immediately after the redemption, such tax basis may, under
certain circumstances, be transferred to shares of common or
preferred stock held by a person related to you, or the tax
basis may be entirely lost.
Your holding period in the New Notes will begin on the day of
the exchange of the Existing Preferred Stock for New Notes. Your
initial tax basis in the New Notes will be equal to the issue
price (as defined below) of the New Notes.
Holders of the Existing Preferred Stock should consult their own
tax advisors regarding the treatment of the exchange of Existing
Preferred Stock for New Notes.
Ownership
of the New Notes
Original
Issue Discount
The New Notes will be issued with
OID. Accordingly, you will be required to include
OID in gross income for U.S. federal income tax purposes as
it accrues (regardless of your method of accounting), which may
be in advance of receipt of the cash attributable to that
income. OID accrues under the constant-yield method, based on a
compounded yield to maturity, as described below. As a result,
you generally will be required to include in income increasingly
greater amounts of OID in successive accrual periods. The amount
of OID on a New Note will equal to the access of the
stated redemption price at maturity of the New Note
over the issue price of the New Note.
For U.S. federal income tax purposes, the issue
price of the New Notes depends on whether the New Notes or
the Existing Preferred Stock are deemed to be publicly
traded. The New Notes or the Existing Preferred Stock will
be treated as publicly traded if, at any time during the
60-day
period ending 30 days after the issue date of the New
Notes, the New Notes or the Existing Preferred Stock are or
were, as the case may be, traded on an established
market within the meaning of the applicable Treasury
regulations. In general, a debt instrument will be treated as
publicly traded if it is listed on a major securities exchange,
appears on a system of general circulation that provides a
reasonable basis to determine fair market value or otherwise is
readily quotable by dealers, brokers or traders. The
determination as to whether an instrument is publicly traded
depends upon the relevant facts and circumstances and the
application of these rules is subject to significant uncertainty
under current law.
If the New Notes are publicly traded, the issue price of a New
Note will be the fair market value of the New Note, determined
as of the date of issuance. If the New Notes are not publicly
traded, but the Existing Preferred Stock is publicly traded,
then the issue price of a New Note will be the fair market value
of the Existing Preferred Stock exchanged therefor as of the
date of the exchange. If neither the Existing Preferred Stock
nor the New Notes exchanged therefor are publicly traded, then
the issue price of a New Note so exchanged would generally equal
its stated principal amount.
The stated redemption price at maturity of a note
generally is the total amount of payments provided by the note
other than qualified stated interest payments.
Generally, an interest payment on a note is qualified
stated interest if it is one of a series of stated
interest payments on a note that are unconditionally payable at
least annually at a single fixed rate, with certain exceptions
for lower rates paid during some periods, applied to the
outstanding principal amount of the note. Because we have the
option to pay interest in additional New Notes, none of the
stated interest on the New Notes will constitute qualified
stated interest.
141
The annual amounts of OID includible in income by you will equal
the sum of the daily portions of the OID with
respect to the New Notes for each day on which you own the New
Notes during the taxable year. Generally, you determine the
daily portions of OID by allocating to each day in an
accrual period a pro rata portion of the OID that is
allocable to that accrual period. The term accrual
period means an interval of time with respect to which the
accrual of OID is measured and which may vary in length over the
term of a note provided that each accrual period is no longer
than one year and each scheduled payment of principal or
interest occurs on either the first or last day of an accrual
period.
The amount of OID allocable to an accrual period will be the
excess of (i) the product of the adjusted issue
price of a New Note at the beginning of the accrual period
and its yield to maturity over (ii) the
aggregate amount of any qualified stated interest payments
allocable to the accrual period.
The adjusted issue price of a New Note at the beginning of the
first accrual period is its issue price, and, on any day
thereafter, it is the sum of the issue price and the amount of
OID previously included in gross income, reduced by the amount
of any payment (other than a payment of qualified stated
interest) previously made on the New Note. If all accrual
periods are of equal length except for a shorter initial
and/or final
accrual period, you can compute the amount of OID allocable to
the initial period using any reasonable method; however, the OID
allocable to the final accrual period will always be the
difference between the amount payable at maturity (other than a
payment of qualified stated interest) and the adjusted issue
price at the beginning of the final accrual period.
Applicable
High Yield Discount Obligations
If the New Notes constitute AHYDOs for U.S. federal income
tax purposes, to the extent we have current or accumulated
earnings and profits, the disqualified portion of OID, as
discussed above, generally will be treated as a dividend to you
that may be subject to a dividends received deduction if you are
a corporation. The dividends-received deduction is subject to a
number of complex limitations. However, as described above, we
do not anticipate that the New Notes will be subject to the
AHYDO rules, and therefore we do not expect that this treatment
will apply, although there can be no assurances in this regard.
You are urged to consult your own tax advisor regarding the
U.S. federal income tax consequences to you of holding New
Notes that are considered AHYDOs.
Treatment
of Additional Notes
We have the option to pay interest on the New Notes in
additional New Notes (PIK Notes). A newly
distributed PIK Note issued in respect of a New Note is
aggregated with the New Note and will be treated as part of the
New Note with respect to which it was issued. Thus, the initial
issue price of a newly distributed PIK Note issued in respect of
a New Note likely will be determined by allocating the adjusted
issue price, at the time of distribution, of the underlying New
Note between the newly distributed PIK Note and the underlying
New Note in proportion to their respective principal amounts. A
portion of the basis of such New Note will be allocated to such
PIK Note and OID on such PIK Note will accrue in the same manner
as described above in the case of such New Note. Your holding
period for any PIK Note with respect to a New Note will likely
be identical to your holding period for the New Note. The same
rules would apply to a PIK Note received in lieu of cash
interest on a PIK Note. Holders should consult their own tax
advisors as to the U.S. federal income tax consequences of
disposing of a New Note and the PIK Notes received with respect
thereto in separate transactions.
Sale,
Exchange or Retirement of the New Notes
Upon the sale, retirement or other disposition of a New Note,
you generally will recognize capital gain or loss in an amount
equal to the difference between the sum of cash plus the fair
market value of any property received (other than any amount
received that is attributable to accrued but unpaid interest not
previously included in income, which will be taxable as ordinary
interest income) and your adjusted tax basis in the New Note.
Your tax basis in a New Note generally will be the amount that
you paid for the New Note increased by the amount of any OID
previously included in income, decreased by the amount of any
payments (other than
142
payments of qualified stated interest) on the New Note. Any
capital gain or loss will be long-term capital gain or loss if
at the time of the sale, exchange, retirement or other taxable
disposition of the New Note, you held the New Note for more than
one year. Under current law, long-term capital gains of an
individual taxpayer for taxable dispositions after
January 1, 2011 will be taxed at a maximum rate of 20%. The
deductibility of capital losses is subject to limitations.
Information
Reporting and Backup Withholding
In general, information reporting requirements will apply to
certain payments of principal of, and interest on, a New Note,
and the proceeds of disposition of a New Note before maturity,
to U.S. Holders other than certain exempt recipients, such
as corporations. In general, payments to you will be subject to
backup withholding at the then applicable rate (unless you are
an exempt recipient) if you fail to provide a correct taxpayer
identification number (which, if you are an individual, would
generally be your Social Security Number), fail to report
interest income in full, fail to certify that you are exempt
from withholding, or otherwise fail to comply with applicable
requirements of the backup withholding rules.
Backup withholding is not an additional tax. Any amounts
withheld from payments to you under the backup withholding rules
will be allowed as a credit against your U.S. federal
income tax liability and may entitle you to a refund, provided
the required information is furnished to the IRS. You should
consult your tax advisor regarding the application of backup
withholding in your particular situation, the availability of an
exemption from backup withholding and the procedure for
obtaining such an exemption, if available.
Tax
Considerations for
Non-U.S.
Holders
This subsection applies to you if you are a
Non-U.S. Holder.
The rules governing U.S. federal income taxation of
Non-U.S. Holders
are complex. If you are a
non-U.S. Holder,
you should consult with your own tax advisor to determine the
effect of U.S. federal, state, local and foreign income tax
laws, as well as treaties, with regard to an investment in the
New Notes, including any reporting requirements.
The
Exchange Offer
A redemption of the Existing Preferred Stock by exchange for the
New Notes generally will be treated as a sale or exchange of the
shares of Existing Preferred Stock that are redeemed, rather
than a distribution, if the redemption satisfies one of the
tests set forth in Section 302(b) of the Code as discussed
under Tax Considerations for
U.S. Holders The Exchange Offer. The
same tests of Section 302(b) discussed above are applicable
to you.
If a redemption of Existing Preferred Stock is treated as a sale
or exchange, you generally will not be subject to
U.S. federal income or withholding tax in respect of any
gain on a sale or exchange of the Existing Preferred Stock
unless (i) the gain is U.S. trade or business income,
in which case, such gain will be taxed as described in
U.S. Trade or Business
Income, below; (ii) you are an individual who is
present in the United States for 183 or more days in the taxable
year of the disposition and certain other conditions are met, in
which case you will be subject to U.S. federal income tax
at a rate of 30% (or a reduced rate under an applicable tax
treaty) on the amount by which certain capital gains allocable
to U.S. sources exceed certain capital losses allocable to
U.S. sources; or (iii) in certain cases we are or have
been a U.S. real property holding corporation
(a USRPHC) under section 897 of the Code at any
time during the shorter of the five-year period ending on the
date of the disposition and your holding period for the Existing
Preferred Stock. We believe that were are not currently, and we
and have not been, a U.S. real property holding
corporation for U.S. federal income tax purposes.
If a redemption of Existing Preferred Stock is treated as a
distribution, the entire amount of the distribution, measured by
the issue price of the New Notes (as defined above),
will be treated as a dividend for U.S. federal income tax
purposes to the extent paid from our current or accumulated
earnings and profits (as determined under U.S. federal
income tax principles). Except as described below under
U.S. Trade or
143
Business Income, you generally will be subject to
U.S. federal withholding tax at a 30% rate, or at a reduced
rate prescribed by an applicable income tax treaty, on any
dividends (including any constructive distributions taxable as
dividends and any stock distribution treated as a dividend). If
the amount of the distribution exceeds our current and
accumulated earnings and profits, such excess first will be
treated as a return of capital to the extent of your tax basis
in Existing Preferred Stock, and thereafter will be treated as
capital gain. However, except to the extent that we elect (or
the paying agent or other intermediary through which you hold
your Existing Preferred Stock elects) otherwise, we (or the
intermediary) must generally withhold on the entire
distribution, in which case you would be entitled to a refund
from the IRS for the withholding tax on the portion of the
distribution that exceeded our current and accumulated earnings
and profits. In order to obtain a reduced rate of
U.S. federal withholding tax under an applicable income tax
treaty, you will be required to provide a properly executed IRS
Form W-8BEN
(or successor form) certifying your entitlement to benefits
under the treaty. If you are eligible for a reduced rate of
U.S. federal withholding tax under an income tax treaty,
you may obtain a refund or credit of any excess amounts withheld
by filing an appropriate claim for a refund with the IRS. You
are urged to consult your own tax advisor regarding your
possible entitlement to benefits under an income tax treaty.
Sections 1471-1474
of the Code (FATCA), recently enacted by the
U.S. Congress, impose a withholding tax of 30% on certain
U.S. source payments made to foreign financial institutions
or their affiliates and to other foreign entities, unless the
payee institution agrees to comply with new reporting
requirements for foreign accounts owned by U.S. individuals
or
U.S.-owned
foreign entities. FATCA generally applies only to payments made
after December 31, 2012. You are urged to consult your own
tax advisers with respect to the new withholding and reporting
regime imposed by FATCA
U.S.
Trade or Business Income
For purposes of this discussion, dividend income and gain on the
sale or exchange of Existing Preferred Stock will be considered
to be U.S. trade or business income if such
income or gain is (i) effectively connected with your
conduct of a trade or business within the United States and
(ii) if you are eligible for the benefits of an income tax
treaty with the United States, attributable to a permanent
establishment (or, if you are an individual, a fixed base) that
you maintain in the United States. Generally, U.S. trade or
business income is not subject to U.S. federal withholding
tax (provided that you comply with applicable certification and
disclosure requirements, including providing a properly executed
IRS
Form W-ECI
(or successor form)); instead, you are subject to
U.S. federal income tax on a net basis at regular
U.S. federal income tax rates (in the same manner as a
U.S. person) on your U.S. trade or business income. If
you are a corporation, any U.S. trade or business income
that you receive may also be subject to a branch profits
tax at a 30% rate, or at a lower rate prescribed by an
applicable income tax treaty.
Interest
and Original Issue Discount
Payments
of Interest
Subject to the discussion below concerning backup withholding,
payments of interest on a New Note (including OID) to you that
are not effectively connected with your conduct of a United
States trade or business generally will not be subject to
U.S. federal income tax or withholding tax, if (i) you
do not own, actually or constructively, for U.S. federal
income tax purposes, 10% or more of the total combined voting
power of all classes of voting stock; (ii) you are not, for
U.S. federal income tax purposes, a controlled foreign
corporation related, directly or indirectly, to Emmis through
stock ownership under applicable rules of the Code;
(iii) you are not a bank receiving interest described in
Section 881(c)(3)(A) of the Code; and (iv) the
certification requirement, as described below, is fulfilled with
respect to the beneficial owner of the New Note.
The certification requirement referred to above will be
fulfilled if either (A) you provide to Emmis or our paying
agent an IRS
Form W-8BEN
(or successor form), signed under penalties of perjury, that
includes your name and address and a certification as to your
non-U.S. status,
or (B) a securities clearing organization, bank or other
financial institution that holds customers securities in
the ordinary course of its trade or business holds the New Note
on behalf of the beneficial owner and provides a statement to
Emmis or our paying agent,
144
signed under penalties of perjury, in which the organization,
bank or financial institution certifies that it has received an
IRS
Form W-8BEN
(or successor form) from the
non-U.S. beneficial
owner or from another financial institution acting on behalf of
such beneficial owner and furnishes Emmis or our paying agent
with a copy thereof and otherwise complies with the applicable
IRS requirements. Other methods might be available to satisfy
the certification requirements described above, depending on
your particular circumstances.
The gross amount of payments of interest that do not qualify for
the exception from withholding described above (the
portfolio interest exemption) will be subject to
United States withholding tax at a rate of 30% unless
(A) you provide a properly completed IRS
Form W-8BEN
(or successor form) claiming an exemption from or reduction in
withholding under an applicable tax treaty, or (B) such
interest is effectively connected with your conduct of a United
States trade or business and you provide a properly completed
IRS
Form W-8ECI
(or successor form).
If you are engaged in a trade or business in the United States
and if interest on the New Note or gain realized on the
disposition of the New Note is effectively connected with the
conduct of such trade or business, you generally will be subject
to regular U.S. federal income tax on the interest or gain
on a net basis in the same manner as if you were a
U.S. Holder, unless an applicable treaty provides
otherwise. In addition, if you are a foreign corporation, you
may also be subject to a branch profits tax on your earnings and
profits for the taxable year, subject to certain adjustments, at
a rate of 30% unless reduced or eliminated by an applicable tax
treaty. Even though such effectively connected income is subject
to income tax, and may be subject to the branch profits tax, it
is not subject to withholding tax if you satisfy the
certification requirements described above.
Sale,
Exchange or Disposition of the Notes
Subject to the discussion below concerning backup withholding,
if you are a
Non-U.S. Holder
of a New Note, you generally will not be subject to
U.S. federal income tax on gain realized on the sale,
exchange or other taxable disposition of such New Note unless
(i) you are an individual who is present in the United
States for 183 days or more in the taxable year of
disposition, and certain other conditions are met;
(ii) such gain represents accrued but unpaid interest not
previously included in income, in which case the rules regarding
interest would apply; or (iii) such gain is effectively
connected with your conduct of a trade or business in the United
States.
Information
Reporting and Backup Withholding
Unless certain exceptions apply, we must report annually to the
IRS and to you any interest paid to you during the taxable year.
Copies of these information returns may also be made available
under the provisions of a specific treaty or other agreement to
the tax authorities of the country in which you reside.
Under current U.S. federal income tax law, backup
withholding tax will not apply to payments of interest by Emmis
or our paying agent on a Note if the certifications described
above under Payments of Interest are
received, provided that we or our paying agent, as the case may
be, do not have actual knowledge or reason to know that the
payee is a U.S. person.
Payments on the sale, exchange or other disposition of a New
Note made to or through a foreign office of a foreign broker
generally will not be subject to backup withholding or
information reporting. However, if such broker is for
U.S. federal income tax purposes (i) a
U.S. person; (ii) a controlled foreign corporation;
(iii) a foreign person 50% or more of whose gross income is
effectively connected with a U.S. trade or business for a
specified three-year period; or (iv) a foreign partnership
with certain connections to the United States, then information
reporting will be required unless the broker has in its records
documentary evidence that the beneficial owner is not a
U.S. person and certain other conditions are met or the
beneficial owner otherwise establishes an exemption. Backup
withholding may apply to any payment that such broker is
required to report if the broker has actual knowledge or reason
to know that the payee is a U.S. person. Payments to or
through the U.S. office of a broker will be subject to
backup withholding and information reporting unless the
beneficial owner certifies, under penalties of perjury, that it
is not a U.S. person, or otherwise establishes an exemption.
145
Backup withholding is not an additional tax; any amounts
withheld from a payment to you under the backup withholding
rules will be allowed as a credit against your U.S. federal
income tax liability and may entitle you to a refund, provided
that the required information is furnished to the IRS. You
should consult your tax advisor regarding the application of
information reporting and backup withholding in your particular
situation, the availability of an exemption from backup
withholding and the procedure for obtaining such an exemption,
if available.
The consolidated financial statements of Emmis Communications
Corporation and Subsidiaries as of February 28, 2009 and
2010, and for each of the three years in the period ended
February 28, 2010, included in this Proxy Statement/Offer
to Exchange, have been audited by Ernst & Young LLP,
independent registered public accounting firm, as stated in
their report appearing in this Proxy Statement/Offer to Exchange.
We are subject to the informational requirements of the Exchange
Act and file reports, proxy statements and other information
with the SEC. You may read and copy any document we file with
the SEC at the SECs Public Reference Room,
100 F Street, N.E., Washington, D.C. 20549.
Copies of these reports, proxy statements and other information
may be obtained at prescribed rates from the Public Reference
Section of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the Public Reference
Room. In addition, the SEC maintains a web site that contains
reports, proxy statements and other information regarding
registrants, such as us, that file electronically with the SEC.
The address of this web site is
http://www.sec.gov.
Anyone who receives a copy of this Proxy Statement/Offer to
Exchange may obtain a copy of the Indenture without charge by
writing to us at: Investor Relations, Emmis Communications
Corporation, One Emmis Plaza, 7th Floor, 40 Monument
Circle, Indianapolis, Indiana 46284, Telephone:
(317) 266-0100.
146
Schedule A
Information
Concerning the Directors and Executive Officers of JS
Acquisition and JS Parent
The following tables set forth the name, business address,
present principal occupation, principal business and address of
any corporation or other organization in which the employment or
occupation is conducted, and material occupations, positions,
offices or employment held within the past five years of each
director and executive officer of JS Acquisition and JS Parent.
Unless otherwise specified, each person listed below is a
citizen of the United States and has his or her principal
business address at One Indiana Square, Suite 3500
Indianapolis, Indiana 46204.
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Present Principal Occupation or Employment
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Name and Citizenship
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and Five-Year Employment History
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Jeffrey H. Smulyan
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Director, President, Treasurer and
Secretary of JS Acquisition, Inc. (since 2010)
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Manager, President, Treasurer and
Secretary of JS Acquisition, LLC (since 2010)
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Chairman, Chief Executive Officer and
President of Emmis Communications Corporation (since 1979)
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A-1
Schedule B
ARTICLES OF
AMENDMENT
OF THE
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
EMMIS COMMUNICATIONS CORPORATION
The undersigned officer of Emmis Communications Corporation
(hereinafter referred to as the Corporation)
existing pursuant to the provisions of the Indiana Business
Corporation Law, as amended, (hereinafter referred to as the
Law), desiring to give notice of corporate action
effectuating amendment of certain provisions of its Articles of
Incorporation, certifies the following facts:
Section 1: The
date of incorporation of the Corporation is July 17, 1986.
Section 2: The
name of the Corporation following this amendment to the Articles
of Incorporation is Emmis Communications Corporation.
ARTICLE I
Amendments
Section 1: Section 7.2
of Exhibit A to the Second Amended and Restated Articles of
Incorporation is hereby deleted in its entirety and replaced
with the following:
INTENTIONALLY OMITTED.
Section 2: Section 9(g)
of Exhibit A to the Second Amended and Restated Articles of
Incorporation shall be amended by adding the following to the
end of such subsection:
Notwithstanding the foregoing, with respect to the merger
of JS Acquisition, Inc., an Indiana corporation, with and into
the Corporation (the JS Merger), at the effective
time of the JS Merger (i) each share of Preferred Stock
held by Alden Global Capital or its affiliates (Alden
Preferred Stock) shall convert automatically into
12% PIK Senior Subordinated Notes due 2017 issued by the
Corporation (the New Notes), at a rate of $30
principal amount of New Notes per $50 of liquidation preference
of shares of Preferred Stock, excluding accrued and unpaid
dividends and (ii) each share of Preferred Stock (other
than Alden Preferred Stock) that is outstanding at the effective
time of the JS Merger shall convert automatically into the right
to receive an amount equal to (A) the number of shares of
Class A Common Stock into which each such share of
Preferred Stock could be converted immediately prior to the
effective time of the JS Merger, multiplied by (B) the
consideration into which a share of Class A Common Stock is
converted in the JS Merger.
Section 3: Section 11
of Exhibit A to the Second Amended and Restated Articles of
Incorporation is hereby deleted in its entirety.
ARTICLE II
Date of
Adoption
The amendments were adopted
on ,
2010.
ARTICLE III
Manner of
Adoption and Vote
The shareholders of the Corporation entitled to vote in respect
to the amendments adopted the proposed amendment. The amendment
was adopted by a vote of such shareholders during a meeting
called by the Board of Directors. The result of such vote is as
follows:
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6.25% Series A
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Cumulative
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Convertible
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Class
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Class A Common
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Class B Common
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Preferred
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Shares entitled to vote
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Number of shares represented at the meeting
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Shares voted in favor
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Shares voted against
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ARTICLE IV
Compliance
with Legal Requirements
The manner of adoption of these Articles of Amendment and the
vote by which they were adopted constitute full legal compliance
with the provisions of the Act, the Articles of Incorporation,
and the By-Laws of the Corporation.
I hereby verify, subject to the penalties of perjury, that the
statements included herein are true,
this
day
of ,
2010.
Emmis Communications Corporation
[NAME]
[Title]
2
Appendix
I
Emmis
Annual Report on
Form 10-K
for the fiscal year ended February 28, 2010
Appendix I
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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þ |
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Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 |
for the Fiscal Year Ended February 28, 2010
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o |
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Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of
1934 |
for the Transition Period from
_____
to
_____.
EMMIS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its
charter)
INDIANA
(State of incorporation or organization)
0-23264
(Commission file number)
35-1542018
(I.R.S. Employer
Identification No.)
ONE EMMIS PLAZA
40 MONUMENT CIRCLE
SUITE 700
INDIANAPOLIS, INDIANA 46204
(Address of principal executive offices)
(317) 266-0100
(Registrants Telephone Number,
Including Area Code)
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 of
Emmis Communications Corporation; 6.25% Series A Cumulative Convertible Preferred Stock, $.01 par
value of Emmis Communications Corporation.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such files). Yes o No o
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 registrants 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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, and accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Act).
Yes o No þ
The aggregate market value of the voting stock held by non-affiliates of the registrant, as of
August 31, 2009, the last business day of the Registrants most recently completed second fiscal
quarter, was approximately $20,480,000.
The number of shares outstanding of each of Emmis Communications Corporations classes of common
stock, as of April 30, 2010, was:
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32,905,904
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Class A Common Shares, $.01 par value |
4,930,680
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Class B Common Shares, $.01 par value |
0
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Class C Common Shares, $.01 par value |
DOCUMENTS INCORPORATED BY REFERENCE
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Documents |
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Form 10-K Reference |
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Proxy Statement for
2010 Annual Meeting
expected to be
filed within 120
days
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Part III |
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-K
TABLE OF CONTENTS
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I-2
FORWARD-LOOKING STATEMENTS
This report includes or incorporates forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. You can identify these forward-looking
statements by our use of words such as intend, plan, may, will, project, estimate,
anticipate, believe, expect, continue, potential, opportunity and similar expressions,
whether in the negative or affirmative. We cannot guarantee that we will achieve these plans,
intentions or expectations. All statements regarding our expected financial position, business and
financing plans are forward-looking statements.
Actual results or events could differ materially from the plans, intentions and expectations
disclosed in the forward-looking statements we make. We have included important facts in various
cautionary statements in this report that we believe could cause our actual results to differ
materially from forward-looking statements that we make. These include, but are not limited to,
the factors described in Part I, Item 1A, Risk Factors.
The forward-looking statements do not reflect the potential impact of any future acquisitions,
mergers or dispositions. We undertake no obligation to update or revise any forward-looking
statements because of new information, future events or otherwise.
I-3
PART I
ITEM 1. BUSINESS.
GENERAL
We are a diversified media company, principally focused on radio broadcasting. We operate the
8th largest publicly traded radio portfolio in the United States based on total
listeners. As of February 28, 2010, we own and operate seven FM radio stations serving the
nations top three markets New York, Los Angeles and Chicago, although one of our FM radio
stations in Los Angeles is operated pursuant to a Local Marketing Agreement (LMA) whereby a third
party provides the programming for the station and sells all advertising within that programming.
Additionally, we own and operate fourteen FM and two AM radio stations with strong positions in St.
Louis, Austin (we have a 50.1% controlling interest in our radio stations located there),
Indianapolis and Terre Haute, IN.
In addition to our domestic radio properties, we operate an international radio business and
publish several city and regional magazines. Internationally, we own and operate national radio
networks in Slovakia and Bulgaria. Our publishing operations consist of Texas Monthly, Los
Angeles, Atlanta, Indianapolis Monthly, Cincinnati, Orange Coast, and Country Sampler and related
magazines. We also engage in various businesses ancillary to our broadcasting business, such as
website design and development, broadcast tower leasing and operating a news information radio
network in Indiana.
BUSINESS STRATEGY
We are committed to improving the operating results of our core assets while simultaneously
seeking future growth opportunities in related businesses. Our strategy is focused on the
following operating principles:
Develop unique and compelling content and strong local brands
Most of our established local media brands have achieved and sustained a leading position in
their respective market segments over many years. Knowledge of local markets and consistently
producing unique and compelling content that meets the needs of our target audiences are critical
to our success. As such, we make substantial investments in areas such as market research, data
analysis and creative talent to ensure that our content remains relevant, has a meaningful impact
on the communities we serve and reinforces the core brand image of each respective property.
Extend the reach and relevance of our local brands through digital platforms
In recent years, we have placed substantial emphasis on enhancing the distribution of our
content through digital platforms, such as the Internet and mobile phones. We believe these
digital platforms offer excellent opportunities to further enhance the relationships we have with
our audiences by allowing them to consume and share our content in new ways and providing us with
new distribution channels for one-to-one communication with them.
Deliver results to advertisers
Competition for advertising revenue is intense and becoming more so. To remain competitive,
we focus on sustaining and growing our audiences, optimizing our pricing strategy and developing
innovative marketing programs for our clients that allow them to interact with our audiences in
more direct and measurable ways. These programs often include elements such as on-air
endorsements, events, contests, special promotions, Internet advertising, email marketing, text
messaging and online video. Our ability to deploy multi-touchpoint marketing programs allows us to
deliver a stronger return-on-investment for our clients while simultaneously generating ancillary
revenue streams for our media properties.
Extend sales efforts into new market segments
Given the competitive pressures in many of our traditional advertising categories, we are
expanding our network of advertiser relationships into new and emerging advertising categories
where we believe our capabilities can address clients under-served needs. The early return on
these efforts has been encouraging and we plan to shift additional resources toward these efforts
over time.
I-4
Enhance the efficiency of our operations
We believe it is essential that we operate our businesses as efficiently as possible. In
recent years, we have undertaken a series of aggressive restructurings and cost cuts, and we
continue to seek additional opportunities to streamline our operations.
Establish additional platforms for long-term growth and value creation
While our primary focus is on near-term performance improvement, we also believe it is
important to make sensible investments in longer-term growth opportunities. For example, Emmis
Interactive Inc., one of our subsidiaries, was formed last year to market to other broadcasters and
publishers the leading-edge Internet technology platform and digital media sales expertise that had
been developed in-house at Emmis Radio. To date, the company has signed up approximately 200
third-party media properties as clients and continues to grow rapidly. Our International Radio
division has also been a strong source of profitable growth for the company over the past few years
and we continue to search for opportunities to strengthen our existing clusters and expand the
geographic footprint of our operations.
I-5
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 our stations among all radio markets in the United States.
Market revenue rankings are from BIAs Investing in Radio 2010 (1st Edition). Ranking
in Primary Demographic Target is the ranking of the station within its designated primary
demographic target among all radio stations in its market based on the Fall 2009 Arbitron Survey
or, in the case of our Los Angeles, New York, Chicago and St. Louis radio stations, based on the
March 2010 Portable People MeterTM (PPMTM) results. 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 in the primary demographic
listening to a particular station during specified time periods by the average number of such
persons in the primary demographic for all stations in the market area as determined by Arbitron.
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RANKING IN |
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MARKET |
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PRIMARY |
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PRIMARY |
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STATION |
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STATION AND |
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RANK BY |
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DEMOGRAPHIC |
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AUDIENCE |
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MARKET |
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REVENUE |
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Los Angeles, CA 1 |
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KPWR-FM |
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Hip-Hop |
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18-34 |
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2 |
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6.8 |
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New York, NY |
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2 |
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WRKS-FM |
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25-54 |
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7t |
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3.7 |
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7.9 |
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Chicago, IL |
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WKQX-FM |
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5 |
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5.4 |
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St. Louis, MO |
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21 |
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|
|
|
|
|
|
|
KPNT-FM |
|
|
|
|
|
Alternative Rock |
|
18-34 |
|
|
1 |
|
|
|
13.2 |
|
KSHE-FM |
|
|
|
|
|
Album Oriented Rock |
|
25-54 |
|
|
2 |
|
|
|
8.2 |
|
KIHT-FM |
|
|
|
|
|
Classic Hits |
|
25-54 |
|
|
4 |
|
|
|
7.2 |
|
KFTK-FM |
|
|
|
|
|
Talk |
|
25-54 |
|
|
14 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Austin, TX |
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
KLBJ-AM |
|
|
|
|
|
News/Talk |
|
25-54 |
|
|
7 |
|
|
|
4.8 |
|
KLZT-FM 2 |
|
|
|
|
|
Mexican Regional |
|
18-34 |
|
|
13t |
|
|
|
1.8 |
|
KBPA-FM |
|
|
|
|
|
Adult Hits |
|
25-54 |
|
|
4t |
|
|
|
5.4 |
|
KLBJ-FM |
|
|
|
|
|
Album Oriented Rock |
|
25-54 |
|
|
3 |
|
|
|
5.6 |
|
KGSR-FM |
|
|
|
|
|
Adult Album Alternative |
|
25-54 |
|
|
8 |
|
|
|
4.4 |
|
KROX-FM |
|
|
|
|
|
Alternative Rock |
|
18-34 |
|
|
6 |
|
|
|
5.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indianapolis, IN |
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
WFNI-AM |
|
|
|
|
|
Sports Talk |
|
25-54 |
|
|
15 |
|
|
|
2.5 |
|
WYXB-FM |
|
|
|
|
|
Soft Adult Contemporary |
|
25-54 |
|
|
8 |
|
|
|
4.7 |
|
WLHK-FM |
|
|
|
|
|
Country |
|
25-54 |
|
|
4 |
|
|
|
5.7 |
|
WIBC-FM |
|
|
|
|
|
News/Talk |
|
35-64 |
|
|
2 |
|
|
|
7.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terre Haute, IN |
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
WTHI-FM |
|
|
|
|
|
Country |
|
25-54 |
|
|
1 |
|
|
|
21.2 |
|
WWVR-FM |
|
|
|
|
|
Classic Rock |
|
25-54 |
|
|
3 |
|
|
|
7.6 |
|
|
|
|
1 |
|
Our second station in Los Angeles, KXOS-FM, is operating pursuant to a Local
Marketing Agreement (LMA). Under the terms of the LMA, Grupo Radio Centro, S.A.B. de C.V provides
the programming for the station and sells all advertising within that programming. Emmis continues
to own and operate KXOS-FM. In connection with the LMA, the call letters of the station were
changed from KMVN-FM to KXOS-FM. |
|
2 |
|
KLZT-FM, changed its format
from Hip-Hop to Mexican Regional in December 2009. The ratings
for KLZT-FM are for the month of January 2010, the first month
of ratings available for the Mexican Regional format. |
I-6
In addition to our other domestic radio broadcasting operations, we own and operate Network
Indiana, a radio network that provides news and other programming to nearly 70 affiliated radio
stations in Indiana. Internationally, we own and operate national radio networks in Slovakia and
Bulgaria. We also engage in various businesses ancillary to our broadcasting business, such as
consulting and broadcast tower leasing.
PUBLISHING OPERATIONS
We publish the following magazines:
|
|
|
|
|
|
|
Monthly |
|
|
|
Paid & Verified |
|
|
|
Circulation(1) |
|
Regional Magazines: |
|
|
|
|
Texas Monthly |
|
|
301,100 |
|
Los Angeles |
|
|
140,000 |
|
Atlanta |
|
|
63,100 |
|
Orange Coast |
|
|
52,500 |
|
Indianapolis Monthly |
|
|
42,400 |
|
Cincinnati |
|
|
39,300 |
|
|
|
|
|
|
Specialty Magazines (2): |
|
|
|
|
Country Sampler |
|
|
339,900 |
|
Country Business |
|
|
21,900 |
|
|
|
|
(1) |
|
Source: Publishers Statement subject to audit by the Audit Bureau of Circulations (as of
December 31, 2009) |
|
(2) |
|
Our specialty magazines are circulated bimonthly |
INTERNET AND NEW TECHNOLOGIES
We believe that the growth of the Internet and other new technologies present not only a
challenge, but an opportunity for broadcasters and publishers. The primary challenge is increased
competition for the time and attention of our listeners and readers. The opportunity is to further
enhance the relationships we already have with our listeners and readers by expanding products and
services offered by our stations and magazines.
COMMUNITY INVOLVEMENT
We believe that to be successful, we must be integrally involved in the communities we serve.
We see ourselves as community partners. To that end, each of our stations and magazines
participates in many community programs, fundraisers and activities that benefit a wide variety of
organizations. Charitable organizations that have been the beneficiaries of our contributions,
marathons, walkathons, dance-a-thons, concerts, fairs and festivals include, among others, Big
Brothers/Big Sisters, Coalition for the Homeless, Indiana Black Expo, the Childrens Wish Fund, the
National Multiple Sclerosis Foundation and Special Olympics. Several years ago, the National
Association of Broadcasters Education Foundation honored us with the Hubbard Award, honoring a
broadcaster for extraordinary involvement in serving the community. Emmis was the second
broadcaster to receive this prestigious honor, after the Hubbard family, for which the award is
named.
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, the Arbitron Advisory Council, and as founding members of the Radio Operators Caucus and
Magazine Publishers of America. Our chief executive officer has been honored with the National
Association of Broadcasters National Radio Award and as Radio Inks Radio Executive of the
Year. Our management and on-air personalities have won numerous industry awards.
I-7
COMPETITION
Radio broadcasting stations compete with the other broadcasting stations in their respective
market areas, as well as with other advertising media such as newspapers, cable, magazines, outdoor
advertising, transit advertising, the Internet and direct marketing. Competition within the
broadcasting industry occurs primarily in individual market areas, so that a station in one market
(e.g., New York) does not generally compete with stations in other markets (e.g., Chicago). 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 that are material to competitive position include the stations rank in its
market in terms of the number of listeners or viewers, 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. We also seek to
improve our position through sales efforts designed to attract advertisers that have done little or
no radio advertising by emphasizing the effectiveness of radio advertising in increasing the
advertisers revenues. The policies and rules of the Federal Communications Commission (the FCC)
permit certain joint ownership and joint operation of local stations. All of our radio stations
take advantage of these joint arrangements in an effort to lower operating costs and 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, barriers to entry exist. The
operation of a broadcasting station in the United States requires a license from the FCC. Also,
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 FCCs multiple ownership
rules regulating the number of stations that may be owned and controlled by a single entity and
cross ownership rules which limit the types of media properties in any given market that can be
owned by the same person or company.
ADVERTISING SALES
Our stations and magazines 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 stations or magazines 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 stations audience share position more rapidly than does the volume of local and
regional advertising revenue. During the year ended February 28, 2010, approximately 18% of our
total advertising revenues were derived from national sales, and 82% were derived from local and
regional sales. For the year ended February 28, 2010, our radio stations derived a higher
percentage of their advertising revenues from local and regional sales (84%) than our publishing
entities (73%).
EMPLOYEES
As of February 28, 2010, Emmis had approximately 880 full-time employees and approximately 330
part-time employees. Approximately 50 employees are represented by unions at our various radio
stations. We consider relations with our employees to be good.
INTERNET ADDRESS AND INTERNET ACCESS TO SEC REPORTS
Our Internet address is www.emmis.com. Through our Internet website, free of charge, you may
obtain copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act. These reports will be available the same day we electronically file
such material with, or furnish such material to, the SEC. We have been making such reports
available on the same day they are filed during the period covered by this report.
FEDERAL REGULATION OF BROADCASTING
Radio broadcasting in the United States is subject to the jurisdiction of the FCC under the
Communications Act of 1934 (the Communications Act), as amended in part by the Telecommunications
Act of 1996 (the 1996 Act). 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 broadcast licenses for radio stations in such a manner as will provide a fair, efficient
and equitable distribution of service throughout the United States. The FCC determines the
operating frequency, location and power of stations; regulates the equipment used by stations; and
regulates numerous other areas of 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 an entity holding
such a license without the prior approval of the FCC. Under the Communications Act, the FCC also
regulates certain aspects of the operation of cable television systems and other electronic media
that compete with broadcast stations.
I-8
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 as well
as FCC rules, public notices and rulings for further information concerning the nature and extent
of federal regulation of radio 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 whether new or amended FCC regulations will be adopted or what
their effect would be on Emmis.
LICENSE RENEWAL. Radio stations operate pursuant to broadcast licenses that are ordinarily
granted by the FCC for maximum terms of eight years and are subject to renewal upon approval by the
FCC. The following table sets forth our FCC license expiration dates in addition to the call
letters, license classification, antenna elevation above average terrain (for our FM stations
only), power and frequency of all owned stations as of February 28, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Height Above |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration Date |
|
|
|
Terrain |
|
Power (in |
|
Radio Market |
|
Stations |
|
City of License |
|
Frequency |
|
|
of License1 |
|
FCC Class |
|
(in feet) |
|
Kilowatts) |
|
|
|
|
|
|
Los Angeles, CA |
|
KPWR-FM |
|
Los Angeles, CA |
|
|
105.9 |
|
|
December 2013 |
|
B |
|
3035 |
|
|
25 |
|
|
|
KXOS-FM |
|
Los Angeles, CA |
|
|
93.9 |
|
|
December 2013 |
|
B |
|
3009 |
|
|
18.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York, NY |
|
WRXP-FM |
|
New York, NY |
|
|
101.9 |
|
|
June 2014 |
|
B |
|
1355 |
|
|
6.2 |
|
|
|
WQHT-FM |
|
New York, NY |
|
|
97.1 |
|
|
June 2014 |
|
B |
|
1339 |
|
|
6.7 |
|
|
|
WRKS-FM |
|
New York, NY |
|
|
98.7 |
|
|
June 2014 |
|
B |
|
1362 |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicago, IL |
|
WKQX-FM |
|
Chicago, IL |
|
|
101.1 |
|
|
December 2004 2 |
|
B |
|
1394 |
|
|
5.7 |
|
|
|
WLUP-FM |
|
Chicago, IL |
|
|
97.9 |
|
|
December 2012 |
|
B |
|
1394 |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
St. Louis, MO |
|
KFTK-FM |
|
Florissant, MO |
|
|
97.1 |
|
|
February 2013 |
|
C1 |
|
561 |
|
|
100 |
|
|
|
KIHT-FM |
|
St. Louis, MO |
|
|
96.3 |
|
|
February 2013 |
|
C1 |
|
1027 |
|
|
80 |
|
|
|
KPNT-FM 3 |
|
Collinsville, IL |
|
|
105.7 |
|
|
February 2005 2 |
|
C |
|
1375 |
|
|
100 |
|
|
|
KSHE-FM |
|
Crestwood, MO |
|
|
94.7 |
|
|
February 2013 |
|
C0 |
|
1027 |
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Austin, TX |
|
KBPA-FM |
|
San Marcos, TX |
|
|
103.5 |
|
|
August 2013 |
|
C0 |
|
1257 |
|
|
100 |
|
|
|
KGSR-FM |
|
Cedar Park, TX |
|
|
93.3 |
|
|
August 2013 |
|
C |
|
1926 |
|
|
100 |
|
|
|
KLZT-FM |
|
Bastrop, TX |
|
|
107.1 |
|
|
August 2013 |
|
C2 |
|
499 |
|
|
49 |
|
|
|
KLBJ-AM |
|
Austin, TX |
|
|
590 |
|
|
August 2013 |
|
B |
|
N/A |
|
|
5 D / 1 N |
|
|
|
KLBJ-FM |
|
Austin, TX |
|
|
93.7 |
|
|
August 2013 |
|
C |
|
1050 |
|
|
97 |
|
|
|
KROX-FM |
|
Buda, TX |
|
|
101.5 |
|
|
August 2013 |
|
C2 |
|
843 |
|
|
12.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indianapolis, IN |
|
WFNI-AM |
|
Indianapolis, IN |
|
|
1070 |
|
|
August 2012 |
|
B |
|
N/A |
|
|
50 D / 10 N |
|
|
|
WLHK-FM |
|
Shelbyville, IN |
|
|
97.1 |
|
|
August 2012 |
|
B |
|
732 |
|
|
23 |
|
|
|
WIBC-FM |
|
Indianapolis, IN |
|
|
93.1 |
|
|
August 2004 2 |
|
B |
|
991 |
|
|
13.5 |
|
|
|
WYXB-FM |
|
Indianapolis, IN |
|
|
105.7 |
|
|
August 2012 |
|
B |
|
492 |
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terre Haute, IN |
|
WTHI-FM |
|
Terre Haute, IN |
|
|
99.9 |
|
|
August 2012 |
|
B |
|
489 |
|
|
50 |
|
|
|
WWVR-FM |
|
West Terre Haute, IN |
|
|
105.5 |
|
|
August 2012 |
|
A |
|
295 |
|
|
3.3 |
|
|
|
|
1 |
|
Under the Communications Act, a license expiration date is extended automatically pending action on the renewal application. |
|
2 |
|
Renewal application is pending. |
|
3 |
|
The FCC has authorized changes in technical facilities for KPNT-FM at a new transmitter site as follows: FCC Class, C1;
Height
Above Average Terrain, 751 ft; and Effective Radiated Power, 64 kW. The station is authorized to continue operation
with its existing facilities until the new facilities are constructed. The KPNT-FM changes require change of the city of
license of station KSEF-FM from Farmington to St. Genevieve, MO, which the FCC has approved. |
I-9
Under the Communications Act, at the time an application is filed for renewal of 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 motion) that there is a substantial and material question as to 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 the renewal application
should be granted. The Communications Act provides for the grant of a renewal application upon a
finding by the FCC that the licensee:
|
|
has served the public interest, convenience and necessity; |
|
|
has committed no serious violations of the Communications Act or the FCC rules; and |
|
|
has committed no other violations of the Communications Act or the FCC rules which would
constitute a pattern of abuse. |
If the FCC cannot make such a finding, it may deny the renewal application, and only then may
the FCC consider competing applications for the same frequency. In a vast majority of cases, the
FCC renews a broadcast license even when petitions to deny have been filed against the renewal
application.
Petitions to deny have been filed against the renewal applications for WKQX and KPNT and
remain pending. An informal objection was filed against the renewal applications of the Companys
Indiana radio stations and was rejected by the FCC, and the licenses of all the Indiana radio
stations except WIBC were renewed. A petition was filed with the FCC seeking reconsideration of
grant of those license renewals, and was rejected. However, an application for review of the
decision denying reconsideration was subsequently filed, and remains pending. See PROGRAMMING AND
OPERATION.
REVIEW OF OWNERSHIP RESTRICTIONS. The 1996 Act required the FCC to review all of its
broadcast ownership rules every two years and to repeal or modify any of its rules that are no
longer necessary in the public interest. Pursuant to subsequently adopted congressional
appropriations legislation, these reviews now must be conducted once every four years.
In June of 2003, the FCC modified several of its regulations governing the ownership of radio
stations in local markets. In June of 2004, however, the United States Court of Appeals for the
Third Circuit released a decision rejecting much of the FCCs 2003 decision. While affirming the
FCC in certain respects, the Third Circuit found fault with the proposed new limits on media
combinations, remanded them to the agency for further proceedings and extended a stay on the
implementation of the new rules that it had imposed in September 2003. In December of 2007, the
FCC adopted a decision pursuant to the remand ordered by the Court of Appeals. The FCC relaxed its
long-standing prohibition on common ownership of a television or radio station and daily newspaper
in the same market, allowing such ownership under limited circumstances. The FCC, however, largely
left intact its other pre-2003 ownership rules, including those limiting the number of radio
stations that may be commonly owned, or owned in combination with a television station, in a given
local market. The FCCs decision has been appealed by a number of broadcasters (not including
Emmis) and by a number of public interest groups. The appeals have been consolidated in the
Third Circuit and remain pending. Several other public interest groups also jointly filed a
petition for reconsideration of the December 2007 decision with the FCC, and that petition
similarly remains pending. In 2010, the FCC again will be required to undertake a comprehensive
review of its broadcast ownership rules pursuant to its statutory quadrennial review obligation to
determine whether the rules remain necessary in the public interest. We cannot predict whether
such appeals or the reconsideration proceeding will result in modifications of the ownership rules
or the impact (if any) that such modifications would have on our business.
The discussion below reviews the pertinent ownership rules currently in effect and the changes
in the newspaper/broadcast rule adopted in the FCCs December 2007 decision.
Local Radio Ownership:
The local radio ownership rule limits the number of commercial radio stations that may be
owned by one entity in a given radio market based on the number of radio stations in that market:
|
|
if the market has 45 or more radio stations, one entity may own up to eight stations, not
more than five of which may be in the same service (AM or FM); |
|
|
if the market has between 30 and 44 radio stations, one entity may own up to seven
stations, not more than four of which may be in the same service; |
I-10
|
|
if the market has between 15 and 29 radio stations, one entity may own up to six stations,
not more than four of which may be in the same service; and |
|
|
if the market has 14 or fewer radio stations, one entity may own up to five stations, not
more than three of which may be in the same service, however one entity may not own more than
50% of the stations in the market. |
Each of the markets in which our radio stations are located has at least 15 commercial radio
stations.
For purposes of applying these numerical limits, the FCC has also adopted rules with respect
to (i) so-called local marketing agreements, or LMAs, by which the licensee of one radio station
provides programming for another licensees radio station in the same market and sells all of the
advertising within that programming and (ii) so-called joint sale agreements, or JSAs, by which
the licensee of one station sells the advertising time on another station in the market. Under
these rules, an entity that owns one or more radio stations in a market and programs more than 15%
of the broadcast time, or sells more than 15% of the advertising time, on another radio station in
the same market pursuant to an LMA or JSA is generally required to count the station toward its
media ownership limits even though it does not own the station. As a result, in a market where we
own one or more radio stations, we generally cannot provide programming to another station under an
LMA, or sell advertising on another station pursuant to a JSA, if we could not acquire that station
under the local radio ownership rule. On April 3, 2009, Emmis entered into an LMA for KXOS-FM in
Los Angeles with a subsidiary of Grupo Radio Centro, S.A.B. de C.V (GRC), a Mexican broadcasting
company. The LMA for KXOS-FM started on April 15, 2009 and will continue for up to 7 years. The
LMA fee is $7 million per year. At any time during the LMA, GRC has the right to purchase the
station for $110 million. At the end of the term, Emmis has the right to require GRC to purchase
the station for the same amount. Under the LMA, Emmis continues to own and operate the station,
with GRC providing Emmis with programming for broadcast.
Although the FCCs June 2003 decision did not change the numerical caps under the local radio
rule, the FCC adjusted the rule by deciding that both commercial and noncommercial stations could
be counted in determining the number of stations in a radio market. The decision also altered the
definition of the relevant local market for purposes of the rule. The FCC grandfathered existing
station clusters not in compliance with the numerical caps as calculated pursuant to the new
market definition, but provided that they could be sold intact only to small businesses meeting
certain requirements. In December 2007, the FCC expanded this policy to allow an owner to sell a
grandfathered station cluster to any buyer, so long as the buyer commits to file, within 12 months,
an application with the FCC to transfer the excess station(s) to an eligible small business or to a
trust for ultimate sale to such an entity. The change in market definition appears to impact the
Austin, Texas market, such that we exceed the numerical cap for FM stations. If we chose to sell
our Austin cluster of stations, we would have to either sell the cluster to a buyer meeting the
requirements described above or spin off one FM station to a separate buyer.
Cross-Media Ownership:
The FCCs radio/television cross-ownership rule generally permits the common ownership of the
following combinations in the same market, to the extent permitted under the FCCs television
duopoly rule and local radio rules:
|
|
up to two commercial television stations and six commercial radio stations or one
commercial television station and seven commercial radio stations in a market where at least
20 independent media voices will remain post-merger; |
|
|
up to two commercial television stations and four commercial radio stations in a market
where at least 10 independent media voices will remain post-merger; and |
|
|
two commercial television stations and one commercial radio station in a market with less
than 10 independent media voices that will remain post-merger. |
For purposes of this rule, the FCC counts as voices commercial and non-commercial broadcast
television and radio stations as well as some daily newspapers and no more than one cable operator.
The FCC will consider permanent waivers of its revised radio/television cross-ownership rule only
if one of the stations is a failed station.
As noted above, the FCC rules formerly prohibited common ownership of a daily newspaper and a
radio or television station in the same local market. In its December 2007 decision, the FCC
adopted rules that contain a presumption in favor of allowing ownership of one television or radio
station in combination with one daily newspaper in the 20 largest media markets. In smaller
markets, there is a presumption against allowing such ownership. In the case of proposed
TV/newspaper combinations, the TV station may not be among the top four ranked stations in its
market, and there must be at least eight independently owned and operated TV stations in the market
post-transaction. The Third Circuit had stayed implementation of the December 2007 changes to
the newspaper/television cross-ownership ban, but the stay was lifted on March 23, 2010, and
accordingly the changes are now in effect.
I-11
ALIEN OWNERSHIP. Under the Communications Act, no FCC license may be held by a corporation if
more than one-fifth of its capital stock is owned or voted by aliens or their representatives, a
foreign government or representative thereof, or an entity 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 an entity directly or indirectly controlled by another entity of
which more than one-fourth of its capital stock is owned or voted by Non-U.S. Persons if the FCC
finds that the public interest will be served by the denial 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 types of business
organizations, including partnerships and limited liability companies. An LMA with a foreign owned
company is not prohibited as long as the non-foreign holder of the FCC license continues to control
and operate the station. Our Second Amended and Restated Articles of Incorporation and Amended and
Restated Code of By-Laws authorize the Board of Directors to prohibit such restricted alien
ownership, voting or transfer of capital stock as would cause Emmis to violate the Communications
Act or FCC regulations.
ATTRIBUTION OF OWNERSHIP INTERESTS. In applying its ownership rules, the FCC has developed
specific criteria in order to determine whether a certain ownership interest or other relationship
with an FCC licensee is significant enough to be attributable or cognizable under its rules.
Specifically, among other relationships, certain stockholders, officers and directors of a
broadcasting company are deemed to have an attributable interest in the licenses held by that
company, such that there would be a violation of the FCCs rules where the broadcasting company and
such a stockholder, officer or director together hold attributable interests in more than the
permitted number of stations or a prohibited combination of outlets in the same market. The FCCs
regulations generally deem the following relationships and interests to be attributable for
purposes of its ownership restrictions:
|
|
all officer and director positions in a licensee or its direct/indirect parent(s); |
|
|
voting stock interests of at least 5% (or 20%, if the holder is a passive institutional
investor, i.e., a mutual fund, insurance company or bank); |
|
|
any equity interest in a limited partnership or limited liability company where the limited
partner or member is materially involved in the media-related activities of the LP or LLC
and has not been insulated from such activities pursuant to specific FCC criteria; |
|
|
equity and/or debt interests which, in the aggregate, exceed 33% of the total asset value
of a station or other media entity (the equity/debt plus policy), if the interest holder
supplies more than 15% of the stations total weekly programming (usually pursuant to a time
brokerage, local marketing or network affiliation agreement) or is a same-market media entity
(i.e., broadcast company or newspaper). In December of 2007, the FCC increased these limits
under certain circumstances where the equity and/or debt interests are in a small business
meeting certain requirements. |
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.
Under existing FCC policy, in the case of corporations having a single majority shareholder,
the interests of minority shareholders are generally not deemed attributable. Because Jeffrey H.
Smulyans voting interest in the Company currently exceeds 50%, this exemption appears to apply to
the Company. Elimination of the exemption is, however, under consideration by the FCC. If the
exemption is eliminated, or if Mr. Smulyans voting interest falls to or below 50%, then the
interests of any minority shareholders that meet or exceed the thresholds described above would
become attributable and would be combined with the Companys interests for purposes of determining
compliance with FCC ownership rules.
Ownership-rule conflicts arising as a result of aggregating the media interests of the Company
and its attributable shareholders could require divestitures by either the Company or the affected
shareholders. Any such conflicts could result in Emmis being unable to obtain FCC consents
necessary for future acquisitions. Conversely, Emmis media interests could operate to restrict
other media investments by shareholders having or acquiring an interest in Emmis.
ASSIGNMENTS AND 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 assignee or transferee and those persons holding attributable interests therein
and compliance with the
Communications Acts limitations on alien ownership as well as other statutory and regulatory
requirements. When evaluating an assignment or transfer of control application, the FCC is
prohibited from considering whether the public interest might be served by an assignment of the
broadcast license or transfer of control of the licensee to a party other than the assignee or
transferee specified in the application.
I-12
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to serve the public
interest. Beginning in the late 1970s, the FCC gradually relaxed or eliminated many of the more
formalized procedures it had developed to promote the broadcast of certain types of programming
responsive to the needs of a stations 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.
Federal law prohibits the broadcast of obscene material at any time and the broadcast of
indecent material during specified time periods; these prohibitions are subject to enforcement
action by the FCC. The agency has engaged in more aggressive enforcement of its indecency
regulations than has generally been the case in the past. In addition to imposing more stringent
fines, the FCC has indicated that it may begin license revocation procedures for serious
violations of the indecency law. Furthermore, in June of 2006, Congress passed legislation that
increased the per-violation maximum fine tenfold, from $32,500 to $325,000.
In August of 2004, Emmis entered into a Consent Decree with the FCC, pursuant to which (i) the
company adopted a compliance plan intended to avoid future indecency violations, (ii) the company
admitted, solely for purposes of the Decree, that certain prior broadcasts were indecent, (iii)
the company agreed to make a voluntary payment of $300,000 to the U.S. Treasury, (iv) the FCC
rescinded its prior enforcement actions against the company based on allegedly indecent broadcasts,
and agreed not to use against the company any indecency violations based on complaints within the
FCCs possession as of the date of the Decree or similar complaints based on pre-Decree
broadcasts, and (v) the FCC found that neither the alleged indecency violations nor the
circumstances surrounding a civil suit filed by a WKQX announcer raised any substantial and
material questions concerning the companys qualifications to hold FCC licenses. The Consent
Decree was subsequently upheld by a federal court of appeals. Petitions have been filed against
the license renewal applications of stations WKQX and KPNT, and an informal objection was filed
against the license renewals of the companys Indiana radio stations, in each case based primarily
on the matters covered by the Decree. The petitions against WKQX and KPNT remain pending. The
objections against the Indiana license renewals were rejected by the FCC, as was a petition for
reconsideration of the grant of those applications, but an application for review of that FCC
action is pending. Subsequent to the approval of the Consent Decree, the company has received
letters of inquiry from the FCC alleging additional violations of indecency rules. The broadcasts
covered by these letters of inquiry are not covered by the Consent Decree and could result in the
imposition of liability.
In 2006, the FCC commenced an industry-wide inquiry into possible violations of sponsorship
identification requirements and payola in the radio industry. Its initial inquiries were
directed to four radio groups, and in April 2007, those groups entered into Consent Decrees with
the FCC to resolve outstanding investigations and allegations. Emmis has received similar
inquiries from the FCC and has submitted responses; additional responses may be submitted in the
future.
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
identification, equal employment opportunities, contest and lottery advertisements, and technical
operations, including limits on radio frequency radiation.
Failure to observe FCC rules and policies can result in the imposition of various sanctions,
including monetary fines, the grant of short-term (less than the maximum term) license renewals
or, for particularly egregious violations, the denial of a license renewal application or the
revocation of a license.
ADDITIONAL DEVELOPMENTS AND PROPOSED CHANGES. The FCC has adopted rules implementing a new
low power FM (LPFM) service, and approximately 800 such stations are in operation. In November
of 2007, the FCC adopted rules that, among other things, enhance LPFMs interference protection
from subsequently-authorized full-service stations. In addition, the FCC has proposed to reduce
interference protection to FM stations from LPFM stations operating on certain adjacent
frequencies, and in December 2009, the U.S. House of Representatives approved legislation that
would implement the FCCs proposal. A companion bill is pending in the Senate, but the likelihood
of its passage remains uncertain. We cannot predict whether any LPFM stations will interfere with
the coverage of our radio stations.
In June 2009, the FCC adopted rules that allow an AM radio station to use currently authorized
FM translator stations to retransmit the AM stations programming within the AM stations
authorized service area.
I-13
The FCC also has authorized the launch and operation of a satellite digital audio radio
service (SDARS) system. In July of 2008, the two original SDARS companiesSirius Satellite
Radio, Inc. and XM Satellite Radio Holdings, Inc.merged into a new company called Sirius XM,
which currently provides nationwide programming service. Sirius XM also offers channels that
provide local traffic and weather information for major cities. We cannot predict the impact of
SDARS or of the merger of Sirius and XM on our radio stations listenership.
In October of 2002, the FCC issued an order selecting a technical standard for terrestrial
digital audio broadcasting (DAB, also known as high definition radio or HD Radio). The
in-band, on-channel (IBOC) technology chosen by the agency allows AM and FM radio broadcasters to
introduce digital operations and permits existing stations to operate on their current frequencies
in either full analog mode, full digital mode, or a combination of both (at reduced power). In
March 2005, the FCC announced that, pending adoption of final rules, it would allow stations on an
interim basis to broadcast multiple digital channels. In March 2007, the FCC adopted service rules
for HD Radio®. Significantly, the FCC decided to allow FM stations to broadcast digital
multicast streams without seeking prior FCC authority, to provide datacasting services, to lease
excess digital capacity to third parties, and to offer subscription services pursuant to requests
for experimental authority. Under the new rules, FM stations may operate in the extended hybrid
mode, which provides more flexibility for multicasting and datacasting services; and may use
separate analog and digital antennas without seeking prior FCC authority. FM translators, FM
boosters and low power FM stations may also broadcast digitally where feasible, and AM stations may
now operate digitally during nighttime hours. The new rules mandate that broadcasters offering
digital service provide at least one free over-the-air signal comparable in quality to their analog
signal and that they simulcast their analog programming on their main digital stream, and prohibit
broadcasters from operating exclusively in digital. The FCC declined either to set any mandatory
deadline for broadcasters to convert to digital operations or to impose additional public interest
obligations (beyond those that already apply to analog broadcasters) on digital broadcasters. The
FCC did, however, adopt a Further Notice of Proposed Rulemaking seeking comment on (among other
things) whether additional public interest obligations are necessary, including consideration of a
requirement that radio stations report their public service programming in detail on a standardized
form and post that form and all other contents of their public inspection files on the stations
website. (The FCC subsequently imposed such a requirement on television stations in November of
2007, which is the subject of a pending appeal.) In January 2010, the FCC revised its DAB service
rules to allow FM DAB stations to increase the permitted power levels of DAB transmissions. In
September 2008, shortly after approving the Sirius-XM merger, the FCC sought comment on whether it
should mandate the inclusion of HD Radio® features in satellite radio receivers. That
proceeding remains pending, and we cannot predict its outcome or the impact that a decision might
have on our business.
On May 1, 2007, the Copyright Royalty Board (CRB) published royalty rates and terms for
non-interactive Internet streaming of sound recordings for 2006-2010. The new rates apply to all
nonsubscription and new subscription services that stream sound recordings on the Internet,
including radio stations that simulcast their broadcast programming over the Internet. The new
rates represent a substantial increase from the previous rates. The rates increase from 0.08 cent
per listener per song in 2006 to 0.19 cent per-listener per-song in 2010. Several parties,
including certain commercial broadcasters, appealed the CRB decision to the United States Court of
Appeals for the D.C. Circuit. In February 2009, before the appeal was decided, the National
Association of Broadcasters and SoundExchange, the entity that represents the recording industry
and receives royalty payments from webcasters, negotiated a settlement setting rates and terms for
2006-2015 that resulted in the withdrawal of all commercial broadcasters from the appeal. Under the
settlement, a commercial broadcaster could elect to pay pursuant to the settlement rates in lieu of
the CRB rates, which Emmis elected to do. The rates set under the settlement increase from 0.08
cent per listener per song in 2006 to 0.25 cent per listener per song in 2015.
The D.C. Circuit decided the appeal of the CRB rates on July 10, 2009. The Court vacated the
CRBs decision to set $500 minimum annual fees for both commercial and noncommercial webcasters but
affirmed the decision in all other respects. On remand, the CRB set a minimum annual fee of $500
per station or channel based on a settlement between SoundExchange and the Digital Media
Association and is still considering the minimum annual fee payable by noncommercial webcasters. A
proceeding to set rates for 2011-2015 is underway, but broadcasters such as Emmis that have elected
to pay the rates set by the settlement agreement will not be eligible for those rates.
Legislation has also been introduced into both houses of Congress that would require
terrestrial radio broadcasters to pay performance royalties to performers, ending a long-standing
copyright law exception. As currently drafted, both bills would establish a flat royalty fee, but
would also provide for a per-program option for radio stations that make limited use of sound
recordings. Although both measures have been reported out of committee for consideration by the
U.S. House and Senate, the prospects for passage of these measures remain uncertain. If enacted,
this legislation could have an adverse impact on the cost of music programming.
I-14
In December of 2007, the FCC initiated a proceeding to consider imposing requirements intended
to promote broadcasters service to their local communities, including (i) requiring stations to
establish a community advisory board, (ii) reinstating a requirement that a
stations main studio be in its community of license and (iii) imposing local programming
guidelines that, if not met, would result in additional scrutiny of a stations license renewal
application. While many broadcasters have opposed these proposals, we cannot predict how the FCC
will resolve the issue.
Congress and the FCC also have under consideration, and may in the future consider and adopt,
new laws, regulations and policies regarding a wide variety of additional 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/or affect our ability to acquire additional broadcast stations or finance such acquisitions.
Such matters include, but are not limited to:
|
|
proposals to impose spectrum use or other fees on FCC licensees; |
|
|
proposals to repeal or modify some or all of the FCCs multiple ownership rules and/or
policies; |
|
|
proposals to change rules relating to political broadcasting; |
|
|
technical and frequency allocation matters; |
|
|
AM stereo broadcasting; |
|
|
proposals to modify service and technical rules for digital radio, including possible
additional public interest requirements for terrestrial digital audio broadcasters; |
|
|
proposals to restrict or prohibit the advertising of beer, wine and other alcoholic
beverages; |
|
|
proposals to tighten safety guidelines relating to radio frequency radiation exposure; |
|
|
proposals permitting FM stations to accept formerly impermissible interference; |
|
|
proposals to reinstate holding periods for licenses; |
|
|
changes to broadcast technical requirements, including those relative to the implementation
of SDARS and DAB; |
|
|
proposals to reallocate spectrum associated with TV channels 5 and 6 for FM radio
broadcasting; |
|
|
proposals to modify broadcasters public interest obligations; |
|
|
proposals to limit the tax deductibility of advertising expenses by advertisers; and |
|
|
proposals to regulate violence in broadcasts. |
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.
The foregoing is only a brief summary of certain provisions of the Communications Act and of
specific FCC regulations. Reference should be made to the Communications Act as well as FCC
regulations, public notices and rulings for further information concerning the nature and extent of
federal regulation of broadcast stations.
REGULATION OF BROADCASTING IN OTHER COUNTRIES
Each of our broadcast properties outside the United States also operate pursuant to licenses
granted by a government regulator comparable to the FCC. The following table sets forth the
regulator, the city or country of license and the license expiration date for each of our
international radio properties:
|
|
|
|
|
|
|
Property |
|
Country |
|
Regulator |
|
Expiration |
|
|
|
|
|
|
|
Radio Expres
|
|
Slovakia
|
|
Council for Broadcasting and Retransmission
|
|
February 2013 |
Radio FM+
|
|
Bulgaria
|
|
The Council for Electronic Media
|
|
February 2013 |
Radio Fresh
|
|
Bulgaria
|
|
The Council for Electronic Media
|
|
February 2013 |
Star FM
|
|
Bulgaria
|
|
The Council for Electronic Media
|
|
January 2013 |
Broadcast licenses in many foreign countries do not necessarily confer the same renewal
expectancy as U.S. radio stations broadcast licenses. While we believe that we have reasonable
prospects for securing extensions of our remaining international broadcast licenses, we cannot be
sure that such extensions will be granted or that the terms and conditions of such extensions will
not have a material adverse effect on our international operations. For instance, on October 28,
2009, the Hungarian National Radio and Television Board (ORTT) announced that it was awarding to
another bidder the national radio license then held by our majority-owned subsidiary, Slager.
Slager ceased broadcasting effective November 19, 2009. Slager filed a lawsuit in Hungary claiming
the award of the license by the ORTT to the other bidder violated the Hungarian Media Law. In
February 2010, the Hungarian trial court agreed with Slager that the ORTTs award was unlawful.
The ORTT and the winning bidder appealed the courts decision. A hearing on the appeal is
scheduled
for July 1, 2010. While we believe the trial courts ruling was correct, we cannot guarantee
that the ruling will be upheld on appeal or that a favorable ruling by the appellate court will
result in the award of the license or monetary damages to Slager. We expect to continue to explore
Hungarian, European Union, and international arbitration forums to seek a favorable resolution to
this matter.
I-15
In addition, the broadcast licenses in these countries require our stations to comply with
various other regulatory requirements, including broadcast content requirements (e.g., a certain
amount of local news), limits on the amounts and types of advertising, and the like.
GEOGRAPHIC FINANCIAL INFORMATION
The Companys segments operate primarily in the United States with national radio networks in
Slovakia and Bulgaria. The following tables summarize relevant financial information by geographic
area. Net revenues and noncurrent assets related to discontinued operations are excluded for all
periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended February 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
(amounts in thousands) |
|
Net Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
316,895 |
|
|
$ |
285,878 |
|
|
$ |
226,373 |
|
International |
|
|
18,782 |
|
|
|
22,053 |
|
|
|
16,193 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
335,677 |
|
|
$ |
307,931 |
|
|
$ |
242,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
(amounts in thousands) |
|
Noncurrent Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
953,025 |
|
|
$ |
594,034 |
|
|
$ |
412,977 |
|
International |
|
|
26,134 |
|
|
|
13,687 |
|
|
|
10,490 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
979,159 |
|
|
$ |
607,721 |
|
|
$ |
423,467 |
|
|
|
|
|
|
|
|
|
|
|
ITEM 1A. RISK FACTORS.
The risk factors listed below, in addition to those set forth elsewhere in this report, could
affect the business and future results of the Company. Past financial performance may not be a
reliable indicator of future performance and historical trends should not be used to anticipate
results or trends in future periods.
Risks Related to our Business
Our results of operations could be negatively impacted by weak economic conditions and instability
in financial markets.
We believe that advertising is a discretionary business expense. Spending on advertising
tends to decline disproportionately during an economic recession or downturn as compared to other
types of business spending. Consequently, a downturn in the United States economy generally has an
adverse effect on our advertising revenue and, therefore, our results of operations. A recession
or downturn in the economy of any individual geographic market, particularly a major market such as
Los Angeles or New York, also generally has a significant effect on us. The recent recession in
the global economy negatively impacted our results of operations. While economic conditions appear
to be improving, we can not ensure that our results of operations wont be negatively impacted by
future economic downturns or by delays in economic recovery.
Even with a recovery from the recent recession in the economy, an individual business sector
(such as the automotive industry) that tends to spend more on advertising than other sectors might
be forced to maintain a reduced level of advertising expenditures if that sector experiences a
slower recovery than the economy in general, or might reduce its advertising expenditures further
if additional downturns occur. If that sectors spending represents a significant portion of our
advertising revenues, any reduction in its advertising expenditures may affect our revenue.
I-16
We may lose audience share and advertising revenue to competing radio stations or other types of
media.
We operate in highly competitive industries. Our radio stations compete for audiences and
advertising revenue with other radio stations and station groups, as well as with other media.
Shifts in population, demographics, audience tastes, consumer use of technology and forms of media
and other factors beyond our control could cause us to lose market share. Any adverse change in a
particular market, or adverse change in the relative market positions of the stations located in a
particular market, could have a material adverse effect on our revenue or ratings, could require
increased promotion or other expenses in that market, and could adversely affect our revenue in
other markets. Other radio broadcasting companies may enter the markets in which we operate or may
operate in the future. These companies may be larger and have more financial resources than we
have. Our radio stations may not be able to maintain or increase their current audience ratings and
advertising revenue in the face of such competition.
We routinely conduct market research to review the competitive position of our stations in
their respective markets. If we determine that a station could improve its operating performance
by serving a different demographic within its market, we may change the format of that station.
Our competitors may respond to our actions by more aggressive promotions of their stations or by
replacing the format we vacate, limiting our options if we do not achieve expected results with our
new format.
From time to time, other stations may change their format or programming, a new station may
adopt a format to compete directly with our stations for audiences and advertisers, or stations
might engage in aggressive promotional campaigns. These tactics could result in lower ratings and
advertising revenue or increased promotion and other expenses and, consequently, lower earnings and
cash flow for us. Any failure by us to respond, or to respond as quickly as our competitors, could
also have an adverse effect on our business and financial performance.
Arbitron Inc., the supplier of ratings data for United States radio markets, has developed
technology to passively collect data for its ratings service. The Portable People
MeterTM is a small, pager-sized device that does not require any active manipulation by
the end user and is capable of automatically measuring radio, television, Internet, satellite radio
and satellite television signals that are encoded for the service by the broadcaster. Our New
York, Los Angeles, Chicago and St. Louis market ratings are being measured by the PPMTM.
In each market, there has been a compression in the relative ratings of all stations in the
market, enhancing the competitive pressure within the market for advertising dollars. In addition,
ratings for certain stations when measured by the PPMTM as opposed to the traditional
diary methodology can be materially different. PPMTM based ratings are scheduled to be
introduced in Indianapolis and Austin by Spring 2010. We anticipate Terre Haute will remain a
diary ratings market.
Because of the competitive factors we face and the introduction of the PPMTM, we
cannot assure investors that we will be able to maintain or increase our current audience ratings
and advertising revenue.
Our domestic radio operations are heavily concentrated in the New York and Los Angeles markets.
Our radio operations in New York and Los Angeles account for approximately 50% of our domestic
radio revenues. Our results from operations can be materially affected by decreased ratings or
resulting revenues in either one of these markets.
We must respond to the rapid changes in technology, services and standards that characterize our
industry in order to remain competitive.
The radio broadcasting industry is subject to rapid technological changes, evolving industry
standards and the emergence of competition from new technologies and services. We cannot assure
that we will have the resources to acquire new technologies or to introduce new services that could
compete with these new technologies. Various media technologies and services that have been
developed or introduced in the recent years include:
|
|
|
satellite-delivered digital audio radio service, which has resulted in subscriber-based
satellite radio services with numerous niche formats; |
|
|
|
audio programming by cable systems, direct-broadcast satellite systems, personal
communications systems, Internet content providers and other digital audio broadcast
formats; |
|
|
|
personal digital audio devices (e.g., audio via Wi-Fi, mobile phones,
iPods®, iPhones®, WiMAX, the Internet and MP3 players); |
I-17
|
|
|
in-band on-channel digital radio (i.e., HD digital radio), which provides
multi-channel, multi-format digital radio services in the same bandwidth currently occupied
by traditional AM and FM radio services; and |
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low-power FM radio, which could result in additional FM radio broadcast outlets. |
New media has resulted in fragmentation in the advertising market, but we cannot predict the
effect, if any, that additional competition arising from new technologies may have on the radio
broadcasting industry or on our financial condition and results of operations. We also cannot
ensure that our investments in HD digital radio and other technologies will produce the desired
returns.
Our business depends on maintaining our licenses with the FCC. We could be prevented from
operating a radio station if we fail to maintain its license.
The radio broadcasting industry is subject to extensive and changing regulation. The
Communications Act and FCC rules and policies require FCC approval for transfers of control and
assignments of FCC licenses. The filing of petitions or complaints against FCC licensees could
result in the FCC delaying the grant of, or refusing to grant, its consent to the assignment of
licenses to or from an FCC licensee or the transfer of control of an FCC licensee. In certain
circumstances, the Communications Act and FCC rules and policies will operate to impose limitations
on alien ownership and voting of our common stock. There can be no assurance that there will be no
changes in the current regulatory scheme, the imposition of additional regulations or the creation
of new regulatory agencies, which changes could restrict or curtail our ability to acquire, operate
and dispose of stations or, in general, to compete profitably with other operators of radio and
other media properties.
Each of our radio stations operates pursuant to one or more licenses issued by the FCC. Under
FCC rules, radio licenses are granted for a term of eight years. Our licenses expire at various
times through June 2014. Although we will apply to renew these licenses, third parties may
challenge our renewal applications. While we are not aware of facts or circumstances that would
prevent us from having our current licenses renewed, there can be no assurance that the licenses
will be renewed or that renewals will not include conditions or qualifications that could adversely
affect our business and operations. Failure to obtain the renewal of any of our broadcast licenses
may have a material adverse effect on our business and operations. In addition, if we or any of our
officers, directors or significant stockholders materially violates the FCCs rules and regulations
or the Communications Act, is convicted of a felony or is found to have engaged in unlawful
anticompetitive conduct or fraud upon another government agency, the FCC may, in response to a
petition from a third party or on its own initiative, in its discretion, commence a proceeding to
impose sanctions upon us which could involve the imposition of monetary fines, the revocation of
our broadcast licenses or other sanctions. If the FCC were to issue an order denying a license
renewal application or revoking a license, we would be required to cease operating the applicable
radio station only after we had exhausted all rights to administrative and judicial review without
success.
The FCC has begun more vigorous enforcement of its indecency rules against the broadcast industry,
which could have a material adverse effect on our business.
The FCCs rules prohibit the broadcast of obscene material at any time and indecent material
between the hours of 6 a.m. and 10 p.m. Broadcasters risk violating the prohibition on the
broadcast of indecent material because of the FCCs broad definition of such material, coupled with
the spontaneity of live programming.
Congress has dramatically increased the penalties for broadcasting obscene, indecent or
profane programming and broadcasters can potentially face license revocation, renewal or
qualification proceedings in the event that they broadcast indecent material. In addition, the
FCCs heightened focus on indecency, against the broadcast industry generally, may encourage third
parties to oppose our license renewal applications or applications for consent to acquire broadcast
stations. As a result of these developments, we have implemented certain measures that are designed
to reduce the risk of broadcasting indecent material in violation of the FCCs rules. These and
other future modifications to our programming in an effort to reduce the risk of indecency
violations could have an adverse effect on our competitive position.
Any changes in current FCC ownership regulations may negatively impact our ability to compete or
otherwise harm our business operations.
The FCC is required to review all of its broadcast ownership rules every four years and to
repeal or modify any of its rules that are no longer necessary in the public interest. We cannot
predict the impact of these reviews on our business or their effect on our ability to acquire
broadcast stations in the future or to continue to own and freely transfer stations that we have
already acquired.
I-18
In 2003, we acquired a controlling interest in five FM stations and one AM station in the
Austin, Texas market. Under ownership regulations released after the date of our acquisition, it
appears that we would be permitted to own or control only four FM stations in the Austin market
(ownership of one AM station would continue to be allowed). The new rules do not require
divestiture of existing non-
conforming station combinations, but do provide that such clusters may be transferred only to
defined small business entities or to buyers that commit to selling any excess stations to such
entities within one year. Consequently, if we wish to sell our interest in the Austin stations, we
will have to either sell to an entity that meets those FCC requirements or exclude at least one FM
station from the transaction.
Changes in current Federal regulations could adversely affect our business operations.
Congress and the FCC have under consideration, and may in the future consider and adopt, new
laws, regulations and policies that could, directly or indirectly, affect the profitability of our
broadcast stations. In particular, Congress is considering a revocation of radios exemption from
paying royalties to performing artists for use of their recordings (radio already pays a royalty to
songwriters). A requirement to pay additional royalties could have an adverse effect on our
business operations and financial performance.
Our business strategy and our ability to operate profitably depend on the continued services of our
key employees, the loss of whom could materially adversely affect our business.
Our ability to maintain our competitive position depends to a significant extent on the
efforts and abilities of our senior management team and certain key employees. Although our
executive officers are typically under employment agreements, their managerial, technical and other
services would be difficult to replace if we lose the services of one or more of them or other key
personnel. Our business could be seriously harmed if one of them decides to join a competitor or
otherwise competes directly or indirectly against us.
Our radio stations employ or independently contract with several on-air personalities and
hosts of syndicated radio programs with significant loyal audiences in their respective broadcast
areas. These on-air personalities are sometimes significantly responsible for the ranking of a
station and, thus, the ability of the station to sell advertising. These individuals may not remain
with our radio stations and may not retain their audiences.
Last year, we reduced salaries of most employees in a cost reduction effort. Most of our
employees with employment agreements voluntarily participated in the salary reduction. These
salary reductions may make it more difficult to retain our key employees.
Future operation of our business may require significant additional capital.
The continued development, growth and operation of our businesses may require substantial
capital. In particular, additional acquisitions may require large amounts of capital. We intend to
fund our growth, including acquisitions, if any, with cash generated from operations, borrowings
under our Amended and Restated Revolving Credit and Term Loan Agreement, dated November 2, 2006, as
further amended on March 3, 2009 and August 19, 2009 (the Credit Agreement), and proceeds from
future issuances of debt and equity, both public and private. Our ability to raise additional debt
or equity financing is subject to market conditions, our financial condition and other factors. If
we cannot obtain financing on acceptable terms when needed, our results of operations and financial
condition could be adversely impacted.
Our current and future operations are subject to certain risks that are unique to operating in a
foreign country.
We currently have international operations in Slovakia and Bulgaria. Therefore, we are
exposed to risks inherent in international business operations. The risks of doing business in
foreign countries include the following:
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changing regulatory or taxation policies, including changes in tax policies that have
been proposed by the Obama Administration related to foreign earnings; |
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currency exchange risks; |
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changes in diplomatic relations or hostility from local populations; |
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seizure of our property by the government or restrictions on our ability to transfer
our property or earnings out of the foreign country; |
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potential instability of foreign governments, which might result in losses against which we are not insured; and |
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difficulty of enforcing agreements and collecting receivables through some foreign legal systems. |
I-19
Broadcast licenses in many foreign countries do not necessarily confer the same renewal
expectancy as U.S. radio stations broadcast licenses. While we believe that we have reasonable
prospects for securing extensions of our remaining international broadcast licenses, we cannot be
sure that such extensions will be granted or that the terms and conditions of such extensions will
not have a material
adverse effect on our international operations. For instance, on October 28, 2009, the
Hungarian National Radio and Television Board (ORTT) announced that it was awarding to another
bidder the national radio license then held by our majority-owned subsidiary, Slager. Slager ceased
broadcasting effective November 19, 2009. Slager filed a lawsuit in Hungary claiming the award of
the license by the ORTT to the other bidder violated the Hungarian Media Law. In February 2010,
the Hungarian trial court agreed with Slager that the ORTTs award was unlawful. The ORTT and the
winning bidder appealed the courts decision. A hearing on the appeal is scheduled for July 1,
2010. While we believe the trial courts ruling was correct, we cannot guarantee that the ruling
will be upheld on appeal or that a favorable ruling by the appellate court will result in the award
of the license or monetary damages to Slager. We expect to continue to explore Hungarian, European
Union, and international arbitration forums to seek a favorable resolution to this matter.
Exchange rates may cause future losses in our international operations.
Because we own assets in foreign countries and derive revenue from our international
operations, we may incur currency translation losses due to changes in the values of foreign
currencies and in the value of the United States dollar. We cannot predict the effect of exchange
rate fluctuations upon future operating results.
We have incurred losses over the past two years and we may incur future losses.
We have reported net losses in our consolidated statement of operations over the past three
years as a result of recording non-cash impairment charges, mostly related to FCC licenses and
goodwill. In fiscal 2010, we recorded an impairment charge of $174.6 million, $160.9 of which
related to radio FCC licenses, $8.9 million of which related to goodwill at an international radio
network and a magazine publication, and $4.8 million of which related to other definite-lived
intangible assets. As of February 28, 2010, our FCC licenses and goodwill comprise 72% of our
total assets. If events occur or circumstances change that would reduce the fair value of the FCC
licenses and goodwill below the amount reflected on the balance sheet, we may be required to
recognize impairment charges, which may be material, in future periods.
Our failure to comply under the Sarbanes-Oxley Act of 2002 could cause a loss of confidence in the
reliability of our financial statements.
In connection with the preparation of our financial statements for the period ended August 31,
2009, the Company discovered a material weakness in its internal control over financial reporting.
As disclosed in our Form 10-Q Report for the period ended November 30, 2009, we remediated the
material weakness. As such, as of November 30, 2009, based upon the controls evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls were once
again effective to provide reasonable assurance that information relating to Emmis that is required
to be disclosed by us in the reports that we file or submit, is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange Commissions rules and
forms, and is accumulated and communicated to our management, including our principal executive and
principal financial officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure. In future periods, there are no assurances that we
will not have additional material weaknesses that would be required to be reported or that we will
be able to comply with the reporting deadline requirements of Section 404. A reported material
weakness or the failure to meet the reporting deadline requirements of Section 404 could result in
an adverse reaction in the financial markets due to a loss of confidence in the reliability of our
financial statements. This loss of confidence could cause a decline in the market price of our
stock.
Our operating results have been and may again be adversely affected by acts of war, terrorism and
natural catastrophes.
Acts of war and terrorism against the United States, and the countrys response to such acts,
may negatively affect the U.S. advertising market, which could cause our advertising revenues to
decline due to advertising cancellations, delays or defaults in payment for advertising time, and
other factors. In addition, these events may have other negative effects on our business, the
nature and duration of which we cannot predict.
For example, after the September 11, 2001 terrorist attacks, we decided that the public
interest would be best served by the presentation of continuous commercial-free coverage of the
unfolding events on our stations. This temporary policy had a material adverse effect on our
advertising revenues and operating results for the month of September 2001. Future events like
those of September 11, 2001 may cause us to adopt similar policies, which could have a material
adverse effect on our advertising revenues and operating results.
I-20
Additionally, the attacks on the World Trade Center on September 11, 2001 resulted in the
destruction of the transmitter facilities that were located there. Although we had no transmitter
facilities located at the World Trade Center, broadcasters that had facilities located in the
destroyed buildings experienced temporary disruptions in their ability to broadcast. Since we tend
to locate transmission facilities for stations serving urban areas on tall buildings or other
significant structures, such as the Empire State Building in New York, further terrorist attacks or
other disasters could cause similar disruptions in our broadcasts in the areas affected. If these
disruptions occur, we may not be able to locate adequate replacement facilities in a cost-effective
or timely manner or at all. Failure to remedy disruptions caused by terrorist attacks or other
disasters and any resulting degradation in signal coverage could have a material adverse effect on
our business and results of operations.
Similarly, hurricanes, floods, tornadoes, earthquakes, wild fires and other natural disasters
can have a material adverse effect on our operations in any given market. While we generally carry
property insurance covering such catastrophes, we cannot be sure that the proceeds from such
insurance will be sufficient to offset the costs of rebuilding or repairing our property or the
lost income.
Risks Related to our Indebtedness:
Our substantial indebtedness could adversely affect our financial health.
We have a significant amount of indebtedness. At February 28, 2010, our total indebtedness was
$341.2 million, and our shareholders deficit was $179.0 million. Our substantial indebtedness
could have important consequences to investors. For example, it could:
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make it more difficult for us to satisfy our obligations with respect to our indebtedness; |
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increase our vulnerability to generally adverse economic and industry conditions; |
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require us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness, thereby reducing the availability of our cash flow to fund
working capital, capital expenditures and other general corporate purposes; |
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result in higher interest expense in the event of increases in interest rates because
some of our debt is at variable rates of interest; |
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limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate; |
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place us at a competitive disadvantage compared to our competitors that have less debt; and |
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limit, along with the financial and other restrictive covenants in our Credit
Agreement, our ability to borrow additional funds. |
If we cannot continue to comply with the financial covenants in our debt instruments, or obtain
waivers or other relief from our lenders, we may default, which could result in loss of our sources
of liquidity and acceleration of our indebtedness.
We have a substantial amount of indebtedness, and the instruments governing such indebtedness
contain restrictive financial covenants. Our ability to comply with the covenants in the Credit
Agreement will depend upon our future performance and various other factors, such as business,
competitive, technological, legislative and regulatory factors, some of which are beyond our
control. We may not be able to maintain compliance with all of these covenants. In that event, we
would need to seek an amendment to the Credit Agreement, or would need to refinance our senior
secured credit facilities. There can be no assurance that we can obtain future amendments or
waivers of the Credit Agreement, or refinance our senior secured credit facilities and, even if so,
it is likely that such relief would only last for a specified period, potentially necessitating
additional amendments, waivers or refinancings in the future. In the event that we do not maintain
compliance with the covenants under the Credit Agreement, the lenders could declare an event of
default, subject to applicable notice and cure provisions, resulting in a material adverse impact
on our financial position. Upon the occurrence of an event of default under the Credit Agreement,
the lenders could elect to declare all amounts outstanding under our senior secured credit
facilities to be immediately due and payable and terminate all commitments to extend further
credit. If we were unable to repay those amounts, the lenders could proceed against the collateral
granted to them to secure that indebtedness. Our lenders have taken security interests in
substantially all of our consolidated assets. If the lenders accelerate the repayment of
borrowings, we may be forced to liquidate certain assets to repay all or part of the senior secured
credit facilities, and we cannot be assured that sufficient assets will remain for us to continue
our business operations after we have paid all of the borrowings under the senior secured credit
facilities. Our ability to liquidate assets is affected by the regulatory restrictions associated
with radio stations, including FCC licensing, which may make the market for these assets less
liquid and increase the chances that these assets will be liquidated at a significant loss.
I-21
The terms of our indebtedness and the indebtedness of our direct and indirect subsidiaries may
restrict our current and future operations, particularly our ability to respond to changes in
market conditions or to take some actions.
Our Credit Agreement imposes significant operating and financial restrictions on us. These
restrictions significantly limit or prohibit, among other things, our ability and the ability of
our subsidiaries to incur additional indebtedness, issue preferred stock, incur liens, pay
dividends, enter into asset sale transactions, merge or consolidate with another company, dispose
of all or substantially all of our assets or make certain other payments or investments.
These restrictions currently limit our ability to grow our business through acquisitions and
could limit our ability to respond to market conditions or meet extraordinary capital needs. They
also could restrict our corporate activities in other ways. These restrictions could adversely
affect our ability to finance our future operations or capital needs.
To service our indebtedness and other obligations, we will require a significant amount of cash.
Our ability to generate cash depends on many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, to pay dividends and to
fund capital expenditures will depend on our ability to generate cash in the future. This ability
to generate cash, to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. Our businesses might not
generate sufficient cash flow from operations. We might not be able to complete future offerings,
and future borrowings might not be available to us in an amount sufficient to enable us to pay our
indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our
indebtedness on or before maturity. We cannot assure investors that we will be able to refinance
any of our indebtedness on commercially reasonable terms or at all.
Risks Related to our Common Stock:
One shareholder controls a majority of the voting power of our common stock, and his interest may
conflict with those of investors.
As of April 26, 2010, our Chairman of the Board of Directors, Chief Executive Officer and
President, Jeffrey H. Smulyan, beneficially owned shares representing approximately 65% of the
outstanding combined voting power of all classes of our common stock, as calculated pursuant to
Rule 13d-3 of the Exchange Act. He therefore is in a position to exercise substantial influence
over the outcome of most matters submitted to a vote of our shareholders, including the election of
directors.
Our common stock may cease to be listed on the National Association of Securities Dealers Automated
Quotation (Nasdaq) Global Select Market.
Our common stock is currently listed on the Nasdaq Global Select Market under the symbol
EMMS. We may not be able to meet the continued listing requirements of the Nasdaq Global Select
Market, which require, among other things, a minimum closing price of our common stock and a
minimum market capitalization. If we are unable to satisfy the requirements of the Nasdaq Global
Select Market for continued listing, our common stock would be subject to delisting from that
market, and we might or might not be eligible to list our shares on another Nasdaq market. A
delisting of our common stock from the Nasdaq Global Select Market could negatively impact us by,
among other things, reducing the liquidity and market price of our common stock.
The difficulties associated with any attempt to gain control of our company could adversely affect
the price of our Class A common stock.
Jeffrey H. Smulyan has substantial influence over the decision as to whether a change in
control will occur for our company. There are also provisions contained in our articles of
incorporation, by-laws and Indiana law that could make it more difficult for a third party to
acquire control of Emmis. In addition, FCC approval for transfers of control of FCC licenses and
assignments of FCC licenses are required. These restrictions and limitations could adversely affect
the trading price of our Class A common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
I-22
ITEM 2. PROPERTIES.
The types of properties required to support each of our radio stations include offices,
studios and transmitter/antenna sites. We typically lease our studio and office space, although we
do own some of our facilities, with each of our owned properties subject to a mortgage under our
Credit Agreement. Most of our studio and office space leases contain lease terms with expiration
dates of five to fifteen years. A stations studios are generally housed with its offices in
downtown or business districts. We generally consider our facilities to be suitable and of adequate
size for our current and intended purposes. We own many of our main transmitter/antenna sites and
lease the remainder of our transmitter/antenna sites with lease terms that generally range from
five to twenty years. The transmitter/antenna site for each station is generally located so as to
provide maximum market coverage, consistent with the stations FCC license. In general, we do not
anticipate difficulties in renewing facility or transmitter/antenna site leases or in leasing
additional space or sites if required. We have approximately $58.6 million in aggregate annual
minimum rental commitments under real estate leases. Many of these leases contain escalation
clauses such as defined contractual increases or cost-of-living adjustments.
Our principal executive offices are located at 40 Monument Circle, Suite 700, Indianapolis,
Indiana 46204, in approximately 91,500 square feet of owned office space which is shared by our
Indianapolis radio stations and our Indianapolis Monthly publication.
We own substantially all of our other equipment, consisting principally of transmitting
antennae, transmitters, studio equipment and general office equipment. The towers, antennae and
other transmission equipment used by our stations are generally in good condition, although
opportunities to upgrade facilities are periodically reviewed.
ITEM 3. LEGAL PROCEEDINGS.
Emmis is a party to various legal proceedings arising in the ordinary course of business. In
the opinion of management of the company, however, there are no legal proceedings pending against
the company that we believe are likely to have a material adverse effect on the company.
Certain individuals and groups have challenged applications for renewal of the FCC licenses of
certain of the companys stations. The challenges to the license renewal applications are
currently pending before the Commission. Emmis does not expect the challenges to result in the
denial of any license renewals.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below is certain information about the executive officers of Emmis or its affiliates
who are not directors or nominees to be directors.
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AGE AT |
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YEAR FIRST |
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FEBRUARY 28, |
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ELECTED |
NAME |
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POSITION |
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2010 |
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OFFICER |
Richard F. Cummings |
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President Radio Programming |
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59 |
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1984 |
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J. Scott Enright
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Executive Vice President, General Counsel
and Secretary
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47 |
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1998 |
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Gregory T. Loewen |
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President Publishing Division and Chief Strategy Officer |
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38 |
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2007 |
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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.
Mr. Cummings was appointed President Radio Programming in March 2009. Mr. Cummings served
as Radio Division President from December 2001 to February 2009. Prior to becoming Radio Division
President, Mr. Cummings was Executive Vice President of Programming. Mr. Cummings joined Emmis in
1981.
Mr. Enright was appointed Executive Vice President, General Counsel and Secretary in March
2009. Previously, Mr. Enright served as Senior Vice President, Associate General Counsel and
Secretary of Emmis from September 2006 to February 2009 and as Vice President, Associate General
Counsel and Assistant Secretary from the date he joined Emmis in October 1998, adding the office of
Secretary in 2002.
Mr. Loewen was appointed President Publishing Division and Chief Strategy Officer in March 2010. Previously,
Mr. Loewen served as Chief Strategy Officer from February 2007 to February 2010. Prior to joining Emmis in February 2007,
Mr. Loewen served as Vice President of Digital Media and Strategy for The Toronto Star.
ITEM 4. (REMOVED AND RESERVED)
I-23
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
MARKET INFORMATION FOR OUR COMMON STOCK
Emmis Class A common stock is traded in the over-the-counter market and is quoted on the
Nasdaq Global Select Market under the symbol EMMS. There is no established public trading market
for Emmis Class B common stock or Class C common stock.
The following table sets forth the high and low sales prices of the Class A common stock for
the periods indicated.
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QUARTER ENDED |
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HIGH |
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LOW |
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May 2008 |
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3.74 |
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2.62 |
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August 2008 |
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3.24 |
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1.49 |
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November 2008 |
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2.50 |
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0.25 |
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February 2009 |
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0.65 |
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0.27 |
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May 2009 |
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0.78 |
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0.25 |
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August 2009 |
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1.11 |
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0.24 |
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November 2009 |
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1.62 |
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0.63 |
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February 2010 |
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1.44 |
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0.82 |
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HOLDERS
At April 27, 2010, there were 5,915 record holders of the Class A common stock, and there was
one record holder of the Class B common stock.
DIVIDENDS
Emmis currently intends to retain future earnings for use in its business and has no plans to
pay any dividends on shares of its common stock in the foreseeable future.
The terms of Emmis Preferred Stock provide for a quarterly dividend payment of $.78125 per
share on each January 15, April 15, July 15 and October 15. Emmis has not declared a preferred
stock dividend since October 15, 2008. As of February 28, 2010, cumulative preferred dividends in
arrears total $11.3 million. Failure to pay the dividend is not a default under the terms of the
Preferred Stock. However, since dividends have remained unpaid for more than six quarters, the
holders of the Preferred Stock are entitled to elect two persons to our board of directors. No
nominations for these director positions were submitted for the 2010 annual meeting of
shareholders. Thus, the two director positions will remain vacant until the next meeting of
shareholders, unless the 2010 annual meeting is delayed for such a time as to trigger the right of
the holders of the Preferred Stock to submit new nominations in accordance with our bylaws. The
Second Amendment to our Credit Agreement prohibits the company from paying dividends on the
Preferred Stock during the Suspension Period (as defined in the Credit Agreement) (See Liquidity
and Capital Resources). Payment of future preferred stock dividends is at the discretion of the
companys Board of Directors.
I-24
SHARE REPURCHASES
During the three-month period ended February 28, 2010, there were no repurchases of our Class
A common stock or Preferred Stock pursuant to a previously announced share repurchase program by
the companys Board of Directors. There was, however, withholding of shares of stock upon vesting
of restricted stock to cover withholding tax obligations. The following table provides information
on our repurchases related to the withholding of shares of stock in payment of employee tax
obligations upon vesting of restricted stock during the three months ended February 28, 2010:
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(c) |
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(d) |
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Total Number of |
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Maximum |
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Shares |
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Approximate |
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Purchased as |
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Dollar Value of |
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(a) |
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(b) |
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Part of Publicly |
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Shares That May |
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Total Number |
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Average Price |
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Announced |
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Yet Be Purchased |
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of Shares |
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Paid Per |
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Plans or |
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Under the Plans |
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Period |
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Purchased |
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Share |
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Programs |
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or Programs |
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December 1, 2009 December 31, 2009 |
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427 |
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$ |
1.19 |
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$ |
36,150,565 |
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January 1, 2010 January 31, 2010 |
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29,500 |
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$ |
1.24 |
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|
$ |
36,150,565 |
|
February 1, 2010 February 28, 2010 |
|
|
290 |
|
|
$ |
0.90 |
|
|
|
|
|
|
$ |
36,150,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 6. SELECTED FINANCIAL DATA.
As a smaller reporting company, we are not required to provide this information.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
GENERAL
The following discussion pertains to Emmis Communications Corporation (ECC) and its
subsidiaries (collectively, Emmis or the Company).
We own and operate radio and publishing properties located primarily in the United States.
Our revenues are mostly affected by the advertising rates our entities charge, as advertising sales
represent more than 70% of our consolidated revenues. These rates are in large part based on our
entities ability to attract audiences/subscribers in demographic groups targeted by their
advertisers. Arbitron Inc. generally measures radio station ratings weekly for markets measured by
the Portable People MeterTM and four times a year for markets measured by diaries.
Because audience ratings in a stations local market are critical to the stations financial
success, our strategy is to use market research, advertising and promotion to attract and retain
audiences in each stations chosen demographic target group.
Our revenues vary throughout the year. As is typical in the broadcasting industry, our
revenues and operating income are usually lowest in our fourth fiscal quarter.
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. These
barter transactions are recorded at the estimated fair value of the product or service received.
We generally confine the use of such trade transactions to promotional items or services for which
we would otherwise have paid cash. In addition, it is our general policy not to preempt
advertising spots paid for in cash with advertising spots paid for in trade.
I-25
The following table summarizes the sources of our revenues for the past three years. All
revenues generated by our international radio properties are included in the Local category. The
category Non Traditional principally consists of ticket sales and sponsorships of events our
stations and magazines conduct in their local markets. The category Other includes, among other
items, revenues generated by the websites of our entities, and barter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28, |
|
|
|
2008 |
|
|
% of Total |
|
|
2009 |
|
|
% of Total |
|
|
2010 |
|
|
% of Total |
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local |
|
$ |
210,704 |
|
|
|
62.8 |
% |
|
$ |
184,134 |
|
|
|
59.8 |
% |
|
$ |
143,924 |
|
|
|
59.3 |
% |
National |
|
|
62,083 |
|
|
|
18.5 |
% |
|
|
57,753 |
|
|
|
18.8 |
% |
|
|
31,572 |
|
|
|
13.0 |
% |
Political |
|
|
33 |
|
|
|
0.0 |
% |
|
|
1,466 |
|
|
|
0.5 |
% |
|
|
410 |
|
|
|
0.2 |
% |
Publication Sales |
|
|
14,220 |
|
|
|
4.2 |
% |
|
|
14,006 |
|
|
|
4.5 |
% |
|
|
12,844 |
|
|
|
5.3 |
% |
Non Traditional |
|
|
21,591 |
|
|
|
6.4 |
% |
|
|
18,973 |
|
|
|
6.2 |
% |
|
|
17,903 |
|
|
|
7.4 |
% |
Other |
|
|
27,046 |
|
|
|
8.1 |
% |
|
|
31,599 |
|
|
|
10.2 |
% |
|
|
35,913 |
|
|
|
14.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
$ |
335,677 |
|
|
|
|
|
|
$ |
307,931 |
|
|
|
|
|
|
$ |
242,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A significant portion of our expenses varies in connection with changes in revenue. These
variable expenses primarily relate to costs in our sales department, such as salaries, commissions
and bad debt. Our costs that do not vary as much in relation to revenue are mostly in our
programming and general and administrative departments, such as talent costs, syndicated
programming fees, utilities, office expenses and salaries. Lastly, our costs that are highly
discretionary are costs in our marketing and promotions department, which we primarily incur to
maintain and/or increase our audience and market share.
KNOWN TRENDS AND UNCERTAINTIES
Although the recent global recession has negatively impacted advertising revenues for a wide
variety of media businesses, domestic radio revenue growth has been challenged for several years.
Management believes this is principally the result of four factors unrelated to the recession: (1)
the emergence of new media, such as various media content distributed via the Internet,
telecommunication companies and cable interconnects, which are gaining advertising share against
radio and other traditional media, (2) the perception of investors and advertisers that satellite
radio and portable media players diminish the effectiveness of radio advertising, (3) advertisers
lack of confidence in the ratings of radio stations due to dated ratings-gathering methods, and (4)
a lack of inventory and pricing discipline by radio operators.
The Company and the radio industry have begun several initiatives to address these issues.
The radio industry is working aggressively to increase the number of portable digital media devices
that contain an FM tuner, including smartphones and music players. In many countries, FM tuners
are common features in portable digital media devices. The radio industry is working with leading
United States network providers, device manufacturers, regulators and legislators to ensure that FM
tuners are included in most future portable digital media devices. Including FM as a feature on
these devices has the potential to increase radio listening and improve perception of the radio
industry while offering network providers the benefits of a proven emergency notification system,
reduced network congestion from audio streaming services, and a host of new revenue generating
applications.
The Company has also aggressively worked to harness the power of broadband and mobile media
distribution in the development of emerging business opportunities by becoming one of the ten
largest streaming audio providers in the United States, developing highly interactive websites with
content that engages our listeners, using SMS texting and delivering real-time traffic to
navigation devices.
Along with the rest of the radio industry, the majority of our stations have deployed HD
Radio®. HD Radio® offers listeners advantages over standard analog
broadcasts, including improved sound quality and additional digital channels. To make the rollout
of HD Radio® more efficient, a consortium of broadcasters representing a majority of
the radio stations in nearly all of our markets have agreed to work together in each radio market
to ensure the most diverse consumer offering possible and to accelerate the rollout of HD
Radio® receivers, particularly in automobiles. In addition to offering secondary
channels, the HD Radio® spectrum allows broadcasters to transmit other forms of data.
We are participating in a joint venture with other broadcasters to provide the bandwidth that a
third party will use to transmit location-based data to hand-held and in-car navigation devices.
It is unclear what impact HD Radio® will have on the markets in which we operate.
I-26
Arbitron Inc., the supplier of ratings data for United States radio markets, has developed
technology to passively collect data for its ratings service. The Portable People
MeterTM (PPMTM) is a small, pager-sized device that does not
require any active manipulation by the end user and is capable of automatically measuring radio,
television, Internet, satellite radio and satellite television signals that are encoded for the
service by the broadcaster. The PPMTM offers a number of advantages over the
traditional diary ratings collection system including ease of use, more reliable ratings data and
shorter time periods between when advertising runs and when audience listening or viewing habits
can be reported. This service began in the New York, Los Angeles and Chicago markets in October
2008, in the St. Louis market in October 2009, and is planned for introduction in the Austin and
Indianapolis markets in the fall of 2010. In each market in which the service has launched, there
has been a compression in the relative ratings of all stations in the market, increasing the
competitive pressure within the market for advertising dollars. In addition, ratings for certain
stations when measured by the PPMTM as opposed to the traditional diary methodology can
be materially different. The Company continues to evaluate the impact PPMTM will have
on our revenues in these markets.
As discussed below, our radio stations in Los Angeles and New York have trailed the
performance of their respective markets. Management believes this relative underperformance is
principally due to two factors: (1) our lack of scale in these markets and (2) the introduction of
PPMTM to these markets in October 2008. Some of our competitors operate larger station
clusters in New York and Los Angeles than we do, enabling them to use their market share to extract
a greater percentage of available advertising revenue through discounting unit rates. Our stations
in New York and Los Angeles principally target demographics that suffer a disproportionate decline
in ratings when measured by the PPMTM as compared to the previously used diary
methodology. Management expects the impact we have experienced from the adoption of the
PPMTM to abate in our next fiscal year. Our Los Angeles and New York markets
collectively account for approximately 50% of our domestic radio revenues.
On April 3, 2009, Emmis entered into an LMA and a Put and Call Agreement for KMVN-FM in Los
Angeles with a subsidiary of Grupo Radio Centro, S.A.B. de C.V (GRC), a Mexican broadcasting
company. The LMA for KMVN-FM commenced on April 15, 2009 and will continue for up to seven years.
The LMA requires $7 million in annual payments plus reimbursement of certain expenses. GRC paid
the first two years of LMA payments in advance at closing. At any time during the LMA, GRC has the
right to purchase the station for $110 million. At the end of the term, Emmis has the right to
require GRC to purchase the station for the same amount. Under the LMA, Emmis continues to own and
operate the station, with GRC providing Emmis with broadcast programming. In connection with the
LMA, the call letters of the station changed from KMVN-FM to KXOS-FM. The performance of Emmis
other Los Angeles radio station, KPWR-FM, trailed the performance of the overall market. For the
twelve-month period ended February 28, 2010, KPWR-FMs gross revenues were down 28.2% whereas the
independent accounting firm Miller, Kaplan, Arase & Co. (Miller Kaplan) reported that the Los
Angeles market total gross revenues were down 18.3% versus the same period of the prior year.
Our radio cluster in New York trailed the performance of the overall New York radio market
during the twelve-month period ended February 28, 2010. For the twelve-month period ended February
28, 2010, our New York radio stations gross revenues were down 19.5%, whereas Miller Kaplan
reported that New York radio market total gross revenues were down 12.4% versus the same period of
the prior year.
While the general pace of business has improved over the past twelve months, the ongoing
recovery remains unpredictable. For example, our domestic radio divisions revenues were up
approximately 8% in the month of March 2010 as compared to the same month from the prior year, but
were down 4% in the month of April 2010 as compared to the same month from the prior year. As of
May 3, 2010, our domestic radio divisions revenues for the months of May 2010 and June 2010 as
compared to the same month of the prior year are flat and up10%, respectively.
As part of our business strategy, we continually evaluate potential acquisitions of radio
stations, publishing properties and other businesses that we believe hold promise for long-term
appreciation in value and leverage our strengths. However, the August 2009 amendment to Emmis
Operating Companys (the Companys principal operating subsidiary, hereinafter EOC) Credit
Agreement substantially limits our ability to make acquisitions prior to September 2011. We also
regularly review our portfolio of assets and may opportunistically dispose of assets when we
believe it is appropriate to do so. In particular, we have one radio station in New York City and
two radio stations in Chicago where we believe the sale value could exceed the prospects for cash
flow generation as part of our portfolio. Although we remain optimistic about the growth potential of
these stations, as the market for buying and selling radio stations improves, we may from time
to time explore sales of one or more of these stations.
I-27
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that encompass significant judgments and
uncertainties, and potentially derive materially different results under different assumptions and
conditions. We believe that our critical accounting policies are those described below.
Revenue Recognition
Broadcasting revenue is recognized as advertisements are aired. Publication revenue is
recognized in the month of delivery of the publication. Both broadcasting revenue and publication
revenue recognition is subject to meeting certain conditions such as persuasive evidence that an
arrangement exists and collection is reasonably assured. These criteria are generally met at the
time the advertisement is aired for broadcasting revenue and upon delivery of the publication for
publication revenue. Advertising revenues presented in the financial statements are reflected on a
net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross
revenues.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is recorded based on managements judgment of the
collectability of receivables. When assessing the collectability of receivables, management
considers, among other things, historical loss experience and existing economic conditions.
FCC Licenses and Goodwill
We have made acquisitions in the past for which a significant amount of the purchase price was
allocated to FCC licenses and goodwill assets. As of February 28, 2010, we have recorded
approximately $360.0 in goodwill and FCC licenses, which represents approximately 72% of our total
assets.
In the case of our U.S. radio stations, we would not be able to operate the properties without
the related FCC license for each property. FCC licenses are renewed every eight years;
consequently, we continually monitor our stations compliance with the various regulatory
requirements. Historically, all of our FCC licenses have been renewed at the end of their
respective periods, and we expect that all FCC licenses will continue to be renewed in the future.
We consider our FCC licenses to be indefinite-lived intangibles. Our foreign broadcasting licenses
expire during periods ranging from December 2012 to February 2013. We will need to submit
applications to extend our foreign licenses upon their expiration to continue our broadcast
operations in these countries. While there is a general expectancy of renewal of radio broadcast
licenses in most countries and we expect to actively seek renewal of our foreign licenses, most of
the countries in which we operate do not have the regulatory framework or history that we have with
respect to license renewals in the United States. This makes the risk of non-renewal (or of renewal on less favorable terms) of foreign
licenses greater than for United States licenses, as was recently demonstrated in Hungary when our
broadcasting license was not renewed in November 2009 under circumstances that even a Hungarian
court ruled violated the Hungarian Media Law. We treat our foreign broadcasting licenses as
definite-lived intangibles and amortize them over their respective license periods.
We do not amortize goodwill or other indefinite-lived intangible assets, but rather test for
impairment at least annually or more frequently if events or circumstances indicate that an asset
may be impaired. When evaluating our radio broadcasting licenses for impairment, the testing is
performed at the unit of accounting level as determined by Accounting Standards Codification
(ASC) Topic 350-30-35. In our case, radio stations in a geographic market cluster are considered
a single unit of accounting, provided that they are not being operated under a Local Marketing
Agreement by another broadcaster.
We complete our annual impairment tests on December 1 of each year and perform additional
interim impairment testing whenever triggering events suggest such testing is warranted.
Valuation of Indefinite-lived Broadcasting Licenses
Fair value of our FCC Licenses is estimated to be the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. To determine the fair value of our FCC Licenses, the Company uses an income
valuation method when it performs its impairment tests. Under this method, the Company projects
cash flows that would be generated by each of its units of accounting assuming the unit of
accounting was commencing operations in its respective market at the beginning of the valuation
period. This cash flow stream is discounted to arrive at a value for the FCC license. The Company
assumes the competitive situation that exists in each market remains unchanged, with the exception
that its unit of accounting commenced operations at the beginning of the valuation period. In
doing so, the Company extracts the value of going concern and any other assets acquired, and
strictly values the FCC license. Major assumptions involved in this analysis include market
revenue, market revenue growth rates, unit of accounting audience share, unit of accounting revenue
share and discount rate. Each of these assumptions may change in the future based upon changes in
general economic conditions, audience behavior, consummated transactions, and numerous other
variables that may be beyond our control.
I-28
The projections incorporated into our annual license valuations take into consideration the
prolonged economic recession and credit crisis, which has led to a further weakened, deteriorating
and less profitable radio marketplace with reduced potential for growth and a higher cost of
capital. Between its December 1, 2007 annual impairment assessment and its August 1, 2009 interim
assessment, the Company incorporated several more conservative estimates into its assumptions to
reflect the deterioration in both the U.S. economy and the radio marketplace. Specifically,
long-term revenue growth estimates generally decreased, from a range of 1.5% to 4.0% in the
December 1, 2007 assessment to a range of 2.0% to 3.3% in the August 1, 2009 assessment.
Similarly, as a large portion of radios expenses are of a fixed nature, declining revenue
projections negatively impact operating profit margin assumptions. Operating profit margins
decreased from a range of 30.1% to 50.7% in the December 1, 2007 assessment to a range of 26.0% to
40.9% in the December 1, 2009 assessment. Assumptions incorporated into the annual impairment
testing as of December 1, 2009 were similar to those used in our August 1, 2009 interim testing,
although revenue growth rates were slightly higher as a result of the pace of the industrys recent
revenue recovery. Below are some of the key assumptions used in our annual and interim impairment
assessments. The methodology used to value our FCC licenses has not changed in the three-year
period ended February 28, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2007 |
|
October 1, 2008 |
|
December 1, 2008 |
|
August 1, 2009 |
|
December 1, 2009 |
Discount Rate |
|
10.5% 11.1% |
|
11.7% 12.1% |
|
11.5% 11.9% |
|
12.6% 13.0% |
|
12.7% 13.1% |
Long-term Revenue Growth Rate
(Years 4-8) |
|
1.5% 4.0% |
|
2.0% 3.5% |
|
2.0% 3.3% |
|
2.0% 3.3% |
|
2.0% 3.5% |
Revenue Growth Rate (All Years) |
|
1.5% 4.4% |
|
1.5% 3.4% |
|
0.7% 3.3% |
|
1.5% 3.2% |
|
2.0% 3.4% |
Mature Market Share |
|
6.7% 31.0% |
|
6.3% 30.8% |
|
6.3% 30.5% |
|
6.3% 30.6% |
|
6.2% 30.0% |
Operating Profit margin |
|
30.1% 50.7% |
|
27.7% 43.7% |
|
27.1% 42.7% |
|
26.5% 42.7% |
|
26.0% 40.9% |
Valuation of Goodwill
ASC Topic 350 requires the Company to test goodwill for impairment at least annually using a
two-step process. The first step is a screen for potential impairment, while the second step
measures the amount of impairment. The Company conducts the two-step impairment test on December 1
of each fiscal year, unless indications of impairment exist during an interim period. When
assessing its goodwill for impairment, the Company uses an enterprise valuation approach to
determine the fair value of each of the Companys reporting units (radio stations grouped by market
and magazines on an individual basis). Management determines enterprise value for each of its
reporting units by multiplying the two-year average station operating income generated by each
reporting unit (current year based on actual results and the next year based on budgeted results)
by an estimated market multiple. The Company uses a blended station operating income trading
multiple of publicly traded radio operators as a benchmark for the multiple it applies to its radio
reporting units. There are no publicly traded publishing companies that are focused predominantly
on city and regional magazines as is our publishing segment. Therefore, the market multiple used
as a benchmark for our publishing reporting units is based on recently completed transactions
within the city and regional magazine industry or analyst reports that include valuations of
magazine divisions within publicly traded media conglomerates. For the interim assessment
performed as of August 1, 2009, the Company applied a market multiple of 6.2 times and 5.0 times
the reporting units operating performance for our radio and publishing reporting units,
respectively. For the annual assessment performed as of December 1, 2009, the Company applied a
market multiple of 6.8 times and 5.0 times the reporting units operating performance for our radio
and publishing reporting units, respectively. Management believes this methodology for valuing
radio and publishing properties is a common approach and believes that the multiples used in the
valuation are reasonable given our peer comparisons and recent market transactions.
This enterprise valuation is compared to the carrying value of the reporting unit for the
first step of the goodwill impairment test. If the reporting unit exhibits impairment, the Company
proceeds to the second step of the goodwill impairment test. For its step-two testing, the
enterprise value is allocated among the tangible assets, indefinite-lived intangible assets (FCC
licenses valued using a direct-method valuation approach) and unrecognized intangible assets, such
as customer lists, with the residual amount representing the implied fair value of the goodwill.
To the extent the carrying amount of the goodwill exceeds the implied fair value of the goodwill,
the difference is recorded as an impairment charge in the statement of operations. The methodology
used to value our goodwill has not changed in the three-year period ended February 28, 2010.
Sensitivity Analysis
Based on the results of our December 1, 2009 annual impairment assessment, the fair value of
our broadcasting licenses was approximately $407.4 million which was in excess of the $335.8
million carrying value by $71.6 million, or 21.3%. The fair values exceeded the carrying values of
all of our units of accounting. Should our estimates or assumptions worsen, or should negative
events or circumstances occur in the units that have limited fair value cushion, additional license
impairments may be needed.
I-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio Broadcasting Licenses |
|
|
|
As of |
|
|
|
|
|
|
February 28, 2010 |
|
|
December 1, 2009 |
|
|
Percentage by which fair |
|
Unit of Accounting |
|
Carrying Value |
|
|
Fair Value |
|
|
value exceeds carrying value |
|
New York Cluster |
|
|
145,588 |
|
|
|
156,080 |
|
|
|
7.2 |
% |
KXOS-FM (Los Angeles) |
|
|
52,333 |
|
|
|
55,281 |
|
|
|
5.6 |
% |
Austin Cluster |
|
|
46,030 |
|
|
|
46,511 |
|
|
|
1.0 |
% |
Chicago Cluster |
|
|
44,292 |
|
|
|
46,385 |
|
|
|
4.7 |
% |
St. Louis Cluster |
|
|
27,692 |
|
|
|
29,196 |
|
|
|
5.4 |
% |
Indianapolis Cluster |
|
|
17,274 |
|
|
|
18,051 |
|
|
|
4.5 |
% |
KPWR-FM (Los Angeles) |
|
|
2,018 |
|
|
|
55,281 |
|
|
|
2,639.4 |
% |
Terre Haute Cluster |
|
|
574 |
|
|
|
586 |
|
|
|
2.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
335,801 |
|
|
|
407,371 |
|
|
|
21.3 |
% |
|
|
|
|
|
|
|
|
|
|
Although our annual impairment testing on December 1, 2009 did not result in an impairment
charge, if we were to assume a 1% change in any of our three key assumptions (a reduction in the
long-term revenue growth rate, a reduction in local commercial share or an increase in the discount
rate) used to determine the fair value of our broadcasting licenses on December 1, 2009, the
resulting impairment charge would have been $64.0 million, $60.5 million and $26.6 million,
respectively. Also, if we were to assume a 10% decrease in the two-year average station operating
income or a market multiple decrease of one, two of the key assumptions used to determine the fair
value of our goodwill on December 1, 2009, the resulting impairment charge would have been $7.9
million and $8.0 million, respectively.
The prolonged economic downturn negatively impacted the radio broadcasting industry as
advertising revenues continued to decline and expectations for growth over the next year also
declined throughout most of calendar 2009. The projected revenue growth levels for the industry
when we completed our interim impairment testing on August 1, 2009 were lower than we had
originally forecasted when we completed our fiscal 2009 annual impairment test on December 1, 2008.
This decline caused us to record further impairment to broadcasting licenses and goodwill as part
of our August 1, 2009 impairment review. As revenues decline, profitability levels are also
negatively impacted as fixed costs represent a significant component of a radio stations operating
expenses. As a result, the fair value of our asset base is particularly sensitive to the impact of
declining revenues.
Deferred Taxes
The Company accounts for income taxes under the asset and liability method, which requires the
recognition of deferred tax assets and liabilities for the expected future tax consequence of
events that have been recognized in the Companys financial statements or income tax returns.
Income taxes are recognized during the year in which the underlying transactions are reflected in
the consolidated statements of operations. Deferred taxes are provided for temporary differences
between amounts of assets and liabilities as recorded for financial reporting purposes and amounts
recorded for income tax purposes. After determining the total amount of deferred tax assets, the
Company determines whether it is more likely than not that some portion of the deferred tax assets
will not be realized. If the Company determines that a deferred tax asset is not likely to be
realized, a valuation allowance will be established against that asset to record it at its expected
realizable value.
Insurance Claims and Loss Reserves
The Company is self-insured for most healthcare claims, subject to stop-loss limits. Claims
incurred but not reported are recorded based on historical experience and industry trends, and
accruals are adjusted when warranted by changes in facts and circumstances. The Company had $0.9
million and $1.1 million accrued for employee healthcare claims as of February 28, 2009 and 2010,
respectively. The Company also maintains large deductible programs (ranging from $250 thousand to
$500 thousand per occurrence) for workers compensation, employment liability, automotive liability
and media liability claims.
I-30
Valuation of Stock Options
The Company determines the fair value of its employee stock options at the date of grant using
a Black-Scholes option-pricing model. The Black-Scholes option pricing model was developed for use
in estimating the value of exchange-traded options that have no vesting restrictions and are fully
transferable. The Companys employee stock options have characteristics significantly different
than these traded options. In addition, option pricing models require the input of highly
subjective assumptions, including the expected stock price volatility and expected term of the
options granted. The Company relies heavily upon historical data for its stock price when
determining expected volatility, but each year the Company reassesses whether or not historical
data is representative of expected results.
ACQUISITIONS, DISPOSITIONS AND INVESTMENTS
The transactions described below impact the comparability of operating results for the three
years ended February 28, 2010.
During the quarter ended May 31, 2009, Emmis completed a series of transactions with its
noncontrolling partners of two of our Bulgarian radio networks that gave Emmis 100% ownership in
those networks. The purchase price of these transactions totaled $4.9 million in cash, and a
substantial portion was allocated to goodwill which was then determined to be substantially
impaired. Emmis recorded an impairment loss of $3.7 million related to Bulgarian goodwill during
the quarter ended May 31, 2009.
On May 29, 2009, Emmis sold the stock of its Belgium radio operation to Alfacam Group NV, a
Belgian corporation, for 100 euros. Emmis recognized a gain on the sale of its Belgium radio
operations of $0.4 million, which included a gain of $0.1 million related to the transfer of
cumulative translation adjustments. The gain on sale of the Belgium radio operations is included
in discontinued operations in the accompanying consolidated statements of operations. Emmis
desired to exit Belgium as its financial performance in the market failed to meet expectations.
The sale allowed Emmis to eliminate further operating losses.
On July 18, 2008, Emmis completed the sale of its sole remaining television station, WVUE-TV
in New Orleans, LA, to Louisiana Media Company LLC for $41.0 million in cash. The Company
recognized a loss on the sale of WVUE-TV of $0.6 million, net of tax benefits of $0.4 million,
which is included in income from discontinued operations in the accompanying statements of
operations. In connection with the sale, the Company paid discretionary bonuses to the employees
of WVUE-TV totaling $0.8 million, which is included in the calculation of the loss on sale. The
sale of WVUE-TV completes the sale of our television division which began on May 10, 2005, when
Emmis announced that it had engaged advisors to assist in evaluating strategic alternatives for its
television assets.
On December 17, 2007, Emmis completed its acquisition of 100% of the shares of Infopress &
Company OOD for $8.8 million in cash. Infopress & Company OOD operates Inforadio, a national radio
network broadcasting to 13 Bulgarian cities. Inforadio joins Emmis majority owned Bulgarian radio
networks Radio FM+ and Radio Fresh. Emmis believes the acquisition of Inforadio further
strengthens its footprint in Bulgaria. The operating results of Inforadio from December 17, 2007
are included in the accompanying consolidated statements of operations.
On July 25, 2007, Emmis completed its acquisition of Orange Coast Kommunications, Inc.,
publisher of Orange Coast, for $6.9 million in cash including acquisition costs of $0.2 million.
Approximately $0.3 million of the purchase price was withheld at the original closing, but was
subsequently paid in April 2008. Orange Coast fits Emmis niche of publishing quality city and
regional magazines and serves the affluent area of Orange County, CA. The operating results of
Orange Coast from July 25, 2007 are included in the accompanying consolidated statements of
operations.
On June 4, 2007, Emmis closed on its sale of KGMB-TV in Honolulu to HITV Operating Co, Inc.
for $40.0 million in cash. Emmis recorded a gain on sale of $10.1 million, net of tax, which is
included in discontinued operations in the accompanying consolidated statement of operations.
On March 27, 2007, Emmis closed on its sale of KMTV-TV in Omaha, NE to Journal Communications,
Inc. (Journal) and received $10.0 million in cash. Journal had been operating KMTV-TV under a
Local Programming and Marketing Agreement since December 5, 2005.
I-31
RESULTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 2009 COMPARED TO YEAR ENDED FEBRUARY 28, 2010
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
224,941 |
|
|
$ |
177,566 |
|
|
$ |
(47,375 |
) |
|
|
(21.1 |
)% |
Publishing |
|
|
82,990 |
|
|
|
65,000 |
|
|
|
(17,990 |
) |
|
|
(21.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
$ |
307,931 |
|
|
$ |
242,566 |
|
|
$ |
(65,365 |
) |
|
|
(21.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio net revenues decreased principally as a result of the precipitous decline of advertising
spending in our domestic and international radio markets due to the global recession. We typically
monitor the performance of our domestic radio stations against the aggregate performance of the
markets in which we operate based on reports for the periods prepared by the independent accounting
firm Miller Kaplan. Miller Kaplan reports are generally prepared on a gross revenue basis and
exclude revenues from barter arrangements, and also exclude revenue Emmis recognized related to the
guaranteed minimum amount of national sales by our national representation firm as discussed below.
For the year ended February 28, 2010, revenues of our domestic radio stations were down 18.2%,
whereas Miller Kaplan reported that revenues of our domestic radio markets were down 14.4%. The
relative underperformance of our domestic radio stations is principally due to our lack of scale in
the New York and Los Angeles markets and the introduction of PPMTM to those markets in
October 2008.
Market weakness and our stations weakness has led us to discount our rates charged to
advertisers. In fiscal 2010, our average unit rate was down 23.3% and our number of units sold was
up 0.4%. The Companys national representation firm guaranteed a minimum amount of national sales
for the years ended February 28, 2009 and February 29, 2008. Actual national sales, as defined by
the representation agreement, were approximately $10.2 million lower than the guaranteed minimum
amount of national sales and the national representation firm has paid the shortfall to Emmis. As
such, Emmis recognized $10.2 million of additional net revenues for the year ended February 28,
2009. Emmis recognized $3.7 million of additional net revenues related to the national
representation firms shortfall during the year ended February 29, 2008. Our agreement with our
national representation firm does not contain guarantees for any period after the year ended
February 28, 2009.
Publishing net revenues decreased principally due to the global recession that diminished
demand for advertising inventory at all of our city/regional publications.
Station operating expenses excluding depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
Station operating expenses, excluding
depreciation and amortization expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
162,685 |
|
|
$ |
141,557 |
|
|
$ |
(21,128 |
) |
|
|
(13.0 |
)% |
Publishing |
|
|
76,322 |
|
|
|
64,603 |
|
|
|
(11,719 |
) |
|
|
(15.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total station operating expenses, excluding
depreciation and amortization expense |
|
$ |
239,007 |
|
|
$ |
206,160 |
|
|
$ |
(32,847 |
) |
|
|
(13.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I-32
Radio station operating expenses, excluding depreciation and amortization expense, decreased
principally due to division-wide cost reduction efforts consisting, among other things, of
headcount and wage reductions. These cost reduction efforts as well as lower sales-related costs
contributed to the reduction in station operating expenses, excluding depreciation and amortization
expense.
Publishing operating expenses, excluding depreciation and amortization expense, decreased
principally due to division-wide cost reduction efforts similar to our radio division.
Most of our cost reduction efforts occurred at the beginning of fiscal 2010; consequently, we
do not anticipate similar year-over-year declines in station operating expenses, excluding
depreciation and amortization expense, for the radio or publishing divisions in fiscal 2011.
Corporate expenses excluding depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
Corporate expenses excluding
depreciation and amortization expense |
|
$ |
18,503 |
|
|
$ |
13,634 |
|
|
$ |
(4,869 |
) |
|
|
(26.3 |
)% |
Corporate expenses decreased principally due to cost reduction efforts primarily consisting of
headcount reductions and wage reductions, eliminating operating costs associated with the Companys
corporate aircraft, which was sold during the three months ended May 31, 2009, lower noncash
compensation costs related to the discontinuance of the Companys 401(k) matching program and lower
Black-Scholes valuations related to the Companys March 2009 equity grants.
Most of our cost reduction efforts occurred at the beginning of fiscal 2010; consequently, we
do not anticipate similar year-over-year declines in corporate expenses, excluding depreciation and
amortization expense, in fiscal 2011.
Restructuring charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended February 28, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charge |
|
$ |
4,208 |
|
|
$ |
3,350 |
|
|
$ |
(858 |
) |
|
|
(20.4 |
)% |
In response to the deteriorating economic environment and the decline in domestic advertising
revenues previously discussed, the Company announced a plan on March 5, 2009 to reduce payroll
costs by $10 million annually. In connection with the plan, approximately 100 employees were
terminated. The terminated employees received severance of $4.2 million under the Companys
standard severance plan. This amount was recognized in the year ended February 28, 2009, as the
terminations were probable and the amount was reasonably estimable prior to the end of the period.
Employees terminated also received one-time enhanced severance of $3.4 million that was recognized
in the year ended February 28, 2010, as the enhanced plan was not finalized and communicated until
March 5, 2009.
Impairment loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended February 28, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss |
|
$ |
373,137 |
|
|
$ |
174,642 |
|
|
$ |
(198,495 |
) |
|
|
(53.2 |
)% |
I-33
During the first quarter of fiscal 2010, Emmis purchased the remaining ownership interests of
its two majority owned radio networks in Bulgaria. Emmis now owns 100% of all three radio networks
in Bulgaria. Approximately $3.7 million of the purchase price related to these acquisitions was
allocated to goodwill, which was then determined to be substantially impaired. During the second
quarter of fiscal 2010, we performed an interim impairment test of our intangible assets as
indicators of impairment were present. In connection with the interim review, we recorded an
impairment loss of $160.9 million related to our radio FCC licenses, $5.3 million related to
goodwill at our Los Angeles Magazine publication, $2.8 million related to definite-lived
intangibles at our Orange Coast Magazine publication and $2.0 million related to our Bulgarian
foreign broadcast licenses.
We performed our annual impairment testing as of December 1, 2009, but did not record any
additional impairment charges.
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
9,020 |
|
|
$ |
8,128 |
|
|
$ |
(892 |
) |
|
|
(9.9 |
)% |
Publishing |
|
|
1,231 |
|
|
|
772 |
|
|
|
(459 |
) |
|
|
(37.3 |
)% |
Corporate |
|
|
2,152 |
|
|
|
1,493 |
|
|
|
(659 |
) |
|
|
(30.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
$ |
12,403 |
|
|
$ |
10,393 |
|
|
$ |
(2,010 |
) |
|
|
(16.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in radio and publishing depreciation and amortization mostly relates to
impairment charges related to our definite-lived intangible assets at our Bulgarian radio operation
and our Orange Coast publication in connection with our interim impairment testing performed on
August 1, 2009.
Corporate depreciation and amortization expense decreased as a significant portion of the
corporate property and equipment became fully depreciated at the end of fiscal 2009.
Operating loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
Operating loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
(281,774 |
) |
|
$ |
(140,120 |
) |
|
$ |
141,654 |
|
|
|
50.3 |
% |
Publishing |
|
|
(27,585 |
) |
|
|
(9,200 |
) |
|
|
18,385 |
|
|
|
66.6 |
% |
Corporate |
|
|
(29,982 |
) |
|
|
(16,166 |
) |
|
|
13,816 |
|
|
|
46.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss |
|
$ |
(339,341 |
) |
|
$ |
(165,486 |
) |
|
$ |
173,855 |
|
|
|
51.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in operating loss is primarily due to lower year-over-year impairment losses.
Excluding impairment losses, operating income would have been $33.8 million and $9.2 million for
the years ended February 28, 2009 and 2010, respectively. Operating income excluding impairment
losses decreased due to lower revenues, partially offset by expense reductions, both of which are
discussed above.
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
25,067 |
|
|
$ |
24,820 |
|
|
$ |
(247 |
) |
|
|
(1.0 |
)% |
I-34
The August 2009 amendment to our Credit Agreement increased the interest rate on amounts
outstanding under the Credit Agreement by 2%. This increase is offset by lower outstanding debt
during most of Fiscal 2010 as a result of our Dutch auction tenders, which are discussed below in
Gain on debt extinguishment.
Gain on debt extinguishment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28, |
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
$ Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on debt extinguishment |
|
$ |
|
|
|
$ |
31,362 |
|
|
$ |
31,362 |
|
In April 2009, Emmis commenced a series of Dutch auction tenders to purchase term loans of EOC
under the Credit Agreement as amended. The cumulative effect of all of the debt tenders resulted
in the purchase of $78.5 million in face amount of EOCs outstanding term loans for $44.7 million
in cash. As a result of these purchases, Emmis recognized a gain on extinguishment of debt of
$31.9 million in the quarter ended May 31, 2009, which is net of transaction costs of $1.0 million
and a write-off of deferred debt costs associated with the term loan reduction of $0.9 million.
The Credit Agreement as amended permitted the Company to pay up to $50 million (less amounts paid
after February 1, 2009 under our TV Proceeds Quarterly Bonus Program) to purchase EOCs outstanding
term loans through tender offers and required a minimum offer of $5 million per tender. Since the
Company paid $44.7 million in debt tenders and paid $4.1 million under the TV Bonus Program in
March 2009, we are not permitted to effect further tenders under the Credit Agreement.
In August 2009, Emmis further amended its Credit Agreement. As part of the August 2009
amendment, maximum availability under the revolver was reduced from $75 million to $20 million.
The Company recorded a loss on debt extinguishment during the year ended February 28, 2010 of $0.5
million related to the write-off of deferred debt costs associated with the revolver reduction.
Benefit for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes |
|
$ |
(65,848 |
) |
|
$ |
(39,840 |
) |
|
$ |
26,008 |
|
|
|
(39.5 |
)% |
Our effective income tax benefit for the years ended February 28, 2009 and 2010 were 18% and
25%, respectively. During the fourth quarter of fiscal 2009, the Company recorded a full valuation
allowance for most of its deferred tax assets, including its net operating loss carryforwards. A
portion of the impairment loss during the year ended February 28, 2010 decreased deferred tax
liabilities associated with the indefinite-lived intangibles. The tax benefit of the deferred tax
liability reduction decreased the effective annual tax rate for fiscal 2010.
During the year ended February 28, 2010, we recorded a $6.8 million benefit related to
alternative minimum tax paid by Emmis in 2006 and 2007, which can now be recouped after the signing
of the Worker, Homeownership, and Business Assistance Act of 2009. This Act allows Emmis to extend
the previously allowed two-year carryback period on net operating losses to five years and permits
the full offset of alternative minimum tax during such extended carryback period. The alternative
minimum tax asset previously had a full valuation allowance.
I-35
Income from discontinued operations, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
discontinued
operations,
net of tax |
|
$ |
4,922 |
|
|
$ |
442 |
|
|
$ |
(4,480 |
) |
|
|
(91.0 |
)% |
Our television division, Tu Ciudad Los Angeles, Emmis Books and our international radio
operations in Belgium and Hungary have been classified as discontinued operations in the
accompanying consolidated financial statements. The financial results of these stations and
related discussions are fully described in Note 1j to the accompanying consolidated financial
statements. Below is a summary of the components of discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28, |
|
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
Television |
|
$ |
5,007 |
|
|
$ |
|
|
Slager Radio (Hungary) |
|
|
10,311 |
|
|
|
1,404 |
|
Belgium |
|
|
(3,635 |
) |
|
|
(944 |
) |
Tu Ciudad |
|
|
(1,890 |
) |
|
|
(15 |
) |
Emmis Books |
|
|
(103 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
Total |
|
|
9,690 |
|
|
|
423 |
|
Provision for income taxes |
|
|
4,188 |
|
|
|
401 |
|
|
|
|
|
|
|
|
Income from operations, net of tax |
|
|
5,502 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of discontinued operations: |
|
|
|
|
|
|
|
|
Television |
|
|
(1,017 |
) |
|
|
|
|
Belgium |
|
|
|
|
|
|
420 |
|
|
|
|
|
|
|
|
Total |
|
|
(1,017 |
) |
|
|
420 |
|
Benefit for income taxes |
|
|
(437 |
) |
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of discontinued
operations, net of tax |
|
|
(580 |
) |
|
|
420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax |
|
$ |
4,922 |
|
|
$ |
442 |
|
|
|
|
|
|
|
|
For a description of properties sold, see the discussion under Acquisitions, Dispositions and
Investments.
Consolidated net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net loss |
|
$ |
(294,953 |
) |
|
$ |
(118,492 |
) |
|
$ |
176,461 |
|
|
|
(59.8 |
%) |
The decrease in net loss for the year ended February 28, 2010 is mostly due to the decrease in
the impairment charge recorded during fiscal 2010 and the gain on the extinguishment of debt as a
result of our Dutch auction tenders, both of which are partially offset by the decrease in the
benefit for income taxes and decrease in other components of operating income as discussed above.
I-36
YEAR ENDED FEBRUARY 29, 2008 COMPARED TO YEAR ENDED FEBRUARY 28, 2009
Net revenue pro forma reconciliation:
Since March 1, 2007, we have acquired Orange Coast and a national radio network in Bulgaria.
The results of our television division, Tu Ciudad Los Angeles publication, Emmis Books and our
international radio properties in Belgium and Hungary have been included in discontinued operations
and are not included in reported results below. The following table reconciles actual results to
pro forma results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28 (29), |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(amounts in thousands) |
|
Reported net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
243,738 |
|
|
$ |
224,941 |
|
|
$ |
(18,797 |
) |
|
|
-7.7 |
% |
Publishing |
|
|
91,939 |
|
|
|
82,990 |
|
|
|
(8,949 |
) |
|
|
-9.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
335,677 |
|
|
|
307,931 |
|
|
|
(27,746 |
) |
|
|
-8.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Net revenues from stations acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
|
604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing |
|
|
2,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
|
244,342 |
|
|
|
224,941 |
|
|
|
(19,401 |
) |
|
|
-7.9 |
% |
Publishing |
|
|
94,713 |
|
|
|
82,990 |
|
|
|
(11,723 |
) |
|
|
-12.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
339,055 |
|
|
$ |
307,931 |
|
|
$ |
(31,124 |
) |
|
|
-9.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For further disclosure of segment results, see Note 13 to the accompanying consolidated
financial statements. Consistent with managements review of the Company, the pro forma results
above include the impact of all material consummated acquisitions and dispositions through February
28, 2009.
Net revenues discussion:
Radio net revenues decreased principally as a result of weak advertising demand in all of our
domestic radio markets. On a pro forma basis (assuming the purchase of the radio network in
Bulgaria had occurred on the first day of the pro forma periods presented above), radio net
revenues for the year ended February 28, 2009 decreased $19.4 million, or 7.9%. We typically
monitor the performance of our domestic radio stations against the aggregate performance of the
markets in which we operate based on reports for the periods prepared by the independent accounting
firm Miller Kaplan. Miller Kaplan reports are generally prepared on a gross revenue basis and
exclude revenues from barter arrangements. For the year ended February 28, 2009, revenues of our
domestic radio stations were down 14.4%, whereas Miller Kaplan reported that revenues of our
domestic radio markets were down 11.6%. We underperformed the markets in which we operate
principally due to the continuing challenge of our reformatted stations in our Los Angeles and New
York markets. Excluding WRXP-FM in New York and KMVN-FM in Los Angeles, revenues for our domestic
radio markets would have been down 11.2%. Our New York and Los Angeles stations account for
approximately 50% of our domestic radio revenues.
Market weakness and our stations weakness has led us to discount our rates charged to
advertisers. In fiscal 2009, our average unit rate was down 14.7% and our number of units sold was
down 0.5%. The Companys national representation firm guaranteed a minimum amount of national
sales for the year ended February 28, 2009. Actual national sales, as defined by the
representation agreement, were approximately $10.2 million lower than the guaranteed minimum amount
of national sales and the national representation firm has paid the shortfall to Emmis. As such,
Emmis recognized $10.2 million of additional net revenues for the year ended February 28, 2009.
Emmis recognized $3.7 million of additional net revenues related to the national representation
firms shortfall during the year ended February 29, 2008. Our agreement with our national
representation firm does not contain guarantees for any period after the year ended February 28,
2009.
I-37
Publishing net revenues decreased principally due to the slowing economy during the latter
half of calendar 2008 and the first two months of calendar 2009 that diminished demand for
advertising inventory at all of our city/regional publications.
On a consolidated basis, pro forma net revenues for the year ended February 28, 2009 decreased
$31.1 million, or 9.2%, due to the effect of the items described above.
Station operating expenses excluding depreciation and amortization expense pro forma
reconciliation:
Since March 1, 2007, we have acquired Orange Coast and a national radio network in Bulgaria.
The results of our television division, Tu Ciudad Los Angeles publication, Emmis Books and our
international radio properties in Belgium and Hungary have been included in discontinued operations
and are not included in reported results below. The following table reconciles actual results to
pro forma results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28 (29), |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(amounts in thousands) |
|
Reported station operating expenses
excluding
depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
171,534 |
|
|
$ |
162,685 |
|
|
$ |
(8,849 |
) |
|
|
-5.2 |
% |
Publishing |
|
|
78,258 |
|
|
|
76,322 |
|
|
|
(1,936 |
) |
|
|
-2.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
249,792 |
|
|
|
239,007 |
|
|
|
(10,785 |
) |
|
|
-4.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Station operating expenses excluding
depreciation and amortization expense
from stations acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
|
567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing |
|
|
2,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma station operating expenses
excluding
depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
|
172,101 |
|
|
|
162,685 |
|
|
|
(9,416 |
) |
|
|
-5.5 |
% |
Publishing |
|
|
81,152 |
|
|
|
76,322 |
|
|
|
(4,830 |
) |
|
|
-6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
253,253 |
|
|
$ |
239,007 |
|
|
$ |
(14,246 |
) |
|
|
-5.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For further disclosure of segment results, see Note 13 to the accompanying consolidated
financial statements. Consistent with managements review of the Company, the pro forma results
above include the impact of all material consummated acquisitions and dispositions through February
28, 2009.
Station operating expenses excluding depreciation and amortization expense discussion:
Radio station operating expenses, excluding depreciation and amortization expense decreased
principally due to lower expenses at KMVN-FM in Los Angeles. KMVN-FMs station operating expenses,
excluding depreciation and amortization expense decreased $6.3 million during the year ended
February 28, 2009, as the station was engaged in an extensive marketing campaign in the prior year,
which was not replicated in the current year. Radio operating expenses also decreased as variable
sales related costs were down in line with the decrease in revenues.
Publishing operating expenses decreased due to lower variable sales related costs coupled with
extensive cost reduction activities that were initiated during our quarter ended August 31, 2008.
I-38
On a consolidated basis, pro forma station operating expenses excluding depreciation and
amortization expense decreased $14.2 million, or 5.6%, due to the effect of the items described
above.
Corporate expenses excluding depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28 (29), |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
Corporate expenses excluding
depreciation and
amortization expense |
|
$ |
20,883 |
|
|
$ |
18,503 |
|
|
$ |
(2,380 |
) |
|
|
(11.4 |
)% |
Corporate expenses decreased due to our continuing efforts to streamline our corporate
services coupled with lower health insurance costs as a result of favorable health claims
experience and general insurance costs as compared to the same period of the prior year. These
cost savings are partially offset by the resumption of regular salary payments to our CEO. Our CEO
voluntarily reduced his salary from $0.9 million to one dollar for the year ended February 29,
2008.
Restructuring charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended February 28 (29), |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charge |
|
$ |
|
|
|
$ |
4,208 |
|
|
$ |
4,208 |
|
|
|
N/A |
|
In response to the deteriorating economic environment and the decline in domestic advertising
revenues previously discussed, the Company announced a plan on March 5, 2009 to reduce payroll
costs by $10 million annually. In connection with the plan, approximately 100 employees were
terminated. The terminated employees received severance of $4.2 million under the Companys
standard severance plan which was recognized as of February 28, 2009 as the terminations were
probable and the amount was reasonably estimable. Employees terminated also received one-time
enhanced severance of $3.4 million that was recognized in the fiscal year ended February 28, 2010
as the enhanced plan was not finalized and communicated until March 5, 2009.
Impairment loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended February 28 (29), |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss |
|
$ |
18,068 |
|
|
$ |
373,137 |
|
|
$ |
355,069 |
|
|
|
1,965.2 |
% |
In connection with our fiscal 2008 annual impairment review, we recognized a noncash
impairment loss of $21.2 million ($18.0 million related to our FCC licenses in St. Louis and Terre
Haute and $3.2 million related to our international broadcasting licenses in Belgium). In
connection with our fiscal 2009 annual and interim impairment reviews, we recognized a noncash
impairment loss of $373.4 million ($322.7 million related to domestic radio indefinite-lived
intangibles, $8.2 million related to international radio goodwill, $2.5 million related to other
long-lived assets of our foreign continuing operations, $31.9 million related to publishing
division goodwill, $0.5 million related to publishing division definite-lived intangibles, $0.3
million related to long-lived assets in Belgium and $7.3 million related to our corporate
aircraft). The impairment losses related to Belgium have been reclassified to discontinued
operations in the accompanying consolidated statements of operations.
I-39
Contract termination fee:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended February 28 (29), |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract termination fee |
|
$ |
15,252 |
|
|
$ |
|
|
|
$ |
(15,252 |
) |
|
|
(100.0 |
)% |
On October 1, 2007, Emmis terminated its existing national sales representation agreement with
Interep National Radio Sales, Inc. and entered into a new agreement with Katz Communications, Inc.
extending through March 2018. Emmis, Interep and Katz entered into a tri-party termination and
mutual release agreement under which Interep released Emmis from its future contractual obligations
in exchange for a one-time payment of $15.3 million, which was paid by Katz on behalf of Emmis as
an inducement for Emmis to enter into the new long-term contract with Katz.
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28 (29), |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
8,361 |
|
|
$ |
9,020 |
|
|
$ |
659 |
|
|
|
7.9 |
% |
Publishing |
|
|
971 |
|
|
|
1,231 |
|
|
|
260 |
|
|
|
26.8 |
% |
Corporate |
|
|
2,471 |
|
|
|
2,152 |
|
|
|
(319 |
) |
|
|
(12.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
$ |
11,803 |
|
|
$ |
12,403 |
|
|
$ |
600 |
|
|
|
5.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in publishing depreciation and amortization mostly relates to our acquisition of
Orange Coast in July 2007. The decrease in corporate depreciation and amortization mostly relates
to assets that are fully depreciated but have not yet been replaced.
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28 (29), |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
30,627 |
|
|
$ |
(281,774 |
) |
|
$ |
(312,401 |
) |
|
|
(1,020.0 |
)% |
Publishing |
|
|
12,710 |
|
|
|
(27,585 |
) |
|
|
(40,295 |
) |
|
|
(317.0 |
)% |
Corporate |
|
|
(23,354 |
) |
|
|
(29,982 |
) |
|
|
(6,628 |
) |
|
|
28.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
$ |
19,983 |
|
|
$ |
(339,341 |
) |
|
$ |
(359,324 |
) |
|
|
(1,798.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio operating income decreased principally due to the $333.5 million noncash impairment loss
attributable to the radio division recognized during the year ended February 28, 2009 as compared
to the $18.1 million noncash impairment charge recognized during the prior year. Also, operating
expense reductions mostly related to lower operating expenses, excluding depreciation and
amortization, of KMVN-FM and the absence of the $15.3 million contract termination fee in fiscal
2008 were partially offset by revenue declines of $18.8 million. As discussed above, the net
revenue growth of our domestic stations trailed the revenue growth of the markets in which we
operate.
Publishing operating income decreased mostly due to the $32.4 million noncash impairment loss
($31.9 million related to goodwill and $0.5 million related to other definite-lived intangibles)
and a decrease in net revenues of $8.9 million, both of which are partially offset by lower
operating expenses of $1.9 million mostly related to lower variable sales-related expenses.
I-40
On a consolidated basis, excluding the noncash impairment charge in both years, the noncash
contract termination fee in the prior year and the restructuring charge in the current year,
operating income decreased $15.3 million, or 28.7%, principally due to the decrease in radio and
publishing revenues, as discussed above.
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28 (29), |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
34,319 |
|
|
$ |
25,067 |
|
|
$ |
(9,252 |
) |
|
|
(27.0 |
)% |
The decrease in interest expense is principally due to lower interest rates on our Credit
Agreement. The weighted average borrowing rate under our Credit Agreement, including our interest
rate exchange agreements, at February 29, 2008 and February 28, 2009 was 6.8% and 4.8%,
respectively.
Loss before income taxes and discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28 (29), |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
discontinued operations |
|
$ |
(14,566 |
) |
|
$ |
(365,723 |
) |
|
$ |
(351,157 |
) |
|
|
2,410.8 |
% |
Loss before income taxes and discontinued operations decreased by $351.2 million principally
due to the items discussed above, most notably the $373.1 million noncash impairment loss.
Benefit for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28 (29), |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes |
|
$ |
(3,526 |
) |
|
$ |
(65,848 |
) |
|
$ |
(62,322 |
) |
|
|
1,767.5 |
% |
The increase in the benefit for income taxes was primarily due to the increase in pre-tax
losses for the year ended February 28, 2009, mostly attributable to indefinite-lived asset
impairment charges recorded during the year. Our benefit for income taxes for the year ended
February 28, 2009 was partially offset by the recording of a full valuation allowance for most of
the Companys deferred tax assets, including its net operating loss carryforwards. The current
year tax benefit and offsetting valuation allowances resulted in an effective tax rate for the
years February 29, 2008 and February 28, 2009 of 24.2% and 18.0%, respectively.
Income from discontinued operations, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended February 28 (29), |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations,
net of tax |
|
$ |
14,920 |
|
|
$ |
4,922 |
|
|
$ |
(9,998 |
) |
|
|
(67.0 |
)% |
I-41
Our television division, Tu Ciudad Los Angeles, Emmis Books, and our international radio
operations in Belgium and Hungary have been classified as discontinued operations in the
accompanying consolidated financial statements. The financial results of these stations and
related discussions are fully described in Note 1k to the accompanying consolidated financial
statements. Below is a summary of the components of discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
Television |
|
$ |
13,300 |
|
|
$ |
5,007 |
|
Slager Radio (Hungary) |
|
|
6,030 |
|
|
|
10,311 |
|
Belgium |
|
|
(6,585 |
) |
|
|
(3,635 |
) |
Tu Ciudad |
|
|
(2,137 |
) |
|
|
(1,890 |
) |
Emmis Books |
|
|
(15 |
) |
|
|
(103 |
) |
|
|
|
|
|
|
|
Total |
|
|
10,593 |
|
|
|
9,690 |
|
Provision for income taxes |
|
|
5,763 |
|
|
|
4,188 |
|
|
|
|
|
|
|
|
Income from operations, net of tax |
|
|
4,830 |
|
|
|
5,502 |
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of discontinued operations: |
|
|
|
|
|
|
|
|
Television |
|
|
18,237 |
|
|
|
(1,017 |
) |
Belgium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18,237 |
|
|
|
(1,017 |
) |
Provision (benefit) for income taxes |
|
|
8,147 |
|
|
|
(437 |
) |
|
|
|
|
|
|
|
Gain (loss) on sale of discontinued
operations, net of tax |
|
|
10,090 |
|
|
|
(580 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax |
|
$ |
14,920 |
|
|
$ |
4,922 |
|
|
|
|
|
|
|
|
For a description of properties sold, see the discussion under Acquisitions, Dispositions and
Investments.
In August 2005, our television station in New Orleans, WVUE-TV, was significantly affected by
Hurricane Katrina and the subsequent flooding. The Company received $3.6 million of business
interruption proceeds during the year ended February 29, 2008. The Company received $3.1 million
as final settlement of all Katrina-related insurance claims during the year ended February 28,
2009. The insurance proceeds are classified as income from discontinued operations in the
accompanying statements of operations.
Consolidated net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28 (29), |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss) |
|
$ |
3,880 |
|
|
$ |
(294,953 |
) |
|
$ |
(298,833 |
) |
|
|
(7701.9 |
%) |
The change in consolidated net income (loss) for the year ended February 28, 2009 is primarily
attributable to the noncash impairment loss recorded during the year ended February 28, 2009,
partially offset by additional tax benefits recorded in connection with the impairment loss.
I-42
LIQUIDITY AND CAPITAL RESOURCES
OFF-BALANCE SHEET FINANCINGS AND LIABILITIES
Other than lease commitments, legal contingencies incurred in the normal course of business,
contractual commitments to purchase goods and services and employment contracts for key employees,
all of which are discussed in Note 11 to the consolidated financial statements, the Company does
not have any material off-balance sheet financings or liabilities. The Company does not have any
majority-owned and controlled subsidiaries that are not included in the consolidated financial
statements, nor does the Company have any interests in or relationships with any special-purpose
entities that are not reflected in the consolidated financial statements or disclosed in the Notes
to Consolidated Financial Statements.
CREDIT AGREEMENT
On August 19, 2009, Emmis Communications Corporation and its principal operating subsidiary,
EOC (the Borrower), entered into the Second Amendment to Amended and Restated Revolving Credit
and Term Loan Agreement (the Second Amendment), by and among the Borrower, ECC, the lending
institutions party to the Credit Agreement referred to below (collectively, the Lenders) and Bank
of America, N.A., as administrative agent (the Administrative Agent) for itself and the other
Lenders party to the Amended and Restated Revolving Credit and Term Loan Agreement, dated November
2, 2006 (as amended, supplemented, and restated or otherwise modified and in effect from time to
time, the Credit Agreement), by and among the Borrower, ECC, the Lenders, the Administrative
Agent, Deutsche Bank Trust Company Americas, as syndication agent, General Electric Capital
Corporation, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York
Branch and SunTrust Bank, as co-documentation agents.
Among other things, the Second Amendment:
|
|
suspends the applicability of the Total Leverage Ratio and the Fixed
Charge Coverage Ratio financial covenants (each as defined in the
Credit Agreement) for a period that will end no later than September
1, 2011 (the Suspension Period), |
|
|
|
provides that during the Suspension Period, the Borrower must maintain
Minimum Consolidated EBITDA (as defined by the Credit Agreement) for
the trailing twelve month periods as follows: |
|
|
|
|
|
Period Ending |
|
Amount (in 000s) |
|
August 31, 2009 |
|
$ |
22,800 |
|
November 30, 2009 |
|
$ |
21,600 |
|
February 28, 2010 |
|
$ |
23,400 |
|
May 31, 2010 |
|
$ |
23,200 |
|
August 31, 2010 |
|
$ |
22,400 |
|
November 30, 2010 |
|
$ |
22,700 |
|
February 28, 2011 |
|
$ |
22,900 |
|
May 31, 2011 |
|
$ |
23,600 |
|
August 31, 2011 |
|
$ |
25,000 |
|
|
|
provides that during the Suspension Period, the Borrower will not permit Liquidity (as defined in the Credit Agreement)
as of the last day of each fiscal quarter of the Borrower ending during the Suspension Period to be less than $5
million, |
|
|
|
reduces the Total Revolving Credit Commitment (as defined in the Credit Agreement) from $75 million to $20 million, |
|
|
|
sets the applicable margin at 3% per annum for base rate loans and at 4% per annum for Eurodollar rate loans, |
|
|
|
provides that during the Suspension Period, the Borrower: (1) must make certain prepayments from funds attributable to
debt or equity issuances, asset sales and extraordinary receipts, and (2) must make quarterly payments of Suspension
Period Excess Cash (as defined in the Credit Agreement), |
|
|
|
provides that during the Suspension Period, the Borrower may not: (1) make certain investments or effect material
acquisitions, (2) make certain restricted payments (including but not limited to restricted payments to fund equity
repurchases or dividends on Emmis 6.25% Series A Cumulative Convertible Preferred Stock), or (3) access the additional
financing provisions of the Credit Agreement (though Borrower has access to the Total Revolving Credit Commitment of
$20 million), |
|
|
|
excludes from the definition of Consolidated EBITDA up to an additional $5 million in severance and contract
termination expenses incurred after the effective date of the Second Amendment, |
|
|
|
grants the lenders a security interest in certain previously excluded real estate and other assets, |
|
|
|
permits the repurchase of debt under the Credit Agreement at a discount using proceeds of certain equity issuances, and |
|
|
|
modifies certain financial definitions and other restrictions on ECC and the Borrower. |
I-43
The Second Amendment contains other terms and conditions customary for financing arrangements
of this nature.
As discussed above, during the Suspension Period the Company must maintain a minimum amount of
trailing twelve-month Consolidated EBITDA (as defined in the Credit Agreement) and at least $5
million in Liquidity (as defined in the Credit Agreement). The Credit Agreement also contains
certain other non-financial covenants. We were in compliance with all financial and non-financial
covenants as of February 28, 2010. Our Liquidity (as defined in the Credit Agreement) as of
February 28, 2010 was $18.9. Our minimum Consolidated EBITDA (as defined in the Credit Agreement)
requirement and actual amount as of February 28, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2010 |
|
|
|
|
|
|
|
Actual Trailing |
|
|
|
Covenant |
|
|
Twelve-Month |
|
|
|
Requirement |
|
|
Consolidated EBITDA1 |
|
Trailing Twelve-month Consolidated EBITDA1 |
|
$ |
23,400 |
|
|
$ |
25,925 |
|
|
|
|
1 |
|
(as defined in the Credit Agreement) |
The Company continually projects its anticipated cash needs, which include its operating
needs, capital needs, principal and interest payments on its indebtedness and preferred stock
dividends. As of the filing of this Form 10-K, management believes the Company can meet its
liquidity needs through the end of fiscal year 2011 with cash and cash equivalents on hand,
projected cash flows from operations and, to the extent necessary, through its borrowing capacity
under the Credit Agreement, which was approximately $17.1 million at February 28, 2010. Based on
these projections, management also believes the Company will be in compliance with its debt
covenants through the end of fiscal year 2011. However, continued global economic challenges, or
other unforeseen circumstances, such as those described in Item 1A Risk Factors, may negatively
impact the Companys operations beyond those assumed in its projections. Management considered the
risks that the current economic conditions may have on its liquidity projections, as well as the
Companys ability to meet its debt covenant requirements. If economic conditions deteriorate to an
extent that we could not meet our liquidity needs or it appears that noncompliance with debt
covenants is likely to result, the Company would implement several remedial measures, which could
include further operating cost and capital expenditure reductions, ceasing to operate certain
unprofitable properties and the sale of assets. If these measures are not successful in
maintaining compliance with our debt covenants, the Company would attempt to negotiate for relief
through a further amendment with its lenders or waivers of covenant noncompliance, which could
result in higher interest costs, additional fees and reduced borrowing limits. There is no
assurance that the Company would be successful in obtaining relief from its debt covenant
requirements in these circumstances. Failure to comply with our debt covenants and a corresponding
failure to negotiate a favorable amendment or waivers with the Companys lenders could result in
the acceleration of the maturity of all the Companys outstanding debt, which would have a material
adverse effect on the Companys business and financial position.
SOURCES OF LIQUIDITY
Our primary sources of liquidity are cash provided by operations and cash available through
revolver borrowings under our credit facility. Our primary uses of capital have been historically,
and are expected to continue to be, capital expenditures, working capital, debt service
requirements and the repayment of debt. We also have used capital to fund acquisitions and
repurchase our common stock.
In April 2009, Emmis commenced a series of Dutch auction tenders to purchase term loans of EOC
under the Credit Agreement as amended. The cumulative effect of all of the debt tenders resulted
in the purchase of $78.5 million in face amount of EOCs outstanding term loans for $44.7 million
in cash. The Credit Agreement as amended permitted the Company to pay up to $50 million (less
amounts paid after February 1, 2009 under our TV Proceeds Quarterly Bonus Program) to purchase
EOCs outstanding term loans through tender offers and required a minimum offer of $5 million per
tender. Since the Company paid $44.7 million in debt tenders and paid $4.1 million under the TV
Bonus Program in March 2009, we are not permitted to effect further tenders under the Credit
Agreement, other than as allowed for in the Second Amendment.
I-44
On March 3, 2009, ECC and its principal operating subsidiary, Emmis Operating Company (EOC),
entered into the First Amendment and Consent to Amended and Restated Revolving Credit and Term Loan
Agreement (the First Amendment) by and among ECC, Emmis Operating Company and Bank of America,
N.A., as administrative agent for itself and other Lenders, to the Amended and Restated Revolving
Credit and Term Loan Agreement, dated November 2, 2006 (the Credit Agreement). Among other
things, the First Amendment (i) permits Emmis to purchase a portion of the Tranche B Term Loan (as
defined in the Credit Agreement) at an amount less than par for an aggregate purchase price not to
exceed $50 million, (ii) reduces the Total Revolving Credit Commitment (as defined in the Credit
Agreement) from $145 million to $75 million, (iii) excludes from Consolidated Operating Cash Flow
(as defined in the Credit Agreement) up to $10 million in cash severance and contract termination
expenses incurred for the period commencing March 1, 2008 and ending February 28, 2010, (iv) makes
Revolving Credit Loans (as defined in the Credit Agreement) subject to a pro forma incurrence test
and (v) tightens the restrictions on the ability of Emmis to perform certain activities, including
restricting the amount that can be used to fund our TV Proceeds Quarterly Bonus Program, and of
Emmis Operating Company to conduct transactions with affiliates.
Emmis previously announced that it had engaged Blackstone Advisory Services L.P. to provide
financial advisory services as the Company explored a possible further amendment to the Credit
Agreement or a possible restructuring of certain liabilities. In May 2009, Emmis and Blackstone
Advisory Services L.P. terminated the financial advisory services agreement as Emmis concluded that
neither action was necessary at that time. However, Emmis may re-engage Blackstone or another
financial advisory services firm from time to time as conditions warrant.
On August 8, 2007, Emmis Board of Directors authorized a share repurchase program pursuant to
which Emmis is authorized to purchase up to an aggregate value of $50 million of its outstanding
Class A common stock within the parameters of SEC Rule 10b-18. Common stock repurchase
transactions may occur from time to time at our discretion, either on the open market or in
privately negotiated purchases, subject to prevailing market conditions and other considerations.
On May 22, 2008, Emmis Board of Directors revised the share repurchase program to allow for the
repurchase of both Class A common stock and Series A cumulative convertible preferred stock.
During the year ended February 29, 2008, the Company repurchased 2.2 million shares for $13.9
million (average price of $6.23 per share). No common stock repurchases pursuant to this program
were made during the years ended February 28, 2009 or 2010.
At February 28, 2010, we had cash and cash equivalents of $6.8 million and net working capital
of $17.7 million. At February 28, 2009, we had cash and cash equivalents of $40.7 million and net
working capital of $71.4 million. Cash and cash equivalents held at various European banking
institutions at February 28, 2009 and 2010 was $23.3 million (which includes approximately $9.0
million of cash related to our Slager discontinued operation which is classified as current assets
discontinued operations in the consolidated balance sheets) and $3.6 million, respectively. Our
ability to access our share of these international cash balances (net of noncontrolling interests)
is limited by country-specific statutory requirements. During the year ended February 28, 2010,
working capital decreased $53.7 million. The decrease in net working capital primarily relates to
the cash used to fund our Dutch auction tenders during the period. Since we manage cash on a
consolidated basis, any cash needs of a particular segment or operating entity are met by
intercompany transactions. See Investing Activities below for a discussion of specific segment
needs.
The Company has entered into three separate three-year interest rate exchange agreements,
whereby the Company pays a fixed rate of notional principal in exchange for a variable rate on the
same amount of notional principal based on the three-month LIBOR. The counterparties to these
agreements are global financial institutions.
Operating Activities
Cash flows provided by operating activities were $43.6 million and $25.7 million for the years
ended February 28, 2009 and 2010, respectively. The decrease in cash flows provided by operating
activities was mainly attributable to a decrease in net revenues, net of station operating expenses
excluding depreciation and amortization expense, of $32.5 million coupled with a decrease in cash
provided by discontinued operations of $4.0 million. These decreases in cash provided by operating
activities were partially offset by an increase in cash provided by working capital, which was up
approximately $8.4 million. The increase in cash provided by working capital was largely driven by
the receipt of $10.2 million related to our national representation firms performance guarantee
and the collection of $14.0 million for the first two years of LMA fees for KMVN-FM.
Investing Activities
For the year ended February 28, 2009, cash provided by investing activities of $17.7 million
mostly relate to the Companys sale of WVUE-TV for $41.0 million in cash which was partially offset
by capital expenditures of $20.5 million. Approximately $14.4 million of capital expenditures
relate to the Companys purchase of an airplane that it was previously leasing.
I-45
For the year ended February 28, 2010, cash used in investing activities of $0.6 million
consisting of $4.8 million of capital expenditures and $4.9 million paid to purchase the
noncontrolling interests share of our Bulgarian radio networks, both of which were partially offset
by $9.1 million of cash received from the sale of property and equipment ($9.0 million of which
related to our airplane purchased in the prior year and sold in the current year).
In the years ended February 2008, 2009 and 2010, our capital expenditures were $6.2 million,
$20.5 million and $4.8 million, respectively. These capital expenditures primarily relate to
leasehold improvements to various office and studio facilities, broadcast equipment purchases,
tower upgrades and costs associated with our conversion to HD Radio® technology. Our
capital expenditures for the year ended February 28, 2009 include the $14.4 million purchase of our
corporate jet, which was previously leased. We exercised our early buyout option on the jet and
immediately began marketing it for sale. We closed on the sale of the corporate jet on April 14,
2009 and received $9.1 million in cash. We recognized a $7.3 million impairment loss on the
corporate jet as its carrying value, which included $2.0 million of previously capitalized major
maintenance costs, exceeded its fair value as of February 28, 2009. We expect that future
requirements for capital expenditures will include capital expenditures incurred during the
ordinary course of business. We expect to fund such capital expenditures with cash generated from
operating activities and borrowings under our Credit Agreement.
Financing Activities
Cash flows used in financing activities were $33.3 million and $58.3 million for the years
ended February 28, 2009 and 2010, respectively. Cash flows used in financing activities during the
year ended February 28, 2010 primarily relate to the net long-term debt repayments of $47.5
million, payment of $4.8 million of debt-related fees and $6.0 million used to pay distributions to
noncontrolling interests ($2.0 million of which is related to Slager and thus classified as
discontinued operations).
Cash flows used in financing activities for the year ended February 28, 2009 primarily relate
to the $17.3 million of net long-term debt repayments, $6.7 million used to pay preferred stock
dividends and $8.5 million used to pay cash distributions to noncontrolling interests ($2.2 million
of which is related to Slager and thus classified as discontinued operations).
As of February 28, 2010, Emmis had $341.2 million of borrowings under its senior credit
facility ($3.4 million current and $337.8 million long-term) and $140.5 million of Preferred Stock
outstanding. All outstanding amounts under our credit facility bear interest, at our option, at a
rate equal to the Eurodollar rate or an alternative Base Rate plus a margin. As of February 28,
2010, our weighted average borrowing rate under our credit facility including our interest rate
exchange agreements was approximately 7.6%.
The debt service requirements of Emmis over the next twelve-month period (excluding interest
under our credit facility) are expected to be $3.4 million for repayment of term notes under our
Credit Agreement. Although the Credit Agreement bears interest at variable rates, we have entered
into three separate interest rate exchange agreements that effectively fix the rate we will pay on
substantially all of the debt outstanding under our Credit Agreement. Interest that Emmis will be
required to pay related to the interest rate exchange agreements (plus the applicable margin of 4%
under the Credit Agreement) over the next twelve months is expected to be $12.5 million. Our $165
million notional amount interest rate exchange agreement matured on March 28, 2010. Interest to be
paid on
Credit Agreement debt outstanding that is in excess of our interest rate exchange agreements
is not presently determinable given that the Credit Agreement bears interest at variable rates.
The terms of Emmis Preferred Stock provide for a quarterly dividend payment of $.78125 per
share on each January 15, April 15, July 15 and October 15. Emmis has not declared a preferred
stock dividend since October 15, 2008. As of February 28, 2010, cumulative preferred dividends in
arrears total $11.3 million. Failure to pay the dividend is not a default under the terms of the
Preferred Stock. However, since dividends have remain unpaid for more than six quarters, the
holders of the Preferred Stock are entitled to elect two persons to our board of directors. No
nominations for these director positions were submitted for the 2010 annual meeting of
shareholders. Thus, the two director positions will remain vacant until the next meeting of
shareholders, unless the 2010 annual meeting is delayed for such a time as to trigger the right of
the holders of the Preferred Stock to submit new nominations in accordance with our bylaws. The
Second Amendment to our Credit Agreement prohibits the Company from paying dividends on the
Preferred Stock during the Suspension Period (as defined in the Credit Agreement) (See Liquidity
and Capital Resources). Payment of future preferred stock dividends is at the discretion of the
Companys Board of Directors.
I-46
At April 30, 2010, we had $11.4 million available for additional borrowing under our credit
facility, which is net of $0.6 million in outstanding letters of credit. Availability under the
credit facility depends upon our continued compliance with certain operating covenants and
financial ratios. Emmis was in compliance with these covenants as of February 28, 2010. As part
of our business strategy, we continually evaluate potential acquisitions, dispositions and swaps of
radio stations, publishing properties and other businesses, striving to maintain a portfolio that
we believe leverages our strengths and holds promise for long-term appreciation in value. If we
elect to take advantage of future acquisition opportunities, we may incur additional debt or issue
additional equity or debt securities, depending on market conditions and other factors. As
previously discussed, the Second Amendment to the Credit Agreement precludes us from making
material acquisitions during the Suspension Period. In addition, Emmis currently has the option,
but not the obligation, to purchase our 49.9% partners entire interest in the Austin radio
partnership based on an 18-multiple of trailing 12-month cash flow. The option, which does not
expire, has not been exercised.
INTANGIBLES
As of February 28, 2010, approximately 73% of our total assets consisted of intangible assets,
such as FCC broadcast licenses, goodwill, subscription lists and similar assets, the value of which
depends significantly upon the operational results of our businesses. In the case of our domestic
radio stations, we would not be able to operate the properties without the related FCC license for
each property. FCC licenses are renewed every eight years; consequently, we continually monitor
the activities of our stations for compliance with regulatory requirements. Historically, all of
our FCC licenses have been renewed at the end of their respective eight-year periods, and we expect
that all of our FCC licenses will continue to be renewed in the future. Our various foreign
broadcasting licenses in Slovakia and Bulgaria expire in January 2013 and February 2013. We will
need to submit applications to seek to extend our foreign licenses upon their expiration to
continue our broadcast operations in these countries.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2008, the Financial Accounting Standards Board (FASB) approved the FASB Accounting
Standards Codification as a single source of authoritative nongovernmental U.S. GAAP. The
Codification does not change current U.S. GAAP, but is intended to simplify user access to all
authoritative literature related to a particular topic in one place. The Companys adoption of the
Codification during the quarter ended November 30, 2009 did not have an impact on the Companys
financial position, results of operations or cash flows.
In May 2009, an accounting standard was approved, which sets forth the period, circumstances
and disclosure after the balance sheet date during which management shall evaluate events or
transactions that may occur for potential recognition or disclosure in the financial statements.
The Companys adoption of the standard during the quarter ended August 31, 2009 and subsequent
amendments to the standard issued in February 2010 did not have an effect on the Companys
financial position, results of operations or cash flows.
In April 2009, an accounting standard was issued which requires disclosures about the fair
value of financial instruments in interim reporting periods that were previously only required in
annual financial statements. The Companys adoption of this accounting standard, which was
effective for the Company for the period ended August 31, 2009, did not have an effect on the
Companys financial position, results of operations or cash flows.
In June 2008, an accounting standard was approved which provides that an entity should use a
two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature)
is indexed to its own stock, including evaluating the instruments contingent exercise and
settlement provisions. This accounting standard was adopted by the Company on March 1, 2009 and
had no impact on the Companys financial position, results of operations or cash flows.
In June 2008, an accounting standard was approved which addresses whether instruments granted
in share-based payment transactions are participating securities prior to vesting, and therefore
need to be included in the computation of earnings per share under the two-class method. This
accounting standard was adopted by the Company on March 1, 2009 and had no impact on the Companys
financial position, results of operations or cash flows.
In March 2008, disclosure requirements for derivative instruments and hedging activities were
changed. Entities are required to provide enhanced disclosures about: (1) how and why an entity
uses derivative instruments; (2) how derivative instruments and related hedged items are accounted
for under U.S. GAAP and its related interpretations; and (3) how derivative instruments and related
hedged items affect an entitys financial position, financial performance and cash flows. The
Company has included the relevant disclosures herein under Note 6, Derivatives And Hedging
Activities.
I-47
In December 2007, an accounting standard was approved which changed the accounting and
reporting for minority interests, which are now characterized as noncontrolling interests and
classified as a component of equity in the accompanying consolidated balance sheets. This
accounting standard, adopted by the Company on March 1, 2009, required retroactive adoption of the
presentation and disclosure requirements for existing minority interests, with all other
requirements applied prospectively. The adoption of this standard resulted in the reclassification
of $53,001 and $49,422 of noncontrolling interests to a component of equity at February 28, 2009
and 2010, respectively.
In December 2007, an accounting standard was modified that changed how business combinations
are accounted for through the use of fair values in financial reporting and impacts financial
statements both on the acquisition date and in subsequent periods. In February 2009, this
accounting standard was again modified to allow an exception to the recognition and fair value
measurement principles of contingencies in a business combination. This exception requires that
acquired contingencies be recognized at fair value on the acquisition date if fair value can be
reasonably estimated during the allocation period. These modifications were effective for the
Company as of March 1, 2009 for all business combinations that close on or after March 1, 2009. As
of February 28, 2010, the adoption of this standard has had no impact on the Company.
SEASONALITY
Our results of operations are usually subject to seasonal fluctuations, which result in higher
second and third quarter revenues and operating income. For our radio operations, this seasonality
is due to the younger demographic composition of many of our stations. Advertisers increase
spending during the summer months to target these listeners. In addition, advertisers generally
increase spending across all segments during the months of October and November, which are part of
our third quarter, in anticipation of the holiday season.
INFLATION
The impact of inflation on 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
operating results, particularly since a significant portion of our senior bank debt is comprised of
variable-rate debt.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, we are not required to provide this information.
I-48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Emmis Communications Corporations management is responsible for establishing and maintaining
adequate internal control over financial reporting. Pursuant to the rules and regulations of the
Securities and Exchange Commission, internal control over financial reporting is a process designed
by, or under the supervision of, Emmis Communications Corporations principal executive and
principal financial officers and effected by Emmis Communications Corporations board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and procedures that:
|
(1) |
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of Emmis Communications
Corporation; |
|
(2) |
|
Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of Emmis Communications Corporation are
being made only in accordance with authorizations of management and directors of Emmis
Communications Corporation; and |
|
(3) |
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of Emmis Communications Corporations assets that could
have a material effect on the financial statements. |
Management has evaluated the effectiveness of its internal control over financial reporting as
of February 28, 2010, based on the control criteria established in a report entitled Internal
ControlIntegrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on such evaluation, we have concluded that Emmis Communications Corporations
internal control over financial reporting is effective as of February 28, 2010.
This annual report does not include an attestation report of the companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the companys registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the company to provide only
managements report in this annual report.
|
|
|
/s/ Jeffrey H. Smulyan
|
|
/s/ Patrick M. Walsh |
|
|
|
Jeffrey H. Smulyan
|
|
Patrick M. Walsh |
Chairman, President and Chief Executive Officer
|
|
Executive Vice President, Chief Operating Officer and
Chief Financial Officer |
I-49
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Emmis Communications Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Emmis Communications Corporation
and Subsidiaries as of February 28, 2009 and 2010 and the related consolidated statements of
operations, changes in shareholders equity (deficit), and cash flows for each of the three years
in the period ended February 28, 2010. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. We
were not engaged to perform an audit of the Companys internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and 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 consolidated financial position of Emmis Communications Corporation and Subsidiaries
at February 28, 2009 and 2010, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended February 28, 2010, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Indianapolis, Indiana
May 6, 2010
I-50
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
NET REVENUES |
|
$ |
335,677 |
|
|
$ |
307,931 |
|
|
$ |
242,566 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Station operating expenses excluding depreciation and amortization
expense of $9,332 $10,251 and $8,900, respectively |
|
|
249,792 |
|
|
|
239,007 |
|
|
|
206,160 |
|
Corporate expenses excluding depreciation and amortization
expense of $2,471, $2,152 and $1,493, respectively |
|
|
20,883 |
|
|
|
18,503 |
|
|
|
13,634 |
|
Restructuring charge |
|
|
|
|
|
|
4,208 |
|
|
|
3,350 |
|
Impairment loss |
|
|
18,068 |
|
|
|
373,137 |
|
|
|
174,642 |
|
Contract termination fee |
|
|
15,252 |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
11,803 |
|
|
|
12,403 |
|
|
|
10,393 |
|
(Gain) loss on disposal of assets |
|
|
(104 |
) |
|
|
14 |
|
|
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
315,694 |
|
|
|
647,272 |
|
|
|
408,052 |
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
19,983 |
|
|
|
(339,341 |
) |
|
|
(165,486 |
) |
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(34,319 |
) |
|
|
(25,067 |
) |
|
|
(24,820 |
) |
Gain on debt extinguishment |
|
|
|
|
|
|
|
|
|
|
31,362 |
|
Other income (expense), net |
|
|
(230 |
) |
|
|
(1,315 |
) |
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(34,549 |
) |
|
|
(26,382 |
) |
|
|
6,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS |
|
|
(14,566 |
) |
|
|
(365,723 |
) |
|
|
(158,774 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
BENEFIT FOR INCOME TAXES |
|
|
(3,526 |
) |
|
|
(65,848 |
) |
|
|
(39,840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM CONTINUING OPERATIONS |
|
|
(11,040 |
) |
|
|
(299,875 |
) |
|
|
(118,934 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAIN FROM DISCONTINUED OPERATIONS, NET OF TAX |
|
|
(14,920 |
) |
|
|
(4,922 |
) |
|
|
(442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED NET INCOME (LOSS) |
|
|
3,880 |
|
|
|
(294,953 |
) |
|
|
(118,492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
|
5,230 |
|
|
|
5,316 |
|
|
|
4,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO THE COMPANY |
|
|
(1,350 |
) |
|
|
(300,269 |
) |
|
|
(122,654 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED STOCK DIVIDENDS |
|
|
8,984 |
|
|
|
8,933 |
|
|
|
9,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS |
|
$ |
(10,334 |
) |
|
$ |
(309,202 |
) |
|
$ |
(131,777 |
) |
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
I-51
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended February 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(23,556 |
) |
|
$ |
(311,742 |
) |
|
$ |
(131,821 |
) |
Discontinued operations |
|
|
13,222 |
|
|
|
2,540 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders |
|
$ |
(10,334 |
) |
|
$ |
(309,202 |
) |
|
$ |
(131,777 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.64 |
) |
|
$ |
(8.57 |
) |
|
$ |
(3.56 |
) |
Discontinued operations |
|
|
0.36 |
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders |
|
$ |
(0.28 |
) |
|
$ |
(8.50 |
) |
|
$ |
(3.56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
36,551 |
|
|
|
36,374 |
|
|
|
37,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.64 |
) |
|
$ |
(8.57 |
) |
|
$ |
(3.56 |
) |
Discontinued operations |
|
|
0.36 |
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders |
|
$ |
(0.28 |
) |
|
$ |
(8.50 |
) |
|
$ |
(3.56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
|
36,551 |
|
|
|
36,374 |
|
|
|
37,041 |
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
I-52
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
FEBRUARY 28, |
|
|
|
2009 |
|
|
2010 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
40,746 |
|
|
$ |
6,814 |
|
Accounts receivable, net of allowance for doubtful
accounts of $2,062 and $1,967, respectively |
|
|
42,825 |
|
|
|
36,834 |
|
Prepaid expenses |
|
|
16,945 |
|
|
|
15,248 |
|
Income tax receivable |
|
|
158 |
|
|
|
8,618 |
|
Other |
|
|
13,924 |
|
|
|
997 |
|
Current assets discontinued operations |
|
|
14,743 |
|
|
|
6,052 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
129,341 |
|
|
|
74,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT: |
|
|
|
|
|
|
|
|
Land and buildings |
|
|
29,409 |
|
|
|
29,443 |
|
Leasehold improvements |
|
|
19,607 |
|
|
|
19,258 |
|
Broadcasting equipment |
|
|
56,773 |
|
|
|
61,288 |
|
Office equipment and automobiles |
|
|
41,906 |
|
|
|
42,337 |
|
Construction in progress |
|
|
212 |
|
|
|
973 |
|
|
|
|
|
|
|
|
|
|
|
147,907 |
|
|
|
153,299 |
|
Less-accumulated depreciation and amortization |
|
|
93,387 |
|
|
|
103,095 |
|
|
|
|
|
|
|
|
Total property and equipment, net |
|
|
54,520 |
|
|
|
50,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTANGIBLE ASSETS: |
|
|
|
|
|
|
|
|
Indefinite lived intangibles |
|
|
496,711 |
|
|
|
335,801 |
|
Goodwill |
|
|
29,442 |
|
|
|
24,175 |
|
Other intangibles |
|
|
18,881 |
|
|
|
10,153 |
|
|
|
|
|
|
|
|
|
|
|
545,034 |
|
|
|
370,129 |
|
Less-accumulated amortization |
|
|
8,621 |
|
|
|
6,320 |
|
|
|
|
|
|
|
|
Total intangible assets, net |
|
|
536,413 |
|
|
|
363,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
Deferred debt issuance costs, net of accumulated
amortization of $1,763 and $1,399, respectively |
|
|
2,734 |
|
|
|
4,227 |
|
Investments |
|
|
3,155 |
|
|
|
3,122 |
|
Deposits and other |
|
|
1,999 |
|
|
|
2,105 |
|
|
|
|
|
|
|
|
Total other assets, net |
|
|
7,888 |
|
|
|
9,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets held for sale |
|
|
8,900 |
|
|
|
|
|
Noncurrent assets discontinued operations |
|
|
2,149 |
|
|
|
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
739,211 |
|
|
$ |
498,168 |
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
I-53
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
FEBRUARY 28, |
|
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
13,216 |
|
|
$ |
10,062 |
|
Current maturities of long-term debt |
|
|
4,260 |
|
|
|
3,413 |
|
Accrued salaries and commissions |
|
|
7,244 |
|
|
|
6,475 |
|
Accrued interest |
|
|
2,895 |
|
|
|
4,513 |
|
Deferred revenue |
|
|
17,480 |
|
|
|
24,269 |
|
Other |
|
|
6,899 |
|
|
|
5,728 |
|
Current liabilities discontinued operations |
|
|
5,965 |
|
|
|
2,381 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
57,959 |
|
|
|
56,841 |
|
|
|
|
|
|
|
|
|
|
CREDIT FACILITY DEBT, NET OF CURRENT PORTION |
|
|
417,141 |
|
|
|
337,758 |
|
OTHER NONCURRENT LIABILITIES |
|
|
22,929 |
|
|
|
19,342 |
|
DEFERRED INCOME TAXES |
|
|
107,722 |
|
|
|
73,305 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
605,751 |
|
|
|
487,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (NOTE 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK,
$0.01 PAR VALUE; $50.00 LIQUIDATION PREFERENCE; AUTHORIZED
10,000,000 SHARES; ISSUED AND OUTSTANDING 2,809,170 SHARES
IN 2009 AND 2010, RESPECTIVELY |
|
|
140,459 |
|
|
|
140,459 |
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS DEFICIT: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock, $0.01 par value; authorized 170,000,000
shares; issued and outstanding 31,912,656 shares and
32,661,550 shares in 2009 and 2010, respectively |
|
|
319 |
|
|
|
327 |
|
Class B common stock, $0.01 par value; authorized 30,000,000
shares; issued and outstanding 4,956,305 and 4,930,680 shares
in 2009 and 2010, respectively |
|
|
50 |
|
|
|
49 |
|
Class C common stock, $0.01 par value; authorized 30,000,000
shares; none issued |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
524,776 |
|
|
|
527,120 |
|
Accumulated deficit |
|
|
(582,481 |
) |
|
|
(705,135 |
) |
Accumulated other comprehensive loss |
|
|
(2,664 |
) |
|
|
(1,320 |
) |
|
|
|
|
|
|
|
Total shareholders deficit |
|
|
(60,000 |
) |
|
|
(178,959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCONTROLLING INTERESTS |
|
|
53,001 |
|
|
|
49,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deficit |
|
|
(6,999 |
) |
|
|
(129,537 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and deficit |
|
$ |
739,211 |
|
|
$ |
498,168 |
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
I-54
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED FEBRUARY 28, 2010
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
Class B |
|
|
|
Common Stock |
|
|
Common Stock |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
BALANCE, FEBRUARY 28, 2007 |
|
|
32,488,863 |
|
|
$ |
325 |
|
|
|
4,930,267 |
|
|
$ |
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and
related income tax benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock to employees
and officers and related income tax benefits |
|
|
343,893 |
|
|
|
3 |
|
|
|
26,038 |
|
|
|
1 |
|
Purchases of common stock |
|
|
(2,225,092 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative impact of adoption of ASC Topic 740-10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of dividends and distributions
to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in value of derivative instrument |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, FEBRUARY 29, 2008 |
|
|
30,607,664 |
|
|
$ |
306 |
|
|
|
4,956,305 |
|
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock to employees
and officers and related income tax benefits |
|
|
1,144,367 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit on stock based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred stock to common stock |
|
|
160,625 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Payments of dividends and distributions
to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in value of derivative instrument |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, FEBRUARY 28, 2009 |
|
|
31,912,656 |
|
|
|
319 |
|
|
|
4,956,305 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and
related income tax benefits |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock to employees
and officers and related income tax benefits |
|
|
718,269 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
Conversion of Class B Common Stock
to Class A Common Stock |
|
|
25,625 |
|
|
|
1 |
|
|
|
(25,625 |
) |
|
|
(1 |
) |
Payments of dividends and distributions
to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in value of derivative instrument |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, FEBRUARY 28, 2010 |
|
|
32,661,550 |
|
|
|
327 |
|
|
|
4,930,680 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
I-55
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT) (CONTINUED)
FOR THE THREE YEARS ENDED FEBRUARY 28, 2010
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Paid-in |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Noncontrolling |
|
|
Total |
|
|
|
Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Interests |
|
|
Equity (Deficit) |
|
BALANCE, FEBRUARY 28, 2007 |
|
$ |
522,655 |
|
|
$ |
(291,443 |
) |
|
$ |
316 |
|
|
$ |
50,780 |
|
|
$ |
282,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and
related income tax benefits |
|
|
(460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(460 |
) |
Issuance of Common Stock to employees
and officers and related income tax benefits |
|
|
6,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,996 |
|
Purchases of common stock |
|
|
(13,846 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,868 |
) |
Preferred stock dividends |
|
|
|
|
|
|
(8,984 |
) |
|
|
|
|
|
|
|
|
|
|
(8,984 |
) |
Cumulative impact of adoption of ASC Topic 740-10 |
|
|
|
|
|
|
25,180 |
|
|
|
|
|
|
|
|
|
|
|
25,180 |
|
Payments of dividends and distributions
to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,044 |
) |
|
|
(5,044 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(148 |
) |
|
|
(148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
(1,350 |
) |
|
|
|
|
|
|
8,199 |
|
|
|
|
|
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
2,541 |
|
|
|
(29 |
) |
|
|
|
|
Change in fair value of derivative instrument |
|
|
|
|
|
|
|
|
|
|
(4,472 |
) |
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, FEBRUARY 29, 2008 |
|
$ |
515,341 |
|
|
$ |
(276,597 |
) |
|
$ |
(1,615 |
) |
|
$ |
53,758 |
|
|
$ |
291,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock to employees
and officers and related income tax benefits |
|
|
6,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,293 |
|
Preferred stock dividends |
|
|
|
|
|
|
(5,615 |
) |
|
|
|
|
|
|
|
|
|
|
(5,615 |
) |
Tax benefit on stock based compensation |
|
|
(138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(138 |
) |
Conversion of preferred stock to common stock |
|
|
3,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,293 |
|
Payments of dividends and distributions
to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,516 |
) |
|
|
(8,516 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
(300,269 |
) |
|
|
|
|
|
|
7,855 |
|
|
|
|
|
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
(1,523 |
) |
|
|
(96 |
) |
|
|
|
|
Change in fair value of derivative instrument |
|
|
|
|
|
|
|
|
|
|
474 |
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(293,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, FEBRUARY 28, 2009 |
|
$ |
524,776 |
|
|
$ |
(582,481 |
) |
|
$ |
(2,664 |
) |
|
$ |
53,001 |
|
|
$ |
(6,999 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and
related income tax benefits |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Issuance of Common Stock to employees
and officers and related income tax benefits |
|
|
2,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,350 |
|
Conversion of Class B Common Stock
to Class A Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of dividends and distributions
to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,211 |
) |
|
|
(7,211 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
(122,654 |
) |
|
|
|
|
|
|
4,162 |
|
|
|
|
|
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
(1,365 |
) |
|
|
(530 |
) |
|
|
|
|
Change in value of derivative instrument |
|
|
|
|
|
|
|
|
|
|
2,709 |
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117,678 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, FEBRUARY 28, 2010 |
|
$ |
527,120 |
|
|
$ |
(705,135 |
) |
|
$ |
(1,320 |
) |
|
$ |
49,422 |
|
|
$ |
(129,537 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
I-56
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR THE YEARS ENDED FEBRUARY 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss) |
|
$ |
3,880 |
|
|
$ |
(294,953 |
) |
|
$ |
(118,492 |
) |
Adjustments to reconcile net income (loss)
to net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
(14,920 |
) |
|
|
(4,922 |
) |
|
|
(442 |
) |
Impairment losses |
|
|
18,068 |
|
|
|
373,137 |
|
|
|
174,642 |
|
Gain on debt extinguishment |
|
|
|
|
|
|
|
|
|
|
(31,362 |
) |
Depreciation and amortization |
|
|
12,817 |
|
|
|
13,034 |
|
|
|
11,255 |
|
Provision for bad debts |
|
|
1,809 |
|
|
|
3,122 |
|
|
|
1,899 |
|
Benefit for deferred income taxes |
|
|
(4,504 |
) |
|
|
(67,440 |
) |
|
|
(34,341 |
) |
Noncash compensation |
|
|
7,200 |
|
|
|
5,822 |
|
|
|
2,441 |
|
Contract termination fee |
|
|
15,252 |
|
|
|
|
|
|
|
|
|
(Gain) loss on disposal of fixed assets |
|
|
(104 |
) |
|
|
14 |
|
|
|
(127 |
) |
Other |
|
|
(357 |
) |
|
|
|
|
|
|
|
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(403 |
) |
|
|
11,238 |
|
|
|
4,124 |
|
Prepaid expenses and other current assets |
|
|
(4,181 |
) |
|
|
(8,926 |
) |
|
|
14,610 |
|
Other assets |
|
|
4,269 |
|
|
|
5,740 |
|
|
|
(723 |
) |
Accounts payable and accrued liabilities |
|
|
(161 |
) |
|
|
(224 |
) |
|
|
(2,497 |
) |
Deferred revenue |
|
|
1,333 |
|
|
|
1,174 |
|
|
|
6,789 |
|
Income taxes |
|
|
2,337 |
|
|
|
1,168 |
|
|
|
(10,239 |
) |
Other liabilities |
|
|
(152 |
) |
|
|
(3,521 |
) |
|
|
2,943 |
|
Net cash provided by operating activities discontinued operations |
|
|
6,259 |
|
|
|
9,176 |
|
|
|
5,182 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
48,442 |
|
|
|
43,639 |
|
|
|
25,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(6,244 |
) |
|
|
(20,518 |
) |
|
|
(4,779 |
) |
Proceeds from the sale of assets |
|
|
|
|
|
|
9 |
|
|
|
9,109 |
|
Cash paid for acquisitions |
|
|
(15,309 |
) |
|
|
(335 |
) |
|
|
(4,882 |
) |
Deposits on acquisitions and other |
|
|
(568 |
) |
|
|
(230 |
) |
|
|
102 |
|
Net cash provided by (used in) investing activities discontinued operations |
|
|
55,727 |
|
|
|
38,775 |
|
|
|
(153 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
33,606 |
|
|
|
17,701 |
|
|
|
(603 |
) |
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
I-57
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR THE YEARS ENDED FEBRUARY 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
(100,307 |
) |
|
|
(23,338 |
) |
|
|
(130,660 |
) |
Proceeds from long-term debt |
|
|
41,000 |
|
|
|
6,000 |
|
|
|
83,235 |
|
Settlement of tax withholding obligations |
|
|
(612 |
) |
|
|
(547 |
) |
|
|
(69 |
) |
Dividends and distributions paid to noncontrolling interests |
|
|
(5,044 |
) |
|
|
(6,283 |
) |
|
|
(3,947 |
) |
Purchases of the Companys Class A Common Stock,
including transaction costs |
|
|
(13,868 |
) |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
and employee stock purchases |
|
|
61 |
|
|
|
|
|
|
|
1 |
|
Payments for debt related costs |
|
|
|
|
|
|
|
|
|
|
(4,846 |
) |
Adjusted tax benefit on stock-based compensation |
|
|
(460 |
) |
|
|
(138 |
) |
|
|
|
|
Net cash used in financing activities discontinued operations |
|
|
|
|
|
|
(2,233 |
) |
|
|
(2,042 |
) |
Preferred stock dividends |
|
|
(8,984 |
) |
|
|
(6,738 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(88,214 |
) |
|
|
(33,277 |
) |
|
|
(58,328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash and cash equivalents |
|
|
1,645 |
|
|
|
(714 |
) |
|
|
(663 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(4,521 |
) |
|
|
27,349 |
|
|
|
(33,932 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
17,918 |
|
|
|
13,397 |
|
|
|
40,746 |
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
13,397 |
|
|
$ |
40,746 |
|
|
$ |
6,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for- |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
29,008 |
|
|
$ |
27,488 |
|
|
$ |
22,396 |
|
Income taxes, net of refunds |
|
|
4,010 |
|
|
|
4,484 |
|
|
|
5,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing transactions- |
|
|
|
|
|
|
|
|
|
|
|
|
Value of stock issued to employees under stock compensation
program and to satisfy accrued incentives |
|
|
7,087 |
|
|
|
10,120 |
|
|
|
2,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACQUISITION OF ORANGE COAST |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired |
|
$ |
7,911 |
|
|
$ |
|
|
|
|
|
|
Purchase price withheld (see Note 9) |
|
|
(335 |
) |
|
|
335 |
|
|
|
|
|
Cash paid |
|
|
(6,522 |
) |
|
|
(335 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities recorded |
|
$ |
1,054 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACQUISITION OF RADIO NETWORK IN BULGARIA |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired |
|
$ |
9,212 |
|
|
|
|
|
|
|
|
|
Cash paid |
|
|
(8,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities recorded |
|
$ |
425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACQUISITION OF NONCONTROLLING BULGARIAN RADIO INTERESTS |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired |
|
|
|
|
|
|
|
|
|
$ |
4,882 |
|
Cash paid |
|
|
|
|
|
|
|
|
|
|
(4,882 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities recorded |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
I-58
EMMIS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS INDICATED OTHERWISE)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
a. |
|
Principles of Consolidation |
The following discussion pertains to Emmis Communications Corporation (ECC) and its
subsidiaries (collectively, Emmis, the Company, or we). Emmis foreign subsidiaries report
on a fiscal year ending December 31, which Emmis consolidates into its fiscal year ending February
28 (29). All significant intercompany balances and transactions have been eliminated.
Emmis is a diversified media company with radio broadcasting and magazine publishing
operations. As of February 28, 2010, we own and operate seven FM radio stations serving the
nations top three markets New York, Los Angeles and Chicago, although one of our FM radio
stations in Los Angeles is operated pursuant to a Local Marketing Agreement (LMA) whereby a third
party provides the programming for the station and sells all advertising within that programming.
Additionally, we own and operate fourteen FM and two AM radio stations with strong positions in St.
Louis, Austin (we have a 50.1% controlling interest in our radio stations located there),
Indianapolis and Terre Haute. In addition to our domestic radio, we operate a radio news network in
Indiana, publish Texas Monthly, Los Angeles, Atlanta, Indianapolis Monthly, Cincinnati, Orange
Coast, and Country Sampler and related magazines. Internationally, we own and operate national
radio networks in Slovakia and Bulgaria. We also engage in various businesses ancillary to our
business, such as website design and development, consulting and broadcast tower leasing.
Substantially all of ECCs business is conducted through its subsidiaries. Our Amended and
Restated Revolving Credit and Term Loan Agreement, dated November 2, 2006, as further amended on
March 3, 2009 and August 19, 2009 (the Credit Agreement), contains certain provisions that may
restrict the ability of ECCs subsidiaries to transfer funds to ECC in the form of cash dividends,
loans or advances.
Broadcasting revenue is recognized as advertisements are aired. Publication revenue is
recognized in the month of delivery of the publication. Both broadcasting revenue and publication
revenue recognition is subject to meeting certain conditions such as persuasive evidence that an
arrangement exists and collection is reasonably assured. These criteria are generally met at the
time the advertisement is aired for broadcasting revenue and upon delivery of the publication for
publication revenue. Advertising revenues presented in the financial statements are reflected on a
net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross
revenues. Revenue associated with guaranteed minimum national sales is recognized when shortfalls
in national sales become probable as further discussed in Note 1s.
|
d. |
|
Allowance for Doubtful Accounts |
An allowance for doubtful accounts is recorded based on managements judgment of the
collectability of receivables. When assessing the collectability of receivables, management
considers, among other things, historical loss experience and existing economic conditions. The
activity in the allowance for doubtful accounts for the three years ended February 28, 2010 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance At |
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
Beginning |
|
|
|
|
|
|
|
|
|
|
At End |
|
|
|
Of Year |
|
|
Provision |
|
|
Write-Offs |
|
|
Of Year |
|
Year ended February 29, 2008 |
|
|
1,551 |
|
|
|
1,809 |
|
|
|
(1,673 |
) |
|
|
1,687 |
|
Year ended February 28, 2009 |
|
|
1,687 |
|
|
|
3,122 |
|
|
|
(2,747 |
) |
|
|
2,062 |
|
Year ended February 28, 2010 |
|
|
2,062 |
|
|
|
1,899 |
|
|
|
(1,994 |
) |
|
|
1,967 |
|
I-59
|
e. |
|
Local Programming and Marketing Agreement Fees |
The Company from time to time enters into local programming and marketing agreements (LMAs) in
connection with acquisitions of radio stations, pending regulatory approval of transfer of the FCC
licenses. Under the terms of these agreements, the Company makes specified periodic payments to
the owner-operator in exchange for the right to program and sell advertising for a specified
portion of the stations inventory of broadcast time. The Company records revenues and expenses
associated with the portion of the stations inventory of broadcast time it manages. Nevertheless,
as the holder of the FCC license, the owner-operator retains control and responsibility for the
operation of the station, including responsibility over all programming broadcast on the station.
The Company also enters into LMAs in connection with dispositions of radio stations. In such cases
the Company may receive periodic payments in exchange for allowing the buyer to program and sell
advertising for a portion of the stations inventory of broadcast time.
On April 3, 2009, Emmis entered into an LMA and a Put and Call Agreement for KMVN-FM in Los
Angeles with a subsidiary of Grupo Radio Centro, S.A.B. de C.V (GRC), a Mexican broadcasting
company. The LMA for KMVN-FM started on April 15, 2009 and will continue for up to 7 years, for $7
million a year plus reimbursement of certain expenses. At any time during the LMA, GRC has the
right to purchase the station for $110 million. At the end of the term, Emmis has the right to
require GRC to purchase the station for the same amount. Under the LMA, Emmis continues to own and
operate the station, with GRC providing Emmis with programming to be broadcast. GRC paid $14
million to Emmis during the year ended February 28, 2010, which represented the first two years of
LMA fees. Emmis recorded $6.1 million of LMA fee income for the year ended February 28, 2010,
which is included in net revenues in the accompanying consolidated statements of operations. The
remainder of the advanced LMA fee payment is recorded in deferred revenue ($7.0 million) and other
noncurrent liabilities ($0.9 million) in the accompanying consolidated balance sheets.
|
f. |
|
Share-based Compensation |
The Company determines the fair value of its employee stock options at the date of grant using
a Black-Scholes option-pricing model. The Black-Scholes option pricing model was developed for use
in estimating the value of exchange-traded options that have no vesting restrictions and are fully
transferable. The Companys employee stock options have characteristics significantly different
than these traded options. In addition, option pricing models require the input of highly
subjective assumptions, including the expected stock price volatility and expected term of the
options granted. The Company relies heavily upon historical data of its stock price when
determining expected volatility, but each year the Company reassesses whether or not historical
data is representative of expected results. See Note 4 for more discussion of share-based
compensation.
|
g. |
|
Cash and Cash Equivalents |
Emmis considers time deposits, money market fund shares and all highly liquid debt investment
instruments with original maturities of three months or less to be cash equivalents. At times,
such deposits may be in excess of FDIC insurance limits.
|
h. |
|
Property and Equipment |
Property and equipment are recorded at cost. Depreciation is generally computed using the
straight-line method over the estimated useful lives of the related assets, which are 39 years for
buildings, the shorter of economic life or expected lease term for leasehold improvements, and five
to seven years for broadcasting equipment, office equipment and automobiles. Maintenance, repairs
and minor renewals are expensed as incurred; improvements are capitalized. On a continuing basis,
the Company reviews the 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. See Note 1q for more
discussion of impairment losses related to our property and equipment. Depreciation expense for
the years ended February 2008, 2009 and 2010 was $9.4 million, $9.3 million and $8.8 million,
respectively.
|
i. |
|
Intangible Assets and Goodwill |
Indefinite-lived Intangibles and Goodwill
In connection with past acquisitions, a significant amount of the purchase price was allocated
to radio broadcasting licenses, goodwill and other intangible assets. Goodwill consists of the
excess of the purchase price over the fair value of tangible and identifiable intangible net assets
acquired. In accordance with ASC Topic 350, Intangibles Goodwill and Other, goodwill and radio
broadcasting
licenses are not amortized, but are tested at least annually for impairment at the reporting unit
level and unit of accounting level, respectively. We test for impairment annually, on December 1 of
each year, or more frequently when events or changes in circumstances or other conditions suggest
impairment may have occurred. Impairment exists when the asset carrying values exceed their
respective fair values, and the excess is then recorded to operations as an impairment charge. See
Note 9, Intangible Assets and Goodwill, for more discussion of our interim and annual impairment
tests performed during the three years ended February 28, 2010.
I-60
Definite-lived Intangibles
The Companys definite-lived intangible assets consist primarily of foreign broadcasting
licenses in Slovakia and Bulgaria and trademarks which are amortized over the period of time the
assets are expected to contribute directly or indirectly to the Companys future cash flows. The
cost of the broadcast licenses in Slovakia is being amortized over the varying terms of the
licenses, which expire in January 2013 and February 2013. The cost of the broadcast licenses in
Bulgaria is being amortized over the varying terms of the licenses, all of which expire in December
2012.
|
j. |
|
Discontinued operations and assets held for sale |
The results of operations and related disposal costs, gains and losses for business units that
the Company has sold or expects to sell are classified in discontinued operations for all periods
presented.
A summary of the income from discontinued operations is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Television |
|
$ |
13,300 |
|
|
$ |
5,007 |
|
|
$ |
|
|
Slager Radio (Hungary) |
|
|
6,030 |
|
|
|
10,311 |
|
|
|
1,404 |
|
Belgium |
|
|
(6,585 |
) |
|
|
(3,635 |
) |
|
|
(944 |
) |
Tu Ciudad |
|
|
(2,137 |
) |
|
|
(1,890 |
) |
|
|
(15 |
) |
Emmis Books |
|
|
(15 |
) |
|
|
(103 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
10,593 |
|
|
|
9,690 |
|
|
|
423 |
|
Provision for income taxes |
|
|
5,763 |
|
|
|
4,188 |
|
|
|
401 |
|
|
|
|
|
|
|
|
|
|
|
Income from operations, net of tax |
|
|
4,830 |
|
|
|
5,502 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Television |
|
|
18,237 |
|
|
|
(1,017 |
) |
|
|
|
|
Belgium |
|
|
|
|
|
|
|
|
|
|
420 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18,237 |
|
|
|
(1,017 |
) |
|
|
420 |
|
Provision (benefit) for income taxes |
|
|
8,147 |
|
|
|
(437 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of discontinued
operations, net of tax |
|
|
10,090 |
|
|
|
(580 |
) |
|
|
420 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax |
|
$ |
14,920 |
|
|
$ |
4,922 |
|
|
$ |
442 |
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operation Slager
On October 28, 2009, the Hungarian National Radio and Television Board (ORTT) announced that
it was awarding to another bidder the national radio license then held by our majority-owned
subsidiary, Slager. Slager ceased broadcasting effective November 19, 2009. Slager filed a lawsuit
in Hungary claiming the award of the license by the ORTT to the other bidder violated the Hungarian
Media Law. In February 2010, the Hungarian trial court agreed with Slager that the ORTTs award
was unlawful. The ORTT and the winning bidder appealed the courts decision. A hearing on the
appeal is scheduled for July 1, 2010. While we believe the trial courts ruling was correct, we
cannot guarantee that the ruling will be upheld on appeal or that a favorable ruling by the
appellate court will result in the
award of the license or monetary damages to Slager. We expect to continue to explore
Hungarian, European Union, and international arbitration forums to seek a favorable resolution to
this matter.
I-61
Slager had historically been included in the radio segment. The following table summarizes
certain operating results for Slager for all periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
Net revenues |
|
$ |
20,579 |
|
|
$ |
23,911 |
|
|
$ |
12,914 |
|
Station operating expenses, excluding
depreciation and amortization expense |
|
|
12,701 |
|
|
|
13,517 |
|
|
|
10,534 |
|
Depreciation and amortization |
|
|
1,822 |
|
|
|
1,548 |
|
|
|
1,837 |
|
Interest expense |
|
|
239 |
|
|
|
|
|
|
|
58 |
|
Other income |
|
|
213 |
|
|
|
1,465 |
|
|
|
919 |
|
Income before taxes |
|
|
6,030 |
|
|
|
10,311 |
|
|
|
1,404 |
|
Provision for income taxes |
|
|
1,083 |
|
|
|
1,821 |
|
|
|
401 |
|
Net income attributable to minority interests |
|
|
1,698 |
|
|
|
2,382 |
|
|
|
398 |
|
Assets and liabilities related to Slager are classified as discontinued operations in the
accompanying consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009 |
|
|
February 28, 2010 |
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
8,985 |
|
|
$ |
|
|
Accounts receivable, net |
|
|
3,523 |
|
|
|
3,299 |
|
Prepaid expenses |
|
|
1,170 |
|
|
|
180 |
|
Other current assets |
|
|
415 |
|
|
|
2,573 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
14,093 |
|
|
|
6,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets: |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
523 |
|
|
|
|
|
Other intangibles, net |
|
|
1,460 |
|
|
|
|
|
Other noncurrent assets |
|
|
127 |
|
|
|
138 |
|
|
|
|
|
|
|
|
Total noncurrent assets |
|
|
2,110 |
|
|
|
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
16,203 |
|
|
$ |
6,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
2,149 |
|
|
$ |
1,565 |
|
Current maturities of long-term debt |
|
|
1,003 |
|
|
|
|
|
Accrued salaries and commissions |
|
|
407 |
|
|
|
|
|
Deferred revenues |
|
|
1,325 |
|
|
|
513 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
$ |
4,884 |
|
|
$ |
2,078 |
|
|
|
|
|
|
|
|
I-62
Discontinued Operation Belgium
On May 29, 2009, Emmis sold the stock of its Belgium radio operation to Alfacam Group NV, a
Belgian corporation, for 100 euros. Emmis desired to exit Belgium as its financial performance in
the market failed to meet expectations. The sale allowed Emmis to eliminate further operating
losses. Emmis recorded a full valuation allowance against the net operating losses generated by
the Belgium radio operation during the three years ended February 28, 2010. Belgium had
historically been included in the radio segment. The following table summarizes certain operating
results for Belgium for all periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended February 28 (29,) |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
Net revenues |
|
$ |
1,803 |
|
|
$ |
2,031 |
|
|
$ |
703 |
|
Station operating expenses,
excluding
depreciation and
amortization expense |
|
|
4,205 |
|
|
|
4,547 |
|
|
|
1,647 |
|
Depreciation and amortization |
|
|
764 |
|
|
|
387 |
|
|
|
|
|
Impairment loss |
|
|
3,157 |
|
|
|
271 |
|
|
|
|
|
Interest expense |
|
|
279 |
|
|
|
484 |
|
|
|
|
|
Other income, net |
|
|
10 |
|
|
|
23 |
|
|
|
|
|
Loss before income taxes |
|
|
6,585 |
|
|
|
3,635 |
|
|
|
944 |
|
Assets and liabilities related to Belgium are classified as discontinued operations in
the accompanying consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009 |
|
|
February 28, 2010 |
|
Current assets: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
446 |
|
|
$ |
|
|
Prepaid expenses |
|
|
136 |
|
|
|
|
|
Other |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets: |
|
|
|
|
|
|
|
|
Other noncurrent assets |
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent assets |
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
634 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
542 |
|
|
$ |
|
|
Accrued salaries and commissions |
|
|
116 |
|
|
|
|
|
Deferred revenue |
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
$ |
738 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Discontinued Operation Television Division
On July 18, 2008, Emmis completed the sale of its sole remaining television station, WVUE-TV
in New Orleans, LA, to Louisiana Media Company LLC for $41.0 million in cash and recorded a loss on
sale of $0.6 million, net of tax. The sale of WVUE-TV completes the sale of our television
division which began on May 10, 2005, when Emmis announced that it had engaged advisors to assist
in evaluating strategic alternatives for its television assets. In connection with the sale, the
Company paid discretionary bonuses to the employees of WVUE totaling $0.8 million, which is
included in the calculation of the loss on sale.
On June 4, 2007, the Company closed on its sale of KGMB-TV in Honolulu to HITV Operating Co.,
Inc. for $40.0 million in cash and recorded a gain on sale of $10.1 million, net of tax of $8.1
million.
The decision to explore strategic alternatives for the Companys television assets stemmed
from the Companys desire to reduce its debt, coupled with the Companys view that its television
stations needed to be aligned with a company with more significant financial resources and a
singular focus on the challenges of American television, including the growth of digital video
recorders and the industrys relationship with cable and satellite providers. The Company
concluded its television assets were held for sale and the results of operations of the television
division were classified as discontinued operations in the accompanying consolidated financial
statements for all periods presented. The television division had historically been presented as a
separate reporting segment of Emmis.
I-63
In August 2005, our television station in New Orleans, WVUE-TV, was significantly affected by
Hurricane Katrina and the subsequent flooding. The Company received $3.6 million of business
interruption proceeds during the year ended February 29, 2008. The Company received $3.1 million
as final settlement of all Katrina-related insurance claims during the year ended February 28,
2009. The insurance proceeds are classified as income from discontinued operations in the
accompanying statements of operations.
The following table summarizes certain operating results for the television division for all
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
22,929 |
|
|
$ |
7,364 |
|
|
$ |
|
|
Station operating expenses excluding
depreciation and amortization expense |
|
|
14,114 |
|
|
|
2,365 |
|
|
|
|
|
Impairment loss |
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
|
13,300 |
|
|
|
5,007 |
|
|
|
|
|
Provision for income taxes |
|
|
5,561 |
|
|
|
3,181 |
|
|
|
|
|
Gain (loss) on sale of stations, net of tax |
|
|
10,090 |
|
|
|
(580 |
) |
|
|
|
|
Assets and liabilities related to our television division are classified as discontinued
operations in the accompanying balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009 |
|
|
February 28, 2010 |
|
Current assets: |
|
|
|
|
|
|
|
|
Other |
|
$ |
5 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
303 |
|
|
$ |
303 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
303 |
|
|
|
303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
303 |
|
|
$ |
303 |
|
|
|
|
|
|
|
|
Discontinued Operation Tu Ciudad Los Angeles
On July 10, 2008, Emmis announced that it had indefinitely suspended publication of Tu Ciudad
Los Angeles because the magazines financial performance did not meet the Companys expectations.
Operating expenses for the year ended February 28, 2009 include all shut-down related costs and are
included in income from discontinued operations in the accompanying statements of operations. Tu
Ciudad Los Angeles had historically been included in the publishing division. The following table
summarizes certain operating results for Tu Ciudad Los Angeles for all periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
3,004 |
|
|
$ |
818 |
|
|
$ |
|
|
Station operating expenses, excluding
depreciation and amortization expense |
|
|
5,093 |
|
|
|
2,596 |
|
|
|
15 |
|
Depreciation and amortization |
|
|
48 |
|
|
|
22 |
|
|
|
|
|
Loss before taxes |
|
|
2,137 |
|
|
|
1,890 |
|
|
|
15 |
|
Benefit for income taxes |
|
|
875 |
|
|
|
772 |
|
|
|
|
|
I-64
Assets and liabilities related to Tu Ciudad Los Angeles are classified as discontinued
operations in the accompanying balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009 |
|
|
February 28, 2010 |
|
Noncurrent assets: |
|
|
|
|
|
|
|
|
Other noncurrent assets |
|
$ |
5 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Total noncurrent assets |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
10 |
|
|
$ |
|
|
Other |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
13 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Discontinued Operations Emmis Books
In February 2009, Emmis discontinued the operations of Emmis Books, which was engaged in
regional book publication, as Emmis Books financial performance did not meet the Companys
expectations. Emmis had ceased new book publication in March 2006, but continued to sell existing
book inventory until the February 2009 decision to totally cease operations. Emmis Books had
historically been included in the publishing division. The following table summarizes certain
operating results for Emmis Books for all periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
149 |
|
|
$ |
57 |
|
|
$ |
(7 |
) |
Station operating expenses, excluding
depreciation and amortization expense |
|
|
150 |
|
|
|
146 |
|
|
|
15 |
|
Depreciation and amortization |
|
|
14 |
|
|
|
5 |
|
|
|
|
|
Loss before taxes |
|
|
15 |
|
|
|
103 |
|
|
|
22 |
|
Benefit for income taxes |
|
|
6 |
|
|
|
42 |
|
|
|
|
|
I-65
Assets and liabilities related to Emmis Books are classified as discontinued operations in the
accompanying balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009 |
|
|
February 28, 2010 |
|
Current assets: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
45 |
|
|
$ |
|
|
Prepaid expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets: |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
|
|
|
Other noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
45 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
27 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
$ |
27 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Airplane
On December 1, 2008, Emmis exercised its early purchase option on its leased Gulfstream
airplane. Emmis paid $10.2 million in cash, net of a refundable deposit of $4.2 million, to AVN
Air, LLC, the lessor of the aircraft. Emmis immediately began marketing the airplane for sale, and
in February 2009, entered into an agreement to sell the aircraft for $9.1 million in cash. During
the year ended February 28, 2009, we recognized a $7.3 million impairment loss on the corporate
airplane as its carrying value, which included $2.0 million of previously capitalized major
maintenance costs, exceeded its fair value less estimated costs to sell, which we estimated at $8.9
million as of February 28, 2009. We classified this asset as held for sale at February 28, 2009.
We closed on the sale of the airplane on April 14, 2009.
k. Advertising and Subscription Acquisition Costs
Advertising and subscription acquisition costs are expensed the first time the advertising
takes place, except for certain direct-response advertising related to the identification of new
magazine subscribers, the primary purpose of which is to elicit sales from customers who can be
shown to have responded specifically to the advertising and that results in probable future
economic benefits. When determining probable future economic benefits, the Company includes in its
analysis future revenues from renewals if sufficient operating history exists. These
direct-response advertising costs are capitalized as assets and amortized over the estimated period
of future benefit, ranging from six months to two years subsequent to the promotional event. As of
each balance sheet date, the Company evaluates the realizability of capitalized direct-response
advertising by comparing the carrying value of such assets on a campaign-by-campaign basis to the
probable remaining future primary net revenues expected to result directly from such advertising.
If the carrying amounts of such advertising exceed the remaining future primary net revenues that
are likely to be realized from such advertising, the excess is recorded as advertising expense
immediately. As of February 28, 2009 and 2010, direct-response advertising costs capitalized as
assets were approximately $1.4 million and $1.2 million, respectively. On an interim basis, the
Company defers non direct-response advertising costs for major advertising campaigns for which
future benefits can be demonstrated. These costs are amortized over the shorter of the period
benefited or the remainder of the fiscal year. Advertising expense for the years ended February
2008, 2009 and 2010 was $13.3 million, $9.0 million and $5.2 million, respectively.
I-66
l. Investments
Equity method investments
Emmis has various investments accounted for under the equity method of accounting, the
carrying values of which are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009 |
|
|
February 28, 2010 |
|
|
|
|
|
|
|
|
|
|
Broadcast tower site investment New Jersey |
|
$ |
1,150 |
|
|
$ |
1,150 |
|
Broadcast tower site investment Texas |
|
|
1,337 |
|
|
|
1,340 |
|
Other continuing operations |
|
|
215 |
|
|
|
180 |
|
|
|
|
|
|
|
|
Total equity method investments |
|
$ |
2,702 |
|
|
$ |
2,670 |
|
|
|
|
|
|
|
|
Emmis has a 50% ownership interest in a partnership in which the sole asset is land in New
Jersey on which a transmission tower is located. The other owner has voting control of the
partnership. During the year ended February 28, 2009 Emmis recorded a write-down to the carrying
value of its 50% ownership interest in the partnership of $0.5 million as it determined the
investments fair value had declined. Emmis, through its investment in six radio stations in
Austin, has a 25% ownership interest in a company that operates a tower site in Austin, Texas.
Emmis also has other investments related to continuing operations that are accounted for using the
equity method of accounting, as Emmis does not control these entities, but none had a balance
exceeding $0.2 million as of February 28, 2009 or 2010.
Cost method investments
During the year ended February 29, 2008, Emmis determined that the value of its sole cost
method investment was impaired. Emmis recorded a noncash impairment charge of $0.3 million,
recorded in other expense in the accompanying consolidated statements of operations, as the
impairment was deemed to be other than temporary. The carrying value of this investment at
February 29, 2008 was $0.1 million. Emmis recorded an additional noncash impairment charge of $0.1
million in other expense during the year ended February 28, 2009 as it deemed that the cost method
investment was fully impaired and the impairment was other than temporary.
Available for sale investments
During the year ended February 28, 2009, Emmis made an investment of $0.3 million in a company
that specialized in the development and distribution of mobile and on-line games. The cumulative
investment in this company was $1.3 million as of February 28, 2009. During the year ended
February 28, 2009, Emmis recorded a noncash impairment charge of $1.3 million, recorded in other
expense in the accompanying consolidated statements of operations, as it deemed the investment was
fully impaired and the impairment was other than temporary.
Emmis has made investments totaling $0.5 million in a company that specializes in digital
radio transmission technology. This investment is carried at fair value, which totaled $0.5
million as of February 28, 2009 and 2010. Although no unrealized or realized gains or losses have
been recognized on this investment, unrealized gains and losses would be reported in other
comprehensive income until realized, at which point they would be recognized in the statements of
operations. If the Company determines that the value of the investment is other than temporarily
impaired, the Company will recognize, through the statements of operations, a loss on the
investment.
m. Deferred Revenue and Barter Transactions
Deferred revenue includes deferred magazine subscription revenue and deferred barter revenue.
Magazine subscription revenue is recognized when the publication is shipped. 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 or a publication is delivered. The
appropriate expense or asset is recognized when merchandise or services are used or received.
Barter revenues for the years ended February 2008, 2009 and 2010 were $11.4 million, $13.0 million
and $13.5 million, respectively, and barter expenses were $11.5 million, $12.8 million, and $13.8
million, respectively.
I-67
n. Foreign Currency Translation
The functional currencies of our international radio entities are shown in the following
table. The balance sheets of these entities have been translated from their functional currencies
to the U.S. dollar using the current exchange rate in effect at the subsidiaries balance sheet
date (December 31 for our international radio entities). The results of operations for our
international radio entities have been translated using an average exchange rate for the period.
The translation adjustments reflected in shareholders deficit during the respective periods were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Functional |
|
|
For the Years Ended February 28 (29), |
|
|
|
Currency |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary |
|
Forint |
|
$ |
703 |
|
|
$ |
(759 |
) |
|
$ |
(1,018 |
) |
Belgium |
|
Euro |
|
|
338 |
|
|
|
47 |
|
|
|
(538 |
) |
Slovakia |
|
Koruna 1 |
|
|
1,871 |
|
|
|
1,680 |
|
|
|
(99 |
) |
Bulgaria |
|
Leva |
|
|
(371 |
) |
|
|
(2,491 |
) |
|
|
290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,541 |
|
|
$ |
(1,523 |
) |
|
$ |
(1,365 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
In Slovakia, the Euro became the official currency on January 1, 2009 |
o. Earnings Per Share
ASC Topic 260 requires dual presentation of basic and diluted loss per share (EPS) on the
face of the income statement for all entities with complex capital structures. Basic EPS is
computed by dividing net loss available to common shareholders by the weighted-average number of
common shares outstanding for the period (36,551,378, 36,374,120 and 37,040,538 shares for the
years ended February 2008, 2009 and 2010, respectively). Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock were exercised or
converted. Potentially dilutive securities at February 2008, 2009 and 2010 consisted of stock
options, restricted stock and the 6.25% Series A cumulative convertible preferred stock. The
conversion of stock options and the preferred stock and the vesting of restricted stock is not
included in the calculation of diluted net loss per common share for each of the three years ended
February 28, 2010 as the effect of these conversions would be antidilutive to the net loss
available to common shareholders from continuing operations. Thus, the weighted average common
equivalent shares used for purposes of computing diluted EPS are the same as those used to compute
basic EPS for all periods presented. We currently have 2.8 million shares of preferred stock
outstanding and each share converts into 2.44 shares of common stock. Shares excluded from the
calculation as the effect of their conversion into shares of our common stock would be antidilutive
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended February 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
(shares in 000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.25% Series A cumulative convertible preferred stock |
|
|
7,015 |
|
|
|
6,854 |
|
|
|
6,854 |
|
Stock options and restricted stock awards |
|
|
8,115 |
|
|
|
8,628 |
|
|
|
8,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive common share equivalents |
|
|
15,130 |
|
|
|
15,482 |
|
|
|
15,504 |
|
|
|
|
|
|
|
|
|
|
|
p. Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the
recognition of deferred tax assets and liabilities for the expected future tax consequence of
events that have been recognized in the Companys financial statements or income tax returns.
Income taxes are recognized during the year in which the underlying transactions are reflected in
the consolidated statements of operations. Deferred taxes are provided for temporary differences
between amounts of assets and liabilities as recorded for financial reporting purposes and amounts
recorded for income tax purposes. After determining the total amount of deferred tax assets, the
Company determines whether it is more likely than not that some portion of the deferred tax assets
will not be realized. If the Company determines that a deferred tax asset is not likely to be
realized, a valuation allowance will be established against that asset to record it at its expected
realizable value.
q. Long-Lived Tangible Assets
The Company periodically considers whether indicators of impairment of long-lived tangible
assets are present. If such indicators are present, the Company determines whether the sum of the
estimated undiscounted cash flows attributable to the assets in question are less than their
carrying value. If less, the Company recognizes an impairment loss based on the excess of the
carrying amount of the assets over their respective fair values. Fair value is determined by
discounted future cash flows, appraisals and other methods. If the assets determined to be
impaired are to be held and used, the Company recognizes an impairment charge to the extent the
assets carrying value is greater than the fair value. The fair value of the asset then becomes
the assets new carrying value, which, if applicable, the Company depreciates or amortizes over the
remaining estimated useful life of the asset.
I-68
In the year ended February 28, 2009, the Company determined that the long-lived assets related
to its corporate jet and Belgium radio operations were impaired. The Company recorded a $7.3 and
$0.3 million noncash impairment charge related to the corporate jet and Belgium radio operation
long-lived assets, respectively. The impairment charges related to the corporate jet and Belgium
long-lived assets are recorded in the consolidated statements of operations in impairment loss and
discontinued operations, respectively. The Company also recorded impairment charges for various
definite-lived intangible assets during the year ended February 28, 2009 and 2010. See Note 9 for
more discussion.
r. Estimates
The preparation of financial statements in accordance with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses in the financial statements and in
disclosures of contingent assets and liabilities. Actual results could differ from those
estimates.
s. National Representation Agreement
On October 1, 2007, Emmis terminated its existing national sales representation agreement with
Interep National Radio Sales, Inc. (Interep) and entered into a new agreement with Katz
Communications, Inc. (Katz) extending through March 2018. Emmis existing contract with Interep
extended through September 2011. Emmis, Interep and Katz entered into a tri-party termination and
mutual release agreement under which Interep agreed to release Emmis from its future contractual
obligations in exchange for a one-time payment of $15.3 million, which was paid by Katz on behalf
of Emmis as an inducement for Emmis to enter into the new long-term contract with Katz. Emmis
measured and recognized the charge associated with terminating the Interep contract as of the
effective termination date, which is reflected as a noncash contract termination fee in the
accompanying consolidated statement of operations. The liability established as a result of the
termination represents an incentive received from Katz that will be recognized as a reduction of
our national agency commission expense over the term of the agreement with Katz. The current
portion of this liability is included in other current liabilities and the long-term portion of
this liability is included in other noncurrent liabilities in the accompanying consolidated balance
sheets at February 28, 2009 and 2010.
As part of the representation agreement, Katz guaranteed a minimum amount of national sales
for Emmis fiscal years ended February 2008 and 2009. For the years ended February 29, 2008 and
February 28, 2009, actual national sales as defined by the representation agreement were
approximately $3.7 million and $10.2 million lower, respectively, than the guaranteed minimum
amount of national sales. As such, Emmis recognized $3.7 million and $10.2 million of additional
net revenues for the years ended February 29, 2008 and February 28, 2009, respectively. The fiscal
2009 performance guarantee of $10.2 million was included in other current assets at February 28,
2009 in the accompanying consolidated balance sheets and was collected in April 2009. The
performance guarantees do not extend past February 28, 2009.
t. Liquidity
The Company continually projects its anticipated cash needs, which include its operating
needs, capital needs, principal and interest payments on its indebtedness and preferred stock
dividends. As of the filing of this Form 10-K, management believes the Company can meet its
liquidity needs through the end of fiscal year 2011 with cash and cash equivalents on hand,
projected cash flows from operations and, to the extent necessary, through its borrowing capacity
under the Credit Agreement, which was approximately $17.1 million at February 28, 2010. Based on
these projections, management also believes the Company will be in compliance with its debt
covenants through the end of fiscal year 2011. However, continued global economic challenges, or
other unforeseen circumstances, such as those described in Item 1A Risk Factors, may negatively
impact the Companys operations beyond those assumed in its projections. Management considered the
risks that the current economic conditions may have on its liquidity projections, as well as the
Companys ability to meet its debt covenant requirements. If economic conditions deteriorate to an
extent that we could not meet our liquidity needs or it appears that noncompliance with debt
covenants is likely to result, the Company would implement several remedial measures, which could
include further operating cost and capital expenditure reductions, ceasing to operate certain
unprofitable properties and the sale of assets. If these measures are not successful in
maintaining compliance with our debt covenants, the Company would attempt to negotiate for relief
through a further amendment with its lenders or waivers of covenant noncompliance, which could
result in higher interest costs, additional fees and reduced borrowing limits. There is no
assurance that the Company would be successful in obtaining relief from its debt covenant
requirements in these circumstances. Failure to comply with our debt covenants and a corresponding
failure to negotiate a favorable amendment or waivers with the Companys lenders could result in
the acceleration of the maturity of all the Companys outstanding debt, which would have a material
adverse effect on the Companys business and financial position.
I-69
u. Recent Accounting Pronouncements
In June 2008, the Financial Accounting Standards Board (FASB) approved the FASB Accounting
Standards Codification as a single source of authoritative nongovernmental U.S. GAAP. The
Codification does not change current U.S. GAAP, but is intended to simplify user access to all
authoritative literature related to a particular topic in one place. The Companys adoption of the
Codification during the quarter ended November 30, 2009 did not have an impact on the Companys
financial position, results of operations or cash flows.
In May 2009, an accounting standard was approved, which sets forth the period, circumstances
and disclosure after the balance sheet date during which management shall evaluate events or
transactions that may occur for potential recognition or disclosure in the financial statements.
The Companys adoption of the standard during the quarter ended August 31, 2009 and subsequent
amendments to the standard issued in February 2010 did not have an effect on the Companys
financial position, results of operations or cash flows.
In April 2009, an accounting standard was issued which requires disclosures about the fair
value of financial instruments in interim reporting periods that were previously only required in
annual financial statements. The Companys adoption of this accounting standard, which was
effective for the Company for the period ended August 31, 2009, did not have an effect on the
Companys financial position, results of operations or cash flows.
In June 2008, an accounting standard was approved which provides that an entity should use a
two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature)
is indexed to its own stock, including evaluating the instruments contingent exercise and
settlement provisions. This accounting standard was adopted by the Company on March 1, 2009 and
had no impact on the Companys financial position, results of operations or cash flows.
In June 2008, an accounting standard was approved which addresses whether instruments granted
in share-based payment transactions are participating securities prior to vesting, and therefore
need to be included in the computation of earnings per share under the two-class method. This
accounting standard was adopted by the Company on March 1, 2009 and had no impact on the Companys
financial position, results of operations or cash flows.
In March 2008, disclosure requirements for derivative instruments and hedging activities were
changed. Entities are required to provide enhanced disclosures about: (1) how and why an entity
uses derivative instruments; (2) how derivative instruments and related hedged items are accounted
for under U.S. GAAP and its related interpretations; and (3) how derivative instruments and related
hedged items affect an entitys financial position, financial performance and cash flows. The
Company has included the relevant disclosures herein under Note 6, Derivatives And Hedging
Activities.
In December 2007, an accounting standard was approved which changed the accounting and
reporting for minority interests, which are now characterized as noncontrolling interests and
classified as a component of equity in the accompanying consolidated balance sheets. This
accounting standard, adopted by the Company on March 1, 2009, required retroactive adoption of the
presentation and disclosure requirements for existing minority interests, with all other
requirements applied prospectively. The adoption of this standard resulted in the reclassification
of $53,001 and $49,422 of noncontrolling interests to a component of equity at February 28, 2009
and 2010, respectively.
In December 2007, an accounting standard was modified that changed how business combinations
are accounted for through the use of fair values in financial reporting and impacts financial
statements both on the acquisition date and in subsequent periods. In February 2009, this
accounting standard was again modified to allow an exception to the recognition and fair value
measurement principles of contingencies in a business combination. This exception requires that
acquired contingencies be recognized at fair value on the acquisition date if fair value can be
reasonably estimated during the allocation period. These modifications were effective for the
Company as of March 1, 2009 for all business combinations that close on or after March 1, 2009. As
of February 28, 2010, the adoption of this standard has had no impact on the Company.
I-70
v. Reclassifications
Certain reclassifications have been made to the prior years financial statements to be
consistent with the February 28, 2010 presentation. The reclassifications have no impact on net
loss previously reported.
2. COMMON STOCK
Emmis has authorized Class A common stock, Class B common stock, and Class C common stock.
The rights of these three classes are essentially identical except that each share of Class A
common stock has one vote with respect to substantially all matters, each share of Class B common
stock has 10 votes with respect to substantially all matters, and each share of Class C common
stock has no voting rights with respect to substantially all matters. Class B common stock is
owned by our Chairman, CEO and President, 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 Mr.
Smulyan. At February 28, 2009 and 2010, no shares of Class C common stock were issued or
outstanding.
On August 8, 2007, Emmis Board of Directors authorized a share repurchase program pursuant to
which Emmis is authorized to purchase up to an aggregate value of $50 million of its outstanding
Class A common stock within the parameters of SEC Rule 10b-18. Common stock repurchase
transactions may occur from time to time at our discretion, either on the open market or in
privately negotiated purchases, subject to prevailing market conditions and other considerations.
During the year ended February 29, 2008, the Company repurchased 2.2 million shares for $13.9
million (average price of $6.23 per share). No common stock repurchases pursuant to this program
were made during the years ended February 28, 2009 or 2010.
3. REDEEMABLE PREFERRED STOCK
Each share of redeemable preferred stock is convertible into a number of shares of common
stock, which is determined by dividing the liquidation preference of the share of preferred stock
($50.00 per share) by the conversion price. The conversion price is $20.495, which results in a
conversion ratio of 2.44 shares of common stock per share of preferred stock. Dividends are
cumulative and payable quarterly in arrears on January 15, April 15, July 15, and October 15 of
each year at an annual rate of $3.125 per preferred share. Emmis may redeem the preferred stock
for cash at 100% of the liquidation preference per share, plus in each case accumulated and unpaid
dividends, if any, whether or not declared to the redemption date.
On May 22, 2008, Emmis Board of Directors revised the share repurchase program discussed in
Note 2 to allow for the repurchase of both Class A common stock and Series A cumulative convertible
preferred stock. No preferred stock repurchases have been made pursuant to this program.
Emmis last paid its quarterly dividend on October 15, 2008. As of February 28, 2010,
dividends in arrears totaled $11.3 million, or $4.03 per share of preferred stock. Failure to pay
the dividend is not a default under the terms of the Preferred Stock. However, since dividends
have remain unpaid for more than six quarters, the holders of Preferred Stock are entitled to elect
two persons to our board of directors. The Second Amendment to our Credit Agreement prohibits the
Company from paying dividends on the Preferred Stock during the Suspension Period (as defined in
the Credit Agreement). Payment of future dividends on the Preferred Stock will be determined by
the Companys Board of Directors. We do not know when or whether we will resume paying such
dividends.
4. SHARE-BASED PAYMENTS
The amounts recorded as share-based compensation expense primarily relate to restricted common
stock issued under employment agreements, common stock issued to employees in lieu of cash bonuses,
Company matches of common stock in our 401(k) plans, and annual stock option and restricted stock
grants. Nonvested options do not share in dividends.
Stock Option Awards
The Company has granted options to purchase its common stock to employees and directors of the
Company under various stock option plans at no less than the fair market value of the underlying
stock on the date of grant. These options are granted for a term not exceeding 10 years and are
forfeited, except in certain circumstances, in the event the employee or director terminates his or
her employment or relationship with the Company. These options generally vest annually over three
years (one-third each year for three years). The Company issues new shares upon the exercise of
stock options.
I-71
The fair value of each option awarded is estimated on the date of grant using a Black-Scholes
option-pricing model and expensed on a straight-line basis over the vesting period. Expected
volatilities are based on the historical volatility of the Companys stock. The Company uses
historical data to estimate option exercises and employee terminations within the valuation model.
The Company includes estimated forfeitures in its compensation cost and updates the estimated
forfeiture rate through the final vesting date of awards. The Company uses the simplified method
to estimate the expected term for all options granted. Although the Company has granted options
for many years, information related to the historical exercise activity of our options was impacted
by the way the Company processed the equitable adjustment of a special dividend in November 2006.
Consequently, the Company believes that reliable data regarding exercise behavior only exists for
the period subsequent to November 2006, which is insufficient experience upon which to estimate
expected term. The risk-free interest rate for periods within the life of the option is based on
the U.S. Treasury yield curve in effect at the time of grant. The following assumptions were used
to calculate the fair value of the Companys options on the date of grant during the years ended
February 2008, 2009 and 2010:
|
|
|
|
|
|
|
|
|
Year Ended February 28 (29), |
|
|
2008 |
|
2009 |
|
2010 |
Risk-Free Interest Rate: |
|
4.4% 4.9% |
|
1.7% 3.5% |
|
2.3% 2.8% |
Expected Dividend Yield: |
|
0% |
|
0% |
|
0% |
Expected Life (Years): |
|
6.0 |
|
6.0 6.5 |
|
6.0 6.5 |
Expected Volatility: |
|
46.1% 47.5% |
|
48.6% 70.1% |
|
72.3% 100.4% |
The following table presents a summary of the Companys stock options outstanding at February
28, 2010, and stock option activity during the year ended February 28, 2010 (Price reflects the
weighted average exercise price per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Options |
|
|
Price |
|
|
Contractual Term |
|
|
Value |
|
Outstanding, beginning of year |
|
|
8,350,802 |
|
|
$ |
14.60 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
2,419,085 |
|
|
|
0.62 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
5,000 |
|
|
|
0.30 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
62,164 |
|
|
|
3.05 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
1,664,647 |
|
|
|
18.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year |
|
|
9,038,076 |
|
|
|
10.18 |
|
|
|
5.5 |
|
|
$ |
993 |
|
Exercisable, end of year |
|
|
5,802,338 |
|
|
|
15.11 |
|
|
|
3.6 |
|
|
$ |
|
|
The Company did not receive any cash from option exercises in the years ended February 2008
and 2009, and received less than $0.1 million of cash from option exercises in the year ended
February 2010. The Company did not record an income tax benefit related to option exercises in the
years ended February 2008, 2009 and 2010.
The weighted average grant date fair value of options granted during the years ended February
2008, 2009 and 2010 was $4.24, $1.10 and $0.44, respectively. The total intrinsic value of options
exercised during the years ended February 2008, 2009 and 2010 was less than $0.1 million each year.
I-72
A summary of the Companys nonvested options at February 28, 2010, and changes during the year
ended February 28, 2010, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Options |
|
|
Fair Value |
|
Nonvested, beginning of year |
|
|
1,536,094 |
|
|
$ |
2.73 |
|
Granted |
|
|
2,419,085 |
|
|
|
0.44 |
|
Vested |
|
|
657,277 |
|
|
|
4.06 |
|
Forfeited |
|
|
62,164 |
|
|
|
1.57 |
|
|
|
|
|
|
|
|
|
Nonvested, end of year |
|
|
3,235,738 |
|
|
|
0.78 |
|
|
|
|
|
|
|
|
|
There were 0.6 million shares available for future grants under the various option plans at
February 28, 2010. The vesting dates of outstanding options range from March 2010 to July 2012,
and expiration dates range from March 2010 to November 2019.
Restricted Stock Awards
The Company began granting restricted stock awards to employees and directors of the Company
in 2005. These awards generally vest at the end of the second or third year after grant and are
forfeited, except in certain circumstances, in the event the employee terminates his or her
employment or relationship with the Company prior to vesting. The restricted stock awards were
granted out of the Companys 2004 Equity Incentive Plan. The Company also awards, out of the
Companys 2004 Equity Compensation Plan, stock to settle certain bonuses and other compensation
that otherwise would be paid in cash. Any restrictions on these shares are immediately lapsed on
the grant date.
The following table presents a summary of the Companys restricted stock grants outstanding at
February 28, 2010, and restricted stock activity during the year ended February 28, 2010 (Price
reflects the weighted average share price at the date of grant):
|
|
|
|
|
|
|
|
|
|
|
Awards |
|
|
Price |
|
Grants outstanding, beginning of year |
|
|
644,084 |
|
|
$ |
7.08 |
|
Granted |
|
|
711,620 |
|
|
|
1.20 |
|
Vested (restriction lapsed) |
|
|
928,413 |
|
|
|
3.54 |
|
Forfeited |
|
|
28,928 |
|
|
|
4.57 |
|
|
|
|
|
|
|
|
|
Grants outstanding, end of year |
|
|
398,363 |
|
|
|
5.02 |
|
|
|
|
|
|
|
|
|
The total grant date fair value of shares vested during the years ended February 2008, 2009
and 2010 was $3.5 million, $5.9 million and $3.3 million, respectively.
Recognized Noncash Compensation Expense
The following table summarizes stock-based compensation expense and related tax benefits
recognized by the Company in the three years ended February 28, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended February 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Station operating expenses excluding depreciation and amortization expense |
|
$ |
2,874 |
|
|
$ |
2,539 |
|
|
$ |
701 |
|
Corporate expenses |
|
|
4,326 |
|
|
|
3,283 |
|
|
|
1,740 |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in operating expenses |
|
|
7,200 |
|
|
|
5,822 |
|
|
|
2,441 |
|
Tax benefit |
|
|
(2,952 |
) |
|
|
(2,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized stock-based compensation expense, net of tax |
|
$ |
4,248 |
|
|
$ |
3,435 |
|
|
$ |
2,441 |
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2010, there was $1.3 million of unrecognized compensation cost related to
nonvested share-based compensation arrangements. The cost is expected to be recognized over a
weighted average period of approximately 1.6 years.
I-73
5. CREDIT AGREEMENT AND RELATED DEFERRED DEBT ISSUANCE COSTS
The Credit Agreement was comprised of the following at February 28, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
Revolver |
|
$ |
|
|
|
$ |
2,000 |
|
Term Loan B |
|
|
421,355 |
|
|
|
339,150 |
|
|
|
|
|
|
|
|
|
|
|
421,355 |
|
|
|
341,150 |
|
|
|
|
|
|
|
|
|
|
Less: current maturities |
|
|
(4,214 |
) |
|
|
(3,392 |
) |
|
|
|
|
|
|
|
|
|
$ |
417,141 |
|
|
$ |
337,758 |
|
|
|
|
|
|
|
|
On November 2, 2006, Emmis Operating Company (EOC or the Borrower), the principal
operating subsidiary of the Company, amended and restated its Credit Agreement to provide for total
borrowings of up to $600 million, including (i) a $455 million term loan and (ii) a $145 million
revolver, of which $50 million may be used for letters of credit. At February 28, 2009 and 2010,
$1.8 million and $0.9 million, in letters of credit were outstanding, respectively. Substantially
all of Emmis assets, including the stock of most of Emmis wholly-owned, domestic subsidiaries are
pledged to secure the Credit Agreement. The Credit Agreement was amended twice during the year
ended February 28, 2010 as discussed below.
March 3, 2009 Credit Agreement Amendment
On March 3, 2009, ECC and EOC, entered into the First Amendment and Consent to Amended and
Restated Revolving Credit and Term Loan Agreement (the First Amendment) by and among Emmis, EOC
and Bank of America, N.A., as administrative agent for itself and other lenders, to the Amended and
Restated Revolving Credit and Term Loan Agreement, dated November 2, 2006 (the Credit Agreement).
Among other things, the First Amendment (i) permitted Emmis to purchase a portion of the Tranche B
Term Loan (as defined in the Credit Agreement) at an amount less than par for an aggregate purchase
price not to exceed $50 million, (ii) reduced the Total Revolving Credit Commitment (as defined in
the Credit Agreement) from $145 million to $75 million, (iii) excluded from Consolidated Operating
Cash Flow (as defined in the Credit Agreement) up to $10 million in cash severance and contract
termination expenses incurred for the period commencing March 1, 2008 and ending February 28, 2010,
(iv) made Revolving Credit Loans (as defined in the Credit Agreement) subject to a pro forma
incurrence test and (v) tightened the restrictions on the ability of Emmis to perform certain
activities, including restricting the amount that can be used to fund our TV Proceeds Quarterly
Bonus Program, and of Emmis Operating Company to conduct transactions with affiliates.
Subsequent to the execution of the First Amendment, in April and May 2009, Emmis completed a
series of Dutch auction tenders that purchased term loans of EOC under the Credit Agreement as
amended. The cumulative effect of all of the debt tenders resulted in the purchase of $78.5
million in face amount of EOCs outstanding term loans for $44.7 million in cash. As a result of
these purchases, Emmis recognized a gain on extinguishment of debt of $31.9 million in the quarter
ended May 31, 2009, which is net of transaction costs of $1.0 million. The Credit Agreement, as
amended, permitted the Company to pay up to $50 million (less amounts paid after February 1, 2009
under our TV Proceeds Quarterly Bonus Program) to purchase EOCs outstanding term loans through
tender offers and required a minimum offer of $5 million per tender. Since the Company paid $44.7
million in debt tenders and paid $4.1 million under the TV Bonus Program in March 2009, we are not
permitted to effect further tenders under the Credit Agreement.
August 19, 2009 Credit Agreement Amendment
On August 19, 2009, ECC and EOC entered into the Second Amendment to Amended and Restated
Revolving Credit and Term Loan Agreement (the Second Amendment), by and among the Borrower, ECC,
the lending institutions party to the Credit Agreement referred to below (collectively, the
Lenders) and Bank of America, N.A., as administrative agent (the Administrative Agent) for
itself and the other Lenders party to the Amended and Restated Revolving Credit and Term Loan
Agreement, dated November 2, 2006 (as amended, supplemented, and restated or otherwise modified and
in effect from time to time, the Credit Agreement), by and among the Borrower, ECC, the Lenders,
the Administrative Agent, Deutsche Bank Trust Company Americas, as syndication agent, General
Electric Capital Corporation, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank
Nederland, New York Branch and SunTrust Bank, as co-documentation agents.
I-74
Among other things, the Second Amendment:
|
|
suspends the applicability of the Total Leverage Ratio and the Fixed
Charge Coverage Ratio financial covenants (each as defined in the
Credit Agreement) for a period that will end no later than September
1, 2011 (the Suspension Period), |
|
|
|
provides that during the Suspension Period, the Borrower must maintain
Minimum Consolidated EBITDA (as defined by the Credit Agreement) for
the trailing twelve month periods as follows: |
|
|
|
|
|
Period Ended |
|
Amount (in 000s) |
|
August 31, 2009 |
|
$ |
22,800 |
|
November 30, 2009 |
|
$ |
21,600 |
|
February 28, 2010 |
|
$ |
23,400 |
|
May 31, 2010 |
|
$ |
23,200 |
|
August 31, 2010 |
|
$ |
22,400 |
|
November 30, 2010 |
|
$ |
22,700 |
|
February 28, 2011 |
|
$ |
22,900 |
|
May 31, 2011 |
|
$ |
23,600 |
|
August 31, 2011 |
|
$ |
25,000 |
|
|
|
provides that during the Suspension Period, the Borrower will not permit Liquidity (as defined in the Credit
Agreement) as of the last day of each fiscal quarter of the Borrower ending during the Suspension Period to be less
than $5 million, |
|
|
|
reduces the Total Revolving Credit Commitment (as defined in the Credit Agreement) from $75 million to $20 million, |
|
|
|
sets the applicable margin at 3% per annum for base rate loans and at 4% per annum for Eurodollar rate loans, |
|
|
|
provides that during the Suspension Period, the Borrower: (1) must make certain prepayments from funds attributable to
debt or equity issuances, asset sales and extraordinary receipts, and (2) must make quarterly payments of Suspension
Period Excess Cash (as defined in the Credit Agreement), |
|
|
|
provides that during the Suspension Period, the Borrower may not: (1) make certain investments or effect material
acquisitions, (2) make certain restricted payments (including but not limited to restricted payments to fund equity
repurchases or dividends on Emmis 6.25% Series A Cumulative Convertible Preferred Stock), or (3) access the
additional financing provisions of the Credit Agreement (though Borrower has access to the Total Revolving Credit
Commitment of $20 million), |
|
|
|
excludes from the definition of Consolidated EBITDA up to an additional $5 million in severance and contract
termination expenses incurred after the effective date of the Second Amendment, |
|
|
|
grants the lenders a security interest in certain previously excluded real estate and other assets, |
|
|
|
permits the repurchase of debt under the Credit Agreement at a discount using proceeds of certain equity issuances, and |
|
|
|
modifies certain financial definitions and other restrictions on ECC and the Borrower. |
The Second Amendment contains other terms and conditions customary for financing arrangements
of this nature. The Company recorded a loss on debt extinguishment during the year ended February
28, 2010 of $0.5 million related to the write-off of deferred debt costs associated with the
revolver reduction.
I-75
The term loan and revolver mature on November 1, 2013 and November 2, 2012, respectively. The
borrowings under the term loan are payable in equal quarterly installments equal to 0.25% of the
term loan, with the remaining balance payable November 1, 2013. The annual amortization schedule
for the Credit Agreement, based upon amounts outstanding at February 28, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolver |
|
|
Term Loan B |
|
|
Total |
|
Year Ended February 28 (29), |
|
Amortization |
|
|
Amortization |
|
|
Amortization |
|
2011 |
|
|
|
|
|
|
3,392 |
|
|
|
3,392 |
|
2012 |
|
|
|
|
|
|
3,392 |
|
|
|
3,392 |
|
2013 |
|
|
2,000 |
|
|
|
3,392 |
|
|
|
5,392 |
|
2014 |
|
|
|
|
|
|
328,974 |
|
|
|
328,974 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,000 |
|
|
$ |
339,150 |
|
|
$ |
341,150 |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from raising additional equity, issuing additional subordinated debt or from asset
sales, as well as excess cash flow, may be required to be used to repay amounts outstanding under
the Credit Agreement. Whether these mandatory repayment provisions apply depends, in certain
instances, on Emmis total leverage ratio, as defined under the Credit Agreement.
As discussed above, during the Suspension Period the Company must maintain a minimum amount of
trailing twelve-month Consolidated EBITDA (as defined in the Credit Agreement) and at least $5
million in Liquidity (as defined in the Credit Agreement). The Credit Agreement also contains
certain other non-financial covenants. We were in compliance with all financial and non-financial
covenants as of February 28, 2010. Our Liquidity (as defined in the Credit Agreement) as of
February 28, 2010 was $18.9. Our minimum Consolidated EBITDA (as defined in the Credit Agreement)
requirement and actual amount as of February 28, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2010 |
|
|
|
|
|
|
|
Actual Trailing |
|
|
|
|
|
|
|
Twelve-Month |
|
|
|
Covenant |
|
|
Consolidated |
|
|
|
Requirement |
|
|
EBITDA1 |
|
Trailing Twelve-month Consolidated EBITDA1 |
|
$ |
23,400 |
|
|
$ |
25,925 |
|
|
|
|
1 |
|
(as defined in the Credit Agreement) |
6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and economic
conditions. The Company principally manages its exposures to a wide variety of business and
operational risks through management of its core business activities. The Company manages economic
risks, including interest rate, liquidity, and credit risk primarily by managing the amount,
sources, and duration of its debt funding and the use of derivative financial instruments.
Specifically, the Company enters into derivative financial instruments to manage interest rate
exposure with the following objectives:
|
|
manage current and forecasted interest rate risk while maintaining optimal financial
flexibility and solvency |
|
|
proactively manage the Companys cost of capital to ensure the Company can effectively
manage operations and execute its business strategy, thereby maintaining a competitive
advantage and enhancing shareholder value |
|
|
comply with covenant requirements in the Companys Credit Agreement |
Cash Flow Hedges of Interest Rate Risk
The Companys objectives in using interest rate derivatives are to add stability to interest
expense and to manage its exposure to interest rate movements. To accomplish this objective, the
Company primarily uses interest rate swaps as part of its interest rate risk management strategy.
Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts
from a counterparty in exchange for the Company making fixed-rate payments over the life of the
agreements without exchange of the underlying notional amount. Under the terms of its Credit
Agreement, the Company was required to fix or cap the interest rate on at least 30% of its debt
outstanding (as defined in the Credit Agreement) for the three-year period ended November 2, 2009.
I-76
The effective portion of changes in the fair value of derivatives designated and that qualify
as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is
subsequently reclassified into earnings in the period that the hedged forecasted transaction
affects earnings. During fiscal 2010, such derivatives were used to hedge the variable cash flows
associated with existing variable-rate debt. The ineffective portion of the change in fair value
of the derivatives is recognized directly in earnings. The Company did not record any hedge
ineffectiveness in earnings during the three years ended February 28, 2010.
Amounts reported in accumulated other comprehensive income (loss) related to derivatives will
be reclassified to interest expense as interest payments are made on the Companys variable-rate
debt. During fiscal 2011, the Company estimates that an additional $4.1 million will be
reclassified as an increase to interest expense.
As of February 28, 2010, the Company had the following outstanding interest rate derivatives
that were designated as cash flow hedges of interest rate risk:
|
|
|
|
|
|
|
|
|
Interest Rate Derivative |
|
Number of Instruments |
|
|
Notional |
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
|
|
3 |
|
|
$ |
340,000 |
|
In March 2007, the Company entered into a three-year interest rate exchange agreement (a
Swap), whereby the Company pays a fixed rate of 4.795% on $165 million of notional principal to
Bank of America, and Bank of America pays to the Company a variable rate on the same amount of
notional principal based on the three-month London Interbank Offered Rate (LIBOR). In March
2008, the Company entered into an additional three-year Swap, whereby the Company pays a fixed rate
of 2.964% on $100 million of notional principal to Deutsche Bank, and Deutsche Bank pays to the
Company a variable rate on the same amount of notional principal based on the three-month LIBOR.
In January 2009, the Company entered into an additional two-year Swap effective as of March 28,
2009, whereby the Company pays a fixed rate of 1.771% on $75 million of notional principal to
Deutsche Bank, and Deutsche Bank pays to the Company a variable rate on the same amount of notional
principal based on the three-month LIBOR.
The Company does not use derivatives for trading or speculative purposes and currently does
not have any derivatives that are not designated as hedges.
The table below presents the fair value of the Companys derivative financial instruments as
well as their classification on the balance sheet as of February 28, 2009 and 2010. Accumulated
other comprehensive income (loss) balances related to our derivative instruments as of February 28,
2009 and 2010 were ($3,998) and ($1,289), respectively. The fair values of the derivative
instruments are estimated by obtaining quotations from the financial institutions that are
counterparties to the instruments. The fair value is an estimate of the net amount that the
Company would have been required to pay on February 28, 2009 and 2010, if the agreements were
transferred to other parties or cancelled by the Company, as further adjusted by a credit
adjustment required by ASC Topic 820, Fair Value Measurements and Disclosures, discussed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tabular Disclosure of Fair Values of Derivative Instruments |
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
|
|
As of February 28, 2009 |
|
|
As of February 28, 2010 |
|
|
As of February 28, 2009 |
|
|
As of February 28, 2010 |
|
|
|
Balance Sheet |
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
Location |
|
|
Fair Value |
|
|
Location |
|
|
Fair Value |
|
|
Location |
|
|
Fair Value |
|
|
Location |
|
|
Fair Value |
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreements (Current Portion) |
|
N/A |
|
|
$ |
|
|
|
N/A |
|
|
$ |
|
|
|
N/A |
|
|
$ |
|
|
|
Other Current Liabilities |
|
|
$ |
569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreements (Long Term Portion) |
|
N/A |
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
Other Noncurrent Liabilities |
|
|
|
6,777 |
|
|
Other Noncurrent Liabilities |
|
|
|
3,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
6,777 |
|
|
|
|
|
|
$ |
4,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I-77
The table below presents the effect of the Companys derivative financial instruments on the
consolidated statements of operations for the fiscal years ended February 2008, 2009 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in Income on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Reclassified |
|
|
Amount of Gain or (Loss) Reclassified from |
|
|
Derivative (Ineffective |
|
|
Amount of Gain or (Loss) Recognized in |
|
|
|
Amount of Gain or (Loss) Recognized in OCI on |
|
|
from Accumulated |
|
|
Accumulated OCI into Income (Effective |
|
|
Portion and Amount |
|
|
Income on Derivative (Ineffective Portion and |
|
Derivatives in Cash Flow |
|
Derivative (Effective Portion) |
|
|
OCI into Income |
|
|
Portion) |
|
|
Excluded from |
|
|
Amount Excluded from Effectiveness Testing) |
|
Hedging Relationships |
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
(Effective Portion) |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Effectiveness Testing) |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreements |
|
$ |
(5,126 |
) |
|
$ |
(2,793 |
) |
|
$ |
(7,271 |
) |
|
Interest expense |
|
|
$ |
654 |
|
|
$ |
(3,267 |
) |
|
$ |
(9,980 |
) |
|
N/A |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(5,126 |
) |
|
$ |
(2,793 |
) |
|
$ |
(7,271 |
) |
|
|
|
|
|
$ |
654 |
|
|
$ |
(3,267 |
) |
|
$ |
(9,980 |
) |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-risk-related Contingent Features
The Company manages its counterparty risk by entering into derivative instruments with global
financial institutions where it believes the risk of credit loss resulting from nonperformance by
the counterparty is low. As discussed above, the Companys existing counterparties on its interest
rate swaps are Bank of America and Deutsche Bank.
In accordance with ASC Topic 820, the Company makes Credit Value Adjustments (CVAs) to adjust
the valuation of derivatives to account for our own credit risk with respect to all derivative
liability positions. The CVA is accounted for as a decrease to the derivative position with the
corresponding increase or decrease reflected in other comprehensive income (loss) for derivatives
designated as cash flow hedges. The CVA also accounts for nonperformance risk of our
counterparties in the fair value measurement of all derivative asset positions, when appropriate.
As of February 28, 2009 and 2010, the fair value of our derivatives instruments was net of CVAs
totaling $2.0 million and $0.3 million, respectively.
The Companys interest rate swap agreements with Bank of America and Deutsche Bank incorporate
the loan covenant provisions of the Companys Credit Agreement. Both Bank of America and Deutsche
Bank are lenders under the Companys Credit Agreement. Failure to comply with the loan covenant
provisions of the Credit Agreement could result in the Company being in default of its obligations
under the interest rate swap agreements.
As of February 28, 2010, the Company has not posted any collateral related to the interest
rate swap agreements.
7. FAIR VALUE MEASUREMENTS
As defined in ASC Topic 820, fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the
measurement date (exit price). The Company utilizes market data or assumptions that market
participants would use in pricing the asset or liability, including assumptions about risk and the
risks inherent in the inputs to the valuation technique. These inputs can be readily observable,
market corroborated or generally unobservable. The Company utilizes valuation techniques that
maximize the use of observable inputs and minimize the use of unobservable inputs. ASC Topic 820
establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3
measurement).
I-78
Recurring Fair Value Measurements
The following table sets forth by level within the fair value hierarchy the Companys
financial assets and liabilities that were accounted for at fair value on a recurring basis as of
February 28, 2009 and 2010. The financial assets and liabilities are classified in their entirety
based on the lowest level of input that is significant to the fair value measurement. The
Companys assessment of the significance of a particular input to the fair value measurement
requires judgment and may affect the valuation of fair value assets and liabilities and their
placement within the fair value hierarchy levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2010 |
|
|
|
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
Level 2 |
|
|
|
|
|
|
|
|
|
in Active |
|
|
Significant |
|
|
Level 3 |
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Identical Assets |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
or Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
452 |
|
|
$ |
452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value on a recurring basis |
|
$ |
|
|
|
$ |
|
|
|
$ |
452 |
|
|
$ |
452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
$ |
|
|
|
$ |
|
|
|
$ |
4,068 |
|
|
$ |
4,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value on a recurring basis |
|
$ |
|
|
|
$ |
|
|
|
$ |
4,068 |
|
|
$ |
4,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2009 |
|
|
|
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
Level 2 |
|
|
|
|
|
|
|
|
|
in Active |
|
|
Significant |
|
|
Level 3 |
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Identical Assets |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
or Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
|
|
|
$ |
24,415 |
|
|
$ |
|
|
|
$ |
24,415 |
|
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
452 |
|
|
|
452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value on a recurring basis |
|
$ |
|
|
|
$ |
24,415 |
|
|
$ |
452 |
|
|
$ |
24,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
|
|
|
|
|
|
|
|
|
6,777 |
|
|
|
6,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value on a recurring basis |
|
$ |
|
|
|
$ |
|
|
|
$ |
6,777 |
|
|
$ |
6,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Equivalents At February 28, 2009, a majority of Emmis domestic cash equivalents were
invested in an institutional money market fund. The fund is not publicly traded, but third-party
quotes for the fund are available and are therefore considered a Level 2 input. During the year
ended February 28, 2010, this cash was primarily used to fund repurchases of the Companys bank
debt through Dutch auction tenders.
Available for sale securities Emmis available for sale security is an investment in preferred
stock of a company that specializes in digital radio transmission technology that is not traded in
active markets. The investment is recorded at fair value, which is materially consistent with the
Companys cost basis. This is considered a Level 3 input.
Swap agreements Emmis derivative financial instruments consist solely of interest rate cash
flow hedges in which the Company pays a fixed rate and receives a variable interest rate that is
observable based upon a forward interest rate curve, as adjusted for the CVA discussed in Note 6.
Because a more than insignificant portion of the valuation is based upon unobservable inputs, these
interest rate swaps are considered a Level 3 input.
I-79
The following table shows a reconciliation of the beginning and ending balances for fair value
measurements using significant unobservable inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
|
February 28, 2009 |
|
|
February 28, 2010 |
|
|
|
Available |
|
|
|
|
|
|
Available |
|
|
|
|
|
|
For Sale |
|
|
Derivative |
|
|
For Sale |
|
|
Derivative |
|
|
|
Securities |
|
|
Instruments |
|
|
Securities |
|
|
Instruments |
|
Beginning Balance |
|
$ |
1,452 |
|
|
$ |
|
|
|
$ |
452 |
|
|
$ |
6,777 |
|
Purchases |
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers in |
|
|
|
|
|
|
8,823 |
|
|
|
|
|
|
|
|
|
Other than temporary impairment loss |
|
|
(1,250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains in other
comprehensive income |
|
|
|
|
|
|
(2,046 |
) |
|
|
|
|
|
|
(2,709 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
$ |
452 |
|
|
$ |
6,777 |
|
|
$ |
452 |
|
|
$ |
4,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Recurring Fair Value Measurements
The Company has certain assets that are measured at fair value on a non-recurring basis under
the circumstances and events described in Note 9, Intangible Assets And Goodwill, and are adjusted
to fair value only when the carrying values exceed the fair values. The categorization of the
framework used to price the assets is considered a Level 3, due to the subjective nature of the
unobservable inputs used to determine the fair value (see Note 10 for more discussion).
Included in the following table are the major categories of assets measured at fair value on a
non-recurring basis as of February 28, 2010, along with the impairment loss recognized on the fair
value measurement for the year then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 28, 2010 |
|
|
|
|
|
|
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Significant |
|
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Year Ended |
|
|
|
Identical Assets |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
February 28, 2010 |
|
|
|
or Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
Total |
|
|
Impairment Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangibles |
|
$ |
|
|
|
$ |
|
|
|
$ |
335,801 |
|
|
$ |
335,801 |
|
|
$ |
160,910 |
|
Goodwill 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,928 |
|
Other intangibles, net |
|
|
|
|
|
|
|
|
|
|
3,833 |
|
|
|
3,833 |
|
|
|
4,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
339,634 |
|
|
$ |
339,634 |
|
|
$ |
174,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Pursuant to ASC Topic 350-20-35, the fair value of goodwill is assessed only when the
carrying value of the reporting unit exceeds its fair value. On December 1, 2009, the fair value
of each of our reporting units exceeded their respective carrying values, thus fair value of
goodwill was not assessed. |
Fair Value Of Other Financial Instruments
The estimated fair value of financial instruments is determined using the best available
market information and appropriate valuation methodologies. Considerable judgment is necessary,
however, in interpreting market data to develop the estimates of fair value. Accordingly, the
estimates presented are not necessarily indicative of the amounts that the Company could realize in
a current market exchange, or the value that ultimately will be realized upon maturity or
disposition. The use of different market assumptions may have a material effect on the estimated
fair value amounts.
I-80
The following methods and assumptions were used to estimate the fair value of financial
instruments:
Cash and cash equivalents, accounts receivable and accounts payable, including accrued
liabilities: The carrying amount of these assets and liabilities approximates fair value because of
the short maturity of these instruments.
Credit Agreement debt: As of February 28, 2009 and 2010, the fair value of the Companys
Credit Agreement debt based on bid prices as of those dates was $183.3 million and $283.2 million,
respectively, while the carrying value was $421.4 million and $341.2 million, respectively.
6.25% Series A cumulative convertible preferred stock: As of February 28, 2009 and 2010, the
fair value of the Companys 6.25% Series A cumulative convertible preferred stock based on quoted
market prices was $5.6 million and $41.0 million, respectively, while the carrying value was $140.5
million for both periods.
8. ACQUISITIONS, DISPOSITIONS AND INVESTMENTS
Purchase of 100% of Bulgarian Radio Networks
During the quarter ended May 31, 2009, Emmis completed a series of transactions with its
noncontrolling partners of two of our Bulgarian radio networks that gave Emmis 100% ownership in
those networks. The purchase price of these transactions totaled $4.9 million in cash, and a
substantial portion was allocated to goodwill which was then determined to be substantially
impaired. Emmis recorded an impairment loss of $3.7 million related to Bulgarian goodwill during
the quarter ended May 31, 2009.
Sale of Belgium Radio Operations
On May 29, 2009, Emmis sold the stock of its Belgium radio operation to Alfacam Group NV, a
Belgian corporation, for 100 euros. Emmis recognized a gain on the sale of its Belgium radio
operations of $0.4 million, which included a gain of $0.1 million related to the transfer of
cumulative translation adjustments. The gain on sale of the Belgium radio operations is included
in discontinued operations in the accompanying consolidated statements of operations. Emmis
desired to exit Belgium as its financial performance in the market failed to meet expectations.
The sale allowed Emmis to eliminate further operating losses.
Sale of WVUE-TV to Louisiana Media Company
On July 18, 2008, Emmis completed the sale of its sole remaining television station, WVUE-TV
in New Orleans, LA, to Louisiana Media Company LLC for $41.0 million in cash. The Company
recognized a loss on the sale of WVUE-TV of $0.6 million, net of tax benefits of $0.4 million,
which is included in income from discontinued operations in the accompanying statements of
operations. In connection with the sale, the Company paid discretionary bonuses to the employees
of WVUE totaling $0.8 million, which is included in the calculation of the loss on sale. The sale
of WVUE-TV completes the sale of our television division which began on May 10, 2005, when Emmis
announced that it had engaged advisors to assist in evaluating strategic alternatives for its
television assets.
I-81
Purchase of Infopress & Company OOD
On December 17, 2007, Emmis acquired 100% of the shares of Infopress & Company OOD for $8.8
million. Infopress & Company OOD operated Inforadio, a national radio network broadcasting to 13
Bulgarian cities. Inforadio joins Emmis majority owned Bulgarian radio networks Radio FM+ and
Radio Fresh. Emmis believes the acquisition of Inforadio further strengthens its footprint in
Bulgaria. The acquisition was financed with cash on hand. The Company recorded $7.3 million of
goodwill, none of which is deductible for income tax purposes. The operating results from December
17, 2007 forward are included in the accompanying consolidated financial statements. Consistent
with the Companys other foreign subsidiaries, Inforadio reports on a fiscal year ending December
31, which Emmis consolidates into its fiscal year ending February 28 (29). The purchase price
allocation was as follows:
|
|
|
|
|
|
|
Asset Description |
|
Amount |
|
|
Asset Lives |
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
24 |
|
|
Less than one year |
Other current assets |
|
|
58 |
|
|
Less than one year |
|
|
|
|
|
|
|
Broadcasting equipment |
|
|
324 |
|
|
5 years |
|
|
|
|
|
|
|
International broadcast license |
|
|
1,471 |
|
|
60 months |
Goodwill |
|
|
7,335 |
|
|
Indefinite |
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
(385 |
) |
|
|
Other current liabilities |
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
8,787 |
|
|
|
|
|
|
|
|
|
During the year ended February 28, 2010, we completed a series of transactions that gave the
Company 100% control over all Bulgarian radio networks for a combined cash purchase price of $4.4
million. These transactions were funded with international cash on hand.
Purchase of Orange Coast Kommunications, Inc.
On July 25, 2007, Emmis acquired Orange Coast Kommunications, Inc., publisher of Orange Coast,
for $6.9 million in cash including acquisition costs of $0.2 million. Approximately $0.3 million
of the purchase price was withheld at the original closing, but was paid in April 2008. Orange
Coast fits Emmis niche of publishing quality city and regional magazines and serves the affluent
area of Orange County, CA. The acquisition was financed through borrowings under the Credit
Agreement. The Company recorded $2.9 million of goodwill, none of which was deductible for income
tax purposes. The operating results of Orange Coast from July 25, 2007, through February 28, 2010,
are included in the accompanying consolidated statements of operations. The purchase price
allocation was as follows:
|
|
|
|
|
|
|
Asset Description |
|
Amount |
|
|
Asset Lives |
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
570 |
|
|
Less than one year |
Other current assets |
|
|
73 |
|
|
Less than one year |
|
|
|
|
|
|
|
Furniture and fixtures |
|
|
20 |
|
|
5 years |
|
|
|
|
|
|
|
Goodwill |
|
|
2,852 |
|
|
Indefinite |
Trademark |
|
|
2,922 |
|
|
15 years |
Advertiser list |
|
|
1,162 |
|
|
4 years |
Other definite lived intangibles |
|
|
312 |
|
|
3 years |
|
|
|
|
|
|
|
Other current liabilities |
|
|
(564 |
) |
|
|
Deferred income taxes |
|
|
(490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
6,857 |
|
|
|
|
|
|
|
|
|
Sale of KGMB-TV to HITV Operating Company, Inc.
On June 4, 2007, Emmis closed on its sale of KGMB-TV in Honolulu to HITV Operating Co, Inc.
for $40.0 million in cash. Emmis recorded a gain on sale of $10.1 million, net of tax, which is
included in discontinued operations in the accompanying consolidated statements of operations.
I-82
Sale of KMTV-TV to Journal Communications, Inc.
On March 27, 2007, Emmis closed on its sale of KMTV-TV in Omaha, NE to Journal Communications,
Inc. (Journal) and received $10.0 million in cash. Journal had been operating KMTV-TV under a
Local Programming and Marketing Agreement since December 5, 2005.
9. INTANGIBLE ASSETS AND GOODWILL
In accordance with the provisions of ASC Topic 350, Intangibles Goodwill and Other, the
Company reviews goodwill and other intangibles at least annually for impairment. In connection with
any such review, if the recorded value of goodwill and other intangibles is greater than its fair
value, the intangibles are written down and charged to results of operations. FCC licenses are
renewed every eight years at a nominal cost, and historically all of our FCC licenses have been
renewed at the end of their respective eight-year periods. Since we expect that all of our FCC
licenses will continue to be renewed in the future, we believe they have indefinite lives.
Impairment testing
The Company generally performs its annual impairment review of indefinite-lived intangibles as
of December 1 each year, but given economic conditions and continued revenue declines in the
domestic radio broadcasting industry and publishing industry, the Company performed interim
impairment reviews as of October 1, 2008 and August 1, 2009. Impairment recorded as a result of
our interim and annual impairment testing is summarized in the table below. We will perform
additional interim impairment assessments whenever triggering events suggest such testing for the
recoverability of these assets is warranted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interim Assessment |
|
|
Annual Assessment |
|
|
|
FCC Licenses |
|
|
Goodwill |
|
|
Definite-lived |
|
|
FCC Licenses |
|
|
Goodwill |
|
|
Definite-lived |
|
|
Total |
|
Year Ended February 29, 2008 |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
18,068 |
|
|
|
|
|
|
|
3,157 |
|
|
|
21,225 |
|
Year Ended February 28, 2009 |
|
|
187,580 |
|
|
|
22,585 |
|
|
|
|
|
|
|
116,980 |
|
|
|
35,684 |
|
|
|
3,056 |
|
|
|
365,885 |
|
Year Ended February 28, 2010 |
|
|
160,910 |
|
|
|
8,928 |
|
|
|
4,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,642 |
|
Valuation of Indefinite-lived Broadcasting Licenses
Fair value of our FCC Licenses is estimated to be the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. To determine the fair value of our FCC Licenses, the Company uses an income
valuation method when it performs its impairment tests. Under this method, the Company projects
cash flows that would be generated by each of its units of accounting assuming the unit of
accounting was commencing operations in its respective market at the beginning of the valuation
period. This cash flow stream is discounted to arrive at a value for the FCC license. The Company
assumes the competitive situation that exists in each market remains unchanged, with the exception
that its unit of accounting commenced operations at the beginning of the valuation period. In
doing so, the Company extracts the value of going concern and any other assets acquired, and
strictly values the FCC license. Major assumptions involved in this analysis include market
revenue, market revenue growth rates, unit of accounting audience share, unit of accounting revenue
share and discount rate. Each of these assumptions may change in the future based upon changes in
general economic conditions, audience behavior, consummated transactions, and numerous other
variables that may be beyond our control. When evaluating our radio broadcasting licenses for
impairment, the testing is performed at the unit of accounting level as determined by ASC Topic
350-30-35. In our case, radio stations in a geographic market cluster are considered a single unit
of accounting, provided that they are not being operated under a Local Marketing Agreement by
another broadcaster.
I-83
The projections incorporated into our annual license valuations take into consideration the
prolonged economic recession and credit crisis, which has led to a further weakened, deteriorating
and less profitable radio marketplace with reduced potential for growth and a higher cost of
capital. Between its December 1, 2007 annual impairment assessment and its August 1, 2009 interim
assessment, the
Company incorporated several more conservative estimates into its assumptions to reflect the
deterioration in both the U.S. economy and the radio marketplace. Specifically, long-term revenue
growth estimates generally decreased, from a range of 1.5% to 4.0% in the December 1, 2007
assessment to a range of 2.0% to 3.3% in the August 1, 2009 assessment. Similarly, as a large
portion of radios expenses are of a fixed nature, declining revenue projections negatively impact
operating profit margin assumptions. Operating profit margins decreased from a range of 30.1% to
50.7% in the December 1, 2007 assessment to a range of 26.0% to 40.9% in the December 1, 2009
assessment. Assumptions incorporated into the annual impairment testing as of December 1, 2009
were similar to those used in our August 1, 2009 interim testing, although revenue growth rates
were slightly higher as a result of the pace of the industrys recent revenue recovery. Below are
some of the key assumptions used in our annual and interim impairment assessments. The methodology
used to value our FCC licenses has not changed in the three-year period ended February 28, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2007 |
|
October 1, 2008 |
|
December 1, 2008 |
|
August 1, 2009 |
|
December 1, 2009 |
Discount Rate |
|
10.5% 11.1% |
|
11.7% 12.1% |
|
11.5% 11.9% |
|
12.6% 13.0% |
|
12.7% 13.1% |
Long-term Revenue Growth Rate (Years 4-8) |
|
1.5% 4.0% |
|
2.0% 3.5% |
|
2.0% 3.3% |
|
2.0% 3.3% |
|
2.0% 3.5% |
Revenue Growth Rate (All Years) |
|
1.5% 4.4% |
|
1.5% 3.4% |
|
0.7% 3.3% |
|
1.5% 3.2% |
|
2.0% 3.4% |
Mature Market Share |
|
6.7% 31.0% |
|
6.3% 30.8% |
|
6.3% 30.5% |
|
6.3% 30.6% |
|
6.2% 30.0% |
Operating Profit margin |
|
30.1% 50.7% |
|
27.7% 43.7% |
|
27.1% 42.7% |
|
26.5% 42.7% |
|
26.0% 40.9% |
As of February 28, 2009 and 2010, the carrying amounts of the Companys FCC licenses were
$496.7 million and $335.8 million, respectively. These amounts are entirely attributable to our
radio division. The change in FCC license carrying amounts was entirely attributable to our
impairment charges as previously discussed. The table below presents the changes to the carrying
values of the Companys FCC licenses for the year ended February 28, 2010 for each unit of
accounting. As noted above, each unit of accounting is a cluster of radio stations in one
geographical market, except for our Los Angeles cluster in which KXOS-FM is being operated under a
Local Marketing Agreement by another broadcaster.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in FCC License Carrying Values |
|
|
|
As of |
|
|
Interim |
|
|
Annual |
|
|
As of |
|
Unit of Accounting |
|
February 28, 2009 |
|
|
Impairment |
|
|
Impairment |
|
|
February 28, 2010 |
|
New York Cluster |
|
$ |
210,570 |
|
|
$ |
(64,982 |
) |
|
$ |
|
|
|
$ |
145,588 |
|
KXOS-FM (Los Angeles) |
|
|
75,059 |
|
|
|
(22,726 |
) |
|
|
|
|
|
|
52,333 |
|
Austin Cluster |
|
|
73,421 |
|
|
|
(27,391 |
) |
|
|
|
|
|
|
46,030 |
|
Chicago Cluster |
|
|
66,749 |
|
|
|
(22,457 |
) |
|
|
|
|
|
|
44,292 |
|
St. Louis Cluster |
|
|
43,289 |
|
|
|
(15,597 |
) |
|
|
|
|
|
|
27,692 |
|
Indianapolis Cluster |
|
|
24,527 |
|
|
|
(7,253 |
) |
|
|
|
|
|
|
17,274 |
|
KPWR-FM (Los Angeles) |
|
|
2,018 |
|
|
|
|
|
|
|
|
|
|
|
2,018 |
|
Terre Haute Cluster |
|
|
1,078 |
|
|
|
(504 |
) |
|
|
|
|
|
|
574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
496,711 |
|
|
$ |
(160,910 |
) |
|
$ |
|
|
|
$ |
335,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation of Goodwill
ASC Topic 350 requires the Company to test goodwill for impairment at least annually using a
two-step process. The first step is a screen for potential impairment, while the second step
measures the amount of impairment. The Company conducts the two-step impairment test on December 1
of each fiscal year, unless indications of impairment exist during an interim period. When
assessing its goodwill for impairment, the Company uses an enterprise valuation approach to
determine the fair value of each of the Companys reporting units (radio stations grouped by market
and magazines on an individual basis). Management determines enterprise value for each of its
reporting units by multiplying the two-year average station operating income generated by each
reporting unit (current year based on actual results and the next year based on budgeted results)
by an estimated market multiple. The Company uses a blended station operating income trading
multiple of publicly traded radio operators as a benchmark for the multiple it applies to its radio
reporting units. There are no publicly traded publishing companies that are focused predominantly
on city and regional magazines as is
our publishing segment. Therefore, the market multiple used as a benchmark for our publishing
reporting units is based on recently completed transactions within the city and regional magazine
industry or analyst reports that include valuations of magazine divisions within publicly traded
media conglomerates. For the interim assessment performed as of August 1, 2009, the Company
applied a market multiple of 6.2 times and 5.0 times the reporting units operating performance for
our radio and publishing reporting units, respectively. For the annual assessment performed as of
December 1, 2009, the Company applied a market multiple of 6.8 times and 5.0 times the reporting
units operating performance for our radio and publishing reporting units, respectively.
Management believes this methodology for valuing radio and publishing properties is a common
approach and believes that the multiples used in the valuation are reasonable given our peer
comparisons and recent market transactions.
This enterprise valuation is compared to the carrying value of the reporting unit for the
first step of the goodwill impairment test. If the reporting unit exhibits impairment, the Company
proceeds to the second step of the goodwill impairment test. For its step-two testing, the
enterprise value is allocated among the tangible assets, indefinite-lived intangible assets (FCC
licenses valued using a direct-method valuation approach) and unrecognized intangible assets, such
as customer lists, with the residual amount representing the implied fair value of the goodwill.
To the extent the carrying amount of the goodwill exceeds the implied fair value of the goodwill,
the difference is recorded as an impairment charge in the statement of operations. The methodology
used to value our goodwill has not changed in the three-year period ended February 28, 2010.
I-84
As of February 28, 2009 and 2010, the carrying amount of the Companys goodwill was $29.4
million and $24.2 million, respectively. The table below presents the changes to the various
reporting units goodwill carrying values for the year ended February 28, 2010. As noted above,
each reporting unit is a cluster of radio stations in one geographical market and magazines on an
individual basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Goodwill Carrying Values |
|
|
|
As of |
|
|
|
|
|
Interim |
|
|
Annual |
|
|
As of |
|
Unit of Accounting |
|
February 28, 2009 |
|
Acquisition |
|
|
Impairment |
|
|
Impairment |
|
|
February 28, 2010 |
|
Indianapolis Cluster |
|
$ |
265 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
265 |
|
Austin Cluster |
|
|
4,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,338 |
|
Bulgaria |
|
|
|
|
|
3,661 |
|
|
|
(3,661 |
) |
|
|
|
|
|
|
|
|
Slovakia |
|
|
1,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Radio Segment |
|
|
6,306 |
|
|
3,661 |
|
|
|
(3,661 |
) |
|
|
|
|
|
|
6,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles Magazine |
|
|
5,267 |
|
|
|
|
|
|
(5,267 |
) |
|
|
|
|
|
|
|
|
Country Sampler |
|
|
9,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,385 |
|
Indianapolis Monthly |
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
448 |
|
Texas Monthly |
|
|
8,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Publishing Segment |
|
|
23,136 |
|
|
|
|
|
|
(5,267 |
) |
|
|
|
|
|
|
17,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total |
|
$ |
29,442 |
|
$ |
3,661 |
|
|
$ |
(8,928 |
) |
|
$ |
|
|
|
$ |
24,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite-lived intangibles
The following table presents the weighted-average life at February 28, 2010 and gross carrying
amount and accumulated amortization for each major class of definite-lived intangible assets at
February 28, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009 |
|
|
February 28, 2010 |
|
|
|
Weighted Average |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
Useful Life |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
|
(in years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
Foreign broadcasting licenses |
|
|
7.8 |
|
|
$ |
13,502 |
|
|
$ |
6,638 |
|
|
$ |
6,864 |
|
|
$ |
8,716 |
|
|
$ |
5,230 |
|
|
$ |
3,486 |
|
Favorable office leases |
|
|
6.4 |
|
|
|
688 |
|
|
|
605 |
|
|
|
83 |
|
|
|
688 |
|
|
|
632 |
|
|
|
56 |
|
Trademarks |
|
|
37.8 |
|
|
|
3,687 |
|
|
|
754 |
|
|
|
2,933 |
|
|
|
749 |
|
|
|
458 |
|
|
|
291 |
|
Customer list |
|
|
N/A |
|
|
|
692 |
|
|
|
460 |
|
|
|
232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncompete and other |
|
|
N/A |
|
|
|
312 |
|
|
|
164 |
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
|
|
$ |
18,881 |
|
|
$ |
8,621 |
|
|
$ |
10,260 |
|
|
$ |
10,153 |
|
|
$ |
6,320 |
|
|
$ |
3,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended February 28, 2010, Emmis determined the carrying value of our
Bulgarian foreign broadcast licenses, Orange Coast trademarks, Orange Coast noncompete and other
Orange Coast definite-lived intangible assets exceeded their fair value. As such, we recognized a
noncash impairment loss of $2.0 million and $2.8 million related to the Bulgarian and Orange Coast
definite-lived intangibles, respectively. Total amortization expense from definite-lived
intangibles for the year ended February 28, 2009 and 2010, was $3.1 million and $1.6 million,
respectively. The following table presents the Companys estimate of amortization expense for each
of the five succeeding fiscal years for definite-lived intangibles:
|
|
|
|
|
YEAR ENDED FEBRUARY 28 (29), |
|
|
|
|
2011 |
|
$ |
1,177 |
|
2012 |
|
|
1,177 |
|
2013 |
|
|
1,166 |
|
2014 |
|
|
113 |
|
2015 |
|
|
18 |
|
I-85
10. EMPLOYEE BENEFIT PLANS
a. Equity Incentive Plans
The Company has stock options, restricted stock and restricted stock unit grants outstanding
that were issued to employees or non-employee directors under one or more of the following plans:
1999 Equity Incentive Plan, 2001 Equity Incentive Plan and 2002 Equity Incentive Plan. These
outstanding grants continue to be governed by the terms of the applicable plan. However, all
unissued awards under the 1999 Equity Incentive Plan, the 2001 Equity Incentive Plan and the 2002
Equity Incentive Plan were transferred in June 2004 to the Companys 2004 Equity Compensation Plan
(discussed below) and no further awards will be issued from these plans. Furthermore, cancelled
and expired shares from the 1999 Equity Incentive Plan, 2001 Equity Incentive Plan and 2002 Equity
Incentive Plan are transferred to the 2004 Equity Incentive Plan.
2004 Equity Incentive Plan
At the 2004 annual meeting, the shareholders of Emmis approved the 2004 Equity Compensation
Plan (the Plan). Under this plan, awards equivalent to 4.0 million shares of common stock may be
granted. Furthermore, any unissued awards from the 1999 Equity Incentive Plan, the 2001 Equity
Incentive Plan and the 2002 Equity Compensation Plan (or shares subject to outstanding awards that
would again become available for awards under these plans) increase the number of shares of common
stock available for grant under the Plan. The awards, which have certain restrictions, may be for
incentive stock options, nonqualified stock options, shares of restricted stock, restricted stock
units, stock appreciation rights or performance units. Under this Plan, all awards are granted
with a purchase price equal to at least the fair market value of the stock except for shares of
restricted stock and restricted stock units, which may be granted with any purchase price
(including zero). No more than 1.0 million shares of Class B common stock are available for grant
and issuance from the 4.0 million additional shares of stock originally authorized for delivery
under this Plan. The stock options under this Plan generally expire not more than 10 years from
the date of grant. Under this Plan, awards equivalent to approximately 0.3 million shares of
common stock were available for grant at February 28, 2010. Certain stock awards remained
outstanding as of February 28, 2010.
b. 401(k) Retirement Savings Plan
Emmis sponsors a Section 401(k) retirement savings plans that is available to substantially
all employees age 18 years and older who have at least 30 days of service. Employees may make
pretax contributions to the plans up to 50% of their compensation, not to exceed the annual limit
prescribed by the Internal Revenue Service (IRS). Emmis may make discretionary matching
contributions to the plans in the form of cash or shares of the Companys Class A common stock.
During the year ended February 29, 2008, the Company elected to match annual employee 401(k)
contributions up to a maximum of $2 thousand per employee, one-half of the contribution made in
Emmis stock. During the year ended February 28, 2009, the Company suspended the cash match, but
continued to make the discretionary stock match. No matching contributions were made during the
year ended February 28, 2010. Emmis discretionary contributions to the plans for continuing
operations totaled $1.7 million and $0.9 million for the years ended February 29, 2008 and
February 28, 2009, respectively. In April 2010, the Board of Directors of the Company voted
to reinstate the discretionary 401(k) match. Employee contributions will be matched at 33% up to a
maximum of 6% of eligible compensation. The match will be made on a biweekly basis in Emmis
Communications Corporation Class A common stock and will be made retroactive to all employee
contributions made beginning on January 1, 2010.
c. 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 for continuing
operations related to the multi-employer plan were approximately $779, $626 and $514 for the years
ended February 2008, 2009 and 2010, respectively.
I-86
11. OTHER COMMITMENTS AND CONTINGENCIES
a. Commitments of our continuing operations
The Company has various commitments under the following types of material contracts for its
continuing operations: (i) operating leases; (ii) radio syndicated programming; (iii) employment
agreements and (iv) other contracts with annual commitments (mostly contractual services for
audience measurement information) at February 28, 2010 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
Syndicated |
|
|
Employment |
|
|
Other |
|
|
|
|
Year ending February 28 (29), |
|
Leases |
|
|
Programming |
|
|
Agreements |
|
|
Contracts |
|
|
Total |
|
2011 |
|
$ |
8,168 |
|
|
$ |
896 |
|
|
$ |
13,868 |
|
|
$ |
8,732 |
|
|
$ |
31,664 |
|
2012 |
|
|
8,058 |
|
|
|
730 |
|
|
|
4,439 |
|
|
|
9,141 |
|
|
|
22,368 |
|
2013 |
|
|
7,294 |
|
|
|
334 |
|
|
|
1,265 |
|
|
|
8,598 |
|
|
|
17,491 |
|
2014 |
|
|
6,318 |
|
|
|
|
|
|
|
|
|
|
|
10,164 |
|
|
|
16,482 |
|
2015 |
|
|
5,871 |
|
|
|
|
|
|
|
|
|
|
|
3,606 |
|
|
|
9,477 |
|
Thereafter |
|
|
22,903 |
|
|
|
|
|
|
|
|
|
|
|
656 |
|
|
|
23,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
58,612 |
|
|
$ |
1,960 |
|
|
$ |
19,572 |
|
|
$ |
40,897 |
|
|
$ |
121,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emmis leases certain office space, tower space, equipment and automobiles under operating
leases expiring at various dates through June 2027. Some of the lease agreements contain renewal
options and annual rental escalation clauses (generally tied to the Consumer Price Index or
increases in the lessors operating costs), as well as provisions for payment of utilities and
maintenance costs. Rental expense for continuing operations during the years ended February 2008,
2009 and 2010 was approximately $8.7 million, $7.7 million and $8.2 million, respectively.
There are no material commitments related to our discontinued operations.
b. Litigation
The Company is a party to various legal proceedings arising in the ordinary course of
business. In the opinion of management of the Company, there are no legal proceedings pending
against the Company likely to have a material adverse effect on the Company.
Certain individuals and groups have challenged applications for renewal of the FCC licenses of
certain of the Companys stations. The challenges to the license renewal applications are
currently pending before the FCC. Emmis does not expect the challenges to result in the denial of
any license renewals.
12. INCOME TAXES
United States and foreign income (loss) before income taxes for the years ended February 2008,
2009 and 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
United States |
|
$ |
(19,658 |
) |
|
$ |
(360,059 |
) |
|
$ |
(155,785 |
) |
Foreign |
|
|
5,092 |
|
|
|
(5,664 |
) |
|
|
(2,989 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
$ |
(14,566 |
) |
|
$ |
(365,723 |
) |
|
$ |
(158,774 |
) |
|
|
|
|
|
|
|
|
|
|
I-87
The benefit for income taxes for the years ended February 2008, 2009 and 2010, consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
(6,794 |
) |
State |
|
|
|
|
|
|
|
|
|
|
527 |
|
Foreign |
|
|
886 |
|
|
|
1,529 |
|
|
|
990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
886 |
|
|
|
1,529 |
|
|
|
(5,277 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(5,235 |
) |
|
|
(58,346 |
) |
|
|
(28,759 |
) |
State |
|
|
474 |
|
|
|
(8,581 |
) |
|
|
(5,438 |
) |
Foreign |
|
|
349 |
|
|
|
(450 |
) |
|
|
(366 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,412 |
) |
|
|
(67,377 |
) |
|
|
(34,563 |
) |
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes |
|
$ |
(3,526 |
) |
|
$ |
(65,848 |
) |
|
$ |
(39,840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Tax Related Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes associated with noncontrolling interest
earnings |
|
|
(2,763 |
) |
|
|
(2,539 |
) |
|
|
|
|
Tax provision of discontinued operations |
|
|
13,909 |
|
|
|
3,751 |
|
|
|
401 |
|
The provision (benefit) for income taxes for the years ended February 2008, 2009 and 2010
differs from that computed at the Federal statutory corporate tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Computed income tax benefit at 35% |
|
$ |
(5,292 |
) |
|
$ |
(125,666 |
) |
|
$ |
(55,571 |
) |
State income tax |
|
|
474 |
|
|
|
(8,581 |
) |
|
|
(4,911 |
) |
Foreign taxes |
|
|
(369 |
) |
|
|
(2,075 |
) |
|
|
(533 |
) |
Federal net operating loss carryback |
|
|
|
|
|
|
|
|
|
|
(6,793 |
) |
Nondeductible stock compensation and
Section 162 disallowance |
|
|
1,021 |
|
|
|
1,486 |
|
|
|
1,154 |
|
Entertainment disallowance |
|
|
677 |
|
|
|
620 |
|
|
|
546 |
|
Increase in valuation allowance |
|
|
|
|
|
|
54,061 |
|
|
|
20,988 |
|
Tax attributed to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
(1,318 |
) |
Impairment charges on goodwill with no tax basis |
|
|
|
|
|
|
14,030 |
|
|
|
3,825 |
|
Forgiveness of intercompany foreign loans |
|
|
|
|
|
|
|
|
|
|
2,548 |
|
Other |
|
|
(37 |
) |
|
|
277 |
|
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes |
|
$ |
(3,526 |
) |
|
$ |
(65,848 |
) |
|
$ |
(39,840 |
) |
|
|
|
|
|
|
|
|
|
|
I-88
The components of deferred tax assets and deferred tax liabilities at February 28, 2009 and
February 28, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
23,836 |
|
|
$ |
30,245 |
|
Intangible assets |
|
|
29,975 |
|
|
|
48,314 |
|
Compensation relating to stock options |
|
|
3,487 |
|
|
|
3,062 |
|
Interest rate exchange agreement |
|
|
2,779 |
|
|
|
1,668 |
|
Deferred revenue |
|
|
5,491 |
|
|
|
8,109 |
|
Tax credits |
|
|
5,883 |
|
|
|
1,405 |
|
Investments in subsidiairies |
|
|
1,751 |
|
|
|
1,796 |
|
Other |
|
|
4,615 |
|
|
|
3,487 |
|
Valuation allowance |
|
|
(63,990 |
) |
|
|
(71,089 |
) |
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
13,827 |
|
|
|
26,997 |
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets |
|
|
(110,692 |
) |
|
|
(76,565 |
) |
Fixed assets |
|
|
(539 |
) |
|
|
(2,587 |
) |
Foreign unremitted earnings |
|
|
(9,775 |
) |
|
|
(7,925 |
) |
Cancellation of debt income |
|
|
|
|
|
|
(12,858 |
) |
Other |
|
|
(543 |
) |
|
|
(367 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(121,549 |
) |
|
|
(100,302 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
(107,722 |
) |
|
$ |
(73,305 |
) |
|
|
|
|
|
|
|
A valuation allowance is provided when it is more likely than not that some portion of the
deferred tax asset will not be realized. The Company increased its valuation allowance for all
jurisdictions by a net $7.1 million to $71.1 million as of February 28, 2010 from $64.0 million as
of February 28, 2009, to reflect a valuation allowance for the majority of its total domestic net
deferred tax assets. The increase in the valuation allowance was primarily the result of
additional operating losses in fiscal 2010. The Company does not benefit its deferred tax assets
(DTAs) based on the deferred tax liabilities (DTLs) related to indefinite-lived intangibles that
are not expected to reverse during the carry-forward period. Because this DTL would not reverse
until some future indefinite period when the intangibles are either sold or impaired, any resulting
temporary differences cannot be considered a source of future taxable income to support realization
of the DTAs. The valuation allowance as of February 28, 2010 included $1.7 million for an income
tax benefit recorded in other comprehensive income (loss).
The Company has considered future taxable income and ongoing prudent and feasible tax-planning
strategies in assessing the need for the valuation allowance. The Company will assess quarterly
whether it remains more likely than not that the deferred tax assets will not be realized. In the
event the Company determines at a future time that it could realize its deferred tax assets in
excess of the net amount recorded, the Company will reduce its deferred tax asset valuation
allowance and decrease income tax expense in the period when the Company makes such determination.
The Company has U.S. Net Operating Losses (NOLs) of $64 million and state NOLs of $157 million
available to offset future taxable income. The federal net operating loss carryforwards begin
expiring in 2028, and the state net operating loss carryforwards expire between the years ending
February 2011 and February 2030. A valuation allowance has been provided for the net operating
loss carryforwards related to Federal and most state net operating losses as it is more likely than
not that a portion of the state net operating losses will expire unutilized.
The $1.4 million of tax credits at February 28, 2010 relate primarily to alternative minimum
tax carryforwards that can be carried forward indefinitely. A valuation allowance has been placed
against this deferred tax asset.
United States Federal and state deferred income taxes have been recorded on undistributed
earnings of foreign subsidiaries because such earnings are not intended to be indefinitely
reinvested in these foreign operations. At February 28, 2010, we had an aggregate of $19.3 million
of unremitted earnings of foreign subsidiaries that, when distributed, would result in additional
U.S. income taxes of $7.9 million.
I-89
The Company recorded a $6.8 million benefit related to previous tax paid by Emmis, which can
now be recouped after the signing of the Worker, Homeownership, and Business Assistance Act of
2009. This Act allows Emmis to extend the previously allowed two-year carryback period on NOLs to
five years and permits the full offset of alternative minimum tax during such extended carryback
period. The tax asset had a full valuation allowance.
The Company adopted ASC Topic 740-10, Accounting for Uncertainty in Income Taxes (ASC Topic
740-10). ASC Topic 740-10 clarifies the accounting for uncertainty in income taxes by prescribing a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken within a tax return. For those benefits
to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by
taxing authorities. The amount recognized is measured as the largest benefit that is greater than
50 percent likely of being realized upon ultimate settlement.
The adoption of ASC 740-10 resulted in a decrease of $25.2 million to the March 1, 2007,
balance of accumulated deficit, a decrease of $24.9 million in other noncurrent liabilities and a
decrease of $0.3 million in deferred income taxes. Upon the adoption of ASC 740-10 on March 1,
2007, the estimated value of the Companys net uncertain tax positions was approximately $0.7
million, $0.4 million of which was included in deferred income taxes and $0.3 million of which was
included in other noncurrent liabilities. As of February 28, 2010, the estimated value of the
Companys net uncertain tax positions is approximately $0.7 million, $0.6 million of which is
included in other current liabilities and $0.1 million of which is included in noncurrent
liabilities.
The following is a tabular reconciliation of the total amounts of gross unrecognized tax
benefits for the years ending February 28, 2009 and February 28, 2010:
|
|
|
|
|
|
|
|
|
|
|
For the year ending February 28, |
|
|
|
2009 |
|
|
2010 |
|
Gross unrecognized tax benefit opening balance |
|
$ |
864 |
|
|
$ |
1,739 |
|
Gross increases tax positions in prior periods |
|
|
875 |
|
|
|
100 |
|
Gross decreases settlements with taxing authorities |
|
|
|
|
|
|
(600 |
) |
Gross decreases lapse of applicable statute of limitations |
|
|
|
|
|
|
(582 |
) |
|
|
|
|
|
|
|
Gross unrecognized tax benefit ending balance |
|
$ |
1,739 |
|
|
$ |
657 |
|
|
|
|
|
|
|
|
Included in the balance of unrecognized tax benefits at February 28, 2010 are $0.7 million of
tax benefits that, if recognized, would reduce the Companys provision for income taxes. Of the
total unrecognized tax benefits as of February 28, 2010, it is reasonably possible that $0.7
million could change in the next twelve months due to audit settlements, expiration of statute of
limitations or other resolution of uncertainties. The amount relates primarily to the allocation
of income among multiple jurisdictions. Due to the uncertain and complex application of tax
regulations, it is possible that the ultimate resolution of audits may result in liabilities that
could be different from this estimate. In such case, the Company will record additional tax
expense or tax benefit in the tax provision, or reclassify amounts on the accompanying consolidated
balance sheets in the period in which such matter is effectively settled with the taxing authority.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties as
income tax expense. Related to the uncertain tax benefits noted above, the Company accrued an
immaterial amount of interest during the year ending February 28, 2010 and in total, as of February
28, 2010, has recognized a liability for interest of $0.1 million.
The Company files income tax returns in the U.S. federal jurisdiction, various state
jurisdictions and various international jurisdictions. The Company has a number of federal, state
and foreign income tax years still open for examination as a result of the net operating loss
carryforwards. Accordingly the Company is subject to examination for both U.S. federal and certain
state tax return purposes for the years ending February 28, 2003 to present.
13. SEGMENT INFORMATION
The Companys operations are aligned into two business segments: Radio and Publishing. These
business segments are consistent with the Companys management of these businesses and its
financial reporting structure. Corporate represents expenses not allocated to reportable segments.
I-90
The Companys segments operate primarily in the United States, with national radio networks in
Slovakia and Bulgaria. See Note 1 for a discussion of our discontinued operations in Hungary and
Belgium. The following table summarizes the net revenues and long lived assets of our
international properties included in our consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues for the Year Ended February 28 (29), |
|
|
Long-lived Assets as of February 28 (29), |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Slovakia |
|
|
14,839 |
|
|
|
18,195 |
|
|
|
14,090 |
|
|
|
10,843 |
|
|
|
9,965 |
|
|
|
9,371 |
|
Bulgaria |
|
|
3,943 |
|
|
|
3,858 |
|
|
|
2,103 |
|
|
|
15,291 |
|
|
|
3,722 |
|
|
|
1,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary |
|
|
20,579 |
|
|
|
23,911 |
|
|
|
12,914 |
|
|
|
4,261 |
|
|
|
2,110 |
|
|
|
138 |
|
Belgium |
|
|
1,803 |
|
|
|
2,031 |
|
|
|
703 |
|
|
|
684 |
|
|
|
34 |
|
|
|
|
|
The following tables summarize the results of operations of our business segments for the
years ended February 2008, 2009, and 2010 and the total assets of our business segments as of
February 2009 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED FEBRUARY 28, 2010 |
|
Radio |
|
|
Publishing |
|
|
Corporate |
|
|
Consolidated |
|
Net revenues |
|
$ |
177,566 |
|
|
$ |
65,000 |
|
|
$ |
|
|
|
$ |
242,566 |
|
Station operating expenses excluding
depreciation and amortization expense |
|
|
141,557 |
|
|
|
64,603 |
|
|
|
|
|
|
|
206,160 |
|
Corporate expenses excluding
depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
13,634 |
|
|
|
13,634 |
|
Depreciation and amortization |
|
|
8,128 |
|
|
|
772 |
|
|
|
1,493 |
|
|
|
10,393 |
|
Impairment loss |
|
|
166,571 |
|
|
|
8,071 |
|
|
|
|
|
|
|
174,642 |
|
Restructuring charge |
|
|
1,412 |
|
|
|
741 |
|
|
|
1,197 |
|
|
|
3,350 |
|
(Gain) loss on disposal of fixed assets |
|
|
18 |
|
|
|
13 |
|
|
|
(158 |
) |
|
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
$ |
(140,120 |
) |
|
$ |
(9,200 |
) |
|
$ |
(16,166 |
) |
|
$ |
(165,486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets continuing operations |
|
$ |
418,259 |
|
|
$ |
39,431 |
|
|
$ |
34,288 |
|
|
$ |
491,978 |
|
Assets discontinued operations |
|
|
6,190 |
|
|
|
|
|
|
|
|
|
|
|
6,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
424,449 |
|
|
$ |
39,431 |
|
|
$ |
34,288 |
|
|
$ |
498,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED FEBRUARY 28, 2009 |
|
Radio |
|
|
Publishing |
|
|
Corporate |
|
|
Consolidated |
|
Net revenues |
|
$ |
224,941 |
|
|
$ |
82,990 |
|
|
$ |
|
|
|
$ |
307,931 |
|
Station operating expenses excluding
depreciation and amortization expense |
|
|
162,685 |
|
|
|
76,322 |
|
|
|
|
|
|
|
239,007 |
|
Corporate expenses excluding
depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
18,503 |
|
|
|
18,503 |
|
Depreciation and amortization |
|
|
9,020 |
|
|
|
1,231 |
|
|
|
2,152 |
|
|
|
12,403 |
|
Impairment loss |
|
|
333,464 |
|
|
|
32,422 |
|
|
|
7,251 |
|
|
|
373,137 |
|
Restructuring charge |
|
|
1,521 |
|
|
|
599 |
|
|
|
2,088 |
|
|
|
4,208 |
|
(Gain) loss on disposal of fixed assets |
|
|
25 |
|
|
|
1 |
|
|
|
(12 |
) |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
$ |
(281,774 |
) |
|
$ |
(27,585 |
) |
|
$ |
(29,982 |
) |
|
$ |
(339,341 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets continuing operations |
|
$ |
610,866 |
|
|
$ |
52,263 |
|
|
$ |
59,190 |
|
|
$ |
722,319 |
|
Assets discontinued operations |
|
|
16,837 |
|
|
|
50 |
|
|
|
5 |
|
|
|
16,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
627,703 |
|
|
$ |
52,313 |
|
|
$ |
59,195 |
|
|
$ |
739,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I-91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED FEBRUARY 29, 2008 |
|
Radio |
|
|
Publishing |
|
|
Corporate |
|
|
Consolidated |
|
Net revenues |
|
$ |
243,738 |
|
|
$ |
91,939 |
|
|
$ |
|
|
|
$ |
335,677 |
|
Station operating expenses excluding
depreciation and amortization expense |
|
|
171,534 |
|
|
|
78,258 |
|
|
|
|
|
|
|
249,792 |
|
Corporate expenses excluding
depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
20,883 |
|
|
|
20,883 |
|
Depreciation and amortization |
|
|
8,361 |
|
|
|
971 |
|
|
|
2,471 |
|
|
|
11,803 |
|
Impairment loss |
|
|
18,068 |
|
|
|
|
|
|
|
|
|
|
|
18,068 |
|
Contract termination fee |
|
|
15,252 |
|
|
|
|
|
|
|
|
|
|
|
15,252 |
|
Gain on disposal of fixed assets |
|
|
(104 |
) |
|
|
|
|
|
|
|
|
|
|
(104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
30,627 |
|
|
$ |
12,710 |
|
|
$ |
(23,354 |
) |
|
$ |
19,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. RESTRUCTURING CHARGE
In response to the deteriorating economic environment and the decline in domestic advertising
revenues, the Company announced a plan on March 5, 2009 to reduce payroll costs by $10 million
annually. In connection with the plan, approximately 100 employees were terminated. The
terminated employees received severance of $4.2 million under the Companys standard severance
plan. This amount was recognized in the year ended February 28, 2009, as the terminations were
probable and the amount was reasonably estimable prior to the end of the period. Employees
terminated also received one-time enhanced severance of $3.4 million that was recognized during the
year ended February 28, 2010, as the enhanced plan was not finalized and communicated until March
5, 2009. All severances related to the plan announced on March 5, 2009 were paid during the year
ended February 28, 2010.
15. PRO FORMA FINANCIAL INFORMATION
Unaudited pro forma summary information is presented below for the year ended February 29,
2008 assuming the acquisition (and related net borrowings) of Orange Coast Kommunications, Inc.
(publisher of Orange Coast), and the acquisition of Infopress & Company OOD (operator of Inforadio,
a Bulgarian national radio network) had occurred on March 1, 2007. Both of these acquisitions are
fully reflected in the Companys results of operations for the years ended February 28, 2009 and
2010.
Preparation of the pro forma summary information was based upon assumptions deemed appropriate
by the Companys management. The pro forma summary information presented below is not necessarily
indicative of the results that actually would have occurred if the transactions indicated above had
been consummated at the beginning of the periods presented, and it is not intended to be a
projection of future results.
|
|
|
|
|
|
|
For the year ended |
|
|
|
February 29, 2008 |
|
|
|
Pro Forma |
|
|
|
|
|
|
Net revenues |
|
$ |
339,055 |
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(13,425 |
) |
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders |
|
$ |
(12,719 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share available to
common shareholders: |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.35 |
) |
|
|
|
|
Diluted |
|
$ |
(0.35 |
) |
|
|
|
|
I-92
16. RELATED PARTY TRANSACTIONS
Although Emmis no longer makes loans to executive officers and directors, we currently have a
loan outstanding to Jeffrey H. Smulyan, our Chairman, Chief Executive Officer and President, that
is grandfathered under the Sarbanes-Oxley Act of 2002. The largest aggregate amount outstanding on
this loan at any month-end during fiscal 2010 was $1,047 and the balance at February 28, 2009 and
2010 was $1,011 and $1,047, respectively. This loan bears interest at our cost of debt under our
Credit Agreement, which at February 28, 2009 and 2010 was approximately 4.8% and 7.6% per annum,
respectively.
Prior to 2002, the Company had made certain life insurance premium payments for the benefit of
Mr. Smulyan. The Company discontinued making such payments in 2001; however, pursuant to a Split
Dollar Life Insurance Agreement and Limited Collateral Assignment dated November 2, 1997, the
Company retains the right, upon Mr. Smulyans death, resignation or termination of employment, to
recover all of the premium payments it has made, which total $1,119.
During the years ended February 29, 2008 and February 28, 2009, Emmis leased an airplane and
was party to a timeshare agreement with Mr. Smulyan with respect to his personal use of the
airplane. The Company purchased the airplane in December 2008, and on April 14, 2009, we sold the
airplane and the timeshare agreement terminated. Under the timeshare agreement, whenever Mr.
Smulyan used the airplane for non-business purposes, he paid Emmis for the aggregate incremental
cost to Emmis of operating the airplane up to the maximum amount permitted by Federal Aviation
Authority regulations (which maximum generally approximates the total direct cost of operating the
airplane for the applicable trip). With respect to the personal flights during the years ended
February 29, 2008 and February 28, 2009, Mr. Smulyan paid Emmis approximately $171 and $31,
respectively, for expenses under the timeshare arrangement. In addition, under IRS regulations, to
the extent Mr. Smulyan or any other officer or director allowed non-business guests to travel on
the airplane on a business trip or took the airplane on a non-business detour as part of a business
trip, additional compensation was attributed to Mr. Smulyan or the applicable officer or director.
Generally, these trips on which compensation was assessed pursuant to IRS regulations did not
result in any material additional cost or expense to Emmis.
The sister of Richard Leventhal, one of our independent directors, owns Simon Seyz, an
Indianapolis business that provides corporate gifts and specialty items. During the three years
ended February 2010, Emmis made purchases from Simon Seyz of approximately $128, $150 and $32,
respectively.
17. SUBSEQUENT EVENT
On April 26, 2010, Emmis announced that JS Acquisition, Inc. (JS Acquisition), an Indiana
corporation wholly owned by Jeffrey H. Smulyan, the Chairman, Chief Executive Officer and
controlling shareholder of Emmis, and Alden Global Capital, a New York-based private asset
management company, announced that they had entered into a non-binding letter of intent pursuant to
which JS Acquisition would make an offer to acquire the outstanding publicly held shares of Emmis
for $2.40 per share in cash. The letter of intent also contemplates an offer to exchange all of
the Companys outstanding shares of preferred stock (the Preferred Stock) for newly-issued 12%
senior subordinated notes due 2017 of Emmis (the Debt) with an aggregate principal amount equal
to 60% of the aggregate liquidation preference (excluding accrued and unpaid dividends) of the
Preferred Stock. Upon completion of the Transactions, Mr. Smulyan will hold substantially all of a
new class of voting common stock of Emmis and Mr. Smulyan and his affiliates will hold all of the
outstanding common stock of JS Acquisition. JS Acquisition will own all of a new class of
non-voting common stock of Emmis that will represent substantially all of the outstanding equity
value of Emmis. Alden has agreed to purchase $80 million principal amount of Series A Convertible
Redeemable PIK Preferred Stock of JS Acquisition and will receive nominally-priced warrants in
connection therewith. The completion of the Transactions is subject to certain conditions
including (i) receipt of all required stockholder approval of the Transactions, (ii) the exchange
of 66 2/3% of the Preferred Stock, (iii) the completion and effectiveness of the amendments to the
terms of the Preferred Stock, (iv) the satisfaction of applicable regulatory requirements, (v) the
Emmis board of directors waiving certain provisions of the Indiana Business Corporation Law and
agreeing to submit any required merger directly to the Emmis stockholders for approval without the
Boards recommendation of the merger, (vi) the execution of definitive documentation, (vii)
simultaneous completion of all parts of the Transactions and (vii) other customary conditions.
I-93
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this annual report, the Company evaluated the
effectiveness of the design and operation of its disclosure controls and procedures
(Disclosure Controls). This evaluation (the Controls Evaluation) was performed under the
supervision and with the participation of management, including our Chief Executive Officer (CEO)
and Chief Financial Officer (CFO).
Based upon the Controls Evaluation, our CEO and CFO concluded that as of February 28, 2010,
our Disclosure Controls are effective to provide reasonable assurance that information relating to
Emmis Communications Corporation and Subsidiaries that is required to be disclosed by us in the
reports that we file or submit is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commissions rules and forms, and is accumulated
and communicated to our management, including our principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
Managements Report on Internal Control Over Financial Reporting
Managements report on internal control over financial reporting is included in Emmis
Communications Corporations financial statements under the caption entitled Managements Report
on Internal Control Over Financial Reporting and is incorporated herein by this reference.
ITEM 9B. OTHER INFORMATION.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item with respect to directors or nominees to be directors of
Emmis is incorporated by reference from the sections entitled Proposal No. 1: Election of
Directors, Corporate Governance Certain Committees of the Board of Directors, Corporate
Governance Code of Ethics and Section 16(a) Beneficial Ownership Reporting Compliance in the
Emmis 2010 Proxy Statement. Information about executive officers of Emmis or its affiliates who
are not directors or nominees to be directors is presented in Part I under the caption Executive
Officers of the Registrant.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the sections entitled
Corporate Governance Compensation of Directors, Employment and Change-in-Control Agreements
and Compensation Tables in the Emmis 2010 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this item is incorporated by reference from the section entitled
Security Ownership of Beneficial Owners and Management in the Emmis 2010 Proxy Statement.
I-94
Equity Compensation Plan Information
The following table gives information about our common stock that may be issued upon the
exercise of options, warrants and rights under our 1999 Equity Incentive Plan, 2001 Equity
Incentive Plan, 2002 Equity Incentive Plan, and 2004 Equity Compensation Plan as of February 28,
2010. Our shareholders have approved these plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities Remaining |
|
|
|
Number of Securities to be Issued |
|
|
Weighted-Average Exercise |
|
|
Available for Future Issuance under |
|
|
|
Upon Exercise of Outstanding |
|
|
Price of Outstanding Options, |
|
|
Equity Compensation Plans (Excluding |
|
|
|
Options, Warrants and Rights |
|
|
Warrants and Rights |
|
|
Securities Reflected in Column (A)) |
|
Plan Category |
|
(A) |
|
|
(B) |
|
|
(C) |
|
Equity Compensation Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved by Security Holders |
|
|
9,038,076 |
|
|
$ |
10.18 |
|
|
|
314,865 |
|
Equity Compensation Plans |
|
|
|
|
|
|
|
|
|
|
|
|
Not Approved by Security Holders |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
9,038,076 |
|
|
$ |
10.18 |
|
|
|
314,865 |
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from the sections entitled
Corporate Governance Independent Directors in the Emmis 2010 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this item is incorporated by reference from the section entitled
Matters Relating to Independent Registered Public Accountants in the Emmis 2010 Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Financial Statements
The financial statements filed as a part of this report are set forth under Item 8.
Financial Statement Schedules
No financial statement schedules are required to be filed with this report.
Exhibits
The following exhibits are filed or incorporated by reference as a part of this report:
|
|
|
|
|
|
3.1 |
|
|
Second Amended and Restated Articles of Incorporation of Emmis Communications Corporation, as
amended effective June 13, 2005 incorporated by reference from Exhibit 3.1 to the Companys
Form 10-K for the fiscal year ended February 28, 2006. |
|
|
|
|
|
|
3.2 |
|
|
Amended and Restated By-Laws of Emmis Communications Corporation incorporated by reference
from Exhibit 3.2 to the Companys Form 10-Q for the quarter ended August 31, 2009. |
|
|
|
|
|
|
4.1 |
|
|
Form of stock certificate for Class A common stock, incorporated by reference from Exhibit
3.5 to the 1994 Emmis Registration Statement on Form S-1, File No. 33-73218 (the 1994
Registration Statement). |
|
|
|
|
|
|
10.1 |
|
|
Amended and Restated Credit and Term Loan Agreement dated November 2, 2006, incorporated by
reference to Exhibit 10.1 to the Companys Form 8-K filed on November 7, 2006 and First
Amendment and Consent to Amended and Restated Revolving Credit and Term Loan Agreement,
incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed on March 6, 2009 and
Second Amendment to Amended and Restated Revolving Credit and Term Loan Agreement,
incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed on August 19, 2009. |
|
|
|
|
|
|
10.2 |
|
|
Emmis Communications Corporation 2004 Equity Compensation Plan as Amended and Restated in
2008, incorporated by
reference to Exhibit 10.14 to the Companys Form 8-K filed January 7, 2009.++ |
I-95
|
|
|
|
|
|
10.3 |
|
|
Tax Sharing Agreement dated May 10, 2004, by and between Emmis Communications Corporation and
Emmis Operating Company, incorporated by reference to Exhibit 10.32 to the Companys Form 10-K
for the year ended February 29, 2004. |
|
|
|
|
|
|
10.4 |
|
|
Form of Stock Option Grant Agreement, incorporated by reference to Exhibit 10.1 to the
Companys Form 8-K filed March 7, 2005.++ |
|
|
|
|
|
|
10.5 |
|
|
Form of Restricted Stock Option Grant Agreement, incorporated by reference to Exhibit 10.2 to
the Companys Form 8-K filed March 7, 2005.++ |
|
|
|
|
|
|
10.6 |
|
|
Director Compensation Policy effective May 13, 2005, incorporated by reference from Exhibit
10.36 to the Companys Form 10-K for the year ended February 28, 2005.++ |
|
|
|
|
|
|
10.7 |
|
|
Change in Control Severance Agreement, dated as of January 1, 2008, by and between Emmis
Communications Corporation and Jeffrey H. Smulyan, incorporated by reference from Exhibit 10.7
to the Companys Form 8-K filed on January 7, 2009.++ |
|
|
|
|
|
|
10.8 |
|
|
Employment Agreement, dated as of December 15, 2009, by and between Emmis Operating Company
and Jeffrey H. Smulyan.*++ |
|
|
|
|
|
|
10.9 |
|
|
Change in Control Severance Agreement, dated as of January 1, 2008, by and between Emmis
Communications Corporation and Patrick M. Walsh, incorporated by reference from Exhibit 10.13
to the Companys Form 8-K filed on January 7, 2009.++ |
|
|
|
|
|
|
10.10 |
|
|
Employment Agreement, dated as of December 15, 2008, by and between Emmis Operating Company
and Patrick M. Walsh incorporated by reference from Exhibit 10.1 to the Companys Form 8-K
filed December 15, 2008.++ |
|
|
|
|
|
|
10.11 |
|
|
Change in Control Severance Agreement, dated as of January 1, 2008, by and between Emmis
Communications Corporation and Richard F. Cummings, incorporated by reference from Exhibit
10.8 to the Companys Form 8-K filed on January 7, 2009.++ |
|
|
|
|
|
|
10.12 |
|
|
Employment Agreement, dated as of March 1, 2009, by and between Emmis Operating Company and
Richard F. Cummings incorporated by reference from Exhibit 10.2 to the Companys Form 8-K
filed March 6, 2009.++ |
|
|
|
|
|
|
10.13 |
|
|
Employment Agreement, dated as of March 1, 2010, by and between Emmis Operating Company and
Richard F. Cummings incorporated by reference from Exhibit 10.1 to the Companys Form 8-K
filed March 3, 2010.++ |
|
|
|
|
|
|
10.14 |
|
|
Employment Agreement, effective as of March 3, 2009, by and between Emmis Operating Company
and Gary L. Kaseff incorporated by reference from Exhibit 10.31 to
the Companys Form 10-K/A filed October 9, 2009.++ |
|
|
|
|
|
|
10.15 |
|
|
Change in Control Severance Agreement, dated as of January 1, 2008, by and between Emmis
Communications Corporation and Gary A. Thoe, incorporated by reference from Exhibit 10.12 to
the Companys Form 8-K filed on January 7, 2009.++ |
|
|
|
|
|
|
10.16 |
|
|
Employment Agreement, dated as of March 1, 2008, by and between Emmis Operating Company and
Gary A. Thoe incorporated by reference from Exhibit 10.5 to the Companys Form 8-K filed March
6, 2008.++ |
|
|
|
|
|
|
10.17 |
|
|
Amendment to Employment Agreement, dated as of January 1, 2008, by and between Emmis
Operating Company and Gary A. Thoe incorporated by reference from Exhibit 10.6 to the
Companys Form 8-K filed on January 7, 2009.++ |
|
|
|
|
|
|
10.18 |
|
|
Separation and Release Agreement, dated as of December 22, 2009, by and between Emmis
Operating Company and Gary A. Thoe.*++ |
|
|
|
|
|
|
10.19 |
|
|
Change in Control Severance Agreement, dated as of January 1, 2008, by and between Emmis
Communications Corporation and Paul W. Fiddick, incorporated by reference from Exhibit 10.9 to
the Companys Form 8-K filed on January 7, 2009.++ |
|
|
|
|
|
|
10.20 |
|
|
Employment Agreement, effective as of March 1, 2009, by and between Emmis Operating Company
and Paul W. Fiddick, incorporated by reference from Exhibit 10.1 to the Company Form 10-Q for
the quarter ended August 31, 2008.++ |
I-96
|
|
|
|
|
|
10.21 |
|
|
Separation and Release Agreement, dated as of December 15, 2009, by and between Emmis
Operating Company and Paul W. Fiddick.*++ |
|
|
|
|
|
|
10.22 |
|
|
Local Programming and Marketing Agreement, dated as of April 3, 2009, among KMVN, LLC, KMVN
License, LLC, Grupo Radio Centro LA, LLC and Grupo Radio Centro S.A.B. de C.V., incorporated
by reference to Exhibit 10.1 to the Companys Form 8-K filed April 8, 2009. |
|
|
|
|
|
|
10.23 |
|
|
Put and Call Agreement, dated as of April 3, 2009, among KMVN, LLC, KMVN License, LLC, Grupo
Radio Centro LA, LLC and Grupo Radio Centro S.A.B. de C.V., incorporated by reference to
Exhibit 10.2 to the Companys Form 8-K filed April 8, 2009. |
|
|
|
|
|
|
21 |
|
|
Subsidiaries of Emmis.* |
|
|
|
|
|
|
23 |
|
|
Consent of Independent Registered Public Accounting Firm.* |
|
|
|
|
|
|
24 |
|
|
Powers of Attorney.* |
|
|
|
|
|
|
31.1 |
|
|
Certification of Principal Executive Officer of Emmis Communications Corporation pursuant to
Rule 13a-14(a) under the Exchange Act.* |
|
|
|
|
|
|
31.2 |
|
|
Certification of Principal Financial Officer of Emmis Communications Corporation pursuant to
Rule 13a-14(a) under the Exchange Act.* |
|
|
|
|
|
|
32.1 |
|
|
Certification of Principal Executive Officer of Emmis Communications Corporation pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
|
|
|
|
|
|
32.2 |
|
|
Certification of Principal Financial Officer of Emmis Communications Corporation pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
|
|
|
* |
|
Filed with this report. |
|
++ |
|
Management contract or compensatory plan or arrangement. |
I-97
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 7, 2010 |
By: |
/s/ Jeffrey H. Smulyan
|
|
|
|
Jeffrey H. Smulyan |
|
|
|
Chairman of the Board,
President and Chief Executive Officer |
|
I-98
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 in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
SIGNATURE |
|
TITLE |
|
|
|
|
|
Date: May 7, 2010
|
|
/s/ Jeffrey H. Smulyan
Jeffrey H. Smulyan
|
|
President, Chairman of the Board and Director
(Principal Executive Officer) |
|
|
|
|
|
Date: May 7, 2010
|
|
/s/ Patrick M. Walsh
Patrick M. Walsh
|
|
Executive Vice President, Chief Financial Officer,
Chief Operating Officer and Director
(Principal Financial Officer
and Principal Accounting Officer) |
|
|
|
|
|
Date: May 7, 2010
|
|
Susan B. Bayh*
Susan B. Bayh
|
|
Director |
|
|
|
|
|
Date: May 7, 2010
|
|
Gary L. Kaseff*
Gary L. Kaseff
|
|
Director |
|
|
|
|
|
Date: May 7, 2010
|
|
Richard A. Leventhal*
Richard A. Leventhal
|
|
Director |
|
|
|
|
|
Date: May 7, 2010
|
|
Peter A. Lund*
Peter A. Lund
|
|
Director |
|
|
|
|
|
Date: May 7, 2010
|
|
Greg A. Nathanson*
Greg A. Nathanson
|
|
Director |
|
|
|
|
|
Date: May 7, 2010
|
|
Lawrence B. Sorrel*
Lawrence B. Sorrel
|
|
Director |
|
|
|
|
|
*By:
|
|
/s/ J. Scott Enright
J. Scott Enright
|
|
|
|
|
Attorney-in-Fact |
|
|
I-99
Appendix
II
Securities
Purchase Agreement
Appendix II
EXECUTION COPY
SECURITIES
PURCHASE AGREEMENT
by and among
ALDEN GLOBAL DISTRESSED OPPORTUNITIES MASTER FUND, L.P.,
ALDEN GLOBAL VALUE RECOVERY MASTER FUND, L.P.,
ALDEN MEDIA HOLDINGS, LLC,
JS ACQUISITION, LLC
and
(solely with respect to
Sections 2.3, 5.1, 5.2, 5.3, 5.4, 5.5 and 5.8 and
Article X)
JEFFREY H. SMULYAN
Dated as of May 24, 2010
IMPORTANT: The representations and warranties of each party set
forth in this Agreement (i) have been qualified by
confidential disclosures made to the other party in connection
with this Agreement, (ii) are qualified in certain
circumstances by a materiality standard which may differ from
what may be viewed as material by investors, (iii) were
made only as of the date of this Agreement or such other date as
is specified in this Agreement, and (iv) may have been
included in this Agreement for the purpose of allocating risk
between the parties rather than establishing matters as facts.
TABLE
OF CONTENTS
|
|
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|
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|
|
Page
|
|
|
ARTICLE I DEFINITIONS
|
|
|
II-2
|
|
1.1
|
|
Defined Terms
|
|
|
II-2
|
|
|
|
|
|
|
ARTICLE II PURCHASE AND ISSUANCE OF SECURITIES; PURCHASE
PRICE
|
|
|
II-7
|
|
2.1
|
|
Issuance and Purchase of Securities
|
|
|
II-7
|
|
2.2
|
|
Closing; Closing Date
|
|
|
II-7
|
|
2.3
|
|
Deliveries At Closing
|
|
|
II-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
|
|
|
II-7
|
|
3.1
|
|
Due Organization; Authority to Execute and Perform Agreement
|
|
|
II-7
|
|
3.2
|
|
No Defaults or Conflicts
|
|
|
II-8
|
|
3.3
|
|
No Governmental Authorization Required
|
|
|
II-8
|
|
3.4
|
|
Capitalization
|
|
|
II-8
|
|
3.5
|
|
Absence of Litigation
|
|
|
II-8
|
|
3.6
|
|
Newly-Formed Entities
|
|
|
II-8
|
|
3.7
|
|
Organization and Qualification; Subsidiaries
|
|
|
II-9
|
|
3.8
|
|
Capitalization; Existence; Articles of Incorporation and By-laws
|
|
|
II-9
|
|
3.9
|
|
Compliance with Laws; Governmental Permits; No Conflict
|
|
|
II-10
|
|
3.10
|
|
ECC SEC Documents
|
|
|
II-11
|
|
3.11
|
|
Related Party Transactions
|
|
|
II-11
|
|
3.12
|
|
Taxes
|
|
|
II-12
|
|
3.13
|
|
Controls and Procedures
|
|
|
II-12
|
|
3.14
|
|
Intellectual Property
|
|
|
II-13
|
|
3.15
|
|
Real Estate
|
|
|
II-13
|
|
3.16
|
|
Absence of Certain Changes or Events
|
|
|
II-14
|
|
3.17
|
|
No Undisclosed Liabilities
|
|
|
II-14
|
|
3.18
|
|
ECC Absence of Litigation
|
|
|
II-14
|
|
3.19
|
|
Brokers
|
|
|
II-14
|
|
3.20
|
|
Sufficiency of Assets
|
|
|
II-14
|
|
3.21
|
|
Adoption of Resolutions
|
|
|
II-14
|
|
3.22
|
|
Exclusivity of Representations
|
|
|
II-14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
AND ALDEN
|
|
|
II-14
|
|
4.1
|
|
Due Organization; Authority to Execute and Perform Agreement
|
|
|
II-14
|
|
4.2
|
|
No Defaults or Conflicts
|
|
|
II-15
|
|
4.3
|
|
No Governmental Authorization Required
|
|
|
II-15
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4.4
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Absence of Litigation
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|
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II-15
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|
4.5
|
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Title to the Investor ECC Shares
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II-15
|
|
4.6
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Purchase for Investment
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II-15
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|
4.7
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Financial Ability
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II-15
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|
4.8
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Brokers
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|
II-15
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|
4.9
|
|
Ownership Requirements
|
|
|
II-15
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|
4.10
|
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Exclusivity of Representations
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II-16
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II-i
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Page
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ARTICLE V COVENANTS AND AGREEMENTS
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II-16
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5.1
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Conduct of the Business
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II-16
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5.2
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Filings and Authorizations; Consummation
|
|
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II-18
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5.3
|
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Efforts
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II-18
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5.4
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ECC Capital Stock
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II-18
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5.5
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Offer to Purchase
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II-19
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5.6
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Confidentiality
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II-19
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5.7
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Tender Offeror
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II-19
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5.8
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Obligations of the Controlling Stockholder
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II-20
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ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
INVESTOR TO CLOSE
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II-20
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6.1
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Representations and Covenants
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II-20
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6.2
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No Orders
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II-20
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6.3
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Tender Conditions
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II-20
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6.4
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Employment Agreement
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II-20
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6.5
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Articles Amendments
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II-20
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6.6
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Opinion
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II-20
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ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
COMPANY TO CLOSE
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II-21
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7.1
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Representations and Covenants
|
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|
II-21
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7.2
|
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No Orders
|
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|
II-21
|
|
7.3
|
|
Tender Conditions
|
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II-21
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|
|
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|
|
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|
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|
ARTICLE VIII TERMINATION OF AGREEMENT
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II-21
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8.1
|
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Termination
|
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II-21
|
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8.2
|
|
Survival After Termination
|
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|
II-22
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|
|
|
|
|
|
|
|
|
|
ARTICLE IX INDEMNIFICATION
|
|
|
II-22
|
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9.1
|
|
Indemnification by the Company
|
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II-22
|
|
9.2
|
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Indemnification by the Investor
|
|
|
II-23
|
|
9.3
|
|
Termination of Indemnification
|
|
|
II-24
|
|
9.4
|
|
Procedures
|
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|
II-24
|
|
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|
|
|
|
|
|
|
|
|
|
ARTICLE X MISCELLANEOUS
|
|
|
II-25
|
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10.1
|
|
Expenses
|
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II-25
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10.2
|
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Specific Performance
|
|
|
II-26
|
|
10.3
|
|
Notices
|
|
|
II-26
|
|
10.4
|
|
Entire Agreement
|
|
|
II-27
|
|
10.5
|
|
Waivers and Amendments
|
|
|
II-27
|
|
10.6
|
|
Governing Law
|
|
|
II-27
|
|
10.7
|
|
Binding Effect; Assignment
|
|
|
II-27
|
|
10.8
|
|
Usage
|
|
|
II-27
|
|
10.9
|
|
Articles and Sections
|
|
|
II-28
|
|
10.10
|
|
Interpretation
|
|
|
II-28
|
|
10.11
|
|
Severability of Provisions
|
|
|
II-28
|
|
II-ii
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Page
|
|
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10.12
|
|
Counterparts
|
|
|
II-28
|
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10.13
|
|
No Personal Liability
|
|
|
II-28
|
|
10.14
|
|
No Third Party Beneficiaries
|
|
|
II-28
|
|
10.15
|
|
Consent to Jurisdiction; Service of Process; Waiver of Jury Trial
|
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|
II-28
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|
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|
|
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|
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|
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|
|
Annexes
|
|
|
|
|
|
|
Annex 5.4(a)
|
|
Investor ECC Shares
|
|
|
|
|
Annex 5.4(b)
|
|
Controlling Stockholder ECC Shares
|
|
|
|
|
Annex 10.1(b)
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Exhibits
|
|
|
|
|
|
|
Exhibit A
|
|
Form of Amendments to Articles of Incorporation of ECC
|
|
|
|
|
Exhibit B
|
|
Form of Amended and Restated Operating Agreement
|
|
|
|
|
Exhibit C
|
|
Form of Registration Rights Agreement
|
|
|
|
|
Exhibit D
|
|
Rollover Agreement
|
|
|
|
|
Exhibit E
|
|
Distribution Letter
|
|
|
|
|
Exhibit F
|
|
Tender Conditions
|
|
|
|
|
Exhibit G
|
|
Opinion
|
|
|
|
|
Exhibit H
|
|
ECC Board Resolutions
|
|
|
|
|
Exhibit I
|
|
Merger Agreement
|
|
|
|
|
II-iii
SECURITIES
PURCHASE AGREEMENT
Securities Purchase Agreement, dated as of May 24, 2010
(this Agreement), by and among Alden
Global Distressed Opportunities Master Fund, L.P., a Cayman
Islands limited partnership, Alden Global Value Recovery Master
Fund, L.P., a Cayman Islands limited partnership (collectively,
Alden), in each case solely with
respect to Sections 2.3, 5.2, 5.3, 5.4, 5.5 and 5.8 and
Article IV, Article IX and Article X, and Alden
Media Holdings, LLC, a Delaware limited liability company (the
Investor), JS Acquisition, LLC, an
Indiana limited liability company (the
Company and together with Alden and
the Investor, the Parties) and, solely
with respect to Sections 2.3, 5.1, 5.2, 5.3, 5.4, 5.5 and
5.8 and Article X insofar as the foregoing pertain to
Jeffrey H. Smulyan (the Controlling
Stockholder), the Controlling Stockholder.
WHEREAS, the Company desires to commence a tender offer (the
Tender Offer) to purchase all shares
of Class A Common Stock, par value $0.01 per share
(ECC Class A Common Stock), of
Emmis Communications Corporation, an Indiana corporation
(ECC);
WHEREAS, in connection therewith, ECC shall commence an offer to
exchange (the Exchange Offer) all of
the outstanding shares of 6.25% Series A Preferred Stock,
$0.01 par value per share (ECC Preferred
Stock), of ECC for newly-issued 12% senior
subordinated notes of ECC (the ECC Subordinated
Notes) upon the satisfaction of the conditions
thereof (the Exchange Closing) at a
rate of $30 principal amount of ECC Subordinated Notes per $50
of liquidation preference of ECC Preferred Stock;
WHEREAS, it is expected that, following the consummation of the
Tender Offer (the Tender Closing) upon
the satisfaction of Tender Conditions (as defined below) and the
Exchange Closing, (a) the remaining outstanding shares of
ECC Class A Common Stock (including the shares thereof held
by the Investor, and excluding certain shares thereof held by
the Controlling Stockholder and his Affiliates (as defined
below)) shall be converted into the right to receive $2.40 in
cash per share (the Offer Price) in a
merger (the Back-End Merger) of ECC
and JS Acquisition, Inc., an Indiana corporation and wholly
owned subsidiary of the Company
(Mergerco), (b) the outstanding
shares of ECC Preferred Stock beneficially owned by the Investor
or its Affiliates will be converted into the right to receive
ECC Subordinated Notes at a rate of $30 principal amount of ECC
Subordinated Notes per $50 of liquidation preference of ECC
Preferred Stock and (c) the outstanding shares of ECC
Preferred Stock not beneficially owned by the Investor or its
Affiliates or the Controlling Stockholder shall be converted
into the right to receive the amount of consideration payable
with respect to the number of shares of ECC Class A Common
Stock into which such shares of ECC Preferred Stock would be
convertible immediately prior to the Back-End Merger;
WHEREAS, the Company shall solicit proxies (i) from holders
of ECC Preferred Stock and ECC Class A Common Stock to vote
for certain amendments to the Articles of Incorporation of ECC
substantially in the form set forth in Exhibit A hereto
(the Articles Amendments) and
(ii) if the Tender Offer is successful, from holders of ECC
Common Stock to approve the Back-End Merger (the
Proxy Solicitations).
WHEREAS, in order to finance the Tender Offer, the Back-End
Merger and to pay certain fees, expenses and other costs
incurred in connection therewith, the Company wishes to issue to
the Investor, and the Investor wishes to purchase from the
Company, an interest in the Company, as described in
Section 2.1 and in the Operating Agreement (as defined
below) (the Securities), upon the
terms and subject to the conditions of this Agreement (the
Securities Purchase);
WHEREAS, (a) the Company (i) was formed as a limited
liability company on May 3, 2010 pursuant to and in
accordance with the laws of the State of Indiana pursuant to the
filing of articles of organization (the
Articles) in the office of the
Secretary of State of the State of Indiana and (ii) adopted
the Operating Agreement of the Company, dated as of May 6,
2010 (the Initial Operating Agreement
and together with the Articles, the Initial
Governing Documents); and (b) on May 6,
2010, (x) Mergerco was recapitalized such that Mergerco
issued to the Controlling Stockholder (1) 10 shares of
Class B Common Stock, par value $0.01 per share, of
Mergerco (Mergerco Voting Shares) and
(2) 1,000,000 shares of Class A Non-Voting Stock,
par value $0.01 per share, (Mergerco Non-Voting
Shares); and (y) the Controlling Stockholder
contributed the Mergerco Non-Voting Shares to the Company;
II-1
WHEREAS, concurrently with the Closing, the Controlling
Stockholder, the Investor, the Company and the other parties
designated as Other Members on the signature pages
thereto (the Other Members) shall
amend and restate in its entirety the Initial Operating
Agreement by entering into the Amended and Restated Operating
Agreement of the Company substantially in the form attached
hereto as Exhibit B (the Operating
Agreement);
WHEREAS, concurrently with the Closing, the Company, the
Investor and the Controlling Stockholder shall enter into the
Registration Rights Agreement substantially in the form attached
hereto as Exhibit C (the Registration Rights
Agreement);
WHEREAS, pursuant to the Rollover Agreement, dated as of the
date hereof, by and among the Company and the Other Members,
substantially in the form attached hereto as Exhibit D (the
Rollover Agreement), concurrently with
the Closing, the Company shall issue to the Other Members, and
the Other Members shall purchase from the Company, Common
Interests (as defined below), upon the terms and subject to the
conditions thereof (the Rollover and,
together with the Tender Closing, the Back-End Merger, the
Exchange Closing, the Proxy Solicitations and the Securities
Purchase, the Transactions);
WHEREAS, the Parties desire to make certain representations,
warranties and agreements in connection with the Securities
Purchase and also to prescribe certain conditions to the
Securities Purchase;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements entered into herein,
and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms.
(a) For all purposes of this Agreement, the following terms
shall have the respective meanings set forth in this
Section 1.1 (such definitions to be equally applicable to
both the singular and plural forms of the terms herein defined):
401(k) Plan means the 401(k) plan of
ECC as in effect from time to time.
Affiliate means, with respect to any
Person, (i) any other Person controlling, controlled by or
under common control with such Person, (ii) any trust or
other estate in which such Person has a beneficial interest or
as to which such Person serves as a trustee or in a similar
fiduciary capacity, or (ii) who is an individual, a member
of such Persons immediate family, including his or her
spouse, parents, siblings, children or grandchildren. The term
control (including, with correlative meaning, the
terms controlled by and under common control
with), as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether
through the ownership of voting or other securities, by contract
or otherwise. For the purposes of this Agreement and in addition
to the foregoing, (a) each of Global Distressed
Opportunities Fund, LP, Alden Global Distressed Opportunities
Fund GP, LLC and Randall D. Smith shall be deemed an
Affiliate of the Investor and (b) ECC and its controlled
Affiliates shall not be deemed an Affiliate of any of the
Company, Alden, the Investor or the Controlling Stockholder.
Business means the business of ECC and
its subsidiaries, as conducted as of the date of this Agreement.
Business Day means a day other than
Saturday, Sunday or any day on which banks located in New York,
New York are authorized or obligated by Law to close.
Common Interests means Common
Interests of the Company having the terms and conditions set
forth in the Operating Agreement.
Company Material Adverse Effect means
any effect that is, or is reasonably likely to be, materially
adverse to the Business, financial condition or results of
operations of the Company, ECC and ECCs
II-2
subsidiaries, taken as a whole; provided, however,
that no fact, circumstance, event or change resulting from,
attributable to or arising out of any of the following shall
constitute, or be considered in determining whether there has
occurred, a Company Material Adverse Effect: (a)(i) changes in
general economic or political conditions or the securities,
banking, credit, currency, commodities, capital or financial
markets in general (including general changes to monetary
policy, inflation, interest rates, exchange rates or stock, bond
or debt prices) in the United States or in any other geographic
market, (ii) changes that are generally applicable to the
industries in which the Company, ECC and ECCs subsidiaries
operate (including any competitive
and/or
technological changes relevant to such industries),
(iii) changes in general legal, regulatory or political
conditions, including the adoption, implementation,
promulgation, repeal, modification, reinterpretation or proposal
of any Law after the date hereof, or changes in GAAP or in other
applicable accounting standards (or in the interpretation
thereof), (iv) the negotiation, execution, announcement or
performance of this Agreement or the consummation of the
Transactions, including the threatened or actual impact thereof
on relationships, contractual or otherwise, with current or
prospective customers, suppliers, vendors, distributors,
partners, financing sources, employees or landlords,
(v) the identity of the Investor as the purchaser of the
Securities or any facts or circumstances concerning the
Investor, Alden or any of their respective Affiliates,
(vi) compliance with the terms of, or the taking of any
action required or contemplated by, this Agreement or action or
inaction consented to or requested by Alden of the Investor,
(vii) changes in the trading volume or market price of ECC
Common Stock on the NASDAQ Stock Market or the suspension of
trading generally on the NASDAQ Stock Market (provided that the
exception in this clause shall not in any way prevent or
otherwise affect a determination that any change, event,
circumstance, development or effect underlying such decrease has
resulted in, or contributed to, a Company Material Adverse
Effect), (viii) any litigation or investigation arising
from allegations of a breach of fiduciary duty or other
violation of applicable Law relating to this Agreement or the
Transactions, other than litigation or investigations commenced
or threatened in writing by any Governmental Body or
(ix) any restatement of the consolidated financial
statements of ECC and its subsidiaries contained in the ECC SEC
Documents that results in an accounting charge thereto that does
not require a cash settlement and would not otherwise constitute
a Company Material Adverse Effect, except, in the case of the
foregoing clauses (i), (ii) and (iii), for such
changes or developments referred to therein have a materially
disproportionate impact on the Company, ECC and ECCs
subsidiaries, taken as a whole, relative to other companies that
operate in multiple geographic markets, including large markets,
in the industries in which the Company, ECC and ECCs
subsidiaries operate or (b) any failure to meet internal or
published projections, forecasts, estimates, performance
measures, operating statistics or revenue or earnings
predictions for any period or the issuance of revised
projections that are not as optimistic as those in existence as
of the date hereof.
Controlling Stockholder Options means
options to purchase (i) 97,565 shares of ECC
Class A Common Stock and (ii) 1,170,796 shares of
ECC Class B Common Stock, in each case, held directly by
the Controlling Stockholder.
Controlling Stockholder Retained
Shares means (i) 5,877.0745 shares of
ECC Class A Common Stock held in the 401(k) Plan,
(ii) 30,625 shares of ECC Class A Common Stock
held by The Smulyan Family Foundation and (iii) at the
election of the Controlling Stockholder, up 200,000 shares
of ECC Class A Common Stock held directly by the
Controlling Stockholder (some of which may be converted into
shares of ECC Class A Common Stock from ECC Class B
Common Stock after the date hereof).
Credit Agreement means the Amended and
Restated Revolving Credit and Term Loan Agreement, by and among
Emmis Operating Company, ECC, the lending institutions party
thereto and Bank of America as administrative agent, dated as of
November 2, 2006, as amended.
Distribution Letter means that certain
letter agreement, executed and delivered by the Company, the
Controlling Stockholder and the Investor concurrently with the
execution of this Agreement, as attached hereto as
Exhibit E.
ECC Board means the board of directors
of ECC.
ECC Capital Stock means ECC Common
Stock and ECC Preferred Stock.
II-3
ECC Class B Common Stock means
Class B Common Stock, par value $0.01 per share, of
ECC.
ECC Common Stock means (a) ECC
Class A Common Stock and (b) ECC Class B Common
Stock.
Exchange Act means the Securities
Exchange Act of 1934, as amended.
FCC means the Federal Communications
Commission.
FCC Licenses means all licenses,
construction permits and authorizations issued by the FCC and
used or usable for the operation of the Stations.
GAAP means generally accepted
accounting principles in the United States.
Governmental Body means with respect
to any nation or government, any state, province or other
political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administration
functions of or pertaining to government.
IRS means the Internal Revenue Service.
Knowledge of Alden means the actual
past or present knowledge of any of Heath Freeman, Jason Pecora,
Jim Plohg or Bruce Schnelwar.
Knowledge of the Company means the
actual past or present knowledge of any of Jeffrey H. Smulyan,
Patrick M. Walsh, J. Scott Enright or Ryan A. Hornaday.
Law means any law, statute, ordinance,
code, rule, regulation or other requirement of any Governmental
Body.
Lien means any lien, pledge, mortgage,
deed of trust, security interest, claim, lease, license, charge,
option, right of first refusal, easement, servitude, transfer
restriction, encumbrance, adverse claim or any other restriction
or limitation whatsoever other than restrictions on sale imposed
by the Securities Act and state securities laws.
Losses of any Person means any and all
demands, claims, suits, actions, causes of action, Orders,
proceedings, assessments, losses, fines, damages, liabilities,
costs and expenses incurred by such Person, including interest,
penalties and attorneys fees, third-party expert and
consultant fees and expenses,.
Merger Agreement means the Agreement
and Plan of Merger substantially in the form attached hereto as
Exhibit I.
Offer to Purchase means the Offer to
Purchase mailed to the holders of ECC Common Stock in connection
with the Tender Offer.
Order means any order, judgment,
injunction, award, decree or writ of any Governmental Body.
Person means any individual,
corporation, partnership, limited liability company, limited
liability partnership, firm, joint venture, association,
joint-stock company, trust, unincorporated organization,
Governmental Body or any other entity.
Purchase Price means an amount equal
to the sum of (a) $90 million, plus (b) an
amount equal to the product of (x) (i) the number of
outstanding shares of ECC Preferred Stock that, as of the time
of the consummation of the Exchange Offer, have not been
exchanged for ECC Subordinated Notes pursuant to the Exchange
Offer; provided that if any ECC Preferred Stock is converted
into ECC Class A Common Stock after the date hereof, then
for purposes of the foregoing clause such ECC Preferred Stock
shall be considered to remain outstanding and not so exchanged
minus (ii) the number of shares of ECC Preferred
Stock held by Alden and its Affiliates, multiplied by
(y) the number of shares of ECC Class A Common Stock
that each share of ECC Preferred Stock is convertible into
pursuant to the terms thereof (as amended by the
Articles Amendments), multiplied by (z) $2.40,
plus (c) the amount (if any) by which the
Transaction Expenses reimbursable by the Company pursuant to
Section 10.1(a) exceeds $10.28 million.
II-4
Representatives means, with respect to
any Person, such Persons directors, officers and employees
and its and their respective advisors, agents and
representatives.
Rules and Regulations means the rules
of the FCC as set forth in Title 47 of the Code of Federal
Regulations and all policies of the FCC.
Securities Act means the Securities
Act of 1933, as amended.
Series A Preferred Interests
means Series A Convertible Redeemable PIK Preferred
Interests of the Company having the terms and conditions set
forth in the Operating Agreement.
subsidiary means, with respect to any
Person, any corporation, partnership, trust, limited liability
company or other non-corporate business enterprise in which such
Person (or another Subsidiary of such Person) holds stock or
other ownership interests representing (A) more that 50% of
the voting power of all outstanding stock or ownership interests
of such entity, (B) the right to receive more than 50% of
the net assets of such entity available for distribution to the
holders of outstanding stock or ownership interests upon a
liquidation or dissolution of such entity or (C) a general
or managing partnership interest in such entity.
Tax includes all federal, state, local
and foreign income, profits, franchise, gross receipts, capital
stock, severances, stamp, payroll, sales, employment,
unemployment, disability, use, property, withholding, excise,
production, value added, occupancy and other taxes, duties or
assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such
amounts and any interest in respect of such penalties and
additions imposed by a governmental entity (a Taxing
Authority) responsible for the imposition of any
such tax (domestic or foreign), and any liability for any of the
foregoing as a transferee.
Tax Return includes all returns and
reports (including elections, declarations, disclosures,
schedules, estimates and information returns, as well as
attachments thereto and amendments thereof) required to be
supplied to a Taxing Authority or maintained relating to Taxes.
Tender Conditions means the conditions
to the Tender Closing set forth in the Offer to Purchase,
substantially in the form attached as Exhibit F hereto.
The following capitalized terms are defined in the following
Sections of this Agreement:
|
|
|
Term
|
|
Section
|
|
Agreement
|
|
Preamble
|
Alden
|
|
Preamble
|
Articles
|
|
Recitals
|
Articles Amendments
|
|
Recitals
|
Back-End Merger
|
|
Recitals
|
Closing
|
|
2.1
|
Closing Date
|
|
2.2
|
Company
|
|
Preamble
|
Company Disclosure Schedule
|
|
III
|
Controlling Stockholder
|
|
Preamble
|
Controlling Stockholder ECC Shares
|
|
5.4(b)
|
Deductible Amount
|
|
9.1(b)(i)
|
Early Termination Date
|
|
8.1(b)
|
ECC
|
|
Recitals
|
ECC 10-K
|
|
III
|
ECC Class A Common Stock
|
|
Recitals
|
ECC Intellectual Property Rights
|
|
3.14(a)
|
ECC Preferred Stock
|
|
Recitals
|
II-5
|
|
|
Term
|
|
Section
|
|
ECC SEC Documents
|
|
3.10(a)
|
ECC Subordinated Notes
|
|
Recitals
|
Exchange Closing
|
|
Recitals
|
Exchange Offer
|
|
Recitals
|
Governmental Permits
|
|
3.9(a)
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indemnified party
|
|
9.4(a)
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indemnifying party
|
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9.4(a)
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Initial Governing Documents
|
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Recitals
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Initial Operating Agreement
|
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Recitals
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Intellectual Property Rights
|
|
3.14(a)
|
Investor
|
|
Preamble
|
Investor ECC Shares
|
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5.4(a)
|
Investor Indemnified Party
|
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9.1
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Investor Specified Representations
|
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9.2(b)(i)
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Lease
|
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3.15(b)
|
Leases
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3.15(b)
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Merger Agreement
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6.06
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Mergerco
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Recitals
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Mergerco Non-Voting Shares
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Recitals
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Mergerco Voting Shares
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Recitals
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Offer Price
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Recitals
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Operating Agreement
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Recitals
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Opinion
|
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2.3(b)(ii)
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Other Members
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Recitals
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Outside Date
|
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8.1(c)
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Owned Intellectual Property Rights
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3.14(a)
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Parties
|
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Preamble
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Permitted Liens
|
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3.7(b)
|
Proxy Solicitations
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Recitals
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Recipient
|
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5.6
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Registration Rights Agreement
|
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Recitals
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Rollover
|
|
Recitals
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Rollover Agreement
|
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Recitals
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Securities
|
|
Recitals
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Securities Purchase
|
|
Recitals
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Seller Specified Representations
|
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9.1(b)(i)
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Senior Preferred Stock
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3.8(a)
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Stations
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3.9(a)
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Tender Closing
|
|
Recitals
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Tender Offer
|
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Recitals
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Third Party Claim
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9.4(a)
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Transaction Expenses
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10.1(b)
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Transactions
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Recitals
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II-6
ARTICLE II
PURCHASE AND
ISSUANCE OF SECURITIES; PURCHASE PRICE
2.1 Issuance and Purchase of
Securities. At the closing of the Securities
Purchase (the Closing), upon the terms
and subject to the conditions of this Agreement, the Company
shall issue to the Investor, and the Investor shall, and Alden
shall provide sufficient funds to the Investor to, purchase from
the Company, all of the Securities for the Purchase Price, to be
paid in cash in accordance with Section 2.3.
2.2 Closing; Closing
Date. The Closing shall take place at the
offices of Paul, Weiss, Rifkind, Wharton & Garrison,
at 1285 Avenue of the Americas, New York, New York at
10:00 a.m. local time, on the first Business Day after the
conditions to closing set forth in Article VI and
Article VII have been satisfied (other than those
conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or waiver of those
conditions), or such other time or date as the Parties may
mutually agree in writing. The date upon which the Closing
occurs is referred to herein as the Closing
Date.
2.3 Deliveries At Closing.
(a) At the Closing, the Investor shall, and Alden shall
cause the Investor to:
(i) deliver, or cause to be delivered to, the Company the
Purchase Price in cash by wire transfer of immediately available
funds in United States dollars to the bank account or accounts
designated by the Company in writing; and
(ii) execute and deliver the Operating Agreement and the
Registration Rights Agreement.
(b) At the Closing, the Company shall:
(i) issue the Securities to the Investor;
(ii) deliver to the Investor a legal opinion of Taft
Stettinius & Hollister LLP substantially in the form
of Exhibit G (the
Opinion); and
(iii) execute and deliver the Operating Agreement and the
Registration Rights Agreement.
(c) At the Closing, the Controlling Stockholder shall
execute and deliver the Operating Agreement and the Registration
Rights Agreement.
ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
Except (a) as set forth in the Disclosure Schedule which is
being delivered to the Investor concurrently herewith (the
Company Disclosure Schedule) or
(b) as disclosed in or incorporated by reference into
(i) ECCs Annual Report on
Form 10-K
for the year ended February 28, 2010 (the ECC
10-K)
or (ii) any other ECC SEC Document (as defined below) filed
with or furnished to the SEC on or after the date the ECC
10-K was
filed but prior to the date hereof (excluding any disclosure set
forth in any risk factor section or any section relating to or
containing forward looking statements, in each case, to the
extent not otherwise disclosed in any other section of the ECC
10-K or such
other ECC SEC Documents) to the extent such disclosure is
reasonably apparent on its face to relate to such section of
Article III below, the Company represents and warrants to
the Investor as follows
3.1 Due Organization; Authority to Execute and
Perform Agreement. The Company is an Indiana
limited liability company duly organized and validly existing
under the laws of the State of Indiana, and has all requisite
organizational power and authority and has taken all
organizational action required to execute and deliver this
Agreement and to perform its obligations hereunder. Mergerco is
an Indiana corporation duly incorporated and validly existing
under the laws of Indiana. This Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or similar laws,
laws of general applicability relating to or affecting
creditors rights, and to general equity principles and
public policy.
II-7
3.2 No Defaults or
Conflicts. The execution and delivery of this
Agreement and the consummation of the Transactions by the
Company and Mergerco and performance by the Company of its
obligations hereunder: (i) does not result in any violation
of (x) the Initial Governing Documents or (y) the
articles of incorporation and by-laws of Mergerco;
(ii) does not conflict with, or result in a breach of any
of the terms or provisions of, or constitute a default under any
agreement or instrument to which the Company or Mergerco is a
party or by which they are bound or to which their respective
properties are subject; and (iii) assuming compliance with
the matters addressed in Section 3.3, does not violate any
existing applicable Law or Order of any Governmental Body having
jurisdiction over the Company or Mergerco; provided,
however, that no representation or warranty is made in
the foregoing clause (iii) with respect to matters that
would not impair the Companys or Mergercos ability
to consummate the Transactions.
3.3 No Governmental Authorization
Required. No authorization or approval by,
and no notice to or filing with, any Governmental Body will be
required to be obtained or made by the Company or Mergerco in
connection with the due execution, delivery and performance by
the Company of this Agreement and the consummation by the
Company, Mergerco or ECC of the Transactions; provided,
however, that no representation or warranty is made with
respect to authorizations, approvals, notices or filings with
any Governmental Body that, if not obtained or made, would not
materially impair the Companys or Mergercos ability
to consummate the Transactions.
3.4 Capitalization.
(a) As of the date hereof and immediately prior to the
Closing, (i) Common Interests representing 100% of the
ownership interests of the Company are issued, outstanding and
owned by the Controlling Stockholder, which Common Interests are
duly authorized, validly issued, fully paid, nonassessable and
free and clear of any Liens, and (ii) no other class of
capital stock or other ownership interests of the Company is
issued or outstanding.
(b) Immediately after the Closing, the outstanding Common
Interests and Series A Preferred Interests shall be as set
forth in the Operating Agreement.
(c) As of the date hereof and as of the Closing,
(i) 1,000,010 shares of common stock of Mergerco have
been authorized, (ii) (x) 10 Mergerco Voting Shares
are issued and outstanding and owned by the Controlling
Stockholder and (y) 1,000,000 Mergerco Non-Voting Shares
are issued and outstanding and owned by the Company,
(iii) all of the shares described in clause (ii) are
issued, fully paid, nonassessable and free and clear of any
Liens and (iv) no other class of capital stock or other
ownership interests of Mergerco is issued or outstanding.
(d) Except pursuant to the Securities Purchase or the
Rollover, there are no outstanding subscriptions, options,
warrants, calls, convertible securities or other similar rights,
agreements, commitments or contracts of any kind to which the
Company, Mergerco or any of their respective subsidiaries is a
party or by which the Company, Mergerco or any of their
respective subsidiaries is bound obligating the Company,
Mergerco or any of their respective subsidiaries to
(i) issue, transfer, deliver or sell, or cause to be
issued, transferred, delivered or sold, additional shares of
capital stock of, or other equity or voting interests in, or
securities convertible into, or exchangeable or exercisable for,
shares of capital stock of, or other equity or voting interests
in, the Company, Mergerco or any of their respective
subsidiaries; (ii) issue, grant, extend or enter into any
such security, option, warrant, call, right or contract;
(iii) redeem or otherwise acquire any such shares of
capital stock or other equity or voting interests; or
(iv) provide funds to, or make any investment (in the form
of a loan, capital contribution or otherwise) in, any subsidiary.
3.5 Absence of
Litigation. As of the date hereof, there is
no claim, action, proceeding or investigation pending or, to the
Knowledge of the Company, threatened against any of the
Controlling Stockholder, the Company or Mergerco or any of their
respective properties or assets at law or in equity, except as
would not materially impair the Companys ability to
consummate the Transactions or otherwise have a Company Material
Adverse Effect.
3.6 Newly-Formed
Entities. Since their respective dates of
organization, the Company, Mergerco and their respective
subsidiaries have not carried on any business or conducted any
operations other than the
II-8
execution of this Agreement and the performance of their
obligations under this Agreement and matters ancillary thereto
(including discussions with prospective financing sources and
other activities and agreements in connection with the
Transactions and other alternative transactions);
provided, that any liabilities therefrom are included on
Annex 10.1(b). The Company, Mergerco and their respective
subsidiaries have no indebtedness of any type and have not
incurred or assumed any indebtedness or liabilities or provided
any guarantee of any indebtedness or other liabilities or
obligations, other than liabilities for reasonable expenses
incurred in connection with the Transactions.
3.7 Organization and Qualification;
Subsidiaries.
(a) Each of ECC and its subsidiaries is a corporation or
legal entity duly organized or formed, validly existing and in
good standing, under the laws of its jurisdiction of
organization or formation and has the requisite corporate,
partnership or limited liability company power and authority and
all necessary governmental approvals to own, lease and operate
its properties and to carry on the Business as it is now being
conducted, except where the failure to have such power,
authority and governmental approvals would not reasonably be
expected to have, individually or in the aggregate, a material
adverse effect on the Business. Each of ECC and its subsidiaries
is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction in which
the character of the properties owned, leased or operated by it
or the nature of its Business makes such qualification or
licensing necessary, except for such failures to be so qualified
or licensed and in good standing as would not reasonably be
expected to have, individually or in the aggregate, a material
adverse effect on the Business.
(b) Section 3.7(b) of the Company Disclosure Schedule
sets forth a complete and correct structure chart of ECC and its
subsidiaries (other than entities with no material liabilities
and no material assets or operations), including the
jurisdiction of organization and percentage of outstanding
equity or voting interests (including partnership interests and
limited liability company interests) owned by ECC or its
subsidiaries of each of ECCs subsidiaries, and the
identity of such owners of outstanding equity or voting
interests. All equity or voting interests (including partnership
interests and limited liability company interests) of ECCs
subsidiaries held by ECC or any of its other subsidiaries have
been duly and validly authorized and are validly issued, fully
paid and non-assessable. All such equity or voting interests
owned by ECC or its subsidiaries are free and clear of any Liens
(other than Liens under the Credit Agreement and Liens permitted
thereunder (Permitted Liens).
3.8 Capitalization; Existence; Articles of
Incorporation and By-laws.
(a) The authorized capital stock of ECC consists of
(i) 230,000,000 shares of common stock of ECC
consisting of (A) 170,000,000 shares of ECC
Class A Common Stock, (B) 30,000,000 shares of
ECC Class B Common Stock and
(C) 30,000,000 shares of Class C Common Stock,
par value $0.01 per share and
(ii) 10,000,000 shares of preferred stock consisting
of (A) 250 shares of 12.50% Senior Preferred
Stock, par value $0.01 per share (the Senior
Preferred Stock) and
(B) 2,875,000 shares of ECC Preferred Stock. As of
May 17, 2010, (i) 32,910,753 shares of ECC
Class A Common Stock were issued and outstanding,
(ii) 4,930,680 shares of ECC Class B Common Stock
were issued and outstanding, all of which shares were held by
the Controlling Stockholder, (iii) no shares of
Class C Common Stock of ECC were issued and outstanding,
(iv) no shares of Senior Preferred Stock were issued and
outstanding, (v) 2,809,170 shares of ECC Preferred
Stock were issued and outstanding, (vi) there were
outstanding restricted stock with respect to 144,040 shares
of ECC Class A Common Stock, (vii) there were
outstanding restricted stock unit awards with respect to
25,000 shares of ECC Class A Common Stock,
(viii) there were stock options to purchase an aggregate of
8,663,038 shares of ECC Common Stock at a weighted average
exercise price of $9.46 per share of ECC Common Stock (of
which stock options to purchase an aggregate of
5,778,379 shares of ECC Common Stock were exercisable). No
shares of ECC Class A Common Stock or ECC Class B
Common Stock are held by any subsidiary of ECC. Since
February 28, 2010, other than pursuant to the exercise of
stock options outstanding on such date, the issuance of stock
options under employment agreements in effect on such date, the
issuance of ECC Class A Common Stock pursuant to the
director compensation plan in effect on such date, the vesting
of restricted stock and restricted stock unit awards outstanding
on such date and pursuant to the 401(k) Plan and the conversion
of up to 200,000 shares of ECC Class B Common Stock
into a
II-9
like amount of ECC Class A Common Stock, ECC has not issued
any ECC Class A Common Stock has not granted any option,
restricted stock, warrants or rights or entered into any other
agreements or commitments to issue any ECC Class A Common
Stock or ECC Class B Common Stock and has not split,
combined or reclassified any of its shares of capital stock.
Each of the outstanding shares of capital stock, voting
securities or other equity interests of each subsidiary of ECC
is duly authorized, validly issued, fully paid, nonassessable
and free of any preemptive rights, and all such securities are
owned by ECC or another wholly owned subsidiary of ECC free and
clear of all Liens other than Permitted Liens.
(b) Except as set forth above, there are no outstanding
subscriptions, options, warrants, calls, convertible securities
or other similar rights, agreements, commitments or contracts of
any kind to which ECC or any of its subsidiaries is a party or
by which ECC or any of its subsidiaries is bound obligating ECC
or any of its subsidiaries to (i) issue, transfer, deliver
or sell, or cause to be issued, transferred, delivered or sold,
additional shares of capital stock of, or other equity or voting
interests in, or securities convertible into, or exchangeable or
exercisable for, shares of capital stock of, or other equity or
voting interests in, ECC or any of its subsidiaries;
(ii) issue, grant, extend or enter into any such security,
option, warrant, call, right or contract; (iii) redeem or
otherwise acquire any such shares of capital stock or other
equity or voting interests; or (iv) provide a material
amount of funds to, or make any material investment (in the form
of a loan, capital contribution or otherwise) in, any
subsidiary. From February 28, 2010 to the date hereof, ECC
has not declared or paid any dividend or distribution in respect
of the ECC Capital Stock, and has not repurchased, redeemed or
otherwise acquired any ECC Capital Stock, and the ECC Board has
not authorized any of the foregoing.
(c) Neither ECC nor any of its subsidiaries has outstanding
material bonds, debentures, notes or other securities, the
holders of which have the right to vote (or which are
convertible into or exchangeable or exercisable for securities
having the right to vote) with the stockholders of ECC or any of
its subsidiaries on any matter.
(d) There are no stockholder agreements, voting trusts or
other agreements or understandings to which ECC or any of its
subsidiaries is a party with respect to the voting of the
capital stock or other equity interests of ECC or any of its
subsidiaries.
(e) The Company has made available to the Investor a
complete and correct copy of the Second Amended and Restated
Articles of Incorporation and the By-Laws, each as amended to
date, of ECC and the equivalent organization documents for each
of its subsidiaries. The Second Amended and Restated Articles of
Incorporation and By-laws (or equivalent organization documents)
of ECC and each of its subsidiaries are in full force and
effect. None of ECC or any of its subsidiaries is in material
violation of any provision of the Second Amended and Restated
Articles of Incorporation or the By-Laws (or its equivalent
organization documents).
3.9 Compliance with Laws; Governmental Permits;
No Conflict.
(a) Each of ECC and its subsidiaries is in possession of
all FCC Licenses required to operate the radio stations owned or
operated by them (the Stations), and
all other material franchises, grants, authorizations, licenses,
permits, easements, variances, exceptions, consents,
certificates, approvals and orders necessary for ECC or any of
its subsidiaries to own, lease and operate the properties of ECC
and its subsidiaries or to carry on its business as it is now
being conducted and contemplated to be conducted (the
Governmental Permits). All of the
Governmental Permits are in full force and effect, and no
suspension or cancellation of any of the Governmental Permits is
pending or, to the Knowledge of the Company, threatened, except
where the failure to have in full force and effect, or the
suspension or cancellation of, any of the Governmental Permits
would not reasonably be expected to have, individually or in the
aggregate, Company Material Adverse Effect. None of the
Governmental Permits are subject to any conditions, other than
as may be generally applicable to the industry in which ECC
operates except as would not be reasonably expected to have,
individually or in the aggregate, a Company Material Adverse
Effect. None of ECC or any of its subsidiaries is, or during the
past two years has been, in conflict with, or in default or
violation of, nor will the transactions result in any conflict
with, or default or violation of, (i) any Laws applicable
to ECC or any of its subsidiaries or by which any property or
asset of ECC or any of its subsidiaries is bound or affected,
(ii) any of the Governmental Permits or (iii) any
loan, guarantee of indebtedness or credit agreement, note, bond,
mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which ECC
or any of its subsidiaries is a party or by which ECC or any of
its subsidiaries or any
II-10
property, asset or right of ECC or any of its subsidiaries is
bound or affected, except for any such conflicts, defaults or
violations that would not have, individually or in the
aggregate, a Company Material Adverse Effect. None of ECC or any
of its subsidiaries has received written or, to the Knowledge of
the Company, oral (or otherwise has any knowledge of any) notice
during the past three years, of any material violation of or
noncompliance with any Law applicable to ECC or any of its
subsidiaries, or directing ECC or any of its subsidiaries to
take any remedial action with respect to such applicable Law or
otherwise, and no material deficiencies of ECC or any of its
subsidiaries have been asserted to ECC or any of its
subsidiaries in writing or, to the Knowledge of the Company,
orally, by any Governmental Body.
(b) The Business is being operated in compliance with Law
and in accordance with the terms and conditions of the
Governmental Permits applicable to it, in each case except as
would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. No proceedings or
investigations are pending or, to the Knowledge of the Company,
are threatened which may result in the revocation, cancellation,
suspension, rescission, modification or non-renewal of any of
the Governmental Permits, the denial of any pending application,
the issuance of any cease and desist order or the imposition of
any fines, forfeitures or other administrative actions by the
FCC with respect to the Business or its operation, other than
proceedings that are not likely to have a Company Material
Adverse Effect. There is not on the date of this Agreement
pending before the FCC any issued or outstanding, nor to the
Knowledge of the Company is there on the date of this Agreement
threatened, any application, complaint, petition or proceeding
with respect to any station owned or controlled, directly or
indirectly, by ECC. ECC and its subsidiaries have complied in
all material respects with all requirements to file reports,
applications and other documents with the FCC. The Company has
no knowledge of any matters which would result in the revocation
of or the refusal to renew any of the Governmental Permits.
3.10 ECC SEC Documents.
(a) ECC has filed with the SEC all material reports,
schedules, forms, registration statements and other documents
required to be filed or furnished with the SEC since
February 29, 2008, together with any amendments,
restatements or supplements thereto and those filed subsequent
to the date of this Agreement (collectively, the ECC
SEC Documents) and as of their respective dates
or, if amended or restated prior to the date of this Agreement,
as of the date of the last such amendment or applicable
subsequent filing, the ECC SEC Documents complied, and each of
the ECC SEC Documents to be filed subsequent to the date hereof
will comply, in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and
the applicable rules and regulations promulgated thereunder, and
none of the ECC SEC Documents at the time they were filed, or
will be filed, as the case may be, or, if amended or restated
prior to the date of this Agreement, as of the date of the last
such amendment or applicable subsequent filing, contained, or
will contain, any untrue statement of a material fact or
omitted, or will omit, to state any material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, or are to
be made, not misleading.
(b) The consolidated financial statements (giving effect to
any amendments, restatements or supplements thereto filed prior
to the date of this Agreement, and including all related notes
and schedules) of ECC and its subsidiaries included in the ECC
SEC Documents fairly present in all material respects the
consolidated financial position of ECC and its consolidated
subsidiaries as at the respective dates thereof and their
consolidated results of operations and consolidated cash flows
for the respective periods then ended (subject, in the case of
the unaudited statements, to normal year-end audit adjustments
and to any other adjustments described therein including the
notes thereto) in conformity with GAAP (except, in the case of
the unaudited statements, as permitted by
Form 10-Q
of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated therein or in the notes
thereto).
3.11 Related Party
Transactions. There are no contracts or
arrangements that are in existence as of the date of this
Agreement under which there are any existing or future
liabilities between ECC or any of its subsidiaries, on the one
hand, and, on the other hand, any (i) present executive
officer or director of ECC or (ii) record or beneficial
owner of more than 5% of the shares of ECC Common Stock as of
the date hereof except as set forth in the ECC SEC Documents on
the date hereof.
II-11
3.12 Taxes. Except as would
not be reasonably expected to have, individually or in the
aggregate, a Company Material Adverse Effect:
(a) All Tax Returns required by applicable Law to be filed
with any Taxing Authority by, or on behalf of, ECC or any
subsidiary have been filed when due unless extended in
accordance with all applicable laws and all such Tax Returns are
true and complete in all respects;
(b) ECC and each subsidiary has paid (or has had paid on
its behalf) to the appropriate Taxing Authority all Taxes due
and payable, or, where payment is not yet due, has established
(or has had established on its behalf and for its sole benefit
and recourse) in accordance with GAAP an adequate accrual for
all Taxes through the end of the last period for which ECC and
its subsidiaries ordinarily record items on their respective
books;
(c) Neither ECC nor any subsidiary has waived any statute
of limitations with respect to Taxes or requested or agreed to
any extension of time with respect to a Tax assessment or
deficiency;
(d) There is no claim, audit, action, suit, proceeding or
investigation (whether judicial, administrative or otherwise)
now pending or, to the Knowledge of the Company, threatened
against or with respect to ECC or any subsidiary in respect of
any Tax or Tax asset;
(e) Each of ECC and its subsidiaries has withheld and paid
to the appropriate Taxing authority all Taxes required to have
been withheld and paid in connection with amounts paid or owing
to any current or former insured, reinsured, insurer or
reinsurer, employee, independent contractor, creditor, member or
other third party;
(f) Neither ECC nor any subsidiary is a party to, is bound
by or has an obligation under any Tax sharing agreement, Tax
indemnification agreement, Tax allocation agreement or similar
contract or arrangement (including any agreement, contract or
arrangement providing for the sharing or ceding of credits or
losses) or has a potential liability or obligation to any person
as a result of or pursuant to any such agreement, contract,
arrangement or commitment;
(g) Neither ECC nor any subsidiary has participated in a
reportable transaction within the meaning of
Treasury Regulations
Section 1.6011-4(b)(1); and
(h) There are no liens or security interests on the assets
of ECC or any subsidiary that arose in connection with any
failure (or alleged failure) to pay any Tax.
3.13 Controls and Procedures.
(a) ECC has established and maintains disclosure controls
and procedures and internal controls over financial reporting as
required by
Rule 13a-15
under the Exchange Act. ECCs disclosure controls and
procedures are designed to ensure that information required to
be disclosed in ECCs periodic reports filed or submitted
under the Exchange Act is recorded, processed, summarized and
reported within the required time periods and that all such
information is accumulated and communicated to ECCs
management as appropriate to allow timely decisions regarding
required disclosure and to make the certifications required
pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act.
ECCs management has completed an assessment of the
effectiveness of ECCs internal controls over financial
reporting in compliance with the requirements of
Section 404 of the Sarbanes-Oxley Act for the fiscal year
ended February 28, 2010, and a description of such
assessment is set forth in the ECC
10-K. To the
Knowledge of the Company, ECC has disclosed, based on its most
recent evaluation of internal controls over financial reporting,
to ECCs outside auditors and the audit committee of the
ECC Board (i) all significant deficiencies and material
weaknesses in the design or operation of internal controls over
financial reporting (as defined in
Rule 13a-15(f)
of the Exchange Act) which are reasonably likely to adversely
affect in any material respect ECCs ability to record,
process, summarize and report financial data and (ii) any
fraud, whether or not material, that involves management or
other employees who have a significant role in ECCs
internal controls over financial reporting.
(b) Since February 28, 2010 (i) to the Knowledge
of the Company, none of ECC, any of its subsidiaries, and any
director, officer, auditor or accountant of ECC or any of its
subsidiaries or any employee of ECC or
II-12
its subsidiaries whose position includes monitoring ECCs
audit committee complaint reporting procedures has received any
material complaint, allegation, assertion or claim, in writing,
regarding the accounting or auditing practices, procedures,
methodologies or methods of ECC or any of its subsidiaries or
their respective internal accounting controls, including any
material complaint, allegation, assertion or claim that ECC or
any of its subsidiaries has engaged in questionable accounting
or auditing practices, and (ii) no attorney representing
ECC or any of its subsidiaries, whether or not employed by ECC
or any of its subsidiaries, has reported evidence of a material
violation of securities Laws, breach of fiduciary duty or
similar violation by ECC or any of its officers, directors,
employees or agents to the ECC Board or any committee thereof or
to any director or executive officer of ECC.
3.14 Intellectual Property.
(a) Except as would not be reasonably expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, ECC and its subsidiaries own or possess valid licenses
or other rights to use in the manner currently used, all
patents, copyrights, trademarks, service marks, brand names,
logos, domain names, certification marks, trade names, trade
dress and other indications of origin and the goodwill
associated with the foregoing (the Intellectual
Property Rights) used in or necessary for the
conduct of the Business as currently conducted (the
ECC Intellectual Property Rights).
Neither ECC nor any of its subsidiaries has received, in the
past two (2) years, any written charge, complaint, claim,
demand or notice challenging the validity or enforceability of
any of the ECC Intellectual Property Rights owned by ECC or any
of its subsidiaries (the Owned Intellectual Property
Rights) that has not been settled or otherwise
resolved, or that would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, and no legal proceeding relating to the foregoing is
pending or, to the Knowledge of the Company, has been threatened.
(b) To the Knowledge of the Company, (i) the conduct
of the Business as currently conducted does not infringe upon,
misappropriate or otherwise violate any Intellectual Property
Rights of any other person in any material respect and
(ii) except as would not be material to ECC and its
subsidiaries, taken as a whole, none of ECC or any of its
subsidiaries has received, in the past two (2) years, any
written charge, complaint, claim, demand or notice alleging any
such infringement, misappropriation or other violation
(including any claim that ECC or any of its subsidiaries must
license or refrain from using any Intellectual Property Rights
of any other person) that has not been settled or otherwise
fully and finally resolved, and no legal proceeding relating to
the foregoing has been initiated.
(c) Except as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, each of ECC and its subsidiaries has taken reasonable
steps in accordance with normal industry practice to maintain
the confidentiality of its trade secrets and other confidential
Owned Intellectual Property Rights and any other Intellectual
Property Rights obtained from third parties under the obligation
of confidentiality.
3.15 Real Estate.
(a) Except as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, (i) each of ECC and its subsidiaries has good and
valid fee simple title to its owned properties, assets and
rights or good and valid leasehold or licensed interests in all
of its leasehold or licensed properties, assets and rights.
Section 3.15(a) of the Company Disclosure Schedule sets
forth a list of all of the real property owned by ECC or any of
its subsidiaries and (ii) all such owned properties, assets
and rights, and all such leasehold, subleasehold or licensed
interests in leased, subleased or licensed properties, assets
and rights, are free and clear of all Liens except for Permitted
Liens.
(b) Except as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, each of ECC and its subsidiaries has complied with the
terms of all leases, subleases and occupancy agreements (each a
Lease and collectively, the
Leases) to which it is a party and all
such Leases are legal, valid, binding and enforceable in
accordance with their terms by ECC or its subsidiaries party
thereto and are in full force and effect. Since
February 28, 2008, to the Knowledge of the Company, except
as would not be material to ECC and its subsidiaries, taken as a
whole, neither ECC not any of its subsidiaries has received
notice of any default, delinquency or breach on the part of ECC
or any of its
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subsidiaries, and there are no existing defaults (with or
without notice or lapse of time or both) by ECC or any of its
subsidiaries or any other party thereto, beyond any applicable
grace periods under Leases.
3.16 Absence of Certain Changes or
Events. Since February 28, 2010, except
as otherwise permitted by this Agreement or in connection with
the Transactions, (a) the Business of ECC and its
subsidiaries has been conducted in all material respects in the
ordinary course of business consistent with past practice, and
(b) there has not been any fact, change, effect,
occurrence, event, development or state of circumstances that
would reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
3.17 No Undisclosed
Liabilities. Except (a) as adequately
reflected or reserved against in ECCs consolidated balance
sheet as at February 28, 2010, included in the ECC SEC
Documents or (b) for liabilities or obligations incurred
since the date of such balance sheet in the ordinary course of
business consistent with past practice, which have not had, and
would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, neither the
Company nor any of its subsidiaries has any liabilities or
obligations of any nature, whether or not accrued, contingent or
otherwise, that are required by GAAP to be reflected on a
consolidated balance sheet (or the notes thereto) of ECC and its
subsidiaries.
3.18 ECC Absence of
Litigation. As of the date hereof, there is
no material claim, action, proceeding or investigation pending
or, to the Knowledge of the Company, threatened against ECC or
any of its subsidiaries, or any of their respective properties,
assets or rights, or against any employees of ECC or any of its
subsidiaries, at law or in equity, and there are no material
Orders, before any arbitrator or Governmental Body in each
except as set forth in Section 3.18 of the Company
Disclosure Schedule.
3.19 Brokers. The Company
has not paid or agreed to pay, or received any claim with
respect to, any brokerage commissions, finders fees or
similar compensation in connection with the Transactions, except
as set forth in Section 3.19 of the Company Disclosure
Schedule, the fees and expenses of which shall be paid by the
Company.
3.20 Sufficiency of
Assets. Except as would not be reasonably
expected to have, individually or in the aggregate, a Company
Material Adverse Effect, (a) the assets of ECC and its
subsidiaries comprise all the material assets used or held for
use in connection with the Business and (b) the assets of
ECC and its subsidiaries are sufficient for the operation and
conduct of the Business by ECC and its subsidiaries immediately
following the Closing in substantially the same manner as
currently conducted.
3.21 Adoption of
Resolutions. The resolutions set forth on
Exhibit H were duly adopted by the ECC Board and have not
been withdrawn or revoked.
3.22 Exclusivity of
Representations. The representations and
warranties made by the Company in this Agreement are in lieu of
and are exclusive of all other representations and warranties,
including any implied warranties. The Company hereby disclaims
any such other or implied representations or warranties,
notwithstanding the delivery or disclosure to the Investor or
its officers, directors, employees, agents or representatives of
any documentation or other information (including any pro forma
financial information, supplemental data or financial
projections or other forward-looking statements).
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF THE INVESTOR AND ALDEN
The Investor and Alden, jointly and severally, represent and
warrant to the Company as follows:
4.1 Due Organization; Authority to Execute and
Perform Agreement. The Investor and Alden are
duly organized, validly existing and, to the extent applicable,
in good standing under the laws of the respective jurisdictions
of their formation, and have all requisite organizational power
and authority and have taken all organizational action required
to execute and deliver this Agreement and to perform their
obligations hereunder. This Agreement constitutes the legal,
valid and binding obligation of the Investor and Alden,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization,
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moratorium or similar laws, laws of general applicability
relating to or affecting creditors rights, and to general
equity principles and public policy.
4.2 No Defaults or
Conflicts. The execution and delivery of this
Agreement and the consummation of the Transactions by the
Investor and Alden and performance by the Investor or Alden and
their Affiliates of their respective obligations hereunder:
(i) does not result in any violation of the organizational
documents of the Investor or Alden or any of their applicable
Affiliates; (ii) does not conflict with, or result in a
breach of any of the terms or provisions of, or constitute a
default under any agreement or instrument to which the Investor
or Alden or any of their Affiliates is a party or by which it is
bound or to which the its properties are subject; and
(iii) assuming compliance with the matters addressed in
Section 4.3, does not violate any existing applicable Law
or Order of any Governmental Body having jurisdiction over the
Investor or Alden; provided, however, that no
representation or warranty is made in the foregoing
clause (iii) with respect to matters that would not impair
the Investors or Aldens ability to consummate the
Transactions.
4.3 No Governmental Authorization
Required. No authorization or approval by,
and no notice to or filing with, any Governmental Body will be
required to be obtained or made by the Investor or Alden or any
of their Affiliates in connection with the due execution,
delivery and performance by the Investor or Alden of this
Agreement and the consummation by the Investor or Alden of the
Transactions; provided, however, that no
representation or warranty is made with respect to
authorizations, approvals, notices or filings with any
Governmental Body that, if not obtained or made, would not
materially impair the Investors or Aldens ability to
consummate the Transactions.
4.4 Absence of
Litigation. As of the date hereof, there is
no claim, action, proceeding or investigation pending or, to the
Knowledge of Alden, threatened against Alden, the Investor or
any of their respective properties or assets at law or in
equity, except (a) litigation set forth in the Company
Disclosure Schedule and (b) other litigation which would
not materially impair their respective ability to consummate the
Transactions or otherwise have an material adverse effect on any
of Alden or the Investor.
4.5 Title to the Investor ECC
Shares. The Investor and its Affiliates own
beneficially and of record, free and clear of any Liens, and
have full power and authority to vote and convey free and clear
of any Liens, the Investor ECC Shares (as defined below).
4.6 Purchase for
Investment. The Investor is purchasing the
Securities for its own account for investment and not for resale
or distribution in any transaction that would be in violation of
the securities laws of the United States of America or any state
thereof. The Investor is an accredited investor as
defined in Rule 501 of Regulation D promulgated under
the Securities Act.
4.7 Financial Ability. The
Investor has, or Alden has and will make available to the
Investor, cash on hand
and/or
unexpired and unconditioned capital commitments from its
investors that are sufficient to enable the Investor to pay the
Purchase Price in cash at the Closing and consummate the
Transactions.
4.8 Brokers. Except for fees
and commissions that will be paid by the Investor or Alden, no
Person retained by or on behalf of the Investor or any of their
Affiliates is entitled to any brokerage commissions,
finders fees or similar compensation in connection with
the Transactions.
4.9 Ownership Requirements.
(a) Neither (i) the Investor, (ii) any
shareholder, partner, member or owner of the Investor, nor
(iii) any indirect owner of the Investor, is (w) a
person who is a not a citizen of the United States, (x) an
entity organized under the laws of a government other than the
government of the United States or any state, territory, or
possession of the United States, (y) a government other
than the government of the United States or of any state,
territory or possession of the United States, or (z) a
representative of, or an individual or entity controlled by, any
of the foregoing, except that certain indirect owners of the
Investor may be (w)-(z) and therefore qualify as
foreign for purposes of the application of
47 U.S.C. § 310(b) and the rules, regulations,
and published policies of the FCC implementing such statute
(collectively Foreign Ownership Rules), provided
that such indirect owners do not increase the foreign ownership
of ECC by more than 1% for purposes of determining ECCs
compliance with the Foreign Ownership Rules.
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(b) Based on information in the ECC
10-K,
neither (i) the Investor, (ii) any officer, director,
manager, shareholder, partner, member or owner of the Investor,
nor (iii) any indirect owner of the Investor, holds any
interest in any Media Company that (x) is cognizable under
the provisions of 47 C.F.R. § 73.3555 or
(y) will become cognizable under such provisions upon
consummation of the Securities Purchase, which interest will
cause (A) the Investor, (B) any officer, director,
manager, shareholder, partner, member or owner of the Investor,
(C) any indirect owner of the Investor, (D) the
Company, or (E) ECC to be in violation of the provisions of
the Communications Act or 47 C.F.R. § 73.3555
when considered in conjunction with the interest of the Investor
in the Company and ECC that will be obtained hereunder on the
Closing Date. The term Media Company shall mean any
privately or publicly held businesses or parts thereof which,
directly or indirectly, owns, controls or operates a broadcast
radio or television station licensed by the FCC, a
U.S. cable television system, a daily newspaper
(as such term is defined in 47 C.F.R. § 73.3555),
a multipoint multichannel distribution system licensed by the
FCC, a commercial mobile radio service licensed by the FCC or
any other communications facility the ownership or operation of
which is subject to regulation by the FCC under the
Communications Act of 1934, as amended.
4.10 Exclusivity of
Representations. The representations and
warranties made by the Investor and Alden in this Agreement are
in lieu of and are exclusive of all other representations and
warranties, including any implied warranties. The Investor and
Alden hereby disclaim any such other or implied representations
or warranties, notwithstanding the delivery or disclosure to the
Company or its officers, directors, employees, agents or
representatives of any documentation or other information
(including any pro forma financial information, supplemental
data or financial projections or other forward-looking
statements).
ARTICLE V
COVENANTS
AND AGREEMENTS
5.1 Conduct of the
Business. During the period from the date of
this Agreement until the Closing, except as specifically
required by this Agreement or the Transactions or as set forth
on Section 5.1 of the Company Disclosure Schedule, the
Company shall, and the Controlling Stockholder, for so long as
he believes in good faith that such action would not constitute
a breach of his fiduciary duties, shall use commercially
reasonable efforts to cause ECC and Emmis Operating Company to,
(a) conduct their respective businesses in the ordinary
course of business consistent with past practice and to use
their reasonable best efforts to preserve intact their
respective businesses and relationships with customers,
regulators, suppliers, lessors, licensors, distributors,
creditors, employees and agents, and (b) not, without the
Investors prior written consent, which consent shall not
be unreasonably withheld, delayed or conditioned:
(a) amend, waive or otherwise change, in any material
respect, the Initial Governing Documents, the Second Amended and
Restated Articles of Incorporation of ECC (other than the
Articles Amendments), the By-Laws of ECC, or such
equivalent organizational documents of any of ECCs
subsidiaries;
(b) except for (i) the Securities Purchase and
Rollover and (ii) as required by the Credit Agreement,
capital stock or restricted stock units of ECC issued pursuant
to the 401(k) Plan, the exercise of stock options, the vesting
of restricted stock or pursuant to the terms of existing
employment agreements or the director compensation plan, all as
included in Section 3.8(a)(vi) and (vii), issue, sell,
pledge, dispose, encumber or grant any shares of its or its
subsidiaries capital stock or other ownership or voting
interests, or any options, warrants, convertible securities,
restricted stock or restricted stock units or other rights of
any kind to acquire any shares of its or its subsidiaries
capital stock or other ownership or voting interests;
(c) except for dividends and distributions to or among ECC
and its wholly owned subsidiaries in the ordinary course of
business consistent with past practice, declare, set aside, make
or pay any dividend or other distribution, payable in cash,
stock, property or otherwise, with respect to, or directly or
indirectly redeem, purchase or repurchase any shares of its or
any of its subsidiaries capital stock or other securities
or obligations convertible into or exchangeable or exercisable
for any shares of its or its subsidiaries capital stock or
any rights, warrants or options to acquire any such shares;
II-16
(d) make any change to, or permit to lapse without filing
for renewal, any material Government Permits currently held,
except in the ordinary course of business consistent with past
practice;
(e) except as required by Law or pursuant to plans,
agreements and other arrangements in effect on February 28,
2010, (i) increase the compensation or other benefits
payable or to become payable to directors or executive officers,
(ii) grant any severance or termination pay to, or enter
into any severance agreement with any director or executive
officer of the Company, ECC or any of their respective
subsidiaries, except in the ordinary course of business
consistent with past practice or (iii) enter into, amend in
any material respect or terminate (without cause) any employment
agreement with any executive officer of the Company or ECC
(except for entering into or terminating employment agreements
terminable on less than 30 days notice without
penalty, and except for extension of employment agreements
without material modification in the ordinary course of business
consistent with past practice);
(f) acquire, including by merger, consolidation, any other
form of business combination, acquisition of stock or assets,
any corporation, partnership, limited liability company, other
business organization or any division thereof, or any material
amount of assets in connection with acquisitions or investments
with a purchase price in excess of $10 million individually
or $20 million in the aggregate;
(g) incur, create, assume or otherwise become liable for
any indebtedness for borrowed money (directly, contingently or
otherwise) or guarantee any such indebtedness for any person
except for indebtedness incurred or permitted by the Credit
Agreement (excluding Sections 10.1(e), (f) and
(k) thereof) and intercompany indebtedness;
(h) make any material change to its methods, policies or
procedures of accounting in effect at February 28, 2010,
except (i) as required by GAAP or as required by a
Governmental Body, or (ii) as required by a change in
applicable Law;
(i) adjust, split, combine, redeem, recapitalize or
reclassify any of its capital stock or issue any other
securities in respect of, in lieu of or in substitution for
shares of its capital stock other than with respect to the
vesting of restricted stock and restricted stock units;
(j) make any capital expenditures having an aggregate value
in excess of $5 million;
(k) waive, release, assign, settle or compromise any claim,
action or proceeding (other than waivers, releases, assignments,
settlements or compromises that (i) involve the payment of
monetary damages not in excess of $2 million in the
aggregate not otherwise recoverable under insurance and
(ii) do not otherwise materially restrict the conduct of
the Business) or otherwise pay, discharge or satisfy any claims,
liabilities or obligations in excess of $2 million not
recoverable by insurance;
(l) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or commence any
proceedings in bankruptcy (including with respect to any
subsidiary of ECC);
(m) other than as required or permitted by the Credit
Agreement (excluding Sections 10.1(e), (f) and
(k) and 10.2.1(xii) thereof), sell, lease, license,
transfer, exchange or swap, mortgage or otherwise encumber
(including securitizations), or subject to any lien or otherwise
dispose of any material portion of its properties, assets or
rights;
(n) enter into any transaction with an Affiliate of the
Company, ECC or any subsidiary of ECC (other than existing
arrangements set forth on Schedule 5.1(n), amendments and
replacements of those arrangements);
(o) engage in any activity which would pose a material risk
that the Company may be treated, for U.S. federal income
tax purposes, as engaged in a trade or business; or
(p) authorize, commit, enter into any agreement or
otherwise agree or make any commitment to do any of the
foregoing.
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5.2 Filings and Authorizations;
Consummation.
(a) Each of the Parties and the Controlling Stockholder, as
promptly as practicable, shall make, or cause to be made, all
filings and submissions under laws, rules and regulations
applicable to it, or to its Affiliates, as may be required for
it to consummate the Transactions and use its reasonable best
efforts in good faith (which shall not require any Party to make
any payment (other than filing fees or other non-punitive fees
required to be paid to any Governmental Body) or concession to
any Person in connection with obtaining such Persons
consent) to obtain, or cause to be obtained, all other
authorizations, approvals, consents and waivers from all
Governmental Bodies and other Persons necessary to be obtained
by it, or its Affiliates, in order for it to consummate the
Transactions.
(b) Each of the Parties and the Controlling Stockholder
shall coordinate and cooperate with one another in exchanging
and providing such information to each other and in making the
filings and requests referred to in Section 5.2(a). The
Parties and the Controlling Stockholder shall supply such
reasonable assistance as may be reasonably requested by any
other Party in connection with the foregoing.
(c) Each of the Parties and the Controlling Stockholder
shall promptly inform the other of any material communication
from any Governmental Body regarding any of the Transactions
and, if in writing, to furnish a copy thereof to the others. If
the Parties or any of their respective Affiliates receives a
request for additional information or documentary material from
any such Governmental Body with respect to the Transactions,
then such Party will endeavor in good faith to make, or cause to
be made, as soon as reasonably practicable and after
consultation with the other parties, an appropriate response in
compliance with such request. Each Party and the Controlling
Stockholder will advise the other Parties and the Controlling
Stockholder promptly in respect of any understandings,
undertakings or agreements (oral or written) which such Person
proposes to make or enter into with any Governmental Body in
connection with Transactions.
5.3 Efforts. Subject to the
other terms and conditions provided herein and in addition to
the obligations of the Parties pursuant to Section 5.2,
each of the Parties and the Controlling Stockholder agrees to
use its reasonable best efforts and to act in good faith to take
or cause to be taken all actions and to do or cause to be done
all things reasonably necessary, proper or advisable under
applicable Law to consummate and make effective the Transactions
as promptly as possible, including using reasonable best efforts
to (i) obtain all necessary consents, approvals or waivers
from third parties, (ii) contest any legal proceeding
challenging the Agreement or relating to the Transactions and
(iii) execute any additional instruments necessary to
consummate the Transactions. Alden and the Investor shall not,
and shall cause their respective Affiliates not to, directly or
indirectly, make (or enter into any contract, letter of intent
or other agreement with respect to, or otherwise commit or
agree, whether or not in writing, to make) any acquisition of or
investment in any broadcasting or publishing businesses or
assets where such acquisition or investment would reasonably be
expected, individually or in the aggregate, to delay or impair
in any material respect the consummation of the Transactions.
5.4 ECC Capital Stock.
(a) Alden and the Investor shall, and shall cause each of
their respective Affiliates to, vote or provide a consent or
proxy with respect to the shares of ECC Capital Stock
beneficially owned or of record by such Person, as set forth
opposite such Persons name on Annex 5.4(a)
(Investor ECC Shares), in favor of the
Articles Amendments and the Back-End Merger, in each case
to the extent any such class of ECC Capital Stock is eligible to
vote on such matter. Alden and the Investor hereby irrevocably
grants and appoints, and shall cause its Affiliates that
beneficially own or own of record any Investor ECC Shares to
grant and appoint, the Company as such Persons proxy and
attorney-in-fact
(with full power of substitution), for and in the name, place
and stead of such Person, to vote or provide a consent or proxy
with respect to the Investor ECC Shares in accordance with the
preceding sentence.
(b) The Controlling Stockholder shall, and shall cause each
of his Affiliates to, vote or provide a consent or proxy with
respect to the shares of ECC Capital Stock beneficially owned or
of record by such Person, as
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set forth opposite such Persons name on Annex 5.4(b)
(Controlling Stockholder ECC Shares)
except for the Controlling Stockholder Options, in favor of the
Articles Amendments and the Back-End Merger, in each case
to the extent any such class of ECC Capital Stock is eligible to
vote on such matter. The Controlling Stockholder hereby
irrevocably grants and appoints, and shall cause its Affiliates
that beneficially own or own of record any Investor ECC Shares
to grant and appoint, the Investor as such Persons proxy
or proxy and
attorney-in-fact
(with full power of substitution), for and in the name, place
and stead of such Person, to vote or provide a consent with
respect to the Controlling Stockholder ECC Shares in accordance
with the preceding sentence.
(c) Upon the satisfaction of all other conditions to the
Back-End Merger and immediately prior to consummation thereof,
the Controlling Stockholder shall, and shall cause each of his
Affiliates to, for no additional consideration and free and
clear of any Liens, contribute to ECC for cancellation in
accordance with the Merger Agreement all of the Controlling
Stockholders and his Affiliates right, title and
interest in and to the Controlling Stockholder ECC Shares (other
than the Controlling Stockholder Retained Shares, all of which
shall be converted into the right to receive the Offer Price in
cash in the Back-End Merger).
(d) Prior to the Closing, except as explicitly contemplated
by this Agreement or other agreements entered into in connection
with the Transactions, (a) the Controlling Stockholder and
the Company shall not, without the prior written approval of the
Investor, and (b) Alden and the Investor shall not, and
Alden shall cause the Investor not to, without the prior written
approval of the Company, directly or indirectly, whether as an
advisor or principal, acquire or sell (or seek permission to
acquire or sell), of record or beneficially, by purchase, sale
or otherwise, any shares of ECC Capital Stock or other
securities, properties or indebtedness of the ECC or its
subsidiaries, other than swap contracts terminated
pursuant to the terms thereof by the counterparty thereto.
5.5 Offer to
Purchase. Subject to Section 5.7, the
Company shall not, without the prior written approval of the
Investor, (a) amend or waive any of the Tender Conditions
or (b) otherwise amend any of the material terms and
conditions contained in the Offer to Purchase. The Controlling
Shareholder shall cause ECC not to, without the prior written
approval of the Investor, amend or waive any of the material
terms and conditions contained in the Exchange Offer.
5.6 Confidentiality. The
Parties shall, and shall cause their respective Affiliates and
their respective Affiliates directors, officers, employees
and agents (each, a Recipient) to,
maintain in confidence the terms of this Agreement, the
Transactions and the other agreements contemplated thereby and
all information furnished to each such Recipient in connection
with or relating thereto or otherwise make any publicity
release, announcement or other communication, of any kind and by
any means, concerning the foregoing without advance written
approval of the other Party. The preceding sentence shall not
apply to information that (i) becomes generally available
to the public other than as a result of disclosure by such
Recipient contrary to this Agreement; (ii) was available to
such Recipient on a non-confidential basis prior to its
disclosure to such Recipient by the Company or any other Party;
(iii) becomes available to such Recipient on a
non-confidential basis from a source other than the Company or
any other Recipient unless such Recipient knows that such source
is bound by a confidentiality agreement or is otherwise
prohibited from transmitting the information to such Recipient
by a contractual obligation; (iv) is independently
developed by such Recipient without reference to confidential
information received from the Company or any other Party;
(v) is required to be disclosed by applicable Law or legal
process, provided that any Recipient disclosing pursuant
to this clause (v) shall use commercially reasonable
efforts to notify the other Party at least five days prior to
such disclosure (other than with respect to disclosure on
Schedule 13D) so as to allow such other Party an
opportunity to protect such information through protective order
or otherwise; (vi) is required to be disclosed by any
listing agreement with, or the rules or regulations of, any
securities exchange on which securities of such Recipient or any
of its Affiliates are listed or traded; (vii) is required
to be disclosed in connection with the receipt of the rating of
any securities (including debt securities) from a ratings
agency; or (viii) is disclosed by a Party to such
Partys legal, accounting and other professional
representatives.
5.7 Tender
Offeror. Notwithstanding anything to the
contrary in the Agreement, the Parties acknowledge and agree
that, at the election of the Company, the Offer to Purchase may
be made by Mergerco rather than the Company or the Company can
assign to Mergerco its rights to purchase under the Offer to
Purchase;
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provided that no such assignment shall relieve the Company of
its obligations hereunder. In such event, the Tender Conditions
shall reflect that MergerCo is the Offeror or purchaser, as
applicable. Alternatively, if the Company is the Offeror and
does not so assign its rights to purchase, then immediately
prior to the Back-End Merger, the Company shall contribute to
Mergerco all shares of ECC Common Stock purchased by it in the
Tender Closing.
5.8 Obligations of the Controlling
Stockholder. The parties acknowledge and
agree that the Controlling Stockholder is executing this
Agreement solely in his capacity as a holder of ECC Common
Stock. Nothing in this Agreement shall limit or affect any
actions taken or not taken by the Controlling Stockholder in his
capacity as a director or officer of ECC or any of its
subsidiaries, or in any way to diminish or restrict his ability
to exercise his fiduciary duties with respect thereto in any
such capacity.
ARTICLE VI
CONDITIONS
PRECEDENT TO THE OBLIGATION OF THE INVESTOR TO CLOSE
The obligation of the Investor to enter into and complete the
Closing is subject to the fulfillment on the Closing Date of the
following conditions, any one or more of which may be waived by
the Investor:
6.1 Representations and
Covenants. (a) The representations and
warranties of the Company contained in Sections 3.1, 3.4,
3.16(b) and 3.19 shall be true and correct in all respects; and
(b) all remaining representations and warranties of the
Company contained in Article III shall be true and correct
except for such failures to be true and correct as would not
reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, in the case of
both clauses (a) and (b), on and as of the Closing Date
with the same force and effect as though made on and as of the
Closing Date, except for those representations and warranties
that are expressly limited by their terms to dates or times
other than the Closing Date, which representations and
warranties need only be true and correct as aforesaid as of such
other dates or times; provided, however, that for
purposes of determining the satisfaction on the Closing Date of
clause (b), no effect shall be given to any exception or
qualification in such representations and warranties relating to
materiality, material adverse effect or knowledge. The Company
shall have performed and complied in all material respects with
all covenants and agreements required by this Agreement to be
performed or complied with by the Company on or prior to the
Closing Date. The Company shall have delivered to the Investor a
certificate, dated the date of the Closing and signed by an
officer of the Company, to the foregoing effect.
6.2 No Orders. No Order
issued by any Governmental Body preventing, enjoining,
restraining or prohibiting the consummation of the Transactions
shall be in effect. No litigation shall have been commenced or,
to the Knowledge of the Company or the Knowledge of Alden
threatened by any Governmental Body seeking to enjoin, delay or
impede the Transactions or any of the benefits thereof. No Law
shall have been enacted, entered, promulgated or enforced by any
Governmental Body that prohibits or makes illegal consummation
of the Transactions.
6.3 Tender Conditions. All
of Tender Conditions (other than the condition in
clause (vi) thereof that Alden delivers the amounts due
hereunder) shall have been satisfied or waived by the Person or
Persons entitled to waive the same, with the consent of the
Investor, and the Company shall have accepted all shares
tendered therein.
6.4 Employment
Agreement. The Controlling Stockholder
continues to work as Chief Executive Officer of ECC.
6.5 Articles Amendments. The
Articles Amendments shall have been approved by the holders
of
662/3%
of the outstanding ECC Preferred Stock, and ECC shall have filed
such Articles Amendments with the Secretary of State of the
State of Indiana.
6.6 Opinion. The Company
shall have delivered the Opinion to the Investor.
6.7 Merger Agreement. The
Merger Agreement shall have been executed and delivered by the
parties thereto.
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ARTICLE VII
CONDITIONS
PRECEDENT TO THE OBLIGATION OF THE COMPANY TO CLOSE
The obligation of the Company to enter into and complete the
Closing is subject to the fulfillment on or prior to the Closing
Date of the following conditions, any one or more of which may
be waived by the Company:
7.1 Representations and
Covenants. (a) The representations and
warranties of the Investor and Alden contained in
Sections 4.1, 4.5 and 4.8 shall be true and correct in all
respects; and (b) all remaining representations and
warranties of the Investor and Alden contained in
Article IV shall be true and correct in all material
respects, in the case of both clauses (a) and (b), on and
as of the Closing Date with the same force and effect as though
made on and as of the Closing Date, except for those
representations and warranties that are expressly limited by
their terms to dates or times other than the Closing Date, which
representations and warranties need only be true and correct as
aforesaid as of such other dates or times provided,
however, that for purposes of determining the
satisfaction on the Closing Date of clause (b), no effect
shall be given to any exception or qualification in such
representations and warranties relating to materiality; and
provided, further, that for purposes of
determining the satisfaction on the Closing Date of
clause (b), such representations and warranties shall be
deemed to be true and correct in all respects unless the failure
or failures of any such representations and warranties to be so
true and correct would reasonably be likely to have a materially
impair the Investors ability to consummate the
Transactions. The Investor shall have performed and complied in
all material respects with all covenants and agreements required
by this Agreement to be performed or complied with by the
Investor on or prior to the Closing Date. The Investor shall
have delivered to the Company a certificate, dated the date of
the Closing and signed by an officer of the Investor, to the
foregoing effect.
7.2 No Orders. No Order
issued by any Governmental Body preventing, enjoining,
restraining or prohibiting the consummation of the Transactions
shall be pending, threatened or in effect. No litigation shall
have been commenced or, to the Knowledge of the Company,
threatened by any Governmental Body seeking to enjoin, delay or
impede the Transactions or any of the benefits thereof. No Law
shall have been enacted, entered, promulgated or enforced by any
Governmental Body that prohibits or makes illegal consummation
of the Transactions.
7.3 Tender Conditions. All
of the Tender Conditions shall have been satisfied or waived by
the Person or Persons entitled to waive the same.
ARTICLE VIII
TERMINATION
OF AGREEMENT
8.1 Termination. This
Agreement may not be terminated prior to the Closing, except as
follows:
(a) by mutual agreement of the Investor and the Company;
(b) at the election of the Investor or the Company upon
prior written notice, if (i) the Company has not commenced
the Tender Offer or (ii) ECC has not commenced the Exchange
Offer, in each case as of the close of business on the date
which is ten (10) Business Days after the date hereof (the
Early Termination Date);
(c) at the election of the Investor or the Company upon
prior written notice, if any one or more of the conditions set
forth in Article VI or Article VII respectively (other
than those that by their nature are to be satisfied at the
Closing) has not been fulfilled as of the close of business on
September 24, 2010 (the Outside Date);
provided, however, that the Party whose conduct
substantially results in the failure of such condition to be
fulfilled may not be the terminating Party;
(d) at the election of the Investor or the Company upon
prior written notice, if any court of competent jurisdiction in
the United States or other United States Governmental Body shall
have issued a final order, decree or ruling or taken any other
final action restraining, enjoining or otherwise prohibiting
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the consummation of the transactions contemplated hereby and
such order, decree, ruling or other action is or shall have
become non-appealable;
(e) at the election of the Company or the Investor, upon
prior written notice, if there has been a material inaccuracy in
or material breach by the other Party of any representation or
warranty, or material breach or failure to perform of any
covenant or agreement contained in this Agreement or any other
agreement, document or certificate delivered pursuant hereto
(i) that would result in a failure of the conditions set
forth in Section 6.1 or 7.1, as applicable, and is
incapable of being cured by the Outside Date or (ii) in the
case of any other breach or failure to perform, is not cured by
the earlier to occur of the Outside Date and within 30 days
following written notice thereof (which notice shall include
such Partys intention to terminate this Agreement pursuant
to this Section 8.1(f) and the basis for such termination);
provided, however, that the breaching Party may
not be the terminating Party; or
(f) at the election of the Company if, as a result of the
action or inaction by the Investor, the Closing shall not have
occurred on or prior to the date that is two (2) Business
Days following the date on which all of the conditions to
Closing set forth in Articles VI and VII have been
satisfied or, in the case of Article VII, waived by the
Company.
8.2 Survival After
Termination. If this Agreement terminates
pursuant to Section 8.1 and the transactions contemplated
hereby are not consummated,
(a) this Agreement shall become null and void and have no
further force or effect, except that any such termination shall
be without prejudice to the rights of any Party on account of
the nonsatisfaction of the conditions set forth in
Article VI or Article VII resulting from the
intentional or willful breach or violation of the
representations, warranties, covenants or agreements of another
Party under this Agreement; and
(b) notwithstanding anything in this Agreement to the
contrary, the provisions of Section 5.6, this
Section 8.2 and Article X shall survive any
termination of this Agreement.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by the
Company. (a) The Company shall indemnify
the Investor, its Affiliates and each of their respective
Representatives and ultimate beneficial owners (each, an
Investor Indemnified Party) against,
and hold them harmless from, any Losses, as incurred (payable
promptly upon written request, but subject to an undertaking to
repay any Losses if it is determined by a court of competent
jurisdiction that such Investor Indemnified Party is not
entitled to such indemnification), arising from, in connection
with or otherwise with respect to:
(i) any inaccuracy in, or breach of, any representation or
warranty of the Company contained in this Agreement or any
document delivered in connection herewith or therewith;
(ii) any failure by the Company or the Controlling
Stockholder to perform any covenant, agreement, obligation or
undertaking contained in this Agreement; and
(iii) any and all actions, suits, proceedings, demands,
assessments, judgments, damages, awards, costs and expenses
(including third-party fees and expenses) incident to any of the
foregoing or incurred in connection with the enforcement of the
rights of any such indemnified party with respect to the
foregoing.
(b) Notwithstanding any other provision of this
Article IX, the Company shall not have any liability:
(i) under clause (i) and, as it relates to
clause (i), clause (iii) of Section 9.1(a) for
any Loss unless the aggregate amount of such Losses for which
indemnification would otherwise be available exceeds $7,500,000
(the Deductible Amount), in which case
the entire amount of such Losses shall be indemnifiable
hereunder; provided, however, that the Deductible
Amount shall not apply to any claim for indemnification to the
extent arising out of an inaccuracy or breach of any
representation or warranty
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contained in Sections 3.1, 3.4 and 3.19 (the
Seller Specified Representations) or
to any Loss incurred due to fraud, intentional
misrepresentation, intentional misconduct or intentional
concealment by or on behalf of the Company or the Controlling
Stockholder;
(ii) under clause (i) and, as it relates to
clause (i), clause (iii) of Section 9.1(a) for
any Loss with respect to any individual item or series of
related items of Loss that is of an amount less than $25,000
(which amount shall be an aggregate amount in the case of any
series of related items of Loss) and no such item or series of
related items, as the case may be, shall be applied toward the
calculation of whether the aggregate of all Losses incurred by
such Investor Indemnified Party exceeds the Deductible
Amount; or
(iii) after Closing under Section 9.1(a) for any Loss
arising from, in connection with or otherwise with respect to
any breach of any representation, warranty or covenant that
would have resulted (or would have been deemed to have resulted
as agreed by the other parties in a notice delivered at or prior
to Closing, provided the Company gives Alden notice of such
breach at least two (2) Business Days prior to Closing) in
non-satisfaction of a condition to Closing contained in
Section 6.1.
(c) For purposes of this Article IX and for purposes
of determining whether an Investor Indemnified Party is entitled
to indemnification pursuant to this Section 9.1, any
inaccuracy in or breach of any representation or warranty made
by the Company contained in this Agreement or in any document
delivered herewith shall be determined without regard to any
materiality qualifications set forth in such representation or
warranty or in any document delivered in connection herewith,
and all references to the terms material,
materially, materiality Company
Material Adverse Effect or any similar terms shall be
ignored for purposes of determining whether such representation
or warranty was true and correct when made.
9.2 Indemnification by the
Investor. (a) The Investor shall, and
Alden shall provide sufficient funds to the Investor to,
indemnify the Company against, and agree to hold it harmless
from, any Losses, as incurred (payable promptly upon written
request, but subject to an undertaking to repay any Losses if it
is determined by a court of competent jurisdiction that such
indemnified party is not entitled to such indemnification), for
or on account of or arising from or in connection with or
otherwise with respect to:
(i) any inaccuracy in, or breach of, any representation or
warranty of the Investor contained in this Agreement or any
document delivered in connection herewith or therewith;
(ii) any failure by the Investor to perform any covenant,
agreement, obligation or undertaking contained in this
Agreement; and
(iii) any and all actions, suits, proceedings, demands,
assessments, judgments, damages, awards, costs and expenses
(including third-party fees and expenses) incident to any of the
foregoing or incurred in connection with the enforcement of the
rights of any such indemnified party with respect to the
foregoing.
(b) Notwithstanding any other provision of this
Article IX, the Investor shall not have any liability:
(i) under clause (i) and, as it relates to
clause (i), clause (iii) of Section 9.2(a) for
any Loss unless the aggregate amount of such Losses for which
indemnification would otherwise be available exceeds the
Deductible Amount, in which case the entire amount of such
Losses shall be indemnifiable hereunder; provided,
however, that the Deductible Amount shall not apply to
any claim for indemnification to the extent arising out of an
inaccuracy or breach of any representation or warranty contained
in Sections 4.1, 4.5, 4.7 and 4.8 (the Investor
Specified Representations) or to any Loss incurred
due to fraud, intentional misrepresentation, intentional
misconduct or intentional concealment by or on behalf of the
Investor;
(ii) under clause (i) and, as it relates to
clause (i), clause (iii) of Section 9.2(a) for
any Loss with respect to any individual item or series of
related items of Loss that is of an amount less than $25,000
(which amount shall be an aggregate amount in the case of any
series of related items of Loss) and no such item or series of
related items, as the case may be, shall be applied toward the
calculation of whether the aggregate of all Losses incurred by
the Company exceeds the Deductible Amount; or
II-23
(iii) after Closing under Section 9.2(a) for any Loss
arising from, in connection with or otherwise with respect to
any breach of any representation, warranty or covenant that
would have resulted (or would have been deemed to have resulted
as agreed by the other parties in a notice delivered at or prior
to Closing, provided Alden gives the Company notice of such
breach at least two (2) Business Days prior to Closing), in
non-satisfaction of a condition to Closing contained in
Section 7.1.
(c) For purposes of this Article IX and for purposes
of determining whether the Company is entitled to
indemnification pursuant to this Section 9.2, any
inaccuracy in or breach of any representation or warranty made
by the Investor contained in this Agreement or in any document
delivered herewith, other than the representation and warranty
contained in Section 3.16(b), shall be determined without
regard to any materiality qualifications set forth in such
representation or warranty or in any document delivered in
connection herewith, and all references to the terms
material, materially,
materiality material adverse effect or
any similar terms shall be ignored for purposes of determining
whether such representation or warranty was true and correct
when made.
9.3 Termination of
Indemnification. Except with respect to any
fraud, intentional misrepresentation, intentional misconduct or
intentional concealment by or on behalf of any Party, such
Partys obligations to indemnify and hold harmless any
other Party pursuant to Section 9.1(a)(i) and, as it
relates thereto, Section 9.1(a)(iii) (other than with
respect to the Seller Specified Representations) or 9.2(a)(i)
and, as it relates thereto, Section 9.2(a)(iii) (other than
with respect to the Investor Specified Representations) shall
terminate on June 30, 2011; provided,
however, that such obligations to indemnify and hold
harmless shall not terminate with respect to any item as to
which the applicable indemnified party shall have, before the
expiration of such period, previously made a claim by delivering
a notice of such claim pursuant to Section 9.4 to the
applicable indemnifying party. Any other obligation to indemnify
and hold harmless any party shall terminate upon the expiration
of the relevant statute of limitations, taking into account
extensions thereof; provided, however, that such
obligations shall not terminate with respect to any item as to
which the applicable indemnified party has, as of the expiration
of the relevant period, taking into account extensions thereof,
a pending suit against the applicable indemnifying party.
9.4 Procedures.
(a) Third Party Claims. If a
claim by a third party is made against a party hereto or any of
its Affiliates (the indemnified party)
in respect of, arising out of or involving a matter for which
the indemnified party is entitled to be indemnified by another
Party (the indemnifying party)
pursuant to this Article IX (a Third Party
Claim), such indemnified party must notify the
indemnifying party in writing of the Third Party Claim within 10
Business Days following receipt by such indemnified party of
written notice of the Third Party Claim; provided,
however, that failure to give such notification shall not
affect the indemnification provided hereunder except to the
extent (and only to the extent) the indemnifying party shall
have been actually and materially prejudiced as a result of such
failure. Thereafter, the indemnified party shall deliver to the
indemnifying party, promptly following the indemnified
partys receipt thereof, copies of all notices and
documents (including court papers) received by the indemnified
party relating to the Third Party Claim.
(b) Assumption. If a Third
Party Claim is made against an indemnified party, the
indemnifying party shall be entitled to participate in the
defense thereof and, if it so chooses, to assume the defense
thereof with counsel selected by the indemnifying party;
provided, however, that such counsel is not
reasonably objected to by the indemnified party. Should the
indemnifying party so elect to assume the defense of a Third
Party Claim, the indemnifying party shall not be liable to the
indemnified party for any legal expenses subsequently incurred
by the indemnified party in connection with the defense thereof.
Notwithstanding the foregoing, the indemnifying party shall bear
the reasonable fees, costs and expenses of one such separate
counsel to the indemnified party in each jurisdiction (and shall
pay such fees, costs and expenses as incurred), if the
defendants in, or targets of, any such action or proceeding
include both the indemnified party and the indemnifying party,
and the indemnified party shall have reasonably concluded that
there may be legal defenses available to it which are different
from or additional to those available to the indemnifying party
or that representation by the same counsel may be a conflict of
interest (in which case the indemnifying party shall not have
the right to direct the defense of such action or
II-24
proceeding on behalf of the indemnified party). If the
indemnifying party assumes such defense, the indemnified party
shall have the right to participate in the defense thereof and
to employ counsel, at its own expense, separate from the counsel
employed by the indemnifying party, it being understood that the
indemnifying party shall control such defense. The indemnifying
party shall be liable for the reasonable fees and expenses of
counsel employed by the indemnified party for any period during
which the indemnifying party has not assumed the defense
thereof. If the indemnifying party chooses to defend or
prosecute a Third Party Claim, all the indemnified parties shall
cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the
indemnifying partys request) the provision to the
indemnifying party of records and information that are
reasonably relevant to such Third Party Claim, and making
employees available on a mutually convenient basis to provide
additional information and explanation of any material provided
hereunder. The indemnified party (A) shall agree to any
settlement, compromise or discharge of a Third Party Claim that
the indemnifying party may recommend and that by its terms
obligates the indemnifying party to pay the full amount of the
liability in connection with such Third Party Claim, which
releases the indemnified party completely in connection with
such Third Party Claim and that would not otherwise adversely
affect the indemnified party, and (B) shall not enter into
any settlement, compromise or discharge of a Third Party Claim
without the prior written consent of the indemnifying party
(which shall not be unreasonably withheld, conditioned or
delayed). Notwithstanding the foregoing, the indemnifying party
shall not be entitled to assume the defense of any Third Party
Claim (and shall be liable for the reasonable fees and expenses
of counsel incurred by the indemnified party in defending such
Third Party Claim) if the Third Party Claim seeks an order,
injunction or other equitable relief or relief for other than
money damages against the indemnified party that the indemnified
party reasonably determines, after conferring with its outside
counsel, cannot be separated from any related claim for money
damages. In the case of any Third Party Claim referred to in the
immediately preceding sentence, if such equitable relief or
other relief portion of such Third Party Claim can be so
separated from that for money damages, the indemnifying party
shall be entitled to assume the defense of the portion of such
Third Party Claim relating to money damages.
(c) Other Claims. In the
event any indemnified party should have a claim against any
indemnifying party under Section 9.1 or 9.2 that does not
involve a Third Party Claim being asserted against or sought to
be collected from such indemnified party, the indemnified party
shall deliver notice of such claim with reasonable promptness to
the indemnifying party. Subject to Section 9.3, the failure
by any indemnified party so to notify the indemnifying party
shall not relieve the indemnifying party from any liability that
it may have to such indemnified party under Section 9.1 or
9.2, except to the extent that the indemnifying party has been
actually and materially prejudiced by such failure.
ARTICLE X
MISCELLANEOUS
10.1 Expenses.
(a) Transaction Expenses shall be reimbursable as follows:
(i) Upon the Closing, the Company shall promptly reimburse
the Investor and the Controlling Stockholder for their
Transaction Expenses incurred prior to the Closing;
provided that the Company shall not be required to
reimburse Investors Transaction Expenses for any amount in
excess of $1,000,000;
(ii) If this Agreement is terminated by the Investor in
accordance with Section 8.1(e), the Company shall, and the
Controlling Stockholder shall cause the Company to, reimburse
the Investor for the Investors Transaction Expenses, in
amount not to exceed $1,000,000, in the aggregate; or
(iii) If this Agreement is terminated in accordance with
Section 8.1 for any reason other than as described in
Section 10.1(a)(ii), the Transaction Expenses shall be
borne by the Party incurring such fees or expenses.
(b) Transaction Expenses means
with respect to the Investor or the Controlling Stockholder, all
reasonable and documented out of pocket fees and expenses
incurred by such party in connection with the preparation,
execution and performance of this Agreement and the consummation
of the Transactions,
II-25
including reasonable and documented fees and expenses of counsel
and, with respect to the Controlling Stockholder, the expenses
set forth on Annex 10.1(b); provided that
Transaction Expenses shall not include any commitment,
arrangement, finder or similar financing fees or expenses, which
shall be borne by the party incurring such fees or expenses
(other than the expenses set forth on Annex 10.1(b)).
10.2 Specific
Performance. The Parties each acknowledge
that, in view of the uniqueness of the Transactions, each Party
would not have an adequate remedy at law for money damages in
the event that the covenants to be performed after the Closing
have not been performed in accordance with their terms, and
therefore agree that the other Parties shall be entitled to
specific enforcement of the terms hereof and any other equitable
remedy to which such parties may be entitled. Notwithstanding
anything herein to the contrary, in no event shall, (a) the
Investor be liable for damages in connection with any breach or
violation of this Agreement in excess of an amount equal to the
difference of the Purchase Price and the amount actually funded
by the Investor pursuant to this Agreement or (b) other
than amounts payable pursuant to Section 10.1(a)(ii), the
Company be liable for damages in connection with any breach or
violation of this Agreement in excess of the amount actually
funded by the Investor pursuant to this Agreement.
10.3 Notices. Any notice or
other communication required or permitted hereunder shall be in
writing and shall be deemed to have been duly given (a) on
the day of delivery if delivered in person, or if delivered by
facsimile upon confirmation of receipt (except if such facsimile
is not received during regular business hours, then the Business
Day following the date of receipt), (b) on the first
Business Day following the date of dispatch if sent for
overnight delivery via a nationally recognized express courier
service or (c) on the date actually received if delivered
by registered or certified mail, return receipt requested,
postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be
designated by notice given in accordance with this
Section 10.3 by the Party to receive such notice:
(a) if to Alden or the Investor, to:
c/o Alden
Global Capital
885 Third Avenue
New York, NY 10022
Attention: Jim Plohg
Facsimile:
(212) 702-0145
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: Stephen M. Banker
Facsimile:
(917) 777-2760
(b) if to the Company, to:
JS Acquisition, LLC
c/o James
A. Strain
Taft Stettinius & Hollister LLP
One Indiana Square, Suite 3500
Indianapolis, Indiana 46204
Facsimile:
(317) 713-3699
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY
10019-6064
|
|
|
|
Attention:
|
James M. Dubin
|
Kelley D. Parker
Facsimile:
(212) 757-3990
II-26
(c) if to the Controlling Stockholder, to:
Jeffrey H. Smulyan
c/o James
A. Strain
Taft Stettinius & Hollister LLP
One Indiana Square, Suite 3500
Indianapolis, Indiana 46204
Facsimile:
(317) 713-3699
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY
10019-6064
|
|
|
|
Attention:
|
James M. Dubin
|
Kelley D. Parker
Facsimile:
(212) 757-3990
10.4 Entire Agreement. This
Agreement, together with the Confidentiality Agreement, the
Operating Agreement, the Registration Rights Agreement, the
Rollover Agreement and the Distribution Letter and any other
collateral agreements executed in connection with the
consummation of the transactions contemplated hereby, contains
the entire agreement among the Parties with respect to
Securities Purchase and supersedes all prior agreements, written
or oral, with respect thereto.
10.5 Waivers and
Amendments. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms hereof
may be waived, only by a written instrument signed by the
Investor and the Company or, in the case of a waiver, by the
Party waiving compliance. No delay on the part of any Party in
exercising any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any waiver on the part of any
Party of any such right, power or privilege, nor any single or
partial exercise of any such right, power or privilege, preclude
any further exercise thereof or the exercise of any other such
right, power or privilege.
10.6 Governing Law. This
Agreement shall be governed by and construed in accordance with
the laws of the State of Indiana without regard to any conflict
of laws rules thereof that might indicate the application of the
laws of any other jurisdiction.
10.7 Binding Effect;
Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties and their
respective successors and assigns. This Agreement is not
assignable by any party without the prior written consent of the
other parties, except that Alden and the Investor shall be
permitted to assign, in their sole discretion, any or all of
their respective rights, interests or obligations under this
Agreement to any Affiliate thereof, but no such assignment shall
relieve Alden or the Investor of its obligations hereunder.
10.8 Usage. All pronouns and
any variations thereof refer to the masculine, feminine or
neuter, singular or plural, as the context may require. All
terms defined in this Agreement in their singular or plural
forms have correlative meanings when used herein in their plural
or singular forms, respectively. Unless otherwise expressly
provided, the words include, includes
and including do not limit the preceding words or
terms and shall be deemed to be followed by the words
without limitation. Any capitalized term used in any
Exhibit or Annex but not otherwise defined therein shall have
the meaning assigned to such term in this Agreement. The word
extent in the phrase to the extent shall
mean the degree to which a subject or other thing extends, and
the phrase shall not mean simply if. Any agreement,
instrument or Law defined or referred to herein means such
agreement, instrument or Law as from time to time amended,
modified or supplemented, unless otherwise specifically
indicated.
II-27
10.9 Articles and
Sections. All references herein to Articles
and Sections shall be deemed references to such parts of this
Agreement, unless the context shall otherwise require. The table
of contents, index of defined terms and Article and Section
headings in this Agreement are for reference only and shall not
affect the interpretation of this Agreement.
10.10 Interpretation. The
Parties acknowledge and agree that (a) each party and its
counsel reviewed and negotiated the terms and provisions of this
Agreement and have contributed to its revision, (b) the
rule of construction to the effect that any ambiguities are
resolved against the drafting Party shall not be employed in the
interpretation of this Agreement and (c) the terms and
provisions of this Agreement shall be construed fairly as to all
Parties, regardless of which Party was generally responsible for
the preparation of this Agreement. Any statute, regulation, or
other law defined or referred to herein (or in any agreement or
instrument that is referred to herein) means such statute,
regulation or other law as, from time to time, may be amended,
modified or supplemented, including (in the case of statutes) by
succession of comparable successor statutes. References to a
person also refer to its predecessors and permitted successors
and assigns.
10.11 Severability of
Provisions. If any provision or any portion
of any provision of this Agreement shall be held invalid or
unenforceable, the remaining portion of such provision and the
remaining provisions of this Agreement shall not be affected
thereby. If the application of any provision or any portion of
any provision of this Agreement to any Person or circumstance
shall be held invalid or unenforceable (a) the application
of such provision or portion of such provision to Persons or
circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby and (b) the
Parties shall negotiate in good faith to modify this Agreement
so as to effect the original intent of the Parties as closely as
possible to the fullest extent permitted by applicable Law in an
acceptable manner to the end that the Transactions are fulfilled
to the fullest extent possible.
10.12 Counterparts. This
Agreement may be executed by the Parties hereto in separate
counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts together shall
constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof each signed by less than
all, but together signed by all, of the Parties hereto.
10.13 No Personal
Liability. This Agreement (and each
agreement, certificate and instrument delivered pursuant hereto)
shall not create or be deemed to create or permit any personal
liability or obligation on the part of any officer, director,
employee, agent, representative or investor of any Party.
10.14 No Third Party
Beneficiaries. No provision of this Agreement
is intended to, or shall, confer any third party beneficiary or
other rights or remedies upon any Person other than the Parties.
10.15 Consent to Jurisdiction; Service of
Process; Waiver of Jury Trial.
(a) Any claim arising out of or relating to this Agreement
or the transactions contemplated hereby may be instituted in any
Federal court in the State of New York or if jurisdiction is not
available in such court, any court sitting in New York County,
New York, and each Party agrees not to assert, by way of motion,
as a defense or otherwise, in any such claim, that it is not
subject personally to the jurisdiction of such court, that the
claim is brought in an inconvenient forum, that the venue of the
claim is improper or that this Agreement or the subject matter
hereof may not be enforced in or by such court. Each party
further irrevocably submits to the jurisdiction of such court in
any such claim.
Any and all service of process and any other notice in any such
claim shall be effective against any Party if given personally
or by registered or certified mail, return receipt requested, or
by any other means of mail that requires a signed receipt,
postage prepaid, mailed to such Party as herein provided.
Nothing herein contained shall be deemed to affect the right of
any Party to serve process in any manner permitted by law or to
commence legal proceedings or otherwise proceed against any
other Party in any other jurisdiction.
II-28
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH
PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
SUCH PARTY MAY HAVE TO A TRIAL BY JURY.
(c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT
(i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
WAIVER IN SECTION 10.15(b), (ii) SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER,
(iii) SUCH PARTY MAKES SUCH WAIVER VOLUNTARILY AND
(iv) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS, AGREEMENTS
AND CERTIFICATIONS IN SECTION 10.15(b) AND THIS
SECTION 10.15(c).
[Remainder
of page intentionally left blank]
II-29
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
ALDEN GLOBAL DISTRESSED OPPORTUNITIES MASTER FUND, L.P.
(solely with respect to Sections 2.3, 5.2, 5.3, 5.4,
5.5 and 5.8, and Article IV, Article IX and
Article X)
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|
|
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Title:
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Authorized Signatory
|
ALDEN GLOBAL VALUE RECOVERY MASTER FUND, L.P. (solely with
respect to Sections 2.3, 5.2, 5.3, 5.4, 5.5 and 5.8 and
Article IV, Article IX and Article X)
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|
|
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Title:
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Authorized Signatory
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ALDEN MEDIA HOLDINGS, LLC
Name: Jim Plohg
JS ACQUISITION, LLC
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By:
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/s/ Jeffrey H. Smulyan
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JEFFREY M. SMULYAN
(solely with respect to Sections 2.3, 5.1, 5.2, 5.3,
5.4, 5.5 and 5.8 and Article X)
/s/ Jeffrey H. Smulyan
[Signature Page to the Securities Purchase Agreement]
II-30
ANNEX 5.4(a)
INVESTOR
ECC SHARES
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ECC Class A
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ECC Preferred
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Common Stock
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Stock
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Alden Global Distressed Opportunities Master Fund, L.P.
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1,406,500
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1,162,737
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(1) |
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Alden and its Affiliates disclaim any beneficial ownership in
securities that may be referenced in cash-settled equity swap
contracts or that may be held from time to time by any
counterparties to the contracts. |
Investor ECC Shares shall not
include any Controlling Stockholder ECC Shares as set forth on
Annex 5.4(b), which Alden and its Affiliates may be deemed
to beneficially own
Annex 5.4(a)
Page 1
ANNEX 5.4(b)
CONTROLLING
STOCKHOLDER ECC SHARES
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ECC Class A
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ECC Class B
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Common Stock
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Common Stock
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Jeffrey H. Smulyan
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29,752.0745(1
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)
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4,930,680(2
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)
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The Smulyan Family Foundation
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30,625(3
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)
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0
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Controlling Stockholder Options
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97,565(4
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)
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1,170,796(5
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)
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(1) |
|
Consists of (i) 5,877.0745 shares of ECC Class A
Common Stock held in the Controlling Stockholders 401(k)
Plan, (ii) 9,755 shares of ECC Class A Common
Stock held by the Controlling Stockholder individually,
(iii) 11,120 shares of ECC Class A Common Stock
held by the Controlling Stockholder as trustee for his children
and (iv) 3,000 shares of ECC Class A Common Stock
held by the Controlling Stockholder as trustee for his niece. |
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(2) |
|
Consists of 4,930,680 shares of ECC Class B Common
Stock held by the Controlling Stockholder individually. |
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(3) |
|
Consists of 30,625 shares of ECC Class A Common Stock
held by The Smulyan Family Foundation, as to which the
Controlling Stockholder shares voting and dispositive control. |
|
(4) |
|
Consists of options to purchase 97,565 shares of
Class A Common Stock held by the Controlling Stockholder
directly. |
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(5) |
|
Consists of options to purchase 1,170,796 shares of
Class B Common Stock held by the Controlling Stockholder
directly. |
Controlling Stockholder ECC Shares
shall not include any Investor ECC Shares as set forth on
Annex 5.4(a), which the Controlling Stockholder and its
Affiliates may be deemed to beneficially own.
Annex 5.4(b)
Page 1
ANNEX 10.1(b)
EXPENSES
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BIA Capital Strategies, LLC
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$
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0.5 million
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Paul, Weiss, Rifkind, Wharton & Garrison LLP
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$
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2.0 million1
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Total
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$
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2.5 million
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|
1 Does
not include Transaction Expenses incurred by the Controlling
Stockholder in connection with the Transactions.
Annex 10.1(b)
Page 1
Appendix
III
Form of
Amended and Restated Operating Agreement
Appendix
III
FORM OF
AMENDED AND RESTATED OPERATING AGREEMENT
AMENDED
AND RESTATED
OPERATING AGREEMENT
of
JS ACQUISITION, LLC
by and between
ALDEN MEDIA HOLDINGS, LLC,
JEFFREY H. SMULYAN,
JS ACQUISITION, LLC
and
CERTAIN OTHER PARTIES
Dated as
of ,
2010
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN
JURISDICTION. THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
AFORESAID ACT AND APPLICABLE STATE AND FOREIGN SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF AFORESAID ACT AND SUCH LAWS.
TABLE
OF CONTENTS
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Page
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ARTICLE I DEFINITIONS
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III-1
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1.1
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Defined Terms
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III-1
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ARTICLE II THE COMPANY
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III-10
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2.1
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Name
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III-10
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2.2
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Term
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III-10
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2.3
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Registered Agent and Registered Office
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III-10
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2.4
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Purposes
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III-10
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2.5
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Powers of the Company
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III-10
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ARTICLE III MANAGEMENT AND GOVERNANCE
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III-10
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3.1
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Board of Directors
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III-10
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3.2
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Composition of the Board
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III-10
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3.3
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Meetings
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III-11
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3.4
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Quorum; Voting
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III-11
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3.5
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Matters Requiring Certain Approval
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III-11
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3.6
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Compensation of Directors
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III-13
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3.7
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Officers
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III-13
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3.8
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ECC Governance
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III-13
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3.9
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Action by Members
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III-13
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ARTICLE IV MEMBERS
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III-13
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4.1
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Limitations
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III-13
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4.2
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Liability
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III-14
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4.3
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Priority
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III-14
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4.4
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Additional Members
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III-14
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4.5
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Non-Transferability of Rights and Obligations
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III-14
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ARTICLE V TAX, ACCOUNTING AND FINANCIAL INFORMATION
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III-14
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5.1
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Fiscal Year
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III-14
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5.2
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Accounting Method
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III-14
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5.3
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Tax Returns
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III-14
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5.4
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Inconsistent Positions
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III-14
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5.5
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Books and Records
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III-14
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5.6
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Financial Reports
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III-15
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5.7
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Tax Matters Partner
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III-15
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ARTICLE VI OWNERSHIP INTERESTS; CAPITAL CONTRIBUTIONS
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III-15
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6.1
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Common Interests; Series A Preferred Interests; Capital
Contributions
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III-15
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6.2
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Capital Accounts
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III-16
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6.3
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Withdrawal of Contributions
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III-16
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6.4
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No Interest
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III-16
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ARTICLE VII ALLOCATIONS
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III-16
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7.1
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General
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III-16
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7.2
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Other Allocation Provisions
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III-17
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7.3
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Allocations for Income Tax Purposes
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III-19
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III-i
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Page
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ARTICLE VIII DISTRIBUTIONS
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III-19
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8.1
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Distributions
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III-19
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8.2
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Tax Withholding; Withholding Advances
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III-19
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8.3
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Limitations on Distributions
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III-20
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8.4
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Reserves
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III-20
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8.5
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Distribution Demands
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III-20
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8.6
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Distribution of ECC Shares
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III-20
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ARTICLE IX TRANSFER RESTRICTIONS; LIQUIDITY RIGHTS
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III-21
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9.1
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General Restrictions on Transfers
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III-21
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9.2
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Restrictions on Transfers by Members
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III-22
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9.3
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Exceptions to Transfer Restrictions
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III-22
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9.4
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Tag-Along Rights
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III-22
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9.5
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Drag-Along Rights
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III-23
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9.6
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Right of First Offer
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III-24
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9.7
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Buy/Sell Agreement
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III-25
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9.8
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Put and Call Rights
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III-28
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9.9
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Ownership Restrictions
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III-30
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ARTICLE X ADDITIONAL MATTERS
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III-32
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10.1
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Adjustment of Alden Percentage Interest
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III-32
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10.2
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IPO; Registration Rights
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III-33
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10.3
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Series A Redemption
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III-34
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10.4
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Credit Agreement Refinancing and Refinancing Redemption
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III-34
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10.5
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Exchanged ECC Shares
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III-35
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10.6
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Subordinated Notes
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III-35
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10.7
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Key-Man Policy
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III-35
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10.8
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Member Loans
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III-35
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ARTICLE XI INDEMNIFICATION
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III-36
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11.1
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Indemnification by the Company
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III-36
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11.2
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Survival
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III-37
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ARTICLE XII DISSOLUTION AND TERMINATION
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III-37
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12.1
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Withdrawal of Members
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III-37
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12.2
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Dissolution of Company
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III-37
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12.3
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Distribution in Liquidation
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III-38
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12.4
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Final Reports
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III-39
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12.5
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Rights of Members
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III-39
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12.6
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Deficit Restoration
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III-39
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12.7
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Termination
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III-39
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ARTICLE XIII CONFIDENTIALITY; PUBLICITY
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III-39
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13.1
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Confidentiality; Publicity
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III-39
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ARTICLE XIV MISCELLANEOUS
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III-40
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14.1
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Further Instruments
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III-40
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14.2
|
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Notices
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III-40
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III-ii
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Page
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14.3
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Entire Agreement
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|
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III-40
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|
14.4
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|
Amendment and Wavier
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III-41
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14.5
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Governing Law
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III-41
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14.6
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Binding Effect; Assignment
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III-41
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14.7
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Usage
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III-41
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14.8
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Articles and Sections
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III-41
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14.9
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Interpretation
|
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III-41
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14.10
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Severability of Provisions
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III-41
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14.11
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Counterparts
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III-42
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14.12
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No Personal Liability
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III-42
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14.13
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No Third Party Beneficiaries
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III-42
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|
14.14
|
|
Consent to Jurisdiction; Service of Process; Waiver of Jury Trial
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III-42
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|
Annexes
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Annex 3.5(g)
|
|
A-Affiliate Arrangements
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Annex 6.1(c)
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|
A-Ownership Interests
|
Annex 6.2(d)
|
|
A-Capital Accounts
|
Annex 9.7(g)
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|
A-Buy/Sell Financing
|
Annex 9.8(f)
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|
A-Put/Call Financing
|
Annex 14.2(c)
|
|
A-Other Member Notice
|
Exhibits
|
|
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Exhibit A
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A-Form of Junior Subordinated Notes Indenture
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Exhibit B
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A-Form of Seller Note
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Exhibit C
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A-Form of Senior Subordinated Notes Indenture
|
III-iii
AMENDED
AND RESTATED
OPERATING AGREEMENT
OF JS ACQUISITION, LLC
Amended and Restated Operating Agreement (this
Agreement) of JS Acquisition, LLC, an
Indiana limited liability company (the
Company) , dated as
of ,
2010, by and between Alden Media Holdings, LLC, a Delaware
limited liability company (Alden),
Jeffrey H. Smulyan, an individual
(Smulyan) and the other parties
designated as Other Members on the signature pages
hereto (the Other Members and,
together with Alden, Smulyan and any other Person who
hereinafter becomes a party as a Member hereto, the
Members), and the Company.
WHEREAS, the Company (a) was formed as a limited liability
company on May 3, 2010 pursuant to and in accordance with
the laws of the State of Indiana pursuant to the filing of
articles of organization in the office of the Secretary of State
of the State of Indiana and (b) adopted the Operating
Agreement of the Company, dated as of May 6, 2010 (the
Initial Operating Agreement), pursuant
to which Smulyan owned all of the ownership interests in the
Company;
WHEREAS, concurrently with the execution of this Agreement, the
Company issued to Alden, and Alden purchased from the Company,
(i) Series A Preferred Interests (as defined below)
and (ii) Common Interests (as defined below) having a
Percentage Interest (as defined below) as described on
Annex 6.1(c) hereto, pursuant to the Securities Purchase
Agreement, dated as of May 24, 2010, between Alden, the
Company and, for purposes specified therein, Smulyan and the
Other Members (the Securities Purchase
Agreement);
WHEREAS, concurrently with the execution of this Agreement, the
Other Members contributed to the Company shares of Class A
Common Stock, par value $0.01 per share, of Emmis Communications
Corporation, an Indiana corporation
(ECC), and, in exchange for such
contribution, the Company issued Common Interests to the Other
Members having a Percentage Interest as described on
Annex 6.1(c) hereto, pursuant to the Rollover Agreement,
dated as of May 24, 2010, by and among the Company and the
Other Members (the Rollover Agreement);
WHEREAS, after giving effect to such issuances, Smulyan shall
own Common Interests having a Percentage Interest as described
on Annex 6.1(c) hereto; and
WHEREAS, the Members and the Company desire to amend and restate
in its entirety the Initial Operating Agreement, as set forth
herein.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements entered into herein,
and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms.
(a) For all purposes of this Agreement, the following terms
shall have the respective meanings set forth in this
Section 1.1 (such definitions to be equally applicable to
both the singular and plural forms of the terms herein defined):
Affiliate means, with respect to any
Person, any other Person controlling, controlled by or under
common control with such Person. The term control
(including, with correlative meaning, the terms controlled
by and under common control with), as applied
to any Person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting
or other securities, by contract or otherwise.
Alden Members means Alden and any of
its Permitted Transferees that own Ownership Interests.
Applicable Federal Rate means, as of
such date, the applicable federal rate for short-term
obligations as published by the Internal Revenue Service.
III-1
Back-End Merger means the merger of
ECC and Mergerco whereby ECC shall be the surviving corporation
thereof.
Bankruptcy Code means Title 11 of
the United States Code.
Business Day means a day other than
Saturday, Sunday or any day on which banks located in New York,
New York are authorized or obligated by law to close.
Capital Contribution means, with
respect to any Member, the amount of cash or the Fair Market
Value of any assets contributed from time to time to the Company
with respect to the Ownership Interests held by such Member
pursuant to the provisions of this Agreement.
Change of Control Event shall mean
(a) the death of Jeffrey H. Smulyan, (b) as a result
of incapacity due to physical or mental illness, Jeffrey H.
Smulyan having been absent from full-time performance of his
duties as Chairman and Chief Executive Officer of the Company,
ECC or Emmis Operating Company (or their respective successors
following any restructuring thereof) for a period of six
(6) consecutive months, (c) the termination of Jeffrey
H. Smulyans employment with Emmis Operating Company (or to
the extent Emmis Operating Company is no longer the primary
operating entity with respect to the business of the Company and
its Subsidiaries, such successor primary operating entity), or
(d) any other material and adverse reduction (other than
those described in clause (a), (b), or (c) or vacation in
the ordinary course) in the position, duties and
responsibilities of Jeffrey H. Smulyan with respect to the Emmis
Operating Company (or to the extent Emmis Operating Company is
no longer the primary operating entity with respect to the
business of the Company and its Subsidiaries, such successor
primary operating entity); provided, that, in the case of
clause (d), any Member asserting that a Change of Control Event
has occurred shall provide the Company notice thereof and the
Company shall be entitled to a period of up to 10 Business Days
to cure such alleged Change of Control.
Code means the Internal Revenue Code
of 1986, as amended (including any successor code), and the
rules and regulations promulgated thereunder.
Common Interests means Common
Interests of the Company representing the right to participate
in any Distribution pursuant to Section 8.1(a)(iv) in
accordance with the Percentage Interest attributable to such
Common Interests.
Controlling Members means the Smulyan
Members or any other Member that owns Common Interests having an
aggregate Percentage Interest in excess of 50%; provided that
the Alden Members shall not become Controlling Members as a
result of the Common Interests held by them (including under
Section 10.1) prior to the seventh anniversary of the
Effective Date or except as provided in the next sentence. For
the avoidance of doubt, the Smulyan Members shall remain
Controlling Members even if the collective Percentage Interests
of the Common Interests held by them is not in excess of 50% and
another Person (including the Alden Members) shall only be
considered a Controlling Member if (i) the Smulyan Members
transfer Common Interests to such Person such that such Person
holds Common Interests having an aggregate Percentage Interest
in excess of 50% (it being understood that any increases of the
Alden Percentage Interest as a result of adjustments pursuant to
Section 10.1 shall not be considered a transfer for such
purpose) or (ii) after the seventh anniversary of the
Effective Date, the Alden Members own Common Interests having an
aggregate Percentage Interest in excess of 50%.
Credit Agreement means the Amended and
Restated Revolving Credit and Term Loan Agreement by and among
ECC, Emmis Operating Company and Bank of America, N.A., as
administrative agent for itself and other Lenders, dated
November 2, 2006, as amended through the date hereof.
Distributed ECC Shares means, with
respect to any Preferred Proceeds, a number of ECC Non-Voting
Shares, or fractions thereof, as equals (x) a fraction, the
numerator of which is amount of such Preferred Proceeds and the
denominator of which is the Fair Market Value of all issued and
outstanding ECC Non-Voting Shares as determined by the Board
multiplied by (y) the number of issued and outstanding ECC
Non-Voting Shares at the time of such distribution;
provided, that such number of
III-2
Distributed ECC Shares shall be adjusted as may be necessary to
avoid any FCC or regulatory filings as would result upon their
distribution to holders of Series A Preferred Interests.
Distribution Letter means that certain
letter agreement, by and among ECC, the Company, Smulyan and
Alden, dated as of May 24, 2010.
ECC means Emmis Communications
Corporation, an Indiana corporation.
Effective Date means the date hereof.
Emmis Operating Company means Emmis
Operating Company, an Indiana corporation and a wholly-owned
Subsidiary of ECC.
Exchanged ECC Shares means, with
respect to any Series A Preferred Interests to be exchanged
pursuant to Section 10.5, a number of ECC Non-Voting Shares
which, in the aggregate, have a Fair Market Value, after taking
into account the issuances thereof, equal to the Liquidation
Preference of such Series A Preferred Interests to be
exchanged.
Exchanged Preferred Unrecovered
Capital means the Preferred Unrecovered Capital
attributable to any Series A Preferred Interests exchanged
for Exchanged ECC Shares.
Fair Market Value of any asset of the
Company as of any date means the fair market value of such asset
as of such date, with the fair market value of the type of
assets described below being determined as follows:
(a) Securities listed on one or more of the New York Stock
Exchange or the American Stock Exchange (each a
National Securities Exchange) shall be
valued at their last reported sales prices on the date of
determination (or if the date of determination is not a Business
Day, on the last Business Day immediately prior to such date of
determination). If no such sales of such Securities occurred on
such date, such Securities shall be valued at the mean of the
last bid and ask prices on the date of
determination on the National Securities Exchange which has the
highest average daily volume for such Security over the last
60 days on or prior to the date of determination (or, if
the date of determination is not a date upon which such National
Securities Exchange was open for trading, on the last prior date
on which such National Securities Exchange was so open);
(b) Securities which are not listed on a National
Securities Exchange shall be valued at a price equal to
(i) in the case of Securities designated as a National
Market System Security under
Rule 11Aa2-1
of the Securities Exchange Act of 1934, as amended, and traded
on the NASDAQ, its last sales price on the date of determination
on the NASDAQ (or, if the date of determination is not a date
upon which the NASDAQ is open for trading, on the last prior
date on which the NASDAQ was so open), or (ii) in the case
of other Securities, the mean of the last bid and
ask prices on the date of determination as reported
by the NASDAQ or as reported in the pink sheets
published by the National Daily Quotation Service; and
(c) Any investment that cannot be reliably valued using the
principles set forth above (a Fair Value
Instrument) will be marked at its fair value,
based upon an estimate made by the Board, using what the Board
believes, in its discretion, to be appropriate techniques
consistent with market practices for the relevant type of
investment fair valuation in this context depends on the facts
and circumstances of the particular investment, including but
not limited to prevailing market and other relevant conditions,
and refers to the amount for which a financial instrument could
be exchanged between knowledgeable, willing parties in an
arms length transaction. Fair value is not the amount that
an entity would receive or pay in a forced transaction or
involuntary liquidation.
The process used to estimate a fair value for an investment may
include a single technique or, where appropriate, multiple
valuation techniques, and may include, without limitation and in
the discretion of the Board, the consideration of one or more of
the following factors, to the extent relevant:
(i) broker/dealer quotations, (ii) the cost of the
investment, (iii) a review of comparable sales (if any),
(iv) a discounted cash flow analysis, (v) an analysis
of cash flow multiples, (vi) a
III-3
review of third-party appraisals, (vii) other material
developments in the investment and (viii) other factors.
For each Fair Value Instrument, the Board will endeavor to
obtain quotes from broker-dealers that are market makers in the
related asset class or lending agents
and/or
pricing services.
With respect to any Fair Value Instruments valued by the Board,
not less than two times per year, an independent third-party
valuation service shall be engaged to review, analyze and
approve any fair valuations.
This paragraph (c) will not apply to (i) any
determination of the value of the Company or any Ownership
Interests in the Company or (ii) any determination of the
Fair Market Value of any ECC Non-Voting Shares, as to which the
fair market value shall be determined upon a reasonable basis
and in good faith by the Board.
Any determination of the Fair Market Value or of the fair market
value of an asset of the Company made in good faith by the Board
in accordance with the above shall be binding on the Members for
all purposes of this Agreement.
Family Member means, with respect to a
Person, a member of such Persons immediate family, which
shall include his spouse, siblings, children or grandchildren.
FCC means the Federal Communications
Commission.
Junior Subordinated Notes means 15%
Junior Subordinated Notes due 2017 of ECC, to be issued pursuant
to an Indenture in the form set forth on Exhibit A attached
hereto, which will be executed prior to the issuance of such
Notes pursuant to the Distribution Letter.
Liquidation Preference means, with
respect to any Series A Preferred Interests as of any such
date, the amount distributable with respect to such
Series A Preferred Interests pursuant to
Sections 8.1(a)(i) and 8.1(a)(ii) (after taking into
account any amounts previously distributed with respect to the
Series A Preferred Interests pursuant thereto).
Member Recourse Deduction with respect
to a Fiscal Year means a Company loss or deduction with respect
to such Fiscal Year that is attributable (under Code
Section 704(b) and the Treasury Regulations thereunder) to
a Company liability that is recourse for purposes of Treasury
Regulations § 1.752-1(a)(1).
Net Income and Net
Loss, respectively, for any period means the net
income or loss of the Company for such period as determined in
accordance with the method of accounting followed by the Company
for Federal income tax purposes, including, for all purposes,
any income exempt from tax and any expenditures of the Company
that are described in Code Section 705(a)(2)(B);
provided, however, that in determining Net Income
and Net Loss and every item entering into the computation
thereof, solely for the purpose of adjusting the Capital
Accounts of the Members (and not for tax purposes), (i) any
income, gain, loss or deduction attributable to the taxable
disposition of any Company asset shall be computed as if the
adjusted basis of such Company asset on the date of such
disposition equaled its book value as of such date, (ii) if
any Company asset is distributed in-kind to a Member, the
difference between its Fair Market Value and its book value at
the time of such distribution shall be treated as gain or loss,
and (iii) any depreciation, cost recovery and amortization
as to any Company asset shall be computed by assuming that the
adjusted basis of such Company asset equaled its book value
determined under the methodology described in Regulation
§ 1.704-l(b)(2)(iv)(g)(3); and provided,
further, that any item (computed with the adjustments in
the preceding proviso) allocated under Section 7.2 shall be
excluded from the computation of Net Income and Net Loss.
Non-Controlling Members means each of
the Members other than the Controlling Members.
Ownership Interests means
Series A Preferred Interests, Common Interests and any
other class or series of ownership interests of the Company
hereafter created by the Company.
Ownership Minimum means, with respect
to the Alden Members, (a) beneficial ownership of Common
Interests representing a Percentage Interest of at least 10% or
(b) beneficial ownership of
III-4
Series A Preferred Interests with an aggregate Preferred
Unrecovered Capital in excess of
$[ ].1
Percentage Interest means, with
respect to any Members Common Interests, the percentage
set forth next to such Members name on Annex 6.1(c)
as may be amended from time to time to reflect new issuances,
redemptions and transfers, and in any event consistent with
Section 10.1.
Permitted Transferee means, with
respect to a specified Person, (a) any Affiliate of such
Person; (b) in the case of any Member who is an individual,
to (x) any Family Member of such Member or (y) a
trust, corporation, partnership or limited liability company,
all of the beneficial interests in which shall be held by such
Member
and/or one
or more Family Members of such Member; provided, however, that
during the period that any such trust, corporation, partnership
or limited liability company holds any right, title or interest
in any Ownership Interests, no Person other than such Member
and/or one
or more Family Members of such Member may be or may become
beneficiaries, stockholders, limited or general partners or
members thereof (provided that, in the case of both (a) and
(b), such Person is not a Restricted Transferee, and in the case
of (b), such Person provides an irrevocable voting proxy to the
transferring Member and such transferring Member votes such
Securities in the same manner as such Member votes Securities
beneficially owned by him); (c) in the case of any Smulyan
Member or Other Member, any Smulyan Member or any Other Member;
and (d) in the case of any Alden Member, any Person who is
an ultimate beneficial owner of such Alden Member.
Person means any individual,
corporation, partnership, limited liability company, limited
liability partnership, firm, joint venture, association,
joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
Preferred Return means a preferred
return on such Members Preferred Unrecovered Capital equal
to: (a) from the Effective Date until the second
anniversary of the Effective Date, 5% per annum, (b) from
and after the second anniversary of the Effective Date, 15% per
annum, in each case, accruing monthly and compounding on a
quarterly basis.
Preferred Unrecovered Capital means,
with respect to any Member, the total Capital Contributions made
by such Member with respect to such Members Series A
Preferred Interests, as reflected on Annex 6.1(c) as
amended from time to time to reflect payments pursuant to
Section 8.1(a)(ii), reduced by the total amount distributed
to such Member pursuant to Section 8.1(a)(ii).
Prime Rate shall mean the prime rate
(the base rate on corporate loans at large U.S. money
center commercial banks) as published in the Money Rates section
of the Wall Street Journal or other equivalent publication if
the Wall Street Journal no longer publishes such information;
provided, that if more one such prime rate is published on any
given day, the lowest of such published rates shall be the Prime
Rate for purposes of this Agreement.
Pro Rata Portion shall mean, with
respect to the Common Interests held by any Selling Member or
Non-Selling Member that delivered such written notice, a number
equal to the product of (i) the Percentage Interest
proposed to be sold to a purchaser as set forth in a Transfer
Notice and (ii) a fraction, the numerator of which shall be
the Percentage Interest beneficially owned by such Selling
Member or Non-Selling Member, as applicable, and the denominator
of which shall be the Percentage Interest beneficially owned by
all (x) Selling Members, (y) all Non-Selling Members
that delivered such written notices and (z) all other
Persons who otherwise are transferring, or have the contractual
or other right to transfer, Common Interests in such transaction.
Primary Members means (a) the
Alden Members, for so long as the Alden Members maintain the
Ownership Minimum, and (b) the Smulyan Members.
Purchase Price has the meaning set
forth for such term in the Securities Purchase Agreement.
1
Amount to equal 10% initial Preferred Unrecovered Capital with
respect to Aldens Series A Preferred Interests.
III-5
Registration Rights Agreement means
the Registration Rights Agreement, by and between the Company,
Alden and Smulyan, dated as of the date hereof.
Qualifying IPO shall mean an initial
public offering of securities, or the last in a series of public
offerings, of a Newco, the Company, ECC, Emmis Operating Company
or any of their respective Affiliates (a) which is
registered under the Securities Act in which the aggregate gross
cash proceeds to the entity or entities making such offering
(before underwriting discounts, commissions and fees) are at
least $50,000,000 (b) and the securities subject to such
offering are listed on a National Securities Exchange or
approved for quotation on the National Association of Securities
Dealers, Inc. automated quotation system, (c) upon which
all Common Interests shall have been converted into or exchanged
for the type of securities subject to such offering pursuant to
Section 10.2 and (d) the underwriter thereof is among the
top 10 underwriters in the most recent Thomson Reuters
U.S. IPO League Table (or closest equivalent thereof if no
longer in publication); provided that, the minimum threshold
described in clause (a) shall not apply to any offering
effected in order to satisfy: (x) the Companys
obligations under clause (i) or (ii) of
Section 9.7(b) or clause (i) or (ii) of
Section 9.7(c), in each case, that includes all of the
Common Interests then owned by the Alden Members; or
(y) the Companys obligations under
Section 9.8(a) or Section 9.8(b) that includes all of
the Common Interests then owned by the Put/Call Members.
Regulation means a Treasury Regulation
promulgated under the Code.
Securities means any foreign or
domestic securities, as defined in Section 2(1)
of the Securities Act of 1933, as amended, or
Section 3(a)(10) of the Securities Exchange Act of 1934, as
amended, and shall include common or preferred stocks, limited
partnership interests, limited liability company or membership
interests, investment contracts, certificates of deposit, trade
acceptances and trade claims, convertible securities, fixed
income securities, notes or other evidences of indebtedness of
other Persons, warrants, rights, synthetic securities, put and
call options on any of the foregoing, other options related
thereto, interests or participations therein or any combination
of any of the foregoing.
Securities Act means the Securities
Act of 1933, as amended.
Seller Note means a Seller Note issued
by the Company or one or more of the Smulyan Members to one or
more of the Alden Members, in the form set forth on
Exhibit B attached hereto.
Senior Subordinated Notes means the
12% Senior Subordinated Notes due 2017 of ECC issued
pursuant to an Indenture in the form attached hereto as
Exhibit C.
Series A Preferred Interests
means Series A Convertible Redeemable PIK Preferred
Interests of the Company having the terms and conditions set
forth herein.
Smulyan Members means Smulyan and any
of his Permitted Transferees that own Ownership Interests.
Subsidiary means, with respect to any
Person, any corporation, partnership, trust, limited liability
company or other non-corporate business enterprise in which such
Person (or another Subsidiary of such Person) holds stock or
other ownership interests representing (A) more that 50% of
the voting power of all outstanding stock or ownership interests
of such entity, (B) the right to receive more than 50% of
the net assets of such entity available for distribution to the
holders of outstanding stock or ownership interests upon a
liquidation or dissolution of such entity or (C) a general
or managing partnership interest in such entity.
The following capitalized terms are defined in the following
Sections of this Agreement:
|
|
|
Term
|
|
Section
|
|
Acceptance Notice
|
|
9.6(c)
|
Accepting Party
|
|
9.6(d)
|
Accreted Percentage
|
|
10.1(c)(v)
|
Additional Percentages
|
|
10.1(c)(v)
|
III-6
|
|
|
Term
|
|
Section
|
|
Adjusted Capital Account
|
|
7.2(b)
|
Agreement
|
|
Preamble
|
Alden
|
|
Preamble
|
Alden Common Interests
|
|
9.7(a)
|
Alden Common Percentage
|
|
10.1(c)(i)
|
Alden Common Rights
|
|
9.7(a)
|
Alden Directors
|
|
3.2(a)
|
Alden Future Rights
|
|
9.7(a)
|
Alden Offer
|
|
9.7(a)
|
Alden Percentage Interest
|
|
10.1(a)
|
Appraised Price
|
|
10.7
|
Attribution Rules
|
|
9.9(g)
|
Board
|
|
3.1
|
Buy/Sell Financing Period
|
|
9.7(g)
|
Buy/Sell Offer
|
|
9.7(a)
|
Buy/Sell Ratio
|
|
9.7(b)
|
Call Notice
|
|
9.8(a)
|
Call Sale
|
|
9.8(a)
|
Capital Account
|
|
6.2(a)
|
CEO
|
|
3.7(a)
|
Claim Notice
|
|
11.1(b)
|
Common Interest Issuances
|
|
10.1(c)(ii)
|
Common Interest Repurchase
|
|
10.1(c)(iii)
|
Communications Laws
|
|
9.9(a)
|
Company
|
|
Preamble
|
Credit Agreement Refinancing
|
|
10.4(a)
|
Deal Fee
|
|
10.4(c)
|
Director
|
|
3.1
|
Distribution
|
|
8.1(a)
|
Drag-Along Notice
|
|
9.5(a)
|
Drag-Along Sale
|
|
9.5(a)
|
ECC
|
|
Recitals
|
ECC Distribution
|
|
8.6
|
ECC Distribution Notice
|
|
8.6
|
ECC Non-Voting Shares
|
|
3.8
|
ECC Share Demand
|
|
8.6
|
ECC Voting Shares
|
|
3.8
|
Fiscal Year
|
|
5.1
|
Foreign Ownership Rules
|
|
9.9(a)
|
Full Price
|
|
10.1(c)(v)
|
HSR Act
|
|
9.4(c)
|
HSR Act
|
|
Recitals
|
Indemnitee
|
|
11.1(a)
|
Independent Appraiser
|
|
9.8(c)
|
III-7
|
|
|
Term
|
|
Section
|
|
Indiana Act
|
|
2.3
|
Initial Operating Agreement
|
|
Recitals
|
Initial Percentage
|
|
10.1(c)(iv)
|
Insurance Proceeds
|
|
10.7
|
Key-Man Policy
|
|
10.7
|
Liquidator
|
|
12.2(b)
|
Losses
|
|
11.1(a)
|
Media Company
|
|
9.9(g)
|
Member Loans
|
|
10.8(a)
|
Members
|
|
Preamble
|
Minority Common Interests
|
|
9.8(a)
|
Multiple Ownership Rules
|
|
9.9(g)
|
Negotiation Period
|
|
9.8(c)
|
Newco
|
|
10.2(a)
|
Non-Selling Member
|
|
9.4(a)
|
Offer
|
|
9.6(a)
|
Offer Notice
|
|
9.6(a)
|
Offer Percentage
|
|
9.7(a)
|
Offer Period
|
|
9.6(b)
|
Offer Price
|
|
9.6(a)
|
Offeree Holder
|
|
9.7(a)
|
Offering Holder
|
|
9.7(a)
|
Officers
|
|
3.7(a)
|
Operative Agreements
|
|
13.1
|
Other Members
|
|
Preamble
|
Party Appraiser
|
|
9.8(c)
|
Per Share Cash Value
|
|
8.6
|
Per Share Exchange Value
|
|
10.5
|
Preferred Proceeds
|
|
8.6
|
Put Notice
|
|
9.8(b)
|
Put Sale
|
|
9.8(b)
|
Put/Call Financing Period
|
|
9.8(f)
|
Put/Call Members
|
|
9.8(a)
|
Put/Call Party
|
|
9.8(c)
|
Put/Call Price
|
|
9.8(c)
|
Put/Call Sale
|
|
9.8(b)
|
Recipient
|
|
13.1
|
Redemption Note
|
|
9.9(c)(iii)
|
Refinancing Redemption
|
|
10.4(a)
|
Restricted Transferee
|
|
9.9(a)
|
Rollover Agreement
|
|
Recitals
|
Securities Purchase Agreement
|
|
Recitals
|
Selling Members
|
|
9.4(a)
|
Series A Redemption
|
|
10.3
|
III-8
|
|
|
Term
|
|
Section
|
|
Smulyan
|
|
Preamble
|
Smulyan Directors
|
|
3.2(a)
|
Smulyan Offer
|
|
9.7(a)
|
Tag-Along Sale
|
|
9.4(a)
|
Tax Matters Partner
|
|
5.7
|
Taxable Members
|
|
7.2(g)
|
transfer
|
|
9.1(a)
|
Transfer Consideration
|
|
9.6(b)
|
Transfer Notice
|
|
9.4(a)
|
Transfer Period
|
|
9.6(g)
|
Transfer Securities
|
|
9.6(a)
|
Unit Price
|
|
9.7(a)
|
Violation
|
|
9.9(c)
|
Withholding Advances
|
|
8.2(b)
|
III-9
ARTICLE II
THE COMPANY
2.1 Name. The name of the
Company shall be JS Acquisition, LLC. The Board may change the
name of the Company at any time.
2.2 Term. The Company shall
have perpetual existence unless sooner dissolved and its affairs
wound up as provided in Article XII.
2.3 Registered Agent and Registered
Office. The name of the registered agent of
the Company for service of process on the Company in the State
of Indiana shall be Taft Stettinius & Hollister LLP,
and the address of such registered agent and the address of the
registered office of the Company in the State of Indiana shall
be: Taft Stettinius & Hollister LLP, One Indiana
Square, Suite 3500, Indianapolis, IN 46204, Att: James A.
Strain. Such office and such agent may be changed to such place
within the State of Indiana and any successor registered agent,
respectively, as may be determined from time to time by the
Board in accordance with the Indiana Business Flexibility Act,
as amended from time to time (the Indiana
Act).
2.4 Purposes. The Company
has been formed for the object and purpose of engaging in any
lawful act or activity for which a limited liability company may
be organized under the Indiana Act.
2.5 Powers of the
Company. The Company shall have the power and
authority to take any and all actions necessary, appropriate or
advisable to or for the furtherance of the purposes set forth in
Section 2.4.
ARTICLE III
MANAGEMENT
AND GOVERNANCE
3.1 Board of
Directors. Except as expressly provided in
Section 3.5, otherwise in this Agreement or the Indiana
Act, the business and affairs of the Company shall be managed,
operated and controlled by the board of directors of the Company
(the Board) in accordance with the
terms of this Agreement, no Members shall have management
authority or rights over the Company and the Board shall have
the power to do any and all acts necessary or convenient to or
for the furtherance of the purposes described herein. Without
limiting the generality of the foregoing, the Board shall have
all the rights and powers that may be possessed by a manager
under the Indiana Act and each director of the Board (a
Director) shall constitute a
manager of the Company, as defined in the Indiana
Act. No individual Director in his or her capacity as such shall
have the authority to act for or on behalf of the Company, to do
any act that would be legally binding on the Company or to incur
any obligations or liabilities for or on behalf of the Company
unless expressly authorized to do so by the Board or by this
Agreement.
3.2 Composition of the Board.
(a) From and after the date hereof and so long as the Alden
Members maintain the Ownership Minimum, (i) the number of
Directors shall be fixed at seven, (ii) Alden shall be
entitled to designate two of the seven Directors;
provided, that if the Alden Members own Common
Interests representing a Percentage Interest of 40%, Alden shall
be entitled to designate three of the seven Directors and, on or
after the seventh anniversary of the Effective Date, if the
Alden Members become the Controlling Member, Alden shall be
entitled to designate four of the seven Directors (any such
Directors designated by Alden, the Alden
Directors) and (iii) the Smulyan Members
shall be entitled to designate all remaining Directors (the
Smulyan Directors); provided,
further, that, notwithstanding the foregoing, if the
Alden Members are the Controlling Members, (x) (1) if the
Smulyan Members own Common Interests representing a Percentage
Interest of less than 40% but greater than or equal 10%, the
Smulyan Members shall only be entitled to designate two
directors and (2) if the Smulyan Members own Common
Interests representing a Percentage Interest of less than 10%,
the Smulyan Members shall not have any rights to designate any
Director and (y) in the case of each of clause (1) or
(2), Alden shall be entitled to designate the remaining
Directors. The removal from the Board (with or without cause) of
any Director designated by a Member shall be at such
Members written request, and only upon such written
request and under no other circumstances; provided,
however that (i) each of Alden or the
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Smulyan Members shall cause Directors to resign if necessary to
effect the appropriate number of Directors as specified above
and (ii) in the event of a Directors conviction of,
or entering into a guilty or nolo contendre plea to, a
felony involving (A) moral turpitude or
(B) dishonesty, fraud, theft or embezzlement involving the
Company, ECC or any of their Affiliates or Subsidiaries, such
Director shall be removed by the Board, whether or not such
Director is an Alden Director or Smulyan Director, and Alden and
the Smulyan Members shall cause their respective designees on
the Board to vote for such removal. In the event that a vacancy
is created at any time upon the death, disability, retirement,
resignation or removal (with or without cause) of any Director
designated by a Member, such Member shall be entitled to
designate the replacement for such Director.
(b) So long as the Alden Members maintain the Ownership
Minimum, at least one Alden Director shall be a member of every
committee of the Board.
(c) From and after the date that the Alden Members no
longer maintain the Ownership Minimum, Alden shall not have any
rights to designate any Director.
(d) The initial Smulyan Directors shall be Jeffrey H.
Smulyan, Gary Kaseff, Richard Leventhal, Patrick Walsh and Greg
Nathanson and the initial Alden Directors shall be Heath Freeman
and Joe Fuchs. Jeffrey H. Smulyan shall be the initial Chairman
of the Board.
3.3 Meetings.
(a) The Board shall hold regular meetings, which shall be
held on such dates and at such times and places as may be
designated from time to time by the Board. No notice of regular
meetings of the Board shall be required, unless the dates, times
or places of such meetings have been changed, in which case
notice of any such meeting shall be given as if it were a
special meeting.
(b) A special meeting of the Board may be called upon the
request of any Director. Written notice of a special meeting of
the Board shall be sent or otherwise given to each Director not
less than twenty-four hours before the time and date of the
meeting. The notice shall specify the place, date and hour of
the meeting and the general nature of the business to be
transacted. No other business may be transacted at a special
meeting other than such business as specified in the notice of
such special meeting.
(c) Any Director may be represented at a meeting of the
Board by another Director by proxy, which proxy must be notified
to the Board by letter or facsimile, signed by the Director
giving the proxy, addressed to the Board and delivered prior to
the commencement of the meeting or may participate by telephone
conference call.
3.4 Quorum; Voting. A quorum
of the Board will consist of Directors representing at least a
majority of all votes of the Directors entitled to be cast as of
such time (including any votes which are not represented at such
meeting in person or by proxy). On all matters submitted to the
Board for approval, each Director shall be entitled to cast one
vote. Subject to Section 3.5, all actions of the Board
shall require the approval of Directors representing at least a
majority of all votes entitled to be cast as of such time
(including any votes which are not represented at such meeting
in person or by proxy or have not consented to such action),
which approval shall require (x) the affirmative vote of
Directors represented in person or by proxy at a meeting of the
Board at which a quorum is present or (y) the unanimous
written consent of Directors.
3.5 Matters Requiring Certain
Approval. In addition to the approval of the
Board in accordance with Section 3.4, for so long as the
Alden Members maintain the Ownership Minimum, the Company shall
not, without the affirmative vote or written consent of at least
one Alden Director and at least one Smulyan Director, undertake
any of the following:
(a) any merger or sale of all or substantially all assets
of the Company, ECC or Emmis Operating Company;
(b) any liquidation or dissolution of the Company, ECC or
Emmis Operating Company (including a dissolution of the Company
pursuant to Article XII);
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(c) any incurrence of indebtedness by the Company, ECC or
any Subsidiary of ECC, the issuance of Ownership Interests by
the Company or the issuance of equity securities by ECC or any
Subsidiary of ECC, other than (x) indebtedness under or
permitted by the Credit Agreement (excluding
Sections 10.1(e), (f) and (k) thereof), the
Junior Subordinated Notes issued to the Alden Members and the
Senior Subordinated Notes issued on or before the date of the
Back-End Merger or any indebtedness incurred or Ownership
Interests or equity securities issued to repay, redeem,
exchange, refinance or amend the Credit Agreement, such Junior
Subordinated Notes, such Senior Subordinated Notes or the
Series A Preferred Interests or Common Interests; provided
such incurrence or refinancing is for an amount which does not
result in aggregate indebtedness in excess of the amount
existing or permitted to be incurred (other than pursuant to
excluding Sections 10.1(e), (f) and (k) of the
Credit Agreement) immediately prior to such incurrence or
refinancing plus the amount used to redeem any such Junior
Subordinated Notes, such Senior Subordinated Notes,
Series A Preferred Interests or Common Interests; or
(y) any issuance of Ownership Interests under a management
incentive plan;
(d) any amendment to this Agreement, the Articles of
Organization of the Company or the Articles of Incorporation or
Bylaws of ECC;
(e) until such time as the Alden Members no longer own any
Series A Preferred Interests or Junior Subordinated Notes
or have the right to acquire Junior Subordinated Notes pursuant
to the Distribution Letter, any payment of distributions by the
Company (except pursuant to Section 8.6);
(f) any commencement of any proceedings in bankruptcy with
respect to the Company, ECC or any Subsidiary of ECC;
(g) any transaction with an Affiliate of the Company (other
than existing arrangements set forth on Annex 3.5(g),
amendments and replacements of those arrangements, any
transactions with ECC or it Subsidiaries);
(h) any redemption or repurchase of (x) Ownership
Interests (including pursuant to Section 9.6), except
pursuant to Section 9.7, 9.8, 10.3 or 10.5 or
(y) equity interests of ECC;
(i) any acquisition by the Company, ECC or their
Subsidiaries of assets or businesses (other than general
operating expenses and capital expenditures intended to maintain
the business of the Company as it exists as of the date hereof),
in one or a series of related transactions (x) for an
aggregate price in excess of $5 million in each instance or
(y) of any interest in a Media Company that
(A) conflicts with the interests of any of the Alden
Members in violation of the Multiple Ownership Rules or
(B) precludes or impedes a prospective acquisition by any
of the Alden Members by reason of a potential violation of the
Multiple Ownership Rules;
(j) any sale of assets of the Company, ECC or their
Subsidiaries other than a sale of assets (x) in the
ordinary course of business or (y) permitted under the
Credit Agreement and applied in accordance with the terms
thereof in which the net cash proceeds thereof are used to
repay, redeem, exchange, refinance or amend indebtedness under
the Credit Agreement, the Series A Preferred, the Junior
Subordinated Notes or the Senior Subordinated Notes;
(k) any creation or suffering to exist of any lien or other
security interest on, or option or other similar right with
respect to, any of the common stock of ECC or any of its
Subsidiaries, except, with respect to such Subsidiaries,
(i) for such liens as may exist on the date hereof pursuant
to, or otherwise required or permitted by, the Credit Agreement
(excluding Section 10.2(1)(xii) thereof), or
(ii) liens in connection with any indebtedness incurred to
repay, redeem, exchange or refinance the Credit Agreement, any
Junior Subordinated Notes, Senior Subordinated Notes, the
Series A Preferred Interests or Common Interests; and
(l) any activity which would pose a material risk, in the
reasonable judgment of an Alden Director, that the Company may
be treated, for U.S. federal income tax purposes, as
engaged in a trade or business.
III-12
3.6 Compensation of
Directors. None of the Directors shall
receive any compensation for their services but shall be
reimbursed by the Company for their reasonable
out-of-pocket
costs and expenses incurred in the course of their service
hereunder in accordance with policies determined from time to
time by the Board.
3.7 Officers.
(a) Except as expressly provided in this Agreement, the
Board shall be entitled to appoint agents or employees, with
such titles as the Board may select, as officers of the Company
(Officers) to act on behalf of the
Company, with such power and authority the Board may delegate
from time to time to any such Person consistent with
Sections 3.1 and 3.6. The Officers shall be one Chief
Executive Officer (CEO), the other
Officers identified in Section 3.8(c), and any such other
Officers as the Board may at any time or from time to time
determine.
(b) Resignation; Removal;
Vacancies. Each Officer shall hold office
until his or her successor is appointed by the Board or until
his or her death, disability, retirement, resignation or removal
(with or without cause) by the Board. If the office of any
Officer becomes vacant for any reason, the vacancy may be filled
by the Board.
(c) Initial Officers. The
initial Officers shall be:
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Name
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Title
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Jeffrey H. Smulyan
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Chairman of the Board, President and Chief Executive Officer
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J. Scott Enright
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Executive Vice President, General Counsel and Secretary
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Patrick M. Walsh
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Executive Vice President, Chief Financial Officer and Chief
Operating Officer
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Ryan A. Hornaday
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Senior Vice President Finance and Treasurer
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3.8 ECC Governance. Upon the
consummation of the Back-End Merger,(a)(i) Smulyan shall
own 10 shares of Class B Common Stock, par value $0.01
per share, of ECC (ECC Voting Shares)
and (ii) the Company shall own 1,000,000 shares of
Class A Non-Voting Stock, par value $0.01 per share, of ECC
(ECC Non-Voting Shares) which
represent all of the issued and outstanding shares of ECC;
and(b) and Smulyan and the Company shall cause(x) the
Articles of Incorporation and Bylaws of ECC and Emmis Operating
Company to be amended such that the matters set forth in
Article III shall apply, mutatis mutandis, to ECC
and Emmis Operating Company. If at any time the Smulyan Members
are no longer the Controlling Members, Smulyan shall, upon
request, transfer all ECC Voting Shares to the Member holding a
majority of the Common Interests then held by the Controlling
Members for consideration of $1.00 (one dollar). No Member shall
transfer any ECC Voting Shares except for transfers in
accordance with the prior sentence or transfers to such
Members Permitted Transferees.
3.9 Action by Members. Any
action or decision permitted to be taken by the Controlling
Members or the Smulyan Members shall require the consent of the
majority of the Common Interests then held by the Controlling
Members or Smulyan Members, respectively, as measured by
Percentage Interest.
ARTICLE IV
MEMBERS
4.1 Limitations. Other than
as set forth in this Agreement, the Members (other than any
Members that are also members of the Board, in their capacity as
such) shall not participate in the management or control of the
Companys business nor shall they transact any business for
the Company, nor shall they have the power to act for or bind
the Company, said powers being vested solely and exclusively in
the Board.
III-13
4.2 Liability. Subject to
the provisions of the Act, no Member shall be liable for the
repayment, satisfaction or discharge of any Company debts,
obligations or liabilities, whether arising in contract, tort or
otherwise, and such debts, obligations or liabilities shall be
solely the debts, obligations or liabilities of the Company. No
Member shall be personally liable for the return of any portion
of the Capital Contributions (or any return thereon) of any
other Member.
4.3 Priority. Except as
otherwise provided in this Agreement, no Member shall have
priority over any other Member as to Company allocations or
distributions.
4.4 Additional
Members. Subject to Section 3.5(c),
additional Members may be added to and be bound by and receive
the benefits afforded by this Agreement upon the signing and
delivery of a counterpart of this Agreement by the Company and
the acceptance thereof by such additional Members and, to the
extent permitted by Section 14.4, amendments may be
effected to this Agreement reflecting such rights and
obligations, consistent with the terms of this Agreement, as the
Members may agree. To the extent permitted by
Section 3.5(c), the Board shall be permitted to issue
Ownership Interests at any time and admit the recipients thereof
as Members and parties to this Agreement.
4.5 Non-Transferability of Rights and
Obligations. Except as set forth in
Section 9.8(b), the respective rights and obligations under
Article III and Sections 9.7 and 9.8 of the Smulyan
Members and the Alden Members are personal to the Smulyan
Members and the Alden Members and shall not be exercised by any
transferee that is not also a Smulyan Member or Alden Member, as
applicable.
ARTICLE V
TAX,
ACCOUNTING AND FINANCIAL INFORMATION
5.1 Fiscal Year. The fiscal
year of the Company (the Fiscal Year)
for financial statement purposes shall end on the last day of
February of each year. The fiscal year of the Company shall end
on the 31st day of December of each year for income tax
purposes.
5.2 Accounting Method. For
financial reporting purposes, the books and records of the
Company shall be kept on the accrual method of accounting
applied in a consistent manner and shall reflect all Company
transactions.
5.3 Tax Returns. The Company
shall timely cause to be prepared all federal, state, local and
foreign tax returns (including information returns) of the
Company and its Subsidiaries, which may be required by a
jurisdiction in which the Company and its Subsidiaries operate
or conduct business for each year or period for which such
returns are required to be filed and shall cause such returns to
be timely filed. Within ninety days after the end of each fiscal
year, the Board shall cause the Company to furnish to each
Member any information that such Member may reasonably require
for the preparation of its Federal and state income tax returns.
5.4 Inconsistent
Positions. No Member shall take a position on
its income tax return with respect to any item of Company
income, gain, deduction, loss or credit that is different from
the position taken on the Companys income tax return with
respect to such item without providing prior written notice to
the Company describing the inconsistent position.
5.5 Books and Records. The
Company shall maintain, or cause to be maintained, in a manner
customary and consistent with good accounting principles,
practices and procedures, a comprehensive system of office
records, books and accounts (which records, books and accounts
shall be and remain the property of the Company) in which shall
be entered fully and accurately each and every financial
transaction with respect to the ownership and operation of the
property of the Company. Such books and records of account shall
be prepared and maintained at the principal place of business of
the Company or such other place or places as may from time to
time be determined by the Company. Each Primary Member or its
duly authorized representative shall have the right to inspect,
examine and copy such books and records of account at the
Companys office during reasonable business hours. A
reasonable charge for copying books and records may be charged
by the Company.
III-14
5.6 Financial Reports.
(a) The Company shall deliver to each Member, promptly upon
becoming available, copies of the following:
(i) on a monthly basis, and no later than ten days
following the end of the previously concluded month, internal
financial statements of the Company and its Subsidiaries for the
previously concluded month;
(ii) on an annual basis, and no later than 75 days
following the end of the previously completed fiscal year,
audited consolidated balance sheet and statements of income and
cash flows of the Company and its Subsidiaries for the
previously concluded fiscal year, which statements shall have
been audited by a nationally recognized independent accounting
firm; and
(iii) on an annual basis and prior to the completion of
each fiscal year, an annual budget for the Company and its
Subsidiaries, for at least the immediately succeeding fiscal
year, and quarterly updates to such budget prior to the
completion of each of the first three fiscal quarters of each
fiscal year.
5.7 Tax Matters Partner. For
purposes of Code Section 6231(a)(7), the Tax
Matters Partner shall be the Member which,
together with its Affiliates, holds a majority of the Common
Interests held by the Controlling Members. As between any such
Member and its Affiliates, the Tax Matters Partner shall be the
Member which holds the largest Percentage Interest. If no Member
holds a majority of the Common Interests (together with its
Affiliates), the Tax Matters Partner shall be a Member appointed
by the Board that is permitted to serve in such role pursuant to
the Treasury Regulations promulgated under Code
Section 6231. The Tax Matters Partner is specifically
directed and authorized to take whatever steps may be necessary
or desirable to perfect such designation, including filing any
forms or documents with the Internal Revenue Service and taking
such other action as may from time to time be required under the
Code. The Tax Matters Partner shall keep the Members informed of
any material inquiry, examination or proceeding, including,
without limitation, notifying Members of the beginning and
completion of an administrative proceeding involving the Company
promptly upon such notice being received by the Tax Matters
Partner.
ARTICLE VI
OWNERSHIP
INTERESTS; CAPITAL CONTRIBUTIONS
6.1 Common Interests; Series A Preferred
Interests; Capital Contributions.
(a) The membership interests of the Company shall be
represented by Common Interests and Series A Preferred
Interests.
(b) The Common Interests and Series A Preferred
Interests that may be issued by the Company shall be unlimited.
(c) Annex 6.1(c) sets forth, with respect to each
Member, as of the date hereof, (i) the Percentage Interest
represented by the Common Interests owned by such Member and
(ii) the aggregate Capital Contributions made in respect
of, and the Preferred Unrecovered Capital balance for, the
Series A Preferred Interests owned by such Member. The
Company shall amend Annex 6.1(c) from time to time to
reflect any modifications to such Ownership Interests as
contemplated hereby, including to reflect any issuances or
purchases of Ownership Interests by the Company to the extent
permitted hereunder. Notwithstanding anything herein to the
contrary, the issuance or repurchase of Ownership Interests
under any management incentive plan adopted by the Board shall
only modify the Ownership Interests and Percentage Interests of
Members other than Alden Members, and shall not modify the
Percentage Interest of any Alden Member.
(d) No Member or other holder of any Ownership Interest
shall be required to make any additional Capital Contribution to
the Company except to the extent or as required by law.
III-15
(e) For the avoidance of doubt, a Series A Preferred
Interest shall be considered to have been redeemed and no longer
outstanding, without any further action of any party,
immediately upon the delivery to the holder thereof of the
Liquidation Preference in respect of such Series A
Preferred Interest by the Company.
6.2 Capital Accounts.
(a) A separate capital account (a Capital
Account) shall be established and maintained for
each Member. A Members Capital Account shall be credited
with the amount of such Members Capital Contributions (net
of all liabilities assumed or taken subject to) and such
Members allocated share of Net Income and other items of
income and gain. A Members Capital Account shall be
reduced by the amount of any cash distributions by the Company
to such Member and the fair market value (net of all liabilities
assumed or taken subject to) of all property distributed in kind
to such Member and such Members allocated share of Net
Loss and other items of loss and deduction. No Member shall be
obligated to restore by way of Capital Contribution or otherwise
any deficit in, or negative balance of, its Capital Account.
(b) A transferee of any Members Ownership Interests
or portion thereof shall succeed to the Capital Account balance
associated with the Ownership Interests or portion thereof so
transferred.
(c) The Capital Account balance of each Member and the book
value of all Company property shall be adjusted in accordance
with the rules set forth in Regulation
§ 1.704-1(b)(2)(iv)(f) to reflect the Members
allocable share (as determined under Article VII) of
the items of Net Income or Net Loss that would be realized by
the Company if it sold all of its property at its fair market
value (taking Code Section 7701(g) into account) on
(i) the date of the acquisition of any additional interest
in the Company by any new or existing Member in exchange for
more than a de minimis Capital Contribution; (ii) the date
of the distribution of more than a de minimis amount of Company
assets to a Member; or (iii) any other date specified in
the Regulations or as otherwise determined by the Board;
provided, however, that adjustments pursuant to clauses (i),
(ii) and (iii) above shall be made only if the Board,
in its sole and absolute discretion, determines that such
adjustments are necessary or appropriate to reflect the relative
economic interests of the Members Notwithstanding anything to
the contrary herein, the Company shall, at the request of Alden,
make the adjustments described in this Section 6.2(b) at
the time of any distribution pursuant to Section 8.6 or
Section 10.5.
(d) Annex 6.2(d) sets forth, with respect to each
Member, as of the date hereof, each Members Capital
Account. The Company shall amend Annex 6.2(d) from time to
time to reflect any modifications to such Capital Account as
contemplated
hereby.2
6.3 Withdrawal of
Contributions. No Member shall be entitled to
withdraw any Capital Contributions or sums from its Capital
Account or to receive any distributions from the Company except
as expressly provided in this Agreement. No Member shall have
the right to demand property for its Ownership Interest or to
receive property other than cash for its Ownership Interests.
6.4 No Interest. Except as
otherwise expressly provided in this Agreement, no Member shall
be entitled to receive any interest on their Capital
Contributions.
ARTICLE VII
ALLOCATIONS
7.1 General. The Members
agree to treat the Company as a partnership and the Members as
partners for Federal income tax purposes and shall file all tax
returns accordingly. Except as provided in Section 7.2, Net
Income or Net Loss, as the case may be, and each item of income,
gain, loss and deduction entering into the computation thereof,
for each Fiscal Year (or any other period that the Board deems
appropriate) shall be allocated to the Members in a manner such
that, after giving effect to the special allocations set forth
in Section 7.2 and 7.3, the Capital Account balance of each
Member, immediately after making such allocation,
2
Initial Capital Account of Smulyan and the Other Members to be
equal to the value of equity contributed to the Company based on
$2.40 per share price of ECC Common Stock. Initial Capital
Account of Alden to equal initial Preferred Unrecovered Capital.
III-16
is, as nearly as possible, equal to the distributions that would
be made to such Member pursuant to Section 8.1, if the
Company were dissolved, its affairs wound up and its assets sold
for cash equal to their book value, all Company liabilities were
satisfied (limited with respect to each nonrecourse liability to
the book value of the assets securing such liability), and the
net assets of the Company were distributed, in accordance with
Section 8.1 to the Members immediately after making such
allocation, minus such Members share of partnership
minimum gain and partner nonrecourse debt minimum gain, computed
immediately prior to the hypothetical sale of assets.
7.2 Other Allocation Provisions.
(a) If there is a net decrease in partnership minimum
gain (within the meaning of Regulation
§ 1.704-2(d)) for a Fiscal Year with respect to the
Company, then there shall be allocated to each Member items of
income and gain of the Company for that Fiscal Year equal to
such Members share of the net decrease in partnership
minimum gain (within the meaning of Regulation
§ 1.704-2(g)(2)), subject to the exceptions set forth
in Regulation § 1.704-2(f)(2) and (3), and to any
exceptions provided by the Commissioner of the Internal Revenue
Service pursuant to Regulation § 1.704-2(f)(5),
provided, that if the Company has any discretion as to an
exception provided pursuant to Regulation
§ 1.704-2(f)(5), the Board may exercise reasonable
discretion on behalf of the Company. The foregoing is intended
to be a minimum gain chargeback provision as
described in Regulation § 1.704-2(f) and shall be
interpreted and applied in all respects in accordance with that
Regulation.
If during a Fiscal Year there is a net decrease in partner
nonrecourse debt minimum gain (as determined in accordance with
Regulation § 1.704-2(i)(3)) with respect to the
Company, then, in addition to the amounts, if any, allocated
pursuant to the preceding paragraph, any Member with a share of
that partner nonrecourse debt minimum gain (determined in
accordance with Regulation § 1.704-2(i)(5)) as of the
beginning of the Fiscal Year shall, subject to the exceptions
set forth in Regulation § 1.704-2(i)(4), be allocated
items of income and gain of such Fiscal Year for the Fiscal Year
(and, if necessary, for succeeding years) equal to such
Members share of the net decrease in the partner
nonrecourse minimum gain. The foregoing is intended to be the
chargeback of partner nonrecourse debt minimum gain
required by Regulation § 1.704-2(i)(4) and shall be
interpreted and applied in all respects in accordance with that
Regulation.
(b) If during any Fiscal Year a Member unexpectedly
receives an adjustment, allocation or distribution described in
Regulation § 1.704-l(b)(2)(ii)(d)(4), (5) or (6),
which causes or increases a deficit balance in such
Members Adjusted Capital Account, there shall be allocated
to such Member items of income and gain (consisting of a pro
rata portion of each item of income, including gross income, and
gain of the Company for such Fiscal Year) in an amount and
manner sufficient to eliminate such deficit as quickly as
possible. The foregoing is intended to be a qualified
income offset provision as described in Regulation
§ 1.704-l(b)(2)(ii)(d) and shall be interpreted and
applied in all respects in accordance with that Regulation. A
Members Adjusted Capital
Account, at any time, shall equal the
Members Capital Account at such time (x) increased by
the sum of (A) the amount of the Members share of
partnership minimum gain (as defined in Regulation
§ 1.704-2(g)(l) and (3)) and (B) the amount of
the Members share of partner nonrecourse debt minimum gain
(as defined in Regulation § 1.704-2(i)(5)) and
(C) any amount of the deficit balance in its Capital
Account that the Member is treated as obligated to restore
pursuant to Regulation § 1.704-l(b)(2)(ii)(c) and
(y) decreased by reasonably expected adjustments,
allocations and distributions described in Regulation
§§ 1.704-l(b)(2)(ii)(d)(4), (5) and (6).
This definition shall be interpreted consistently with
Regulation § 1.704-l(b)(2)(ii)(d).
(c) Notwithstanding anything to the contrary in this
Article VII,
(i) losses, deductions, or expenditures subject to Code
Section 705(a)(2)(B) that are attributable to a particular
partner nonrecourse liability shall be allocated to the Member
that bears the economic risk of loss for the liability in
accordance with the rules of Regulation § 1.704-2(i);
(ii) losses, deductions, or expenditures subject to Code
Section 705(a)(2)(B) that are attributable to partnership
nonrecourse liabilities shall be allocated to the Members in
proportion to their Percentage Interests; and
(iii) Member Recourse Deductions for any Fiscal Year shall
be allocated to the Members in proportion to their respective
economic risk of loss under Treasury Regulations
§ 1.752-2 with respect to the underlying
III-17
Company liability. To the extent that a Member is allocated a
deduction pursuant to this Section in a Fiscal Year, such Member
shall be allocated Company income and gain (other than amounts
required to be specially allocated pursuant to other provisions
hereof) in the next Fiscal Year (and, if necessary, for
subsequent Fiscal Years) until such allocation is reversed.
(d) (i) Notwithstanding any provision of
Section 7.1, no allocation of Net Loss shall be made to a
Member if it would cause the Member to have a negative balance
in its Adjusted Capital Account. Allocations of Net Loss that
would be made to a Member but for this Section 7.2(d)(i)
shall instead be made to other Members pursuant to
Section 7.1 to the extent not inconsistent with this
Section 7.2(d)(i). To the extent allocations of Net Loss
cannot be made to any Member because of this
Section 7.2(d)(i), such allocations shall be made to the
Members in accordance with Section 7.1 notwithstanding this
Section 7.2(d)(i).
(ii) If any Member has a deficit in its Adjusted Capital
Account, such Member shall be specially allocated items of
Company income and gain in the amount of such deficit as rapidly
as possible, provided, however, that an allocation
pursuant to this Section 7.2(d)(ii) shall be made if and
only to the extent that such Member would have a deficit in its
Adjusted Capital Account after all other allocations provided
for in this Agreement have been tentatively made as if this
Section 7.2(d)(ii) were not in this Agreement.
(e) To the extent that any item of income, gain, loss or
deduction has been specially allocated pursuant to this
Section 7.2 and such allocation is inconsistent with the
way in which the same amount otherwise would have been allocated
under Section 7.1, subsequent allocations under
Section 7.1 shall be made, to the extent possible and
without duplication, in a manner consistent with
Sections 7.2(a), 7.2(b), 7.2(c) and 7.2(d), which negate as
rapidly as possible the effect of all such inconsistent
allocations under this Section 7.2.
(f) Except to the extent otherwise required by the Code and
Regulations, if any Interest in the Company or part thereof is
transferred in any Fiscal Year, the items of income, gain, loss,
deduction and credit allocable to such Interest for such Fiscal
Year shall be apportioned between the transferor and the
transferee in proportion to the number of days in such Fiscal
Year the Interest is held by each of them, except that, if they
agree between themselves and so notify the Board within thirty
days after the end of such Fiscal Year, then at their option and
expense, (i) all items or (ii) extraordinary items,
including capital gains and losses, may be allocated to the
Person who held the Interest on the date such items were
realized or incurred by the Company.
(g) If the Company is required to pay any amount of taxes
(including withholding taxes) with respect to any of its income,
such amount shall be allocated to the Members in the same manner
as the income subject to such taxes is allocated,
provided, however, that, to the extent that such
amount is payable with respect to income allocable to some (but
not all) of the Members (the Taxable
Members), the Board shall (i) allocate such
amount to the Taxable Members, and (ii) cause a
distribution to be made in accordance with Section 8.1 to
all Members other than the Taxable Members in a manner which
takes into account the fact that their respective allocable
shares of income are not subject to the same taxes.
(h) Any allocations made pursuant to this
Article VII shall be made in the following order:
(i) Section 7.2(a);
(ii) Section 7.2(b);
(iii) Section 7.2(c);
(iv) Section 7.2(e);
(v) Section 7.2(g); and
(vi) Section 7.1, as modified by Section 7.2(d).
These provisions shall be applied as if all distributions and
allocations were made at the end of the Fiscal Year. Where any
provision depends on the balance of a Capital Account of any
Member, that Capital Account shall be determined after the
operation of all preceding provisions for the year. These
allocations shall be made consistently with the requirements of
Regulation § 1.704-2(j).
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7.3 Allocations for Income Tax
Purposes. The income, gains, losses,
deduction and credits of the Company for any Fiscal Year shall
be allocated to the Members in the same manner Net Income and
Net Loss were allocated to the Members for such Fiscal Year
pursuant to Section 7.1 and Section 7.2; provided,
however, that solely for Federal, state and local income and
franchise tax purposes and not for book or Capital Account
purposes, income, gain, loss and deduction with respect to any
Company asset properly carried on the Companys books at a
value other than the tax basis of such Company asset shall be
allocated in accordance with the provisions of Code
Section 704(c) and the traditional method in Regulation
§ 1.704-3(b).
ARTICLE VIII
DISTRIBUTIONS
8.1 Distributions.
(a) Subject to the limitations of the Indiana Act and to
the provisions of this Article VIII, cash or other property
shall be distributed among the Members at such time or times as
the Board may determine in accordance with the provisions of
this Section 8.1; provided, however, that
nothing in this Section 8.1 shall impair the right of the
Board to not make Distributions (as defined below) for any
reason. Any given Distribution will be made in like tenor to all
Members receiving such Distribution. Notwithstanding anything to
the contrary herein (including, without limitation, the
provisions of Article VI herein) any distributions of cash
or other property (each, a
Distribution) made to the Members
shall be made in the following order:
(i) First, to the holders of Series A Preferred
Interests in accordance with Preferred Unrecovered Capital until
each such Member has received the Preferred Return on each such
Members Preferred Unrecovered Capital (which Distributions
pursuant to this clause (ii) shall not reduce the amount of
Preferred Unrecovered Capital);
(ii) Second, to the holders of Series A Preferred
Interests pro rata in accordance with Preferred Unrecovered
Capital until each such Members existing Preferred
Unrecovered Capital is reduced to zero
(iii) Third, to Smulyan to repay any unpaid principal and
accrued and unpaid interest on Member Loans made pursuant to
Section 10.8(a) until each such Member Loan has been repaid
in full; and
(iv) Thereafter, to all holders of Common Interests, pro
rata in accordance with each Members Percentage Interest.
(b) For the avoidance of doubt, none of the following shall
be a Distribution: (i) any recapitalization or exchange of
securities of the Company; (ii) any Ownership Interest
splits, combinations, distributions of Ownership Interests or
other similar events; or (iii) any fees or remuneration
paid to any Member in such Members capacity as a Director,
Officer, employee, independent contractor, consultant or other
provider of services to the Company.
8.2 Tax Withholding; Withholding
Advances.
(a) Tax Withholding. If
requested by the Board, each Member shall, if able to do so,
deliver to the Board a properly executed IRS
Form W-8
or W-9, or
any successor form, as required under applicable law. If a
Member fails or is unable to deliver to the Board the
documentation described in this Section 8.2(a) the Board
may withhold amounts from such Member in accordance with
Section 8.2(b). Each Member shall reasonably cooperate with
the Board in connection with any tax audit of the Company or any
of its subsidiaries.
(b) Withholding Advances. To
the extent the Company is required by law to withhold or to make
tax payments on behalf of or with respect to any Member (e.g.,
backup withholding) (Withholding
Advances), the Board may withhold such amounts and
make such tax payments as so required.
(c) Repayment of Withholding
Advances. All Withholding Advances made on
behalf of a Member shall accrue interest thereon from the date
of such Withholding Advances at a rate equal to the Prime Rate
as of the date of such Withholding Advance plus 2% per annum,
shall be repaid (i) within one year of such
III-19
Withholding Advance by the Member on whose behalf such
Withholding Advances were made, or (ii) with the consent of
the Board, in its sole discretion, be repaid by reducing the
amount of the current or next succeeding distribution or
distributions which would otherwise have been made to such
Member or, if such distributions are not sufficient for that
purpose, by so reducing the proceeds of liquidation otherwise
payable to such Member. Whenever repayment of a Withholding
Advance by a Member is made as described in clause (ii), such
Member shall be treated as having received all distributions
(whether before or upon a dissolution of the Company) unreduced
by the amount of such Withholding Advance except that any
Withholding Advances shall be taken into account when
calculating the amount of any Distributions made subsequent to
the Withholding Advance as having been made at the time the
Withholding Advance was actually made.
8.3 Limitations on Distributions.
(a) Anything to the contrary herein notwithstanding:
(i) no distribution pursuant to this Agreement shall be
made if such distribution would result in a violation of the
Indiana Act; and
(ii) no distribution shall be made if such distribution
would violate the terms of any, to the extent applicable,
agreement or any other instrument to which the Company or any of
its direct or indirect subsidiaries is a party on the date
hereof; including the Credit Agreement.
(b) In the event that a distribution is approved by the
Board but cannot be made as a result of the application of
Section 8.3(a), all amounts so retained by the Company
shall continue to be subject to all of the debts and obligations
of the Company. The Company shall make such distribution (with
accrued interest actually earned thereon) as soon as such
distribution would not be prohibited pursuant to this
Section 8.3.
8.4 Reserves. The Company
may establish reserves in such amounts and for such time periods
as the Board determines reasonably necessary or appropriate, as
determined by the Board, for estimated accrued Company expenses
and any contingent or unforeseen Company liabilities. When such
reserves are no longer necessary, the balance may be distributed
to the Members in accordance with this Article VIII.
8.5 Distribution Demands. A
Member, regardless of the nature of the Members Capital
Contribution, has no right to demand or receive (except to the
extent the Board declares any distribution or as expressly
provided by this Agreement) any distribution from the Company.
8.6 Distribution of ECC
Shares. If ECC shall determine to declare a
dividend or other distribution to the Company or to repurchase
or redeem shares of ECC held by the Company (collectively, an
ECC Distribution) and any of the
proceeds of such distribution, repurchase or redemption would
otherwise be distributed to the Alden Members pursuant to
Section 8.1(a)(i) or Section 8.1(a)(ii) or otherwise
used to repurchase or redeem Preferred Interest (the
Preferred Proceeds), the Company shall
provide the Alden Members and the Controlling Members with
written notice (the ECC Distribution
Notice) 10 days prior to the intended date of
such distribution, repurchase or redemption of the amount of the
Preferred Proceeds. Upon receipt of such notice, the Alden
Members or the Controlling Members may elect, by written notice
to the Company, ECC and the Controlling Members, within three
(3) days of the ECC Distribution Notice, to demand (the
ECC Share Demand) that the following
actions take place. Upon receipt of an ECC Share Demand
(a) the Controlling Members shall vote all ECC Voting
Shares held by them to cause ECC not to distribute cash in the
amount of the Preferred Proceeds to the Company, (b) the
Company shall not distribute cash in the amount of the Preferred
Proceeds to the holders of the Series A Preferred Interests
and, in lieu thereof, will distribute the Distributed ECC Shares
to such holders, and such holders shall accept such delivery of
shares, in accordance with Section 8.1(a)(i) or
Section 8.1(a)(ii) as applicable and each such Distributed
ECC Share so distributed shall be deemed to be in full
satisfaction of an amount of the Preferred Proceeds divided by
the number of Distributed ECC Shares as if such amount of cash
had been distributed to such holders (the Per Share
Cash Value).
III-20
ARTICLE IX
TRANSFER
RESTRICTIONS; LIQUIDITY RIGHTS
9.1 General Restrictions on Transfers.
(a) No Member may, and each Member shall cause its equity
holders not to, directly or indirectly, sell, exchange, assign,
pledge, hypothecate, gift or otherwise transfer or dispose of
(all of which acts shall be deemed included in the term
transfer as used in this Agreement)
any legal, economic or beneficial interest in any Ownership
Interests (whether held in its own right or by its
representative) unless (i) such transfer of Ownership
Interests is made on the books of the Company and is not in
violation of the provisions of this Article IX,
(ii) the transferee of such Ownership Interests (if other
than the Company or another Member) agrees to become a party to
this Agreement pursuant to Section 4.4 hereof and executes
such further documents as may be necessary, in the opinion of
the Company, to make him, her or it a party hereto, and
(iii) such transfer of Ownership Interests would not, in
the good faith reasonable judgment of the Board, pose a material
risk that the Company would be treated as a publicly
traded partnership pursuant to Section 7704 of the
Code.
(b) Any purported transfer of Ownership Interests other
than in accordance with this Agreement by any Member shall be
null and void, and the Company shall refuse to recognize any
such transfer for any purpose and shall not reflect in its
records any change in record ownership of Ownership Interests
pursuant to any such transfer.
(c) Each Member acknowledges that the Ownership Interests
have not been registered under the Securities Act and may not be
transferred except pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption
from registration under the Securities Act. Each Member agrees
that it will not transfer any Ownership Interests at any time if
such action would constitute a violation of any securities laws
of any applicable jurisdiction or a breach of the conditions to
any exemption from registration of Ownership Interests under any
such laws or a breach of any undertaking or agreement of such
Member entered into pursuant to such laws or in connection with
obtaining an exemption thereunder.
(d) No Member shall grant any proxy or enter into or agree
to be bound by any voting trust with respect to any Ownership
Interests or enter into any agreements or arrangements of any
kind with any Person with respect to any Ownership Interests
inconsistent with the provisions of this Agreement (whether or
not such agreements and arrangements are with other Members or
holders of Ownership Interests who are not parties to this
Agreement), including agreements or arrangements with respect to
the acquisition, disposition or voting (if applicable) of any
Ownership Interests, nor shall any Member act, for any reason,
as a member of a group or in concert with any other persons in
connection with the acquisition, disposition or voting (if
applicable) of any Ownership Interests in any manner that is
inconsistent with the provisions of this Agreement.
(e) Any transfer of Ownership Interests shall be subject to
Section 9.9.
(f) Except as otherwise provided in this Agreement, all
reasonable and documented
out-of-pocket
legal costs and expenses incurred by the Company in connection
with a transfer of Ownership Interests shall be reimbursed by
the Member transferring such Ownership Interests.
(g) A transferee of Ownership Interests shall succeed to
the Capital Account (and in the case of Series A Preferred
Interests, the Preferred Unrecovered Capital balance of) the
transferor thereof in proportion to the percentage of such
transferors Common Interests or Series A Preferred
Interests, as applicable, that are so transferred.
(h) Upon the transfer of Common Interests in accordance
with this Article IX, including pursuant to
Sections 9.4, 9.5, 9.6, 9.7 or 9.8, (i) the Company
shall revise (x) the Percentage Interest set forth on
Annex 6.1(c) (including any adjustments contemplated by
Section 10.1) and (y) the Capital Account set forth on
Section 6.2(d), in each case, with respect to each
Members Common Interests to reflect such transfer and
III-21
(ii) the Capital Account attributable to such Member with
respect to its Common Interest shall be transferred to the
transferee in proportion to the Percentage Interest transferred
thereby.
(i) Upon the transfer of Series A Preferred Interests
in accordance with this Article IX, the Company shall
revise (x) the Capital Contributions and Preferred
Unrecovered Capital set forth on Annex 6.1(c) and
(y) the Capital Account set forth on Annex 6.2(c), in
each case, with respect to each Members Series A
Preferred Interests to reflect such transfer.
9.2 Restrictions on Transfers by
Members. Prior to a Qualifying IPO, the
Members shall not transfer any Ownership Interests to any
Person, except transfers pursuant to Section 9.3 and any
transfers not in compliance with Section 9.3 shall be void
ab initio and the Company shall not recognize such
transfer.
9.3 Exceptions to Transfer
Restrictions. (a) Any Member may
transfer any or all of the Common Interests held by it to any of
its Permitted Transferees without complying with the provisions
of this Article IX other than Section 9.1,
(b) any Smulyan Member may transfer any or all of the
Common Interests held by it to any Person (other than a
Restricted Transferee), subject in each case to
Section 9.1, Section 9.4 and Section 9.6,
(c) any Non-Controlling Member may transfer any or all of
the Common Interests held by it to any Person (other than a
Restricted Transferee), subject in each case to
Sections 9.1, 9.4, 9.5, 9.6, 9.7, 9.8 and 9.9,
(d) from and after the date that is 90 days after the
Effective Date, any Alden Member may transfer any or all of the
Series A Preferred Interests held by it to any Person
(other than a Restricted Transferee) subject to
Section 9.9; provided that as a condition to
such transfer, such transferee shall become a party to this
Agreement as provided in Section 9.1(a); provided
further, in the case of clause (a), such Permitted
Transferee shall have agreed in writing with all parties hereto
that, except as otherwise required by law or governmental order,
it will immediately transfer all Common Interests and all rights
and obligations hereunder to such transferring Member or another
Permitted Transferee of such transferring Member at such time
that it ceases to be a Permitted Transferee of such transferring
Member provided further, each transferee of
Ownership Interests shall have agreed in writing with all
parties hereto that, except as otherwise required by law or
governmental order, if at any time such transferee becomes a
Restricted Transferee, it will immediately transfer an amount of
Ownership Interests and all other rights and obligations
hereunder with respect thereto to a Person that is not a
Restricted Transferee to the extent required such that such
transferee is no longer a Restricted Transferee, subject to
Sections 9.1, 9.3, 9.4, 9.5 and 9.6.
9.4 Tag-Along Rights.
(a) Subject to the other Sections of this Article IX,
if one or more of the Members (hereinafter referred to as the
Selling Members) proposes to transfer
all or a portion of such Members Common Interests to
another Person (other than to a Permitted Transferee pursuant to
Section 9.3(a) or pursuant to Section 9.7 or 9.8, a
Tag-Along Sale)), the Members other
than the Selling Members (each, a Non-Selling
Member) may elect, at their option, to exercise
their rights under this Section 9.4, provided that with
respect to any such transfer that is also governed by
Section 9.6 hereof, the Company (unless the Smulyan Members
are the Selling Members) and Primary Members shall have first
been afforded the opportunity to acquire the Common Interests to
be sold in a Tag-Along Sale in accordance with the provisions of
Section 9.6. In the event of a Tag-Along Sale, the Selling
Members shall give written notice (a Transfer
Notice) of such proposed transfer to each of the
Non-Selling Members after the Company (unless the Smulyan
Members are the Selling Members) and Primary Members have
declined, or are deemed to have declined, to exercise their
right of first offer as provided in Section 9.6 and at
least fifteen Business Days prior to the consummation of such
proposed transfer. Such Transfer Notice shall set forth
(i) the Percentage Interest proposed to be transferred,
(ii) the consideration to be received for such Percentage
Interest by such Selling Member, (iii) the identity of the
purchaser, (iv) any other material terms and conditions of
the proposed transfer, (v) the date of the proposed
transfer and (vi) that the Non-Selling Member shall have
the right, upon the terms and subject to the conditions set
forth in this Section 9.4, to elect to sell up to its Pro
Rata Portion of such Common Interests. If the consideration
payable pursuant to the Tag-Along Sale consists in whole or in
part of consideration other than cash, the Selling Members shall
provide to the Non-Selling Members such information relating to
such other consideration as the Non-Selling Members may
reasonably request. If any transaction involving the transfer of
any Common Interests is subject to both this Section 9.4
and Section 9.5, only the provisions of
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Section 9.5 shall apply to such transaction so long as the
Drag-Along Notice has been given pursuant to Section 9.5
and such Drag-Along Notice has not been rescinded or otherwise
terminated.
(b) Upon delivery of a Transfer Notice, each Non-Selling
Member may elect to sell up to its Pro Rata Portion of such
Non-Selling Members Common Interests, at the same price
per Percentage Interest and pursuant to the same terms and
conditions with respect to payment for the Common Interests as
agreed to by the Selling Members, by sending written notice to
each of the Selling Members within fifteen Business Days after
the receipt of the Transfer Notice, indicating its election to
sell up to its Pro Rata Portion of such Non-Selling
Members Common Interests in the same transaction.
Following such fifteen Business Day period, each of the Selling
Members and the Non-Selling Members that have delivered such
written notices, concurrently with the Selling Members, shall be
permitted to sell to the purchaser on the terms and conditions
set forth in the Transfer Notice its Pro Rata Portion of Common
Interests.
(c) All transfers of Common Interests pursuant to this
Section 9.4 shall be consummated contemporaneously at the
principal offices of the Company on the later of (i) a
mutually satisfactory Business Day within ten days after the
expiration of the fifteen Business Day period following the
receipt of the Transfer Notice or (ii) the fifth Business
Day following the expiration or termination of all waiting
periods under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
HSR Act) or the receipt of any other
required regulatory approvals. No party to this Agreement shall
transfer any Common Interests to any prospective transferee if
such prospective transferee declines to allow a Non-Selling
Member to participate in a Tag-Along Sale. All costs and
expenses incurred by the Selling Members in connection with such
sale shall be borne by the Selling Members and the Non-Selling
Members that have delivered such written notice on a pro rata
basis in accordance with the Percentage Interest being sold by
each.
9.5 Drag-Along Rights.
(a) Subject to Section 9.6, the Controlling Members
may give written notice (a Drag-Along
Notice) to the other Members that the Dragging
Members intend to enter into a transaction or a series of
related transactions involving the transfer, of not less than
one hundred percent (100%) of the outstanding Ownership
Interests (which Ownership Interests to be transferred may
include Ownership Interests held by any other Members
and/or other
holders of Ownership Interests) to a Person or group
of Persons in an arms-length transaction (other than to the
Controlling Members or other Permitted Transferees thereof),
whether by merger, tender offer or otherwise (a
Drag-Along Sale), and, that the
Controlling Members desire to cause the other Members to
participate in such transaction on the same terms and conditions
as available to the Controlling Members. Such Drag-Along Notice
shall also specify (1) the consideration, if any, to be
received by the Controlling Members and the other Members (which
consideration shall be equal to the amount payable with respect
to the Ownership Interests held by each Member were the
aggregate consideration payable with respect to Ownership
Interests in such Drag-Along Sale payable as a Distribution in
accordance with Section 8.1) and any other material terms
and conditions of the proposed transaction (which other material
terms and conditions shall be the same in all material respects
for the Controlling Members and the other Members), (2) the
identity of the other Person or Persons party to the
transaction, (3) the date of completion of the proposed
transaction (which date shall be not less than fifteen Business
Days after the receipt of the notice) and (4) subject to
the proviso of the first sentence of Section 9.5(b), the
actions required of each other Member in order to complete or
facilitate such proposed transaction (including the sale of
Ownership Interests held by the other Member, the voting of all
such Ownership Interests in favor of any such merger,
consolidation or sale of assets and the waiver of any related
appraisal or dissenters rights).
(b) Upon receipt of such Drag-Along Notice, each Member
receiving such Drag-Along notice shall be obligated to take the
actions or actions referred to in clause (4) above;
provided that (i) no such action shall restrict the
business or limit the activity of any Member or their respective
Affiliates (other than customary restrictions on the
solicitation of employees) or impose any potential liability on
any Member or any of their respective Affiliates in excess of
the consideration received thereby in connection with such
Drag-Along Sale and (ii) in the event that the Members are
required to provide any indemnities in connection with
representations or warranties of the Company (other than
representations, warranties and indemnities on a several basis
concerning each Members (A) valid ownership of his,
her or its Ownership Interest, free of all
III-23
liens and encumbrances, (B) enforceability and
(C) authority, power, and right to enter into and
consummate agreements relating to such Drag-Along Sale without
violating applicable law or any other agreement), then such
Member shall not be liable for more than his, her or its pro
rata amount (based on the proportion of the aggregate
transaction consideration received) of any liability for
misrepresentation or indemnity (except in respect of such
several representations and warranties) and such liability shall
not exceed the total purchase price received by such Member (net
of broker fees and expenses, excluding taxes) from such
purchaser for his, her or its Ownership Interest. In addition,
each Member hereby appoints the Company as its true and lawful
proxy and attorney-in-fact, with full power of substitution, to
transfer such Ownership Interests pursuant to the terms of such
Drag-Along Sale and to execute any purchase agreement or other
documentation required to consummate such Drag-Along Sale;
provided that the terms and conditions of such agreement
or other documentation satisfy the proviso in the immediately
proceeding sentence and otherwise shall apply equally to all
Members. The Controlling Members shall not be entitled to
receive a control premium or an extra or special benefit not
shared on a pro rata basis by all other holders of Ownership
Interests. Subject to the foregoing, each Member agrees to
execute and deliver any other documentation reasonably required
to consummate the Drag-Along Sale. Notwithstanding anything
herein to the contrary, in no event shall a Drag-Along Sale be
consummated unless the Liquidation Preference shall have been
paid in full, unless Alden otherwise agrees.
(c) All transfers of Ownership Interests pursuant to this
Section 9.5 shall be consummated contemporaneously at the
principal offices of the Company on the later of (i) a
mutually satisfactory Business Day no sooner than the expiration
of the fifteen Business Day period following the receipt of the
Drag-Along Notice and no later than sixty (60) days
following the receipt of the Drag-Along Notice or (ii) the
fifth Business Day following the expiration or termination of
all waiting periods under the HSR Act or the receipt of any
other required regulatory approvals. The powers granted herein
shall be deemed to be coupled with an interest, shall be
irrevocable and shall survive death, incompetency or dissolution
of any Member.
9.6 Right of First Offer.
(a) If any Selling Member intends in good faith to transfer
all or any portion of the Common Interests (other than pursuant
to Section 9.7 or 9.8) then beneficially owned by such
Member (the Transfer Securities)
to a Person that is not a Permitted Transferee of such Member,
then, subject to Sections 9.1, 9.2 and 9.3, such Selling
Member shall provide the Company (unless a Smulyan Member is a
Selling Member) and the Primary Members with a written notice
with respect to such transfer (the Offer
Notice) setting forth: (i) the Common
Interests proposed to be transferred in such transfer and
(ii) the material terms and conditions of the proposed
transfer including the price (the Offer
Price) at which such Selling Member proposes to
transfer such Common Interests (the
Offer).
(b) Except where a Smulyan Member is the Selling Member,
the receipt of the Offer Notice by the Primary Members shall
constitute an irrevocable offer to sell all (but not less than
all) of the Transfer Securities to the Primary Members pro rata,
in accordance with Section 9.6(c), (x) at the Offer
Price and on the same terms and conditions as the Offer or
(y) if the Offer includes any consideration other than
cash, at the option of the Primary Members, at a cash price
equal to the Fair Market Value of such non-cash consideration
(the Transfer Consideration). Such
Offer shall remain open and irrevocable until expiration of
thirty days after receipt of such Offer Notice by the Primary
Member (the Offer Period).
(c) Each Primary Member shall be entitled to purchase, upon
the terms specified in the Offer Notice, a number of Common
Interests equal to (but not less than) (x) the number of
Transfer Securities multiplied by (y) a fraction, the
numerator of which is the percentage of outstanding Common
Interests of such class owned by such Primary Member and the
denominator of which is the percentage of outstanding Common
Interests of such class owned by all Primary Members. If any
Primary Member elects not to purchase the Common Interests which
such Primary Member is entitled to purchase in accordance with
the preceding sentence, the Common Interests which such Primary
Member declines to purchase shall be allocated among the Primary
Members who wish to purchase such additional Common Interests
according to the same formula, mutatis mutandis. Each
Primary Member who wishes may accept the offer by sending a
written notice of election (the Acceptance
Notice) to the Selling Member with a copy to the
other Primary Members and the Company
III-24
prior to expiration of the Offer Period, which Acceptance Notice
shall indicate the form of Transfer Consideration chosen (to the
extent that the Transfer Offer includes any consideration other
than cash). The Notice of Election shall specify the maximum
number of Common Interests a Primary Member is willing to
purchase pursuant to this Section 9.6.
(d) If any Primary Member accepts the Selling Members
offer (and its determination of the allocation of Common
Interests) in accordance with Section 9.6(c) (an
Accepting Party) by written notice
delivered to the Selling Member within five Business Days of the
notification by the Selling Member of the final allocation as
provided in Section 9.6(c) above following expiration of
the Offer Period and the entire amount of Transfer Securities,
and not less than the entire amount of Transfer Securities,
shall be purchased by the Accepting Party, such Accepting Party
shall purchase from the Selling Member, and the Selling Member
shall sell to such Accepting Party, such number of Transfer
Securities as to which such Accepting Party shall have accepted
the Selling Members offer pursuant to Sections 9.6(b)
and 9.6(c) above. In the event the Primary Members have not
elected to purchase the entire amount of Transfer Securities,
the Selling Member may sell all of the Transfer Securities in
accordance with Section 9.6(g).
(e) The Selling Member and each Accepting Party shall
select, for consummation of the sale of the Transfer Securities
to such Accepting Party, a date not later than 30 days (or
no later than the fifth Business Day following the expiration or
termination of all waiting periods under the HSR Act or the
receipt of any other required regulatory approvals) after
expiration of the Offer Period. At the consummation of such
sale, the Selling Member shall, against delivery by the relevant
Accepting Party of the Transfer Consideration for the Ownership
Interests being purchased by such Accepting Party,
(i) transfer the Ownership Interests being sold pursuant to
written instruments in form reasonably satisfactory to such
Accepting Party duly executed by the Selling Member free and
clear of any and all liens and encumbrances (other than this
Agreement), and (ii) assign all its rights under this
Agreement with respect to the Ownership Interests being sold
pursuant to an instrument of assignment reasonably satisfactory
to such Accepting Party.
(f) Notwithstanding anything herein to the contrary; if the
Smulyan Members (i) are not Selling Members and
(ii) are Controlling Members, then the Smulyan Members may,
at their discretion, pursuant to notice given to the Primary
Members and the Company during the Offer Period, cause the
Company to purchase all (but not less than all) of the Transfer
Securities, and Sections 9.6(c), (d), (e) and
(g) shall apply mutatis mutandis.
(g) To the extent the Primary Members (i) have not
elected to purchase the entire amount of Transfer Securities or
(ii) have not tendered the Transfer Consideration for the
Transfer Securities in the manner and within the period set
forth above in Section 9.6(e), the Selling Member shall be
free for a period of 90 days from the end of the Offer
Period (the Transfer Period) to
transfer all (but not less than all) of the Transfer Securities
at a price equal to or greater than the Offer Price and
otherwise on terms which are no more favorable in any respect to
such purchaser than the terms and conditions set forth in the
Offer Notice (for the avoidance of doubt, it being understood
that such purchaser shall be required to comply with
Section 9.1 in connection with such transfer). If for any
reason the Selling Member does not transfer all of the Transfer
Securities on such terms and conditions or if the Selling Member
wishes to transfer the Transfer Securities at a purchase price
that is less than the Offer Price or on terms which are more
favorable in any respect to a prospective purchaser than those
set forth in the Offer Notice, the provisions of this
Section 9.6 shall again be applicable to all of the
Transfer Securities; provided that (x) if the
Company finances the purchase of the Transfer Securities with a
public offering or (y) the Offer Price is less than
$1,000,000, then the Selling Member may not deliver another
Offer Notice until 90 days have elapsed since the end of
the Transfer Period.
9.7 Buy/Sell Agreement
(a) At any time following (1) the fifth anniversary of
the date hereof or (2) upon the occurrence of a Change of
Control Event (i) Smulyan shall have the right to make an
offer, or cause the Company to make an offer, (the
Smulyan Offer) to purchase any or all
of the Common Interests held by the Alden Members
(Alden Common Interests) together with
any of such Alden Members future rights with respect
thereto, including any future rights to an Accreted Percentage
as set forth in Section 10.1 (Alden Future
Rights and, together with Alden Common Interests,
the Alden Common Rights), and
(ii) Alden shall have the right to request Smulyan (the
Alden Offer and, together with the
Smulyan Offer, a Buy/Sell Offer) to
III-25
purchase any or all of the Alden Common Rights; provided that
one or more Alden Offers may be made prior to the fifth
anniversary of the date hereof if a Change of Control Event has
occurred; provided, further, that no
Buy/Sell Offer may be made prior to the later of (x) six
months after the most recent Buy/Sell Offer delivered by such
party or (y) three months after the most recently
consummated sale in accordance Section 9.7(f), in each
case, resulting from a Buy/Sell Offer delivered by such party.
The Buy/Sell Offer shall be in writing and contain (A) a
price per Percentage Interest of the Alden Common Rights (the
Unit Price) to be paid for such Alden
Common Rights, as determined by the Offering Holder in its sole
discretion, and (B) the Percentage Interest of the Alden
Common Rights subject to the Buy/Sell Offer (the
Offer Percentage); provided
that the Offer Percentage shall not be less than the lower of
(1) an Offer Percentage such that the product of
(I) the Unit Price multiplied by (II) the Offer
Percentage is no less than $50,000,000 in the aggregate and
(2) the total Percentage Interest then owned by the Alden
Members; provided, further, that a Buy/Sell Offer
may only include Alden Future Rights if such Buy/Sell Offer is
for all of the Alden Common Rights, and (w) the Alden
Members transferred all of their Series A Preferred
Interests for the Liquidation Preference and do not hold Junior
Subordinated Notes, (x) the Alden Members transferred all
of their Junior Subordinated Notes for the outstanding amount
due thereunder and do not hold Series A Preferred
Interests, (y) all of the outstanding Series A
Preferred Interests have been redeemed by the Company for the
Liquidation Preference and the Alden Members do not hold Junior
Subordinated Notes or (z) all outstanding amounts due under
the Junior Subordinated Notes have been paid by the Company and
the Alden Members do not hold Series A Preferred Interests.
The party making the Buy/Sell Offer is sometimes referred to
herein as an Offering Holder and
the party to whom the Buy/Sell Offer is made is sometimes
referred to herein as the Offeree
Holder).
(b) Not later than 15 Business Days after receiving a
Smulyan Offer, Alden shall notify the Company and Smulyan that
it will either (i) sell to the Company or, at
Smulyans election, Smulyan, the Alden Common Rights
specified in the Smulyan Offer, subject to Section 9.7(e)
below, or (ii) sell to the Company or, at Smulyans
election, Smulyan, all of the Alden Common Rights then held by
the Alden Members, subject to Section 9.7(e) below, or
(iii) purchase from the Smulyan Members, on a pro rata
basis, Common Interests held by them having an aggregate
Percentage Interest equal to the percentage, expressed as a
fraction, (x) (A) the numerator of which is the Percentage
Interest of the Alden Common Rights subject to the Buy/Sell
Offer and (B) the denominator of which is the Percentage
Interest of all Common Interests held by the Alden Members on
the date of the Buy/Sell Offer (the Buy/Sell
Ratio) multiplied by (y) the Percentage
Interest of all Common Interests held by the Smulyan Members on
the date of the Buy/Sell Offer, or (iv) will purchase from
the Smulyan Members all of the Common Interests and all of the
voting securities of ECC then held by them. The purchase price
pursuant to clauses (ii), (iii) and (iv) above shall
be equivalent to the Unit Price in the Smulyan Offer, adjusted
to reflect the different Percentage Interest, and, in the case
of clause (iv), there shall be no additional consideration for
the voting securities of ECC.
(c) Not later than 15 Business Days after receipt of an
Alden Offer, the Company shall notify Alden that either
(i) the Company or, at Smulyans election, Smulyan
will purchase from the Alden Members the Alden Common Rights
subject to the Alden Offer, subject to Section 9.7(e)
below, or (ii) the Company or, at Smulyans election,
Smulyan will purchase from the Alden Members all of the Alden
Common Rights then held by the Alden Members, subject to
Section 9.7(e) below, or (iii) the Smulyan Members
will sell to Alden, on a pro rata basis the Common Interests
held by them having a Percentage equal to (x) the Buy/Sell
Ratio multiplied by (y) the Percentage Interest of all
Common Interests held by the Smulyan Members on the date of the
Buy/Sell Offer or (iv) the Smulyan Members will sell to
Alden all of the Common Interests and all of the voting
securities of ECC then held by them; provided that such
15 Business Day period may be extended for up to an additional
five (5) Business Days so long as (1) Smulyan is using
commercially reasonable efforts to obtain a determination of the
Put/Call Price (as defined below) in accordance with the
procedures set forth in Section 9.8(c) and such procedures
were initiated by Smulyan within three (3) Business Days of
such Alden Offer and (2) the Company shall have commenced
and continues to pursue in good faith preparing a registration
statement to allow for the Company or Smulyan to exercise rights
under Section 9.7(e). The purchase price pursuant to
clauses (ii), (iii) and (iv) above shall be equivalent
to the Unit Price in the Alden Offer, adjusted to reflect the
different Percentage Interest, and, in the case of clause (iv),
there shall be no additional consideration for the voting
securities of ECC.
III-26
(d) Failure to provide the Offering Holder with written
notice of the Offeree Holders election pursuant to
Section 9.7(b) or Section 9.7(c) within such 15
Business Day period (as may be extended in accordance therewith)
shall be conclusively deemed to be an election by the Offeree
Holder pursuant to clause (i) of Section 9.7(b) or
clause (i) of Section 9.7(c), as applicable.
(e) Notwithstanding clauses (i) and (ii) of
Section 9.7(b) and clauses (i) and (ii) of
Section 9.7(c), the Company may, and shall at
Smulyans election, satisfy such obligations by registering
the Alden Common Rights subject to the Buy/Sell Offer, or such
securities into which they may be converted or exchanged
pursuant to Section 10.2, in a Qualifying IPO to be
effective within 180 days after the date of the Buy/Sell
Offer, and which will remain effective for at least
180 days. All
out-of-pocket
costs of such Qualifying IPO, including the reasonable and
documented cost of one outside counsel for Alden and all
underwriting discounts and commissions with respect to the Alden
Common Rights, shall be borne by the Company.
(f) Subject to Section 9.7(e) above,
(i) not later than 30 days after receipt of the notice
required by Section 9.7(b) or Section 9.7(c), as
applicable, (or, if later, the fifth Business Day following the
expiration or termination of all waiting periods under the HSR
Act or the receipt of any other required regulatory approvals),
the parties shall complete the purchase and sale provided
thereby at a closing in the Companys principal business
office and all appropriate documents will be executed and
delivered to effect the purchase and sale of the applicable
Common Interests, free and clear of all encumbrances (other than
this Agreement) and the seller shall assign all their respective
rights under this Agreement with respect to the Ownership
Interests being sold pursuant to an instrument of assignment
reasonably satisfactory to the Company;
(ii) the consideration therefor shall be paid by the
purchaser to the seller in immediately available funds by wire
transfer to an account or accounts at such bank or banks
specified by the seller at least three (3) Business Days
prior to the closing; and
(iii) to extent any Member is a seller under this
Section 9.7, such Member (x) appoints the Company as
its true and lawful proxy and attorney-in-fact, with full power
of substitution, to transfer such Ownership Interests pursuant
to the terms of such sale under Section 9.7 and
(y) agrees to execute and deliver any other documentation
reasonably required to consummate such sale, and the powers
granted herein shall be deemed to be coupled with an interest,
shall be irrevocable and shall survive death, incompetency or
dissolution of any such Member.
(g) Notwithstanding Section 9.7(f), in the event
Smulyan or the Company is a purchaser pursuant to
clause (i) or (ii) of Section 9.7(c), at such
purchasers election, (i) the closing may be postponed
for as long as the purchaser is actively seeking financing for
such purchase, but not longer than six months following the date
of notice delivered pursuant to Section 9.7(c) (the
Buy/Sell Financing Period), and
(ii) Smulyan may elect, on or prior to completion of the
Buy/Sell Financing Period, that the payment of the purchase
price shall be subject to the terms set forth on
Annex 9.7(g). Whether or not Smulyan or the Company takes
advantage of the terms of Annex 9.7(g), Smulyan or the
Company (whichever is the purchaser) shall pay to the Offering
Holder interest on the amount of the purchase price at the rate
of 10% per annum from the date upon which the closing would be
required under Section 9.7(f)(i), but for this
Section 9.7(g), through the date such purchase is completed.
(h) It shall be a condition to the Alden Members
obligation to sell its Alden Common Rights pursuant to a
transaction resulting from the election in clause (i) or
(ii) of Section 9.7(b) that, as a result of,
concurrently with or prior to the closing of such purchase, the
Alden Members shall no longer own any Series A Preferred
Interests.
(i) The transactions contemplated by this Section 9.7
shall not be subject to Sections 9.1, 9.2, 9.4, 9.5 or 9.6
hereof.
(j) Each of the Smulyan Members, the Alden Members and the
Company shall cooperate to effect the transactions elected
pursuant to Section 9.7(b) and Section 9.7(c), as
applicable.
III-27
9.8 Put and Call Rights.
(a) At any time after the fifth anniversary of the date
hereof, Smulyan shall have the right to elect, or cause the
Company to elect, by written notice (a Call
Notice) delivered to any or all Non-Controlling
Members other than the Alden Members (the Put/Call
Members), which Call Notice shall be copied to the
Alden Members, to purchase any or all of the Common Interests
held by the Put/Call Members (the Minority Common
Interests) for a purchase price equal to the
Put/Call Price described below (a Call
Sale); provided, that no Call Notice may be made
prior to the later of (i) six months after the most recent
Call Notice or (ii) three months after the most recently
consummated Call Sale; provided, further, that in no event shall
a Call Sale occur in respect of Common Interests held by
Put/Call Members unless: (x) (1) a Smulyan Offer is
delivered to the Alden Members pursuant to clause (i) of
Section 9.7(a) simultaneously with the Call Notice with
respect to a Percentage Interest of Alden Common Interests equal
to (A) the total Percentage Interest of Alden Common
Interests held by the Alden Members multiplied by (B) a
fraction, the numerator of which is the total Percentage
Interest of Minority Common Interests subject to the Call Notice
and the denominator of which is the total Percentage Interest of
Minority Common Interests held by all Put/Call Members; and
(2) as a result of or prior to the closing of such
purchase, there is not outstanding any Series A Preferred
Interests; or (y) Smulyan elects to purchase, or cause the
Company to purchase, Alden Common Rights from the Alden Members
pursuant to Section 9.7(c)(i) or (c)(ii) simultaneously
with the Call Notice with respect to a maximum Percentage
Interest of Minority Common Interests equal to (A) the
total Percentage Interest of Minority Common Interests held by
all Put/Call Members multiplied by (B) a fraction, the
numerator of which is the total Percentage Interest of Alden
Common Interests held by the Alden Members being purchased by
Smulyan or the Company pursuant to Section 9.7(c)(i) or
(c)(ii) and the denominator of which is the total Percentage
Interest of Alden Common Interests held by the Alden Members.
(b) At any time after the fifth anniversary of the date
hereof or upon the occurrence of a Change of Control Event, the
Put/Call Members owning Common Interests representing in the
aggregate a majority of (i) the Percentage Interests
represented by the Common Interests that were issued to Alden
Members as of the date hereof and (ii) all Accretion
Percentages issuable to the Alden Members under
Section 10.1 through the date of the Put Notice, shall have
the right to elect, by written notice delivered to the Company
with a copy to the Alden Members (the Put
Notice), to cause, at Smulyans option, the
Company or Smulyan to purchase any or all of the Minority Common
Interests held by them for a purchase price equal to the
Put/Call Price described below; (a Put
Sale and together with a Call Sale, a
Put/Call Sale); provided,
that: (x) no Put Notice may be made prior to the
later of (A) six months after the most recent Put Notice or
(B) three months after the most recently consummated Put
Sale; and (y) the Put Notice shall be considered null and
void and the Company and Smulyan shall have no obligations under
this Section 9.8(b) if (A) the Put Notice included
less than all of the Common Interests owned by the Put/Call
Members and (B) the aggregate Put/Call Price determined in
accordance with Section 9.8(c) is less than $50,000,000.
(c) Put/Call Price means
the fair market value for such Minority Common Interests,
without discount for illiquidity or lack of control, as
determined in accordance with this Section 9.8(c). Upon the
delivery of a Put/Call Notice or if Smulyan elects by written
notice to the Put/Call Members at any time following receipt of
a Buy-Sell Offer under Section 9.7, the Company or Smulyan,
as the case may be,, on the one hand, and the Put/Call Members
acting collectively by approval of the holders of Common
Interests representing a majority of the Percentage Interests
held by all Put/Call Members, on the other hand (each a
Put/Call Party) shall
(x) negotiate in good faith for a period of up to three
(3) Business Days (the Negotiation
Period) for the purposes of mutually agreeing on a
fair market value for such Minority Common Interests,
(y) engage a nationally recognized investment banking firm
and notify the other Put/Call Party of such engagement (each of
the two appraisers, a Party
Appraiser). If upon the completion of such
Negotiation Period, the Company or Smulyan, as the case may be,
and the Put/Call Members have not agreed on such fair market
value, each of the Company or Smulyan, as the case may be, and
the Put/Call Members shall cause their respective Party
Appraiser to select a mutually acceptable third nationally
recognized investment banking firm (the Independent
Appraiser) to be engaged by the Company within two
(2) Business Days of the completion of the Negotiation
Period, whereupon both Party Appraisers shall submit to the
Independent Appraiser such Party Appraisers determination
of the fair market value for such Minority Common Interests.
III-28
Within ten (10) Business Days of the completion of the
Negotiation Period, the Independent Appraiser shall choose from
between those submissions the fair market value for such
Minority Common Interests that is the closest to the fair market
value determination made by such Independent Appraiser. Such
submission shall be deemed the Put/Call Price and all costs of
the Appraisers and the Independent Appraiser shall be borne by
the Company; provided that the party whose submission of fair
market value was not chosen as the Put/Call Price shall
reimburse the Company for such costs upon consummation of a
Put/Call Sale; provided, further that if
(A) the Put/Call Price was determined following a Put
Notice, (B) the Put/Call Price resulting from such process
is less than $50,000,000 and (C) the Put Notice included
less than all of the Common Interests held by the Put/Call
Members, then the Put/Call Members shall reimburse the Company
or Smulyan, as the case may be, for such expenses at the closing
of the Put/Call Sale (and the Company or Smulyan, as the case
may be, shall be entitled to deduct such expenses from any cash
delivered to the Put/Call Members at such closing).
(d) The Company or Smulyan, as the case may be, may satisfy
all of its obligations in Section 9.8(a) or
Section 9.8(b) to deliver the Put/Call Price by registering
the Common Interests held by such Put/Call Members subject to
the Put/Call Sale, or such securities into which they may be
converted or exchanged pursuant to Section 10.2, in a
Qualifying IPO to be effective within 210 days after the
date of the Put Notice, and which will remain effective for at
least 180 days. All costs of such Qualifying IPO, including
the reasonable cost of counsel for the Put/Call Members and all
underwriting discounts and commissions, shall be borne by the
Company. The Put/Call Members shall thereafter be subject to the
lock-up
restrictions applicable to Designated Holders pursuant to
Section 6.1 of the Registration Rights Agreement.
(e) Subject to Section 9.8(d), the Company or Smulyan,
as the case may be, and the Put/Call Members shall select, for
consummation of Put/Call Sale, a date not later than
30 days (or, if later, no later than the fifth Business Day
following the expiration or termination of all waiting periods
under the HSR Act or the receipt of any other required
regulatory approvals) after receipt of the Put Notice or Call
Notice (as the case may be). At the consummation of such
Put/Call Sale, the Put/Call Members shall, against delivery by
the Company or Smulyan, as the case may be, of the Put/Call
Price, (i) deliver to the Company or Smulyan, as the case
may be, certificates, if any, evidencing the Minority Common
Interests being sold duly endorsed in blank or accompanied by
written instruments of transfer in form satisfactory to the
Company duly executed by the Put/Call Members free and clear of
any and all liens and encumbrances (other than this Agreement),
and (ii) assign all their respective rights under this
Agreement with respect to the Minority Common Interests being
sold pursuant to an instrument of assignment reasonably
satisfactory to the Company. Each Put/Call Member hereby
appoints the Company as its true and lawful proxy and
attorney-in-fact, with full power of substitution, to transfer
such Minority Common Interests pursuant to the terms of such
Put/Call Sale. Each Non-Controlling Member agrees to execute and
deliver any other documentation reasonably required to
consummate the Put/Call Sale. The powers granted herein shall be
deemed to be coupled with an interest, shall be irrevocable and
shall survive death, incompetency or dissolution of any such
Put/Call Member. It shall be a condition to the closing of any
Put/Call Sale that, as a result of, concurrently with or prior
to the closing of such purchase, the Alden Members shall no
longer own any Series A Preferred Interests.
(f) Notwithstanding Section 9.8(e), in the event of
(i) a Put Notice or (ii) a Call Notice delivered
pursuant to clause (y) of Section 9.8(a), at the
Companys or, if so elected, Smulyans election,
(x) the closing may be postponed for as long as such
purchaser is actively seeking financing for such purchase, but
not longer than six months following the date of such Put Notice
(the Put/Call Financing Period), and
(y) such purchaser may elect, on or prior to completion of
the Put/Call Financing Period, that the payment of the Put/Call
Price shall be subject to the terms set forth on the
Annex 9.8(f). Whether or not Smulyan or the Company takes
advantage of the terms of Annex 9.8(f), Smulyan or the
Company (whichever is the purchaser) shall pay to the Put/Call
Parties interest on the amount of the purchase price at the rate
of 10% per annum from the date upon which closing would be
required under Section 9.8(e), but for this
Section 9.8(f), through the date such purchase is completed.
(g) The transactions contemplated by this Section 9.8
shall not be subject to Sections 9.1, 9.2, 9.4, 9.5 or 9.6
hereof.
III-29
(h) Each of the Company or Smulyan, as the case may be, and
the Put/Call Members shall cooperate to effect the transactions
elected pursuant to Section 9.8(a) or Section 9.8(b),
as applicable.
9.9 Ownership Restrictions.
(a) Notwithstanding any other provision of this Agreement,
no transfer or issuance of any Ownership Interests may be made
if such transfer or issuance would cause the Company or ECC to
violate the Communications Act of 1934
and/or the
rules, regulations and published policies of the FCC (the
Communications Laws), including the
provisions of the Communications Laws that restrict
(x) multiple ownership, cross-ownership and horizontal
ownership of broadcast stations and (y) foreign ownership
of broadcast stations, including, without limitation,
47 U.S.C. § 310(b) (the Foreign
Ownership Rules) (any such transferee that would
cause a violation thereof, a Restricted
Transferee).
(b) A transferee or issuee shall use its reasonable efforts
to structure itself
and/or its
Ownership Interests to minimize its foreign equity ownership, as
calculated pursuant to the Communications Laws, for purposes of
determining compliance of a Media Company with the Foreign
Ownership Rules. The Company and ECC shall provide adequate
information to a requesting Member or transferee regarding the
then-current foreign ownership of the Company and ECC as
calculated pursuant to the Communications Laws
(Foreign Ownership) to enable the
Member
and/or
transferee to determine whether any additional Foreign Ownership
contributed by the transferee to the Company upon consummation
of the transfer would cause the Companys
and/or
ECCs total Foreign Ownership to exceed 25%.
(c) Notwithstanding any other provision of this Agreement,
if any interest in a Media Company held by a Member
(x) causes the Company
and/or ECC
to violate the Multiple Ownership Rules or (y) precludes or
impedes a prospective acquisition by ECC, regarding which ECC
has entered into a legally binding purchase commitment, by
reason of a violation of the Multiple Ownership Rules that would
occur as a result of the consummation of such acquisition (each,
a Violation), the Board may take the
following actions as reasonably necessary to remedy such
Violation:
(i) First, the Board shall provide such Member with notice
of such Violation, which notice shall include reasonable detail
regarding the nature and cause of such Violation, and provide
such Member with a reasonable period of time, but not less than
30 days unless the FCC imposes by specific directive to the
Company or its subsidiaries a shorter period, to restructure its
Ownership Interest or its interest in other Media Companies to
eliminate such Violation.
(ii) Second, if such Member fails to so restructure its
Ownership Interest or its interest in other Media Companies to
eliminate such Violation in the period of time permitted by the
Board for such restructuring, the Board may insulate
the Ownership Interest of such Member in the manner set forth in
the Attribution Rules to insulate a member of a limited
liability company against holding an attributable interest under
the Attribution Rules in such limited liability company,
including by eliminating any non-financial rights that such
Member may have hereunder that are inconsistent with such
insulation. Such member will consent to any such insulation.
(iii) Third, if the course of action set forth in
(i) and (ii) cannot eliminate such Violation, then
notwithstanding any other provision of this Agreement, the Board
shall have all powers reasonably necessary to ensure compliance
with the Communications Laws by the Company and ECC;
provided that any action taken by the Board pursuant to
this subsection does not materially adversely affect such
Member; provided further, that if the Board elects
pursuant to this clause to redeem some or all of such
Members Ownership Interests in exchange for fair
consideration payable, at the Companys election, in the
form of a subordinated unsecured note of the Company or its
subsidiaries that matures ten years following issuance thereof
and accrues interest, payable in-kind, at then-prevailing market
rates for comparable securities
(Redemption Note), such
redemption shall not be considered a material adverse effect on
such Members for purposes of the foregoing; provided
further, that such Member shall reimburse the Company for
any reasonable and documented
out-of-pocket
costs and expenses (other than the purchase price for any
redemption described above) incurred by the Company or ECC in
connection the foregoing determinations and actions with respect
to remedying such Violation.
III-30
(d) Notwithstanding any other provision of this Agreement,
if at any time the Foreign Ownership of any Member changes and
such change causes the Foreign Ownership of the Company
and/or ECC
to exceed 25% in violation of the Foreign Ownership Rules, the
Board may take the following actions as reasonably necessary to
cause the Companys
and/or
ECCs Foreign Ownership to be reduced to 25%:
(i) First, the Board shall provide such Member with notice
of such Violation, which notice shall include reasonable detail
regarding the nature and cause of such Violation, and provide
such Member with a reasonable period of time, but not less than
30 days unless the FCC imposes by specific directive to the
Company or its subsidiaries a shorter period, to restructure its
Ownership Interest to reduce its Foreign Ownership as necessary
to cause the Foreign Ownership of the Company
and/or ECC
to be 25%.
(ii) Second, if such Member fails to so restructure its
Ownership Interest as required pursuant to (i) in the
period of time permitted by the Board for such restructuring,
the Board shall redeem such Members Ownership Interests,
to the extent necessary to achieve compliance with the Foreign
Ownership Rules, for warrants (A) with a de minimis
exercise price, (B) that are freely exercisable into
Ownership Interests equal to the Ownership Interests redeemed
but only if such exercise would not cause the Company or ECC to
violate the Communications Laws, and (C) that have a right
to distributions equal to the right to distributions of the
redeemed Ownership Interests; provided that such
distribution rights do not prevent such warrants from
eliminating such Violation under the Communications Laws.
(iii) Third, if the course of action set forth in
(i) and (ii) cannot eliminate such Violation, then
notwithstanding any other provision of this Agreement, the Board
shall have all powers reasonably necessary to ensure compliance
with the Communications Laws by the Company and ECC,
provided that any action taken by the Board pursuant to
this subsection does not materially adversely affect such
Member; provided further, that if the Board elects
pursuant to this clause to redeem some or all of such
Members Ownership Interests in exchange for fair
consideration payable, at the Companys election, in the
form of a Redemption Note, such redemption shall not be
considered a material adverse effect on such Member for purposes
of the foregoing; provided further, that such
Member shall reimburse the Company for any reasonable and
documented
out-of-pocket
costs and expenses (other than the purchase price for any
redemption described above) incurred by the Company or ECC in
connection the foregoing determinations and actions with respect
to remedying such Violation.
(e) Upon request of the Company, each Member and proposed
transferee promptly shall furnish to the Company such
information as to its Foreign Ownership and its interests in
other Media Companies that (x) are attributable under the
Attribution Rules, or (y) would, upon the consummation of
transactions or geographic expansions that the Company is
considering in good faith, be attributable under the Attribution
Rules, in each case (x) and (y) as reasonably
necessary for the Company to ensure that the Company
and/or ECC
comply or will comply with the Communications Laws.
(f) Notwithstanding any other provision of this Agreement,
no transfer shall be made without the prior consent of the FCC
if such prior consent is required under the Communications Laws.
(g) For purposes of this Section 9.9, (i) the
term Media Company shall mean any
privately or publicly held businesses or parts thereof which,
directly or indirectly, owns, controls or operates a broadcast
radio or television station licensed by the FCC, or a
daily newspaper (as such term is defined in
47 C.F.R. § 73.3555); (ii) the term
Attribution Rules shall mean the
ownership attribution rules of the FCC applicable to Media
Companies, including, but not limited to, 47 C.F.R.
§§ 73.3555; Attribution Reconsideration Order, 58
Radio Regulation 2nd 604 (1985); Further Attribution
Reconsideration Order, 1 FCC Rcd 802 (1986); Report and Order,
14 FCC Rcd 12559 (1999); Report and Order, 14 FCC Rcd 19014
(1999); Memorandum Opinion and Second Order on Reconsideration,
16 FCC Rcd 1067 (2001); Memorandum Opinion and Order on
Reconsideration, 16 FCC Rcd 1097 (2001), all as the same may be
amended or supplemented from time to time; and (iii) the
term Multiple Ownership Rules shall
mean the horizontal, multiple, and cross-ownership rules of the
FCC applicable to Media Companies, including, but not limited
to, 47 C.F.R. 73.855; 73.860; and 73.3555, and other
Communications Laws which limit or restrict attributable
ownership under the Attribution Rules in Media Companies, all as
the same may be amended or supplemented from time to time.
III-31
ARTICLE X
ADDITIONAL
MATTERS
10.1 Adjustment of Alden Percentage
Interest.
(a) From and after the Effective Date until the earliest of
(i) there being no Series A Preferred Interests
outstanding, (ii) a Qualifying IPO, the proceeds of which
are used to pay the Liquidation Preference on all then
outstanding Series A Preferred Interests, and
(iii) the seventh anniversary of the Effective Date, the
Percentage Interest attributable to the Common Interests owned
by the Alden Members in the aggregate (the Alden
Percentage Interest) shall be adjusted from time
to time, without any further action on the part of the Company
or the Members, such that the Alden Percentage Interest shall
equal the Alden Common Percentage; provided that
such Alden Percentage Interest shall be reduced by any
Percentage Interest previously transferred by any Alden Member
(other than to another Alden Member).
(b) Upon any adjustment to the Alden Percentage Interest
pursuant to this Section 10.1, the Percentage Interest
attributable to the Common Interests held by all Members other
than the Alden Members shall be adjusted pro rata based on such
Members Percentage Interest to account for such adjustment
of the Alden Percentage Interest and the Company shall revise
the Percentage Interest with respect to each Members
Common Interests as set forth on Annex 6.1(c) to reflect
such adjustment.
(c) For the purposes of this Section 10.1:
(i) Alden Common Percentage
means (v) the Initial Percentage plus (w) any
Common Interests purchased by the Alden Members in accordance
with Article IX after the date hereof, plus
(x) any Common Interests issued to the Alden Members after
the date hereof, except the Accreted Percentage, minus
(y) any Common Interests sold by or redeemed from the Alden
Members in accordance with Article IX after the date hereof
plus (z) the Accreted Percentage, in each case,
subject to adjustment (including pro rata to all other
Members as described in clause (b) above) to reflect any
Common Interest Issuances or Common Interest Repurchases.
(ii) Common Interest
Issuances means Common Interests issued (other
than pro rata to all Members) (subject to Section 3.5) by
the Company after the date hereof in accordance with this
Agreement other than (x) issuances of Ownership Interests
pursuant to a management incentive plan and (y) issuances
to Alden Members.
(iii) Common Interest
Repurchase means any repurchase of Common Interest
by the Company other than (x) repurchases pursuant to a
management incentive plan, (y) pro rata for all Members and
(z) repurchases from Alden Members.
(iv) Initial Percentage has
the meaning set forth on Annex 6.1(c).
(v) Accreted Percentage
means, from and after the second anniversary and each subsequent
anniversary of the Effective Date until the seventh anniversary
of the Effective Date, the sum of the Additional
Percentages in the chart below with respect to
each such anniversary and each previous anniversary;
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Additional
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Anniversary
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Percentage*
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2nd
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10
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%
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3rd
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5
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%
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4th
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5
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%
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5th
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5
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%
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6th
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5
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%
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7th
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5
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%
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* |
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Additional Percentages subject to adjustment to reflect any
Common Interest Issuance or Common Interest Repurchase, which
Additional Percentages shall be adjusted in proportion to the
adjustment to the Alden |
III-32
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Common Percentage resulting from such Common Interest Issuance
or Common Interest Repurchase (e.g., if the Alden
Common Percentage is reduced from 40% to 20% as a result of a
Common Interest Issuance, each Additional Percentage applied
thereafter would also be reduced by one-half and if the Alden
Common Percentage is doubled from 20% to 40% as a result of a
Common Interest Repurchase, each Additional Percentage applied
thereafter would also be doubled.) |
; provided that, from and after
14 months after the Effective Date until the fifth
anniversary of the Effective Date, the Accreted Percentage shall
increase on a pro rata basis at the end of each month on the
basis of the additional percentage applicable to the next
succeeding anniversary (e.g., on the
15-month
anniversary of the Effective Date, the Alden Common Percentage
would be the Initial Percentage plus 1%; on the
25-month
anniversary of the Effective Date, the Alden Common Percentage
would be the Initial Percentage plus
105/12%;
and on the fifth anniversary of the Effective Date, the Alden
Common Percentage would be the Initial Percentage plus 25%);
; provided, further, that, if at any
time the Alden Members no longer own, in the aggregate,
(i) Series A Preferred Interests having an aggregate
Preferred Unrecovered Capital
and/or
(ii) Junior Subordinated Notes issued pursuant to the
Distribution Letter and having an aggregate Exchanged Preferred
Unrecovered Capital equal to, in the aggregate,
$[ ]3
(as a result of (x) Distributions, (y) redemptions or
(z) transfer, provided any such transfer is made in an
arms-length transaction negotiated in good faith at a price not
less than 100% of (i) in the case of Series A
Preferred Interests, the Liquidation Preference or (ii) in
the case of Junior Subordinated Notes, the outstanding amount
due thereunder, in each case, as of the time of such transfer
(such price being referred to as the Full
Price), the Additional Percentage for each time
period thereafter shall be reduced in proportion to such
reduction in the sum of the Preferred Unrecovered Capital and
Exchanged Preferred Unrecovered Capital held by the Alden
Members (e.g., if half of the Series A Preferred Interests
are redeemed on the fifth anniversary of the Effective Date, the
Additional Percentages for each succeeding annual period would
also be reduced by one-half, subject to additional adjustments
for further reductions Preferred Unrecovered Capital of the
Series A Preferred Interests held by the Alden Members).
Notwithstanding clause (z) above, any Distributions,
payments, repurchases or redemption paid to a transferee in
respect of any Series A Preferred Interests or Junior
Subordinated Notes after the date of any transfer (but only if
the price paid therefor was less than the Full Price) shall be
considered to have reduced the Preferred Unrecovered Capital and
Exchanged Preferred Unrecovered Capital for purposes of the
foregoing.
(d) The rights to receive the Accreted Percentage which has
not yet accreted shall be personal to the Alden Members and
shall not be transferred to any transferee of Common Interests
transferred by the Alden Members to any Member that is not an
Alden Member, and such rights shall continue except as otherwise
provided in this Agreement (including this Section 10.1(c).
Notwithstanding anything in Section 10.1, upon any transfer
by any Alden Member of Common Interests (other than to another
Alden Member) in accordance with Article IX, the Alden
Percentage Interest existing at the time of such transfer shall
be adjusted as provided in Section 10.1(c)(i) and, from and
after such transfer, the Accreted Percentage (which shall not be
diminished by any such transfer) shall continue to grow as if
the Alden Members had not transferred any Common Interests,
subject to Section 10.1(c).
10.2 IPO; Registration Rights.
(a) If at any time while the Smulyan Members are
Controlling Members, the Smulyan Members desire to cause
(i) a transfer of all or substantially all of (x) the
assets of the Company or any of its Subsidiaries or (y) the
Ownership Interests to a newly organized corporation or other
business entity (Newco), (ii) a
merger or consolidation of the Company or any of its
Subsidiaries into or with a Newco, (iii) a distribution to
the Members (in accordance with the provisions of
Article VIII) of all the issued and outstanding shares
of common stock of ECC (or any of its successors or any
intermediate entity) then owned by the Company or
(iv) another restructuring of all or substantially all the
assets or Ownership Interests of the Company into a Newco,
including by way of the conversion of the Company into a
corporation or other entity (any such corporation or entity,
also Newco), in any case in connection
with a Qualifying IPO, each Member shall
3
To be equal to Aldens initial Preferred Unrecovered
Capital.
III-33
take such steps to effect such transfer, merger, consolidation,
distribution or other restructuring as may be reasonably
requested by the Board, including transferring or tendering such
Members Ownership Interests to a Newco in exchange or
consideration for shares of capital stock or other equity
interests of Newco, determined in accordance with the valuation
procedures set forth in Section 10.2(b); provided that the
Smulyan Members may only effect the foregoing transactions in
connection with a Qualifying IPO if (x) there are no
Series A Preferred Interests held by the Alden Members or
(y) the net cash proceeds of such Qualifying IPO are used
to (A) repay or redeem the Series A Preferred, the
Junior Subordinated Notes or the Senior Subordinated Notes or
(B) satisfy the Companys obligations pursuant to
Section 9.7(e) and Section 9.8(d). Prior to the
completion of a Qualifying IPO, this Agreement shall apply to
Newco, mutatis mutandis.
(b) In connection with a transaction described in
Section 10.2(a), the Board shall, in good faith, determine
the Fair Market Value of the assets or Ownership Interests
transferred to or merged into Newco, the aggregate fair market
value of Newco and the number of shares of capital stock or
other equity interests to be issued to each Member in exchange
or consideration therefor in accordance with Article XII
hereof which will be issued solely on the basis of the
Members relative Percentage Interests. Notwithstanding the
foregoing, in determining the Fair Market Value of the Ownership
Interests, (i) the offering price as set forth in the
prospectus which is distributed in connection with such
Qualifying IPO will be used by the Board to determine such Fair
Market Value, and (ii) the impact of the provisions of
Article VIII and Article XII will be taken into
account.
(c) In connection with any such Qualifying IPO, the Primary
Members shall have the registration rights as set forth in the
Registration Rights Agreement.
(d) At any time after the fifth anniversary of the date
hereof and for so long as the Alden Members maintain the
Ownership Minimum, the Alden Members shall have the right to
require the Board to cause the actions in Section 10.2(a)
and 10.2(b) in order to effect a Qualifying IPO; provided that
the form and structure of such transactions entered into in
anticipation of and connection with such a Qualifying IPO shall
be in the sole discretion of the Board so long as such actions
are otherwise in compliance with this Section 10.2 and the
Registration Rights Agreement. This Operating Agreement shall
terminate upon the consummation of the conversion to Newco as
provided in this Section 10.2 and the completion of a
Qualifying IPO.
10.3 Series A
Redemption. The Company (a) may (at the
election of the Board) at any time redeem all or a portion of
the then outstanding Series A Preferred Interests, and
(b) shall, immediately following the seventh anniversary of
the date hereof, redeem all (but not less than all) of the then
outstanding Series A Preferred Interests, in each case for
an amount of cash equal to the Liquidation Preference (a
Series A Redemption). Any
Series A Redemption shall be allocated among the
Series A Preferred Interests on a basis that is no less
favorable to the Alden Members than if it were made pro rata
among all holders of Series A Preferred Interests. From and
after a Series A Redemption, unless there shall have been a
default in payment of the cash and securities to be provided in
such redemption, all rights of the Members with respect to such
Series A Preferred Interests to be redeemed shall cease
with respect to such Series A Preferred Interests, and such
Series A Preferred Interests shall not thereafter be
transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
10.4 Credit Agreement Refinancing and
Refinancing Redemption.
(a) From and after the date hereof and for so long as the
Alden Members have beneficial ownership of any Series A
Preferred Interests, the Company shall use its commercially
reasonable efforts to cause ECC to sell assets of ECC and its
Subsidiaries for the purposes described below and subject to all
contractual and legal duties to third parties, including under
the Credit Agreement. Upon the consummation of any such sale,
the Company shall, to the extent commercially reasonable, use
the proceeds thereof to cause ECC to complete a bona fide
repayment, redemption, exchange, refinancing or amendment of the
Credit Agreement, in each case such that the terms of the Credit
Agreement (or any new indebtedness incurred in such repayment,
redemption, exchange, refinancing or amendment) (a
Credit Agreement Refinancing) would,
to the extent commercially reasonable, permit with such proceeds
a (i) a Series A Redemption by the Company for all or
a portion of the outstanding Series A Preferred Interests
in an amount equal to the lesser of (x) the net proceeds
thereof and (y) the Liquidation Preference or (ii) a
redemption by ECC of all or a portion of the Junior Subordinated
Notes
III-34
or the Senior Subordinated Notes in accordance with the terms
thereof in an amount equal to the lesser of (A) such net
proceeds and (B) the outstanding amount due thereunder
(each, a Refinancing Redemption).
(b) Promptly after any such Credit Agreement Refinancing,
the Company shall, to the extent so permitted under the terms of
such Credit Agreement Refinancing, effect such a Refinancing
Redemption.
(c) Upon the completion of a Credit Agreement Refinancing,
the Company shall pay to Alden or its designees $3,000,000 (the
Deal Fee) in cash by wire transfer of
immediately available funds in United States dollars to the
bank account or accounts designated by Alden in writing. For the
avoidance of doubt, the Deal Fee shall not be payable more than
once.
10.5 Exchanged ECC
Shares. Upon the occurrence of a Credit
Agreement Refinancing, to the extent allowable thereunder, the
Series A Preferred Interests shall be exchangeable with the
Company, in whole or in part, at the option of the Members
holding such Series A Preferred Interests into Exchanged
ECC Shares. Upon the exchange of Series A Preferred
Interests in accordance with this Section 10.5, the Company
shall reduce (i) the Preferred Unrecovered Capital set
forth on Annex 6.1(c) and (ii) the Capital Account set
forth on Annex 6.2(c), in each case, by Fair Market Value for
such Exchanged ECC Shares (which for the avoidance of doubt
shall equal on a per share basis the aggregate Liquidation
Preference of the Series A Preferred Interests so exchanged
divided by the number of Exchanged ECC Shares received in such
exchange, referred to herein as the Per Share
Exchange Value).
10.6 Subordinated Notes. In
addition to any rights of the Company pursuant to the terms of
the Senior Subordinated Notes or Junior Subordinated Notes, the
Company may redeem all or a part of the Senior Subordinated
Notes or Junior Subordinated Notes held by the Alden Members at
a redemption price equal to 100% of the principal amount of the
Senior Subordinated Notes or Junior Subordinated Notes, as
applicable, redeemed plus the amount of all accrued and unpaid
interest thereon, if any, to the date of redemption.
10.7 Key-Man Policy. For so
long as the Alden Members maintain the Ownership Minimum, the
Company shall use commercially reasonably efforts to maintain
key man insurance (a Key-Man Policy)
on Smulyan (with no less than a seven-year term which provides a
payment of at least $20,000,000 to the Company in the event of
Smulyans death, disability or incapacity (such proceeds,
Insurance Proceeds). Upon
receipt of Insurance Proceeds by the Company, the value of the
Common Interests of the Alden Members shall be determined by an
Independent Appraiser selected in accordance with the procedures
described in Section 9.8(c) applied mutatis mutandis
(treating the Alden Members as the Put/Call Members for such
purpose); provided, that such value shall
be determined as of the date immediately prior to the event that
entitled the Company to Insurance Proceeds; provided,
further, that such value shall not be less than the
Insurance Proceeds (such value, the Appraised
Price). The Company shall purchase from the Alden
Members, and the Alden Members shall sell to the Company, such
portion of the Common Interests of the Alden Members as is equal
to (i) the amount of such Insurance Proceeds divided by
(ii) the Appraised Price. The closing of such sale shall be
held 30 days from receipt of such Insurance Proceeds and
the parties shall make deliveries and grant rights necessary to
consummate such transaction as provided in Section 9.8(e)
applied mutatis mutandis.
10.8 Member Loans.
(a) Smulyan shall be permitted to, and if no other funds
are available to the Company, Smulyan shall, make loans to the
Company in accordance with this Section 10.8
(Member Loans) to the extent necessary
to fund (i) the payment of any premiums payable by the
Company under the Key-Man Policy and (ii) any other working
capital obligations of the Company.
(b) Each Member Loan shall be made in accordance with the
following terms, as applicable:
(i) Each Member Loan shall accrue interest at a rate equal
to the interest rate per annum applicable to amounts borrowed by
Emmis Operating Company under its senior credit facility, which
interest shall compound and accrue in a manner consistent with
amounts borrowed thereunder.
(ii) All outstanding unpaid principal of the Member Loans,
together with accrued and unpaid interest, shall be payable by
the Company to Smulyan on the seventh anniversary of the
Effective Date;
III-35
provided that the Company may prepay all or a portion of
any unpaid principal, together with accrued and unpaid interest,
at any time without penalty or premium in accordance with
Section 8.1(a); provided, further, that the
Company shall not pay any amount in respect of the Member Loans
as long as the Alden Members own any Series A Preferred
Interests or Junior Subordinated Notes.
(iii) The Member Loans shall not be secured by any assets
of the Company or its Subsidiaries.
(c) A Member Loan shall not be considered a Capital
Contribution, shall not increase the Capital Account of the
lending Member(s), and shall not result in the adjustment of any
Members Percentage Interest, Preferred Unreturned Capital
or Exchanged Preferred Unreturned Capital and the repayment of
any Member Loan by the Company shall not decrease the Capital
Account of the lending Member.
ARTICLE XI
INDEMNIFICATION
11.1 Indemnification by the Company.
(a) To the extent that a Director, Member or Officer of the
Company acts in good faith, in a manner reasonably believed to
be in or not opposed to the best interests of the Company, and
in accordance with the terms and conditions of this Agreement,
to the fullest extent permitted by law, the Company shall
indemnify such Person (including, as applicable, directors,
officers, employees, agents and representatives of such Person)
(each, an Indemnitee) against
expenses, damages and all costs (including reasonable
attorneys fees and final judgments and amounts paid in a
settlement to which settlement the Board has consented in
writing, which consent shall not be unreasonably withheld)
(collectively, Losses) in connection
with litigation or any claims, demands or other actions brought
against the applicable Indemnitee or executive arising out of
such Indemnitees or executives duties hereunder,
unless such Losses resulted from the gross negligence, willful
misconduct or fraud of the Indemnitee. An Indemnitee shall be
fully indemnified in relying in good faith upon the records of
the Company and upon such information, opinions, reports or
statements presented to the Company by any Person as to matters
the Indemnitee reasonably believes are within such Persons
professional or expert competence.
(b) All claims for indemnification by any Indemnitee
pursuant to Section 11.1 shall be asserted and resolved in
accordance with this Section 11.1(b). If any Indemnitee has
a claim or demand or potential claim or demand for which the
Company would be liable to such Indemnitee pursuant to
Section 11.1, such Indemnitee shall promptly notify the
Company of such claim or demand (the Claim
Notice). The Claim Notice shall be a condition
precedent to any liability of the Company under this
Article IX and shall describe the claim or demand in
reasonable detail and indicate the amount or estimated amount to
the extent then feasible (which estimate shall not be conclusive
of the final amount of such claim or demand) of the Losses that
has been or may be sustained by the Indemnitee. The Company
shall have 30 days (or less if the nature of the liability
asserted so requires) from the delivery of the Claim Notice to
notify the Indemnitee as to whether or not the Company
(i) disputes the liability of the Company to the Indemnitee
with respect to such claim or demand or (ii) elects to
assume the defense of the Indemnitee against such claim or
demand. Except as hereinafter provided, if the Company timely
notifies the Indemnitee that it desires to assume the defense of
such claim or demand, the Company shall be entitled to assume
the defense thereof at its own expense, with counsel selected by
the Board; provided that any Indemnitee may, at its own
expense, retain separate counsel to participate in such defense.
Notwithstanding the foregoing, in any claim or demand in which
both the Company, on the one hand, and an Indemnitee, on the
other hand, are, or are reasonably likely to become, a party,
such Indemnitee shall have the right to employ separate counsel
and to control its own defense of such claim or demand if, in
the reasonable opinion of counsel to such Indemnitee, either
(x) one or more defenses are available to the Indemnitee
that are not available to the Company or (y) a conflict or
potential conflict exists between the Company, on the one hand,
and such Indemnitee, on the other hand, that would make such
separate representation advisable; provided,
however, that (i) in any action between the Company
and the Indemnitee, the Company shall reimburse the Indemnitee
for the fees and expenses of only one counsel to such Indemnitee
and all other Indemnitees (A) after the final resolution or
disposition of such action and (B) if
III-36
the Indemnitee prevails in such action and (ii) in any
action between the Indemnitee and any third party, the Company
shall reimburse the Indemnitee for such fees and expenses as
such fees and expenses are incurred. The Company agrees that it
will not, without the prior written consent of the applicable
Indemnitee, settle, compromise or consent to the entry of any
judgment in any pending or threatened claim or demand relating
to the matters contemplated hereby (if such Indemnitee is a
party thereto or has been actually threatened to be made a party
thereto) unless such settlement, compromise or consent includes
an unconditional release of each Indemnitee from all liability
arising or that may arise out of such claim or demand. The
Company shall not be liable for any settlement of any claim or
demand effected against an Indemnitee without the Companys
written consent, which consent shall not be unreasonably
withheld. To the extent the Company shall direct, control or
participate in the defense or settlement of any third party
claim or demand, the Indemnitee shall give the Company and its
counsel access to, during normal business hours, the relevant
business records and other documents within its control that are
necessary and appropriate for such defense. If the Company
(a) elects not to assume the defense of the Indemnitee
against any claim or demand; (b) fails to give the
Indemnitee timely notice of such assumption as provided above;
or (c) the defense is conducted by the Indemnitee in
accordance herewith, then the portion of any such claim or
demand as to which the defense by the Indemnitee is unsuccessful
(and the costs and expenses pertaining to the Indemnitees
defense, whether or not successful) shall be the liability of
the Company hereunder.
(c) The obligations of the Company under this
Section 11.1 shall be satisfied solely out of and to the
extent of the Companys assets, and no Indemnitee shall
have any personal liability on account thereof.
(d) The debts, liabilities and obligations of the Company,
whether arising in contract, tort or otherwise, shall be solely
the debts, obligations and liabilities of the Company, and no
Indemnitee shall be obligated personally for any such debt,
liability or obligation of the Company solely by reason of being
an Indemnitee.
11.2 Survival. Notwithstanding
anything to the contrary contained in this Agreement, the
provisions of this Article XI shall survive the
termination, transfer or sale, voluntarily or involuntarily, of
a Members Ownership Interests and shall survive the
termination of this Agreement or dissolution of the Company.
ARTICLE XII
DISSOLUTION
AND TERMINATION
12.1 Withdrawal of
Members. Except as otherwise specifically
permitted in this Agreement, no Member shall at any time resign,
retire or withdraw from the Company. Any Member resigning,
retiring or withdrawing in contravention of this
Section 12.1 shall indemnify, defend and hold harmless the
Company, the Board and all other Members from and against any
Losses suffered or incurred by the Company or any such other
Member arising out of or resulting from such resignation,
retirement or withdrawal.
12.2 Dissolution of Company.
(a) The Company shall be dissolved, wound up and terminated
as provided herein upon the first to occur of the following:
(i) a decree of dissolution pursuant to Indiana Code
§ 23-18-9-2 of the Indiana Act;
(ii) the approval of the Board (in accordance with
Section 3.5(b));
(iii) a sale of all or substantially all of the assets of
the Company; or
(iv) the occurrence of any other event that would make it
unlawful for the business of the Company to be continued.
Except as expressly provided herein or as otherwise required by
the Act, the Members shall have no power to dissolve the Company.
(b) In the event of the dissolution of the Company for any
reason, the Board or a liquidating agent or committee appointed
by the Board shall act as a liquidating agent (the Board or such
liquidating agent or committee, in such capacity, is hereinafter
referred to as the Liquidator)
and, in such capacity, shall wind
III-37
up the affairs of the Company and liquidate the Company assets.
The Members shall continue to share all income, losses and
distributions during the period of liquidation in accordance
with Article VII and Article VIII. The Liquidator
shall have full right and unlimited discretion to determine the
time, manner and terms of any sale or sales of Company assets
pursuant to such liquidation, giving due regard to the activity
and condition of the relevant market and general financial and
economic conditions.
(c) The Liquidator shall have all of the rights and powers
with respect to the assets and liabilities of the Company in
connection with the liquidation and termination of the Company
that the Board would have with respect to the assets and
liabilities of the Company during the term of the Company, and
the Liquidator is hereby expressly authorized and empowered to
execute any and all documents necessary or desirable to
effectuate the liquidation and termination of the Company and
the transfer of any Company assets.
(d) Notwithstanding the foregoing, a Liquidator that is not
a Member shall not be deemed a Member and shall not have any of
the economic interests in the Company of a Member; and such
Liquidator shall be compensated for its services to the Company
at normal, customary and competitive rates for its services to
the Company, as reasonably determined by the Board.
12.3 Distribution in
Liquidation. The Companys assets shall
be applied in the following order of priority:
(a) first, to pay the costs and expenses of the winding up,
liquidation and termination of the Company;
(b) second, to creditors of the Company, in the order of
priority provided by law, including fees, indemnification
payments and reimbursements payable to the Members or their
Affiliates, but not including those liabilities (other than
liabilities to the Members for any expenses of the Company paid
by the Members or their Affiliates, to the extent the Members
are entitled to reimbursement hereunder) to the Members in their
capacity as Members;
(c) third, to establish reserves reasonably adequate to
meet any and all contingent or unforeseen liabilities or
obligations of the Company; provided, however,
that at the expiration of such period of time as the Liquidator
may deem advisable, the balance of such reserves remaining after
the payment of such contingencies or liabilities shall be
distributed as hereinafter provided; and
(d) fourth, the remainder to the Members in accordance with
Section 8.1, subject to the limitations of
Article VIII, as promptly as practicable.
If the Liquidator, in its sole discretion, determines that
Company assets other than cash are to be distributed, then the
Liquidator shall cause the Fair Market Value of the assets not
so liquidated to be determined (with any such determination
normally made by the Board in accordance with the definition of
Fair Market Value being made instead by the
Liquidator). Such assets shall be retained or distributed by the
Liquidator as follows:
(i) the Liquidator shall retain assets having a value, net
of any liability related thereto, equal to the amount by which
the cash net proceeds of liquidated assets are insufficient to
satisfy the requirements of clauses (a), (b) and
(c) of this Section 12.3; and
(ii) the remaining assets shall be distributed to the
Members in the manner specified in clause (d) of this
Section 12.3.
If the Liquidator, in its sole discretion, deems it not feasible
or desirable to distribute to each Member its allocable share of
each asset, the Liquidator may allocate and distribute specific
assets to one or more Members as the Liquidator shall reasonably
determine to be fair and equitable, taking into consideration,
inter alia, the Fair Market Value of such assets and the
tax consequences of the proposed distribution upon each of the
Members (including both distributees and others, if any). Any
distributions in-kind shall be subject to such conditions
relating to the disposition and management thereof as the
Liquidator deems reasonable and equitable.
III-38
12.4 Final Reports. At or
prior to the completion of the liquidation of the Companys
assets, the Liquidator shall deliver to each of the Members a
statement which shall set forth the assets and liabilities of
the Company as of the date of complete liquidation and each
Members portion of distributions pursuant to
Section 12.3.
12.5 Rights of Members. Each
Member shall look solely to the Companys assets for all
distributions with respect to the Company and such Members
Capital Contribution (including return thereof), and such
Members share of profits or losses thereon, and shall have
no recourse therefor (upon dissolution or otherwise) against any
other Member or the Board. No Member shall have any right to
demand or receive property other than cash upon dissolution and
termination of the Company.
12.6 Deficit
Restoration. Notwithstanding any other
provision of this Agreement to the contrary, upon liquidation of
a Members Ownership Interests (whether or not in
connection with a liquidation of the Company), no Member shall
have any liability to restore any deficit in its Capital
Account. In addition, no allocation to any Member of any loss,
whether attributable to depreciation or otherwise, shall create
any asset of or obligation to the Company, even if such
allocation reduces the Capital Account of any Member or creates
or increases a deficit in such Capital Account; it is also the
intent of the Members that no Member shall be obligated to pay
any such amount to or for the account of the Company or any
creditor of the Company. No creditor of the Company is intended
as a third-party beneficiary of this Agreement nor shall any
such creditor have any rights hereunder.
12.7 Termination. The
Company shall terminate when all property owned by the Company
shall have been disposed of and the assets shall have been
distributed as provided in Section 12.3. The Liquidator
shall then execute and cause to be filed the articles of
dissolution of the Company.
ARTICLE XIII
CONFIDENTIALITY;
PUBLICITY
13.1 Confidentiality;
Publicity. Each Member and the Company shall,
and shall cause their respective Affiliates and their respective
Affiliates directors, officers, employees and agents
(each, a Recipient) to, maintain in
confidence the terms of this Agreement and the other agreements
contemplated hereby (collectively, the Operative
Agreements) and all information furnished to each
such Recipient in connection with or relating to this Agreement,
the other Operative Agreements or the business and affairs of
the Company and none of such Persons shall issue (directly or
indirectly) or otherwise make any publicity release,
announcement or other communication, of any kind and by any
means, concerning this Agreement, the other Operative Agreements
or the business and affairs of the Company without advance
written approval of the form and substance by the Board. The
preceding sentence shall not apply to information that:
(i) becomes generally available to the public other than as
a result of disclosure by such Recipient contrary to this
Agreement; (ii) was available to such Recipient on a
non-confidential basis prior to its disclosure to such Recipient
by the Company or any other party; (iii) becomes available
to such Recipient on a non-confidential basis from a source
other than the Company or any other Recipient unless such
Recipient knows that such source is bound by a confidentiality
agreement or is otherwise prohibited from transmitting the
information to such Recipient by a contractual obligation;
(iv) is independently developed by such Recipient without
reference to confidential information received from the Company
or any other party; (v) is required to be disclosed by
applicable law or legal process, provided that any
Recipient disclosing pursuant to this clause (v) shall use
commercially reasonable efforts to notify the other party at
least five days prior to such disclosure so as to allow such
other party an opportunity to protect such information through
protective order or otherwise; (vi) is required to be
disclosed by any listing agreement with, or the rules or
regulations of, any securities exchange on which securities of
such Recipient or any of its Affiliates are listed or traded;
(vii) is required to be disclosed in connection with the
receipt of the rating of any securities (including debt
securities) from a ratings agency; (viii) is disclosed by a
Member to such Members legal, accounting and other
professional representatives; or (ix) is disclosed by a
Member in connection with Article IX to any potential
financing sources or potential transferees who agree to keep
confidential any such information in a manner consistent with
the terms of this Article XIII. Notwithstanding the
foregoing, the Alden Members shall be permitted to
III-39
disclose information to the Alden Members investors,
partners, and members who agree to keep such information
confidential in accordance with this Section 13.1.
ARTICLE XIV
MISCELLANEOUS
14.1 Further
Instruments. The parties hereto agree to
execute such further instruments and to take such further action
as may reasonably be necessary to carry out the intent of this
Agreement.
14.2 Notices. Any notice or
other communication required or permitted hereunder shall be in
writing and shall be deemed to have been duly given (a) on
the day of delivery if delivered in person, or if delivered by
facsimile upon confirmation of receipt, (b) on the first
Business Day following the date of dispatch if sent for
overnight delivery via a nationally recognized express courier
service, or (c) on the date actually received if delivered
by registered or certified mail, return receipt requested,
postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be
designated by notice given in accordance with this
Section 14.2 by the party to receive such notice:
(a) if to Alden, to:
c/o Alden
Global Capital
885 Third Avenue
New York, NY 10022
Attention: Jim Plohg
Facsimile:
(212) 702-0145
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY
Attention: Stephen M. Banker
Facsimile:
(917) 777-2760
(b) if to Smulyan or the Company, to:
c/o Taft
Stettinius & Hollister LLP
One Indiana Square, Suite 3500
Indianapolis, Indiana 46204
Attention: James A. Strain
Facsimile:
(317) 713-3460
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY
10019-6064
Attention: James M. Dubin Kelley D. Parker
Facsimile:
(212) 757-3990
(c) if to Other Members, as set forth for such Other Member
on Annex 14.2(c).
14.3 Entire Agreement. This
Agreement, together with the Securities Purchase Agreement, the
Registration Rights Agreement, the Distribution Letter and any
other collateral agreements executed in connection with the
consummation of the transactions contemplated hereby, contains
the entire agreement among the parties with respect to matters
contemplated herein and supersedes all prior agreements, written
or oral, with respect thereto.
III-40
14.4 Amendment and Wavier.
(b) This Agreement may be amended, modified or waived, in
whole or in part, at any time pursuant to an agreement in
writing executed by the Company and each Primary Member;
provided that any amendment, modification or waiver of
Article VIII or Article XII or Sections 14.4,
14.5 and 14.12 shall also require the written consent of each
Member adversely affected thereby in a manner disproportionate
to such Members Percentage Interest.
(c) Any failure by any party at any time to enforce any of
the provisions of this Agreement shall not be construed a waiver
of such provision or any other provisions hereof.
14.5 Governing Law. This
Agreement shall be governed by and construed in accordance with
the laws of the State of Indiana without regard to any conflict
of laws rules thereof that might indicate the application of the
laws of any other jurisdiction.
14.6 Binding Effect;
Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their
respective successors and assigns. This Agreement is not
assignable by any party without the prior written consent of the
other parties; provided that this Agreement may assigned to a
transferee of Ownership Interests in connection with a transfer
thereof, so long as such transfer is otherwise in compliance
with Article IX provided, further, that the
Company may assign this Agreement to Newco, and cause Newco to
assume its obligations hereunder and under the Registration
Rights Agreement, in connection with the transactions described
in Section 10.2(a).
14.7 Usage. All pronouns and
any variations thereof refer to the masculine, feminine or
neuter, singular or plural, as the context may require. All
terms defined in this Agreement in their singular or plural
forms have correlative meanings when used herein in their plural
or singular forms, respectively. Unless otherwise expressly
provided, the words include, includes
and including do not limit the preceding words or
terms and shall be deemed to be followed by the words
without limitation. Any capitalized term used in any
Exhibit or Annex but not otherwise defined therein shall have
the meaning assigned to such term in this Agreement. The word
extent in the phrase to the extent shall
mean the degree to which a subject or other thing extends, and
the phrase shall not mean simply if. Any agreement,
instrument or law defined or referred to herein means such
agreement, instrument or law as from time to time amended,
modified or supplemented, unless otherwise specifically
indicated.
14.8 Articles and
Sections. All references herein to Articles
and Sections shall be deemed references to such parts of this
Agreement, unless the context shall otherwise require. The table
of contents, index of defined terms and Article and Section
headings in this Agreement are for reference only and shall not
affect the interpretation of this Agreement.
14.9 Interpretation. The
parties acknowledge and agree that (a) each party and its
counsel reviewed and negotiated the terms and provisions of this
Agreement and have contributed to its revision, (b) the
rule of construction to the effect that any ambiguities are
resolved against the drafting party shall not be employed in the
interpretation of this Agreement, and (c) the terms and
provisions of this Agreement shall be construed fairly as to all
parties, regardless of which party was generally responsible for
the preparation of this Agreement. Any statute, regulation, or
other law defined or referred to herein (or in any agreement or
instrument that is referred to herein) means such statute,
regulation or other law as, from time to time, may be amended,
modified or supplemented, including (in the case of statutes) by
succession of comparable successor statutes. References to a
person also refer to its predecessors and permitted successors
and assigns.
14.10 Severability of
Provisions. If any provision or any portion
of any provision of this Agreement shall be held invalid or
unenforceable, the remaining portion of such provision and the
remaining provisions of this Agreement shall not be affected
thereby. If the application of any provision or any portion of
any provision of this Agreement to any Person or circumstance
shall be held invalid or unenforceable (a) the application
of such provision or portion of such provision to Persons or
circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby and (b) the
Parties shall negotiate in good faith to modify this Agreement
so as to effect the original intent of the parties as closely as
possible to
III-41
the fullest extent permitted by applicable Law in an acceptable
manner to the end that the transactions contemplated hereby are
fulfilled to the fullest extent possible.
14.11 Counterparts. This
Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts together shall
constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof each signed by less than
all, but together signed by all, of the parties hereto.
14.12 No Personal
Liability. This Agreement (and each
agreement, certificate and instrument delivered pursuant hereto)
shall not create or be deemed to create or permit any personal
liability or obligation on the part of any officer, director,
employee, agent, representative or investor of any party hereto.
14.13 No Third Party
Beneficiaries. No provision of this Agreement
is intended to, or shall, confer any third party beneficiary or
other rights or remedies upon any Person other than the parties
hereto.
14.14 Consent to Jurisdiction; Service of
Process; Waiver of Jury Trial.
(a) Any claim arising out of or relating to this Agreement
or the transactions contemplated hereby may be instituted in any
Federal court in the State of New York or, if jurisdiction is
not available in any such court, in any court sitting in New
York County, New York, and each party agrees not to assert, by
way of motion, as a defense or otherwise, in any such claim,
that it is not subject personally to the jurisdiction of such
court, that the claim is brought in an inconvenient forum, that
the venue of the claim is improper or that this Agreement or the
subject matter hereof may not be enforced in or by such court.
Each party further irrevocably submits to the jurisdiction of
such court in any such claim.
Any and all service of process and any other notice in any such
claim shall be effective against any party if given personally
or by registered or certified mail, return receipt requested, or
by any other means of mail that requires a signed receipt,
postage prepaid, mailed to such party as herein provided.
Nothing herein contained shall be deemed to affect the right of
any party to serve process in any manner permitted by law or to
commence legal proceedings or otherwise proceed against any
other party in any other jurisdiction.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH
PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
SUCH PARTY MAY HAVE TO A TRIAL BY JURY.
(c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT
(i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
WAIVER IN SECTION 14.14(b), (ii) SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER,
(iii) SUCH PARTY MAKES SUCH WAIVER VOLUNTARILY AND
(iv) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS, AGREEMENTS
AND CERTIFICATIONS IN SECTION 14.14(b) AND THIS
SECTION 14.14(c).
III-42
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
ALDEN MEDIA HOLDINGS, LLC
Name:
Title:
JEFFREY H. SMULYAN
JS ACQUISITION, LLC
Name:
Title:
OTHER MEMBERS:
[OTHER MEMBER]
Name:
Title:
[Signature Page to the Amended and Restated Operating
Agreement]
III-43
ANNEX 3.5(g)
AFFILIATE
ARRANGEMENTS
1. Any transaction with an Affiliate of the Company
disclosed in or incorporated by reference into the ECC SEC
Documents (as such term is defined in the Securities Purchase
Agreement).
2. 2011 Corporate Incentive Plan, relating to the pay out
of annual bonuses under executive officer employment agreements,
referenced in ECCs
Form 8-K
filed on April 9, 2010.
3. The following agreements:
a) Change In Control Severance Agreement, effective
January 1, 2008, by and between Emmis Communications
Corporation, an Indiana corporation, and Gregory T. Loewen.
b) Change In Control Severance Agreement, effective
March 1, 2009, by and between Emmis Communications
Corporation, an Indiana corporation, and J. Scott Enright.
c) Employment Agreement, effective as of March 1,
2009, by and between Emmis Operating Company, an Indiana
corporation, and Gregory T. Loewen, an Indiana resident.
d) Employment Agreement, effective as of March 1,
2010, by and between Emmis Operating Company, an Indiana
corporation, and J. Scott Enright, an Indiana resident.
4. In addition to the items described above, (i) any
consolidation of subsidiaries or any other similar transactions,
(ii) any arrangements or other transactions with 501(c)(3)
organizations with which Affiliates of the Company may be
affiliated by reason of an officer or director being a trustee
of any of such organizations; provided that such arrangements
are either on arms length terms or are described below in
item 5 or (iii) any other intercompany transactions in
the ordinary course of business consistent with past practice.
5. USC leases tower space from Emmis Operating Company at
Flint Peak for college radio (Smulyan is a USC trustee). Also,
Mr. Enright and Mr. Cummings are trustees of 501(c)(3)
organizations that may buy advertising and campaign and
promotional services from Emmis Operating Company (on market
terms).
Annex 3.5(g) Page 1
ANNEX 6.1(c)
OWNERSHIP
INTERESTS
Common
Interests
|
|
|
Member
|
|
Percentage Interest
|
|
Alden
|
|
[ ]%(1)
|
Smulyan
|
|
[ ]%(2)
|
[Other
Members]4
|
|
[ ]%(3)
|
Series
A Preferred Interests
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
Preferred
|
Member
|
|
Contributions
|
|
Unrecovered Capital
|
|
Alden
|
|
$
|
[ ]
|
|
|
$
|
[ ](4
|
)
|
(1) To be initially equal to the Initial
Percentage, calculated as follows:
20% +
([(Purchase Price + (.5*Expenses Overage)) −
$75,000,000) / $75,000,000] x 20%).
(2) To be initially equal to:
(100% −
the Initial Percentage) x (3 x Smulyan Shares)
(3 x Smulyan Shares) + All Other Member Shares
(3) To be initially equal to:
(100% −
the Initial Percentage) x Other Member Shares
(3 x Smulyan Shares) + All Other Member Shares
Smulyan Shares means the number
of shares of ECC Common Stock to be contributed by Smulyan to
ECC as required by the Stock Purchase Agreement.
Other Member Shares means the
number of shares of ECC Common Stock contributed by an Other
Member to the Company as required by the Rollover Agreement.
(4) To be initially equal to:
$96,900,000 +
Additional Consideration + (1.5 x Expenses Overage)
Additional Consideration means
the amount described in clause (b) of the definition of
Purchase Price as set forth in the Securities Purchase Agreement.
Expenses Overage means the
amount (if any) by which Transaction Expenses payable under
Section 10.1(a) of the Securities Purchase Agreement
exceeds $10,280,000.
4
Names of Other Members to correspond to the parties to the
Rollover Agreement.
Annex 6.1(c) Page 1
ANNEX 6.2(d)
CAPITAL
ACCOUNTS
|
|
|
|
|
Member
|
|
Capital Account:
|
|
Alden
|
|
[$
|
]
|
|
Smulyan
|
|
[$
|
]
|
|
[Other Members]
|
|
[$
|
]
|
|
Annex 6.2(d) Page 1
ANNEX 9.7(g)
BUY/SELL
FINANCING
Due at Closing: At least 35% of the aggregate
purchase price in cash and the remainder in the form of a Seller
Note substantially in the form attached hereto as Exhibit B.
Annex 9.7(g) Page 1
ANNEX 9.8(f)
PUT/CALL
FINANCING
Due at Closing: At least 35% of the aggregate
purchase price in cash and the remainder in the form of a Seller
Note substantially in the form attached hereto as Exhibit B.
Annex 9.7(f) Page 1
ANNEX 14.2(c)
OTHER
MEMBERS
NOTICE5
[Other Member]
Attention:
Facsimile:
5
Company to provide prior to Closing.
Annex 14.2(b) Page 1
Appendix
IV
Agreement
and Plan of Merger
Appendix
IV
EXECUTION COPY
IMPORTANT: The representations and warranties of each
party set forth in this Agreement (i) have been qualified
by confidential disclosures made to the other party in
connection with this Agreement, (ii) will not survive
consummation of the Merger and cannot be the basis for any
claims under this Agreement by the other parties after the
Merger is consummated, (iii) are qualified in certain
circumstances by a materiality standard which may differ from
what may be viewed as material by investors, (iv) were made
only as of the date of this Agreement or such other date as is
specified in this Agreement, and (v) may have been included
in this Agreement for the purpose of allocating risk between the
parties rather than establishing matters as facts.
AGREEMENT
AND PLAN OF MERGER
dated as of
May 25, 2010,
by and among
EMMIS COMMUNICATIONS CORPORATION,
JS ACQUISITION, LLC
and
JS ACQUISITION, INC.
TABLE
OF CONTENTS
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Page
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Article 1 The Offer and the Exchange Offer
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IV-2
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Section 1.01.
|
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The Offer
|
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|
IV-2
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Section 1.02.
|
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Company Action
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IV-3
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Section 1.03.
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Directors
|
|
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IV-4
|
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Section 1.04.
|
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The Exchange Offer
|
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IV-5
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Article 2 The Merger
|
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IV-6
|
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Section 2.01.
|
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The Merger
|
|
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IV-6
|
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Section 2.02.
|
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Conversion of Shares
|
|
|
IV-6
|
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Section 2.03.
|
|
Surrender and Payment
|
|
|
IV-7
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Section 2.04.
|
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Dissenting Shares
|
|
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IV-8
|
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Section 2.05.
|
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Company Stock Options; Company RSUs
|
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IV-8
|
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Section 2.06.
|
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Adjustments
|
|
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IV-9
|
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Section 2.07.
|
|
Withholding Rights
|
|
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IV-9
|
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Section 2.08.
|
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Lost Certificates
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|
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IV-9
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Article 3 The Surviving Corporation
|
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IV-9
|
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Section 3.01.
|
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Articles of Incorporation
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IV-9
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Section 3.02.
|
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By-laws
|
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IV-9
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Section 3.03.
|
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Directors and Officers
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IV-9
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Article 4 Representations and Warranties of the Company
|
|
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IV-10
|
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Section 4.01.
|
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Organization and Qualification; Subsidiaries
|
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IV-10
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Section 4.02.
|
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Corporate Authorization
|
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IV-10
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Section 4.03.
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Governmental Authorization
|
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IV-11
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Section 4.04.
|
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No Defaults or Conflicts; Compliance with Laws; Governmental
Permits
|
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IV-11
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Section 4.05.
|
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Capitalization; Existence; Articles of Incorporation and By-laws
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IV-12
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Section 4.06.
|
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Company Disclosure Documents; Company SEC Documents
|
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IV-13
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Section 4.07.
|
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Related Party Transactions
|
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IV-14
|
|
Section 4.08.
|
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Taxes
|
|
|
IV-14
|
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Section 4.09.
|
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Controls and Procedures
|
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IV-15
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Section 4.10.
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Intellectual Property
|
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IV-15
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Section 4.11.
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Real Estate
|
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IV-16
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Section 4.12.
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Absence of Certain Changes or Events
|
|
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IV-16
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Section 4.13.
|
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No Undisclosed Liabilities
|
|
|
IV-16
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Section 4.14.
|
|
Absence of Litigation
|
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IV-16
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Section 4.15.
|
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Finders Fees
|
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IV-16
|
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Section 4.16.
|
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Opinion of Committee Financial Advisor
|
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IV-17
|
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Section 4.17.
|
|
Anti-takeover Statutes
|
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|
IV-17
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Section 4.18.
|
|
Sufficiency of Assets
|
|
|
IV-17
|
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Section 4.19.
|
|
Adoption of Resolutions
|
|
|
IV-17
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Section 4.20.
|
|
Exclusivity of Representations
|
|
|
IV-17
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|
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|
|
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Article 5 Representations and Warranties of Parent and
Merger Subsidiary
|
|
|
IV-17
|
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Section 5.01.
|
|
Due Organization; Authority to Execute and Perform Agreement
|
|
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IV-17
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Section 5.02.
|
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Governmental Authorization
|
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IV-17
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IV-i
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Page
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Section 5.03.
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No Defaults or Conflicts
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IV-18
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Section 5.04.
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Disclosure Documents
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IV-18
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Section 5.05.
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Finders Fees
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IV-18
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Section 5.06.
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Funds
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Article 6 Covenants of the Company
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IV-18
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Section 6.01.
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Conduct of the Company
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IV-18
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Section 6.02.
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Adverse Recommendation Change
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IV-20
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Section 6.03.
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Access to Information
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IV-20
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Section 6.04.
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Notices of Certain Events
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Section 6.05.
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Proxy Statement
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IV-21
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Article 7 Covenants of Parent and Merger Subsidiary
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IV-22
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Section 7.01.
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Obligations of Merger Subsidiary
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IV-22
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Section 7.02.
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Voting of Shares
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IV-22
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Section 7.03.
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Director and Officer Liability
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IV-22
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Section 7.04.
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Termination of Securities Purchase Agreement
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IV-24
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Article 8 Covenants of Parent and the Company
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IV-24
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Section 8.01.
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Reasonable Best Efforts
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IV-24
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Section 8.02.
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Cooperation
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IV-24
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Section 8.03.
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Public Announcements
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IV-24
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Section 8.04.
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Further Assurances
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IV-24
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Section 8.05.
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Stock Exchange Delisting
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IV-24
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Section 8.06.
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Section 16 Matters
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IV-24
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Article 9 Conditions to the Merger
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IV-25
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Section 9.01.
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Conditions to the Obligations of Each Party
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IV-25
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Article 10 Termination
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IV-25
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Section 10.01.
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Termination
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IV-25
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Section 10.02.
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Effect of Termination
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IV-26
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Article 11 Miscellaneous.
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IV-26
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Section 11.01.
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Notices
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IV-26
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Section 11.02.
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Survival of Representations and Warranties
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IV-27
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Section 11.03.
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Amendments and Waivers
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IV-27
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Section 11.04.
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Expenses
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IV-27
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Section 11.05.
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Disclosure Schedule References and SEC Document References
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IV-27
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Section 11.06.
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Binding Effect, Benefit; Assignment
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IV-27
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Section 11.07.
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Governing Law
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IV-28
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Section 11.08.
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Jurisdiction
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IV-28
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Section 11.09.
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WAIVER OF JURY TRIAL
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IV-28
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Section 11.10.
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Counterparts; Effectiveness
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IV-28
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Section 11.11.
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Entire Agreement
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IV-28
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Section 11.12.
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Severability
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IV-28
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Section 11.13.
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Specific Performance
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IV-ii
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Page
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Article 12 Definitions
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IV-29
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Section 12.01.
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Definitions
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IV-29
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Section 12.02.
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Other Definitional and Interpretative Provisions
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IV-29
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Annex I
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Conditions to the Offer
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Annex II
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Conditions to the Exchange Offer
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Annex III
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Company Board Resolutions
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Schedule I
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Retained Shares
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Schedule II
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Finders Fees
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IV-iii
AGREEMENT
AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this Agreement)
dated as of May 25, 2010, by and among EMMIS COMMUNICATIONS
CORPORATION, an Indiana corporation (the
Company), JS ACQUISITION, LLC, an Indiana
limited liability company (Parent), and JS
ACQUISITION, INC., an Indiana corporation (Merger
Subsidiary) and subsidiary owned by Parent and
Mr. Jeffrey H. Smulyan (Smulyan).
W I T N E
S S E T H
WHEREAS, the respective boards of directors of Parent and
Merger Subsidiary have, at meetings duly called and held, each
unanimously (i) determined that it is in the best interests
of their respective members and shareholders for Parent to
acquire the Company on the terms and subject to the conditions
set forth herein, (ii) approved and declared advisable the
merger of Merger Subsidiary with and into the Company (the
Merger) upon the terms and subject to the
conditions set forth in this Agreement and in accordance with
the Indiana Business Corporation Law (the
IBCL or Indiana Law) and
(iii) adopted this Agreement and approved the execution,
delivery and performance of this Agreement by Parent and Merger
Subsidiary and the consummation of the transactions contemplated
hereby, including the Offer and the Merger;
WHEREAS, the Board of Directors of the Company (the
Company Board) has established the Committee
of Disinterested Directors to review, evaluate, negotiate,
recommend or not recommend to the Company Board any offer by
Merger Subsidiary or its Affiliates to acquire securities of the
Company or any other proposal for a business combination
transaction with Merger Subsidiary or its Affiliates;
WHEREAS, the Committee of Disinterested Directors, at a
meeting duly called and held, has unanimously
(i) determined that this Agreement, including the Offer and
the Merger, are advisable and fair to and in the best interests
of the Company and the Unaffiliated Shareholders and
(ii) recommended that the Company Board adopt resolutions,
on the terms and subject to the conditions of this Agreement and
in accordance with the IBCL (x) determining that it is
advisable and fair to and in the best interests of the
Unaffiliated Shareholders for Parent to acquire the Company on
the terms and subject to the conditions set forth herein,
(y) approving and adopting this Agreement, the Offer and
the Merger and (z) recommending that the Unaffiliated
Shareholders accept the Offer, tender their Shares in the Offer
and approve the Merger and this Agreement (to the extent
required by Indiana Law);
WHEREAS, the Company Board acting on the Committee
Recommendation, at a meeting duly called and held, has
unanimously, on the terms and subject to the conditions of this
Agreement and in accordance with the IBCL (i) determined
that it is advisable and fair to and in the best interests of
the Company and the Unaffiliated Shareholders for Parent to
acquire the Company on the terms and subject to the conditions
set forth herein, (ii) approved and adopted this Agreement,
the Offer and the Merger and (iii) recommended that the
Unaffiliated Shareholders accept the Offer, tender their Shares
in the Offer and approve the Merger and this Agreement (to the
extent required by Indiana Law);
WHEREAS, on the terms and conditions set forth herein,
Merger Subsidiary has agreed to commence a tender offer to
purchase all of the outstanding shares of Class A Common
Stock, par value $0.01 per share, of the Company (the
Shares) not beneficially owned by Merger
Subsidiary, Parent, Smulyan, his Affiliates (collectively with
Parent, Merger Subsidiary and Smulyan, the Purchaser
Group), Alden Global Capital or its Affiliates
(Alden) and the Shares to be contributed to
the Company by the parties to the Rollover Agreement, at an
offer price of $2.40 per Share in cash, without interest and
subject to applicable withholding taxes (the Offer
Price) and file with the U.S. Securities and
Exchange Commission (the SEC) a
combined Tender Offer Statement and
Rule 13E-3
Transaction Statement under cover of Schedule TO (the
Schedule TO) and related Offer to
Purchase, form of letter of transmittal and other ancillary
Offer documents and instruments (collectively with the
Schedule TO, and including any amendments or supplements
thereto, the Offer Documents) with respect to
such offer by Merger Subsidiary (as such offer is amended from
time to time, including in accordance with this Agreement, the
Offer);
WHEREAS, the Offer is conditioned upon, among other
things, there being validly tendered and not withdrawn prior to
the expiration of the Offer, a number of Shares, which together
with the Shares and the
IV-1
shares of Class B Common Stock, par value $0.01 per share,
of the Company (the Class B
Shares) beneficially owned by the Purchaser Group, the
Rolling Shareholders and Alden, represents at least a majority
of the aggregate voting power of the Shares and the Class B
Shares, voting together as a single class and with each Share
entitled to one vote per Share and each Class B Share
entitled to one vote per Share, outstanding on the date such
Shares are purchased (the Minimum Tender
Condition); and
WHEREAS, on the terms and conditions set forth herein,
the Company has agreed to commence an offer to exchange all of
the outstanding shares of 6.25% Series A Cumulative
Convertible Preferred Stock, par value $0.01 per share, of the
Company (the Preferred Shares) for a newly
issued series of 12% Senior Subordinated Notes due 2017 of
the Company (the New Notes) with an aggregate
principal amount equal to 60% of the aggregate liquidation
preference (excluding accrued and unpaid dividends) of the
Preferred Shares and file with the SEC a proxy statement and
offer to exchange under cover of Schedule 14A and
Schedule TO (the Proxy Statement/Offer to
Exchange) and other ancillary Exchange Offer documents
and instruments (collectively with the Proxy Statement/Offer to
Exchange, and including any amendments or supplements thereto,
the Exchange Offer Documents) with
respect to such offer to exchange by the Company (as such offer
is amended from time to time, including in accordance with this
Agreement, the Exchange Offer) and in
connection with the Exchange Offer, exchanging holders will be
asked to vote in favor of a proposal to approve an amendment to
the Companys second amended and restated articles of
incorporation (the Articles of
Incorporation), which would (i) remove the rights
of the holders of the Preferred Shares to require the Company to
redeem all or a portion of their Preferred Shares on the first
anniversary after the occurrence of certain going private
transactions and nominate directors to the Company Board, and
(ii) provide for the automatic conversion upon the Merger
(a) of each Preferred Share not exchanged for the New Notes
(other than the Preferred Shares held by Alden) into that amount
of consideration that would be paid to holders of Shares into
which the Preferred Shares are convertible immediately prior to
the Merger and (b) of the Preferred Shares held by Alden
into the New Notes at a rate of $30 principal amount of New
Notes per $50 of liquidation preference of Preferred Shares,
excluding accrued and unpaid dividends (collectively, the
Preferred Amendments).
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements contained
herein, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and
intending to be bound hereby, Parent, Merger Subsidiary and the
Company hereby agree as follows:
ARTICLE 1
THE OFFER
AND THE EXCHANGE OFFER
Section 1.01. The
Offer.
(a) Provided that no event shall have occurred and be
continuing that, had the Offer been commenced, would give rise
to a right to terminate the Offer pursuant to any of the
conditions set forth in Annex I, no later than
5:00 p.m. New York City time on June 3, 2010, Merger
Subsidiary shall commence (within the meaning of
Rule 14d-2
of the Exchange Act) the Offer. On the date of commencement of
the Offer, Merger Subsidiary shall (i) file or cause to be
filed with the SEC the Offer Documents and (ii) cause the
Offer Documents to be disseminated to the holders of Shares as
and to the extent required by applicable Law. Subject to the
terms and conditions thereof, the Offer shall remain open until
at least 5:00 p.m., New York City time, on the twentieth
Business Day (for this purpose calculated in accordance with
Rule 14d-1(g)(3)
under the Exchange Act) following the date the Offer is
commenced.
(b) Merger Subsidiary expressly reserves the right to waive
any of the conditions to the Offer and to make any other changes
in the terms of or conditions to the Offer; provided,
that without the prior consent of the Company (which consent
shall require approval by the Committee of Disinterested
Directors), Merger Subsidiary shall not:
(i) decrease the amount or change the form of the
consideration to be paid or decrease the number of Shares sought
in the Offer;
IV-2
(ii) waive the Minimum Tender Condition;
(iii) add to, amend, modify, supplement or otherwise change
any of the conditions to the Offer set forth in
Annex I in any manner that is adverse to the
Unaffiliated Shareholders;
(iv) amend any other term of the Offer in any manner
adverse to the Unaffiliated Shareholders; or
(v) extend the expiration date of the Offer except as
otherwise provided herein.
Notwithstanding clause (v) above, Merger Subsidiary shall,
and Parent shall cause Merger Subsidiary to, extend the Offer
(x) from time to time for successive periods not to exceed
10 Business Days each, until the conditions to the Offer are
satisfied or waived if any of the conditions is not satisfied or
waived on any scheduled expiration date of the Offer, and
(y) for the minimum period required by any rule,
regulation, interpretation or position of the SEC or the staff
thereof applicable to the Offer or any period otherwise required
by applicable Law; provided, that in no event shall
Merger Subsidiary be required or permitted to extend the Offer
beyond the End Date. Following expiration of the Offer, Merger
Subsidiary may, in its sole discretion, provide a subsequent
offering period (Subsequent Offering Period)
in accordance with
Rule 14d-l1
of the Exchange Act.
(c) Subject to the terms and conditions set forth in this
Agreement and to the satisfaction or waiver of the conditions to
the Offer, Merger Subsidiary shall, and Parent shall cause
Merger Subsidiary to, accept for payment and pay for, promptly
after the expiration of the Offer, all Shares (i) validly
tendered and not withdrawn pursuant to the Offer and
(ii) validly tendered in any Subsequent Offering Period
(the date on which Shares are first accepted for payment, the
Acceptance Date).
(d) Each of Parent, Merger Subsidiary and the Company
agrees promptly to correct any information provided by it or any
of its Affiliates for use in the Schedule TO and the Offer
Documents if and to the extent that such information shall have
become false or misleading in any material respect. Merger
Subsidiary shall, and shall cause its Affiliates to, use
reasonable best efforts to cause the Schedule TO as so
corrected to be filed with the SEC and the Offer Documents as so
corrected to be disseminated to holders of Shares, in each case
as and to the extent required by applicable U.S. federal
securities laws. The Company, the Committee of Disinterested
Directors and their respective counsel shall be given a
reasonable opportunity to review and comment on any amendment to
the Schedule TO and the Offer Documents each time before
any such document is filed with the SEC, and Merger Subsidiary
shall give reasonable and good faith consideration to any
comments made by the Company, the Committee of Disinterested
Directors and their respective counsel. Parent and Merger
Subsidiary shall provide the Company, the Committee of
Disinterested Directors and their respective counsel with
(i) any comments or other communications, whether written
or oral, that Parent, Merger Subsidiary or their respective
Affiliates or counsel may receive from time to time from the SEC
or its staff with respect to the Schedule TO or the Offer
Documents promptly after receipt of those comments or other
communications and (ii) a reasonable opportunity to
participate in the response of Parent and Merger Subsidiary to
those comments and to provide comments on that response (to
which reasonable and good faith consideration shall be given),
including by participating with Parent and Merger Subsidiary or
their counsel in any discussions or meetings with the SEC.
Section 1.02. Company
Action.
(a) The Company hereby approves of and consents to the
Offer and the Merger and represents and warrants that the
Company Board acting on the Committee Recommendation, at a
meeting duly called and held, has unanimously, on the terms and
subject to the conditions of this Agreement and in accordance
with the IBCL (i) determined that it is advisable and fair
to and in the best interests of the Company and the Unaffiliated
Shareholders for Parent to acquire the Company on the terms and
subject to the conditions set forth herein, (ii) approved
and adopted this Agreement, the Offer and the Merger and (iii)
recommended that the Unaffiliated Shareholders accept the Offer,
tender their Shares in the Offer and approve the Merger and this
Agreement (to the extent required by Indiana Law).
(b) The Company hereby agrees to file with the SEC on the
date that Merger Subsidiary files the Offer Documents pursuant
to Section 1.01(a), a Solicitation/Recommendation
Statement on
Schedule 14D-9 pertaining
IV-3
to the Offer (together with any amendments or supplements
thereto, the
Schedule 14D-9)
containing the Committee Recommendation and the Company Board
Recommendation. The Company agrees to use its reasonable best
efforts to mail such
Schedule 14D-9
to the shareholders of the Company concurrently with the mailing
of the Offer Documents. The
Schedule 14D-9
will comply in all material respects with the provisions of
applicable federal securities laws and, on the date filed with
the SEC and on the date first published, sent or given to the
Companys shareholders and at the Acceptance Date, shall
not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading,
except that no representation is made by the Company with
respect to information supplied by Parent or Merger Subsidiary
in writing for inclusion in the
Schedule 14D-9.
The Company, Parent and Merger Subsidiary each agree promptly to
correct any information provided by it for use in the
Schedule 14D-9,
if and to the extent that such information shall have become
false or misleading in any material respect, and the Company
further agrees to take all steps necessary to cause the
Schedule 14D-9,
as so corrected to be filed with the SEC and disseminated to the
holders of Shares as and to the extent required by applicable
federal securities laws. Parent, Merger Subsidiary and their
counsel shall be given a reasonable opportunity to review and
comment on the
Schedule 14D-9
(including each amendment or supplement thereto) before it is
filed with the SEC and the Company shall give reasonable and
good faith consideration to any comments made by Parent, Merger
Subsidiary and their counsel. In addition, the Company shall
provide Parent, Merger Subsidiary and their counsel with copies
of any written comments, and shall inform them of any oral
comments, that the Company or its counsel may receive from time
to time from the SEC or its staff with respect to the
Schedule 14D-9
promptly after receipt of such comments, and any written or oral
responses thereto. Parent, Merger Subsidiary and their counsel
shall be given a reasonable opportunity to review any such
responses and the Company shall give reasonable and good faith
consideration to any comments made by Parent, Merger Subsidiary
and their counsel prior to their submission.
(c) In connection with the Offer, the Company shall
promptly furnish Parent and Merger Subsidiary with mailing
labels, security position listings and any available listing or
computer files containing the names and addresses of the record
holders of the Shares as of a recent date and shall furnish
Parent and Merger Subsidiary with such additional information
and assistance (including, without limitation, updated lists of
shareholders, mailing labels and lists of securities positions)
as Parent, Merger Subsidiary or their respective agents may
reasonably request in communicating the Offer to the record and
beneficial holders of Shares.
(d) The Company hereby consents to the inclusion in the
Offer Documents of all disclosure relating to (i) the
Committee Financial Advisor (including the amount of fees and
other consideration that the Committee Financial Advisor will
receive upon consummation of or as a result of the Offer and the
Merger, and the conditions therefor), (ii) the opinion the
Committee Financial Advisor referred to in
Section 4.15 and (iii) the information that
formed the basis for rendering such opinion, subject to the
approval of the form of such disclosure by the Committee
Financial Advisor (such approval not to be unreasonably withheld
or delayed).
Section 1.03. Directors. Following
the Acceptance Date and until the Effective Time, the Company
Board shall at all times include the directors that currently
comprise the Committee of Disinterested Directors, and none of
Parent, Merger Subsidiary, Smulyan or the Company shall take any
action to cause any change in the composition of the Committee
of Disinterested Directors. After the Acceptance Date and prior
to the Effective Time, in addition to any approvals of the
Company Board or the shareholders of the Company as may be
required by the Articles of Incorporation, the Companys
By-laws (the By-laws) or applicable Law, the
affirmative vote of a majority of the members of the Committee
of Disinterested Directors shall be required (a) for the
Company to terminate this Agreement or amend this Agreement,
(b) for the Company to exercise or waive any of the
Companys rights, benefits or remedies under this
Agreement, (c) for the Company to take any action that
would prevent or materially delay the consummation of the
Merger, (d) except as otherwise contemplated by this
Agreement, to amend the Articles of Incorporation or the By-laws
or (e) for the Company Board to take any other action under
this Agreement, in each case, if such termination, amendment,
exercise, waiver or other action would reasonably be expected to
adversely affect the holders of Shares (other than Alden or the
Purchaser Group).
IV-4
Section 1.04. The
Exchange Offer.
(a) Provided that no event shall have occurred and be
continuing that, had the Exchange Offer been commenced, would
give rise to a right to terminate the Exchange Offer pursuant to
any of the conditions set forth in Annex II, no
later than 5:00 p.m. New York City time on June 3,
2010, the Company shall file or cause to be filed with the SEC
the Exchange Offer Documents. Immediately following the receipt
by the Company of SEC clearance of the Exchange Offer Documents,
the Company shall (i) commence (within the meaning of
Rule 14d-2
of the Exchange Act) the Exchange Offer and (ii) cause the
Exchange Offer Documents to be disseminated to the
Companys shareholders as and to the extent required by
applicable Law. In accordance with the IBCL, the Articles of
Incorporation, the By-laws, the Exchange Act and any applicable
rules of NASDAQ, the Company shall, as promptly as possible
following the date hereof, call a special meeting of its
shareholders to vote on the Preferred Amendments and set as the
record date for such meeting, a date that is satisfactory to the
Merger Subsidiary. Subject to the terms and conditions thereof,
the Exchange Offer shall remain open until at least
5:00 p.m., New York City time, on the twentieth Business
Day (for this purpose calculated in accordance with
Rule 14d-1(g)(3)
under the Exchange Act) following the date the Exchange Offer is
commenced. Upon receipt of the approval of the Companys
shareholders of the Preferred Amendments, the Company shall file
the Preferred Amendments with the Secretary of State of the
State of Indiana and use reasonable best efforts to make the
Preferred Amendments effective.
(b) The Company expressly reserves the right to waive any
of the conditions to the Exchange Offer and to make any other
changes in the terms of or conditions to the Exchange Offer;
provided, that without the prior consent of Parent, the
Company shall not:
(i) decrease the amount or change the form of the
consideration to be paid or decrease the number of Preferred
Shares sought in the Exchange Offer;
(ii) add to, amend, modify, supplement or otherwise change
any of the conditions to the Exchange Offer set forth in
Annex II in any manner that is adverse to the
Unaffiliated Shareholders and the holders of Preferred Shares
(other than Alden);
(iii) amend any other term of the Exchange Offer in any
manner adverse to the Unaffiliated Shareholders and the holders
of Preferred Shares (other than Alden);
(iv) withdraw or terminate the Exchange Offer or otherwise
amend the terms of the Exchange Offer in a manner adverse to the
Unaffiliated Shareholders and the holders of Preferred Shares
(other than Alden) after the date that the Preferred Amendments
become effective; or
(v) extend the expiration date of the Exchange Offer except
as otherwise provided herein.
Notwithstanding clause (v) above, the Company may extend
the Exchange Offer (x) from time to time for successive
periods not to exceed 10 Business Days each, until the
conditions to the Exchange Offer are satisfied or waived if any
of the conditions is not satisfied or waived on any scheduled
expiration date of the Exchange Offer, and (y) for the
minimum period required by any rule, regulation, interpretation
or position of the SEC or the staff thereof applicable to the
Exchange Offer or any period otherwise required by applicable
Law; provided, that in no event shall the Company be
required or permitted to extend the Exchange Offer beyond the
End Date.
(c) Subject to the terms and conditions set forth in this
Agreement and to the satisfaction or waiver of the conditions to
the Exchange Offer, the Company shall accept for exchanging and
exchange for, promptly after the expiration of the Exchange
Offer, all Preferred Shares validly tendered and not withdrawn
pursuant to the Exchange Offer.
(d) Each of Parent, Merger Subsidiary and the Company
agrees promptly to correct any information provided by it or any
of its Affiliates for use in the Proxy Statement/Offer to
Exchange and the Exchange Offer Documents if and to the extent
that such information shall have become false or misleading in
any material respect. The Company shall, and shall cause its
Affiliates to, use reasonable best efforts to cause the Proxy
Statement/Offer to Exchange as so corrected to be filed with the
SEC and the Exchange Offer Documents as so corrected to be
disseminated to the Companys shareholders, in each case as
and to the
IV-5
extent required by applicable U.S. federal securities laws.
Parent, Merger Subsidiary and their respective counsel shall be
given a reasonable opportunity to review and comment on any
amendment to the Proxy Statement/Offer to Exchange and the
Exchange Offer Documents each time before any such document is
filed with the SEC, and the Company shall give reasonable and
good faith consideration to any comments made by the Parent, the
Merger Subsidiary and their respective counsel. The Company
shall provide to Parent and Merger Subsidiary and their
respective counsel with (i) any comments or other
communications, whether written or oral, that the Company or its
Affiliates or their respective counsel may receive from time to
time from the SEC or its staff with respect to the Proxy
Statement/Offer to Exchange or the Exchange Offer Documents
promptly after receipt of those comments or other communications
and (ii) a reasonable opportunity to participate in the
response of the Company to those comments and to provide
comments on that response (to which reasonable and good faith
consideration shall be given), including by participating with
the Company or its counsel in any discussions or meetings with
the SEC.
ARTICLE 2
THE
MERGER
Section 2.01. The
Merger.
(a) At the Effective Time, Merger Subsidiary shall be
merged (the Merger) with and into the Company
in accordance with Indiana Law, whereupon the separate existence
of Merger Subsidiary shall cease, and the Company shall be the
surviving corporation (the Surviving
Corporation).
(b) Subject to the provisions of Article 9, the
closing of the Merger (the Closing)
shall take place in New York City at the offices of Paul, Weiss,
Rifkind, Wharton & Garrison, 1285 Avenue of the
Americas, New York, New York 10019, as soon as possible, but in
any event no later than two Business Days after the date the
conditions set forth in Article 9 (other than
conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or, to the extent
permissible, waiver of those conditions at the Closing) have
been satisfied or, to the extent permissible, waived by the
party or parties entitled to the benefit of such conditions, or
at such other place or time as Parent and the Company may
mutually agree.
(c) On or prior to the date of Closing, the Company shall
file articles of merger with the Secretary of State of the State
of Indiana. The Merger shall become effective at such time (the
Effective Time) as the articles of
merger are duly filed with the Indiana Secretary of State or at
such later time (not to exceed one Business Day) as is specified
in the articles of merger.
(d) From and after the Effective Time, the Surviving
Corporation shall possess all the rights, powers, privileges and
franchises and be subject to all of the obligations,
liabilities, restrictions and disabilities of the Company and
Merger Subsidiary, all as provided under Indiana Law.
Section 2.02. Conversion
of Shares.
(a) Immediately prior to the Effective Time:
(i) each Share held by the Purchaser Group (other than the
Retained Shares held by the Purchaser Group) and each Rollover
Share will be contributed to the Company in consideration for
common equity interests in Parent; and
(ii) each Class B Share outstanding, all of which are
held by Smulyan, and all of the Smulyan Options will be
contributed to the Company in consideration for common equity
interests in Parent.
(b) At the Effective Time:
(i) each Share outstanding, including outstanding
restricted stock with respect to Shares that become fully vested
immediately prior to the Effective Time (other than Merger
Subsidiary held by Parent or the Company), shall be converted
into the right to receive an amount in cash equal to the Offer
Price (the Common Merger Consideration) from
the Company;
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(ii) pursuant to the terms of the Preferred Amendments,
each Preferred Share held by Alden will be converted into New
Notes at a rate of $30 principal amount of New Notes per $50 of
liquidation preference of Preferred Shares, excluding accrued
and unpaid dividends (the Alden Preferred Merger
Consideration);
(iii) pursuant to the terms of the Preferred Amendments,
except as otherwise provided in Section 2.02(b)(ii),
each Preferred Share outstanding that was not exchanged for New
Notes pursuant to the Exchange Offer shall be converted into the
right to receive an amount in cash equal to $5.856, without
interest and less any applicable withholding taxes (the
Preferred Merger Consideration and, together
with the Common Merger Consideration, the Cash Merger
Consideration and the Cash Merger Consideration
together with the Alden Preferred Merger Consideration, the
Merger Consideration);
(iv) each Share and each Class B Share held by Merger
Subsidiary or the Company shall be cancelled without
consideration;
(v) each share of Merger Subsidiary Class A Common
Stock outstanding shall be converted into and become one share
of Non-Voting Class A Common Stock, par value $0.01 per
share, of the Surviving Corporation with the same rights, powers
and privileges as the shares so converted; and
(vi) each share of Merger Subsidiary Class B Common
Stock outstanding shall be converted into and become one share
of Class B Common Stock, par value $0.01 per share, of the
Surviving Corporation with the same rights, powers and
privileges as the shares so converted.
(c) As of the Effective Time, all Shares, Class B
Shares, Smulyan Options, Preferred Shares, shares of Merger
Subsidiary Class A Common Stock and shares of Merger
Subsidiary Class B Common Stock outstanding immediately
prior to the Effective Time shall be canceled and retired and
shall thereafter represent only the rights, if any, specified in
this Section 2.02 and Section 2.04.
Section 2.03. Surrender
and Payment.
(a) Prior to the Effective Time, Parent shall appoint an
agent (the Paying Agent) for the purpose of
exchanging certificates representing Shares and Preferred Shares
(the Certificates) or uncertificated Shares
and Preferred Shares (the Uncertificated
Shares) for the applicable Merger Consideration as
provided in Section 2.02. Parent or one of its
Affiliates shall make available to the Paying Agent, as needed,
the Cash Merger Consideration and the Company shall make
available to the Paying Agent the Alden Preferred Merger
Consideration, in each case, to be paid in respect of the
Certificates and the Uncertificated Shares. Any interest or
other income earned on the Cash Merger Consideration deposited
with the Paying Agent pending its disbursement pursuant to
Section 2.03 shall be solely for the account of the
Surviving Corporation or one of its Affiliates and shall be
delivered to them, upon demand by the Surviving Corporation at
any time or from time to time. Promptly after the Effective
Time, Parent shall send, or shall cause the Paying Agent to
send, to each record holder of Shares and Preferred Shares that
have been converted into the right to receive the applicable
Merger Consideration a letter of transmittal and instructions
for use in such exchange (which shall specify that the delivery
shall be effected, and risk of loss and title shall pass, only
upon proper delivery of Certificates or transfer of
Uncertificated Shares to the Paying Agent).
(b) Each holder of Shares
and/or
Preferred Shares that have been converted into the right to
receive the applicable Merger Consideration shall be entitled to
receive (upon surrender to the Paying Agent of a Certificate,
together with a properly completed letter of transmittal, or in
the case of Uncertificated Shares, receipt by the Paying Agent
of an agents message (or other evidence
reasonably acceptable to the Paying Agent)) the applicable
Merger Consideration payable for each Share or Preferred Share
so surrendered. Until so surrendered, each Certificate or
Uncertificated Share shall after the Effective Time represent
only the right to receive the applicable Merger Consideration.
(c) If any portion of the Merger Consideration is to be
paid to a Person other than the registered holder, it shall be a
condition to such payment that (i) any Certificate shall be
in proper form for transfer or any Uncertificated Share shall be
properly transferred and (ii) the Person requesting such
payment shall pay to the Paying Agent any transfer or other
Taxes required as a result of such payment to a Person other
than the
IV-7
registered holder or establish to the satisfaction of the Paying
Agent that such Tax has been paid or is not payable.
(d) After the Effective Time, there shall be no further
registration of transfers of Shares or Preferred Shares. If,
after the Effective Time, Certificates or Uncertificated Shares
are presented to Parent, the Surviving Corporation or the Paying
Agent, for any reason, they shall be canceled and exchanged for
the Merger Consideration provided for, and in accordance with
the procedures set forth, in this Article 2.
(e) Any portion of the Merger Consideration made available
to the Paying Agent pursuant to Section 2.03(a) that
remains unclaimed by the holders of Shares or Preferred Shares
six months after the Effective Time shall be delivered to the
Surviving Corporation or one of its Affiliates upon demand by
the Surviving Corporation, and any such holder who has not
exchanged such Shares or Preferred Shares for the applicable
Merger Consideration in accordance with this
Section 2.03 prior to that time, shall thereafter
look only to the Surviving Corporation for payment of the
applicable Merger Consideration in respect of such Shares or
Preferred Shares, as applicable, without any interest thereon.
Notwithstanding the foregoing, neither the Surviving Corporation
nor any of its Affiliates shall be liable to any holder of
Shares or Preferred Shares for any amount paid to a public
official pursuant to applicable abandoned property, escheat or
similar laws. Any amounts remaining unclaimed by holders of
Shares or Preferred Shares immediately prior to such time when
the amounts would otherwise escheat to or become property of any
Governmental Body shall become to the extent permitted by Law,
the property of the Surviving Corporation free and clear of any
claims or interest of any Person previously entitled thereto.
(f) Any portion of the Merger Consideration made available
to the Paying Agent pursuant to Section 2.03(a) to
pay for Shares for which dissenters rights have been
perfected shall be delivered to the Surviving Corporation or one
of its Affiliates, upon demand by the Surviving Corporation.
Section 2.04. Dissenting
Shares. Notwithstanding
Section 2.02 and to the extent
§ 23-1-44
of the IBCL is applicable, Shares outstanding immediately prior
to the Effective Time and held by a holder of record who has not
voted in favor of the Merger or consented thereto in writing and
who has notified the Company in writing of his or her intent to
dissent prior to the taking of the vote on the Merger and
complied with other requirements under Indiana Law, shall not be
converted into the right to receive the applicable Merger
Consideration, but instead shall only have such rights as are
provided by Indiana Law; provided, however, that
if such holder fails to perfect, withdraws or loses the right to
dissent, then such Shares shall automatically be converted into
the right to receive the Merger Consideration. The Company shall
give Parent (a) prompt written notice of any dissenting
shareholder or other documents received by the Company pursuant
to
§ 23-1-44
of the IBCL and (b) the opportunity to direct all
negotiations and proceedings with respect to such demands and
the exercise of dissenters rights under
§ 23-1-44
of the IBCL. Except with the prior written consent of Parent or
as otherwise required by Law or a judgment, injunction or decree
of a Governmental Body of competent jurisdiction, the Company
shall not take any action with respect to such demands
(including making any payment with respect to, or offering to
settle or settling, any such demands).
Section 2.05. Company
Stock Options; Company RSUs.
(a) At or immediately prior to the Effective Time, each
option to purchase Shares outstanding under any stock option or
compensation plan or arrangement of the Company (a
Company Stock Option) other than the Smulyan
Options, whether or not vested or exercisable, shall vest and be
canceled, and the Company shall pay the holder of any such
option at or promptly after the Effective Time an amount in cash
equal to the product of (i) the excess, if any, of the
Common Merger Consideration over the applicable exercise price
per Share of such option and (ii) the number of Shares such
holder could have purchased (assuming full vesting of such
Company Stock Option) had such holder exercised such Company
Stock Option in full immediately prior to the Effective Time.
(b) At or immediately prior to the Effective Time, each
restricted stock unit with respect to Shares outstanding under
any stock option or compensation plan or arrangement of the
Company (a Company RSU), whether or not
vested, shall vest and be canceled, and the Company shall pay
the holder of any such restricted stock unit at or promptly
after the Effective Time an amount in cash equal to the product
of (i) the
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Common Merger Consideration and (ii) the number of Shares
such holder could have received (assuming full vesting of such
Company RSU) had the Company RSU been settled immediately prior
to the Effective Time.
(c) Prior to the Effective Time, the Company shall take
such actions, if any, as are necessary to give effect to the
transactions contemplated by this Section 2.05.
Section 2.06. Adjustments. If,
during the period between the date of this Agreement and the
Effective Time, the outstanding Shares or Preferred Shares shall
be changed into a different number of shares or a different
class (including by reason of any reclassification,
recapitalization, stock split or combination, exchange or
readjustment of Shares or Preferred Shares, or stock dividend
thereon with a record date during such period), the applicable
Merger Consideration and any other amounts payable pursuant to
this Agreement shall be appropriately adjusted.
Section 2.07. Withholding
Rights. Notwithstanding anything else
contained herein to the contrary, each of the Paying Agent, the
Surviving Corporation and Parent shall be entitled to deduct and
withhold from the consideration otherwise payable to any Person
pursuant to Articles 1 and 2 such amounts as
it is required to deduct and withhold with respect to the making
of such payment under any provision of Tax law. If the Paying
Agent, the Surviving Corporation or Parent, as the case may be,
so withholds amounts, such amounts shall be treated for all
purposes of this Agreement as having been paid to the Person in
respect of which the Paying Agent, the Surviving Corporation or
Parent, as the case may be, made such deduction and withholding.
Section 2.08. Lost
Certificates. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by the Surviving
Corporation, the posting by such Person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as
indemnity against any claim that may be made against it with
respect to such Certificate, the Paying Agent shall pay, in
exchange for such lost, stolen or destroyed Certificate, the
applicable Merger Consideration to be paid in respect of the
Shares or Preferred Shares represented by such Certificate as
contemplated by this Article 2.
ARTICLE 3
THE
SURVIVING CORPORATION
Section 3.01. Articles
of Incorporation. At the Effective Time, the
articles of incorporation of the Company shall be amended to be
identical to the articles of incorporation of Merger Subsidiary
in effect immediately prior to the Effective Time, except for
Article I, which shall read The name of the
corporation is Emmis Communications Corporation, and
except that the provisions of the articles of incorporation of
Merger Subsidiary relating to the incorporator of Merger
Subsidiary shall be omitted and as so amended shall be the
articles of incorporation of the Surviving Corporation until
thereafter amended in accordance with Indiana Law. Nothing in
this Section 3.01 shall affect in any way the
indemnification obligations provided for in
Section 7.03(b).
Section 3.02. By-laws. At
the Effective Time, the By-laws shall be amended to be identical
to the by-laws of Merger Subsidiary in effect immediately prior
to the Effective Time and as so amended shall be the by-laws of
the Surviving Corporation until thereafter amended in accordance
with Indiana Law, except that the words JS Acquisition,
Inc. shall be replaced by Emmis Communications
Corporation. Nothing in this Section 3.02
shall affect in any way the indemnification obligations provided
for in Section 7.03(b).
Section 3.03. Directors
and Officers. From and after the Effective
Time, until successors are duly elected or appointed and
qualified in accordance with Indiana Law, (a) the directors
of Merger Subsidiary immediately prior to the Effective Time
shall be the directors of the Surviving Corporation and
(b) the officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving
Corporation.
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ARTICLE 4
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
Except (a) as set forth in the Disclosure Schedule which is
being delivered to Parent and Merger Subsidiary concurrently
herewith (the Company Disclosure Schedule) or
(b) as disclosed in or incorporated by reference into
(i) the Companys Annual Report on
Form 10-K
for the year ended February 28, 2010 (the Company
10-K)
or (ii) any other Company SEC Document filed with or
furnished to the SEC on or after the date the Company
10-K was
filed but prior to the date hereof (excluding any disclosure set
forth in any risk factor section or any section relating to or
containing forward looking statements, in each case, to the
extent not otherwise disclosed in any other section of the
Company 10-K
or such other Company SEC Documents) to the extent such
disclosure is reasonably apparent on its face to relate to such
section of Article 4 below, the Company represents
and warrants to the Parent and Merger Subsidiary as follows:
Section 4.01. Organization
and Qualification; Subsidiaries.
(a) Each of the Company and its Subsidiaries is a
corporation or legal entity duly organized or formed, validly
existing and in good standing, under the laws of its
jurisdiction of organization or formation and has the requisite
corporate, partnership or limited liability company power and
authority and all necessary governmental approvals to own, lease
and operate its properties and to carry on the Business as it is
now being conducted, except where the failure to have such
power, authority and governmental approvals would not reasonably
be expected to have, individually or in the aggregate, a
material adverse effect on the Business. Each of the Company and
its Subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each
jurisdiction in which the character of the properties owned,
leased or operated by it or the nature of its Business makes
such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing as
would not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the Business.
(b) Section 4.01(b) of the Company Disclosure Schedule
sets forth a complete and correct structure chart of the Company
and its Subsidiaries (other than entities with no material
liabilities and no material assets or operations), including the
jurisdiction of organization and percentage of outstanding
equity or voting interests (including partnership interests and
limited liability company interests) owned by the Company or its
Subsidiaries of each of the Companys Subsidiaries, and the
identity of such owners of outstanding equity or voting
interests. All equity or voting interests (including partnership
interests and limited liability company interests) of the
Companys Subsidiaries held by the Company or any of its
other Subsidiaries have been duly and validly authorized and are
validly issued, fully paid and non-assessable. All such equity
or voting interests owned by the Company or its Subsidiaries are
free and clear of any Liens (other than Permitted Liens).
Section 4.02. Corporate
Authorization.
(a) The execution, delivery and performance by the Company
of this Agreement and the consummation by the Company of the
transactions contemplated hereby are within the Companys
corporate powers and, except for any required adoption of this
Agreement by the Companys shareholders in connection with
the consummation of the Merger, have been duly authorized by all
necessary corporate action on the part of the Company. The
affirmative vote of the holders of a majority of the outstanding
Shares and Class B Shares, voting together as a single
class, with each Share entitled to one vote per Share and each
Class B Share entitled to one vote per Class B Share
(if required by Indiana Law) is the only vote of the holders of
any of the Companys capital stock necessary in connection
with the consummation of the Merger (the Company
Shareholder Approval) under applicable Law and the
Articles of Incorporation or the By-laws, as currently in
effect. This Agreement constitutes a valid and binding agreement
of the Company.
(b) The Committee of Disinterested Directors has been duly
authorized and constituted and at a meeting duly called and
held, has unanimously (i) determined that this Agreement,
including the Offer and the Merger, are advisable and fair to
and in the best interests of the Unaffiliated Shareholders and
(ii) recommended that the Company Board adopt resolutions,
on the terms and subject to the conditions of this Agreement and
in accordance with the IBCL (x) determining that it is
advisable and fair to and in the best interests of the Company
and the Unaffiliated Shareholders for Parent to acquire the
Company on the terms and subject to the
IV-10
conditions set forth herein, (y) approving and adopting
this Agreement, the Offer and the Merger and
(z) recommending that the Unaffiliated Shareholders accept
the Offer, tender their Shares in the Offer and approve the
Merger and this Agreement (to the extent required by Indiana
Law) (the Committee Recommendation).
(c) The Company Board acting on the Committee
Recommendation, at a meeting duly called and held, has
unanimously, on the terms and subject to the conditions of this
Agreement and in accordance with the IBCL (i) determined
that it is advisable and fair to and in the best interests of
the Company and the Unaffiliated Shareholders for Parent to
acquire the Company on the terms and subject to the conditions
set forth herein, (ii) approved and adopted this Agreement,
the Offer and the Merger and (iii) recommended that the
Unaffiliated Shareholders accept the Offer, tender their Shares
in the Offer and approve the Merger and this Agreement (to the
extent required by Indiana Law) (the Company Board
Recommendation).
Section 4.03. Governmental
Authorization. The execution, delivery and
performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated
hereby require no action by or in respect of, or filing with,
any Governmental Body, other than (a) the filing of a
certificate of merger with respect to the Merger with the
Secretary of State of the State of Indiana; (b) compliance
with any applicable requirements of the Exchange Act and any
other applicable U.S. state or federal securities laws;
(c) compliance with any applicable rules and regulations of
NASDAQ; and (d) any actions or filings the absence of which
would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
Section 4.04. No
Defaults or Conflicts; Compliance with Laws; Governmental
Permits.
(a) The execution and delivery of this Agreement and the
consummation of the Transactions by the Company and its
Subsidiaries and performance by the Company of its obligations
hereunder: (i) does not result in any violation of the
Articles of incorporation and the By-laws; (ii) does not
conflict with, or result in a breach of any of the terms or
provisions of, or constitute a default under any agreement or
instrument to which the Company or its Subsidiaries is a party
or by which they are bound or to which their respective
properties are subject; and (iii) assuming compliance with
the matters addressed in Section 4.03, does not
violate any existing applicable Law or Order of any Governmental
Body having jurisdiction over the Company or its Subsidiaries;
provided, however, that no representation or
warranty is made in the foregoing clause (iii) with respect
to matters that would not impair the Companys or its
Subsidiaries ability to consummate the Transactions.
(b) Each of the Company and its Subsidiaries is in
possession of all FCC Licenses required to operate the radio
stations owned or operated by them (the
Stations), and all other material franchises,
grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders
necessary for the Company or any of its Subsidiaries to own,
lease and operate the properties of the Company and its
Subsidiaries or to carry on its business as it is now being
conducted and contemplated to be conducted (the
Governmental Permits). All of the
Governmental Permits are in full force and effect, and no
suspension or cancellation of any of the Governmental Permits is
pending or, to the knowledge of the Company, threatened, except
where the failure to have in full force and effect, or the
suspension or cancellation of, any of the Governmental Permits
would not reasonably be expected to have, individually or in the
aggregate, Company Material Adverse Effect. None of the
Governmental Permits are subject to any conditions, other than
as may be generally applicable to the industry in which the
Company operates except as would not be reasonably expected to
have, individually or in the aggregate, a Company Material
Adverse Effect. None of the Company or any of its Subsidiaries
is, or during the past two years has been, in conflict with, or
in default or violation of, nor will the transactions result in
any conflict with, or default or violation of, (i) any Laws
applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries
is bound or affected, (ii) any of the Governmental Permits
or (iii) any loan, guarantee of indebtedness or credit
agreement, note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or
obligation to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any
property, asset or right of the Company or any of its
Subsidiaries is bound or affected, except for any such
conflicts, defaults or violations that would not have,
IV-11
individually or in the aggregate, a Company Material Adverse
Effect. None of the Company or any of its Subsidiaries has
received written or, to the knowledge of the Company, oral (or
otherwise has any knowledge of any) notice during the past three
years, of any material violation of or noncompliance with any
Law applicable to the Company or any of its Subsidiaries, or
directing the Company or any of its Subsidiaries to take any
remedial action with respect to such applicable Law or
otherwise, and no material deficiencies of the Company or any of
its Subsidiaries have been asserted to the Company or any of its
Subsidiaries in writing or, to the knowledge of the Company,
orally, by any Governmental Body.
(c) The Business is being operated in compliance with Law
and in accordance with the terms and conditions of the
Governmental Permits applicable to it, in each case except as
would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. No proceedings or
investigations are pending or, to the knowledge of the Company,
are threatened which may result in the revocation, cancellation,
suspension, rescission, modification or non-renewal of any of
the Governmental Permits, the denial of any pending application,
the issuance of any cease and desist order or the imposition of
any fines, forfeitures or other administrative actions by the
FCC with respect to the Business or its operation, other than
proceedings that are not likely to have a Company Material
Adverse Effect. There is not on the date of this Agreement
pending before the FCC any issued or outstanding, nor to the
knowledge of the Company is there on the date of this Agreement
threatened, any application, complaint, petition or proceeding
with respect to any Station owned or controlled, directly or
indirectly, by the Company. The Company and its Subsidiaries
have complied in all material respects with all requirements to
file reports, applications and other documents with the FCC. The
Company has no knowledge of any matters which would result in
the revocation of or the refusal to renew any of the
Governmental Permits.
Section 4.05. Capitalization;
Existence; Articles of Incorporation and
By-laws.
(a) The authorized capital stock of the Company consists of
(i) 230,000,000 shares of common stock of the Company
consisting of (A) 170,000,000 Shares,
(B) 30,000,000 Class B Shares and
(C) 30,000,000 shares of Class C Common Stock,
par value $0.01 per share, of the Company (the
Class C Shares) and
(ii) 10,000,000 shares of preferred stock consisting
of (A) 250 shares of 12.50% Senior Preferred
Stock, par value $0.01 per share, of the Company (the
Senior Preferred Shares) and
(B) 2,875,000 Preferred Shares. As of May 17, 2010,
(i) 32,910,753 Shares were issued and outstanding,
(ii) 4,930,680 Class B Shares were issued and
outstanding, all of which shares were held by Smulyan,
(iii) no Class C Shares were issued and outstanding,
(iv) no Senior Preferred Shares were issued and
outstanding, (v) 2,809,170 Preferred Shares were issued and
outstanding, (vi) there were outstanding restricted stock
with respect to 144,040 Shares, (vii) there were
restricted stock unit awards with respect to 25,000 Shares,
(viii) there were stock options to purchase an aggregate of
8,663,038 Shares and Class B Shares (collectively,
Company Common Stock) at a weighted average
exercise price of $9.46 per share of Company Common Stock (of
which stock options to purchase an aggregate of
5,778,379 shares of Company Common Stock were exercisable).
No Shares or Class B Shares are held by any Subsidiary of
the Company. Since February 28, 2010, other than pursuant
to the exercise of stock options outstanding on such date, the
issuance of stock options under employment agreements in effect
on such date, the issuance of Shares pursuant to the director
compensation plan in effect on such date, the vesting of
restricted stock and restricted stock unit awards outstanding on
such date and pursuant to the 401(k) Plan and the conversion of
up to 200,000 Class B Shares into a like amount of Shares,
the Company has not issued any Shares, has not granted any
option, restricted stock, warrants or rights or entered into any
other agreements or commitments to issue any Shares or
Class B Shares and has not split, combined or reclassified
any of its shares of capital stock. Each of the outstanding
shares of capital stock, voting securities or other equity
interests of each Subsidiary of the Company is duly authorized,
validly issued, fully paid, non-assessable and free of any
preemptive rights, and all such securities are owned by the
Company or another wholly-owned Subsidiary of the Company free
and clear of all Liens other than Permitted Liens.
(b) Except as set forth above, there are no outstanding
subscriptions, options, warrants, calls, convertible securities
or other similar rights, agreements, commitments or contracts of
any kind to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is
bound obligating the Company or any of its Subsidiaries to
(i) issue, transfer, deliver or sell, or cause to be
issued, transferred, delivered or sold, additional shares of
capital stock of, or other equity or voting interests in, or
securities
IV-12
convertible into, or exchangeable or exercisable for, shares of
capital stock of, or other equity or voting interests in, the
Company or any of its Subsidiaries; (ii) issue, grant,
extend or enter into any such security, option, warrant, call,
right or contract; (iii) redeem or otherwise acquire any
such shares of capital stock or other equity or voting
interests; or (iv) provide a material amount of funds to,
or make any material investment (in the form of a loan, capital
contribution or otherwise) in, any subsidiary. From
February 28, 2010 to the date hereof, the Company has not
declared or paid any dividend or distribution in respect of the
Shares, Class B Shares and Preferred Shares, and has not
repurchased, redeemed or otherwise acquired any Shares,
Class B Shares and Preferred Shares, and the Company Board
has not authorized any of the foregoing.
(c) Neither the Company nor any of its Subsidiaries has
outstanding material bonds, debentures, notes or other
securities, the holders of which have the right to vote (or
which are convertible into or exchangeable or exercisable for
securities having the right to vote) with the stockholders of
the Company or any of its Subsidiaries on any matter.
(d) There are no stockholder agreements, voting trusts or
other agreements or understandings to which the Company or any
of its Subsidiaries is a party with respect to the voting of the
capital stock or other equity interests of the Company or any of
its Subsidiaries.
(e) The Company has made available to the Parent and Merger
Subsidiary a complete and correct copy of the Articles of
Incorporation and the By-laws, each as amended to date, of the
Company and the equivalent organization documents for each of
its Subsidiaries. The Articles of Incorporation and By-laws (or
equivalent organization documents) of the Company and each of
its Subsidiaries are in full force and effect. None of the
Company or any of its Subsidiaries is in material violation of
any provision of the Articles of Incorporation or the By-laws
(or its equivalent organization documents).
Section 4.06. Company
Disclosure Documents; Company SEC Documents.
(a) Each document required to be filed by the Company with
the SEC or required to be distributed or otherwise disseminated
to the Companys shareholders in connection with the
transactions contemplated by this Agreement (the
Company Disclosure Documents), including the
Schedule TO and Schedule 14A filed by the Company in
connection with the Exchange Offer and the proxy statement of
the Company, if any, to be filed with the SEC on
Schedule 14A, in connection with any special meeting of the
Companys shareholders to vote on the Merger, and any
amendments or supplements thereto, when filed, distributed or
disseminated, as applicable, will comply as to form in all
material respects with the applicable requirements of the
Exchange Act. Any Company Disclosure Document, at the time of
the filing of such Company Disclosure Document or any supplement
or amendment thereto and at the time of any distribution or
dissemination thereof, will not contain any untrue statement of
a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The representations and warranties
contained in this Section 4.06 will not apply to
statements or omissions included or incorporated by reference in
the Company Disclosure Documents based upon information supplied
by Parent or Merger Subsidiary or any of their Affiliates or any
of their representatives or advisors in writing specifically for
use or incorporation by reference therein.
(b) The information with respect to the Company or any of
its Subsidiaries that the Company supplies to Parent
specifically for use in the Schedule TO and the Offer
Documents, at the time of the filing of the Schedule TO or
any amendment or supplement thereto, at the time of any
distribution or dissemination of the Offer Documents and at the
time of the consummation of the Offer, will not contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) The Company has filed with the SEC all material
reports, schedules, forms, registration statements and other
documents required to be filed or furnished with the SEC since
February 29, 2008, together with any amendments,
restatements or supplements thereto and those filed subsequent
to the date of this Agreement (collectively, the
Company SEC Documents) and as of their
respective dates or, if amended or restated prior to the date of
this Agreement, as of the date of the last such amendment or
applicable subsequent filing, the Company SEC Documents
complied, and each of the Company SEC Documents to be filed
subsequent to the
IV-13
date hereof will comply, in all material respects with the
requirements of the Securities Act or the Exchange Act, as the
case may be, and the applicable rules and regulations
promulgated thereunder, and none of the Company SEC Documents at
the time they were filed, or will be filed, as the case may be,
or, if amended or restated prior to the date of this Agreement,
as of the date of the last such amendment or applicable
subsequent filing, contained, or will contain, any untrue
statement of a material fact or omitted, or will omit, to state
any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
which they were made, or are to be made, not misleading.
(d) The consolidated financial statements (giving effect to
any amendments, restatements or supplements thereto filed prior
to the date of this Agreement, and including all related notes
and schedules) of the Company and its Subsidiaries included in
the Company SEC Documents fairly present in all material
respects the consolidated financial position of Company and its
consolidated Subsidiaries as at the respective dates thereof and
their consolidated results of operations and consolidated cash
flows for the respective periods then ended (subject, in the
case of the unaudited statements, to normal year-end audit
adjustments and to any other adjustments described therein
including the notes thereto) in conformity with GAAP (except, in
the case of the unaudited statements, as permitted by
Form 10-Q
of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated therein or in the notes
thereto).
Section 4.07. Related
Party Transactions. There are no contracts or
arrangements that are in existence as of the date of this
Agreement under which there are any existing or future
liabilities between the Company or any of its Subsidiaries, on
the one hand, and, on the other hand, any (i) present
executive officer or director of the Company or (ii) record
or beneficial owner of more than 5% of the Shares or
Class B Shares as of the date hereof except as set forth in
the Company SEC Documents on the date hereof.
Section 4.08. Taxes. Except
as would not be reasonably expected to have, individually or in
the aggregate, a Company Material Adverse Effect:
(a) All Tax Returns required by applicable Law to be filed
with any Taxing Authority by, or on behalf of, the Company or
any Subsidiary have been filed when due unless extended in
accordance with all applicable laws and all such Tax Returns are
true and complete in all respects;
(b) The Company and each Subsidiary of the Company has paid
(or has had paid on its behalf) to the appropriate Taxing
Authority all Taxes due and payable, or, where payment is not
yet due, has established (or has had established on its behalf
and for its sole benefit and recourse) in accordance with GAAP
an adequate accrual for all Taxes through the end of the last
period for which the Company and its Subsidiaries ordinarily
record items on their respective books;
(c) Neither the Company nor any Subsidiary has waived any
statute of limitations with respect to Taxes or requested or
agreed to any extension of time with respect to a Tax assessment
or deficiency;
(d) There is no claim, audit, action, suit, proceeding or
investigation (whether judicial, administrative or otherwise)
now pending or, to the knowledge of the Company, threatened
against or with respect to the Company or any Subsidiary of the
Company in respect of any Tax or Tax asset;
(e) Each of the Company and its Subsidiaries has withheld
and paid to the appropriate Taxing Authority all Taxes required
to have been withheld and paid in connection with amounts paid
or owing to any current or former insured, reinsured, insurer or
reinsurer, employee, independent contractor, creditor, member or
other third party;
(f) Neither the Company nor any Subsidiary of the Company
is a party to, is bound by or has an obligation under any Tax
sharing agreement, Tax indemnification agreement, Tax allocation
agreement or similar contract or arrangement (including any
agreement, contract or arrangement providing for the sharing or
ceding of credits or losses) or has a potential liability or
obligation to any person as a result of or pursuant to any such
agreement, contract, arrangement or commitment;
(g) Neither the Company nor any Subsidiary of the Company
has participated in a reportable transaction within
the meaning of Treasury Regulations
Section 1.6011-4(b)(1); and
IV-14
(h) There are no liens or security interests on the assets
of the Company or any Subsidiary of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax.
Section 4.09. Controls
and Procedures.
(a) The Company has established and maintains disclosure
controls and procedures and internal controls over financial
reporting as required by
Rule 13a-15
under the Exchange Act. The Companys disclosure controls
and procedures are designed to ensure that information required
to be disclosed in the Companys periodic reports filed or
submitted under the Exchange Act is recorded, processed,
summarized and reported within the required time periods and
that all such information is accumulated and communicated to the
Companys management as appropriate to allow timely
decisions regarding required disclosure and to make the
certifications required pursuant to Sections 302 and 906 of
the Sarbanes-Oxley Act. The Companys management has
completed an assessment of the effectiveness of the
Companys internal controls over financial reporting in
compliance with the requirements of Section 404 of the
Sarbanes-Oxley Act for the fiscal year ended February 28,
2010, and a description of such assessment is set forth in the
Company
10-K. To the
knowledge of the Company, it has disclosed, based on its most
recent evaluation of internal controls over financial reporting,
to the Companys outside auditors and the audit committee
of the Company Board (i) all significant deficiencies and
material weaknesses in the design or operation of internal
controls over financial reporting (as defined in
Rule 13a-15(f)
of the Exchange Act) which are reasonably likely to adversely
affect in any material respect the Companys ability to
record, process, summarize and report financial data and
(ii) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Companys internal controls over financial reporting.
(b) Since February 28, 2010 (i) to the knowledge
of the Company, none of the Company, any of its Subsidiaries,
and any director, officer, auditor or accountant of the Company
or any of its Subsidiaries or any employee of the Company or its
Subsidiaries whose position includes monitoring the
Companys audit committee complaint reporting procedures
has received any material complaint, allegation, assertion or
claim, in writing, regarding the accounting or auditing
practices, procedures, methodologies or methods of the Company
or any of its Subsidiaries or their respective internal
accounting controls, including any material complaint,
allegation, assertion or claim that the Company or any of its
Subsidiaries has engaged in questionable accounting or auditing
practices, and (ii) no attorney representing the Company or
any of its Subsidiaries, whether or not employed by the Company
or any of its Subsidiaries, has reported evidence of a material
violation of securities Laws, breach of fiduciary duty or
similar violation by the Company or any of its officers,
directors, employees or agents to the Company Board or any
committee thereof or to any director or executive officer of the
Company.
Section 4.10. Intellectual
Property.
(a) Except as would not be reasonably expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, the Company and its Subsidiaries own or possess valid
licenses or other rights to use in the manner currently used,
all patents, copyrights, trademarks, service marks, brand names,
logos, domain names, certification marks, trade names, trade
dress and other indications of origin and the goodwill
associated with the foregoing (the Intellectual
Property Rights) used in or necessary for the conduct
of the Business as currently conducted (the Company
Intellectual Property Rights). Neither the Company nor
any of its Subsidiaries has received, in the past two
(2) years, any written charge, complaint, claim, demand or
notice challenging the validity or enforceability of any of the
Company Intellectual Property Rights owned by the Company or any
of its subsidiaries (the Owned Intellectual Property
Rights) that has not been settled or otherwise
resolved, or that would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, and no legal proceeding relating to the foregoing is
pending or, to the knowledge of the Company, has been threatened.
(b) To the knowledge of the Company, (i) the conduct
of the Business as currently conducted does not infringe upon,
misappropriate or otherwise violate any Intellectual Property
Rights of any other person in any material respect and
(ii) except as would not be material to the Company and its
Subsidiaries, taken as a whole, none of the Company or any of
its Subsidiaries has received, in the past two (2) years,
any written charge, complaint, claim, demand or notice alleging
any such infringement, misappropriation or other violation
IV-15
(including any claim that the Company or any of its Subsidiaries
must license or refrain from using any Intellectual Property
Rights of any other Person) that has not been settled or
otherwise fully and finally resolved, and no legal proceeding
relating to the foregoing has been initiated.
(c) Except as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, each of the Company and its Subsidiaries has taken
reasonable steps in accordance with normal industry practice to
maintain the confidentiality of its trade secrets and other
confidential Owned Intellectual Property Rights and any other
Intellectual Property Rights obtained from third parties under
the obligation of confidentiality.
Section 4.11. Real
Estate.
(a) Except as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, (i) each of the Company and its Subsidiaries has
good and valid fee simple title to its owned properties, assets
and rights or good and valid leasehold or licensed interests in
all of its leasehold or licensed properties, assets and rights.
Section 4.11(a) of the Company Disclosure Schedule sets
forth a list of all of the real property owned by the Company or
any of its Subsidiaries and (ii) all such owned properties,
assets and rights, and all such leasehold, subleasehold or
licensed interests in leased, subleased or licensed properties,
assets and rights, are free and clear of all Liens except for
Permitted Liens.
(b) Except as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect, each of the Company and its Subsidiaries has complied
with the terms of all leases, subleases and occupancy agreements
(each a Lease and collectively, the
Leases) to which it is a party and all such
Leases are legal, valid, binding and enforceable in accordance
with their terms by the Company or its Subsidiaries party
thereto and are in full force and effect. Since
February 28, 2008, to the knowledge of the Company, except
as would not be material to the Company and its Subsidiaries,
taken as a whole, neither the Company not any of its
Subsidiaries has received notice of any default, delinquency or
breach on the part of the Company or any of its Subsidiaries,
and there are no existing defaults (with or without notice or
lapse of time or both) by the Company or any of its Subsidiaries
or any other party thereto, beyond any applicable grace periods
under the Leases.
Section 4.12. Absence
of Certain Changes or Events. Since
February 28, 2010, except as otherwise permitted by this
Agreement or in connection with the Transactions, (a) the
Business has been conducted in all material respects in the
ordinary course of business consistent with past practice, and
(b) there has not been any fact, change, effect,
occurrence, event, development or state of circumstances that
would reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
Section 4.13. No
Undisclosed Liabilities. Except (a) as
adequately reflected or reserved against in the Companys
consolidated balance sheet as at February 28, 2010,
included in the Company SEC Documents or (b) for
liabilities or obligations incurred since the date of such
balance sheet in the ordinary course of business consistent with
past practice, which have not had, and would not reasonably be
expected to have, individually or in the aggregate, a Company
Material Adverse Effect, neither the Company nor any of its
Subsidiaries has any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, that are
required by GAAP to be reflected on a consolidated balance sheet
(or the notes thereto) of the Company and its Subsidiaries.
Section 4.14. Absence
of Litigation. As of the date hereof, there
is no material claim, action, proceeding or investigation
pending or, to the knowledge of the Company, threatened against
the Company or any of its Subsidiaries, or any of their
respective properties, assets or rights, or against any
employees of the Company or any of its Subsidiaries, at law or
in equity, and there are no material Orders, before any
arbitrator or Governmental Body in each except as set forth in
Section 4.14 of the Company Disclosure Schedule.
Section 4.15. Finders
Fees.
(a) Except for Morgan Stanley & Co. Incorporated,
financial advisor to the Committee of Disinterested Directors
(the Committee Financial Advisor), there is
no investment banker, broker, finder or other intermediary that
has been retained by or is authorized to act on behalf of the
Company or any of its
IV-16
Subsidiaries or any of their respective officers or directors
who might be entitled to any fee or commission from the Company
or any of its Affiliates in connection with the transactions
contemplated by this Agreement.
(b) The Company has delivered to Parent the fee agreement
with the Committee Financial Advisor and the fee agreement or a
schedule setting forth the estimated aggregate fees and expenses
for each of Davis Polk & Wardwell LLP and
Barnes & Thornburg LLP in connection with the
transactions contemplated hereby.
Section 4.16. Opinion
of Committee Financial Advisor. The Committee
of Disinterested Directors has received an opinion of the
Committee Financial Advisor to the effect that, as of the date
of such opinion, the Offer Price to be received by the
Unaffiliated Shareholders pursuant to the Offer and the Merger
is fair from a financial point of view to such holders.
Section 4.17. Anti-takeover
Statutes. The Company Board has, subject to
the satisfaction of the Minimum Tender Condition, pursuant to
§§ 23-1-43-1
to
23-1-43-24
of the IBCL approved the Offer and the other Transactions, with
the effect that the provisions of such sections are inapplicable
to the Offer, the Merger, this Agreement and the transactions
contemplated hereby. Other than the Indiana Takeover Offers Act,
§§ 23-1-3.1-0.5 to
23-1-3.1-11
of the IBCL, no other control share acquisition,
fair price, business combination,
moratorium or other anti-takeover laws enacted under
U.S. state or federal laws apply to this Agreement or any
of the transactions contemplated hereby.
Section 4.18. Sufficiency
of Assets. Except as would not be reasonably
expected to have, individually or in the aggregate, a Company
Material Adverse Effect, (a) the assets of the Company and
its Subsidiaries comprise all the material assets used or held
for use in connection with the Business and (b) the assets
of the Company and its Subsidiaries are sufficient for the
operation and conduct of the Business by the Company and its
Subsidiaries immediately following the Effective Time in
substantially the same manner as currently conducted.
Section 4.19. Adoption
of Resolutions. The resolutions set forth on
Annex III were duly adopted by the Company Board and
have not been withdrawn or revoked.
Section 4.20. Exclusivity
of Representations. The representations and
warranties made by the Company in this Agreement are in lieu of
and are exclusive of all other representations and warranties,
including any implied warranties. The Company hereby disclaims
any such other or implied representations or warranties,
notwithstanding the delivery or disclosure to the Investor or
its officers, directors, employees, agents or representatives of
any documentation or other information (including any pro forma
financial information, supplemental data or financial
projections or other forward-looking statements).
ARTICLE 5
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
Each of Parent and Merger Subsidiary represents and warrants to
the Company that:
Section 5.01. Due
Organization; Authority to Execute and Perform
Agreement. Parent is an Indiana limited
liability company duly organized and validly existing under the
laws of the State of Indiana, and has all requisite
organizational power and authority and has taken all
organizational action required to execute and deliver this
Agreement and to perform its obligations hereunder. Merger
Subsidiary is an Indiana corporation duly incorporated and
validly existing under the laws of Indiana. This Agreement
constitutes the legal, valid and binding obligation of each of
Parent and Merger Subsidiary, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or similar laws, laws of general
applicability relating to or affecting creditors rights,
and to general equity principles and public policy.
Section 5.02. Governmental
Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement
and the consummation by Parent and Merger Subsidiary of the
transactions contemplated hereby require no action by or in
respect of, or filing with, any Governmental Body, other than
(a) the filing of a certificate of merger with respect to
the Merger with the Secretary of State of the
IV-17
State of Indiana; (b) compliance with any applicable
requirements of the Exchange Act and any other applicable
U.S. state or federal securities laws; and (c) any
actions or filings the absence of which would not reasonably be
expected to have, individually or in the aggregate, a Parent and
Merger Subsidiary Material Adverse Effect.
Section 5.03. No
Defaults or Conflicts. The execution and
delivery of this Agreement and the consummation of the
Transactions by Parent and Merger Subsidiary and performance by
Parent of its obligations hereunder: (a) does not result in
any violation of (i) the Initial Governing Documents or
(ii) the articles of incorporation and by-laws of Merger
Subsidiary; (b) does not conflict with, or result in a
breach of any of the terms or provisions of, or constitute a
default under any agreement or instrument to which Parent or
Merger Subsidiary is a party or by which they are bound or to
which their respective properties are subject; and
(c) assuming compliance with the matters addressed in
Section 5.02, does not violate any existing
applicable Law or Order of any Governmental Body having
jurisdiction over Parent or Merger Subsidiary; provided,
however, that no representation or warranty is made in
the foregoing clause (c) with respect to matters that would
not impair Parents or Merger Subsidiarys ability to
consummate the Transactions.
Section 5.04. Disclosure
Documents.
(a) The Schedule TO and the Offer Documents will
comply as to form in all material respects with the applicable
requirements of the Exchange Act and, at the time of such filing
or the filing of any amendment or supplement thereto, at the
time of such distribution or dissemination and at the time of
consummation of the Offer, will not contain any untrue statement
of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading. The representations and
warranties in this Section 5.04 will not apply to
statements or omissions included or incorporated by reference in
the Schedule TO and the Offer Documents based upon
information supplied to Parent or Merger Subsidiary by the
Company or any of its representatives or advisors in writing
specifically for use or incorporation by reference therein.
(b) The information with respect to Parent and any of its
Affiliates that Parent supplies to the Company specifically for
use in any Company Disclosure Document will not contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading at the
time of the filing of such Company Disclosure Document or any
supplement or amendment thereto and at the time of any
distribution or dissemination thereof.
Section 5.05. Finders
Fees. Except for the fees and expenses of the
Persons set forth on Schedule II hereto which will
be paid by Parent, there is no investment banker, broker, finder
or other intermediary that has been retained by or is authorized
to act on behalf of Parent or any of its Affiliates or any of
their respective officers and directors who might be entitled to
any fee or commission in connection with the transactions
contemplated by this Agreement.
Section 5.06. Funds. Parent
has, or will have at each of the Acceptance Date and the
Effective Time, sufficient funds to perform its obligations
under this Agreement, including consummating the Offer and the
Merger and the other transactions contemplated by this Agreement
and paying all fees and expenses relating to such transactions.
ARTICLE 6
COVENANTS
OF THE COMPANY
The Company agrees that:
Section 6.01. Conduct
of the Company. During the period from the
date hereof until the Effective Date, except as specifically
required by this Agreement, the Transactions or as set forth on
Section 6.01 of the Company Disclosure Schedule, the
Company shall, and shall cause each of its Subsidiaries to,
(x) conduct their respective businesses in the ordinary
course of business consistent with past practice and to use
their reasonable best efforts to preserve intact their
respective businesses and relationships with customers,
IV-18
regulators, suppliers, lessors, licensors, distributors,
creditors, employees and agents, and (y) not, without
Parents prior written consent, which consent shall not be
unreasonably withheld, delayed or conditioned:
(a) amend, waive or otherwise change, in any material
respect, the Articles of Incorporation (other than the Preferred
Amendments), the By-laws, or such equivalent organizational
documents of any of the Companys Subsidiaries;
(b) except as required by the Credit Agreement, capital
stock of the Company or restricted stock units issued pursuant
to the 401(k) Plan, the exercise of stock options, the vesting
of restricted stock and restricted stock units or pursuant to
the terms of existing employment agreements or the director
compensation plan, all as included in
Section 4.05(a)(vi) and (vii), issue, sell,
pledge, dispose, encumber or grant any shares of its or its
Subsidiaries capital stock or other ownership or voting
interests, or any options, warrants, convertible securities,
restricted stock or restricted stock units or other rights of
any kind to acquire any shares of its or its Subsidiaries
capital stock or other ownership or voting interests;
(c) except for dividends and distributions to or among the
Company and its wholly-owned Subsidiaries in the ordinary course
of business consistent with past practice, declare, set aside,
make or pay any dividend or other distribution, payable in cash,
stock, property or otherwise, with respect to, or directly or
indirectly redeem, purchase or repurchase any shares of its or
any of its Subsidiaries capital stock or other securities
or obligations convertible into or exchangeable or exercisable
for any shares of its or its Subsidiaries capital stock or
any rights, warrants or options to acquire any such shares;
(d) make any change to, or permit to lapse without filing
for renewal, any material Governmental Permits currently held,
except in the ordinary course of business consistent with past
practice;
(e) except as required by Law or pursuant to plans,
agreements and other arrangements in effect on February 28,
2010, (i) increase the compensation or other benefits
payable or to become payable to directors or executive officers,
(ii) grant any severance or termination pay to, or enter
into any severance agreement with any director or executive
officer of the Company or any of its Subsidiaries, except in the
ordinary course of business consistent with past practice or
(iii) enter into, amend in any material respect or
terminate (without cause) any employment agreement with any
executive officer of the Company (except for entering into or
terminating employment agreements terminable on less than
30 days notice without penalty, and except for
extension of employment agreements without material modification
in the ordinary course of business consistent with past
practice);
(f) acquire, including by merger, consolidation, any other
form of business combination, acquisition of stock or assets,
any corporation, partnership, limited liability company, other
business organization or any division thereof, or any material
amount of assets in connection with acquisitions or investments
with a purchase price in excess of $10 million individually
or $20 million in the aggregate;
(g) incur, create, assume or otherwise become liable for
any indebtedness for borrowed money (directly, contingently or
otherwise) or guarantee any such indebtedness for any person
except for indebtedness incurred under or permitted by the
Credit Agreement (excluding Sections 10.1(e), (f) and
(k) thereof) and intercompany indebtedness;
(h) make any material change to its methods, policies or
procedures of accounting in effect at February 28, 2010,
except (i) as required by GAAP or as required by a
Governmental Body, or (ii) as required by a change in
applicable Law;
(i) adjust, split, combine, redeem, recapitalize or
reclassify any of its capital stock or issue any other
securities in respect of, in lieu of or in substitution for
shares of its capital stock other than with respect to the
vesting of restricted stock and restricted stock units;
(j) make any capital expenditures having an aggregate value
in excess of $5 million;
(k) waive, release, assign, settle or compromise any claim,
action or proceeding (other than waivers, releases, assignments,
settlements or compromises that (i) involve the payment of
monetary damages not in excess of $2 million in the
aggregate not otherwise recoverable under insurance and
(ii) do not
IV-19
otherwise materially restrict the conduct of the Business) or
otherwise pay, discharge or satisfy any claims, liabilities or
obligations in excess of $2 million not recoverable by
insurance;
(l) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or commence any
proceedings in bankruptcy (including with respect to any
Subsidiary of the Company);
(m) other than as required or permitted by the Credit
Agreement (excluding Sections 10.1(e), (f) and
(k) and Section 10.2.1(xii) thereof), sell, lease,
license, transfer, exchange or swap, mortgage or otherwise
encumber (including securitizations), or subject to any Lien or
otherwise dispose of any material portion of its properties,
assets or rights;
(n) enter into any transaction with an Affiliate of the
Company or any Subsidiary of the Company (other than existing
arrangements set forth on Section 6.01(n) of the Company
Disclosure Schedule, amendments and replacements of those
arrangements); or
(o) authorize, commit, enter into any agreement or
otherwise agree or make any commitment to do any of the
foregoing.
Section 6.02. Adverse
Recommendation Change. Each of the Committee
of Disinterested Directors and the Company Board shall
(a) make the Committee Recommendation and the Company Board
Recommendation, as applicable and (b) not withhold,
withdraw, qualify, fail to make or modify in a manner adverse to
Parent the Committee Recommendation or the Company Board
Recommendation or publicly recommend or announce its intention
to take any action or make any statement inconsistent with the
Committee Recommendation or the Company Board Recommendation
(collectively, an Adverse Recommendation
Change). However, at any time prior to the Acceptance
Date, if the Committee of Disinterested Directors determines in
good faith (after considering the advice of its outside legal
and financial advisors) that it would be inconsistent with its
fiduciary duties under Indiana Law to continue to recommend that
the Unaffiliated Shareholders accept the Offer, tender their
Shares in the Offer, and to the extent required by Indiana Law,
approve the Merger and this Agreement, then the Committee of
Disinterested Directors and the Company Board (acting upon the
recommendation of the Committee of Disinterested Directors) may
make an Adverse Recommendation Change, in which case the
obligations of the Committee of Disinterested Directors and the
Company Board under this Section 6.02 shall cease
(but nothing in this Section 6.02 shall affect the
Companys obligations under Section 6.05
(regardless of whether there has been an Adverse Recommendation
Change)); provided, that the Committee of Disinterested
Directors and the Company Board may not make an Adverse
Recommendation Change until after at least 48 hours
following Parents receipt of written notice from the
Company advising Parent that the Committee of Disinterested
Directors
and/or the
Company Board intends to make such an Adverse Recommendation
Change and the reasons therefor and the Committee of
Disinterested Directors
and/or the
Company Board considers any modifications proposed by Parent
during such
48-hour
period in order to eliminate the need for such Adverse
Recommendation Change.
Section 6.03. Access
to Information. From the date hereof until
the Effective Time, the Company shall (a) provide Parent,
its Affiliates and their respective officers, directors,
employees, counsel, financial advisors, sources of funding,
auditors or other agents or advisors
(Representatives) reasonable access to the
businesses, properties, assets, books and records of the Company
and its Subsidiaries and such financial and operating data and
other information as such Persons may reasonably request and
(b) instruct the Representatives of the Company and its
Subsidiaries to cooperate with Parent in its investigation of
the Company and its Subsidiaries. Such access and cooperation
shall include providing such information, assistance and
cooperation to Parent and its Affiliates and their respective
Representatives as such Persons may reasonably request in
connection with Parents integration and transition
planning for the operation of the Company following the
Effective Time, including with respect to the review and
analyses of contracts or agreements under which the Company or
any of its Subsidiaries is granted any license rights or
immunity with respect to the Intellectual Property of a third
party. Any investigation pursuant to this
Section 6.03 shall be conducted in such manner as
not to unreasonably interfere with or disrupt the conduct of the
Business of the Company and its Subsidiaries and Parent shall,
and shall cause its Affiliates and their respective
Representatives to, maintain the confidentiality of any
non-public information provided or made available pursuant to
this Section 6.03. No information or
IV-20
knowledge obtained by Parent in any investigation pursuant to
this Section 6.03 shall affect or be deemed to
modify any representation or warranty made by the Company
hereunder.
Section 6.04. Notices
of Certain Events. The Company shall promptly
notify Parent of:
(a) to the Companys knowledge, any notice or other
communication from any Person alleging that the consent of such
Person is or may be required in connection with or relating to
the transactions contemplated by this Agreement;
(b) any notice or other communication from any Governmental
Body received by the Company in connection with or relating to
the transactions contemplated by this Agreement; and
(c) any suits or proceedings commenced against the Company
or any of its Subsidiaries that relate to the consummation of
the transactions contemplated by this Agreement;
provided that the delivery of any notice pursuant to this
Section 6.04 shall not limit or otherwise affect the
remedies available hereunder to Parent.
Section 6.05. Proxy
Statement. To the extent the Company
Shareholder Approval is required by Indiana Law in order to
consummate the Merger other than pursuant to
§ 23-1-40-4 of the IBCL, then, in accordance with the
IBCL, the Articles of Incorporation, the By-laws, the Exchange
Act and any applicable rules of NASDAQ, as soon as practicable
following the later of the Acceptance Date or the expiration of
any Subsequent Offering Period provided in accordance with
Rule 14d-11
promulgated under the Exchange Act and permitted hereby, the
Company, in consultation with Parent, shall, subject to the
satisfaction of the Minimum Tender Condition, following the
successful completion of the Offer, call a special meeting of
the Companys shareholders to vote on the Merger (the
Company Shareholders Meeting) and set
as the record date for such meeting, the date that is one
(1) Business Day following the successful completion of the
Offer and promptly file with the SEC a proxy statement, letter
to shareholders, notice of meeting and form of proxy
accompanying the Proxy Statement that will be provided to the
shareholders of the Company in connection with the solicitation
of proxies for use at the Company Shareholders Meeting,
and any schedules required to be filed with the SEC in
connection therewith (collectively, as amended or supplemented,
the Proxy Statement). The Company,
Parent and Merger Subsidiary, as the case may be, shall furnish
all information concerning the Company, Parent or Merger
Subsidiary as the other party hereto may reasonably request in
connection with the preparation and filing with the SEC of the
Proxy Statement. Subject to all applicable Laws, the Company
shall use reasonable best efforts to cause the Proxy Statement
to be disseminated to the Companys shareholders as
promptly as practicable after the SEC clears the Proxy
Statement. The Company shall cause the Proxy Statement, when
filed with the SEC, to comply as to form in all material
respects with the applicable requirements of the Exchange Act.
At the time the Proxy Statement or any amendment or supplement
thereto is first mailed to the Companys shareholders and
at the time of the Company Shareholders Meeting, the
Company will cause the Proxy Statement not to contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading;
provided, however, that notwithstanding the
foregoing, no representation or warranty is made or covenant is
agreed to by the Company with respect to information supplied by
Parent or Merger Subsidiary or any of their respective officers,
directors, representatives, agents or employees in writing
specifically for inclusion or incorporation by reference in the
Proxy Statement. No filing of, or amendment or supplement to, or
correspondence with the SEC or its staff with respect to the
Proxy Statement shall be made by the Company without providing
Parent a reasonable opportunity to review and comment thereon.
The Company shall advise Parent, promptly after it receives
notice thereof, of any request by the SEC or its staff for an
amendment or revisions to the Proxy Statement, or comments
thereon and responses thereto, or requests by the SEC or its
staff for additional information in connection therewith. If at
any time prior to the Company Shareholders Meeting, any
information relating to the Company, Parent or Merger
Subsidiary, or any of their respective directors, officers or
Affiliates, should be discovered by the Company or Parent which
should be set forth in an amendment or supplement to the Proxy
Statement so that the Proxy Statement would not include any
misstatement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the
party which discovers such information shall promptly notify the
other party
IV-21
or parties hereto, as the case may be, and an appropriate
amendment or supplement to the Proxy Statement describing such
information shall be promptly prepared and filed with the SEC
and, to the extent required by applicable Law, disseminated to
the Companys shareholders. The Company shall cause the
Proxy Statement to comply as to form and substance in all
material respects with the applicable requirements of the
Exchange Act and NASDAQ.
ARTICLE 7
COVENANTS
OF PARENT AND MERGER SUBSIDIARY
Parent and Merger Subsidiary agree that:
Section 7.01. Obligations
of Merger Subsidiary. Merger Subsidiary
shall, and Parent shall take all action necessary to cause
Merger Subsidiary to, perform its obligations under this
Agreement and consummate the Offer and the Merger on the terms
and conditions set forth in this Agreement, including obtaining
sufficient funds to consummate the Offer, the Merger and the
other Transactions.
Section 7.02. Voting
of Shares. Parent and Merger Subsidiary shall
cause to be voted or consent to be granted, as the case may be,
with respect to all Shares and Class B Shares owned by the
Purchaser Group, in favor of adoption of this Agreement.
Section 7.03. Director
and Officer Liability. Parent shall cause the
Surviving Corporation, and the Surviving Corporation hereby
agrees, to do the following:
(a) During the period commencing at the Effective Time and
ending on the sixth anniversary of the Effective Time, the
Surviving Corporation shall, and Parent shall cause the
Surviving Corporation to, indemnify and hold harmless each
director and officer of the Company as of the date hereof (each,
an Indemnified Person) to the fullest extent
permitted by Indiana Law from and against any costs, fees and
expenses (including reasonable attorneys fees and
investigation expenses), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in
connection with any claim, proceeding, investigation or inquiry
whether civil, criminal, administrative or investigative, to the
extent such claim, proceeding, investigation or inquiry arises
directly or indirectly out of or pertains directly or indirectly
to (i) any action or omission or alleged action or omission
in such Indemnified Persons capacity as a director,
officer, employee or agent of the Company or any of its
Subsidiaries or other Affiliates (regardless of whether such
action or omission, or alleged action or omission, occurred
prior to or at the Effective Time), or (ii) any of the
transactions contemplated by this Agreement; provided,
that if, at any time prior to the sixth anniversary of the
Effective Time, any Indemnified Person delivers to the Surviving
Corporation a written notice asserting a claim for
indemnification under this Section 7.03(a), then the
claim asserted in such notice shall survive the sixth
anniversary of the Effective Time until such time as such claim
is fully and finally resolved. In the event of any such claim,
proceeding, investigation or inquiry, the Surviving Corporation
shall have the right to control the defense thereof after the
Effective Time (it being understood that, by electing to control
the defense thereof, the Surviving Corporation will be deemed to
have waived any right to object to the Indemnified Persons
entitlement to indemnification hereunder with respect thereto)
and each Indemnified Person may participate in such defense at
such Indemnified Persons expense, which shall include
counsel of its choice; provided, that in connection with
any such claim, proceeding, investigation or inquiry,
(i) the members of the Committee of Disinterested Directors
shall have the right to employ, at the Surviving
Corporations expense, one single counsel in each
applicable jurisdiction (if more than one jurisdiction is
involved) to represent all members of the Committee of
Disinterested Directors, (ii) if, in the reasonable
judgment of counsel to the other Indemnified Persons (excluding
the members of the Committee of Disinterested Directors), there
exists an actual or potential conflict of interest between the
Surviving Corporation and such other Indemnified Persons, such
other Indemnified Persons shall have the right to employ, at the
Surviving Corporations expense, one single counsel in each
applicable jurisdiction (if more than one jurisdiction is
involved) to represent all such other Indemnified Persons;
provided, further, that if the Surviving
Corporation fails to assume the defense thereof within a
reasonable period of time, each Indemnified Person may defend
such
IV-22
claim, proceeding, investigation or inquiry with counsel of its
choosing at the Surviving Corporations expense. The
Surviving Corporation shall not be liable for any settlement
effected without its prior express written consent (which
consent shall not be unreasonably withheld or delayed).
Notwithstanding anything to the contrary set forth in this
Section 7.03(a) or elsewhere in this Agreement,
neither Parent, nor the Surviving Corporation nor any of their
Affiliates shall settle or otherwise compromise or consent to
the entry of any judgment or otherwise seek termination with
respect to any claim, proceeding, investigation or inquiry for
which indemnification may be sought by an Indemnified Person
under this Agreement unless such settlement, compromise, consent
or termination includes an unconditional release of all
Indemnified Persons from all liability arising out of such
claim, proceeding, investigation or inquiry.
(b) For six years after the Effective Time, the Surviving
Corporations articles of incorporation and by-laws (or any
such documents of any successor to the Business of the Surviving
Corporation) shall contain provisions regarding limitations on
personal liability of directors and indemnification and
advancement of expenses of officers and directors in respect of
acts or omissions occurring at or prior to the Effective Time,
in each case that are no less advantageous to the intended
beneficiaries than the corresponding provisions in existence on
the date of this Agreement.
(c) The Surviving Corporation shall honor all obligations
of the Company pursuant to indemnification agreements listed on
Section 7.03(c) of the Company Disclosure Schedule.
(d) The Surviving Corporation shall provide for six years
after the Effective Time officers and directors
liability insurance in respect of acts or omissions occurring at
or prior to the Effective Time covering each such Person
currently covered by the Companys officers and
directors liability insurance policy on terms with respect
to coverage and amount no less favorable than those of such
policy in effect on the date hereof, provided that if the
aggregate cost for such insurance coverage (together with any
prepaid policies contemplated by this
Section 7.03(d)) exceeds 200% of the current annual
premium paid by the Company, the Surviving Corporation shall be
obligated to obtain a policy with the best available coverage
with respect to matters occurring at or prior to the Effective
Time for an aggregate cost not to exceed 200% of the current
annual premium less the cost of any such prepaid policies. The
provisions of this Section 7.03(d) shall be deemed
to have been satisfied if prepaid policies have been obtained
prior to the Effective Time, which policies provide such
directors and officers with coverage for an aggregate period of
six years with respect to claims arising from facts or events
that occurred on or before the Effective Time, including,
without limitation, in respect of the transactions contemplated
by this Agreement. If such prepaid policies have been obtained
prior to the Effective Time, the Surviving Corporation shall
maintain such policies in full force and effect, and continue to
honor the obligations thereunder. Notwithstanding anything to
the contrary contained herein, the aggregate cost for the
insurance coverage obtained pursuant to this
Section 7.03(d) shall not exceed 200% of the current
annual premium paid by the Company for officers and
directors liability insurance.
(e) If Parent or the Surviving Corporation
(i) consolidates with or merges into any other Person and
is not the continuing or surviving entity or (ii) transfers
or conveys all or substantially all of its properties and assets
to any Person, then, and in each such case, to the extent
necessary, proper provision shall be made so that the successors
and assigns of Parent or the Surviving Corporation, as the case
may be, shall assume the obligations set forth in this
Section 7.03.
(f) The rights of each current or former officer or
director under this Section 7.03 shall be in
addition to (and not in substitution for) any other rights such
Persons may have under the organizational documents of the
Company or any of its Subsidiaries, Indiana Law, any agreement
with the Company or any of its Subsidiaries or otherwise and are
intended for the benefit of and shall be enforceable by such
Persons. The rights under this Section 7.03 shall
survive consummation of the Merger. The obligations under this
Section 7.03 shall not be modified in a manner
adverse to any Indemnified Person without the consent of such
affected Indemnified Person, it being understood the Indemnified
Persons shall be third-party beneficiaries of this
Section 7.03.
IV-23
Section 7.04. Termination
of Securities Purchase
Agreement. Notwithstanding anything set forth
herein or in the Securities Purchase Agreement to the contrary,
Parent shall not, without the Companys prior written
consent (which consent shall not be unreasonably withheld,
conditioned or delayed) terminate the Securities Purchase
Agreement pursuant to Section 8.1(a) thereof.
ARTICLE 8
COVENANTS
OF PARENT AND THE COMPANY
The parties hereto agree that:
Section 8.01. Reasonable
Best Efforts. Subject to the terms and
conditions of this Agreement, the Company and Parent shall use
their reasonable best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary,
proper or advisable under Law to consummate the transactions
contemplated by this Agreement, including using reasonable best
efforts to (i) make as promptly as practicable any required
filings with any Governmental Body or other third party,
(ii) cause the expiration of any applicable waiting periods
or the taking of any actions by or with respect to any
Governmental Body or other third party that are necessary,
proper or advisable to consummate the transactions contemplated
by this Agreement and (iii) take such other action as may
be appropriate to enable the Merger to occur as soon as
reasonably possible following the Acceptance Date.
Section 8.02. Cooperation. The
Company and Parent shall cooperate with one another (a) in
determining whether any action by or in respect of, or filing
with any Governmental Body is required, or any actions, consents
approvals or waivers are required to be obtained from parties to
any material contract or agreement, in connection with the
consummation of the transactions contemplated by this Agreement
and (b) in taking such actions or making any such filings
and seeking timely to obtain any such actions, consents,
approvals or waivers.
Section 8.03. Public
Announcements. Parent and the Company shall
consult with each other before issuing any press release or
making any other public statement with respect to this Agreement
or the transactions contemplated hereby and except as may be
required by Law or any listing agreement with or rule of any
national securities exchange, issue any such press release or
make any such other public statement or schedule any such press
conference or conference call before such consultation;
provided, that the foregoing shall not prohibit
(a) Parent or the Company from making any statement
relating to this Agreement or the transactions contemplated
hereby in any press interview so long as (i) such interview
is conducted in the ordinary course of business, (ii) the
discussion of this Agreement or the transactions contemplated
hereby are incidental to, and not the primary topic of, such
interview and (iii) such statement is consistent with
(including in scope) a mutually agreed set of questions and
answers or (b) the Company or the Company Board from
issuing any press release or making any other public statement,
upon the Company Board making an Adverse Recommendation Change.
Section 8.04. Further
Assurances. At and after the Effective Time,
the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of
the Company or Merger Subsidiary, any deeds, bills of sale,
assignments or assurances and to take and do, in the name and on
behalf of the Company or Merger Subsidiary, any other actions
and things to vest, perfect or confirm of record or otherwise in
the Surviving Corporation any and all right, title and interest
in, to and under any of the rights, properties or assets of the
Company acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger.
Section 8.05. Stock
Exchange Delisting. The Company and Parent
shall cooperate and use reasonable best efforts to cause the
delisting of the Shares from the NASDAQ and the deregistration
of the Shares and other securities of the Company under the
Exchange Act as promptly as practicable after the Effective Time.
Section 8.06. Section 16
Matters. Prior to the Effective Time, the
Company shall take all such steps as may be required to cause
any disposition or conversion of Shares in connection with the
transactions contemplated by this Agreement (including
derivative securities with respect to such Shares) by each
individual who is subject to the reporting requirements of
Section 16(a) of the Exchange Act with respect to the
Company to be exempt under
Rule 16b-3
promulgated under the Exchange Act.
IV-24
ARTICLE 9
CONDITIONS
TO THE MERGER
Section 9.01. Conditions
to the Obligations of Each Party. The
obligations of the Company, Parent and Merger Subsidiary to
consummate the Merger are subject to the satisfaction of the
following conditions:
(a) to the extent required by Indiana Law, the Company
Shareholder Approval shall have been obtained;
(b) there is no Law or judgment, injunction, Order or
decree of any Governmental Body with competent jurisdiction
restraining or prohibiting or otherwise making illegal the
consummation of the Merger; and
(c) Merger Subsidiary shall have purchased Shares pursuant
to the Offer.
ARTICLE 10
TERMINATION
Section 10.01. Termination. This
Agreement may be terminated and the Offer
and/or
Merger may be abandoned at any time prior to the Effective Time
(notwithstanding receipt of the Company Shareholder Approval):
(a) by mutual written agreement of the Company (provided
that such termination has been approved by the Committee of
Disinterested Directors) and Parent;
(b) by either the Company (provided that such termination
has been approved by the Committee of Disinterested Directors)
or Parent, if:
(i) the Acceptance Date shall not have occurred on or
before September 24, 2010 (the End
Date), provided that the right to terminate this
Agreement pursuant to this Section 10.01(b)(i) shall
not be available to any party whose breach of any provision of
this Agreement results in the failure of the Offer to be
consummated by such time; or
(ii) there is a Law or final non-appealable judgment,
injunction, Order or decree of any Governmental Body with
competent jurisdiction restraining, prohibiting or otherwise
making illegal the consummation of the Offer or Merger; or
(c) by Parent if, prior to the Acceptance Date:
(i) the Company Board shall have made an Adverse
Recommendation Change that remains in effect; or
(ii) a breach of any representation or warranty set forth
in Article 4 or failure to perform any covenant or
agreement on the part of the Company set forth in this Agreement
shall have occurred that would cause the conditions set forth in
clauses (ii) or (iii) of Annex I to
exist and is incapable of being cured by the End Date;
provided, however, that Parent shall not be
permitted to terminate this Agreement pursuant to this
Section 10.01(c)(ii) if (A) any material
covenant of Parent or Merger Subsidiary contained in this
Agreement shall have been breached in any material respect and
such breach shall not have been cured or (B) any
representation or warranty of Parent or Merger Subsidiary
contained in this Agreement (disregarding all materiality and
Parent and Merger Subsidiary Material Adverse Effect
qualifications contained therein) shall not be true and correct
at and as of such time as if made at and as of such time, with
such exceptions as would not reasonably be expected to have a
Parent and Merger Subsidiary Material Adverse Effect.
The party desiring to terminate this Agreement pursuant to this
Section 10.01 (other than pursuant to
Section 10.01(a)) shall give written notice of such
termination to the other party, which notice shall identify the
specific section and subsection of this Agreement pursuant to
which such termination is being effected and shall contain an
explanation of the factual basis for such termination in
reasonable detail.
IV-25
Section 10.02. Effect
of Termination. If this Agreement is
terminated pursuant to Section 10.01, this Agreement
shall become void and of no effect with no liability on the part
of any party (or any shareholder, director, officer, employee,
agent or advisor of such party) to the other party hereto;
provided, that if such termination shall result from a
material breach of this Agreement, such party shall be fully
liable for any and all liabilities and damages incurred or
suffered by the other party as a result of such breach. The
provisions of Article 11 shall survive any
termination hereof pursuant to Section 10.01.
ARTICLE 11
MISCELLANEOUS.
Section 11.01. Notices. All
notices, requests and other communications to any party
hereunder shall be in writing (including facsimile transmission
and electronic mail transmission, so long as a receipt of such
e-mail is
requested and received) and shall be given;
if to Parent or Merger Subsidiary, to:
JS Acquisition, LLC
c/o James
A. Strain, Esq.
Taft Stettinius & Hollister LLP
One Indiana Square
Suite 3500
Indianapolis, Indiana 46204
Facsimile:
(317) 713-3699
with a copy to.
James M. Dubin, Esq.
Kelley D. Parker, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY
10019-6064
Facsimile:
(212) 757-3990
if to the Company, to:
Emmis Communications Corporation
c/o J.
Scott Enright, Esq.
One Emmis Plaza
40 Monument Circle, Suite 700
Indianapolis, Indiana 46204
Facsimile:
(317) 684-3750
with a copy to:
John J. McCarthy, Jr., Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
Facsimile:
(212) 701-5800
or to such other address or facsimile number as such party may
hereafter specify for the purpose by notice to the other parties
hereto. All such notices, requests and other communications
shall be deemed received on the date of receipt by the recipient
thereof if received prior to 5 p.m. on a Business Day in
the place of receipt. Otherwise, any such notice, request or
communication shall be deemed to have been received on the next
succeeding Business Day in the place of receipt.
IV-26
Section 11.02. Survival
of Representations and Warranties. The
representations and warranties contained herein and in any
certificate or other writing delivered pursuant hereto shall not
survive the Acceptance Date.
Section 11.03. Amendments
and Waivers.
(a) Any provision of this Agreement may be amended or
waived prior to the Effective Time if, but only if, such
amendment or waiver is in writing and is signed, in the case of
an amendment, by each party to this Agreement or, in the case of
a waiver, by each party against whom the waiver is to be
effective; provided, that (i) any such amendment or
waiver by the Company shall require the approval of the
Committee of Disinterested Directors, (ii) after the
Acceptance Date, no amendment shall be made that
(A) decreases the Offer Price or the Merger Consideration,
(B) changes the form of the Merger Consideration or
(C) amends, modifies, supplements, adds to or otherwise
changes the conditions to the Merger and (iii) after the
Company Shareholder Approval has been obtained, there shall be
no amendment or waiver that under Indiana Law, would require the
further approval of the shareholders of the Company without such
approval first being obtained.
(b) No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise
of any other right power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any
rights or remedies provided by Law.
Section 11.04. Expenses. All
costs and expenses incurred in connection with this Agreement
shall be paid by the party incurring such cost or expense.
Section 11.05. Disclosure
Schedule References and SEC Document References.
(a) The parties hereto agree that any reference in a
particular Section of the Company Disclosure Schedule shall only
be deemed to be an exception to (or a disclosure for purposes
of) (i) the representations and warranties or covenants of
the Company that are contained in the corresponding Section of
this Agreement and (ii) any other representations and
warranties of the Company that are contained in this Agreement,
but only if the relevance of that reference as an exception to
(or a disclosure for purposes of) such representations and
warranties would be readily apparent to a reasonable person who
has read that reference and the representations and warranties,
without any independent knowledge on the part of the reader
regarding the matter(s) so disclosed.
(b) The parties hereto agree that any information contained
in any part of any Company SEC Document shall only be deemed to
be an exception to (or a disclosure for purposes of) the
Companys representations and warranties if the relevance
of that information as an exception to (or a disclosure for
purposes of) such representations and warranties would be
readily apparent to a reasonable person who has read that
information and the representations and warranties, without any
independent knowledge on the part of the reader regarding the
matter(s) so disclosed; provided, that in no event shall
any information contained in any part of any Company SEC
Document entitled Risk Factors or containing a
description or explanation of forward-looking
statements be deemed to be an exception to (or a
disclosure for purposes of) any representations and warranties
of the Company or its Subsidiaries contained in this Agreement.
Section 11.06. Binding
Effect, Benefit; Assignment.
(a) The provisions of this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto, their
respective successors and assigns and the Committee of
Disinterested Directors. Except as provided in
Section 7.03 no provision of this Agreement is
intended to confer any rights, benefits, remedies, obligations
or liabilities hereunder upon any Person other than (i) the
parties hereto and their respective successors and assigns and
(ii) the Committee of Disinterested Directors, which shall
be an express third-party beneficiary of this Agreement and to
the extent permitted by Law, shall be entitled to enforce the
provisions of this Agreement on behalf of the Company from and
after the date of this Agreement until Closing.
(b) No party may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement without the
consent of each other party hereto, except that Parent or Merger
Subsidiary may transfer or assign its rights and obligations
under this Agreement, in whole or from time to time in part, to
one
IV-27
or more of its Affiliates at any time provided that such
transfer or assignment shall not relieve Parent or Merger
Subsidiary of its obligations under this Agreement or prejudice
the rights of tendering shareholders to receive payment for
Shares validly tendered and accepted for payment pursuant to the
Offer.
Section 11.07. Governing
Law. This Agreement shall be governed by and
construed in accordance with the law of the State of Indiana
without regard to the conflicts of law rules thereof that might
indicate the application of the laws of any other jurisdiction.
Section 11.08. Jurisdiction. The
parties hereto agree that any suit, action or proceeding seeking
to enforce any provision of, or based on any matter arising out
of or in connection with or relating to, this Agreement or the
transactions contemplated hereby shall be brought in any Federal
court in the State of New York or if jurisdiction is not
available in such court, any court sitting in New York County,
New York, and each of the parties hereby irrevocably consents to
the exclusive jurisdiction of such court (and of the appropriate
appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection that it may now or hereafter
have to the laying of the venue of any such suit action or
proceeding in any such court or that any such suit, action or
proceeding brought in any such court has been brought in an
inconvenient forum. Any and all service of process and any other
notice in any such claim shall be effective against any party if
given personally or by registered or certified mail, return
receipt requested, or by any other means of mail that requires a
signed receipt, postage prepaid, mailed to such party as herein
provided in Section 11.01. Nothing herein contained shall
be deemed to affect the right of any party to serve process in
any manner permitted by law or to commence legal proceedings or
otherwise proceed against any other party in any other
jurisdiction.
Section 11.09. WAIVER
OF JURY TRIAL.
(a) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
(b) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE WAIVER IN
SECTION 11.09(a), (ii) SUCH PARTY UNDERSTANDS
AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER,
(iii) SUCH PARTY MAKES SUCH WAIVER VOLUNTARILY AND
(iv) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS, AGREEMENTS
AND CERTIFICATIONS IN SECTION 11.09(a) AND THIS
SECTION 11.09(b).
Section 11.10. Counterparts;
Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and
hereto were upon the same instrument This Agreement shall become
effective when each party hereto shall have received a
counterpart hereof signed by all of the other parties hereto.
Until and unless each party has received a counterpart hereof
signed by the other party hereto, this Agreement shall have no
effect and no party shall have any right or obligation hereunder
(whether by virtue of any other oral or written agreement or
other communication).
Section 11.11. Entire
Agreement. This Agreement constitutes the
entire agreement among the parties with respect to the subject
matter of hereof and supersedes all prior agreements and
understandings, both oral and written, among the parties with
respect to the subject matter hereof.
Section 11.12. Severability. If
any term, provision, covenant or restriction of this Agreement
is held by a court or other Governmental Body of competent
jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no
way be affected, impaired or invalidated so long as the economic
or legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party. Upon
such a determination, the parties shall negotiate in good faith
to modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby be consummated
as originally contemplated to the fullest extent possible.
IV-28
Section 11.13. Specific
Performance. The parties hereto agree that
irreparable damage would occur if any provision of this
Agreement were not performed in accordance with the specific
terms hereof and that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the performance of the terms and
provisions hereof in any court specified in
Section 11.08, in addition to any other remedy to
which they are entitled at law or in equity.
ARTICLE 12
DEFINITIONS
Section 12.01. Definitions.
(a) As used herein, the following terms have the following
meanings:
401(k) Plan means the 401(k) plan of
the Company as in effect from time to time.
Affiliate means, when used with
reference to a specified Person, any other Person that directly
or indirectly controls or is controlled by or is under common
control with the specified Person. The term control
(including, with correlative meaning, the terms controlled
by and under common control with), as applied
to any Person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting
or other securities, by contract or otherwise.
Business means the business of the
Company and its Subsidiaries, as conducted as of the date of
this Agreement.
Business Day means a day other than a
Saturday, Sunday or any day on which banks in New York, New
York are authorized or obligated by Law to close.
Committee of Disinterested Directors
means the committee established by the Company Board on
April 29, 2010 consisting of Ms. Susan B. Bayh and
Messrs. Peter A. Lund and Lawrence B. Sorrel.
Company Material Adverse Effect means
any effect that is, or is reasonably likely to be, materially
adverse to the Business, financial condition or results of
operations of the Company and its Subsidiaries, taken as a
whole; provided, however, that no fact,
circumstance, event or change resulting from, attributable to or
arising out of any of the following shall constitute, or be
considered in determining whether there has occurred, a Company
Material Adverse Effect: (a) (i) changes in general
economic or political conditions or the securities, banking,
credit, currency, commodities, capital or financial markets in
general (including general changes to monetary policy,
inflation, interest rates, exchange rates or stock, bond or debt
prices) in the United States or in any other geographic market,
(ii) changes that are generally applicable to the
industries in which the Company and its Subsidiaries operate
(including any competitive
and/or
technological changes relevant to such industries),
(iii) changes in general legal, regulatory or political
conditions, including the adoption, implementation,
promulgation, repeal, modification, reinterpretation or proposal
of any Law after the date hereof, or changes in GAAP or in other
applicable accounting standards (or in the interpretation
thereof), (iv) the negotiation, execution, announcement or
performance of this Agreement or the consummation of the
Transactions, including the threatened or actual impact thereof
on relationships, contractual or otherwise, with current or
prospective customers, suppliers, vendors, distributors,
partners, financing sources, employees or landlords,
(v) the identity of the Investor as the purchaser of the
Securities or any facts or circumstances concerning the
Investor, Alden or any of their respective Affiliates,
(vi) compliance with the terms of, or the taking of any
action required or contemplated by, this Agreement or action or
inaction consented to or requested by Alden or the Investor,
(vii) changes in the trading volume or market price of the
Shares on the NASDAQ Stock Market or the suspension of trading
generally on the NASDAQ Stock Market (provided that the
exception in this clause shall not in any way prevent or
otherwise affect a determination that any change, event,
circumstance, development or effect underlying such decrease has
resulted in, or contributed to, a Company Material Adverse
Effect), (viii) any litigation or investigation arising
from allegations of a breach of fiduciary duty or other
violation of applicable Law relating to this Agreement or the
IV-29
Transactions, other than litigation or investigations commenced
or threatened in writing by any Governmental Body or
(ix) any restatement of the consolidated financial
statements of the Company and its Subsidiaries contained in the
Company SEC Documents that results in an accounting charge
thereto that does not require a cash settlement and would not
otherwise constitute a Company Material Adverse Effect, except,
in the case of the foregoing clauses (i), (ii) and (iii),
for such changes or developments referred to therein have a
materially disproportionate impact on the Company and its
Subsidiaries, taken as a whole, relative to other companies that
operate in multiple geographic markets, including large markets,
in the industries in which the Company and its Subsidiaries
operate or (b) any failure to meet internal or published
projections, forecasts, estimates, performance measures,
operating statistics or revenue or earnings predictions for any
period or the issuance of revised projections that are not as
optimistic as those in existence as of the date hereof.
Credit Agreement means the Amended and
Restated Revolving Credit and Term Loan Agreement, by and among
Emmis Operating Company, the Company, the lending institutions
party thereto and Bank of America as administrative agent, dated
as of November 2, 2006, as amended.
Employee Plan means any employee
benefit plan, as defined in Section 3(3) of ERISA,
each employment, severance or similar contract, plan,
arrangement or policy and each other plan or arrangement
(written or oral) providing for compensation, bonuses,
profit-sharing, stock option or other stock related rights or
other forms of incentive or deferred compensation, vacation
benefits, insurance (including any self-insured arrangements),
health or medical benefits, employee assistance program,
transitional benefit plan, tuition assistance program, adoption
assistance program, disability or sick leave benefits
workers compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life
insurance benefits) which is maintained, administered or
contributed to by the Company or any Affiliate and covers any
employee or former employee of the Company or any of its
Subsidiaries, or with respect to which the Company or any of its
Subsidiaries has any liability.
ERISA means the Employee Retirement
Income Security Act of 1974.
Exchange Act means the Securities
Exchange Act of 1934, as amended.
FCC means the Federal Communications
Commission.
FCC Licenses means all licenses,
construction permits and authorizations issued by the FCC and
used or usable for the operation of the Stations.
GAAP means generally accepted
accounting principles in the United States.
Governmental Body means with respect
to any nation or government, any state, province or other
political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administration
functions of or pertaining to government.
Initial Governing Documents means,
collectively, the articles of organization of Parent filed in
accordance with the laws of the State of Indiana in the office
of the Secretary of State of Indiana on May 3, 2010 and the
Operating Agreement of Parent, dated as of May 6, 2010.
Intellectual Property means all
U.S. and foreign rights arising under or associated with
(i) patents and all proprietary rights associated therewith
(including statutory invention registrations supplemented by
protection certificates and term extensions),
(ii) trademarks, service marks, trade names, trade dress,
domain names, brand names, certification marks, corporate names
and other indications of origin, together with all goodwill
related to the foregoing, (iii) copyrights and designs and
all rights associated therewith and the underlying works of
authorship, (iv) all inventions, invention certificates,
trade secrets, processes, formulae, methods, schematics,
drawings, blue prints, utility models, design applications,
technology, know-how, software, discoveries, ideas and
improvements, (v) all registrations of any of the foregoing
and all applications therefor and (vi) other proprietary or
confidential information and materials.
IV-30
Interested Party Shares means,
collectively, the Shares beneficially owned by the members of
the Purchaser Group, the Rolling Shareholders and Alden.
Investor means Alden Media Holdings,
LLC, a Delaware limited liability company.
knowledge means with respect to the
Company, the actual knowledge after reasonable inquiry of the
executive officers of the Company.
Law means all laws (including common
law), statutes, ordinances, codes, rules and regulations of any
Governmental Authorities.
Lien means any lien, pledge, mortgage,
deed of trust, security interest, claim, lease, license, charge,
option, right of first refusal, easement, servitude, transfer
restriction, encumbrance, adverse claim or any other restriction
or limitation whatsoever other than restrictions on sale imposed
by the Securities Act and state securities laws.
Merger Subsidiary Class A Common
Stock means the shares of the Class A
Non-Voting Common Stock, par value $0.01 per share, of Merger
Subsidiary.
Merger Subsidiary Class B Common
Stock means the shares of the Class B Common
Stock, par value $0.01 per share, of Merger Subsidiary.
Order means any order, judgment,
injunction, award, decree or writ of any Governmental Body.
Parent and Merger Subsidiary Material Adverse
Effect means a material adverse effect on
Parents
and/or
Merger Subsidiarys ability, as applicable, to consummate
the transactions contemplated by this Agreement or to perform
its obligations under this Agreement.
Permitted Liens means Liens under the
Credit Agreement and Liens permitted thereunder.
Person means an individual,
corporation, partnership, limited liability company, limited
liability partnership, firm, joint venture, association, joint
stock company, trust , unincorporated organization, Governmental
Body or any other entity.
Retained Shares means any Shares
(including outstanding restricted stock with respect to Shares
that become fully vested immediately prior to the Effective
Time) directly or indirectly beneficially held by the members of
the Purchaser Group and the Rolling Shareholders that are not
being contributed to the Company pursuant to their obligations
under the Securities Purchase Agreement or the Rollover
Agreement, as applicable, and as further described on
Schedule I hereto.
Rolling Shareholders means,
collectively, the parties to the Rollover Agreement that have
agreed to contribute their Shares to Emmis pursuant to the
Rollover Agreement.
Rollover Agreement means the Rollover
Agreement, dated as of May 24, 2010, by and among Parent
and the shareholders set forth therein.
Rollover Share means, collectively,
the Shares contributed to the Company by the Rolling
Shareholders pursuant to the Rollover Agreement.
Securities means the securities of
Parent purchased by the Investor pursuant to the Securities
Purchase Agreement.
Securities Act means the Securities
Act of 1933, as amended.
Securities Purchase Agreement means
the Securities Purchase Agreement, dated as of May 24,
2010, by and among Alden Global Distressed Opportunities Master
Fund, L.P., Alden Global Value Recovery Master Fund, L.P., the
Investor, Parent and Smulyan.
Smulyan Options means, collectively,
the options to acquire Shares and Class B Shares held by
Smulyan.
IV-31
Subsidiary means, with respect to any
Person, any corporation, partnership, trust, limited liability
company or other non-corporate business enterprise in which such
Person (or another Subsidiary of such Person) holds stock or
other ownership interests representing (A) more that 50% of
the voting power of all outstanding stock or ownership interests
of such entity, (B) the right to receive more than 50% of
the net assets of such entity available for distribution to the
holders of outstanding stock or ownership interests upon a
liquidation or dissolution of such entity or (C) a general
or managing partnership interest in such entity.
Tax includes all federal, state, local
and foreign income, profits, franchise, gross receipts, capital
stock, severances, stamp, payroll, sales, employment,
unemployment, disability, use, property, withholding, excise,
production, value added, occupancy and other taxes, duties or
assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such
amounts and any interest in respect of such penalties and
additions imposed by a governmental entity (a Taxing
Authority) responsible for the imposition of any such
tax (domestic or foreign), and any liability for any of the
foregoing as a transferee.
Tax Return includes all returns and
reports (including elections, declarations, disclosures,
schedules, estimates and information returns, as well as
attachments thereto and amendments thereof) required to be
supplied to a Taxing Authority or maintained relating to Taxes.
Transactions means, collectively, the
Merger, the Offer, the Exchange Offer and the solicitation of
proxies from the holders of Shares, Class B Shares and
Preferred Shares with respect to the Preferred Amendments and
the Merger.
Treasury Regulations means the
Treasury Regulations promulgated under the Code.
Unaffiliated Shareholders means,
collectively, the holders of Shares other than the Interested
Party Shares.
(b) Each of the following terms is defined in the Section
set forth opposite such term.
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Term
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Section
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Acceptance Date
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1.01(c)
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Adverse Recommendation Change
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6.03
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Agreement
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Preamble
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Alden
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Recitals
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Alden Preferred Merger Consideration
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Section 2.02(b)(ii)
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Articles of Incorporation
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Recitals
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By-laws
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1.03
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Cash Merger Consideration
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2.02(b)(iii)
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Certificates
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2.03(a)
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Class B Shares
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Recitals
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Class C Shares
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Section 4.05(a)
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Closing
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2.01(b)
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Committee Recommendation
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Section 4.02(b)
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Common Merger Consideration
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Section 2.02(b)(i)
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Company
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Preamble
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Company 10-K
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4
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Company Board
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Recitals
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Company Board Recommendation
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Section 4.02(c)
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Company Common Stock
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Section 4.05(a)
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Company Disclosure Documents
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4.06(a)
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Company Disclosure Schedule
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4
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Committee Financial Advisor
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4.15(a)
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IV-32
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Term
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Section
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Company SEC Documents
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Section 4.06(c)
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Company Intellectual Property Rights
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Section 4.10(a)
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Company RSU
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Section 2.05(b)
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Company Shareholder Approval
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4.02(a)
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Company Shareholders Meeting
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6.05
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Company Stock Option
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2.05(a)
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Effective Time
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2.01(c)
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End Date
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10.01(b)(i)
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Exchange Offer
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Recitals
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Exchange Offer Documents
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Recitals
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Governmental Permits
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Section 4.04(b)
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IBCL
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Recitals
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Indemnified Person
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7.03(a)
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Indiana Law
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Recitals
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Intellectual Property Rights
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Section 4.10(a)
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Lease
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Section 4.11(b)
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Merger
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2.01(a)
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Merger Consideration
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2.02(b)(iii)
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Merger Subsidiary
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Preamble
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Minimum Tender Condition
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Recitals
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New Notes
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Recitals
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Offer
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Recitals
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Offer Documents
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Recitals
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Offer Price
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Recitals
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Owned Intellectual Property Rights
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Section 4.10(a)
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Parent
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Preamble
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Paying Agent
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2.03(a)
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Preferred Amendments
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Recitals
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Preferred Merger Consideration
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2.02(b)(iii)
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Preferred Shares
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Recitals
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Proxy Statement
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6.05
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Proxy Statement/Offer to Exchange
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Recitals
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Purchaser Group
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Recitals
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Representatives
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6.03
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Schedule 14D-9
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Section 1.02(b)
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Schedule TO
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Recitals
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SEC
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Recitals
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Senior Preferred Shares
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Section 4.05(a)
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Shares
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Recitals
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Smulyan
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Preamble
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Stations
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Section 4.04(b)
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Subsequent Offering Period
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1.01(b)(v)
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Surviving Corporation
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2.01(a)
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Uncertificated Shares
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2.03(a)
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IV-33
Section 12.02. Other
Definitional and Interpretative
Provisions. The words hereof,
herein and hereunder and words of like
import used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement. The
captions herein are included for reference purposes only and
shall be ignored in the construction or interpretation hereof.
References to Articles, Sections, Exhibits, Annexes and
Schedules are to Articles, Sections, Exhibits, Annexes and
Schedules of this Agreement unless otherwise specified. All
Schedules annexed hereto or referred to herein are hereby
incorporated in and made a part of this Agreement as if set
forth in full herein. All terms defined in this Agreement and
used but not otherwise defined in any Schedule or any other
document made or delivered pursuant hereto shall have the
meaning as defined in this Agreement. The definitions contained
in this Agreement are applicable to the singular as well as the
plural forms of such terms. Whenever the words
include, includes or
including are used in this Agreement, they shall be
deemed to be followed by the words without
limitation. Writing, written and
comparable terms refer to printing, typing and other means of
reproducing words (including electronic media) in a visible
form. References to any statute shall be deemed to refer to such
statute as amended from time to time and to any rules or
regulations promulgated thereunder. References to any agreement
or contract shall be deemed to refer to such agreement or
contract as amended, modified or supplemented from time to time
in accordance with the terms thereof. References to any Person
include the successors and permitted assigns of that Person.
[Remainder
of Page Intentionally Left Blank.]
IV-34
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
EMMIS COMMUNICATIONS CORPORATION
Name: J. Scott Enright
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Title:
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General Counsel, Executive Vice
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President and Secretary
JS ACQUISITION, LLC
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By:
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/s/ Jeffrey
H. Smulyan
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Name: Jeffrey H. Smulyan
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Title:
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President, Treasurer and Secretary
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JS ACQUISITION, INC.
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By:
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/s/ Jeffrey
H. Smulyan
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Name: Jeffrey H. Smulyan
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Title:
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President, Treasurer and Secretary
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[Signature Page to Agreement and Plan of Merger]
IV-35
ANNEX I
Notwithstanding any other provision of the Offer, JS Acquisition
shall not be required to accept for payment or, subject to any
applicable rules and regulations of the SEC, including
Rule 14e-1(c)
promulgated under the Exchange Act, pay for any Shares, may
postpone the acceptance for payment or payment for tendered
Shares, and may, in its sole discretion, terminate or amend the
Offer as to any Shares not then paid for if at the expiration of
the Offer:
(i) the Merger Agreement has been terminated in accordance
with its terms; or
(ii) (a) the representations and warranties of Emmis
contained in Section 4.02, Section 4.05,
Section 4.12(b) and Section 4.15 of the Merger
Agreement are not true and correct in all respects; and
(b) the remaining representations and warranties of Emmis
contained in the Merger Agreement are not true and correct
except for such failures to be true and correct as would not
reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect (as defined below),
in the case of both clauses (a) and (b), on and as of the
expiration of the Offer with the same force and effect as though
made on and as of the expiration of the Offer, except for those
representations and warranties that are expressly limited by
their terms to dates or times other than the expiration of the
Offer, which representations and warranties are not true and
correct as aforesaid as of such other dates or times;
provided, however, that for purposes of
determining the satisfaction on and as of the expiration of the
Offer of clause (b), no effect shall be given to any exception
or qualification in such representations and warranties relating
to materiality, material adverse effect or knowledge;
(iii) Emmis shall not have performed and complied in all
material respects with all covenants and agreements required by
the Merger Agreement to be performed or complied with by Emmis
on or prior to the expiration of the Offer; or
(iv) the Minimum Tender Condition has not been
satisfied; or
(v) the Board has made an Adverse Recommendation
Change; or
(vi) the Alden Purchase Agreement has been terminated or
Alden Media Holdings, LLC shall not have paid cash, when due, to
JS Acquisition in the amount of the Purchase Price, as defined
in the Alden Purchase Agreement; or
(vii) the Proposed Amendments have not received the
Required Vote; or
(viii) the Proposed Amendments are not in full force and
effect; or
(ix) there shall be instituted any action, proceeding or
application by any U.S. or non-US. court, government or
governmental authority or other U.S. or non-US. regulatory
or administrative agency or commission (each, a
Governmental Entity) which, directly or indirectly
(a) challenges the acquisition by JS Acquisition of the
Shares, seeks to restrain, delay, enjoin, make illegal or
otherwise prohibit the consummation of the Offer, the Exchange
Offer or the Merger or seeks to obtain any material damages as a
result of, or otherwise adversely affects, the Offer, the
Exchange Offer or the Merger, (b) seeks to prohibit or
impose material limitations on JS Acquisitions
acquisition, ownership or operation of all or any material
portion of its or Emmis business or assets (including the
business or assets of their respective affiliates and
subsidiaries), or of all or any of the Shares (including,
without limitation, the right to vote the Shares purchased by JS
Acquisition, on an equal basis with all other Shares, on all
matters presented to the shareholders of Emmis), or seeks to
compel JS Acquisition to dispose of or hold separate all or any
material portion of its own or Emmis business or assets
(including the business or assets of their respective affiliates
and subsidiaries) as a result of the Offer, the Exchange Offer
or the Merger, (c) reasonably would be expected to have a
Company Material Adverse Effect, or result in a diminution in
the value of the Shares or in the value of Emmis or JS
Acquisitions assets, in each case by more than
$5 million (a Diminution in Value) or
(d) seeks to impose any condition to the Offer, the
Exchange Offer or the Merger that is materially burdensome to JS
Acquisition; or
I-1
(x) there has been entered or issued any preliminary or
permanent judgment, order, decree, ruling or injunction or any
other action taken by any Governmental Entity which, directly or
indirectly (a) restrains, delays, enjoins, makes illegal or
otherwise prohibits the consummation of the Offer, the Exchange
Offer or the Merger or awards material damages as a result of,
or otherwise adversely affects, the Offer, the Exchange Offer or
the Merger, (b) prohibits or imposes material limitations
on JS Acquisitions acquisition, ownership or operation of
all or any material portion of its or Emmis business or
assets (including the business or assets of their respective
affiliates and subsidiaries), or of all or any of the Shares
(including, without limitation, the right to vote the Shares
purchased by JS Acquisition, on an equal basis with all other
Shares, on all matters presented to the shareholders of Emmis),
or compels JS Acquisition to dispose of or hold separate
all or any material portion of its own or Emmis business
or assets (including the business or assets of their respective
affiliates and subsidiaries) as a result of the Offer, the
Exchange Offer or the Merger, (c) reasonably would be
expected to have a Company Material Adverse Effect, or result in
a Diminution in Value or (d) imposes any condition to the
Offer, the Exchange Offer or the Merger that is materially
burdensome to JS Acquisition; or
(xi) any statute, including without limitation any state
anti-takeover statute, or any rule, decree, regulation, Order or
injunction, shall be enacted, entered, enforced or deemed
applicable or which becomes applicable or asserted to be
applicable directly or indirectly to the Offer, the Exchange
Offer or the Merger that would, directly or indirectly, result
in any of the consequences referred to in clauses (a)
through (d) of paragraph (ix) above; or
(xii) JS Acquisition shall have become aware that
(a) one or more governmental or other third party consents,
waivers or approvals are required for or in connection with the
consummation of the Offer, the Exchange Offer or the Merger
under any law, regulation, order or contract binding on Emmis or
any of its affiliates, (b) any of the applicable consents,
waivers or approvals have not been obtained and (c) the
failure to obtain such consents, waivers or approvals would
reasonably be expected to have a Company Material Adverse
Effect; or
(xiii) there shall have occurred any change, event or
occurrence arising since the date that the Tender Offer is
commenced that had or would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect.
I-2
ANNEX II
Notwithstanding any other provision of the Exchange Offer, Emmis
shall not be required to accept for exchange or, subject to any
applicable rules and regulations of the SEC, including
Rule 14e-1(c)
promulgated under the Exchange Act, exchange any Preferred
Shares, may postpone the acceptance for payment or payment for
tendered Preferred Shares, and may, in its sole discretion,
terminate or amend the Exchange Offer as to any Preferred Shares
not then exchanged if at the expiration of the Exchange Offer:
1. the conditions set forth in Annex I have not
been satisfied or waived; or
2. the Indenture under which the New Notes will be issued
is not qualified under the Trust Indenture Act of 1939.
II-1
SPECIAL MEETING OF SHAREHOLDERS OF
EMMIS COMMUNICATIONS CORPORATION
, 2010
Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.
â Please detach along perforated line and mail in the envelope provided. â
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x
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FOR
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PROPOSAL TO APPROVE THE PROPOSED AMENDMENTS TO THE ARTICLES OF INCORPORATION
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In their discretion, the Proxies
are authorized to vote upon such
other business as may properly come
before the meeting. |
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This proxy is solicited on behalf of the Emmis Communications
Corporation Board of Directors. This proxy when properly
executed will be voted in the manner directed herein by the
undersigned shareholder. If no direction is made, this proxy
will be voted FOR Proposals 1 and 2. |
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The undersigned acknowledges receipt, prior to the execution of
this proxy, of notice of the meeting and the Proxy
Statement/Offer to Exchange. |
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To change the address on your account,
please check the box at right and indicate
your new address in the address space above.
Please note that changes to the registered
name(s) on the account may not be submitted
via this method.
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Signature of Shareholder
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Date:
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Signature of Shareholder
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Date:
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Note:
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Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each
holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer,
giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
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EMMIS COMMUNICATIONS CORPORATION
One Emmis Plaza
40 Monument Circle
Indianapolis, Indiana 46204
This Proxy is Solicited on Behalf of the Emmis Communications Corporation Board of Directors
The undersigned hereby appoints J. Scott Enright,
attorney-in-fact and proxy, with full power of substitution (the Proxy), to vote as
designated below all shares of Class A Common Stock of Emmis Communications Corporation which the
undersigned would be entitled to vote if personally present at the special meeting of Shareholders
to be held on , 2010, at a.m., and at any adjournment thereof.
(Continued and to be signed on the reverse side.)
SPECIAL MEETING OF SHAREHOLDERS OF
EMMIS COMMUNICATIONS CORPORATION
, 2010
Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.
â Please detach along perforated line and mail in the envelope provided. â
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x
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FOR
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AGAINST
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ABSTAIN |
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1.
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PROPOSAL TO APPROVE THE PROPOSED AMENDMENTS TO THE ARTICLES OF INCORPORATION
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2.
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In their discretion, the Proxies
are authorized to vote upon such
other business as may properly come
before the meeting. |
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This proxy is solicited on behalf of the Emmis Communications
Corporation Board of Directors. This proxy when properly
executed will be voted in the manner directed herein by the
undersigned shareholder. If no direction is made, this proxy
will be voted FOR Proposals 1 and 2. |
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The undersigned acknowledges receipt, prior to the execution of
this proxy, of notice of the meeting and the Proxy
Statement/Offer to Exchange. |
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To change the address on your account,
please check the box at right and indicate
your new address in the address space above.
Please note that changes to the registered
name(s) on the account may not be submitted
via this method.
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Signature of Shareholder
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Date:
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Signature of Shareholder
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Date:
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Note:
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Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each
holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer,
giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
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EMMIS COMMUNICATIONS CORPORATION
One Emmis Plaza
40 Monument Circle
Indianapolis, Indiana 46204
This Proxy is Solicited on Behalf of the Emmis Communications Corporation Board of Directors
The undersigned hereby appoints J. Scott Enright, attorney-in-fact and
proxy, with full power of substitution (the Proxy), to vote as designated below all shares of
Class B Common Stock of Emmis Communications Corporation which the undersigned would be entitled to
vote if personally present at the special meeting of Shareholders to be held on , 2010,
at a.m., and at any adjournment thereof.
(Continued and to be signed on the reverse side.)
SPECIAL MEETING OF SHAREHOLDERS OF
EMMIS COMMUNICATIONS CORPORATION
, 2010
Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.
â Please detach along perforated line and mail in the envelope provided. â
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x
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FOR
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AGAINST
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ABSTAIN |
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1.
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PROPOSAL TO APPROVE THE PROPOSED AMENDMENTS TO THE ARTICLES OF INCORPORATION
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o
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|
o
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o |
|
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2.
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In their discretion, the Proxies
are authorized to vote upon such
other business as may properly come
before the meeting. |
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This proxy is solicited on behalf of the Emmis Communications
Corporation Board of Directors. This proxy when properly
executed will be voted in the manner directed herein by the
undersigned shareholder. If no direction is made, this proxy
will be voted FOR Proposals 1 and 2. |
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The undersigned acknowledges receipt, prior to the execution of
this proxy, of notice of the meeting and the Proxy
Statement/Offer to Exchange. |
|
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|
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To change the address on your account,
please check the box at right and indicate
your new address in the address space above.
Please note that changes to the registered
name(s) on the account may not be submitted
via this method.
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Signature of Shareholder
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Date:
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Signature of Shareholder
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Date:
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Note:
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Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each
holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer,
giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
|
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EMMIS COMMUNICATIONS CORPORATION
One Emmis Plaza
40 Monument Circle
Indianapolis, Indiana 46204
This Proxy is Solicited on Behalf of the Emmis Communications Corporation Board of Directors
The undersigned hereby appoints J. Scott
Enright, attorney-in-fact and proxy, with full power of substitution
(the Proxy), to vote as
designated below all shares of 6.25% Series A Cumulative Convertible Preferred Stock of Emmis
Communications Corporation which the undersigned would be entitled to vote if personally present at
the special meeting of Shareholders to be held on , 2010, at a.m., and at any
adjournment thereof.
(Continued and to be signed on the reverse side.)