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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 2001
REGISTRATION NO. 333-62160
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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EMMIS COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INDIANA
(State or other jurisdiction of
incorporation or organization)
4832
(Primary Standard Industrial
Classification Code Number)
35-1542018
(IRS Employer Identification No.)
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ONE EMMIS PLAZA, 7TH FLOOR, 40 MONUMENT CIRCLE
INDIANAPOLIS, INDIANA 46204
317-266-0100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
J. SCOTT ENRIGHT, ESQ.
VICE PRESIDENT AND ASSOCIATE GENERAL COUNSEL
EMMIS COMMUNICATIONS CORPORATION
ONE EMMIS PLAZA, 7TH FLOOR, 40 MONUMENT CIRCLE
INDIANAPOLIS, INDIANA 46204
317-266-0100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
JOHN C. KENNEDY, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
212-373-3000
ALAN W. BECKER, ESQ.
BOSE MCKINNEY & EVANS LLP
135 NORTH PENNSYLVANIA STREET,
SUITE 2700
INDIANAPOLIS, INDIANA 46204
317-684-5000
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Approximate date of proposed sale to public: As soon as practicable after this
Registration Statement becomes effective.
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If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(d) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE AMENDED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
SUBJECT TO COMPLETION, DATED JUNE 21, 2001
EMMIS COMMUNICATIONS CORPORATION
EXCHANGE OFFER FOR ITS $370,000,000 AGGREGATE PRINCIPAL AMOUNT AT MATURITY
12 1/2% SENIOR DISCOUNT NOTES DUE 2011
TERMS OF THE EXCHANGE OFFER:
- It will expire at 5:00 p.m., New York City time, on , 2001,
unless we extend it.
- If all the conditions to this exchange offer are satisfied, we will
exchange all of our 12 1/2% Senior Discount Notes due 2011 issued on
March 27, 2001, which we refer to as the old notes, that are validly
tendered and not withdrawn for new notes, which we refer to as the
exchange notes.
- You may withdraw your tender of old notes at any time before the
expiration of this exchange offer.
- The exchange notes that we will issue you for your old notes will be
substantially identical to your old notes except that, unlike your old
notes, the exchange notes will have no transfer restrictions or
registration rights.
- The exchange notes that we will issue you in exchange for your old notes
are new securities with no established market for trading.
BEFORE PARTICIPATING IN THIS EXCHANGE OFFER, PLEASE REFER TO THE SECTION IN
THIS PROSPECTUS ENTITLED "RISK FACTORS" COMMENCING ON PAGE 11.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is , 2001.
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TABLE OF CONTENTS
Incorporation of Documents by Reference..................... i
Cautionary Statement Regarding Forward--Looking
Statements................................................ ii
Prospectus Summary.......................................... 1
Summary Historical and Unaudited Pro Forma Financial Data... 9
Risk Factors................................................ 11
Use of Proceeds............................................. 20
Capitalization.............................................. 20
Ratio of Earnings to Fixed Charges.......................... 21
Unaudited Pro Forma Combined Condensed Financial
Information............................................... 22
The Exchange Offer.......................................... 29
Description of Notes........................................ 37
Certain Federal Income Tax Considerations................... 72
Plan of Distribution........................................ 76
Legal Matters............................................... 76
Experts..................................................... 76
Where You Can Find More Information......................... 77
Index to Financial Statements............................... F-1
INCORPORATION OF DOCUMENTS BY REFERENCE
This prospectus incorporates by reference important business and financial
information about our company that is not included in or delivered with this
document. The information incorporated by reference is considered to be part of
this prospectus, and later information that we file with the SEC will
automatically update and supersede this information. Any statement modified or
superseded by subsequently filed materials shall not be deemed, except as so
modified or superseded, to constitute a part of this prospectus. Subject to the
preceding, the information in this prospectus is qualified in its entirety by
the information appearing in the documents incorporated by reference. We
incorporate by reference the documents listed below and any other filings made
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934 prior to termination of this offering:
- Our Annual Report on Form 10-K for the fiscal year ended February 28,
2001.
- Our Proxy Statement for our 2001 Annual Meeting of Shareholders.
- Our Current Reports on Form 8-K filed March 12, March 13 and April 12,
2001.
You may request a copy of any of these documents, at no cost, by contacting
us in writing or by telephone at our principal executive office:
Emmis Communications Corporation
One Emmis Plaza, 7th Floor
40 Monument Circle
Indianapolis, Indiana 46204
Telephone: (317) 266-0100
EXCEPT AS DESCRIBED ABOVE, NO OTHER INFORMATION IS INCORPORATED BY
REFERENCE IN THIS PROSPECTUS (INCLUDING, WITHOUT LIMITATION, INFORMATION ON OUR
WEBSITE).
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CAUTIONARY STATEMENT REGARDING FORWARD--LOOKING STATEMENTS
This prospectus includes or incorporates forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. 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 actually 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 prospectus
that we believe could cause our actual results to differ materially from the
forward-looking statements that we make. These include, but are not limited to,
those under the heading "Risk Factors" and the following:
- the ability of our stations and magazines to attract and retain
advertisers;
- the level of our capital expenditures and whether our programming and
other expenses continue to increase or increase at a rate faster than
expected;
- whether any pending transactions are completed on the terms and at the
times set forth, if at all;
- financial community and rating agency perceptions of our business,
operations and financial condition and the industry in which we operate;
- the ability of our stations to attract programming and our magazines to
attract writers and photographers;
- uncertainty as to the ability of our stations to increase or sustain
audience share for their programs and our magazines to increase or
sustain subscriber demand;
- risks and uncertainties inherent in the radio and television broadcasting
and magazine publishing businesses;
- material adverse changes in economic conditions in the markets of our
company;
- future regulatory actions and conditions in the operating areas of our
company; and
- competition from other media and the impact of significant competition
for advertising revenues from other media.
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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PROSPECTUS SUMMARY
In this prospectus, "we," "us," "our," the "company" and "Emmis" refer to
Emmis Communications Corporation and its subsidiaries, unless it is clear from
the context that we mean only Emmis Communications Corporation. The following
summary highlights basic information about Emmis and this exchange offer. It may
not contain all of the information that is important to you. For a more
comprehensive understanding of our company and the exchange offer, you should
read this entire document, including "Risk Factors," and the documents
incorporated by reference. The term "old notes" refers to the 12 1/2% Senior
Discount Notes due 2011 issued in a private offering on March 27, 2001. The term
"exchange notes" refers to the 12 1/2% Senior Discount Notes due 2011 offered
with this prospectus. The term "notes" refers to the old notes and the exchange
notes, collectively. Some of the statements in this "Prospectus Summary" are
forward-looking statements. See "Cautionary Statement Regarding Forward-Looking
Statements.
THE OLD NOTES
On March 27, 2001, we issued the old notes in an offering exempt from
registration under the Securities Act by Emmis Escrow Corporation, one of our
wholly-owned indirect subsidiaries. In connection with a merger of Emmis Escrow
Corporation and Emmis Escrow Holding Corporation into us, we assumed all of the
obligations of Emmis Escrow Corporation under the old notes, the indenture
relating to the old notes and the registration rights agreement relating to the
old notes. We used a portion of the proceeds of the issuance and sale of the old
notes to fund the acquisition of broadcasting properties from Hearst-Argyle
Television, Inc. and acquisition-related expenses. See " -- Recent
Developments -- Recent Transactions -- Hearst-Argyle Acquisition" for more
information regarding this acquisition. We used the remainder of those proceeds
to repay outstanding indebtedness under our credit facility.
THE REGISTRATION RIGHTS AGREEMENT
Under the registration rights agreement, we are obliged to, among other
things, deliver to you this prospectus and complete the exchange offer. This
exchange offer allows you to exchange your old notes for registered notes with
substantially identical terms. If the exchange offer is not completed on or
prior to , 2001, we will be required to pay liquidated damages at an
initial rate of $0.05 per week per $1,000 accreted value or principal amount of
the notes until, among other things, the completion of the exchange offer. You
should read the registration rights agreement in its entirety for more
information.
THE COMPANY
Emmis is a leading media company with radio broadcasting, television
broadcasting and magazine publishing operations. We conduct substantially all of
our business operations through our wholly-owned subsidiary, Emmis Operating
Company, and its subsidiaries. We operate the sixth largest publicly traded
radio portfolio in the United States based on total listeners. Approximately
10.8 million listeners tune in to our 23 radio stations each week. We operate 20
FM and 3 AM stations located primarily in the nation's top 20 radio markets. In
the three largest U.S. radio markets, New York, Los Angeles and Chicago, we have
developed top performing radio stations that rank in the top ten in terms of
primary demographic target audience share according to the Fall 2000 Arbitron
Survey. We have also developed strong market positions in Denver, Phoenix, St.
Louis, and Indianapolis by clustering our radio stations for demographic
audience share.
The combination of our large market radio presence, the diversity of our
station formats and our advertising, sales and programming expertise has allowed
us to achieve same-station revenue growth rates in excess of industry-wide
growth for recent years. In addition to our strong internal growth, we have
demonstrated our ability to selectively acquire underdeveloped properties in
desirable markets and create
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value by improving their ratings, revenues and cash flow through focused
marketing and innovative programming techniques.
We own and operate 15 television stations in the United States, reaching
approximately 6.1 million television households nationally. We believe that
broadcast television has been and will continue to be the most effective way for
advertisers to reach mass audiences in local markets. The television stations we
operate serve geographically diverse, mid-sized markets in the U.S. and have a
variety of television network affiliations, including five with CBS, five with
Fox, three with NBC, one with ABC and one with WB. We have demonstrated our
ability to create value in our television stations by acquiring underperforming
television assets and employing strategies similar to those that have proven
successful with our radio properties, including focused marketing and sales
efforts and innovative programming techniques.
In addition to our radio and television broadcasting properties, we publish
eight award-winning city, regional and specialty magazines. Our publications
have received a number of industry awards for editorial excellence. Our magazine
portfolio includes Texas Monthly, Los Angeles, Atlanta, Indianapolis Monthly,
Cincinnati Magazine, Country Sampler, Country Marketplace and Wildlife Journal.
We also operate news and agriculture radio networks in Indiana and own
majority interests in a national radio station in Hungary and two radio stations
in Buenos Aires, Argentina, including the top ranked stations in each of those
markets. In our efforts to enhance the advertiser appeal of our mediums and
increase our listening, viewing and reading audiences, we are continually
pursuing opportunities to develop complementary products and services using
emerging technologies. As part of these efforts, we have led the formation of
the Local Media Internet Venture, a consortium of radio broadcasters formed to
bring the benefits of scale in technology and content development to a local
station's on-line presence.
BUSINESS STRATEGY
We are committed to maintaining our leadership position in broadcasting,
enhancing the performance of our broadcast properties, and distinguishing
ourselves through the quality of our operations generally. Our strategy has the
following principal components:
- develop innovative programming for our radio and television stations
based on local market research and audience preferences;
- emphasize a focused sales and marketing strategy based on advertiser
demand and our programming compared to the competitive formats within
each market;
- develop strong local station identities for our television stations
allowing viewers and advertisers to identify with the station while
building the station's franchise value;
- pursue strategic acquisitions in desirable markets and enhance their cash
flow; and
- encourage an entrepreneurial management approach that empowers and
rewards all employees based on performance and promotes equity ownership
in Emmis.
RECENT DEVELOPMENTS
RECENT TRANSACTIONS
As part of our business strategy, we recently have acquired, or entered
into agreements to acquire, a number of radio and television stations. The
following is a summary of these transactions.
HEARST-ARGYLE ACQUISITION. On June 5, 2000, we entered into an agreement
with Hearst-Argyle Television, Inc. to manage and ultimately acquire one FM and
two AM radio stations in Phoenix, Arizona. In August 2000, we began programming
and selling advertising on those stations under a time brokerage agreement. The
transaction closed on March 28, 2001, at which time we received title to the
three radio
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stations in exchange for WMUR-TV in Manchester, New Hampshire, acquired by us
solely for purposes of completing this transaction. The total purchase price was
$160.0 million, including a $20.0 million cash deposit made by us in June 2000.
The Phoenix market, the nation's 14th largest radio market for calendar year
2000 based on revenue, is the fastest growing major market in the United States,
and complements our large market station portfolio. We financed this acquisition
with a portion of the proceeds from the sale of the old notes, available cash
and borrowings under our credit facility.
AMFM ACQUISITION. On August 24, 2000, we acquired two radio stations, one
FM station in Phoenix, Arizona and one FM station in Denver, Colorado, from a
subsidiary of AMFM, Inc., which is the predecessor to Clear Channel
Communications, Inc., for approximately $108.0 million. The purchase of these
assets allowed us to continue to develop a strong cluster in the Phoenix market
and provided us with our first station in Denver. We financed this acquisition
with borrowings under our credit facility.
LEE ENTERPRISES ACQUISITION. On October 2, 2000, we expanded our
television holdings with the purchase of eight network television stations from
Lee Enterprises, Inc. for approximately $559.5 million in cash. The Lee purchase
added four CBS-affiliated stations located in Albuquerque, New Mexico, Honolulu,
Hawaii, Omaha, Nebraska and Portland Oregon; three NBC-affiliated stations
located in Charleston/Huntington, West Virginia, Topeka, Kansas and Wichita,
Kansas and one ABC-affiliated station located in Tucson, Arizona. We believe
that significant revenue growth and margin enhancement opportunities exist in
the newly acquired Lee stations. In addition, we believe that the acquisition of
the Lee properties gives us the critical mass in television needed to realize
economies of scale and achieve geographic and network diversification. We
financed this acquisition with borrowings under our credit facility.
SINCLAIR ACQUISITION. On October 6, 2000, we purchased five FM radio
stations and one AM radio station in St. Louis from Sinclair Broadcast Group,
Inc. for $220.0 million in cash. At the same time, we exchanged three of these
stations plus one of our own existing St. Louis stations for Bonneville
International Corporation's KZLA-FM radio station in Los Angeles. The swap
increased our presence in Los Angeles and left us with a strong cluster of rock
oriented stations in St. Louis, the 18th largest radio market for calendar year
2000 based on revenue. We financed this acquisition with borrowings under our
credit facility.
SALEM ACQUISITION. On January 17, 2001, we acquired one FM radio station
in Denver, Colorado from Salem Communications Corporation for $98.8 million in
cash. The Denver station strengthened our presence in Denver, the 15th largest
radio market for calendar year 2000 based on revenue. We financed this
acquisition with borrowings under our credit facility.
INDIANAPOLIS DISPOSITIONS. In January 2001, we entered into an agreement
to sell one AM radio station and the intellectual property rights of one FM
radio station, both of which are in Indianapolis, Indiana, to Radio One, Inc.
The sale of the intellectual property of the FM station occurred on February 15,
2001 and the AM sale occurred on April 25, 2001. We continue to own and operate
the FM station, which is now WYXB-FM, a soft rock format.
NEW CREDIT FACILITY
On December 29, 2000, we amended and restated our credit facility. On March
27, 2001, we amended some provisions of this new credit facility to enable Emmis
Escrow Corporation to issue the old notes and to revise some of our financial
covenants. On April 23, 2001, we amended some additional provisions of this new
credit facility to permit the corporate reorganization in which we became a
holding company and assumed the obligations of Emmis Escrow Corporation under
the old notes, the indenture relating to the old notes and the registration
rights agreement relating to the old notes. On June , 2001, we used a portion
of the proceeds from the offering of the old notes to repay some of the
outstanding indebtedness under our credit facility. As a result, our credit
facility now provides availability of an aggregate of $1,307.0 billion in loans,
which includes a $320.0 million senior secured revolving credit facility with a
final maturity date of February 28, 2009, a $398.5 million term loan with a
final maturity date of February 28, 2009, and a $588.5 million term loan with a
final maturity date of August 31, 2009.
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It also includes a provision allowing Emmis to increase the commitment by $500.0
million under circumstances described in the credit facility.
REORGANIZATION
On June , 2001, we transferred all of our assets and liabilities,
including our credit facility and our outstanding senior subordinated notes, to
Emmis Operating Company, a newly formed wholly-owned subsidiary. As a result, we
are a holding company that conducts substantially all of our business operations
through Emmis Operating Company and its subsidiaries. Immediately following the
asset transfer, Emmis Escrow Corporation and Emmis Escrow Holding Corporation
were merged with and into us.
PRE-REORGANIZATION AND MERGER
[CHART]
POST-REORGANIZATION AND MERGER
[CHART]
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Our principal executive office is located at One Emmis Plaza, 7th Floor, 40
Monument Circle,
Indianapolis, Indiana 46204. Our telephone number is (317) 266-0100.
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SUMMARY OF THE EXCHANGE OFFER
We are offering to exchange $370,000,000 aggregate principal amount at
maturity of our exchange notes for a like aggregate principal amount at maturity
of our old notes. In order to exchange your old notes, you must properly tender
them, and we must accept your tender. We will exchange all outstanding old notes
that are validly tendered and not validly withdrawn.
Exchange Offer............. We will issue our exchange notes in exchange for a
like aggregate principal amount at maturity of our
old notes.
Expiration Date............ This exchange offer will expire at 5:00 p.m., New
York City time, on , 2001, unless we
decide to extend it.
Conditions to the Exchange
Offer.................... We will complete this exchange offer only if:
- There is no litigation or threatened
litigation that would impair our ability to
proceed with this exchange offer,
- There is no change in the laws and
regulations which would impair our ability
to proceed with this exchange offer,
- There is no change in the current
interpretation of the staff of the
Commission which permits resales of the
exchange notes,
- There is no stop order issued by the
Commission which would suspend the
effectiveness of the registration statement
which includes this prospectus or the
qualification of the exchange notes under
the Trust Indenture Act of 1939, and
- We obtain all governmental approvals we deem
necessary to complete this exchange offer.
Please refer to the section in this prospectus
entitled "The Exchange Offer -- Conditions to the
Exchange Offer."
Procedures for Tendering
Old Notes.................. To participate in this exchange offer, you must
complete, sign and date the letter of transmittal
or its facsimile and transmit it, together with
your old notes to be exchanged and all other
documents required by the letter of transmittal, to
The Bank of Nova Scotia Trust Company of New York,
as exchange agent, at its address indicated under
"The Exchange Offer -- Exchange Agent." In the
alternative, you can tender your old notes by
book-entry delivery following the procedures
described in this prospectus. If your old notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee,
you should contact that person promptly to tender
your old notes in this exchange offer. For more
information on tendering your notes, please refer
to the section in this prospectus entitled "The
Exchange Offer -- Procedures for Tendering Old
Notes."
Guaranteed Delivery
Procedures................. If you wish to tender your old notes and you cannot
get the required documents to the exchange agent on
time, you may tender your notes by using the
guaranteed delivery procedures described under the
section of this prospectus entitled "The Exchange
Offer -- Procedures for Tendering Old
Notes -- Guaranteed Delivery Procedure."
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Withdrawal Rights.......... You may withdraw the tender of your old notes at
any time before 5:00 p.m., New York City time, on
the expiration date of the exchange offer. To
withdraw, you must send a written or facsimile
transmission notice of withdrawal to the exchange
agent at its address indicated under the "The
Exchange Offer -- Exchange Agent" before 5:00 p.m.,
New York City time, on the expiration date of the
exchange offer.
Acceptance of Old Notes and
Delivery of Exchange
Notes.................... If all the conditions to the completion of this
exchange offer are satisfied, we will accept any
and all old notes that are properly tendered in
this exchange offer on or before 5:00 p.m., New
York City time, on the expiration date. We will
return any old note that we do not accept for
exchange to you without expense as promptly as
practicable after the expiration date. We will
deliver the exchange notes to you as promptly as
practicable after the expiration date and
acceptance of your old notes for exchange. Please
refer to the section in this prospectus entitled
"The Exchange Offer -- Acceptance of Old Notes for
Exchange; Delivery of Exchange Notes."
Federal Income Tax
Considerations Relating
to the Exchange Offer.... Exchanging your old notes for exchange notes will
not be a taxable event to you for United States
federal income tax purposes. Please refer to the
section of this prospectus entitled "Certain
Federal Income Tax Considerations."
Exchange Agent............. The Bank of Nova Scotia Trust Company of New York
is serving as exchange agent in the exchange offer.
Fees and Expenses.......... We will pay all expenses related to this exchange
offer. Please refer to the section of this
prospectus entitled "The Exchange Offer -- Fees and
Expenses."
Use of Proceeds............ We will not receive any proceeds from the issuance
of the exchange notes. We are making this exchange
offer solely to satisfy some of our obligations
under our registration rights agreement.
Consequences to Holders who
do not Participate in the
Exchange Offer........... If you do not participate in this exchange offer:
- You will not necessarily be able to require
us to register your old notes under the
Securities Act,
- You will not be able to resell, offer to
resell or otherwise transfer your old notes
unless that resale or transfer is registered
under the Securities Act or unless you
resell, offer to resell or otherwise
transfer them under an exemption from the
registration requirements of, or in a
transaction not subject to, the Securities
Act, and
- The trading market for your old notes will
become more limited to the extent other
holders of old notes participate in the
exchange offer.
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Please refer to the section in this exchange offer
entitled "Risk Factors -- Risks Relating to the
Exchange Offer -- Your failure to participate in
the exchange offer will have adverse consequences."
Resales.................... It may be possible for you to resell the notes
issued in the exchange offer without compliance
with the registration and prospectus delivery
provisions of the Securities Act of 1933, subject
to some conditions. See "Risk Factors -- Risks
Relating to the Exchange Offer -- Some persons who
participate in the exchange offer must deliver a
prospectus in connection with resales of the
exchange notes" and "Plan of Distribution."
SUMMARY OF TERMS OF THE EXCHANGE NOTES
Issuer..................... Emmis Communications Corporation is the obligor
under the old notes and will be the issuer of the
exchange notes.
Exchange Notes............. $370 million in aggregate principal amount at
maturity of 12 1/2% Senior Discount Notes due 2011.
The forms and terms of the exchange notes are the
same as the form and terms of the old notes except
that the issuance of the exchange notes is
registered under the Securities Act, will not bear
legends restricting their transfer and will not be
entitled to registration rights under our
registration rights agreement. The exchange notes
will evidence the same debt as the old notes, and
both the old notes and the exchange notes will be
governed by the same indenture.
Maturity Date.............. March 15, 2011.
Interest................... On or prior to March 15, 2006, interest will
accrete on the exchange notes. Thereafter, interest
on the stated amount at maturity will accrue at the
rate of 12 1/2% per year, payable semi-annually in
cash in arrears on March 15 and September 15 of
each year, commencing September 15, 2006.
Optional Redemption........ We can redeem the exchange notes, in whole or in
part, on or after March 15, 2006, at the redemption
prices set forth in this prospectus, plus accrued
and unpaid interest. In addition, before March 15,
2004, we can redeem up to 35% of the exchange notes
at 112 1/2% of the accreted value with the net cash
proceeds from specified equity offerings. See
"Description of Notes -- Optional Redemption." We
may also redeem the exchange notes in whole or in
part prior to March 15, 2006 at their accreted
value plus a make-whole premium.
Ranking.................... The exchange notes will be general unsecured
obligations of Emmis. The exchange notes will rank
equally with all of our other existing and future
senior indebtedness and senior in right of payment
to existing and future subordinated indebtedness.
The exchange notes will be effectively subordinated
to all indebtedness and liabilities of our
subsidiaries (including our credit facility and the
outstanding senior subordinated notes). As of
February 28, 2001, after giving pro forma effect to
the offering of the old notes, the application of
proceeds from that offering, the Hearst-Argyle
acquisition and our reorganization, our
subsidiaries would have had $1,290.2 million of
outstanding indebtedness that is structurally
senior in right of payment to the notes.
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Change of Control.......... Upon the occurrence of specified change of control
events, we will be required to make an offer to
repurchase all of your exchange notes. Prior to
March 15, 2006, the purchase price will be 101% of
the accreted value of the exchange notes. On or
after March 15, 2006, the purchase price will be
101% of the outstanding principal amount of the
exchange notes plus any accrued and unpaid interest
on them. See "Description of Notes -- Repurchase at
the Option of Holders -- Change of Control." Our
ability to complete the change of control
repurchase may be limited by the terms of our
credit facility or our other indebtedness,
including our senior subordinated notes.
Restrictive Covenants...... The indenture contains covenants that, among other
things, limit our ability and the ability of most
of our direct and indirect subsidiaries to:
- pay or permit payment of some dividends on,
redeem or repurchase its capital stock;
- make some investments;
- incur additional indebtedness;
- allow the imposition of dividend
restrictions on some subsidiaries;
- sell assets;
- guarantee indebtedness;
- issue capital stock;
- create some liens;
- engage in some transactions with affiliates;
and
- consolidate or merge or sell all or
substantially all our assets and the assets
of our subsidiaries.
All of these limitations are subject to important
exceptions and qualifications described under
"Description of Notes -- Certain Covenants."
Absence of a Public Market
for the Exchange Notes..... The exchange notes are new securities with no
established market for them. We cannot assure you
that a market for these exchange notes will develop
or that this market will be liquid. See "Risk
Factors -- Risks Relating to the Exchange
Notes -- There may be no active or liquid market
for the exchange notes."
Form of the Exchange
Notes...................... The exchange notes will be represented by one or
more permanent global securities in registered form
deposited on behalf of The Depository Trust Company
with The Bank of Nova Scotia Trust Company of New
York, as custodian. You will not receive exchange
notes in certificated form unless one of the events
described in the section of this prospectus
entitled "Description of Notes -- Book Entry,
Delivery and Form -- Exchange of Book Entry Notes
for Certificated Notes" occurs. Instead, beneficial
interests in the exchange notes will be shown on,
and transfers of these exchange notes will be
effected only through, records maintained in
book-entry form by The Depository Trust Company
with respect to its participants.
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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following sets forth summary historical financial data derived from our
consolidated financial statements incorporated by reference in this prospectus
and summary unaudited pro forma financial data derived from the unaudited pro
forma combined condensed financial data included elsewhere in this prospectus.
The unaudited pro forma combined condensed financial data presented below
reflect adjustments to our condensed consolidated historical financial data to
give effect to the transactions described in the Notes to Unaudited Pro Forma
Combined Condensed Financial Statements -- "Basis of Presentation."
The summary unaudited pro forma financial data does not purport to present
the actual results of operations of Emmis had the transactions and events
assumed therein in fact occurred, on the dates specified, nor are they
necessarily indicative of the results of operations that may be achieved in the
future. The summary unaudited pro forma financial data are based on certain
assumptions and adjustments described in the notes to the unaudited pro forma
combined condensed financial data and should be read in conjunction with these
notes. The pro forma data presented below should also be read in conjunction
with, and are qualified in their entirety by reference to our audited
consolidated financial statements for the year ended February 28, 2001 and
related notes and the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" sections in our annual report on Form 10-K
for the year ended February 28, 2001, which is incorporated in this prospectus
by reference.
FISCAL YEAR ENDED
FEBRUARY 28, 2001
--------------------------
HISTORICAL PRO FORMA
------------ -----------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net revenues.............................................. $470,618 $ 573,100
Operating expenses........................................ 296,405 361,867
International business development expenses............... 1,553 1,553
Corporate expenses........................................ 16,048 17,083
Depreciation and amortization............................. 74,018 103,009
Non-cash compensation..................................... 5,400 5,400
Corporate restructuring fees and other.................... 4,057 4,057
Time brokerage agreement fees............................. 7,344 --
-------- ---------
Operating income.......................................... 65,793 80,131
Interest expense.......................................... (72,444) (136,278)
Other income, net(1)...................................... 38,037 38,006
-------- ---------
Income (loss) before income taxes......................... 31,386 (18,141)
Tax provision (benefit)................................... 17,650 (475)
-------- ---------
Net income (loss)......................................... $ 13,736 $ (17,666)
Less: preferred stock dividends........................ 8,984 8,984
-------- ---------
Net income (loss) available to common shareholders..... 4,752 (26,650)
======== =========
Basic net income (loss) per share......................... $ 0.10 $ (0.57)
======== =========
Diluted net income (loss) per share....................... $ 0.10 $ (0.57)
======== =========
Basic (weighted average shares outstanding)............... 46,869 46,869
======== =========
Diluted (weighted average shares outstanding)(2).......... 47,940 46,869
======== =========
Broadcast cash flow(3).................................... $174,213 $ 211,233
EBITDA(4)................................................. $156,612 $ 192,597
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AS OF
FEBRUARY 28, 2001
-----------------------
HISTORICAL PRO FORMA
---------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA
Working capital........................................... $ 97,955 $ 56,355
Intangible assets, net.................................... 1,981,097 2,133,097
Total assets.............................................. 2,506,872 2,616,472
Total debt, including current maturities.................. 1,397,871 1,507,471
Total shareholders' equity................................ 807,471 807,471
- ---------------
(1) See Management's Discussion and Analysis of Financial Condition and Results
of Operations in the Annual Report on Form 10-K for the fiscal year ended
February 28, 2001, incorporated by reference to this prospectus, for a
description of the components of other income in the year ended February 28,
2001.
(2) Due to net loss, weighted average common shares outstanding for diluted net
loss per share is the same as weighted average common shares outstanding for
basic net loss per share for the pro forma results.
(3) We evaluate performance of our operating entities based on broadcast cash
flow, referred to as BCF. Management believes that BCF is useful because it
provides a meaningful comparison of operating performance between companies
in the industry and serves as an indicator of the market value of a group of
stations. BCF is generally recognized by the broadcast industry as a measure
of performance and is used by analysts who report on the performance of
broadcasting groups. BCF does not take into account our debt service
requirements and other commitments and, accordingly, BCF is not necessarily
indicative of amounts that may be available for dividends, reinvestment in
our business or other discretionary uses. BCF is not a measure of liquidity
or of performance in accordance with accounting principles generally
accepted in the United States, and should be viewed as a supplement to and
not a substitute for our results of operations presented on the basis of
accounting principles generally accepted in the United States. Moreover, BCF
is not a standardized measure and may be calculated in a number of ways. We
define BCF as revenues net of operating expenses.
(4) EBITDA is defined as broadcast cash flow less corporate and international
business development expenses. EBITDA does not take into account our debt
service requirements and other commitments and, accordingly, it is not
necessarily indicative of amounts that may be available for dividends,
reinvestment in our business or other discretionary uses. EBITDA is not a
measure of liquidity or of performance in accordance with accounting
principles generally accepted in the United States, and should be viewed as
a supplement to and not a substitute for our results of operations presented
on the basis of accounting principles generally accepted in the United
States. Moreover, EBITDA is not a standardized measure and may be calculated
in a number of ways.
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RISK FACTORS
An investment in the exchange notes involves a significant degree of risk.
Before you decide to invest, you should consider carefully all of the
information in this prospectus and, in particular, the following factors. Some
statements in "Risk Factors" are forward-looking statements. See "Cautionary
Statement Regarding Forward-Looking Statements."
RISKS RELATING TO OUR COMPANY
A DECREASE IN OUR MARKET RATINGS OR MARKET SHARE OR DECREASED SPENDING BY
ADVERTISERS CAN ADVERSELY AFFECT OUR ADVERTISING REVENUE.
In the competitive broadcasting industry, the success of each of our radio
and television stations is primarily dependent upon its share of the overall
advertising revenue within its market. Although we believe that each of our
stations can compete effectively in its broadcast area, we cannot be sure that
any of our stations can maintain or increase its current audience ratings or
market share, or that advertisers will not decrease the amount they spend on
advertising.
Our advertising revenue will suffer if any of our stations cannot maintain
its audience ratings or market share. Shifts in population, demographics,
audience tastes and other factors beyond our control could cause us to lose
market share. Our stations also compete for audiences and advertising revenues
directly with other radio and television stations, and some of the owners of
those competing stations have greater resources than we do. In addition, our
stations also compete with other media such as cable television, newspapers,
magazines, direct mail, compact discs, music videos, the Internet and outdoor
advertising.
Additionally, we believe that advertising is a discretionary business
expense, meaning that spending on advertising tends to decline
disproportionately during an economic recession or downturn as compared to other
types of business spending. Consequently, a recession or downturn in the United
States economy or the economy of an individual geographic market in which we own
or operate stations would likely adversely affect our advertising revenue and,
therefore, our results of operations. For example, an economic downturn in New
York, where our radio stations accounted for approximately 18% of our net
revenue for the year ended February 28, 2001 would have a significant impact on
our company.
Even in the absence of a general recession or downturn in the economy, an
individual business sector that tends to spend more on advertising than other
sectors might be forced to reduce its advertising expenditures if that sector
experiences a downturn. If that sector's spending represents a significant
portion of our advertising revenues, any reduction in its expenditures may
affect our revenue. For example, Internet-related companies which had been
spending great amounts on advertising in the past few years have significantly
reduced their advertising efforts recently, which negatively impacted our
operating results for the fourth quarter ended February 28, 2001.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH.
We have a significant amount of indebtedness. As of February 28, 2001,
after giving pro forma effect to the offering of the old notes, the application
of proceeds from that offering, the Hearst-Argyle acquisition and our
reorganization, our total indebtedness would have been approximately $1,507.5
million, and our shareholders' equity would have been approximately $805.3
million.
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- 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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- limit our flexibility in planning for, or reacting to, changes in our
businesses and the industries in which we operate;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit, along with the financial and other restrictive covenants in our
new credit facility and our other debt instruments, our ability to borrow
additional funds. Failing to comply with those covenants could result in
an event of default, which if not cured or waived, could have a material
adverse effect on our businesses.
In addition, at February 28, 2001, approximately 79% of our total assets
consisted of intangible assets, such as broadcast licenses, goodwill,
subscription lists and similar assets, the value of which depends significantly
upon the continued operation of our businesses. As a consequence, in the event
of a default or any other event which results in a liquidation of our assets to
pay our indebtedness, the proceeds could be insufficient to repay our
outstanding indebtedness.
THE TERMS OF OUR EXISTING INDEBTEDNESS AND THE EXISTING 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 facility, the indenture for the notes and the indenture for
Emmis Operating Company's senior subordinated notes impose significant operating
and financial restrictions on us and our subsidiaries. These restrictions
significantly limit or prohibit, among other things, our ability (and the
ability of our subsidiaries) to incur additional indebtedness or 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 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 the notes or our other
indebtedness, to pay dividends on or redeem our preferred stock 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. Based on our current level of operations and operating
improvements, we believe our cash flow from operations, available cash, access
to capital markets and our borrowing capability will be adequate to meet our
future liquidity needs for at least the next few years. Our businesses might not
generate sufficient cash flow from operations. Currently anticipated operating
improvements might not be realized on schedule. 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. Furthermore, the broadcasting and publishing industries are
cyclical, and our cash flow from operations may fluctuate greatly from quarter
to quarter and year to year.
TO CONTINUE TO GROW OUR BUSINESS THROUGH ACQUISITIONS, WE WILL REQUIRE
SIGNIFICANT ADDITIONAL CAPITAL.
The continued development, growth and operation of our businesses will
require substantial capital. In particular, our acquisition strategy will
require large amounts of capital to increase our market presence and to finance
our acquisition of new stations and publications. We intend to fund these
requirements with cash generated from operations, borrowings under our credit
facility, and proceeds from future issuances of debt and equity (both public and
private). We might not have sufficient resources available to meet our expected
requirements and obligations. Our ability to raise additional debt or equity
financing is subject to market conditions, our financial condition and other
factors. If we can not obtain financing on acceptable terms when needed, our
operations and financial condition and results could be adversely impacted.
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IF OUR STRATEGY TO GROW THROUGH ACQUISITION IS LIMITED BY COMPETITION FOR
SUITABLE PROPERTIES OR OTHER FACTORS WE CANNOT CONTROL, IT COULD ADVERSELY
AFFECT OUR FUTURE GROWTH.
We intend to selectively pursue acquisitions of radio and television
stations and publishing properties in order to grow. To be successful with this
strategy, we must be effective at quickly evaluating markets, obtaining
financing to buy stations and publishing properties on satisfactory terms and
obtaining the necessary regulatory approvals, including approvals of the FCC and
the Department of Justice. We also must accomplish these tasks at reasonable
costs. The radio industry, in particular, has been a rapidly consolidating
industry, but, in general, we compete with many other buyers for radio and
television stations as well as publishing properties. These other buyers may be
larger and have more resources. We cannot predict whether we will be successful
in buying stations or publishing property, or whether we will be successful with
any station or publishing property we acquire. Our strategy is generally to buy
underperforming properties and use our experience to improve their performance.
Thus, the benefits resulting from the properties we buy may not manifest
themselves immediately, and we may need to pay large initial costs for these
improvements.
WE MAY NOT BE ABLE TO INTEGRATE ACQUIRED STATIONS SUCCESSFULLY, WHICH COULD
AFFECT OUR FINANCIAL PERFORMANCE.
Our ability to implement our growth strategy depends, in part, on our
success in integrating newly acquired stations into our operations. This may
impose significant strains on our management and financial resources. The
pursuit and integration of new stations will require substantial attention from
our management, and will limit the amount of time they can devote to other
important matters. Successful integration of these stations will depend
primarily on our ability to manage our combined operations. We might not be able
to successfully integrate newly acquired stations into our business plan. If we
fail to do so, if we fail to manage our growth or if we encounter unexpected
difficulties during expansion, it could have a negative impact on the
performance of our newly acquired stations as well as on our company as a whole.
ONE SHAREHOLDER CONTROLS A MAJORITY OF THE VOTING POWER OF THE COMMON STOCK, AND
HIS INTEREST MAY CONFLICT WITH YOURS.
As of April 30, 2001, our Chairman, Chief Executive Officer and President,
Jeffrey H. Smulyan, held shares representing approximately 59% of the
outstanding combined voting power of all classes of our existing common stock.
He, therefore, holds a majority of the outstanding combined voting power of all
classes of our common stock. Accordingly, Mr. Smulyan is able to and will
continue to be able to, control the outcome of most matters submitted to a vote
of our shareholders, including the election of a majority of the directors.
OUR NEED TO COMPLY WITH COMPREHENSIVE, COMPLEX AND SOMETIMES UNPREDICTABLE
FEDERAL REGULATIONS COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESSES.
We are dependent on licenses from the FCC, which regulates the radio and
television broadcasting industries in the United States. The radio and
television broadcasting industries in the United States are subject to extensive
and changing regulation by the FCC. Among other things, the FCC is responsible
for the following:
- assigning frequency bands for broadcasting;
- determining the particular frequencies, locations and operating power of
stations;
- issuing, renewing, revoking and modifying station licenses;
- determining whether to approve changes in ownership or control of station
licenses;
- regulating equipment used by stations; and
- adopting and implementing regulations and policies that directly affect
the ownership, operation, programming and employment practices of
stations.
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The FCC has the power to impose penalties for violation of its rules or the
applicable statutes. While in the vast majority of cases licenses are renewed by
the FCC, we cannot be sure that any of our United States stations' licenses will
be renewed at their expiration date. Even if our licenses are renewed, we cannot
be sure that the FCC will not impose conditions or qualifications that could
cause problems in our businesses.
The FCC regulations and policies also affect our growth strategy because
the FCC has specific regulations and policies about the number of stations,
including radio and television stations, and daily newspapers that an entity may
own in any area. As a result of these rules, we may not be able to acquire more
properties in some markets or on the other hand, we may have to sell some of our
properties in a particular market. For example, as a result of the Lee
Enterprises acquisition, we own more television stations in Hawaii than is
permitted. Although we currently have a waiver from the FCC that allows us to
continue to operate our stations, we are required to sell one of our television
stations in Hawaii or to obtain a new waiver from the FCC in Fall 2001.
In addition, we may face increased FCC scrutiny and additional regulatory
burdens if our significant shareholder, Mr. Smulyan, is deemed to no longer
control us. Mr. Smulyan's voting power could in the future be diluted. If that
were to occur, we may need to seek prior FCC approval for a change of control
that may be deemed to occur under FCC regulations once a significant shareholder
ceases to control 50% of the combined voting power of a broadcasting company and
we may need to seek additional approvals from the FCC prior to any further
reduction in Mr. Smulyan's voting power.
Under prior FCC policy, because Mr. Smulyan controls a majority of the
voting power of our common stock, the media holdings of our minority
shareholders were generally not attributed to us. However, under a recent change
in that policy, notwithstanding Mr. Smulyan's majority control, the media
interests of minority shareholders holding voting interests of 5% or more (20%
or more in the case of certain categories of institutional investors) acquired
after December 13, 2000, will be attributed to us. Moreover, if Mr. Smulyan's
voting power falls below 50%, minority interests held prior to the above date,
which are presently "grandfathered," would lose their protected status. This
could materially and adversely affect our business as a result of the increased
cost of regulatory compliance and monitoring activities, the increased obstacles
to our acquisition strategy or the mandatory divestment of our properties that
could be required.
FCC regulations also limit the ability of non-U.S. persons to own our
capital stock and to participate in our affairs, which could limit our ability
to raise equity. Our articles of incorporation contain provisions which place
restrictions on the ownership, voting and transfer of our capital stock in
accordance with the law.
Finally, a number of federal rules governing broadcasting have changed
significantly in recent years and additional changes may occur, particularly
with respect to the rules governing digital television, multiple ownership and
attribution. We cannot predict the effect that these regulatory changes may
ultimately have on our operations.
ANY CHANGES IN CURRENT FCC OWNERSHIP REGULATIONS MAY NEGATIVELY IMPACT OUR
ABILITY TO COMPETE OR OTHERWISE HARM OUR BUSINESS OPERATIONS.
Current FCC regulations limit the number of television stations that can be
owned nationwide by an entity or affiliated group. This national television
ownership "cap" is under challenge in federal court, and the Chairman of the FCC
has suggested that the cap should also be reviewed by the agency. If the
national ownership limit is liberalized or abolished, television operators that
are currently at the limit (including the CBS and Fox networks) will be able to
acquire additional stations, which may give them a competitive advantage over
us. In addition, the networks' ability to acquire additional stations could give
them "leverage" over their affiliates on issues such as compensation and program
clearance, in part because of the risk that a network facing an uncooperative
affiliate could acquire a station in the market and terminate its agreement with
that affiliate.
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FCC rules also prohibit ownership of a daily newspaper in combination with
a television or radio station in the same market. The FCC has indicated that it
plans to initiate a proceeding looking toward elimination or liberalization of
these rules. If common ownership of a newspaper and one or more TV or radio
stations in the same market is permitted, entities that own such facilities in
combination may have a competitive advantage over us because they can offer
advertisers "packages" that include both print and broadcast advertisements.
WE MAY NOT REMAIN COMPETITIVE IF WE DO NOT RESPOND TO THE RAPID CHANGES IN
TECHNOLOGY, STANDARDS AND SERVICES THAT CHARACTERIZE THE RADIO, TELEVISION AND
PUBLISHING INDUSTRIES.
Advances in technology may increase competition for household audiences and
advertisers, and we may be unable to compete for advertising revenue. For
example, the video compression techniques now under development for use with
current cable television channels or direct broadcast satellites that do not
carry local television signals are expected to reduce the bandwidth which is
required for television signal transmission. These compression techniques, as
well as other technological developments, are applicable to all video delivery
systems, including over-the-air broadcasting, and have the potential to provide
vastly expanded programming to highly targeted audiences. Reduction in the cost
of creating additional channel capacity could lower entry barriers for new
channels and encourage the development of increasingly specialized "niche"
programming. This ability to reach a very defined audience may alter the
competitive dynamics for advertising expenditures. We are unable to predict the
effect that technological changes will have on the radio or television broadcast
industry or publishing industry or the future results of our operations.
IF WE ARE NOT ABLE TO OBTAIN REGULATORY APPROVAL FOR OUR ACQUISITIONS, OUR
FUTURE GROWTH MAY BE IMPAIRED.
Although an important part of our growth strategy is the acquisition of
additional radio and television stations, we may not be able to complete all the
acquisitions that we agree to make. Station acquisitions are subject to the
approval of the FCC and, potentially, other regulatory authorities. Also, the
FCC sometimes undertakes review of transactions to determine whether they would
result in excessive concentration, even where the transaction complies with the
numerical ownership limits. Specifically, the staff has had a policy of
"flagging" for closer scrutiny the anticompetitive impact of any transactions
that will put one owner in a position to earn 50% or more of the market's radio
advertising revenues or will result in the two largest owners receiving 70% or
more of those revenues. This particular "flagging" policy is currently being
reviewed and may be discontinued or modified.
Additionally, since the passage of the Telecommunications Act of 1996, the
U.S. Department of Justice has become more involved in reviewing proposed
acquisitions of radio stations and radio station networks. The Justice
Department is particularly concerned when the proposed buyer already owns one or
more radio stations in the market of the station it is seeking to buy. Recently,
the Justice Department has challenged a number of radio broadcasting
transactions. Some of those challenges ultimately resulted in consent decrees
requiring, among other things, divestitures of certain stations. In general, the
Justice Department has more closely scrutinized radio broadcasting acquisitions
that result in local market shares in excess of 40% of radio advertising
revenue.
OUR BUSINESS STRATEGY AND OUR ABILITY TO OPERATE PROFITABLY DEPENDS ON THE
CONTINUED SERVICES OF OUR KEY EMPLOYEES, THE LOSS OF WHOM WOULD 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. Their managerial, technical and other services would be difficult
to replace and if we lose the services of one or more of our executive officers
or key personnel, or if one of them decides to join a competitor or otherwise
compete directly or indirectly against us, our business could be seriously
harmed.
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
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station to sell advertising. These individuals may not remain with our radio
stations and may not retain their audiences.
OUR CURRENT AND FUTURE OPERATIONS ARE SUBJECT TO CERTAIN RISKS THAT ARE UNIQUE
TO OPERATING IN A FOREIGN COUNTRY.
We currently own a 59.5% interest in a national radio station in Hungary
and a 75% interest in a company with two radio stations in Argentina and,
therefore, we are exposed to risks inherent in international business
operations. We intend to continue to pursue opportunities to buy additional
broadcasting properties in Argentina and other foreign countries. The risks of
doing business in foreign countries include the following:
- changing regulatory or taxation policies;
- currency exchange risks;
- changes in diplomatic relations or hostility from local populations;
- seizure of our property by the government, or restrictions on our ability
to transfer our property or earnings out of the foreign country; and
- potential instability of foreign governments, which might result in
losses against which we are not insured.
PROGRAMMING COSTS MAY NEGATIVELY IMPACT OUR OPERATING RESULTS.
One of our most significant operating cost components is television
programming. We may be exposed in the future to increased programming costs
which may adversely affect our operating results. Acquisitions of program rights
are usually made two or three years in advance and may require multi-year
commitments, making it difficult to accurately predict how a program will
perform. In some instances, programs must be replaced before their costs have
been fully amortized, resulting in write-offs that increase station operating
costs.
OUR TELEVISION STATIONS DEPEND ON AFFILIATIONS WITH MAJOR NETWORKS WHICH MAY BE
CANCELED OR REVOKED BY THE NETWORKS.
All of our television stations are affiliated with a network. Under the
affiliation agreements, the networks possess, under certain circumstances, the
right to terminate the agreement without giving the station enough advance
notice to implement a contingency plan. The affiliation agreements may not
remain in place, and the networks may not continue to provide programming to
affiliates on the same basis that currently exists. The non-renewal or
termination of affiliations with any network could have a material adverse
effect on our operations.
THE SUCCESS OF OUR TELEVISION STATIONS DEPENDS ON THE SUCCESS OF THE NETWORK
EACH STATION CARRIES.
The ratings of each of the television networks, which is based in large
part on their programming, vary from year to year, and this variation can
significantly impact a station's revenues. The future success of any network or
its programming is unpredictable.
THE PLANNED INDUSTRY CONVERSION TO DIGITAL TELEVISION COULD ADVERSELY AFFECT OUR
BROADCAST BUSINESS.
All commercial television stations in the United States must start
broadcasting in digital format by May 2002 and must abandon the present analog
format by 2006, although the FCC may extend these dates. Currently, only four of
our stations, KOIN-TV, WKCF-TV, WFTX-TV and WALA-TV, broadcast in digital
format. While we timely filed all necessary digital television construction
permit applications with the FCC, we do not believe that all of our stations
will start broadcasting in digital format by the May 2002 deadline. We currently
cannot predict the implications of our stations' failure to do so. We also
cannot determine definitively how the conversion will affect our business.
- It will be expensive to convert from the current analog format to digital
format.
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- The digital technology will allow us to broadcast multiple channels,
compared to only one today. We cannot predict whether or at what cost we
will be able to obtain programming for the additional channels. Increased
revenues from the additional channels may not make up for the conversion
cost and additional programming expenses. Also, multiple channels
programmed by other stations could increase competition in our markets.
- The FCC generally has made available much higher power allocations to
digital stations that will replace stations on existing channels 2
through 13 than digital stations that will replace existing channels 14
through 69. This power disparity could put us at a disadvantage to our
competitors that now operate on channels 2 through 13.
- In some cases, when we convert a station to digital television, the
signal may not be received in as large a coverage area, or it may suffer
from additional interference. Also, because of the technical standards
adopted by the FCC, the digital signal may be subject to interference to
a greater degree than current analog transmissions. As a result, viewers
using antennas located inside their homes, as opposed to outdoor,
roof-top antennas, may not receive a reliable signal. If viewers do not
receive a high-quality, reliable signal from our stations, they may be
encouraged to seek service from our competitors.
- While the FCC ruled that cable companies are required to carry the
signals of digital-only television stations, the agency has tentatively
concluded, subject to additional inquiry, that cable companies should not
be required to carry both the analog and digital signals of stations
during the transition period when stations will be broadcasting in both
modes. If the FCC does not require this, cable customers in our broadcast
markets may not receive our digital signal, which could negatively impact
our stations.
THE NEW FEDERAL SATELLITE TELEVISION LEGISLATION COULD ADVERSELY AFFECT OUR
BROADCAST BUSINESS.
The Satellite Home Viewer Improvement Act of 1999 could have an adverse
effect on our broadcast stations' audience share and advertising revenues. This
legislation may allow satellite carriers to provide the signal of distant
stations with the same network affiliation as our stations to more television
viewers in our markets than would have been permitted under previous law. In
addition, the legislation allows satellite carriers to provide local television
signals by satellite within a station market, but does not require satellite
carriers to carry all local stations in a market until 2002. Satellite carriers
could decide to carry our competitors' stations in our markets, but not carry
our stations, which could adversely affect our station's audience share and
revenues.
RISKS RELATING TO THE EXCHANGE NOTES
WE ARE A HOLDING COMPANY. THE EXCHANGE NOTES ARE SUBORDINATED TO THE CLAIMS OF
OUR DIRECT AND INDIRECT SUBSIDIARIES, AND OUR ONLY MATERIAL SOURCE OF CASH IS
AND WILL BE DISTRIBUTIONS FROM OUR SUBSIDIARIES.
We are a holding company with no material business operations of our own.
Our most significant asset is the capital stock of our subsidiaries. We conduct
virtually all of our business operations through those subsidiaries.
Accordingly, our only material source of cash, including cash to make payments
on or redeem the exchange notes or our other indebtedness is dividends and
distributions with respect to our ownership interests in our subsidiaries that
are derived from the earnings and cash flow generated by those subsidiaries. Our
subsidiaries might not generate sufficient earnings and cash flow to pay
dividends or distributions to us, and applicable state law and contractual
restrictions might not permit dividends or distributions in the future. Our
subsidiaries have not guaranteed the exchange notes and have no legal obligation
to make payments on the exchange notes or make funds available for those
payments, whether by dividends, loans or other payments. Indebtedness under the
credit facility and senior subordinated notes of our principal operating
subsidiary limit or prohibit the payment of dividends or other distributions to
us. Accordingly, after March 15, 2006, we may not be able to pay cash interest
on the exchange notes.
17
22
In the event of a bankruptcy, liquidation, dissolution, reorganization or
similar proceeding, the exchange notes will be effectively subordinated to the
claims of the creditors of those direct and indirect subsidiaries, including
trade creditors and holders of indebtedness of those subsidiaries. Accordingly,
there might only be a limited amount of assets available to satisfy your claims
as a holder of the exchange notes upon an acceleration of the maturity of the
notes. As of February 28, 2001, after giving pro forma effect to the offering of
the old notes, the application of proceeds from that offering, the Hearst-Argyle
acquisition and our reorganization, the notes would have been effectively
subordinated to approximately $1,290.2 million of indebtedness of our direct and
indirect subsidiaries.
WE ARE PERMITTED TO REDEEM THE EXCHANGE NOTES UNDER CERTAIN CIRCUMSTANCES.
At our option, prior to March 15, 2004 we are permitted to redeem up to 35%
of the aggregate principal amount of the notes with the proceeds of equity
offerings. At our option, prior to March 15, 2006, we are also permitted to
redeem all or part of the notes at a redemption price equal to 100% of the
accreted value of the notes plus a make-whole premium. At our option, after
March 15, 2006, we are permitted to redeem all or part of the notes at the
prices set forth in this prospectus. For more information regarding these
redemption provisions, please read the section of this prospectus entitled
"Description of Notes -- Optional Redemption." You should assume that we will
exercise these rights if it is in our interest to do so.
WE MAY NOT BE ABLE TO FULFILL OUR REPURCHASE OBLIGATIONS IN THE EVENT OF A
CHANGE OF CONTROL.
If events occur that constitute a change of control for purposes of the
notes, the holders of the notes may require us to purchase up to all of the
notes then outstanding. The purchase price of the notes would be 101% of the
aggregate principal amount or accreted value plus accrued and unpaid interest.
For more information regarding the change of control provisions in the notes,
see "Description of Notes -- Repurchase at the Option of Holders -- Change of
Control."
If a change of control occurs for purposes of the notes as well as the
senior subordinated notes, prior to repurchasing any notes, we would be required
to offer to repurchase up to all of our outstanding senior subordinated notes.
Furthermore, the terms of our credit facility would not permit us to make any
payments to repurchase the notes. In any event, we may not be able to obtain
sufficient funds to make all required repurchases.
In the event of a change of control under the indenture governing the
notes, we may not be able to obtain, through distributions from our direct and
indirect subsidiaries, sufficient funds to make the required purchases.
THERE MAY BE NO ACTIVE OR LIQUID MARKET FOR THE EXCHANGE NOTES.
The exchange notes are new securities with no established market for them.
A market for the exchange notes may not develop, and, if one does develop, it
may not be maintained. If an active trading market for the exchange notes fails
to develop or to be sustained, the price of the exchange notes could be
materially and adversely affected. Even if actively traded, the exchange notes
may trade at a discount from the initial offering price of the notes depending
upon prevailing interest rates, the market for similar securities, our
performance and other factors.
RISKS RELATING TO THE EXCHANGE OFFER
THE ISSUANCE OF THE EXCHANGE NOTES MAY ADVERSELY AFFECT THE MARKET FOR THE OLD
NOTES.
If old notes are tendered for exchange and accepted in the exchange offer,
the trading market for the untendered and tendered but unaccepted old notes
could be adversely affected. See "-- Your failure to participate in the exchange
offer will have adverse consequences."
18
23
YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE
CONSEQUENCES.
The old notes were not registered under the Securities Act or under the
securities laws of any state and you may not resell them, offer them for resale
or otherwise transfer them unless they are subsequently registered or resold
under an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your old notes for
exchange notes in accordance with this exchange offer, or if you do not properly
tender your old notes in this exchange offer, you will not be able to resell,
offer to resell or otherwise transfer the old notes unless they are registered
under the Securities Act or unless you resell them, offer to resell or otherwise
transfer them under an exemption from the registration requirements of, or in a
transaction not subject to, the Securities Act. In addition, you will not
necessarily be able to obligate us to register the old notes under the
Securities Act.
SOME PERSONS WHO PARTICIPATE IN THE EXCHANGE OFFER MUST DELIVER A PROSPECTUS IN
CONNECTION WITH RESALES OF THE EXCHANGE NOTES.
Based on certain no-action letters issued by the staff of the Commission,
we believe that you may offer for resale, resell or otherwise transfer the
exchange notes without compliance with the registration and prospectus delivery
requirements of the Securities Act. However, in some instances described in this
prospectus under "Plan of Distribution," you will remain obligated to comply
with the registration and prospectus delivery requirements of the Securities Act
to transfer your exchange notes. In these cases, if you transfer any exchange
note without delivering a prospectus meeting the requirements of the Securities
Act or without an exemption from registration of your exchange notes under the
Securities Act, you may incur liability under this act. We do not and will not
assume, or indemnify you against, this liability.
19
24
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes in exchange for the outstanding old notes. We are making this exchange
solely to satisfy our obligations under the registration rights agreement with
the holders of the old notes. In consideration for issuing the exchange notes,
we will receive old notes in an aggregate principal amount at maturity equal to
the aggregate principal amount at maturity of the exchange notes.
CAPITALIZATION
The following table sets forth our capitalization as of February 28, 2001
on an actual basis and as adjusted to give effect to the offering of the old
notes, the application of the net proceeds from the offering of the old notes,
the Hearst-Argyle acquisition and our reorganization. See "Prospectus Summary --
Recent Developments." You should read this information together with our
historical financial statements, which are incorporated by reference in this
prospectus.
AS OF FEBRUARY 28, 2001
-----------------------
ACTUAL PRO FORMA
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
Cash and cash equivalents................................... $ 59,899 $ 18,299
========== ==========
Long-term debt, including current maturities:
Credit facility........................................... $1,080,000 $ 987,000
Capital leases............................................ 687 687
Hungarian radio debt(1)................................... 14,684 14,684
Argentina radio debt(2)................................... 2,500 2,500
8 1/8% Senior Subordinated Notes due 2009................. 300,000 300,000
12 1/2% Senior Discount Notes due 2011.................... -- 202,600
---------- ----------
Total long-term debt.............................. 1,397,871 1,507,471
---------- ----------
Shareholders' equity:
Series A cumulative convertible preferred stock, $.01 par
value; authorized 10,000,000 shares, 2,875,000 issued and
outstanding............................................... 29 29
Class A common stock, $.01 par value; authorized 170,000,000
shares; 41,900,315 issued and outstanding(3).............. 419 419
Class B common stock, $.01 par value; authorized 30,000,000
shares;
5,230,396 issued and outstanding(3)....................... 52 52
Additional paid-in capital.................................. 830,299 830,299
Accumulated deficit......................................... (22,730) (22,730)
Accumulated other comprehensive income...................... (598) (598)
---------- ----------
Total shareholders' equity........................ 807,471 807,471
---------- ----------
Total capitalization.............................. $2,205,342 $2,314,942
========== ==========
- ---------------
(1) Hungarian radio debt represents obligations of our 59.5% owned Hungarian
subsidiary which are consolidated in our financial statements due to our
majority ownership interest. However, we are not a guarantor of or required
to fund these obligations.
(2) Argentina radio debt represents obligations of our 75% owned Argentinean
subsidiaries which are consolidated in our financial statements due to our
majority ownership interest. However, we are not a guarantor of or required
to fund these obligations.
(3) Does not include the 2,663,400 shares of Class A common stock and the
1,400,000 shares of Class B common stock issuable upon exercise of stock
options outstanding as of February 28, 2001.
20
25
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
Emmis for the periods indicated (unaudited, dollars in thousands).
YEAR ENDED FEBRUARY 28 OR 29, PRO FORMA
- ------------------------------- ---------
1997 1998 1999 2000 2001 2001
- ---- ---- ---- ---- ---- ---------
3.4 2.2 1.1 1.1 1.3 N/A(1)
- ---------------
(1) On a pro forma basis, the ratio of earnings to fixed charges for the year
ended February 28, 2001 is less than 1.0 and the amount of insufficiency is
$25,816. In accordance with applicable rules, depreciation and amortization
expense is deducted from earnings when computing the ratio of earnings to
fixed charges. Pro forma depreciation and amortization expense for the year
ended February 28, 2001 was $103,009.
Earnings include pretax income from continuing operations, fixed charges,
amortization of capitalized interest and our share of pre-tax losses of equity
investments and exclude interest capitalized, preferred stock dividend
requirements and minority loss of consolidated subsidiaries. Fixed charges
include interest expensed and capitalized, amortization of deferred financing
expenses, preferred stock dividend requirements and an amount equivalent to
interest included in rental charges. We have assumed that one-third of rental
expense is representative of the interest factor.
21
26
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The accompanying financial statements present our unaudited pro forma
combined condensed balance sheet and statement of operations as of and for the
year ended February 28, 2001.
The unaudited pro forma combined condensed balance sheet as of February 28,
2001 is presented as if we completed the following transactions on February 28,
2001: (i) the Hearst-Argyle acquisition, (ii) the offering of the old notes,
resulting in $202.6 million in proceeds, and (iii) our reorganization.
The pro forma combined condensed statement of operations for the year ended
February 28, 2001 is presented as if each of the following occurred on March 1,
2000 and carried forward: (i) the Hearst-Argyle acquisition, (ii) the Salem
acquisition, (iii) the Sinclair acquisition, (iv) the acquisition, which we
refer to as the Bonneville acquisition, of a radio station in Los Angeles from
Bonneville International Corporation in exchange for one of our radio stations
in St. Louis and three of the radio stations we acquired in the Sinclair
acquisition, (v) the Lee Enterprises acquisition, (vi) the AMFM acquisition,
(vii) the new credit facility and (viii) the offering of the old notes and
application of proceeds therefrom.
Preparation of the pro forma financial information was based on assumptions
deemed appropriate by our management. The pro forma information is unaudited and
is not necessarily indicative of the results which actually would have occurred
if the transactions had been consummated at the beginning of the period
presented, nor does it purport to represent the future financial position and
results of operations for future periods. The pro forma information does not
reflect any increased revenues, synergies or cost savings that we expect to
realize from our recent acquisitions. The pro forma information should be read
in conjunction with our audited historical financial statements filed as part of
our annual report on Form 10-K for our fiscal year ended February 28, 2001.
22
27
EMMIS COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF FEBRUARY 28, 2001
(IN THOUSANDS)
EMMIS PRO FORMA EMMIS
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 59,899 $(41,600)(2A) $ 18,299
Accounts receivable, net........................... 97,281 -- 97,281
Prepaid expenses................................... 17,096 -- 17,096
Other.............................................. 40,830 -- 40,830
---------- -------- ----------
Total current assets....................... 215,106 (41,600) 173,506
Property and equipment, net.......................... 237,887 8,000(2B) 245,887
Intangible assets, net............................... 1,981,097 152,000(2B) 2,133,097
Other assets, net.................................... 72,782 (8,800)(2C) 63,982
---------- -------- ----------
Total assets............................... $2,506,872 $109,600 $2,616,472
========== ======== ==========
CURRENT LIABILITIES:
Accounts payable................................... $ 34,206 $ -- $ 34,206
Current portion of allocated other long-term
debt............................................ 4,187 -- 4,187
Current portion of TV program rights payable....... 28,192 -- 28,192
Accrued salaries and commissions................... 10,342 -- 10,342
Accrued interest................................... 17,038 -- 17,038
Deferred revenue................................... 17,418 -- 17,418
Other.............................................. 5,768 -- 5,768
---------- -------- ----------
Total current liabilities.................. 117,151 -- 117,151
Credit facility and senior subordinated notes........ 1,380,000 (93,000)(2D) 1,287,000
Senior discount notes................................ -- 202,600(2D) 202,600
TV program rights payable, net of current portion.... 47,567 -- 47,567
Other long-term debt, net of current portion......... 13,684 -- 13,684
Other noncurrent liabilities......................... 5,531 -- 5,531
Deferred income taxes................................ 135,468 -- 135,468
---------- -------- ----------
Total liabilities.......................... 1,699,401 109,600 1,809,001
SHAREHOLDERS' EQUITY:
Series A cumulative convertible preferred stock.... 29 -- 29
Class A common stock............................... 419 -- 419
Class B common stock............................... 52 -- 52
Additional paid-in capital......................... 830,299 -- 830,299
Accumulated deficit................................ (22,730) -- (22,730)
Accumulated other comprehensive loss............... (598) -- (598)
---------- -------- ----------
Total shareholders' equity................. 807,471 -- 807,471
---------- -------- ----------
Total liabilities and shareholders'
equity................................... $2,506,872 $109,600 $2,616,472
========== ======== ==========
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EMMIS COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
EMMIS ACQUISITIONS PRO FORMA EMMIS
HISTORICAL (3A) ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ---------
Net revenues......................................... $470,618 $104,166 $ (1,684)(3B) $ 573,100
Operating expenses................................. 296,405 67,262 (1,800)(3C) 361,867
International business development expenses........ 1,553 -- -- 1,553
Corporate expenses................................. 16,048 1,035 -- 17,083
Depreciation and amortization...................... 74,018 10,320 18,671(3D) 103,009
Non-cash compensation.............................. 5,400 -- -- 5,400
Corporate restructuring fees and other............. 4,057 -- -- 4,057
Time brokerage agreement fees...................... 7,344 -- (7,344)(3B,3E) --
-------- -------- -------- ---------
Operating income (loss).............................. 65,793 25,549 (11,211) 80,131
-------- -------- -------- ---------
Other income (expense)
Interest expense................................... (72,444) (1,850) (61,984)(3F) (136,278)
Other income (expense), net........................ 38,037 (31) -- 38,006
-------- -------- -------- ---------
Total other income (expense)............... (34,407) (1,881) (61,984) (98,272)
-------- -------- -------- ---------
Income (loss) before income taxes.................... 31,386 23,668 (73,195) (18,141)
Tax provision (benefit).............................. 17,650 7,500 (25,625)(3G) (475)
-------- -------- -------- ---------
Net income (loss).................................... 13,736 16,168 (47,570) (17,666)
Less: preferred stock dividends...................... 8,984 -- -- 8,984
-------- -------- -------- ---------
Net income (loss) available to common shareholders... $ 4,752 $ 16,168 $(47,570) $ (26,650)
======== ======== ======== =========
Basic net income (loss) per share.................... $ 0.10 $ (0.57)
======== =========
Diluted net income (loss) per share.................. $ 0.10 $ (0.57)
======== =========
Basic (weighted average shares outstanding).......... 46,869 46,869
======== =========
Diluted (weighted average shares outstanding)........ 47,940 46,869
======== =========
24
29
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR NOTE ONE)
1. BASIS OF PRESENTATION
We are a diversified media company with radio broadcasting, television
broadcasting and magazine publishing operations. The accompanying pro forma
combined condensed financial statements give effect to the following:
- On March 28, 2001, we acquired the assets of radio stations KTAR-AM,
KMVP-AM and KKLT-FM in Phoenix, Arizona from Hearst-Argyle Television,
Inc. for a total cash purchase price of $160.0 million. When we signed
the initial agreement giving us the option to purchase the stations, we
made an escrow payment of $20.0 million. This escrow payment was used to
offsets the purchase price. A portion of the net proceeds from the
offering of the old notes ($104.5 million) and a portion of the excess
cash borrowed upon entering our credit facility ($35.5 million) were used
to fund the remaining $140.0 million purchase price for the Hearst-Argyle
acquisition. We began operating the radio stations on August 1, 2000
under a time brokerage agreement.
- The offering of the old notes, resulting in $202.6 million in proceeds,
and the related application of net proceeds to repay indebtedness under
our credit facility ($93.0 million) and to the Hearst-Argyle acquisition
($104.5 million).
- On January 17, 2001, we acquired radio station KALC-FM in Denver,
Colorado from Salem Communications Corporation for $98.8 million in cash.
We financed this acquisition with borrowings under our credit facility.
- On December 29, 2000 (effective January 5, 2001) we entered into a $1.4
billion credit facility, which includes a provision allowing us to
increase the commitment by $500.0 million under circumstances described
in the credit facility. The credit facility replaced the October 2000
Third Amended and Restated Revolving Credit and Term Loan Agreement (the
"Bridge Loan"). The proceeds of the Bridge Loan were used to fund the
Sinclair and Lee Enterprises acquisitions. We borrowed $1.08 billion upon
entering this credit facility and repaid $912.0 million of outstanding
indebtedness under the Bridge Loan. The remaining $168.0 million in
proceeds was used to fund a portion of the Hearst-Argyle acquisition, to
fund the Salem acquisition, to pay for transaction fees associated with
the old notes and this offering and for working capital. The accompanying
pro forma statement of operations data for the year ended February 28,
2001 assumes we entered into our credit facility on March 1, 2000 and
therefore excludes the amortization of deferred financing costs related
to the Bridge Loan ($3.45 million).
- On October 6, 2000, (effective October 1, 2000) we acquired from Sinclair
Broadcast Group, Inc. certain assets of radio stations WIL-FM, WRTH-AM,
WVRV-FM, KPNT-FM, KXOK-FM, and KIHT-FM in St. Louis, Missouri for a cash
purchase price of $220.0 million. This acquisition was financed with
borrowings under our credit facility.
- On October 6, 2000, (effective October 1, 2000) we acquired certain
assets of radio station KZLA-FM from Bonneville International Corporation
in exchange for three radio stations acquired from Sinclair (WIL-FM,
WVRV-FM and WRTH-AM) and our existing radio station WKKX-FM. The acquired
assets of KZLA-FM were recorded at $185.0 million based on the total fair
value of the Sinclair radio stations and our station WKKX-FM exchanged
for KZLA.
- On October 2, 2000, (effective October 1, 2000) we purchased eight
network-affiliated and seven satellite television stations from Lee
Enterprises, Inc. for $559.5 million and the payment of $21.3 million for
working capital. This transaction was financed through borrowings under
our credit facility.
25
30
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT FOR NOTE ONE)
- On August 24, 2000 we acquired the assets of radio stations KKFR-FM in
Phoenix, Arizona and KXPK-FM in Denver, Colorado from subsidiaries of
AMFM, Inc. for $108.0 million in cash. We financed the acquisition
through borrowings under our credit facility.
All of the above acquisitions have been accounted for using the purchase
method of accounting.
2. PRO FORMA ADJUSTMENTS TO COMBINED CONDENSED BALANCE SHEET
(A) To reflect cash paid for the Hearst-Argyle acquisition ($35,500) and
transaction costs associated with the old notes and this exchange offer
($6,100).
(B) To reflect the estimated purchase price allocation of the Hearst-Argyle
acquisition.
(C) To reflect the reclassification to intangibles of $20,000 in deposits
related to the Hearst-Argyle acquisition, offset by $11,200 in debt fees
associated with the old notes and this exchange offering.
(D) To reflect the exchange notes, which have the same terms as the old
notes and are being exchanged for the old notes at carryover basis, and to
reflect the repayment of $93,000 of credit facility borrowings with proceeds
from the old notes.
3. PRO FORMA ADJUSTMENTS TO COMBINED CONDENSED STATEMENT OF OPERATIONS
Certain reclassifications have been made to the historical results of the
acquired businesses to conform to Emmis' pro forma financial presentation. These
reclassifications had no effect on results of operations.
(A) Pro forma adjustment to reflect the historical results of the Lee
television stations KOIN, KRQE, WSAZ, KSNW, KGMB, KGUN, KMTV and KSNT and the
Sinclair radio stations, KPNT, KXOK, KIHT, WIL, WRTH and WVRV for the period
prior to their respective acquisitions (March 1 through September 30). These
acquisitions were effective October 1, 2000 and are included in our historical
results thereafter. The historical results of Bonneville radio station KZLA for
the period March 1 through September 30, 2000 are included in our pro forma
statement of operations for the year ended February 28, 2001. However, beginning
August 1, 2000 we operated KZLA under a time brokerage agreement and recorded
its operating results in our historical financial statements. Accordingly, for
the period August 1 through September 30, the Bonneville radio station KZLA's
historical financial statements reflect only time brokerage fee income in net
revenue and reflect no broadcast operating expenses.
26
31
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT FOR NOTE ONE)
PRO FORMA ADJUSTMENTS
(IN THOUSANDS)
ELIMINATE
YEAR ENDED LEE SINCLAIR BONNEVILLE STATIONS OTHER TOTAL
FEBRUARY 28, 2001 (HISTORICAL) (HISTORICAL) (HISTORICAL) EXCHANGED(AA) ACQUISITIONS(AB) ACQUISITIONS
- ----------------- ------------ ------------ ------------ ------------- ---------------- ------------
Net revenues.................. $71,117 $17,351 $ 8,100 $(13,259) $20,857 $104,166
Operating expenses............ 48,346 8,628 4,513 (7,313) 13,088 67,262
International business
development expenses........ -- -- -- -- -- --
Corporate expenses............ 759 357 108 (189) -- 1,035
Depreciation and
amortization................ 6,899 2,708 2,530 (1,817) -- 10,320
Non-cash compensation......... -- -- -- -- -- --
Corporate restructuring fees
and other................... -- -- -- -- -- --
Time brokerage agreement
fees........................ -- -- -- -- -- --
------- ------- ------- -------- ------- --------
Operating income (loss)....... 15,113 5,658 949 (3,940) 7,769 25,549
------- ------- ------- -------- ------- --------
Interest expense.............. -- (3,922) -- 2,072 -- (1,850)
Other income (expense), net... -- (70) -- 39 -- (31)
------- ------- ------- -------- ------- --------
Total other income
(expense)................... -- (3,992) -- 2,111 -- (1,881)
------- ------- ------- -------- ------- --------
Income (loss) before income
taxes....................... 15,113 1,666 949 (1,829) 7,769 23,668
Tax provision (benefit)....... 6,252 671 1,296 (719) -- 7,500
------- ------- ------- -------- ------- --------
Net income (loss)............. $ 8,861 $ 995 $ (347) $ (1,110) $ 7,769 $ 16,168
======= ======= ======= ======== ======= ========
(Aa) Pro forma adjustment to reflect the elimination of the historical
results of the Sinclair radio stations WIL, WRTH, and WVRV and our radio station
WKKX, which were exchanged for Bonneville radio station KZLA.
(Ab) Pro forma adjustment to reflect the operating results of AMFM for the
period prior to its acquisition, and Salem and Hearst for the period prior to
operating them under their respective time brokerage agreements.
(B) To eliminate time brokerage agreement income and fees related to
Bonneville ($1,684).
(C) Pro forma adjustment to reflect the decrease in amortization expense
related to television program rights as a result of recording television program
rights acquired in the Lee Enterprises acquisition at acquisition value.
(D) Pro forma adjustment to reflect the increase in depreciation and
amortization expense as a result of recording property, plant and equipment and
intangible assets at acquisition value.
FOR THE YEAR
ENDED
FEBRUARY 28,
2001
------------
Hearst...................................................... $ 4,943
Salem....................................................... 2,709
Lee......................................................... 15,469
Sinclair.................................................... 1,463
Bonneville.................................................. 2,929
AMFM........................................................ 1,478
Historical depreciation and amortization.................... (10,320)
--------
$ 18,671
========
(E) To eliminate time brokerage agreement fees related to Hearst ($3,850)
and Salem ($1,810).
27
32
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT FOR NOTE ONE)
(F) Pro forma adjustment:
FOR THE YEAR
ENDED
FEBRUARY 28,
2001
------------
To reflect interest expense at 7.07%, based on our weighted
average interest rate for borrowings under the credit
facility at May 31, 2001 (for the period prior to
acquisition parenthetically disclosed) associated with
borrowings under the credit facility for the following:
Hearst (full year)..................................... $ 2,511
Salem (10.5 months).................................... 6,114
Lee (7 months)......................................... 23,960
Sinclair (7 months).................................... 9,076
AMFM (5.7 months)...................................... 3,609
Credit facility fees................................... 973
Transaction costs related to offering of the old notes
and this offering..................................... 431
Repayment with a portion of the net proceeds from the
old notes............................................. (6,577)
To reflect interest expense associated with the exchange
notes at 12.5% compounded semi-annually................... 26,117
To reflect amortization of deferred financing costs
associated with the offering of the old notes and this
offering.................................................. 1,070
To eliminate amortization of deferred financing fees
associated with the Bridge Loan........................... (3,450)
Historical interest expense................................. (1,850)
-------
Total pro forma interest expense adjustment................. $61,984
=======
If the interest rate on our variable debt were to increase by 0.125%, our
pro forma interest expense would have been higher by approximately $984 for the
year ended February 28, 2001.
(G) To adjust income taxes based on a combined federal and state statutory
rate of 38%. We estimate that approximately $1,800 in interest expense related
to the notes may not be deductible and have therefore reflected additional pro
forma tax expense of $695.
28
33
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
We are offering to issue our exchange notes in exchange for a like
aggregate principal amount at maturity of our old notes.
The exchange notes that we propose to issue in this exchange offer will be
substantially identical to our old notes except that, unlike our old notes, the
exchange notes will have no transfer restrictions or registration rights. You
should read the description of the exchange notes in the section in this
prospectus entitled "Description of Notes."
We reserve the right in our sole discretion to purchase or make offers for
any old notes that remain outstanding following the expiration or termination of
this exchange offer and, to the extent permitted by applicable law, to purchase
old notes in the open market or privately negotiated transactions, one or more
additional tender or exchange offers or otherwise. The terms and prices of these
purchases or offers could differ significantly from the terms of this exchange
offer. In addition, nothing in this exchange offer will prevent us from
exercising our right to discharge our obligations on the old notes by depositing
specified securities with the trustee and otherwise.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
This exchange offer will expire at 5:00 p.m., New York City time, on
, 2001, unless we extend it in our reasonable discretion. The
expiration date of this exchange offer will be at least 20 business days after
the commencement of the exchange offer in accordance with Rule 14e-1(a) under
the Securities Exchange Act of 1934.
We expressly reserve the right to delay acceptance of any old notes, extend
or terminate this exchange offer and not accept any old notes that we have not
previously accepted if any of the conditions described below under
"-- Conditions to the Exchange Offer" have not been satisfied or waived by us.
We will notify the exchange agent of any extension by oral notice promptly
confirmed in writing or by written notice. We will also notify the holders of
the old notes by mailing an announcement or by a press release or other public
announcement communicated before 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date unless applicable
laws require us to do otherwise.
We also expressly reserve the right to amend the terms of this exchange
offer in any manner. If we make any material change, we will promptly disclose
this change in a manner reasonably calculated to inform the holders of our old
notes of the change including providing public announcement or giving oral or
written notice to these holders. A material change in the terms of this exchange
offer could include a change in the timing of the exchange offer, a change in
the exchange agent and other similar changes in the terms of this exchange
offer. If we make any material change to this exchange offer, we will disclose
this change by means of a post-effective amendment to the registration statement
which includes this prospectus and will distribute an amended or supplemented
prospectus to each registered holder of old notes. In addition, we will extend
this exchange offer for an additional five to ten business days as required by
the Exchange Act, depending on the significance of the amendment, if the
exchange offer would otherwise expire during that period. We will promptly
notify the exchange agent by oral notice, promptly confirmed in writing, or
written notice of any delay in acceptance, extension, termination or amendment
of this exchange offer.
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PROCEDURES FOR TENDERING OLD NOTES
Proper Execution and Delivery of Letters of Transmittal
To tender your old notes in this exchange offer, you must use one of the
three alternative procedures described below:
(1) Regular delivery procedure: Complete, sign and date the letter of
transmittal, or a facsimile of the letter of transmittal. Have the
signatures on the letter of transmittal guaranteed if required by the
letter of transmittal. Mail or otherwise deliver the letter of
transmittal or the facsimile together with the certificates
representing the old notes being tendered and any other required
documents to the exchange agent on or before 5:00 p.m., New York City
time, on the expiration date.
(2) Book-entry delivery procedure: Send a timely confirmation of a
book-entry transfer of your old notes, if this procedure is available,
into the exchange agent's account at The Depository Trust Company in
accordance with the procedures for book-entry transfer described under
"-- Book-Entry Delivery Procedure" below, on or before 5:00 p.m., New
York City time, on the expiration date.
(3) Guaranteed delivery procedure: If time will not permit you to complete
your tender by using the procedures described in (1) or (2) above
before the expiration date, comply with the guaranteed delivery
procedures described under "-- Guaranteed Delivery Procedure" below.
The method of delivery of the old notes, the letter of transmittal and all
other required documents is at your election and risk. Instead of delivery by
mail, we recommend that you use an overnight or hand-delivery service. If you
choose the mail, we recommend that you use registered mail, properly insured,
with return receipt requested. In all cases, you should allow sufficient time to
assure timely delivery. You should not send any letters of transmittal or old
notes to us. You must deliver all documents to the exchange agent at its address
provided below. You may also request your broker, dealer, commercial bank, trust
company or nominee to tender your old notes on your behalf.
Only a holder of old notes may tender old notes in this exchange offer. A
holder is any person in whose name old notes are registered on our books or any
other person who has obtained a properly completed bond power from the
registered holder.
If you are the beneficial owner of old notes that are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you wish to tender your notes, you must contact that registered holder promptly
and instruct that registered holder to tender your notes on your behalf. If you
wish to tender your old notes on your own behalf, you must, before completing
and executing the letter of transmittal and delivering your old notes, either
make appropriate arrangements to register the ownership of these notes in your
name or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
You must have any signatures on a letter of transmittal or a notice of
withdrawal guaranteed by:
(1) a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,
(2) a commercial bank or trust company having an office or correspondent in
the United States, or
(3) an eligible guarantor institution within the meaning of Rule 17Ad-15
under the Exchange Act,
unless the old notes are tendered:
(1) by a registered holder or by a participant in The Depository Trust
Company whose name appears on a security position listing as the owner,
who has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the letter of transmittal and
only if the exchange notes are being issued directly to this registered
holder or deposited into this participant's account at The Depository
Trust Company, or
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(2) for the account of a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in
the United States or an eligible guarantor institution within the
meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934.
If the letter of transmittal or any bond powers are signed by:
(1) the recordholder(s) of the old notes tendered: the signature must
correspond with the name(s) written on the face of the old notes
without alteration, enlargement or any change whatsoever;
(2) a participant in The Depository Trust Company: the signature must
correspond with the name as it appears on the security position listing
as the holder of the old notes;
(3) a person other than the registered holder of any old notes: these old
notes must be endorsed or accompanied by bond powers and a proxy that
authorize this person to tender the old notes on behalf of the
registered holder, in satisfactory form to us as determined in our sole
discretion, in each case, as the name of the registered holder or
holders appears on the old notes; or
(4) trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
representative capacity: these persons should so indicate when signing.
(Unless waived by us, evidence satisfactory to us of their authority to
so act must also be submitted with the letter of transmittal.)
To effectively tender notes through The Depository Trust Company, the
financial institution that is a participant in The Depository Trust Company will
electronically transmit its acceptance through the Automatic Tender Offer
Program. The Depository Trust Company will then edit and verify the acceptance
and send an agent's message to the exchange agent for its acceptance. An agent's
message is a message transmitted by The Depository Trust Company to the exchange
agent stating that The Depository Trust Company has received an express
acknowledgment from the participant in The Depository Trust Company tendering
the notes that this participant has received and agrees to be bound by the terms
of the letter of transmittal, and that we may enforce this agreement against
this participant.
Book-Entry Delivery Procedure
Any financial institution that is a participant in The Depository Trust
Company's systems may make book-entry deliveries of old notes by causing The
Depository Trust Company to transfer these old notes into the exchange agent's
account at The Depository Trust Company in accordance with The Depository Trust
Company's procedures for transfer. To effectively tender notes through The
Depository Trust Company, the financial institution that is a participant in The
Depository Trust Company will electronically transmit its acceptance through the
Automatic Tender Offer Program. The Depository Trust Company will then edit and
verify the acceptance and send an agent's message to the exchange agent for its
acceptance. An agent's message is a message transmitted by The Depository Trust
Company to the exchange agent stating that The Depository Trust Company has
received an express acknowledgment from the participant in The Depository Trust
Company tendering the notes that this participation has received and agrees to
be bound by the terms of the letter of transmittal, and that we may enforce this
agreement against this participant. The exchange agent will make a request to
establish an account for the old notes at The Depository Trust Company for
purposes of the exchange offer within two business days after the date of this
prospectus.
A delivery of old notes through a book-entry transfer into the exchange
agent's account at The Depository Trust Company will only be effective if an
agent's message or the letter of transmittal or a facsimile of the letter of
transmittal with any required signature guarantees and any other required
documents is transmitted to and received by the exchange agent at the address
indicated below under "-- Exchange Agent" on or before the expiration date
unless the guaranteed delivery procedures described below are complied with.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY TRUST COMPANY DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
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Guaranteed Delivery Procedure
If you are a registered holder of old notes and desire to tender your
notes, and (1) these notes are not immediately available, (2) time will not
permit your notes or other required documents to reach the exchange agent before
the expiration date or (3) the procedures for book-entry transfer cannot be
completed on a timely basis and an agent's message delivered, you may still
tender in this exchange offer if:
(1) you tender through a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in
the United States, or an eligible guarantor institution within the
meaning of Rule 17Ad-15 under the Exchange Act,
(2) on or before the expiration date, the exchange agent receives a
properly completed and duly executed letter of transmittal or facsimile
of the letter of transmittal, and a notice of guaranteed delivery,
substantially in the form provided by us, with your name and address as
holder of the old notes and the amount of notes tendered, stating that
the tender is being made by that letter and notice and guaranteeing
that within five business days after the expiration date the
certificates for all the old notes tendered, in proper form for
transfer, or a book-entry confirmation with an agent's message, as the
case may be, and any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent, and
(3) the certificates for all your tendered old notes in proper form for
transfer or a book-entry confirmation as the case may be, and all other
documents required by the letter of transmittal are received by the
exchange agent within five business days after the expiration date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Your tender of old notes will constitute an agreement between you and us
governed by the terms and conditions provided in this prospectus and in the
related letter of transmittal.
We will be deemed to have received your tender as of the date when your
duly signed letter of transmittal accompanied by your old notes tendered, or a
timely confirmation of a book-entry transfer of these notes into the exchange
agent's account at The Depository Trust Company with an agent's message, or a
notice of guaranteed delivery from an eligible institution is received by the
exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of tenders will be determined by us in our
sole discretion. Our determination will be final and binding.
We reserve the absolute right to reject any and all old notes not properly
tendered or any old notes which, if accepted, would, in our opinion or our
counsel's opinion, be unlawful. We also reserve the absolute right to waive any
conditions of this exchange offer or irregularities or defects in tender as to
particular notes. Our interpretation of the terms and conditions of this
exchange offer, including the instructions in the letter of transmittal, will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of old notes must be cured within such time as we
shall determine. We, the exchange agent or any other person will be under no
duty to give notification of defects or irregularities with respect to tenders
of old notes. We and the exchange agent or any other person will incur no
liability for any failure to give notification of these defects or
irregularities. Tenders of old notes will not be deemed to have been made until
such irregularities have been cured or waived. The exchange agent will return
without cost to their holders any old notes that are not properly tendered and
as to which the defects or irregularities have not been cured or waived as
promptly as practicable following the expiration date.
If all the conditions to the exchange offer are satisfied or waived on the
expiration date, we will accept all old notes properly tendered and will issue
the exchange notes promptly thereafter. Please refer to the section of this
prospectus entitled "-- Conditions to the Exchange Offer" below. For purposes of
this
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exchange offer, old notes will be deemed to have been accepted as validly
tendered for exchange when, as and if we give oral or written notice of
acceptance to the exchange agent.
We will issue the exchange notes in exchange for the old notes tendered
pursuant to a notice of guaranteed delivery by an eligible institution only
against delivery to the exchange agent of the letter of transmittal, the
tendered old notes and any other required documents, or the receipt by the
exchange agent of a timely confirmation of a book-entry transfer of old notes
into the exchange agent's account at The Depository Trust Company with an
agent's message, in each case, in form satisfactory to us and the exchange
agent.
If any tendered old notes are not accepted for any reason provided by the
terms and conditions of this exchange offer or if old notes are submitted for a
greater principal amount than the holder desires to exchange, the unaccepted or
non-exchanged old notes will be returned without expense to the tendering
holder, or, in the case of old notes tendered by book-entry transfer procedures
described above, will be credited to an account maintained with the book-entry
transfer facility, as promptly as practicable after withdrawal, rejection of
tender or the expiration or termination of the exchange offer.
By tendering into this exchange offer, you will irrevocably appoint our
designees as your attorney-in-fact and proxy with full power of substitution and
resubstitution to the full extent of your rights on the notes tendered. This
proxy will be considered coupled with an interest in the tendered notes. This
appointment will be effective only when, and to the extent that we accept your
notes in this exchange offer. All prior proxies on these notes will then be
revoked and you will not be entitled to give any subsequent proxy. Any proxy
that you may give subsequently will not be deemed effective. Our designees will
be empowered to exercise all voting and other rights of the holders as they may
deem proper at any meeting of note holders or otherwise. The old notes will be
validly tendered only if we are able to exercise full voting rights on the
notes, including voting at any meeting of the note holders, and full rights to
consent to any action taken by the note holders.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw tenders
of old notes at any time before 5:00 p.m., New York City time, on the expiration
date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before 5:00 p.m., New
York City time, on the expiration date at the address provided below under
"-- Exchange Agent" and before acceptance of your tendered notes for exchange by
us.
Any notice of withdrawal must:
(1) specify the name of the person having tendered the old notes to be
withdrawn,
(2) identify the notes to be withdrawn, including, if applicable, the
registration number or numbers and total principal amount of these
notes,
(3) be signed by the person having tendered the old notes to be withdrawn
in the same manner as the original signature on the letter of
transmittal by which these notes were tendered, including any required
signature guarantees, or be accompanied by documents of transfer
sufficient to permit the trustee for the old notes to register the
transfer of these notes into the name of the person having made the
original tender and withdrawing the tender,
(4) specify the name in which any of these old notes are to be registered,
if this name is different from that of the person having tendered the
old notes to be withdrawn, and
(5) if applicable because the old notes have been tendered though the
book-entry procedure, specify the name and number of the participant's
account at The Depository Trust Company to be credited, if different
than that of the person having tendered the old notes to be withdrawn.
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We will determine all questions as to the validity, form and eligibility,
including time of receipt, of all notices of withdrawal and our determination
will be final and binding on all parties Old notes that are withdrawn will be
deemed not to have been validly tendered for exchange in this exchange offer.
The exchange agent will return without cost to their holders all old notes
that have been tendered for exchange and are not exchanged for any reason, as
promptly as practicable after withdrawal, rejection of tender or expiration or
termination of this exchange offer.
You may retender properly withdrawn old notes in this exchange offer by
following one of the procedures described under "-- Procedures for Tendering Old
Notes" above at any time on or before the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
We will complete this exchange offer only if:
(1) there is no action or proceeding instituted or threatened in any court
or before any governmental agency or body that in our judgment would
reasonably be expected to prohibit, prevent or otherwise impair our
ability to proceed with this exchange offer,
(2) there is no change in the laws and regulations which, in our judgment,
would reasonably be expected to impair our ability to proceed with this
exchange offer,
(3) there is no change in the current interpretation of the staff of the
Commission which permits resales of the exchange notes,
(4) there is no stop order issued by the Commission or any state securities
authority suspending the effectiveness of the registration statement
which includes this prospectus or the qualification of the indenture
for our exchange notes under the Trust Indenture Act of 1939 and there
are no proceedings initiated or, to our knowledge, threatened for that
purpose, and
(5) we obtain all governmental approvals that we deem in our sole
discretion necessary to complete this exchange offer.
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. 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.
If we determine that we may terminate this exchange offer because any of
these conditions is not satisfied, we may:
(1) refuse to accept and return to their holders any old notes that have
been tendered,
(2) extend the exchange offer and retain all notes tendered before the
expiration date, subject to the rights of the holders of these notes to
withdraw their tenders, or
(3) waive any condition that has not been satisfied and accept all properly
tendered notes that have not been withdrawn or otherwise amend the
terms of this exchange offer in any respect as provided under the
section in this prospectus entitled "-- Expiration Date; Extensions;
Amendments; Termination."
ACCOUNTING TREATMENT
We will record the exchange notes at the same carrying value as the old
notes as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes.
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EXCHANGE AGENT
We have appointed Bank of Nova Scotia Trust Company of New York as exchange
agent for this exchange offer. You should direct all questions and requests for
assistance on the procedures for tendering and all requests for additional
copies of this prospectus or the letter of transmittal to the exchange agent as
follows:
By mail:
The Bank of Nova Scotia Trust Company of New York
One Liberty Plaza, 23rd Floor
New York, NY 10006
Telecopier No.: (212) 225-5436
Attention: Pat Keane
By hand/overnight delivery:
The Bank of Nova Scotia Trust Company of New York
One Liberty Plaza, 23rd Floor
New York, NY 10006
Telecopier No.: (212) 225-5436
Confirm by Telephone: (212) 225-5427
Attention: Pat Keane
FEES AND EXPENSES
We will bear the expenses of soliciting tenders in this exchange offer,
including fees and expenses of the exchange agent and trustee and accounting,
legal, printing and related fees and expenses.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of this exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with this
exchange offer. We will also pay brokerage houses and other custodians, nominees
and fiduciaries their reasonable out-of-pocket expenses for forwarding copies of
the prospectus, letters of transmittal and related documents to the beneficial
owners of the old notes and for handling or forwarding tenders for exchange to
their customers.
We will pay all transfer taxes, if any, applicable to the exchange of old
notes in accordance with this exchange offer. However, tendering holders will
pay the amount of any transfer taxes, whether imposed on the registered holder
or any other persons, if:
(1) certificates representing exchange notes or old notes for principal
amounts not tendered or accepted for exchange are to be delivered to,
or are to be registered or issued in the name of, any person other than
the registered holder of the notes tendered,
(2) tendered old notes are registered in the name of any person other than
the person signing the letter of transmittal, or
(3) a transfer tax is payable for any reason other than the exchange of the
old notes in this exchange offer.
If you do not submit satisfactory evidence of the payment of any of these
taxes or of any exemption from this payment with the letter of transmittal, we
will bill you directly the amount of these transfer taxes.
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YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES
The old notes were not registered under the Securities Act or under the
securities laws of any state and you may not resell them, offer them for resale
or otherwise transfer them unless they are subsequently registered or resold
under an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your old notes for
exchange notes in accordance with this exchange offer, or if you do not properly
tender your old notes in this exchange offer, you will not be able to resell,
offer to resell or otherwise transfer the old notes unless they are registered
under the Securities Act or unless you resell them, offer to resell or otherwise
transfer them under an exemption from the registration requirements of, or in a
transaction not subject to, the Securities Act. In addition, you will not
necessarily be able to obligate us to register the old notes under the
Securities Act.
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DESCRIPTION OF NOTES
Emmis Escrow Corporation, one of our wholly-owned indirect subsidiaries,
originally issued the old notes in a transaction exempt from registration under
the Securities Act. When Emmis Escrow merged into us, we assumed all obligations
under the old notes and the indenture relating to the old notes. Both the old
notes and the exchange notes are governed by that indenture.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of these notes. Copies of the indenture are available as set forth below
under the heading "Where You Can Find More Information." The terms of the notes
include those stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). In this description, the word "Emmis" refers only to Emmis and not to any
of its subsidiaries.
The notes:
- are general unsecured obligations of Emmis;
- rank equally in right of payment with all existing and future unsecured
senior Indebtedness of Emmis; and
- will be senior in right of payment to all existing and future
subordinated Indebtedness of Emmis.
We are a holding company. Our only significant asset is the outstanding
capital stock of our subsidiaries, and we rely on payments from our subsidiaries
to be able to meet our obligations. The exchange notes will be effectively
subordinated to all indebtedness and liabilities of our subsidiaries. As of
February 28, 2001, after giving pro forma effect to the offering of the old
notes, the application of proceeds from that offering, the Hearst-Argyle
acquisition and our reorganization, our subsidiaries would have had $1,290.2
million of outstanding indebtedness that is structurally senior in right of
payment to the notes. In the event of a bankruptcy, liquidation or
reorganization of any of our subsidiaries, these subsidiaries would pay lenders
under the credit facility, the holder of the 8 1/8% senior subordinated notes,
the holders of their other debt and their trade creditors before they would be
able to distribute any of their assets to us.
All of our subsidiaries, other than Game Warden Wildlife Journal Magazine,
LLC, Country Sampler Stores, LLC, and Slager Radio Rt., are "Restricted
Subsidiaries." Under the circumstances described below under the subheading
"-- Certain Covenants -- Restricted Payments," we are permitted to designate
some of our other subsidiaries as "Unrestricted Subsidiaries." Unrestricted
Subsidiaries will not be subject to most of the restrictive covenants in the
indenture.
PRINCIPAL, MATURITY AND INTEREST
The indenture provides for the issuance by us of notes with a maximum
aggregate principal amount at maturity of $370.0 million. The old notes were
offered at a substantial discount from their principal amount at maturity and
generated gross proceeds for Emmis of approximately $202.6 million. The notes
were issued in denominations of $1,000 and integral multiples of $1,000. The
notes will mature on March 15, 2011.
No interest will accrue on the notes prior to March 15, 2006. Instead, the
Accreted Value of each note will increase, representing amortization of original
issue discount, between the date of original issuance and March 15, 2006 at a
rate of 12.5% per year calculated on a semi-annual bond equivalent basis using a
360-day year comprised of twelve 30-day months, such that the Accreted Value on
March 15, 2006 will be equal to the full principal amount at maturity of the
notes. Beginning on March 15, 2006 interest on the notes will accrue at a rate
of 12.5% per year and will be payable in cash semi-annually in arrears on each
March 15 and September 15, commencing on September 15, 2006. We will make each
interest payment to the holders of record on the immediately preceding March 1
and September 1.
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Interest on the notes will accrue from the date on which interest was most
recently paid or, if no interest has been paid, from March 15, 2006. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder has given wire transfer instructions to Emmis, Emmis will make
all principal, premium and interest and Liquidated Damages, if any, payments on
those notes in accordance with those instructions. All other payments on these
notes will be made at the office or agency of the paying agent and registrar
within the City and State of New York unless Emmis elects to make interest
payments by check mailed to the holders at their address set forth in the
register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee has acted as paying agent and registrar. Emmis may change the
paying agent or registrar without prior notice to the holders of the notes, and
Emmis or any of its Subsidiaries may act as paying agent or registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange the notes in accordance with the
indenture. The registrar and the trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and Emmis may
require a holder to pay any taxes and fees required by law or permitted by the
indenture. Emmis is not required to transfer or exchange any note selected for
redemption. Also, Emmis is not required to transfer or exchange any note for a
period of 15 days before a selection of the notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
OPTIONAL REDEMPTION
At any time prior to March 15, 2004, Emmis may on any one or more occasions
redeem up to 35% of the aggregate principal amount at maturity of the notes then
outstanding at a redemption price of 112 1/2% of the Accreted Value of the
notes, plus Liquidated Damages on them, if any, to the redemption date, with the
net cash proceeds of one or more Equity Offerings; provided that:
(1) at least 65.0% in aggregate principal amount at maturity of the notes
remains outstanding immediately after the occurrence of such redemption
(excluding the notes held by Emmis and its Subsidiaries); and
(2) the redemption must occur within 90 days after the date of the closing
of the Equity Offering.
Except in accordance with to the preceding paragraph and described below,
the notes will not be redeemable at Emmis' option prior to March 15, 2006.
On or after March 15, 2006, Emmis may redeem all or any part of the notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of the principal amount) set forth below plus accrued
and unpaid interest and Liquidated Damages on them, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on March
15 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2006........................................................ 106.250%
2007........................................................ 104.167%
2008........................................................ 102.083%
2009 and thereafter......................................... 100.000%
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At any time prior to March 15, 2006, Emmis may also redeem all or a part of
the notes upon not less than 30 nor more than 60 days notice mailed by
first-class mail to each holder's registered address, at a redemption price
equal to 100% of the Accreted Value of the notes plus the Applicable Premium as
of, and Liquidated Damages, if any, to the date of redemption (the "Redemption
Date").
"Applicable Premium" means, with respect to any note on any Redemption
Date, the greater of:
(1) 1.0% of the Accreted Value of the note; or
(2) the excess of:
(a) the present value at such Redemption Date of the redemption price of
the note at March 15, 2006 (such redemption price being set forth in
the table appearing above), computed using a discount rate equal to
the Treasury Rate as of such Redemption Date plus 50 basis points;
over
(b) the Accreted Value of the note.
"Treasury Rate" means, as of any Redemption Date, the yield to maturity as
of such Redemption Date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to the Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from the Redemption Date to March 15, 2006; provided,
however, that if the period from the Redemption Date to March 15, 2006 is less
than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed;
or
(2) the notes are not so listed, on a pro rata basis, by lot or by such
method as the trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any notes are to be redeemed in part only, the notice of redemption that
relates to those notes shall state the portion of the principal amount of the
notes to be redeemed. A new certificate with an aggregate principal amount equal
to the unredeemed portion of the original certificate evidencing notes presented
for redemption will be issued in the name of the holder upon cancellation of the
original certificate. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
the notes or portions of the notes called for redemption.
MANDATORY REDEMPTION
Emmis is not required to make mandatory redemption or sinking fund payments
with respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
If a Change of Control occurs, each holder of the notes will have the right
to require Emmis to repurchase all or any part of such holder's notes in to the
offer described below (the "Change of Control
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Offer"). In the Change of Control Offer, Emmis will offer a payment in cash
equal to 101% of the aggregate principal amount of the notes repurchased plus
accrued and unpaid interest and Liquidated Damages of the notes, if any, to the
date of purchase (or if such a Change of Control Offer is prior to March 15,
2006 at 101% of the Accreted Value of the notes on the date of purchase, plus
Liquidated Damages on them, if any, to the date of purchase) (the "Change of
Control Payment"). Within 30 days following any Change of Control, Emmis will
mail a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase the notes on the
date specified in such notice, which date shall be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), under the procedures required by the indenture and
described in this notice.
On the Change of Control Payment Date, Emmis will, to the extent lawful:
(1) accept for payment all notes or portions of the notes properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all notes or portions of the notes so tendered;
and
(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of the notes or portions of the notes being purchased by Emmis.
Emmis will promptly mail to each holder of the notes so tendered the Change
of Control Payment for those notes, and the trustee will promptly authenticate
and mail or cause to be transferred by book entry to each holder a new
certificate representing the notes equal in principal amount to any unpurchased
portion of the notes surrendered, if any.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Emmis will comply,
to the extent applicable, with the requirements of Section 14(e) of the Exchange
Act and any other securities laws or regulations applicable to any Change of
Control Offer. To the extent that the provisions of any applicable securities
laws or securities regulations conflict with the provisions of the covenant
described above, Emmis will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
covenant described above by virtue of that compliance.
The Change of Control purchase feature is a result of negotiations between
Emmis and the initial purchasers of the old notes. Management has no present
intention to engage in a transaction involving a Change of Control, although it
is possible that Emmis would decide to do so in the future. Subject to the
limitations discussed below, Emmis could, in the future, enter into
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the indenture, but that
could increase the amount of Indebtedness outstanding at such time or otherwise
affect Emmis' capital structure. Restrictions on the ability of Emmis to incur
additional Indebtedness are contained in the covenants described under
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock" and "-- Certain Covenants -- Liens." There restrictions can only be
waived with the consent of the holders of a majority in principal amount of the
notes then outstanding. Except for the limitations contained in those covenants,
however, the indenture will not contain any covenants or provisions that may
afford holders of the notes protection in the event of some highly leveraged
transactions.
If a Change of Control were to occur, our Credit Facilities and other
Indebtedness of us or our Subsidiaries, such as the senior subordinated notes,
would be required to be repaid, repurchased, or amended prior to the repurchase
of the notes. Future Indebtedness of Emmis and its Subsidiaries may also contain
prohibitions on the repurchase of the notes and on the occurrence of some events
that would constitute a Change of Control or may require such Indebtedness to be
repurchased upon a Change of Control. In the event that a Change of Control
occurs at a time when Emmis is prohibited or prevented from repurchasing the
notes, Emmis could seek the consent of the applicable lenders to allow the
repurchase or could attempt to refinance the borrowings that contain the
prohibition. If Emmis does not
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obtain such a consent or repay those borrowings, Emmis will remain prohibited
from repurchasing the notes. In that case, Emmis' failure to purchase tendered
notes would constitute an Event of Default under the indenture. Finally, Emmis'
ability to pay cash to the holders of the notes following the occurrence of a
Change of Control may be limited by Emmis' then existing financial resources,
including its ability to access the cash flow of its Subsidiaries. See "Risk
Factors -- Risk Relating to the Exchange Notes -- We may not be able to fulfill
our repurchase obligations in the event of a change of control." and "Risk
Factors -- Risk Relating to the Exchange Notes -- We are a holding company. The
exchange notes are subordinated to the claims of our direct and indirect
subsidiaries, and our only material source of cash is and will be distributions
from our subsidiaries." There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
Emmis will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by Emmis and purchases
all notes validly tendered and not withdrawn under such Change of Control Offer.
The provisions under the indenture relative to Emmis' obligation to make an
offer to repurchase the notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in principal
amount of the notes then outstanding.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of Emmis and its Restricted Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of the notes to
require Emmis to repurchase such notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of Emmis and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Notwithstanding the above, Emmis may merge with an Affiliate incorporated
for the purpose of reincorporating Emmis in another jurisdiction and/or for the
purpose of forming a holding company.
Asset Sales
Emmis will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) Emmis (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is determined by Emmis' Board of Directors and
evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the trustee; and
(3) at least 75% of the consideration therefor received by Emmis or that
Restricted Subsidiary is in the form of cash. For purposes of this
provision, each of the following shall be deemed to be cash:
(a) any liabilities, as shown on Emmis' or Restricted Subsidiary's
most recent balance sheet, of Emmis or any Restricted Subsidiary
(other than contingent liabilities and liabilities that are by
their terms subordinated to the notes in right of payment) that
are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases Emmis or such
Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by Emmis or
any such Restricted Subsidiary from such transferee that are
converted by Emmis or such Restricted Subsidiary into cash within
30 days after receipt, to the extent of the cash received in that
conversion.
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Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
Emmis and any Restricted Subsidiary may apply such Net Proceeds at its option:
(1) to repay senior Indebtedness of Emmis and any Indebtedness of any
Restricted Subsidiary;
(2) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another Permitted Business that is owned by Emmis;
(3) to make a capital expenditure; or
(4) to acquire other assets that are used or useful in a Permitted Business
that is owned by Emmis.
Pending the final application of any such Net Proceeds, Emmis may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the indenture.
Notwithstanding the two immediately preceding paragraphs, Emmis and its
Restricted Subsidiaries will be permitted to complete an Asset Sale without
complying with those paragraphs to the extent:
(1) at least 75% of the consideration for such Asset Sale constitutes
Productive Assets, cash, Cash Equivalents and/or Marketable Securities
and
(2) such Asset Sale is for fair market value (as determined in good faith
by the Board of Directors and certified to in an Officer's
Certificate);
Provided that any cash consideration not constituting Productive Assets
received by Emmis or any of its Restricted Subsidiaries in connection with any
Asset Sale permitted to be completed under this paragraph shall be subject to
the provisions of the preceding paragraphs.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $5.0 million, Emmis will make an
Asset Sale Offer to all holders of the notes and all holders of other
Indebtedness that ranks equally with the notes containing provisions similar to
those set forth in the indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets to purchase the maximum principal amount of
the notes and any other equal ranking Indebtedness that may be purchased out of
the Excess Proceeds. To the extent that any Indebtedness of any Subsidiary
requires that Subsidiary to make an offer similar to an Asset Sale Offer, Emmis
and that Subsidiary may make simultaneous offers, with the offer to the
noteholders being limited to proceeds not used to repurchase the Indebtedness of
that Subsidiary. The offer price in any Asset Sale Offer will be equal to 100%
of aggregate principal amount at maturity of the notes to be repurchased, plus
accrued and unpaid dividends and Liquidated Damages on them, if any, to the date
of purchase (or, in the case of purchases of notes prior to March 15, 2006 at
100% of their Accreted Value, plus Liquidated Damages on them, if any, to the
date of purchase), and will be payable in cash. If any Excess Proceeds remain
after consummation of an Asset Sale Offer, Emmis may use those Excess Proceeds
for any purpose not otherwise prohibited by the notes. If the aggregate
principal amount of the notes and that other Indebtedness tendered into that
Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee shall select
the notes and the other equal ranking Indebtedness to be purchased on a pro rata
basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
The Asset Sale provisions described above will be applicable whether or not
any other provisions of the indenture are applicable. Emmis will comply, to the
extent applicable, with the requirements of Section 14(e) of the Exchange Act
and any other securities laws or regulations applicable to any Asset Sale Offer.
To the extent that the provisions of any applicable securities laws or
securities regulations conflict with the provisions of the covenant described
above, Emmis will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the covenant described
above by virtue of that compliance.
The credit facility and the outstanding Senior Subordinated Notes contain
restrictions that limit our ability to effect an Asset Sale. Any future
agreements relating to Indebtedness to which we or any of our
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Subsidiaries or joint ventures become a party may contain similar restrictions
and provisions. Notwithstanding the foregoing, the indenture will provide that
Emmis may not repurchase any notes pursuant to this provision unless such
repurchase complies with the restricted payments covenant contained in the
indebtedness of Emmis.
Notwithstanding the above, Emmis may merge with an Affiliate incorporated
for the purpose of reincorporating Emmis in another jurisdiction and/or for the
purpose of forming a holding company.
CERTAIN COVENANTS
Restricted Payments
Emmis will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of Emmis' or any of its Restricted Subsidiaries' Equity
Interests (including, without limitation, any payment in connection
with any merger or consolidation involving Emmis or any of its
Restricted Subsidiaries) or to the direct or indirect holders of Emmis'
or any of its Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in
Equity Interests, other than Disqualified Stock, of Emmis or to Emmis
or a Restricted Subsidiary of Emmis,
(2) purchase, redeem or otherwise acquire or retire for value (including
without limitation, in connection with any merger or consolidation
involving Emmis) any Equity Interests of Emmis or any direct or
indirect parent of Emmis, other than any such Equity Interests owned by
Emmis or any Restricted Subsidiary of Emmis,
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness of Emmis that is
subordinated to the notes in right of payment, except a payment of
interest or the payment of principal at Stated Maturity, or
(4) make any Restricted Investment, all the payments and other actions set
forth in clauses (1) through (4) above being collectively referred to
as "Restricted Payments";
unless, at the time of and after giving effect to the Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence of the Restricted Payment; and
(2) Emmis would, at the time of such Restricted Payment and after giving
pro forma effect to it as if the Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant
to clause (C) of the Leverage Ratio test set forth in the first
paragraph of the covenant described below under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(3) the Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by Emmis and its Restricted Subsidiaries after
the date of the indenture, excluding Restricted Payments permitted by
clauses (2), (5), (6), (7) and (8) of the next succeeding paragraph, is
less than the sum, without duplication, of:
(a) (1) the aggregate Consolidated EBITDA of Emmis for the period,
taken as one accounting period, from the beginning of the first
fiscal quarter commencing after February 12, 1999 to the end of
Emmis' most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, in the event aggregate Consolidated EBITDA for such
period is a deficit, then minus that deficit) less (2) 1.4 times
the aggregate Fixed Charges of Emmis for the same period; plus
(b) the aggregate net cash proceeds and the fair value, determined in
good faith by the Board of Directors, of any non-cash
consideration, in each case, received by Emmis since
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February 12, 1999 as a contribution to its common equity capital or
from the issue or sale of Equity Interests of Emmis other than
Disqualified Stock or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt
securities, of Emmis that have been converted into or exchanged for
such Equity Interests (other than Equity Interests (or Disqualified
Stock or debt securities) sold to a Subsidiary of Emmis); plus
(c) to the extent that any Restricted Investment that was made after
February 12, 1999 is sold for cash or otherwise liquidated or
repaid for cash, the cash return of capital with respect to the
Restricted Investment less the cost of disposition, if any; plus
(d) if any Unrestricted Subsidiary:
(A) is redesignated as a Restricted Subsidiary, the fair market
value of such redesignated Subsidiary as determined in good
faith by the Board of Directors as of the date of its
redesignation or
(B) pays any cash dividends or cash distributions to Emmis or any
of its Restricted Subsidiaries, 100% of any such cash dividends
or cash distributions made after February 12, 1999; plus
(e) without, duplication of any of the foregoing, the aggregate amount
returned in cash on or with respect to Restricted Investments made
subsequent to February 12, 1999, whether through interest
payments, principal payments, dividends or other distributions or
payments; plus
(f) $10.0 million.
So long as no Default or Event of Default has occurred and is continuing or
would be caused thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after its date of
declaration, if at that date of declaration the payment would have
complied with the provisions of the indenture;
(2) the making of any Investment or the redemption, repurchase, retirement,
defeasance or other acquisition of any Equity Interests of Emmis in
exchange for, or out of the proceeds of the sale, other than to a
Subsidiary of Emmis, of, any Equity Interests of Emmis, other than any
Disqualified Stock; provided that, in each such case, the amount of any
such net cash proceeds that are so utilized shall be excluded from
clause (3)(b) of the preceding paragraph;
(3) the payment of any dividend by a Restricted Subsidiary of Emmis to the
holders of its common Equity Interests on a pro rata basis;
(4) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of Emmis or any Restricted Subsidiary of Emmis
held by any former member of Emmis' or any of its Restricted
Subsidiaries' management under any management equity subscription
agreement or stock option agreement in effect as of the date of the
Indenture; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $1.0 million in any twelve-month period;
(5) the exchange of the notes for exchangeable preferred stock in
accordance with the Indenture and the Annex to Articles;
(6) the repurchase of Equity Interests of Emmis deemed to occur upon the
exercise of stock options if such Equity Interests represent a portion
of the exercise price of such options;
(7) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness of Emmis or of any Equity Interests of
Emmis or any Restricted Subsidiary in exchange for, or out of the net
cash proceeds of the substantially concurrent sale, other than to a
Subsidiary of Emmis, of, Equity Interests of Emmis, other than
Disqualified Stock; provided that
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the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (3)(b) of the preceding paragraph;
(8) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of Emmis with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;
(9) the repurchase, redemption or other acquisition or retirement for value
of any Equity interests of Emmis in an amount not to exceed $25.0
million under this clause (9).
In determining whether any payment is permitted by the foregoing covenant,
Emmis may allocate or reallocate, among clauses (1) through (9) of the preceding
paragraph or among such clauses and the first paragraph of this covenant, all or
any portion of such payment and all or any portion of any payment previously
allocated; provided that, after giving effect to that allocation or
reallocation, all of those payments or allocated portions of those payments
would be permitted under the various provisions of this covenant.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if the designation would not cause a Default or an Event
of Default. For purposes of making the determination, all outstanding
Investments by Emmis and its Restricted Subsidiaries, except to the extent
repaid in cash, in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of the designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All of those
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of those Investments at the time of the
designation. The designation will only be permitted if the Restricted Payment
would be permitted at such time and if the Restricted Subsidiary otherwise meets
the definition of an Unrestricted Subsidiary. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary if the
designation would not cause a Default or Event of Default.
The amount of all Restricted Payments other than cash shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by Emmis or the applicable Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any property, assets or Investments required by this covenant to
be determined shall be determined by the Board of Directors whose resolution
with respect to the determination shall be delivered to the trustee.
In making the computations required by this covenant:
(1) Emmis may use audited financial statements for the portions of the
relevant period for which audited financial statements are available on
the date of determination and unaudited financial statements and other
current financial data based on the books and records of Emmis for the
remaining portion of the period; and
(2) Emmis may rely in good faith on the financial statements and other
financial data derived from its books and records that are available on
the date of determination.
If Emmis makes a Restricted Payment that, at the time of the making of the
Restricted Payment, would in the good faith determination of Emmis be permitted
under the requirements of the indenture, the Restricted Payment will be deemed
to have been made in compliance with the indenture notwithstanding any
subsequent adjustments made in good faith to Emmis' financial statements for any
period which adjustments affect any of the financial data used to make the
calculations with respect to the Restricted Payment.
Incurrence of Indebtedness and Issuance of Preferred Stock
Emmis will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness, including Acquired Debt, and Emmis will not issue
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any Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that (A) any Restricted
Subsidiary may incur Indebtedness, including Acquired Debt, if the Leverage
Ratio of the Restricted Subsidiaries of Emmis, taken as a whole, for the
four-quarter reference period immediately preceding the date on which such
additional Indebtedness is incurred is issued would not have been greater than
7.0 to 1, (B) Emmis may incur Indebtedness, that ranks equally in right of
payment with the notes, including Acquired Debt, if the Leverage Ratio of Emmis
for the four-quarter reference period immediately preceding the date on which
such additional Indebtedness is incurred would not have been greater than 7.5 to
1, it being understood that this clause (B) shall not prohibit or restrict Emmis
from guaranteeing any Indebtedness of any Restricted Subsidiary that was
otherwise permitted to be incurred by the terms of the indenture, and (C) Emmis
may incur Indebtedness that is junior in right of payment to the notes,
including Acquired Debt, and may issue Disqualified Stock, if the Leverage Ratio
of Emmis for the four-quarter reference period immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would not have been greater than 8.0 to 1, in the case of each of (A),
(B) or (C) above, determined on a pro forma basis, after giving pro forma effect
to the incurrence or issuance and to the application of the net proceeds from
the incurrence, and in accordance with the definition of Leverage Ratio.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness or preferred stock
(collectively, "Permitted Debt"):
(1) the incurrence by Emmis or any of its Restricted Subsidiaries of
Indebtedness under the Credit Facilities; provided that the aggregate
amount of all Indebtedness of Emmis and the Restricted Subsidiaries
outstanding under the Credit Facilities after giving effect to the
incurrence does not exceed an amount equal to $750.0 million less the
aggregate amount of all Net Proceeds of Asset Sales applied by Emmis
or any of its Restricted Subsidiaries since the date of the indenture
to repay Indebtedness under the Credit Facilities pursuant to the
covenant described above under the caption "-- Repurchase at the
Option of Holders -- Asset Sales";
(2) the incurrence by Emmis and its Restricted Subsidiaries of the
Existing Indebtedness;
(3) the issuance by Emmis of the notes and the New Notes;
(4) the incurrence by Emmis or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for
the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in
the business of Emmis or that Restricted Subsidiary, in an aggregate
principal amount not to exceed $5.0 million at any time outstanding;
(5) the incurrence by Emmis or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace,
Indebtedness of Emmis or any of its Restricted Subsidiaries or
Disqualified Stock of Emmis, other than intercompany Indebtedness,
that was permitted by the indenture to be incurred under the first
paragraph of this covenant or clause (2), (3), (4), (8), (9) or (11)
of this paragraph;
(6) the incurrence by Emmis or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Emmis and any of its
Restricted Subsidiaries; provided, that:
(a) any subsequent issuance or transfer of Equity Interests that
results in any of that Indebtedness being held by a Person other
than Emmis or a Restricted Subsidiary; and
(b) any sale or other transfer of any of that Indebtedness to a
Person that is not either Emmis or a Restricted Subsidiary shall
be deemed, in each case, to constitute an incurrence of that
Indebtedness by Emmis or that Restricted Subsidiary, as the case
may be;
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(7) the incurrence by Emmis or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate or foreign currency risk with respect to any
Indebtedness that is permitted by the terms of the indenture to be
outstanding;
(8) the guarantee by Emmis or any of its Restricted Subsidiaries of
Indebtedness of Emmis or a Restricted Subsidiary of Emmis that was
permitted to be incurred by another provision of the indenture;
(9) the incurrence by Emmis or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount, or accreted
value, as applicable, at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred under this clause (9), not to exceed $25.0
million;
(10) the incurrence by Emmis' Unrestricted Subsidiaries of Non-Recourse
Debt; provided, however, that if any of that Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, that event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of Emmis that was not permitted by this clause (10);
(11) the accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, provided, in each such
case, that the amount thereof is included in Fixed Charges of Emmis as
accrued, and the payment of dividends on Disqualified Stock in the
form of additional shares of the same class of Disqualified Stock; and
(12) the incurrence by Emmis or any of its Restricted Subsidiaries
Indebtedness of up to an aggregate principal amount of $250.0 million
of Indebtedness under the Credit Facilities for the purpose of
acquiring Permitted Businesses.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness or Disqualified Stock meets the criteria of more
than one of the categories of Permitted Debt described in clauses (1) through
(12) above or is entitled to be incurred pursuant to the first paragraph of this
covenant, Emmis shall, in its sole discretion, classify or later reclassify in
whole or in part that item of Indebtedness or Disqualified Stock in any manner
that complies with this covenant.
Accrual of interest or dividends, accretion or amortization of original
issue discount and the payment of interest or dividends in the form of
additional Indebtedness or Disqualified Stock will not be deemed to be an
incurrence of Indebtedness or Disqualified Stock for purposes of this covenant.
Liens
Emmis will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired, or any income or profits therefrom or
assign or convey any right to receive income from the asset, except Permitted
Liens, unless all payments due under the indenture and the notes are secured on
an equal and ratable basis with the obligations so secured until such time as
such obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Subsidiaries
Emmis will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions to Emmis or any of its
Restricted Subsidiaries on its Capital Stock or with respect to any
other interest or participation in, or measured by, its profits;
(2) pay any indebtedness owed to Emmis or any of its Restricted
Subsidiaries;
(3) make loans or advances to Emmis or any of its Restricted Subsidiaries;
or
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(4) transfer any of its properties or assets to Emmis or any of its
Restricted Subsidiaries.
However, the above restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness or Indebtedness under the Credit Facilities, in
each case as in effect on the date of the indenture, and any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of that
Indebtedness; provided that those amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive, taken as a
whole, with respect to such dividend and other payment restrictions
than those contained in the Existing Indebtedness or in the Credit
Facilities, in each case as in effect on the date of the indenture;
(2) encumbrances and restrictions applicable to any Unrestricted
Subsidiary, as the same are in effect as of the date on which that
Subsidiary becomes a Restricted Subsidiary, and as the same may be
amended, modified, restated, renewed, increased, supplemented,
refunded, replaced or refinanced; provided that those amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are no more restrictive, taken
as a whole, with respect to such dividend and other payment
restrictions than those contained in the applicable series of
Indebtedness of that subsidiary as in effect on the date on which that
Subsidiary becomes a Restricted Subsidiary;
(3) any Indebtedness incurred in compliance with the covenant under the
heading "-- Incurrence of Indebtedness and Issuance of Preferred
Stock" or any agreement pursuant to which that Indebtedness is issued
if the encumbrance or restriction applies only in the event of a
payment default or default with respect to a financial covenant
contained in that Indebtedness or agreement and that encumbrance or
restriction is not materially more disadvantageous to the holders of
the notes than is customary in comparable financings, as determined by
Emmis, or if that encumbrance or restriction is no more restrictive
than those in the Credit Facilities or the Senior Subordinated Notes
Indenture on the date of the indenture (or, alternatively in the case
of the Senior Subordinated Notes Indenture, on its date);
(4) the indenture and the notes;
(5) applicable law;
(6) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Emmis or any of its Restricted Subsidiaries as in effect
at the time of that acquisition, except to the extent the Indebtedness
was incurred in connection with or in contemplation of that
acquisition, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, so acquired, provided
that, in the case of Indebtedness, the Indebtedness that was permitted
by the terms of the indenture to be incurred;
(7) customary non-assignment provisions in leases or licenses entered into
in the ordinary course of business;
(8) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(9) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing that Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being
refinanced;
(10) Liens permitted to be incurred under the provisions of the covenant
described above under the subheading "-- Liens" that limit the right
of the debtor to transfer the assets subject to those Liens;
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(11) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements and other similar agreements;
and
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business.
Merger, Consolidation or Sale of Assets
Emmis may not consolidate or merge with or into (whether or not Emmis is
the surviving corporation), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions, to another corporation, Person or entity unless:
(1) Emmis is the surviving corporation or the entity or the Person formed
by or surviving any such consolidation or merger, if other than Emmis,
or to which that sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state of the United States or
the District of Columbia;
(2) the entity or Person formed by or surviving any such consolidation or
merger, if other than Emmis, or the entity or Person to which that
sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of Emmis under the
notes and the indenture under a supplemental indenture in a form
reasonably satisfactory to the trustee;
(3) immediately after such transaction no Default exists; and
(4) Emmis or the entity or Person formed by or surviving any such
consolidation or merger, if other than Emmis, or to which that sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made
(a) will have a Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of
Emmis immediately preceding the transaction; and
(b) will, at the time of such transaction and after giving pro forma
effect to the transaction as if the transaction had occurred at
the beginning of the applicable four-quarter period, be permitted
to incur at least $1.00 of additional Indebtedness under clause
(C) of the Leverage Ratio test set forth in the first paragraph of
the covenant described above under the subheading "-- Incurrence
of Indebtedness and Issuance of Preferred Stock."
Notwithstanding the above, Emmis may merge with Escrow Corporation and
Escrow Holding, complete the Reorganization and merge with an Affiliate
incorporated for the purpose of reincorporating Emmis in another jurisdiction
and/or for the purpose of forming a holding company.
Transactions with Affiliates
Emmis will not, and will not permit any of its Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of those,
an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable to
Emmis or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by Emmis or the Restricted
Subsidiary with an unrelated Person; and
(2) Emmis delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess
of $5.0 million, a resolution of the Board of Directors set forth
in an Officers' Certificate certifying that the Affiliate
Transaction complies with clause
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(1) above and that the Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess
of $10.0 million, an opinion as to the fairness to the holders of
such Affiliate Transaction from a financial point of view issued
by an accounting, appraisal or investment banking firm of national
standing.
The following items shall not be deemed to be Affiliate Transactions and
therefore will not be subject to the provisions of the prior paragraph:
(1) any employment or indemnification arrangements or transactions relating
to benefit plans with any employee, consultant or director of Emmis or
a Restricted Subsidiary that is entered into by Emmis or any of its
Restricted Subsidiaries in the ordinary course of business and
consistent with past practice of Emmis or such Restricted Subsidiary;
(2) transactions between or among Emmis and/or its Restricted Subsidiaries;
(3) payment of reasonable directors fees to Persons who are not otherwise
Affiliates of Emmis;
(4) Restricted Payments that are permitted by the provisions of the
indenture described above under the subheading "-- Restricted
Payments";
(5) any tax sharing agreement or administrative services agreement between
Emmis or any Restricted Subsidiary and any of its Affiliates approved
by a majority of the independent Directors;
(6) transactions and payments contemplated by any agreement in effect on
the date of the indenture or any amendment to that agreement in any
replacement agreement therefor, so long as any such amendment or
replacement agreement, taken as a whole, is not more disadvantageous to
Emmis or such Restricted Subsidiary as the original agreement as in
effect on the date of the indenture;
(7) loans and advances to employees of Emmis or any Restricted Subsidiary
in the ordinary course of business; and
(8) the merger of Emmis with Escrow Corporation and Escrow Holding and the
Reorganization.
Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries
Emmis:
(1) will not, and will not permit any Restricted Subsidiary of Emmis to,
transfer, convey, sell, lease or otherwise dispose of any Equity
Interests in any Restricted Subsidiary of Emmis to any Person, other
than Emmis or a Wholly Owned Restricted Subsidiary of Emmis; and
(2) will not permit any Restricted Subsidiary of Emmis to issue any of its
Equity Interests, other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares, to any Person other than to
Emmis or a Wholly Owned Restricted Subsidiary of Emmis,
unless, in each such case:
(a) as a result of such transfer, conveyance, sale, lease or other
disposition or issuance such Restricted Subsidiary no longer
constitutes a Subsidiary; and
(b) the cash Net Proceeds from such transfer, conveyance, sale, lease or
other disposition or issuance are applied in accordance with the
covenant described above under the caption "-- Repurchase at the Option
of Holders -- Asset Sales."
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Reports
Whether or not required by the rules and regulations of the Commission, so
long as any notes are outstanding, Emmis will furnish to the holders of the
notes:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K
if Emmis were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of
operations of Emmis and its consolidated Subsidiaries showing in
reasonable detail, in the footnotes to the financial statements and in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" (in each case to the extent not prohibited by
the Commission's rules and regulations), the financial condition and
results of operations of Emmis and its Restricted Subsidiaries separate
from the financial condition and results of operations of the
Unrestricted Subsidiaries of Emmis; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Emmis were required to file such reports, in
each case within the time periods specified in the Commission's rules
and regulations.
In addition, following the consummation of the exchange offer contemplated
by the Registration Rights Agreement, whether or not required by the rules and
regulations of the Commission, Emmis will file a copy of all such information
and reports with the Commission for public availability within the time periods
specified in the Commission's rules and regulations, unless the Commission will
not accept such a filing, and make such information available to securities
analysts and prospective investors upon request.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the indenture or
the notes may be amended or supplemented with the consent of the holders of a
majority of the aggregate principal amount of the notes (or, prior to March 15,
2006, the Accreted Value of the notes) then outstanding, including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, the notes, and any existing default or compliance with
any provision of the indenture or the notes may be waived with the consent of
the holders of a majority of the aggregate principal amount of the notes (or,
prior to March 15, 2006, the Accreted Value of the notes) then outstanding,
including consents obtained in connection with a tender offer or exchange offer
for the notes.
Without the consent of each holder affected, an amendment or waiver may
not, with respect to any notes held by a non-consenting holder:
(1) reduce the principal amount of the notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes, but
not any required repurchase in connection with an Asset Sale Offer or
Change of Control Offer;
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default in the payment of principal of or premium, if any, or
interest on the notes, except a rescission of acceleration of the notes
by the holders of a majority in aggregate principal amount of the notes
and a waiver of the payment default that resulted from such
acceleration;
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of holders of the notes to receive
payments of principal of or premium, if any, or interest on the notes;
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(7) waive a redemption payment with respect to any note, but not any
required repurchase in connection with an Asset Sale Offer or Change of
Control Offer; or
(8) make any change in the above amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of the
notes, Emmis and the trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Emmis' obligations to holders of the
notes in the case of a merger, consolidation or sale of Emmis' assets;
(4) to make any change that would provide any additional rights or benefits
to the holders of the notes or that does not adversely affect the legal
rights under the indenture of any such holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture
Act.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the notes;
(2) default in payment when due of the principal of or premium, if any, on
the notes;
(3) failure by Emmis or any of its Subsidiaries for 30 days after notice to
comply with the provisions described under the caption "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets" or failure by
Emmis to consummate a Change of Control Offer or Asset Sale Offer in
accordance with the provisions of the indenture applicable thereto;
(4) failure by Emmis or any of its Subsidiaries for 60 days after notice to
comply with any of its other agreements in the indenture or the notes;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Emmis or any of its Significant
Subsidiaries, or the payment of which is guaranteed by Emmis or any of
its Significant Subsidiaries, whether such Indebtedness or guarantee
now exists, or is created after the date of the indenture, which
default
(a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default
(a "Payment Default") or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $20.0 million or more;
(6) failure by Emmis or any of its Significant Subsidiaries to pay final
judgments aggregating in excess of $5.0 million, which judgments are
not paid, discharged or stayed for a period of 60 consecutive days; or
(7) specified events of bankruptcy or insolvency with respect to Emmis or
any of its Significant Subsidiaries.
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If any Event of Default occurs and is continuing, the trustee or the
holders of at least 25% of the aggregate principal amount of the then
outstanding notes may declare all the notes to be due and payable immediately.
Notwithstanding the preceding, in the case of an Event of Default arising from
specified events of bankruptcy or insolvency, with respect to Emmis, all
outstanding notes will become due and payable without further action or notice.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to specified limitations, holders of a
majority of the aggregate principal amount of the then outstanding notes may
direct the trustee in its exercise of any trust or power.
The holders of a majority of the aggregate principal amount of the notes
then outstanding by notice to the trustee may on behalf of the holders of all of
the notes waive any existing Default or Event of Default and its consequences
under the indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of us with the intention
of avoiding payment of the premium that we would have had to pay if we then had
elected to redeem the notes pursuant to the optional redemption provisions of
the indenture, an equivalent premium will also become and be immediately due and
payable to the extent permitted by law upon the acceleration of the notes. If an
Event of Default occurs prior to March 15, 2006 by reason of any willful action
or inaction taken or not taken by or on behalf of us with the intention of
avoiding the prohibition on redemption of the notes prior to March 15, 2006 then
the premium specified in the indenture will also become immediately due and
payable to the extent permitted by law upon the acceleration of the notes.
The indenture provides that if a Default occurs and is continuing and is
known to the trustee, the trustee must mail to each holder of the notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any note, the trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the notes.
In addition, Emmis is required to deliver to the trustee, within 90 days after
the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. Emmis is
also required to deliver to the trustee, promptly after its occurrence, written
notice of any event that would constitute a Default, the status of the event and
what action Emmis is taking or proposes to take in respect of the event.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Emmis, as
such, shall have any liability for any obligations of Emmis under the notes, the
indenture or for any claim based on, in respect of, or by reason of, those
obligations or their creation. Each holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. Such waiver may not be effective to
waive liabilities under the federal securities laws, and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Emmis may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest and
Liquidated Damages on those notes when those payments are due from the
trust referred to below;
(2) Emmis' obligations with respect to the notes concerning issuing
temporary notes, registration of the notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payment
and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee and
Emmis' obligations in connection with those; and
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(4) the Legal Defeasance provisions of the indenture.
In addition, Emmis may, at its option and at any time, elect to have the
obligations of Emmis released with respect to certain covenants that are
described in the indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the notes. In the event Covenant Defeasance occurs, some
events, not including non-payment and bankruptcy, receivership, rehabilitation
and insolvency events with respect to Emmis, described under "-- Events of
Default and Remedies" will no longer constitute an Event of Default with respect
to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Emmis must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the notes, cash in United States dollars,
non-callable Government Securities, or a combination of them, in such
amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal
of, premium, if any, and interest and Liquidated Damages on the
outstanding notes on the stated maturity or on the applicable
redemption date, as the case may be, and Emmis must specify whether the
notes are being defeased to maturity or to a particular redemption
date;
(2) in the case of Legal Defeasance, other than in the case where the notes
have been called for redemption, Emmis shall have delivered to the
trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that
(a) Emmis has received from, or there has been published by, the
Internal Revenue Service a ruling or
(b) since the date of the indenture, there has been a change in the
applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of the outstanding notes
will not recognize income, gain or loss for federal income tax
purposes as a result of that Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if that Legal Defeasance
had not occurred;
(3) in the case of Covenant Defeasance, Emmis shall have delivered to the
trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that the holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of that Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if that Covenant
Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit, other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit, or
insofar as Events of Default from bankruptcy or insolvency events with
respect to Emmis are concerned;
(5) that Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument, other than the indenture, to which Emmis or
any of its Restricted Subsidiaries is a party or by which Emmis or any
of its Restricted Subsidiaries is bound;
(6) except where the notes have been called for redemption, Emmis must have
delivered to the trustee an opinion of counsel to the effect that after
the 91st day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally;
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(7) Emmis must deliver to the trustee an Officers' Certificate stating that
the deposit was not made by Emmis with the intent of preferring the
holders of the notes over the other creditors of Emmis with the intent
of defeating, hindering, delaying or defrauding creditors of Emmis or
others; and
(8) Emmis must deliver to the trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent provided
for relating to the Legal Defeasance or the Covenant Defeasance have
been complied with.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the trustee,
should it become a creditor of Emmis, to obtain payment of claims in certain
cases, or to realize on certain 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
that conflict within 90 days, apply to the Commission for permission to continue
or resign.
The holders of a majority of the aggregate principal amount of the then
outstanding 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 occurs, which is not cured, the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to those 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 the notes, unless the holder shall have offered to the
trustee security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all of those terms, as well as
any other capitalized terms used in this description for which no definition is
provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness or Disqualified Stock of any other Person existing at the
time such other Person is merged with or into or became a Subsidiary of
such specified Person, including, without limitation, Indebtedness
incurred in connection with, or in contemplation of, such other Person
merging with or into or becoming a Subsidiary of such specified Person;
and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Accreted Value" means, as of any date of determination, prior to March 15,
2006 with respect to any note, the sum of (a) the initial offering price to
investors of the note and (b) the portion of the excess of the principal amount
of the note over the initial offering price (which shall be calculated by
discounting the aggregate principal amount at maturity of the note at a rate of
12.5% per year, compounded semi-annually on each March 15 and September 15 from
March 15, 2006 to the date of issuance) which shall have been accreted thereon
through that date, such amount to be so accreted on a daily basis at a rate of
12.5% per year of the initial offering price of such note, compounded
semi-annually each March 15 and September 15 from the date of issuance of the
notes through the date of determination, computed on the basis of a 360-day year
of twelve 30-day months.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with," as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial
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ownership of 10% or more of the Voting Stock of a Person shall be deemed to be
control. For purposes of this definition, the terms "controlling," "controlled
by" and "under common control with" shall have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of
business; provided that the sale, conveyance or other disposition of
all or substantially all of the assets of Emmis and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
indenture described above under the respective captions "-- Repurchase
at the Option of Holders -- Change of Control" and/or the provisions
described above under the respective captions "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of Emmis' Restricted
Subsidiaries or the sale of Equity Interests in any of its
Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to
be Asset Sales:
(1) any single transaction or series of related transactions that: involves
assets having a fair market value of less than $1.0 million or results
in net proceeds to Emmis and its Restricted Subsidiaries of less than
$1.0 million;
(2) a transfer of assets between or among Emmis and any of its Restricted
Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to Emmis or
to another Restricted Subsidiary;
(4) a transfer by Emmis of assets in a transaction that qualifies as a
charitable contribution or donation and which does not exceed $2.0
million in the aggregate; and
(5) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the respective captions "-- Certain
Covenants -- Restricted Payments."
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. That present
value shall be calculated using a discount rate equal to the rate of interest
implicit in the transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), that "person" will be deemed to have beneficial ownership
of all securities that the "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Broker-Dealer" means any broker or dealer registered under the Exchange
Act.
"Capital Lease Obligation" means, at the time any determination of it is to
be made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents, however
designated, of corporate stock;
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(3) in the case of a partnership or limited liability company, partnership
or membership interests, whether general or limited; and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality of it,
provided that the full faith and credit of the United States is pledged
in support of those securities, having maturities of not more than six
months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits,
in each case with any lender party to the Credit Agreement or with any
domestic commercial bank having capital and surplus in excess of $500.0
million and a Thompson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper or marketable direct obligations issued by any state
of the United States of America or any political subdivision of any
such state or any public instrumentality of them, in each case, having
one the two highest ratings obtainable from Moody's Investors Service,
Inc. or Standard & Poor's Ratings Group and in each case maturing
within one year after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1)-(5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition, other than
by way of merger or consolidation, in one or a series of related
transactions, of all or substantially all of the assets of Emmis and
its Restricted Subsidiaries, taken as a whole to any "person" (as that
term is used in Section 13(d)(3) of the Exchange Act) other than a
Principal or a Related Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of
Emmis;
(3) the completion of any transaction, including, without limitation, any
merger or consolidation, the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties and
disregarding any holding company whose principal asset is capital stock
of Emmis, becomes the Beneficial Owner, directly or indirectly, of more
than 50% of the Voting Stock of Emmis, measured by voting power rather
than number of shares; or
(4) the first day on which a majority of the members of the Board of
Directors of Emmis are not Continuing Directors.
"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for that period plus:
(1) an amount equal to any extraordinary loss on an after tax basis plus
any loss realized in connection with an Asset Sale or any refinancing
of a Credit Facility on an after tax basis, to the extent those losses
were deducted in computing such Consolidated Net Income; plus
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(2) provision for taxes based on income or profits of that Person and its
Restricted Subsidiaries for that period, to the extent that that
provision for taxes was deducted in computing that Consolidated Net
Income; plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for that period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, consent fees, premiums, prepayments penalties, discounts
and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments, if any, pursuant to
Hedging Obligations), to the extent that any such expense was deducted
in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expense to the extent that it represents
an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period)
of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation, amortization and other non-cash expenses
were deducted in computing such Consolidated Net Income; plus
(5) all one-time cash compensation payments in connection with employment
agreements, or replacement of them, as in effect on the date of the
indenture; minus
(6) non-cash items increasing that Consolidated Net Income for that period,
other than items that were accrued in the ordinary course of business,
in each case, on a consolidated basis and determined in accordance with
GAAP.
Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash charges
of, a Restricted Subsidiary of Emmis shall be added to Consolidated Net Income
to compute Consolidated EBITDA of Emmis only to the extent that a corresponding
amount would be permitted at the date of determination to be dividended to Emmis
by that Restricted Subsidiary without prior approval (that has not been
obtained), under the terms of its charter and all judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"Consolidated Indebtedness" means, with respect to any Person as of any
date of determination, the sum, without duplication, of:
(1) the total amount of Indebtedness of such Person and its Restricted
Subsidiaries; plus
(2) the total amount of Indebtedness of any other Person, to the extent
that such Indebtedness has been Guaranteed by the referent Person or
one or more of its Restricted Subsidiaries; plus
(3) the aggregate liquidation value of all Disqualified Stock of such
Person and all preferred stock of Restricted Subsidiaries of such
Person, in each case, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for that period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(1) the Net Income or loss of any Person other than Emmis that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a
Restricted Subsidiary of that Person;
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(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall
be excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded; and
(5) the Net Income or loss of any Unrestricted Subsidiary shall be excluded
whether or not distributed to the specified Person or one of its
Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of such Person and
its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as of
that date with respect to any series of preferred stock, other than
Disqualified Stock, that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of
net earnings in respect of the year of that declaration and payment,
but only to the extent of any cash received by that Person upon
issuance of that preferred stock.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Emmis who:
(1) was a member of such Board of Directors on the date of the indenture;
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election; or
(3) is a designee of a Principal or was nominated by a Principal.
"Credit Agreement" means the Fourth Amended and Restated Revolving Credit
and Term Loan Agreement, dated as of December 29, 2000, as amended, among Emmis
Communications Corporation, the lenders named therein, Toronto Dominion (Texas),
Inc., as Administrative Agent, Fleet National Bank, as Documentation Agent,
First Union National Bank, as Syndication Agent, and Credit Suisse First Boston
Corporation, as co-document agent, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
"Credit Facilities" means one or more debt facilities, including, without
limitation, the Credit Agreement, or commercial paper facilities with banks or
other institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"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.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable, in each case, at the option of its holder), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because its holders have the right to
require Emmis to
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repurchase that Capital Stock upon the occurrence of a Change of Control or an
Asset Sale shall not constitute Disqualified Stock if the terms of that Capital
Stock provide that Emmis may not repurchase or redeem any of that Capital Stock
under those provisions unless that repurchase or redemption complies with the
covenant described above under the caption "-- Certain Covenants -- Restricted
Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"Equity Offering" means any sale of Equity Interests of Emmis, excluding
sales made to any Restricted Subsidiary and excluding sales of Disqualified
Stock,
(a) to the public under an effective registration statement under the
Securities Act or
(b) in a private placement of Equity Interests of Emmis under an exemption
from the registration requirements of the Securities Act.
"Escrow Corporation" means Emmis Escrow Corporation, an Indiana corporation
and the original issuer of the old notes.
"Escrow Holding" means Emmis Escrow Holding Corporation, an Indiana
corporation and a wholly-owned, direct subsidiary of Emmis.
"Exchange Offer" means the exchange and issuance by Emmis of New Notes,
which shall be registered pursuant to a Registration Statement, in an amount
equal to the aggregate principal amount of all notes that are tendered by their
holders in connection with that exchange and issuance.
"Exchange Offer Registration Statement" means the Registration Statement
relating to the Exchange Offer, including the related Prospectus.
"Existing Indebtedness" means Indebtedness of Emmis and its Subsidiaries,
other than Indebtedness under the Credit Agreement, in existence on the date of
the indenture, until those amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for that period, whether paid or accrued, including,
without limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments, if any, under Hedging
Obligations; plus
(2) the consolidated interest of that Person and its Restricted
Subsidiaries that was capitalized during that period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of that Person or one of its Restricted
Subsidiaries, whether or not the Guarantee or Lien is called upon and
limited to the amount of such Guarantee or the fair market value of the
property secured by that Lien, as the case may be.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
"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
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of a pledge of assets or through letters of credit or reimbursement agreements
in respect of them), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates or currency exchange rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit, or reimbursement agreements in respect of them;
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property;
or
(6) representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the above-listed indebtedness, other than letters of
credit and Hedging Obligations, would appear as a liability upon a balance sheet
of that Person prepared in accordance with GAAP, as well as all Indebtedness of
others secured by a Lien on any asset of that Person whether or not such
Indebtedness is assumed by that Person (the amount of that Indebtedness as of
any date being deemed to be the lesser of the value of such property or assets
as of that date or the principal amount of that Indebtedness of such other
Person so secured) and, to the extent not otherwise included, the Guarantee by
such Person of any Indebtedness of any other Person. The amount of any
Indebtedness outstanding as of any date shall be
(A) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount, and
(B) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by that
Person in other Persons, including Affiliates, in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If Emmis or any Restricted Subsidiary of Emmis sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of Emmis or a
Restricted Subsidiary of Emmis issues any of its Equity Interests such that, in
each case, after giving effect to any such sale or disposition, that Person is
no longer a Restricted Subsidiary of Emmis, Emmis shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of that Subsidiary not sold or disposed of
in an amount determined as provided in the final paragraph of the covenant
described above under the respective captions "-- Certain
Covenants -- Restricted Payments."
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"Leverage Ratio" means, with respect to any specified Person on any date of
determination (the "Calculation Date"), the ratio, on a pro forma basis, of
(1) the sum of the aggregate outstanding amount of Indebtedness and
Disqualified Stock of such Person and its Restricted Subsidiaries as of
the Calculation Date determined on a consolidated basis in accordance
with GAAP to
(2) the Consolidated EBITDA of such Person and its Restricted Subsidiaries
attributable to continuing operations and businesses, exclusive of
amounts attributable to operations and businesses permanently
discontinued or disposed of, for the four-quarter reference period.
For purposes of calculating the Leverage Ratio:
(A) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of such reference period and Consolidated
EBITDA for such reference period shall be calculated without giving
effect to clause (3) of the proviso set forth in the definition of
Consolidated Net Income; and
(B) transactions giving rise to the need to calculate the Leverage Ratio
shall be assumed to have occurred on the first day of the four-quarter
reference period.
"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, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code or equivalent statutes, of any jurisdiction.
"Net Income" means, with respect to any Person, the net income (loss) of
that Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(1) any gain or loss, together with any related provision for taxes on that
gain or loss, realized in connection with
(a) any Asset Sale (including, without limitation, dispositions in
sale and leaseback transactions); or
(b) the disposition of any securities by that Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness
of that Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain or loss, together with any related provision for
taxes on that extraordinary gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by Emmis or any
of its Restricted Subsidiaries in respect of any Asset Sale, including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale, net of:
(1) the direct costs relating to such Asset Sale, including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result of the
Asset Sale;
(2) taxes paid or payable as a result of the Asset Sale, after taking into
account any available tax credits or deductions and any tax sharing
arrangements;
(3) amounts required to be applied to the repayment of Indebtedness, other
than Indebtedness under a Credit Facility, secured by a Lien on the
asset or assets that were the subject of that Asset Sale;
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(4) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries as a result of that Asset
Sale;
(5) the deduction of appropriate amounts provided by the seller as a
reserve in accordance with GAAP against any liabilities associated with
the assets disposed of in that Asset Sale and retained by Emmis or any
Restricted Subsidiary after that Asset Sale; and
(6) without duplication, any reserves that Emmis' Board of Directors
determines in good faith should be made in respect of the sale price of
that asset or assets for post closing adjustments; provided that in the
case of any reversal of any reserve referred to in clause (5) or (6)
above, the amount so reserved shall be deemed to be Net Proceeds from
an Asset Sale as of the date of such reversal.
"New Notes" means Emmis' Senior Discount Notes due 2011 issued under to the
indenture
(a) in the Exchange Offer; or
(b) in connection with a resale of notes in reliance on a Shelf
Registration Statement.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Emmis nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness);
(b) is directly or indirectly liable, as a guarantor or otherwise; or
(c) constitutes the lender;
(2) no default with respect to which, including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary, would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of Emmis or any of its Restricted
Subsidiaries to declare a default on that other Indebtedness or cause
the payment of that other Indebtedness to be accelerated or payable
prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the assets of Emmis or the stock or assets of
any of its Restricted Subsidiaries, except that this clause (3) will
not apply to any Indebtedness incurred by Emmis and its Subsidiaries
prior to the date of the indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any business conducted by Emmis, its Restricted
Subsidiaries on the date of the indenture and any other business related,
ancillary or complementary to any such business.
"Permitted Investments" means:
(1) any Investment in Emmis or in a Restricted Subsidiary of Emmis;
(2) any Investment in Cash Equivalents;
(3) any Investment by Emmis or any Restricted Subsidiary of Emmis in a
Person, if as a result of that Investment:
(a) that Person becomes a Restricted Subsidiary of Emmis; or
(b) that Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, Emmis or a Restricted Subsidiary of Emmis;
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(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests, other than Disqualified Stock, of Emmis;
(6) other Investments in any Person having an aggregate fair market value,
measured on the date each such Investment was made and without giving
effect to subsequent changes in value, when taken together with all
other Investments made under this clause (6) since the date of the
Indenture, not to exceed $15 million in the aggregate;
(7) Investments in Permitted Joint Ventures, provided that, at the time of
and immediately after giving pro forma effect to that Investment and
any related transaction or series of transactions, the Leverage Ratio
under clause (C) of the first paragraph of the covenant described
under "-- Certain Covenants -- Incurrence of Indebtedness and Issuance
of Preferred Stock" would be less than or equal to that Leverage Ratio
immediately prior to that Investment;
(8) any purchase, redemption, defeasance or other acquisition of
Indebtedness of Emmis or any Restricted Subsidiary using the proceeds
of Permitted Refinancing Indebtedness incurred under paragraph (5) of
the definition of Permitted Debt;
(9) agreements relating to the Indebtedness incurred under paragraph (7)
of the definition of Permitted Debt;
(10) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of those trade creditors or customers in good
faith settlement of delinquent obligations of those trade creditors or
customers;
(11) guarantees of Indebtedness otherwise permitted to be incurred by the
indenture;
(12) Investments in the form of Productive Assets received in connection
with an Asset Sale;
(13) commission, travel, payroll, entertainment, relocation and similar
advances made to officers and employees of Emmis or any Restricted
Subsidiary made in the ordinary course of business; and
(14) any Investment in the form of loans or advances to employees of Emmis
not to exceed $3.0 million in aggregate principal amount at any one
time outstanding.
"Permitted Joint Ventures" means a corporation, partnership or other
entity, other than a Subsidiary, engaged in one or more Permitted Businesses in
respect of which Emmis or a Restricted Subsidiary
(a) beneficially owns at least 20% of the Equity Interests of such entity;
and
(b) either is a party to an agreement empowering one or more parties to
such agreement (which may or may not be Emmis or a Subsidiary), or is a
member of a group that, under the constituent documents of the
applicable corporation, partnership or other entity, has the power, to
direct the policies, management and affairs of that entity.
"Permitted Liens" means:
(1) Liens securing Indebtedness of Emmis under one or more Credit
Facilities that was permitted by the terms of the indenture to be
incurred;
(2) Liens securing any Indebtedness of any of Emmis' Restricted
Subsidiaries that was permitted by the terms of the indenture to be
incurred;
(3) Liens in favor of Emmis;
(4) Liens existing on the date of the indenture;
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(5) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made for those taxes,
assessments, governmental changes or claims;
(6) Liens securing Indebtedness of the type permitted to be incurred under
clause (4) of the second paragraph of the covenant described above
under the caption " -- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock";
(7) Liens incurred in the ordinary course of business of Emmis or any
Restricted Subsidiary of Emmis with respect to obligations that do not
exceed $5.0 million at any one time outstanding and that
(a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit, other than trade credit in the
ordinary course of business; and
(b) do not in the aggregate materially detract from the value of the
property or materially impair the use of the property in the
operation of business by Emmis or that Restricted Subsidiary;
(8) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed
by law incurred in the ordinary course of business in connection with
it, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations,
other than obligations for the payment of borrowed money;
(9) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security, including any Liens securing letters
of credit issued in the ordinary course of business in connection with
it, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations,
exclusive of obligations for the payment of borrowed money;
(10) judgment Liens not giving rise to an Event of Default;
(11) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in
any material respect with the ordinary conduct of the business of
Emmis or any of its Restricted Subsidiaries;
(12) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or
other goods;
(13) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating
to those letters of credit and products and proceeds of them;
(14) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of Emmis
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(15) any lease or sublease to a third party;
(16) Liens placed upon assets of a Restricted Subsidiary of Emmis not
organized under the laws of the United States or any subdivision of it
to service the Indebtedness of that Restricted Subsidiary that is
otherwise permitted under the Indenture;
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(17) Liens on property existing at the time of acquisition of it by Emmis
or any Restricted Subsidiary of Emmis, provided that those Liens were
not incurred in connection with, or in contemplation of, that
acquisition;
(18) Liens on materials, inventory or consumables and the proceeds
therefrom securing trade payables relating to those materials,
inventory or consumables;
(19) Liens in favor of customs and revenues authorities arising as a matter
of law to secure payment of customs duties in connection with the
importation of goods; and
(20) any extension, renewal or replacement, in whole or in part, of any
Lien described in the preceding clauses (1) through (19) provided that
the Lien so extended, renewed or replaced does not extend to any
additional property or assets.
"Permitted Refinancing Indebtedness" means any Indebtedness of Emmis or any
of its Restricted Subsidiaries or Disqualified Stock of Emmis issued in exchange
for, or the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Indebtedness or Disqualified Stock of Emmis or any of
its Restricted Subsidiaries (other than intercompany Indebtedness); provided
that:
(1) the principal amount, initial accreted value or liquidation preference,
if applicable, of such Permitted Refinancing Indebtedness does not
exceed the principal amount of (or accreted value, if applicable), plus
accrued interest or dividends on, the Indebtedness or preferred stock
so extended, refinanced, renewed, replaced, defeased or refunded, plus
the amount of expenses, consent fees and prepayment premiums incurred
in connection with it;
(2) the Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness or preferred stock being extended, refinanced,
renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
that Permitted Refinancing Indebtedness is subordinated in right of
payment to, the notes on terms at least as favorable to the holders of
the notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and
(4) the Indebtedness is incurred either by Emmis or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or agency or political subdivision thereof, including
any subdivision or ongoing business of any such entity or substantially all of
the assets of any such entity, subdivision or business.
"Principals" means Jeffrey H. Smulyan.
"Productive Assets" means assets, including Equity Interests, that are used
or usable by Emmis and/or a Restricted Subsidiary in Permitted Businesses;
provided that for any Equity Interests to qualify as Productive Assets, they
must, after giving pro forma effect to the transaction in which they were
acquired, be Equity Interests of a Restricted Subsidiary.
"Prospectus" means the prospectus included in a Registration Statement at
the time that Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments to it,
including post-effective amendments, and all material incorporated by reference
into that Prospectus.
"Registration Rights Agreement" means the registration rights agreement,
dated as of March 27, 2001, entered into by Emmis on or before the date of the
indenture relating to, among other things, the registration of the notes, with
the Commission.
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"Registration Statement" means any registration statement of Emmis relating
to an offering of New Notes that is filed under the provisions of the
Registration Rights Agreement, and includes the Prospectus included in it, all
amendments and supplements to it, including post-effective amendments, and all
exhibits and material incorporated by reference in it.
"Related Party" with respect to any Principal means:
(1) any controlling stockholder, 80% or more owned Subsidiary of that
Principal;
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, members, partners, owners or Persons beneficially holding
an 80% or more controlling interest of which consist of that Principal
and/or the other Persons referred to in the immediately preceding
clause (1); or
(3) a spouse, lineal descendants and ascendants, heirs, executors or other
legal representatives and any trusts or other entities established by
or for the benefit of any of the preceding or established by any of the
preceding for charitable purposes, or any other person or entity in
which the preceding persons or entities exercise control.
"Reorganization" means either:
(1) the transfer of all of Emmis' assets and liabilities, including
indebtedness under its credit facility and outstanding senior
subordinated notes, to a newly-formed subsidiary; or
(2) a merger whereby a new holding company will acquire all of the capital
stock of Emmis, and the stockholders of Emmis will become stockholders
of that new holding company.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Subordinated Notes Indenture" means that certain Indenture, dated
as of February 12, 1999, governing Emmis Operating Company's 8 1/8% Senior
Subordinated Notes due 2009.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Significant Subsidiary" means, with respect to any Person, any Restricted
Subsidiary of that Person that would be a "significant subsidiary" of that
Person as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated under
the Act, as such Regulation is in effect on the date of the indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which that payment of
interest or principal was scheduled to be paid in the original documentation
governing that Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for its payment.
"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 its directors, managers or trustees is at the time owned or
controlled, directly or indirectly, by that Person or one or more of
the other Subsidiaries of that Person, or a combination of them; and
(2) any partnership
(a) the sole general partner or the managing general partner of which is
that Person or a Subsidiary of that Person or
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(b) the only general partners of which are that Person or of one or more
Subsidiaries of that Person (or any combination of them).
"Unrestricted Subsidiary" means any Subsidiary of Emmis that is designated
by the Board of Directors as an Unrestricted Subsidiary by a Board Resolution;
but only to the extent that the Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with Emmis or any Restricted Subsidiary of Emmis, unless the terms of
any such agreement, contract, arrangement or understanding are no less
favorable to Emmis or the Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of Emmis;
(3) is a Person with respect to which neither Emmis nor any of its
Restricted Subsidiaries has any direct or indirect obligation
(a) to subscribe for additional Equity Interests or
(b) to maintain or preserve that Person's financial condition or to
cause that Person to achieve any specified levels of operating
results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Emmis or any of its Restricted
Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of Emmis or any of its Restricted
Subsidiaries and has at least one executive officer that is not a
director or executive officer of Emmis or any of its Restricted
Subsidiaries.
Any such designation by the Board of Directors shall be evidenced to the
transfer agent and the trustee by filing with the transfer agent and the trustee
a certified copy of the Board Resolution giving effect to that designation and
an Officers' Certificate certifying that that designation complied with the
preceding conditions and was permitted by the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it shall, after that time, cease to be an Unrestricted
Subsidiary for purposes of the indenture, and any Indebtedness of that
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of Emmis as
of that date (and, if that Indebtedness is not permitted to be incurred as of
that date under the covenants described above under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," Emmis
shall be in default of that covenant). The Board of Directors of Emmis may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that the designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of Emmis of any outstanding Indebtedness
of such Unrestricted Subsidiary, and that designation shall only be permitted if
(a) the Indebtedness is permitted under the covenant described above under
the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if
that designation had occurred at the beginning of the four-quarter
reference period, and
(b) no Default would occur or be in existence following that designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
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"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or series or class of preferred stock at any date, the number of years obtained
by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal or
liquidation preference, including payment at final maturity, in
respect of it, by
(b) the number of years, calculated to the nearest one-twelfth, that
will elapse between that date and the making of that payment; by
(2) the then outstanding principal amount of that Indebtedness or the
aggregate liquidation preference of the then outstanding preferred
stock, as the case may be.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of that Person all of the outstanding Capital Stock or other
ownership interests of which, other than directors' qualifying shares, shall at
the time be owned by that Person or by one or more Wholly Owned Restricted
Subsidiaries of that Person and one or more Wholly Owned Restricted Subsidiaries
of that Person.
BOOK-ENTRY, DELIVERY AND FORM
Except as described below, we will initially issue the exchange notes in
the form of one or more registered exchange notes in global form without
coupons. We will deposit each global note 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 notes in the name of The Depository Trust
Company or its nominee, or will leave these notes in the custody of the trustee.
The Depository Trust Company's Procedures
For your convenience, we are providing you with a description of the
operations and procedures of The Depository Trust Company. The operations and
procedures of The Depository Trust Company are solely within the control of its
settlement system, however, and may change from time to time. We are not
responsible for these operations and procedures and urge you to contact The
Depository Trust Company or its participants directly to discuss these matters.
The Depository Trust Company has advised us 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 Company's 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 us that, in accordance with
its procedures,
(1) upon deposit of the global notes, it will credit the accounts of the
direct participants with an interest in the global notes, and
(2) it will maintain records of the ownership interests of these direct
participants in the global notes 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 notes. 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 notes.
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Investors in the global notes may hold their interests in the notes
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. All interests in a global note may
be subject to the procedures and requirements of The Depository Trust Company.
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 note 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 note 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 notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders of these notes under the indenture for any purpose.
Payments with respect to the principal of and interest on any notes
represented by a global note 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 note representing these
notes under the indenture. Under the terms of the indenture, we and the trustee
will treat the person in whose names the notes are registered, including notes
represented by global notes, as the owners of the notes for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal and interest on global notes 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 Emmis, the trustee or any of our agents, or the
trustee's agents has or will have any responsibility or liability for
(1) any aspect of The Depository Trust Company's records or any direct or
indirect participant's records relating to, or payments made on account
of, beneficial ownership interests in the global notes or for
maintaining, supervising or reviewing any of The Depository Trust
Company's records or any direct or indirect participant's records
relating to the beneficial ownership interests in any global note 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 us that its current practice, upon
receipt of any payment in respect of securities such as the notes, 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 note 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 us.
Neither Emmis 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 notes. and Emmis and the trustee may conclusively
rely on, and will be protected in relying on, instructions from The Depository
Trust Company for all purposes, including with respect to the registration and
delivery, and the respective principal amounts, of the notes.
Transfers between participants in The Depository Trust Company will be
effected in accordance with The Depository Trust Company's procedures, and will
be settled in same day funds.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a holder of notes only at the direction of one or more
participants to whose account The Depository Trust Company has credited the
interests in the global notes and only in respect of the portion of the
aggregate
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principal amount of the notes 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 notes, The Depository Trust Company reserves the right to exchange the
global notes for legended notes 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 notes among participants in The
Depository Trust Company, it is under no obligation to perform or to continue to
perform these procedures and may discontinue them at any time. None of Emmis,
the trustee or any of our or the trustee's respective agents will have any
responsibility for the performance by The Depository Trust Company and its
direct or indirect participants of their respective obligations under the rules
and procedures governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
A global note will be exchangeable for definitive notes in registered
certificated form if:
(1) The Depository Trust Company notifies us that it is unwilling or unable
to continue as depository for the global notes 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,
(3) we elect to cause the issuance of the certificated notes upon a notice
of the trustee,
(4) a default or event of default under the indenture for the notes has
occurred and is continuing, or
(5) a request to that effect is made but only 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 notes delivered in exchange for any global note
or beneficial interests in a global note 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.
Exchange of Certificated Notes for Book-Entry Notes
Old notes issued in certificated form may be exchanged for beneficial
interests in the global note.
Same Day Settlement
We expect that the interests in the global notes will be eligible to trade
in The Depository Trust Company's 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 notes will also be settled in immediately available funds.
Payment
The indenture requires that payments in respect of the notes represented by
global notes, including principal and interest, be made by wire transfer of
immediately available funds to the accounts specified by the holder of the
global notes. With respect to notes in certificated form, we will make all
payments of principal and interest on the notes at our office or agency
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
(1) check mailed to the holders of notes at their respective addresses provided
in the register of holder of notes or
(2) transfer to an account located in the United States maintained by the
payee.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion sets forth the material anticipated Federal income
tax consequences of the exchange of old notes for exchange notes in accordance
with the Exchange Offer, and the purchase and disposition of exchange notes.
ALL PROSPECTIVE PARTICIPANTS IN THE EXCHANGE OFFER (IN PARTICULAR, HOLDERS
THAT ARE NOT U.S. HOLDERS) ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE EXCHANGE
OFFER AND THE OWNERSHIP AND DISPOSITION OF THE EXCHANGE NOTES.
U.S. HOLDERS
A "U.S. holder" is (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized under the laws of the United
States or any State thereof (including the District of Columbia), or (iii) a
trust or estate, the income of which is subject to United States Federal income
taxation regardless of its source. This summary is based upon the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the final, temporary
and proposed regulations promulgated thereunder, and administrative rulings and
judicial decisions now in effect, all of which are subject to change (possibly
with retroactive effect) or different interpretations.
This summary does not purport to deal with all aspects of Federal income
taxation that may be relevant to a holder's decision to exchange old notes for
exchange notes and it is not intended to be applicable to all categories of
holders, some of which, such as dealers in securities, banks, insurance
companies, tax-exempt organizations, persons holding securities as part of a
hedging or conversion transaction or straddle and foreign persons, may be
subject to special rules. In addition, the summary is limited to persons that
will hold the exchange notes as "capital assets" (generally, property held for
investment) within the meaning of Section 1221 of the Code and is not applicable
to holders who own, directly or through attribution, stock in Emmis. Holders
should note that this discussion is not binding on the Internal Revenue Service
(the "Service") and there can be no assurance that the Service will take a
similar view with respect to the tax consequences described below. No ruling has
been or will be requested by Emmis from the Service on any tax matters relating
to the exchange notes.
NOTES
TAXATION OF HOLDERS ON EXCHANGE. The exchange of old notes for exchange
notes in accordance with the exchange offer will not be treated as an exchange
or otherwise as a taxable event to holders. Consequently, (1) no gain or loss
will be realized by a holder upon receipt of an exchange note, (2) the holding
period of the exchange note will include the holding period of the old note
exchanged for the exchange note and (3) the adjusted tax basis of the exchange
note will be the same as the adjusted tax basis of the old note exchanged for
the exchange note immediately before the exchange. Further, the tax consequences
of ownership and disposition of any exchange note should be the same as the tax
consequences of ownership and disposition of an old note.
ORIGINAL ISSUE DISCOUNT. Because the exchange notes, like the old notes,
do not provide for stated interest payments before March 15, 2006, the exchange
notes will have original issue discount ("OID") for U.S. Federal income tax
purposes. Because the exchange notes are treated for federal income tax purposes
as if they were the same as the old notes, the amount of OID on an exchange note
will be calculated as if the exchange note and the old note were a single note
that was issued at the time that the old note was issued, for an issue price
equal to the issue price of the old note, and any accrued OID on the old note at
the time of the exchange offer will carry over and be treated as accrued OID on
the exchange notes.
For Federal income tax purposes, when a debt instrument is issued with OID,
the holder of such instrument must include such OID in his income for the period
during which the OID accrues even if no
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cash attributable to such OID income is received until maturity, redemption or
other disposition of the debt instrument.
The amount of OID, if any, on a debt instrument, such as the exchange
notes, is the difference between its "stated redemption price" at maturity over
its "issue price" (subject, generally, to a de minimis exception). The portion
of any such OID that is to be accrued (and included in income) with respect to a
debt instrument with a maturity of more than one year generally will be
determined for each accrual period during the term of such debt instrument under
the constant yield method, applied by (i) multiplying the adjusted issue price
of the debt instrument at the beginning of the accrual period by its yield to
maturity, and (ii) subtracting from that product the amount of any interest
payments made during that accrual period that are based on a single fixed rate
and are payable unconditionally in cash or in property (other than debt
instruments of the issuer) at intervals of one year or less during the entire
term of the debt instrument ("qualified stated interest"). The interest on the
exchange notes will not qualify as "qualified stated interest." The resulting
amount is allocated ratably to each day in the accrual period, and the amount
includible in a holder's income (whether on the cash or accrual method of
accounting) with respect to the debt instrument is the sum of the resulting
daily portions of OID for each day of the taxable year during which the holder
held the debt instrument. Under these rules, a U.S. holder will generally have
to include in income increasingly greater amounts of OID in successive accrual
periods.
The "issue price" of each debt instrument in a particular offering will
generally be the first price at which a substantial amount of that particular
offering is sold (other than to an underwriter, placement agent or wholesaler).
The "stated redemption price at maturity" of a debt instrument equals the sum of
all payments to be made on such debt instrument other than qualified stated
interest, which will be zero in the case of the exchange notes. The "adjusted
issue price" of a debt instrument at the beginning of any accrual period is
equal to its issue price increased by all previously accrued OID and reduced by
the amount of all previous payments made on such debt instrument (other than
payments of qualified stated interest). Generally, the tax basis of the debt
instrument in the hands of the holder will be increased and decreased,
respectively, by the same amounts.
We are required to furnish to the Service, and will furnish annually to the
record holders of the exchange notes (other than corporations and other exempt
recipients), certain information returns with respect to OID accruing during the
calendar year. Because this information will be based upon the adjusted issue
price of the exchange notes as if the holder were the original holder of the
exchange notes, subsequent holders who purchase exchange notes for an amount
other than the adjusted issue price for such notes or on a date other than the
end of an accrual period for the exchange notes will be required to determine
for themselves the amount of OID, if any, that they are required to report.
POTENTIAL PARTICIPANTS IN THE EXCHANGE OFFER ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE POTENTIAL APPLICATION OF THE OID RULES TO THEIR
OWNERSHIP OF THE EXCHANGE NOTES.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS. Pursuant to Section 163 of the
Code, a portion of the OID accruing on certain debt instruments will be treated
as a dividend eligible for the dividends-received deduction (to the extent that
the corporation has current or accumulated earnings and profits), and the
corporation issuing such debt instrument will not be entitled to deduct such
portion of the OID and will be allowed to deduct the remainder of the OID only
when paid.
This treatment would apply to "applicable high yield discount obligations"
("AHYDO"), that is, debt instruments that have a term of more than five years,
have a yield to maturity that equals or exceeds five percentage points over the
"applicable Federal rate" and have "significant" OID. A debt instrument is
treated as having significant OID if the aggregate amount that would be
includible in gross income with respect to such debt instrument for periods
before the close of any accrual period ending after the date five years after
the date of issue exceeds the sum of (i) the aggregate amount of interest to be
paid in cash under the debt instrument before the close of such accrual period
and (ii) the product of the initial issue price of such debt instrument and its
yield to maturity.
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If the exchange notes are treated as AHYDO's, a holder would be treated as
receiving dividend income (to the extent of Emmis' current and accumulated
earnings and profits) solely for purposes of the dividends-received deduction in
an amount equal to the "disqualified portion" of the OID of such AHYDO. The
"disqualified portion" of the OID will generally be an amount that bears the
same ratio to the total interest (including both OID and qualified stated
interest) on the exchange notes as (i) the excess of the exchange notes' yield
to maturity over the applicable federal rate plus 6 percentage points, bears to
(ii) the exchange notes' yield to maturity. To the extent that our earnings and
profits are insufficient, any portion of the OID that otherwise would have been
recharacterized as a dividend for purposes of the dividends-received deduction
will continue to be taxed as ordinary OID income in accordance with the rules
described above. If the exchange notes are AHYDO's, Emmis will be permanently
unable to deduct the disqualified portion of interest or OID on the notes and
may not deduct any remaining interest or OID until it is actually paid.
SALE, EXCHANGE AND REDEMPTION OF NOTES. Upon a sale, redemption or other
taxable disposition of the exchange notes, a holder generally will recognize
gain or loss for Federal income tax purposes in an amount equal to the
difference between (1) the sum of the amount of cash and the fair market value
of any property received upon such sale, redemption or other taxable disposition
(the "amount realized") and (2) the holder's adjusted tax basis in the exchange
notes being disposed. A United States Holder's adjusted tax basis in an exchange
note will, in general, be the United States Holder's cost therefor, increased by
any OID previously included in income by the United States Holder and reduced by
any payments other than qualified stated interest payments on the exchange note.
Except to the extent the gain or loss is attributable to accrued but unpaid
stated interest, such gain or loss will be capital gain or loss and will be
long-term capital gain or loss if, at the time of sale, exchange, redemption,
retirement or other disposition, the exchange note has been held for more than
one year.
NON-U.S. HOLDERS
The following is a summary of certain Federal income tax consequences that
may be relevant to a beneficial owner of the exchange notes that is not a U.S.
holder (a "Non-U.S. holder"). This summary deals only with Non-U.S. holders that
are holders of the exchange notes and that hold the exchange notes as capital
assets. It does not address the tax considerations applicable to Non-U.S.
holders if income or gain in respect of the exchange notes is effectively
connected with the conduct of a trade or business in the United States.
TAXATION OF INTEREST PAYMENTS. Generally, payments of interest (which for
purposes of this discussion includes OID) made with respect to the exchange
notes to a Non-U.S. holder will not be subject to United States Federal income
or withholding tax, provided that (i) the Non-U.S. holder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of Emmis entitled to vote, (ii) the Non-U.S. holder is not a controlled
foreign corporation for United States tax purposes that is directly or
indirectly related to Emmis through stock ownership, (iii) the Non-U.S. holder
is not a bank whose receipt of interest on an exchange note is described in
Section 881(c)(3)(A) of the Code, and (iv) the Non-U.S. holder complies with
certain applicable certification requirements. Such certification is generally
met if the beneficial owner provides Form W-8BEN. If a partnership or an
intermediary is involved, the partnership and the intermediary as well as the
beneficial owner must comply with certain certification procedures.
The gross amount of payments of interest (including OID) on an exchange
note that do not meet the requirements listed above and that are not effectively
connected with the conduct of a trade or business in the United States will be
subject to withholding tax at a rate of 30 percent unless a tax treaty applies
to reduce or eliminate that withholding.
CLAIMS FOR REDUCTION IN, OR EXEMPTION FROM, WITHHOLDING. In order to claim
the benefit of a tax treaty or to claim exemption from withholding because the
income is effectively connected with the conduct of a trade or business in the
United States, you must provide a properly executed IRS
74
79
Form W-8BEN or W-8ECI (or such successor form as the IRS designates), as
applicable, prior to the payment of dividends, interest or OID. These forms must
be periodically updated.
SALE, EXCHANGE OR OTHER DISPOSITION OF THE EXCHANGE NOTES. Any capital
gain realized on the sale, exchange, retirement or other disposition of exchange
notes by a Non-U.S. holder will not be subject to United States Federal income
or withholding taxes unless (i) such gain is effectively connected with the
conduct of a trade or business in the United States, or (ii) such Non-U.S.
holder is an individual who is present in the United States for 183 days or more
in the taxable year of such sale, exchange, retirement or other disposition and
meets certain additional requirements.
Non-U.S. holders to whom the above exemptions do not apply may nonetheless
be able to avail themselves of an applicable income tax exemption from United
States Federal income and withholding tax.
Such persons should consult with their tax advisors regarding the potential
applicability to them of an income tax treaty exemption.
BACKUP WITHHOLDING. In general, a noncorporate holder of exchange notes
will be subject to backup withholding at the rate of 31% with respect to
reportable payments of dividends, interest or OID accrued with respect to, or
the proceeds of a sale, exchange or redemption of, exchange notes, as the case
may be, if the holder fails to provide a taxpayer identification number or
certification of foreign or other exempt status or fails to report in full
dividend and interest income. Amounts paid as backup withholding do not
constitute an additional tax and will be credited against the holder's Federal
income tax liabilities.
Non-U.S. holders should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available. Any amounts withheld from a payment to a Non-U.S.
holder under the backup withholding rules will be allowed as a credit against
such holder's United States Federal income tax liability and may entitle such
holder to a refund, provided that the required information is furnished to the
Service.
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH POTENTIAL PARTICIPANT IN THE EXCHANGE OFFER SHOULD CONSULT
WITH ITS OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF
THE OWNERSHIP AND DISPOSITION OF THE EXCHANGE NOTES, INCLUDING THE APPLICATION
AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
75
80
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer in exchange for old notes acquired by such
broker-dealer as a result of market-making or other trading activities may be
deemed to be an "underwriter" within the meaning of the Securities Act and,
therefore, must deliver a prospectus meeting the requirements of the Securities
Act in connection with any resales, offers to resell or other transfers of the
exchange notes received by it in connection with the exchange offer.
Accordingly, each such broker-dealer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for old notes where such old
notes were acquired as a result of market-making activities or other trading
activities.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of exchange notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York, has passed
upon the validity of the exchange notes. Certain other legal matters are being
passed upon by Bose McKinney & Evans LLP.
EXPERTS
The consolidated financial statements of Emmis and its subsidiaries as of
February (29) 28, 2000 and 2001 and for each of the three years in the period
ended February 28, 2001, incorporated by reference in this prospectus and
elsewhere in the registration statement, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said report.
The audited financial statements of Sinclair Broadcast Group, Inc.'s St.
Louis Radio Group as of December 31, 1999 and for the year ended December 31,
1999, included in this prospectus and elsewhere in the registration statement,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
The combined financial statements of KZLA-FM and the related FCC
broadcasting license owned by Bonneville Holding Company as of and for the year
ended December 31, 1999, included in this prospectus, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein and elsewhere in the registration statement, and have been so included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
76
81
The audited financial statements of Lee Enterprises Certain Broadcasting
Operations as of September 30, 1999 and 2000 and for each of the three years in
the period ended September 30, 2000, which are included in this prospectus, have
been audited by McGladrey & Pullen, LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and file reports, proxy statements and other
information with the SEC. We have also filed with the SEC a registration
statement on Form S-4 to register the exchange notes. This prospectus, which
forms part of the registration statement, does not contain all of the
information included in that registration statement. For further information
about Emmis and the exchange notes offered in this prospectus, you should refer
to the registration statement and its exhibits. You may read and copy any
document we file with the SEC at the SEC's Public Reference Room, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices in New
York (7 World Trade Center, 13th Floor, New York, New York 10048) and Chicago
(Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661).
Copies of these reports, proxy statements and information may be obtained at
prescribed rates from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., 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.
77
82
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Combined Financial Statements of KZLA-FM and the FCC
broadcasting license owned by Bonneville Holding Company
Independent Auditors' Report.............................. F-2
Combined Balance Sheets................................... F-3
Combined Statements of Operations......................... F-4
Combined Statements of Cash Flows......................... F-5
Notes to Combined Financial Statements.................... F-6
Combined Financial Statements of Lee Enterprises Certain
Broadcasting Operations
Independent Auditor's Report.............................. F-12
Combined Statements of Net Assets......................... F-13
Combined Statements of Income............................. F-14
Combined Statements of Changes in Net Assets.............. F-15
Combined Statements of Cash Flows......................... F-16
Notes to Combined Financial Statements.................... F-17
Combined Financial Statements of Sinclair Broadcast Group,
Inc. -- St. Louis Radio Group (as of December 31, 1999 and
other statements for the year then ended)
Report of Independent Public Accountants.................. F-20
Combined Balance Sheet.................................... F-21
Combined Statement of Operations.......................... F-22
Combined Statement of Stockholders' Equity................ F-23
Combined Statement of Cash Flows.......................... F-24
Notes to Combined Financial Statements.................... F-25
Combined Financial Statements of Sinclair Broadcast Group,
Inc. -- St. Louis Radio Group (as of September 30, 2000
and other related statements for the nine-month period
ending September 30, 2000 and 1999)
Report of Independent Public Accountants.................. F-31
Combined Balance Sheets................................... F-32
Combined Statements of Operations......................... F-33
Combined Statements of Cash Flows......................... F-34
Notes to Combined Financial Statements.................... F-35
F-1
83
INDEPENDENT AUDITORS' REPORT
Emmis Communications Corporation:
We have audited the accompanying combined balance sheet of KZLA-FM (the
Station) and the related FCC broadcasting license owned by Bonneville Holding
Company (collectively, the Company) as of December 31, 1999, and the related
combined statements of operations and of cash flows for the year then ended.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of the Company as of December
31, 1999, and the combined results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
The accompanying combined financial statements have been prepared from the
separate records maintained by the Company and may not be indicative of the
conditions that would have existed or the results of operations had the Company
been operated as an unaffiliated company. As discussed in Notes 1 and 6, certain
expenses represent allocations made by the Station's parent.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
September 5, 2000
F-2
84
KZLA-FM
COMBINED BALANCE SHEETS
DECEMBER 31, 1999 AND SEPTEMBER 30, 2000
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 144,860 $ 53,504
Accounts receivable -- net of allowance for doubtful
accounts of $93,000 at December 31, 1999 and $85,000 at
September 30, 2000..................................... 3,839,637 894,948
Accounts receivable -- Emmis.............................. 1,170,054
Prepaid expenses and other current assets................. 214,480 124,673
Current deferred tax assets............................... 129,731 122,105
------------ ------------
Total current assets.............................. 4,328,708 2,365,284
------------ ------------
PROPERTY, PLANT, AND EQUIPMENT:
Land...................................................... 181,692 181,692
Buildings and leasehold improvements...................... 2,048,374 2,053,675
Furniture, fixtures, and equipment........................ 2,809,543 3,045,143
Construction in progress.................................. 424,136 214,573
------------ ------------
Total............................................. 5,463,745 5,495,083
Accumulated depreciation and amortization................. (3,543,454) (3,789,355)
------------ ------------
Total property, plant, and equipment -- net....... 1,920,291 1,705,728
------------ ------------
DUE FROM AFFILIATES......................................... 2,324,554 6,280,709
FCC BROADCAST LICENSE -- net of accumulated amortization of
$6,630,000 at December 31, 1999 and $9,472,000 at
September 30, 2000........................................ 144,917,025 142,075,515
OTHER INTANGIBLE ASSETS -- net of accumulated amortization
of $248,000 at December 31, 1999 and $354,000 at September
30, 2000.................................................. 402,236 295,918
DEFERRED TAX ASSETS......................................... 231,692 269,701
OTHER ASSETS................................................ 36,896 141,654
------------ ------------
TOTAL............................................. $154,161,402 $153,134,509
============ ============
LIABILITIES AND NET INVESTMENT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 174,774 $ 205,495
Accrued payroll and benefits.............................. 443,754
Accrued expenses.......................................... 63,450 331,946
------------ ------------
Total current liabilities......................... 681,978 537,441
COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)
NET INVESTMENT.............................................. 153,479,424 152,597,068
------------ ------------
TOTAL............................................. $154,161,402 $153,134,509
============ ============
See notes to combined financial statements.
F-3
85
KZLA-FM
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, -------------------------
1999 1999 2000
------------ ----------- -----------
(UNAUDITED)
NET REVENUES, net of agency and representative
commissions of $2,446,000, $1,705,000, and
$1,435,000 for December 31, 1999, September 30, 1999
and September 30, 2000, respectively................ $14,779,604 $10,455,703 $10,122,891
----------- ----------- -----------
EXPENSES:
Operating........................................... 2,774,094 2,079,507 2,074,849
Selling and promotional............................. 4,148,952 3,438,756 3,342,095
General and administrative.......................... 1,418,152 1,085,416 830,333
Allocated corporate expenses........................ 188,860 142,025 145,005
Depreciation and amortization....................... 4,354,414 3,265,369 3,252,502
----------- ----------- -----------
Total expenses.............................. 12,884,472 10,011,073 9,644,784
----------- ----------- -----------
NET OPERATING INCOME BEFORE INCOME TAX EXPENSE........ 1,895,132 444,630 478,107
INCOME TAX EXPENSE.................................... 2,302,575 1,336,171 1,360,463
----------- ----------- -----------
NET LOSS.............................................. $ (407,443) $ (891,541) $ (882,356)
=========== =========== ===========
See notes to combined financial statements.
F-4
86
KZLA-FM
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, -------------------------
1999 1999 2000
------------ ----------- -----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $ (407,443) $ (891,541) $ (882,356)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization..................... 4,354,414 3,265,369 3,252,502
Provision for losses on accounts receivable....... 69,000 21,000 30,000
Loss on disposal of property and equipment........ 425
Deferred income taxes............................. (54,196) (74,378) (30,383)
Changes in operating assets and liabilities:
Accounts receivable............................. (993,425) (155,556) 2,914,689
Accounts receivable -- Emmis.................... (1,170,054)
Prepaid expenses and other current assets....... 81,494 297,291 89,807
Other assets.................................... (23,222) (180) (104,758)
Accounts payable................................ 137,033 38,157 30,721
Accrued payroll and benefits.................... (2,196) 38,052 (443,754)
Accrued expenses................................ 59,903 21,833 268,496
----------- ----------- -----------
Net cash provided by operating activities.... 3,221,787 2,560,047 3,954,910
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment........... (210,526) (125,202) (90,111)
Proceeds from sale of property, plant, and
equipment......................................... 445
----------- ----------- -----------
Net cash used in investing activities........ (210,081) (125,202) (90,111)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES --
Increase in due from affiliates...................... (3,172,436) (2,579,517) (3,956,155)
----------- ----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS.................. (160,730) (144,672) (91,356)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......... 305,590 305,590 144,860
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD............... $ 144,860 $ 160,918 $ 53,504
=========== =========== ===========
See notes to combined financial statements.
F-5
87
KZLA-FM
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- The radio station, KZLA-FM, is broadcast in the Los Angeles,
California area. Through July 31, 2000, KZLA-FM (the Station) was operated by
Bonneville International Corporation (BIC) with the related FCC broadcasting
license being owned by Bonneville Holding Company (BHC), a not-for-profit tax
exempt affiliate of BIC, and the operating assets for the Station being owned by
BIC (collectively, the Company).
On June 21, 2000, BIC and BHC executed a letter of intent to enter into an
asset exchange agreement (the Exchange Agreement) with Emmis Communications
Corporation (Emmis) whereby BIC has agreed to transfer title to substantially
all of the assets of the Station and BHC has agreed to transfer title to the
related Station's FCC license to Emmis in exchange for Emmis transferring title
to substantially all of the assets and related FCC licenses of four radio
stations located in the St. Louis, Missouri market to BIC and BHC, respectively.
For income tax purposes, the exchange is structured as a "like-kind exchange"
under the provisions of Section 1031 of the Internal Revenue Code. Emmis
operated the Station under a time brokerage agreement (TBA) for the period
August 1, 2000 through the closing of the Exchange Agreement, on October 6,
2000. Under the TBA, Emmis paid BIC to broadcast their program material and
retained all revenue and expenses related to the operations of the Station.
BASIS OF ACCOUNTING -- The combined balance sheets and statements of
operations and cash flows include the historical accounts and transactions of
the Station, as operated by BIC, and the Station's FCC license owned by BHC. In
this context, no direct ownership relationship exists and, accordingly, a net
investment is shown in lieu of stockholders' equity in the accompanying combined
financial statements. Historically, BIC did not charge the Company for certain
corporate overhead expenses and income taxes; however, for purposes of the
accompanying statements of operations, such expenses have been charged as
described below and in Note 6. Intercompany transactions have been eliminated in
the combination. The results of operations of the Station from the date of the
TBA agreement are not included in the combined financial statements.
INTERIM RESULTS (UNAUDITED) -- In the opinion of management, the
accompanying unaudited interim combined financial statements as of September 30,
2000 and for the nine months ended September 30, 1999 and 2000 have been
prepared on the same basis as the audited combined financial statements as of
and for the year ended December 31, 1999 and include all adjustments, consisting
of only normal recurring adjustments, necessary for a fair presentation of the
combined balance sheets, operating results, and cash flows for such periods.
Operating results for the nine months ended September 30, 2000 are not
necessarily indicative of the results that may be reported for any future
periods.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS -- The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS -- All highly liquid, short-term investments with
original maturities of three months or less are considered to be cash
equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS -- The allowance for doubtful accounts is
based on historical bad debt experience and periodic evaluation of the
collectibility of individual accounts receivable. The provision
F-6
88
KZLA-FM
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
for doubtful accounts charged to operations is made in amounts required to
maintain an adequate allowance to cover anticipated losses.
PROPERTY, PLANT, AND EQUIPMENT -- Property, plant, and equipment is stated
at cost. Depreciation and amortization are computed using the straight-line
method, based on historical costs, over estimated useful lives, as follows:
ESTIMATED LIVES (YEARS)
-----------------------
Buildings................................................... 8-40
Furniture and fixtures...................................... 5-8
Equipment................................................... 3-15
Leasehold improvements...................................... Shorter of life of lease or
useful life of asset
DUE FROM AFFILIATES -- The due from affiliates account represents amounts
due primarily from BIC and is noninterest bearing and has no specified repayment
date. The Company's cash and certain operating activities are largely managed on
a centralized basis by BIC. Accordingly, the Company's available cash is
deposited in, and cash requirements are transferred from, BIC corporate accounts
on a regular basis. Such transactions are recorded through the due from
affiliates account.
FCC BROADCAST LICENSE AND OTHER INTANGIBLE ASSETS -- The FCC broadcast
license is being amortized on a straight-line basis over 40 years. Other
intangible assets are being amortized over various periods on a straight-line
basis not exceeding 15 years.
REVENUE RECOGNITION -- Revenues are recognized when advertisements are
broadcast. Advertising costs are recognized as services are rendered. Included
in revenues are nonmonetary transactions arising from the trading of advertising
time for merchandise and services. These transactions are recorded as the
advertising is broadcast at the fair market value of the merchandise and
services received. Advertising time exchanged for merchandise and services
amounted to approximately $223,000 for the year ended December 31, 1999 and
$167,000 and $31,000 for the nine months ended September 30, 1999 and 2000,
respectively. During the nine months ended September 30, 2000, the Station
recorded revenues of approximately $1,684,000 relating to amounts paid by Emmis
under the TBA. At September 30, 2000, amounts due the Station from Emmis
approximated $1,170,000.
INCOME TAXES -- The results of the Station's operations are included in
consolidated federal and state returns filed by the parent corporation of BIC,
Deseret Management Corporation (DMC). Income taxes are calculated for the
Station in a manner that approximates a separate return basis. Included in due
from affiliates at December 31, 1999 and September 30, 2000 is a current income
tax liability payable to BIC of approximately $2,400,000 and $1,400,000,
respectively. The Station utilizes the liability method of accounting for income
taxes. Under the liability method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Recognition of deferred tax assets is
limited to amounts considered by management to be more likely than not
realizable in future periods.
BHC is a not-for-profit entity and is not subject to federal and state
income taxes; accordingly, the amortization relating to the broadcast license
owned by BHC does not have any benefit for income tax purposes in the
accompanying combined financial statements.
CONCENTRATION OF CREDIT RISK -- The Company extends credit to customers on
an unsecured basis in the normal course of business. The customers are generally
located in the greater Los Angeles, California area and also include several
national advertisers. No individual industry or industry segment is significant
F-7
89
KZLA-FM
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
to the Company's customer base. The Company has policies governing the extension
of credit and collection of amounts due from customers.
IMPAIRMENT OF LONG-LIVED ASSETS -- The Company evaluates the carrying value
of long-term assets based upon current and anticipated undiscounted cash flows,
and recognizes an impairment when such estimated cash flows will be less than
the carrying value of the asset. Measurement of the amount of impairment, if
any, is based upon the difference between carrying value and fair value. There
were no impairments as of December 3, 1999 and September 30, 2000.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying amounts of cash and
cash equivalents, accounts receivable, and accounts payable approximate fair
value because of the short maturity of these financial instruments.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- In June 1999, Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," was issued, which establishes accounting and reporting
standards for derivative financial instruments and hedging activities. The
adoption of this statement did not have a material impact to the Company's
combined financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 establishes accounting and reporting standards for the recognition
of revenue. It states that revenue generally is realized or realizable and
earned when all of the following criteria are met: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services have been rendered;
(3) the seller's price to the buyer is fixed or determinable; (4) collectibility
is reasonably assured. SAB 101 is effective no later than the fourth quarter of
fiscal years beginning after December 15, 1999. The Company has determined that
the impact of SAB 101 will not have any material impact to the Company's
combined financial statements.
2. INCOME TAXES
Income tax expense (benefit) for the year ended December 31, 1999 and the
nine months ended September 30, 1999 and 2000 consisted of the following:
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------------
1999 1999 2000
------------ ---------- ----------
(UNAUDITED)
Current:
Federal....................................... $2,003,255 $1,198,967 $1,182,219
State......................................... 353,516 211,582 208,627
---------- ---------- ----------
2,356,771 1,410,549 1,390,846
---------- ---------- ----------
Deferred:
Federal....................................... (46,067) (63,221) (25,826)
State......................................... (8,129) (11,157) (4,557)
---------- ---------- ----------
(54,196) (74,378) (30,383)
---------- ---------- ----------
Income tax expense.............................. $2,302,575 $1,336,171 $1,360,463
========== ========== ==========
F-8
90
KZLA-FM
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense for the year ended December 31, 1999 and for the nine
months ended September 30, 1999 and 2000 differs from that computed at the
federal statutory corporate tax rate as follows:
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------------
1999 1999 2000
------------ ---------- ----------
(UNAUDITED)
Computed income taxes at 34%.................... $ 644,345 $ 151,174 $ 162,556
State income tax, net of federal benefit........ 345,387 200,425 204,070
Broadcast license amortization.................. 1,288,150 966,113 966,113
Nondeductible expenses.......................... 24,693 18,459 27,724
---------- ---------- ----------
Provision for income taxes...................... $2,302,575 $1,336,171 $1,360,463
========== ========== ==========
The components of deferred tax assets at December 31, 1999 and September
30, 2000 are as follows:
DECEMBER 31, 1999 SEPTEMBER 30, 2000
-------------------- --------------------
CURRENT LONG-TERM CURRENT LONG-TERM
-------- --------- -------- ---------
Deferred tax assets:
Accrued vacation and bonuses............ $ 83,730 $ 72,563
Tax and book basis difference in
property, plant, and equipment....... $ 90,620 $122,311
Allowance for doubtful accounts......... 37,201 33,942
Pension accruals........................ 77,797 82,800
Other................................... 8,800 63,275 15,600 64,590
-------- -------- -------- --------
Deferred tax assets....................... $129,731 $231,692 $122,105 $269,701
======== ======== ======== ========
3. NET INVESTMENT
The net investment includes accumulated equity as well as any working
capital funding requirement to/from BIC. The net investment is comprised of the
following for the year ended December 31, 1999 and the nine months ended
September 30, 2000:
Balance at January 1, 1999.................................. $153,886,867
Net loss.................................................... (407,443)
------------
Balance at December 31, 1999................................ 153,479,424
Net loss (unaudited)........................................ (882,356)
------------
Balance at September 30, 2000 (unaudited)................... $152,597,068
============
4. COMMITMENTS AND CONTINGENCIES
LEASES -- Rental expense pursuant to the terms of the Company's operating
leases was approximately $242,000 for the year ended December 31, 1999 and
$182,000 and $192,000 for the nine months ended September 30, 1999 and 2000,
respectively.
F-9
91
KZLA-FM
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999, future minimum rental payments required under these
leases are as follows:
Year ending December 31:
2000...................................................... $161,265
2001...................................................... 104,783
2002...................................................... 42,488
2003...................................................... 41,325
2004...................................................... 24,000
Thereafter................................................ 198,000
--------
Total............................................. $571,861
========
CONTINGENCIES -- The Company is involved in various claims and litigation
regarding transactions occurring in the ordinary course of business. In the
opinion of management, the effects of these potential liabilities arising from
the other claims, if any, will not be material to the combined financial
position or the results of operations and cash flows of the Company.
EMPLOYMENT AGREEMENTS -- The Company enters into employment agreements with
certain key employees of the Company. These agreements specify base salary,
along with bonuses.
Future minimum payments under these employment agreements are as follows at
December 31, 1999:
Year ending December 31:
2000...................................................... $ 336,923
2001...................................................... 454,569
2002...................................................... 480,998
2003...................................................... 111,358
----------
Total............................................. $1,383,848
==========
5. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLAN -- The Station participates in a defined benefit plan
of BIC which covers all employees who work at least 1,000 hours in a year, have
one year or more of service, and are at least 21 years of age. The plan is
sponsored by BIC. Retirement benefits are based on years of service and an
average of the employee's highest five years of compensation during the last ten
years of employment. BIC's policy is to fund the maximum amounts allowed by the
Employee Retirement Income Security Act of 1974. Contributions were intended to
provide not only for benefits attributed for service to date but also for those
expected to be earned in the future. Pension expense under this plan allocated
to the Station by BIC was not material for the year ended December 31, 1999 and
for the nine months ended September 30, 1999 and 2000.
THRIFT PLAN -- The Station participates in a Section 401(k) defined
contribution plan (the Thrift Plan) of BIC in which employees age 21 or older
can participate. Under provisions of the Thrift Plan, participants can
contribute up to 17% of their pre-tax compensation to either a savings option
(based on after tax earnings) or a deferred option (based on pre-tax earnings),
subject to the "excess contribution" limitations defined in the Internal Revenue
Code. For each participating employee, the Station provides a matching
contribution of up to 3% of a participant's annual salary. The Station's
contributions to the Thrift Plan were approximately $75,000 for the year ended
December 31, 1999 and $51,000 and $55,000 for the nine months ended September
30, 1999 and 2000, respectively. The plan is sponsored by BIC.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS -- BIC provides a
postretirement monetary benefit other than pensions. It consists of a fixed
monthly dollar contribution toward the purchase of medical, dental,
F-10
92
KZLA-FM
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
and life insurance for substantially all of its retired employees. In 1993, BIC
began advance funding for postretirement life benefits for employees retiring on
or after January 1, 1994. Advance funding for medical benefits commenced in
1994. Medical benefits for employees who retired before January 1, 1994 continue
to be funded on a pay-as-you-go basis. The Station has included in the
accompanying combined statements of operations, expense under this plan of
approximately $17,000 for the year ended December 31, 1999 and $11,000 and
$12,000 for the nine months ended September 30, 1999 and 2000, respectively.
6. RELATED PARTY TRANSACTIONS
The Station is charged for certain corporate services received from BIC
based upon the full-time equivalent employees of the Station to total full-time
equivalent employees of all stations operated by BIC. Although BIC management is
of the opinion that the allocations used are reasonable and appropriate, other
allocations might be used that could produce results substantially different
from those reflected herein and these cost allocations might not be indicative
of amounts which might be paid to unrelated parties for similar services. For
purposes of these combined financial statements, the following BIC corporate
departmental expenses have been charged to the Station's combined statements of
operations:
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -------------------
1999 1999 2000
------------ -------- --------
(UNAUDITED)
Management......................................... $ 63,007 $ 46,326 $ 50,618
Finance............................................ 43,116 33,191 34,244
Information systems................................ 17,077 13,202 14,889
Human resources.................................... 32,044 24,422 20,418
Engineering........................................ 7,605 5,233 4,427
Legal.............................................. 10,742 7,828 7,809
Public relations................................... 3,648 2,667 3,017
Building and maintenance........................... 3,434 2,686 3,687
Retirement benefits................................ 262 336
Depreciation....................................... 8,187 6,208 5,560
-------- -------- --------
Total.................................... $188,860 $142,025 $145,005
======== ======== ========
* * * * * *
F-11
93
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Lee Enterprises, Incorporated
Davenport, Iowa
To the Board of Directors
Emmis Communications Corporation
Indianapolis, Indiana
We have audited the accompanying combined statements of net assets of Lee
Enterprises Certain Broadcasting Operations (Albuquerque, NM;
Charleston-Huntington, WV; Honolulu, HI; Omaha, NE; Portland, OR; Topeka, KS;
Tucson, AZ; Wichita, KS) (not a legal entity, see Note 1) as of September 30,
1999 and 2000, and the related statements of income, changes in net assets, and
cash flows for the years ended September 30, 1998, 1999, and 2000. These
financial statements are the responsibility of Lee Enterprises Certain
Broadcasting Operations' management. Our responsibility is to express an opinion
on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the net assets of Lee Enterprises Certain
Broadcasting Operations as of September 30, 1999 and 2000, and the results of
their operations and their cash flows for the years ended September 30, 1998,
1999, and 2000 in conformity with generally accepted accounting principles.
/s/ MCGLADREY & PULLEN, LLP
Davenport, Iowa
March 9, 2001
F-12
94
LEE ENTERPRISES CERTAIN BROADCASTING OPERATIONS
(ALBUQUERQUE, NM; CHARLESTON-HUNTINGTON, WV; HONOLULU, HI; OMAHA, NE; PORTLAND,
OR;
TOPEKA, KS; TUCSON, AZ; WICHITA, KS)
COMBINED STATEMENTS OF NET ASSETS
SEPTEMBER 30, 1999 AND 2000
(DOLLARS IN THOUSANDS)
1999 2000
-------- --------
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 694 $ 409
Receivables:
Trade, less allowance for doubtful accounts 1999
$1,099; 2000 $959..................................... 22,770 21,615
Other.................................................. 1,504 1,077
Program rights............................................ 8,382 7,663
Prepaid expenses.......................................... 839 327
-------- --------
Total current assets.............................. 34,189 31,091
-------- --------
Property and Equipment, net................................. 30,434 29,474
-------- --------
Intangible Assets, net...................................... 123,476 117,154
-------- --------
Other Assets:
Program rights, net of current portion.................... 678 295
Investments............................................... 2,551 2,617
-------- --------
3,229 2,912
-------- --------
$191,328 $180,631
======== ========
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES:
Current maturities of program rights...................... $ 8,962 $ 7,650
Accounts payable.......................................... 1,578 1,242
Accrued compensation...................................... 2,874 3,517
Other accrued expenses.................................... 1,343 1,012
-------- --------
14,757 13,421
-------- --------
Long-Term Program Rights, net of current maturities......... 982 818
-------- --------
Deferred Revenue and Other.................................. 2,267 2,110
-------- --------
Net Assets.................................................. 173,322 164,282
-------- --------
$191,328 $180,631
======== ========
See Notes to Combined Financial Statements.
F-13
95
LEE ENTERPRISES CERTAIN BROADCASTING OPERATIONS
(ALBUQUERQUE, NM; CHARLESTON-HUNTINGTON, WV; HONOLULU, HI; OMAHA, NE; PORTLAND,
OR;
TOPEKA, KS; TUCSON, AZ; WICHITA, KS)
COMBINED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1998, 1999, AND 2000
(DOLLARS IN THOUSANDS)
1998 1999 2000
-------- -------- --------
GROSS REVENUE:
Local and regional........................................ $ 72,585 $ 68,087 $ 69,267
National.................................................. 47,487 49,405 52,237
Network................................................... 7,150 6,152 3,747
Political................................................. 5,589 6,723 6,409
Other..................................................... 8,744 8,249 8,431
-------- -------- --------
Total gross revenue............................... 141,555 138,616 140,091
Less agency commissions................................... 19,842 19,585 20,243
-------- -------- --------
Net revenue....................................... 121,713 119,031 119,848
-------- -------- --------
OPERATING EXPENSES:
Compensation costs, including allocations from parent 1998
$199; 1999 $981; 2000 $739............................. 49,591 50,667 51,117
Depreciation.............................................. 6,889 7,814 8,018
Amortization of intangibles............................... 4,225 4,018 3,855
Program amortization...................................... 7,896 9,561 10,255
Other, including allocations from parent 1998 $631; 1999
$670; 2000 $442........................................ 27,414 26,979 24,689
-------- -------- --------
96,015 99,039 97,934
-------- -------- --------
INCOME BEFORE INCOME TAXES.................................. 25,698 19,992 21,914
INCOME TAX EXPENSE.......................................... 10,682 8,456 9,161
-------- -------- --------
NET INCOME.................................................. $ 15,016 $ 11,536 $ 12,753
======== ======== ========
See Notes to Combined Financial Statements.
F-14
96
LEE ENTERPRISES CERTAIN BROADCASTING OPERATIONS
(ALBUQUERQUE, NM; CHARLESTON-HUNTINGTON, WV; HONOLULU, HI; OMAHA, NE; PORTLAND,
OR;
TOPEKA, KS; TUCSON, AZ; WICHITA, KS)
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED SEPTEMBER 30, 1998, 1999, AND 2000
(DOLLARS IN THOUSANDS)
1998 1999 2000
-------- -------- --------
BALANCE, BEGINNING.......................................... $179,943 $173,972 $173,322
Net income................................................ 15,016 11,536 12,753
Transfers to parent, net.................................. (31,669) (20,642) (30,954)
Income tax expense transferred to parent.................. 10,682 8,456 9,161
-------- -------- --------
BALANCE, ENDING............................................. $173,972 $173,322 $164,282
======== ======== ========
See Notes to Combined Financial Statements.
F-15
97
LEE ENTERPRISES CERTAIN BROADCASTING OPERATIONS
(ALBUQUERQUE, NM; CHARLESTON-HUNTINGTON, WV; HONOLULU, HI; OMAHA, NE; PORTLAND,
OR;
TOPEKA, KS; TUCSON, AZ; WICHITA, KS)
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998, 1999, AND 2000
(DOLLARS IN THOUSANDS)
1998 1999 2000
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 15,016 $ 11,536 $ 12,753
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 11,114 11,832 11,873
Program amortization................................... 7,896 9,561 10,255
Program contract rights payments....................... (8,413) (9,051) (10,629)
Other, primarily (gain) on sale of property and
equipment............................................ (43) (55) --
Income tax expense transferred to parent............... 10,682 8,456 9,161
Changes in assets and liabilities:
(Increase) decrease in receivables................... 218 (2,684) 1,582
Decrease in prepaid expenses......................... 404 71 512
Increase (decrease) in accounts payable, accrued
expenses, and deferred revenue.................... 802 (1,045) (181)
-------- -------- --------
Net cash provided by operating activities......... 37,676 28,621 35,326
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.............. 477 334 --
Purchase of property and equipment........................ (6,705) (7,619) (7,058)
Investments............................................... -- -- (66)
-------- -------- --------
Net cash (used in) investing activities........... (6,228) (7,285) (7,124)
-------- -------- --------
CASH FLOWS (USED IN) FINANCING ACTIVITIES,
transfers to parent, net.................................. (31,669) (20,642) (28,487)
-------- -------- --------
Net increase (decrease) in cash................... (221) 694 (285)
CASH:
Beginning................................................. 221 -- 694
-------- -------- --------
Ending.................................................... $ -- $ 694 $ 409
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Program rights acquired................................... $ 8,486 $ 10,772 $ 9,153
Reduction of goodwill and net assets as a result of
resolution of acquisition contingency.................. -- -- (2,467)
See Notes to Combined Financial Statements.
F-16
98
LEE ENTERPRISES CERTAIN BROADCASTING OPERATIONS
(ALBUQUERQUE, NM; CHARLESTON-HUNTINGTON, WV; HONOLULU, HI; OMAHA, NE; PORTLAND,
OR;
TOPEKA, KS; TUCSON, AZ; WICHITA, KS)
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
Lee Enterprises Certain Broadcasting Operations (Business) consists of
eight network-affiliated and seven satellite television stations and a mobile
television production business owned by Lee Enterprises, Incorporated (Parent).
Significant accounting policies:
BASIS OF PRESENTATION: The accompanying combined financial statements
represent the net assets and associated revenues, expenses, and cash flows of
the Business, assuming that the Business was organized as a separate legal
entity.
The Parent provides certain administrative services to the Business
including general management, engineering services, insurance, accounting, and
payroll. Included within compensation costs are $199, $981, and $739 of costs
allocated from the Parent for the years ended September 30, 1998, 1999, and
2000, respectively.
Other operating expenses include $631, $670, and $442 of additional costs
allocated from the parent for various items including training costs, consulting
services, relocation costs, and travel and entertainment for the years ended
1998, 1999, and 2000, respectively.
ACCOUNTING ESTIMATES: The preparation of financial statements, in
conformity with generally accepted accounting principles, requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT: Property and equipment is recorded at cost.
Depreciation is calculated under the straight-line method over the estimated
useful lives, 5-to-25 years for buildings and improvements, and 15-20 years for
towers. Other major equipment is calculated under accelerated methods over
3-to-10 years.
PROGRAM RIGHTS: Cost of program rights is stated at the lower of cost or
estimated net realizable value. Estimated net realizable values are based upon
management's expectations of future advertising revenue, net of sales
commissions, to be generated by the program material. The total cost of the
rights is recorded as an asset and a liability when the program becomes
available for broadcast. Cost of program rights is charged to operations
primarily on accelerated bases related to the usage of the program. The current
portion of program rights represents those rights that will be amortized in the
succeeding year.
INTANGIBLE ASSETS: Intangible assets are carried at cost and consist
primarily of customer lists, broadcast licenses and agreements, and the excess
of acquisition costs over estimated fair value of net assets acquired
(goodwill). The excess costs over fair value of net tangible assets acquired
include $15,017 incurred prior to October 31, 1970, which is not being
amortized. The remaining cost are being amortized using the straight-line method
primarily over 40 years.
The Business reviews its intangibles and other long-lived assets annually
to determine potential impairment. In performing the review, the Business
estimates the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment
F-17
99
LEE ENTERPRISES CERTAIN BROADCASTING OPERATIONS
(ALBUQUERQUE, NM; CHARLESTON-HUNTINGTON, WV; HONOLULU, HI; OMAHA, NE; PORTLAND,
OR;
TOPEKA, KS; TUCSON, AZ; WICHITA, KS)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
is recognized. The amount of impairment is measured based upon projected
discounted future cash flows using a discount rate reflecting the Business'
average cost of funds.
NET ASSETS: The Business participates in the Parent's cash management
system. Under the system, all cash generated by the Business is transferred to
the Parent and all cash requirements of the Business are funded by the Parent.
These transfers of funds are reflected in the net asset balance.
BROADCAST REVENUE: Revenue is recognized when advertisements or network
programming are broadcast.
INCOME TAXES: The Business represents a business unit of Lee Enterprises,
Incorporated and as such does not file separate income tax returns. The
provision for income taxes of the Business has been calculated as if the
Business was a stand-alone corporation filing separate tax returns.
The Business accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Cumulative
deferred taxes have been settled through net assets.
FINANCIAL INSTRUMENTS: The Business has reviewed the following financial
instruments and has determined that their fair values approximated their
carrying values as of September 30, 1998, 1999, and 2000: cash, receivables,
accounts payable, accrued expenses, and program rights.
NOTE 2. PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
SEPTEMBER 30,
-------------------
1999 2000
-------- --------
Land and improvements....................................... $ 3,655 $ 3,573
Buildings and improvements.................................. 17,814 18,186
Equipment................................................... 82,760 88,398
Other, primarily deposits................................... 1,667 --
-------- --------
105,896 110,157
Less accumulated depreciation............................... 75,462 80,683
-------- --------
$ 30,434 $ 29,474
======== ========
NOTE 3. INTANGIBLE ASSETS
A summary of intangible assets is as follows:
SEPTEMBER 30,
-------------------
1999 2000
-------- --------
Customer lists, broadcasting licenses, and agreements....... $ 91,020 $ 91,020
Goodwill.................................................... 79,333 76,866
Other....................................................... 4,200 4,200
-------- --------
174,553 172,086
Less accumulated amortization............................... 51,077 54,932
-------- --------
$123,476 $117,154
======== ========
F-18
100
LEE ENTERPRISES CERTAIN BROADCASTING OPERATIONS
(ALBUQUERQUE, NM; CHARLESTON-HUNTINGTON, WV; HONOLULU, HI; OMAHA, NE; PORTLAND,
OR;
TOPEKA, KS; TUCSON, AZ; WICHITA, KS)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. RETIREMENT PLAN
The Parent maintains a qualified defined contribution retirement plan
(Plan) that covers all full-time employees of the Business who have satisfied
minimum age and service requirements. Total contributions to the plan for the
years ended September 30, 1998, 1999, and 2000 were approximately $2,181,
$2,191, and $2,236, respectively.
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Business has entered into agreements to acquire broadcast rights for
certain syndicated programs of approximately $18,400 as of September 30, 2000.
NOTE 6. SUBSEQUENT EVENT
On October 1, 2000, Lee Enterprises, Incorporated sold the Business to
Emmis Communications Corporation for approximately $565,000, net of selling
expenses.
F-19
101
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Emmis Communications Corp.:
We have audited the accompanying balance sheet of Sinclair Broadcast Group,
Inc. -- St. Louis Radio Group (the Group) as of December 31, 1999, and the
related statements of operations, stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Group's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the 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. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sinclair Broadcast Group,
Inc. -- St. Louis Radio Group as of December 31, 1999, and the results of its
operations and cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
August 23, 2000
F-20
102
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS COMBINED BALANCE SHEET.
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 230
Accounts receivable, net of allowance for doubtful
accounts of $245....................................... 4,890
Deferred barter costs..................................... 225
--------
Total current assets........................................ 5,345
FIXED ASSETS, net........................................... 5,228
INTANGIBLES ASSETS, net..................................... 102,498
--------
Total assets................................................ $113,071
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 91
Accrued liabilities....................................... 1,243
Deferred barter revenue................................... 390
--------
Total current liabilities................................... 1,724
LONG-TERM LIABILITIES:
Due to parent............................................. 100,759
Deferred tax liabilities.................................. 2,070
Other long-term liabilities............................... 1,025
--------
Total liabilities........................................... 105,578
--------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Contributed capital....................................... 7,000
Retained earnings......................................... 493
--------
Total stockholders' equity.................................. 7,493
--------
Total liabilities and stockholders' equity.................. $113,071
========
The accompanying notes are an integral part of this combined balance sheet.
F-21
103
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
REVENUES:
Station broadcast revenues, net of agency commissions of
$3,258................................................. $25,193
Revenues realized from station barter arrangements........ 847
-------
Total revenues.............................................. 26,040
-------
OPERATING EXPENSES:
Program and production.................................... 6,832
Selling, general and administrative....................... 7,719
Corporate expenses........................................ 755
Depreciation and amortization............................. 4,226
-------
Total operating expenses.................................... 19,532
-------
Broadcast operating income.................................. 6,508
-------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (6,173)
Other income.............................................. 1
-------
(6,172)
-------
INCOME BEFORE PROVISION FOR INCOME TAXES.................... 336
INCOME TAX PROVISION........................................ 186
-------
Net income.................................................. $ 150
=======
The accompanying notes are an integral part of this combined statement.
F-22
104
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
TOTAL
CONTRIBUTED RETAINED STOCKHOLDERS'
CAPITAL EARNINGS EQUITY
----------- -------- -------------
BALANCE, December 31, 1998................................ $7,000 $343 $7,343
Net income.............................................. -- 150 150
------ ---- ------
BALANCE, December 31, 1999................................ $7,000 $493 $7,493
====== ==== ======
The accompanying notes are an integral part of this combined statement.
F-23
105
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 150
Adjustments to reconcile net income to net cash flows from
operating activities--
Depreciation and amortization............................. 4,226
Changes in assets and liabilities, net of effects of
acquisitions and dispositions-
Increase in accounts receivable, net................... (639)
Decrease in prepaid expenses........................... 49
Increase in accounts payable and accrued liabilities... 60
Deferred tax provision................................. 959
Net effect of changes in deferred barter revenues and
deferred barter costs................................. 137
Decrease in other long-term liabilities................ (319)
-------
Net cash flows from operating activities.................... 4,623
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment..................... (341)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in due to parent............................... (4,241)
-------
NET INCREASE IN CASH........................................ 41
CASH, beginning of period................................... 189
-------
CASH, end of period......................................... $ 230
=======
SUPPLEMENTAL INFORMATION:
Increase in parent company indebtedness related to
acquisitions........................................... $14,602
=======
The accompanying notes are an integral part of this combined statement.
F-24
106
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
1. BASIS OF PRESENTATION:
The St. Louis Radio Group of Sinclair Broadcast Group, Inc. (the "Company")
was formed through acquisition. Sinclair Broadcast Group, Inc. ("SBG") entered
into the radio business in May 1996 when it acquired radio stations from River
City Broadcasting LLP ("River City"). As a result of the subsequent Heritage
Media Services, Inc. (Heritage) acquisition and the acquisition of KXOK from
WPNT, Inc., the Company now is comprised of radio stations KPNT, KXOK, KIHT,
WVRV, WIL, and WRTH, serving the St. Louis market. These acquisitions have been
recorded under the purchase method of accounting.
These combined financial statements have been prepared from SBG's
historical accounting records and present the operations of the St. Louis Radio
Group as if the Company had been a separate entity for all periods presented.
During these periods, SBG provided various services to the Company (see Note 6).
Furthermore, acquisitions consummated by SBG have been presented as if they were
made by the Company and the consideration to effect these acquisitions was both
loaned and contributed by SBG. All significant intercompany transactions and
account balances between the six St. Louis stations have been eliminated in
consolidation.
The financial information included herein may not necessarily reflect the
consolidated results of operations, financial position, changes in stockholder's
equity and cash flows of the Company in the future or what they would have been
had it been a separate, stand-alone entity during the periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. On an ongoing basis, management reviews its estimates, including
those related to intangible assets, allowances for doubtful accounts, income
taxes and litigation based on currently available information. Changes in facts
and circumstances may result in revised estimates.
CONCENTRATION OF CREDIT RISK
The Company's revenues and accounts receivable relate primarily to the sale
of advertising within the radio stations' broadcast areas. Credit is extended
based on an evaluation of the customers' financial condition; and generally,
collateral is not required, credit losses are provided for in the financial
statements and consistently have been within management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments is determined by the
Company using the best available market information and appropriate valuation
methodologies. However, considerable judgment is necessary in interpreting
market data to develop the estimates of fair value. Accordingly, the estimates
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 by the
Company upon maturity or disposition. The use of different market assumptions or
estimation methodologies may have a material effect on the estimated fair value
amounts.
F-25
107
Most of the Company's financial instruments, including cash, accounts
receivable and payable and accruals are short-term in nature. Accordingly, the
carrying amount of the Company's financial instruments approximates fair value.
The carrying amount of long-term debt approximates fair value.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," the Company evaluates the recoverability of its
long-lived assets which include broadcasting licenses, other intangibles and
other assets whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If indications are that the carrying
amount of the asset may not be recoverable, the Company will estimate the future
cash flows expected to result from use of the asset and its eventual
disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, the
Company recognizes an impairment loss. The impairment loss recognized is
measured as the amount of which the carrying amount of the asset exceeds its
fair value.
BARTER ARRANGEMENTS
The Company broadcasts certain customers' advertising in exchange for
equipment, merchandise and services. The estimated fair value of the equipment,
merchandise or services received is recorded as deferred barter costs and the
corresponding obligation to broadcast advertising is recorded as deferred barter
revenue. The deferred barter costs are expensed or capitalized as they are used,
consumed or received. Deferred barter revenue is recognized as the related
advertising is aired.
ACQUIRED INTANGIBLE BROADCASTING ASSETS
Acquired intangible broadcasting assets are being amortized on a
straight-line basis over periods of 15 to 40 years. These amounts result from
the acquisition of radio station broadcasting assets. If indications are that
the carrying amount of one of these assets may not be recoverable, the Company
will estimate the future cash flows expected to result from use of the asset.
Management believes that the carrying amounts of the Company's tangible and
intangible assets have not been impaired.
Intangible broadcasting assets, at cost, as of December 31, 1999 consist of
the following (in thousands):
AMORTIZATION
PERIOD
------------
Goodwill............................... 40 years $ 43,721
Decaying advertiser base............... 15 years 4,124
FCC licenses........................... 25 years 61,819
Network affiliations................... 25 years 122
Other.................................. 15 years 196
--------
109,982
Less: Accumulated amortization......... (7,484)
--------
$102,498
========
ACCRUED LIABILITIES
As of December 31, 1999, accrued liabilities are $1.2 million. This balance
contains $0.6 million of compensation -- related liabilities, $0.5 million of
additional liabilities assumed in acquisitions and $0.1 million of other accrued
liabilities.
F-26
108
REVENUE RECOGNITION
Broadcasting revenues are derived principally from the sale of radio
advertising spots to local, regional and national advertisers. Advertising
revenue is recognized in the period during which the program time and spot
announcements are broadcast.
3. ACQUISITIONS
KXOK-FM ACQUISITION
In August, 1999, SBG completed the purchase of KXOK-FM in St. Louis,
Missouri from WPNT, Inc. Sinclair's total consideration for KXOK was $15.8
million, including assumed liabilities. The acquisition was accounted for under
the purchase method of accounting whereby the purchase price was allocated to
property and acquired intangible broadcast assets for $0.6 million and $15.2
million, respectively, based on an appraisal.
4. PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed under the straight-line method over the following
estimated useful lives.
Buildings and improvements......................... 10-35 years
Station equipment.................................. 5-10 years
Office furniture and equipment..................... 5-10 years
Leasehold improvements............................. 10-31 years
Automotive equipment............................... 3-5 years
Property and equipment consists of the following as of December 31, 1999
(in thousands):
Land and improvements................................. $ 258
Buildings and improvements............................ 574
Station equipment..................................... 5,217
Office furniture and equipment........................ 387
Leasehold improvements................................ 131
Automotive equipment.................................. 186
-------
6,753
Less: Accumulated depreciation and amortization....... (1,525)
-------
$ 5,228
=======
5. PARENT COMPANY INDEBTEDNESS:
In connection with the acquisition discussed in Note 3 and the Heritage
acquisition, SBG made loans to the Company. The Company has been charged
interest on these loans at a rate of interest equal to SBG's annual weighted
average borrowing rate on its outstanding indebtedness. The weighted average
interest rates on parent company indebtedness for the year ended December 31,
1999 was 6.7%.
Substantially all of the Company's assets have been pledged as security for
SBG's notes payable and commercial bank financing. Additionally, the operations
of the Company have been utilized to service the debt principal and interest
payments of SBG.
6. RELATED PARTY TRANSACTIONS:
The Company has utilized various services provided by SBG or its
subsidiaries. These services included, among others, certain investor relations,
executive, human resources, legal, investment, finance, real estate, information
management, internal audit, tax preparation and treasury. The costs of such
services have been allocated according to established methodologies and are
determined on an annual basis
F-27
109
by SBG. Such methodologies depend on the specific service provided and include
allocating costs that directly relate to the Company or allocating costs that
represent a pro rata portion of the total costs for the services provided.
Management of the Company believes these allocations to be a fair and reasonable
share of such costs. For the year ended December 31, 1999, allocated expenses of
approximately $755,000 were included in the consolidated statements of
operations of the Company. Substantially all costs relating to direct
intercompany services have been reflected in the accompanying combined financial
statements.
The Company's radio stations and SBG's television stations have
historically provided broadcast time to each other. The revenues or costs
associated with these intercompany transactions were not significant in the
periods presented.
The Company and SBG have entered into joint advertising arrangements.
Revenues are distributed to the parties providing the services based upon the
contract terms. The revenues associated with such sales were not significant in
the periods presented.
7. INCOME TAXES:
Income taxes are provided by using the asset and liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred tax assets
and liabilities are recognized based on differences between book and tax basis
of assets and liabilities using presently enacted tax rates. The provision for
income taxes is the sum of the amount of income tax paid or payable for the year
as determined by applying the provisions of enacted tax laws to taxable income
for that year and the net changes during the year in the Company's deferred tax
assets and liabilities other than changes arising from acquisitions and
dispositions.
SBG files a consolidated federal tax return and separate state tax returns
for each of its subsidiaries. It is SBG's policy to reimburse the Company for
its federal net operating losses when generated through intercompany charges.
The Company is responsible for its current state tax liabilities. The
accompanying financial statements have been prepared in accordance with the
separate return method of SFAS 109, whereby the allocation of federal tax
provision due to the parent is based on what the subsidiary's current and
deferred federal tax provision would have been had the subsidiary filed a
federal income tax return outside its consolidated group. Given that SBG is
required to reimburse the Company for its federal net operating losses when
generated, the value of the tax effected federal net operating losses is
recorded as an intercompany charge and included as a reduction of the due to
parent amount in the accompanying balance sheets.
The provision for income taxes consists of the following:
Provision for income taxes.............................. $186
Current:
Federal............................................... --
State................................................. --
----
--
----
Deferred:
Federal............................................... 166
State................................................. 20
----
186
----
$186
====
F-28
110
The following is a reconciliation of federal income taxes at the applicable
statutory rate to the recorded provision (in thousands):
Statutory federal income taxes.......................... $118
Adjustments--
State income and franchise taxes, net of federal
effect............................................. 14
Nondeductible expense items........................... 54
----
Provision for income taxes.............................. $186
====
Temporary differences between the financial reporting carrying amounts and
the tax basis of assets and liabilities give rise to deferred taxes. The Company
has a net deferred tax liability of $2.1 million as of December 31, 1999. The
realization of deferred tax assets is contingent upon the Company's ability to
generate sufficient future taxable income. Management believes that deferred
assets will be realized through future operating results.
Total deferred tax assets and deferred tax liabilities as of December 31,
1999 including the effects of the source of differences between financial
accounting and tax bases of the Company's assets and liabilities which give rise
to the deferred tax assets and deferred tax liabilities and the tax effect of
each are as follows (in thousands):
Deferred tax assets:
Accruals and reserves................................ $ 153
State net operating losses........................... 269
Other................................................ 42
------
$ 464
======
Deferred tax liabilities:
FCC license.......................................... $1,354
Fixed assets and intangibles......................... 1,180
------
$2,534
======
8. EMPLOYEE BENEFITS:
Employees of the Company participate in the Sinclair Broadcast Group, Inc.
401(k) Profit Sharing Plan and Trust (the "SBG Plan") which covers eligible
employees of the Company. Contributions made to the SBG Plan include an employee
elected salary reduction amount, company matching contributions and a
discretionary amount determined each year by SBG's Board of Directors. During
December 1997, SBG registered 800,000 shares of its Class "A" Common Stock with
the Securities and Exchange Commission (the "Commission") to be issued as a
matching contribution for the 1997 plan year and subsequent plan years. The
Company's 401(k) expense for the year ended December 31, 1999 was $68,000.
9. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is involved in certain litigation matters arising in the normal
course of business. In the opinion of management, these matters are not
significant and will not have a material adverse effect on the Company's
financial position.
F-29
111
OPERATING LEASES
The Company leases certain property and equipment under noncancellable
operating lease agreements. Future minimum lease payments under noncancellable
operating leases beginning January 1, 2000, are as follows (in thousands):
2000................................................... $ 853
2001................................................... 782
2002................................................... 782
2003................................................... 774
2004................................................... 367
2005 and thereafter.................................... 274
------
$3,832
======
10. SUBSEQUENT EVENT:
SALE OF THE ST. LOUIS RADIO GROUP
In connection with the acquisition of River City, SBG entered into a five
year agreement (the "Baker Agreement") with Barry Baker (the Chief Executive
Officer of River City) pursuant to which Mr. Baker served as a consultant to SBG
until terminating such services effective March 8, 1999 (the "Termination
Date"). As of February 8, 1999, the conditions to Mr. Baker becoming an officer
of SBG had not been satisfied, and on that date Mr. Baker and SBG entered into a
termination agreement, effective on March 8, 1999. Mr. Baker had certain rights
as a consequence of the termination of the Baker Agreement. These rights
included Mr. Baker's rights to purchase, at fair market value, the radio
stations owned by SBG serving the St. Louis, Missouri market.
In June, 1999, SBG received a letter from Mr. Baker in which Mr. Baker
elected to exercise his option to purchase SBG's radio properties in the St.
Louis market for their fair market value. In his letter, Mr. Baker named Emmis
Communications Corp. ("Emmis") as his designee to exercise the St. Louis
purchase option. Notwithstanding their belief that Emmis was not an appropriate
designee of Mr. Baker, SBG negotiated with Emmis regarding the potential sale of
the St. Louis properties. Following unsuccessful negotiations, however, on
January 18, 2000, SBG filed suit in the Circuit Court of Baltimore County,
Maryland against Mr. Baker and Emmis claiming, alternatively, that Mr. Baker's
designation of Emmis was invalid, that the St. Louis purchase option was void
for vagueness and/or that Emmis breached a duty that it owed to SBG by refusing
to negotiate the acquisition agreement in good faith. In the lawsuit, SBG
requested that the court grant declaratory relief and/or monetary damages.
On March 17, 2000, Emmis and Mr. Baker filed a joint answer and
counterclaim generally denying the allegations made by SBG in its lawsuit and
claiming that SBG had acted in bad faith in failing to fulfill its contractual
obligations, had mismanaged the St. Louis properties and had interfered with the
contract between Mr. Baker and Emmis in which Mr. Baker agreed to designate
Emmis to buy the properties. The counterclaim sought compensatory and punitive
damages, the appointment of a special receiver to manage the St. Louis
properties and a declaratory judgment requiring Sinclair to complete the sale of
those properties to Emmis.
On June 21, 2000, SBG entered into an agreement to sell the assets of the
six stations comprising the St. Louis Radio Group to Emmis for $220.0 million in
cash (the "St. Louis Sale"). The agreement also included the settlement of the
outstanding lawsuit between SBG and Emmis. This acquisition is awaiting approval
by the Federal Communications Commission and Department of Justice. In
connection with the signing of the purchase agreement, Emmis made an escrow
payment of $22.0 million.
F-30
112
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Emmis Communications Corp.:
We have reviewed the accompanying condensed combined balance sheet of
Sinclair Broadcast Group, Inc. -- St. Louis Radio Group (the Company or the
Group) as of September 30, 2000, and the related condensed combined statements
of operations and cash flows for the nine-month periods ending September 30,
2000 and 1999. These financial statements are the responsibility of the Group's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the combined balance sheet of Sinclair Broadcast
Group, Inc. -- St. Louis Radio Group as of December 31, 1999, and in our report
dated August 23, 2000, we expressed our unqualified opinion on that statement.
In our opinion, the information set forth in the accompanying condensed combined
balance sheet as of December 31, 1999, is fairly stated, in all material
respects, in relation to the combined balance sheet from which it has been
derived.
Baltimore, Maryland
March 12, 2001
F-31
113
SINCLAIR BROADCAST GROUP, INC. -- ST. LOUIS RADIO GROUP
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND SEPTEMBER 30, 2000
(IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(NOTE 1) (UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 230 $ 253
Accounts receivable, net of allowance for doubtful
accounts of $245 and $242, respectively................ 4,890 5,353
Deferred barter costs..................................... 225 243
-------- --------
Total current assets.............................. 5,345 5,849
Fixed assets, net........................................... 5,228 4,740
Intangible assets, net...................................... 102,498 99,587
-------- --------
Total assets...................................... $113,071 $110,176
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 91 $ 137
Accrued liabilities....................................... 1,243 1,080
Deferred tax liabilities.................................. -- --
Deferred barter revenue................................... 390 368
-------- --------
Total current liabilities......................... 1,724 1,585
Long-term liabilities:
Due to parent............................................. 100,759 96,429
Deferred tax liabilities.................................. 2,070 2,795
Other long-term liabilities............................... 1,025 802
-------- --------
Total liabilities................................. 105,578 101,611
-------- --------
Commitments and contingencies
Stockholders' equity:
Contributed capital....................................... 7,000 7,000
Retained earnings......................................... 493 1,565
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................ 7,493 8,565
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $113,071 $110,176
======== ========
The accompanying notes are an integral part of these combined balance sheets.
F-32
114
SINCLAIR BROADCAST GROUP, INC. -- ST. LOUIS RADIO GROUP
COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1999 2000
------- -------
(UNAUDITED)
REVENUES:
Station broadcast revenues, net of agency commissions of
$2,594 and $2,852, respectively........................ $18,865 $20,173
Revenues realized from station barter arrangements........ 457 895
------- -------
Total revenues.................................... 19,322 21,068
------- -------
OPERATING EXPENSES:
Program and production.................................... 5,090 5,243
Selling, general and administrative....................... 5,854 5,466
Corporate expenses........................................ 599 426
Depreciation and amortization............................. 3,103 3,438
------- -------
Total operating expenses.......................... 14,646 14,573
------- -------
Broadcast operating income.................................. 4,676 6,495
------- -------
OTHER EXPENSES:
Interest expense.......................................... (4,705) (4,674)
Other expense............................................. (23) (25)
------- -------
Total other expenses.............................. (4,728) (4,699)
------- -------
(Loss) income before benefit (provision) for income taxes... (52) 1,796
Income tax benefit (provision).............................. 27 (724)
------- -------
NET (LOSS) INCOME........................................... $ (25) $ 1,072
======= =======
The accompanying notes are an integral part of these combined balance sheets.
F-33
115
SINCLAIR BROADCAST GROUP, INC. -- ST. LOUIS RADIO GROUP
COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1999 2000
-------- -------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................................... $ (25) $ 1,072
Adjustments to reconcile net (loss) income to net cash
flows from operating activities --
Depreciation and amortization of property and equipment... 3,103 3,438
Changes in assets and liabilities, net of effects of
acquisitions and dispositions:
Increase in accounts receivables, net.................. (1,205) (463)
Decrease in prepaid expenses and other current
assets................................................ 4 --
Decrease in other long-term assets..................... 1,199 --
Increase (decrease) in accounts payable and accrued
liabilities........................................... 259 (117)
(Decrease) increase in deferred tax liabilities........ (26) 725
Net effect of changes in deferred barter revenues and
deferred barter costs................................. 96 (40)
Increase (decrease) in other long-term liabilities..... 92 (223)
-------- -------
Net cash flows from operating activities.......... 3,497 4,392
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment..................... (913) (39)
Acquisition of intangibles................................ (15,179) --
-------- -------
Net cash flows from investing activities.......... (16,092) (39)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in due to parent............................... 12,731 (4,330)
-------- -------
NET (DECREASE) INCREASE IN CASH............................. 136 23
CASH, BEGINNING OF PERIOD................................... 189 230
-------- -------
CASH, END OF PERIOD......................................... $ 325 $ 253
======== =======
The accompanying notes are an integral part of these combined balance sheets.
F-34
116
SINCLAIR BROADCAST GROUP, INC. -- ST. LOUIS RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2000
1. BASIS OF PRESENTATION:
The Sinclair Broadcast Group, Inc. -- St. Louis Radio Group (the Company
or the Group) was formed through acquisition. Sinclair Broadcast Group, Inc.
(SBG) entered into the radio business in May 1996 when it acquired radio
stations from River City Broadcasting LLP (River City). As a result of the
subsequent Heritage Media Services, Inc. (Heritage) acquisition and the
acquisition of KXOK from WPNT, Inc., the Company now is comprised of radio
stations KPNT, KXOK, KIHT, WVRV, WIL, and WRTH, serving the St. Louis market.
These acquisitions have been recorded under the purchase method of accounting.
These condensed combined financial statements have been prepared from SBG's
historical accounting records and present the operations of the St. Louis Radio
Group as if the Company had been a separate entity for all periods presented.
During these periods, SBG provided various services to the Company (see Note 2).
Furthermore, acquisitions consummated by SBG have been presented as if they were
made by the Company and the consideration to effect these acquisitions was both
loaned and contributed by SBG. All significant intercompany transactions and
account balances between the six St. Louis stations and related licensee company
have been eliminated in consolidation.
The financial information included herein may not necessarily reflect the
consolidated results of operations, financial position and cash flows of the
Company in the future or what they would have been had it been a separate,
stand-alone entity during the periods presented.
Interim financial statements
The condensed combined financial statements for the nine months ended
September 30, 1999 and 2000, are unaudited, but in the opinion of management,
such financial statements have been presented on the same basis as the audited
consolidated financial statements and include all adjustments, consisting only
of normal recurring adjustments necessary for a fair presentation of the
financial position and results of operations and cash flows for these periods.
As permitted under the applicable rules and regulations of the Securities
and Exchange Commission, certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations; however, the Company believes
that the disclosures are adequate to make the information presented not
misleading. The condensed combined financial statements included herein should
be read in conjunction with the combined financial statements and the notes
thereto included in the Company's annual financial statements for the year ended
December 31, 1999.
2. RELATED PARTY TRANSACTIONS
The Company has utilized various services provided by SBG or its
subsidiaries. These services included, among others, certain investor relations,
executive, human resources, legal, investment, finance, real estate, information
management, internal audit, tax preparation and treasury. The costs of such
services have been allocated according to established methodologies and are
determined on an annual basis by SBG. Such methodologies depend on the specific
service provided and include allocating costs that directly relate to the
Company or allocating costs that represent a pro rata portion of the total costs
for the services provided. Management of the Company believes these allocations
to be a fair and reasonable share of such costs. For the nine months ended
September 30, 1999 and 2000, allocated expenses of approximately $599,000
(unaudited) and $426,000 (unaudited), respectively, were included in the
combined statements of operations of the Company. Substantially all costs
relating to direct intercompany services have been reflected in the accompanying
combined financial statements.
F-35
117
SINCLAIR BROADCAST GROUP, INC. -- ST. LOUIS RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's share of SBG's annual current and deferred federal tax
provision is recorded through the due to Parent account. State taxes are paid
and accrued directly to the state taxing authorities. Interim income tax
allocations are recorded as deferred tax liabilities until the annual tax
liabilities are determined.
The Company's radio stations and SBG's television stations have
historically provided broadcast time to each other. The revenues or costs
associated with these intercompany transactions were not significant in the
periods presented.
The Company and SBG have entered into joint advertising arrangements.
Revenues are distributed to the parties providing the services based upon the
contract terms. The revenues associated with such sales were not significant in
the periods presented.
3. SIGNIFICANT EVENTS
Sale of the St. Louis Radio Group
On June 21, 2000, SBG entered into an agreement with Emmis Communications
Corp. (Emmis) to sell the assets of the radio stations WIL-FM, WRTH-AM, WVRV-FM,
KPNT-FM, KXOK-FM and KIHT-FM in St. Louis, Missouri for a cash purchase price of
$220 million. The agreement also included the settlement of outstanding lawsuits
by and between SBG and Emmis. In October 2000, SBG completed the sale of its St.
Louis radio properties to Emmis for $220 million.
F-36
118
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EMMIS COMMUNICATIONS CORPORATION
EXCHANGE OFFER FOR ITS $370,000,000
AGGREGATE PRINCIPAL AMOUNT AT MATURITY
12 1/2% SENIOR DISCOUNT NOTES DUE 2011
-------------------------------------
Prospectus
, 2001
-------------------------------------
No person has been authorized to give any information or to make any
representation other than those contained in this prospectus, and, if given or
made, any information or representations must not be relied upon as having been
authorized. This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy
these securities in any circumstances in which this offer or solicitation is
unlawful. Neither the delivery of this prospectus nor any sale made under this
prospectus shall, under any circumstances, create any implication that there has
been no change in the affairs of Emmis Communications Corporation since the date
of this prospectus or that the information contained in this prospectus is
correct as of any time subsequent to its date.
Broker-dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the broker-dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
119
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Emmis Communications Corporation is an Indiana corporation. Chapter 37 of
The Indiana Business Corporation Law (the "IBCL") requires a corporation, unless
its articles of incorporation provide otherwise, to indemnify a director or an
officer of the corporation who is wholly successful, on the merits or otherwise,
in the defense of any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal, against reasonable expenses, including counsel fees,
incurred in connection with the proceeding. Emmis' Second Amended and Restated
Articles of Incorporation expressly require such indemnification.
The IBCL also permits a corporation to indemnify a director, officer,
employee or agent who is made a party to a proceeding because the person was a
director, officer, employee or agent of the corporation or its subsidiary
against liability incurred in the proceeding if (i) the individual's conduct was
in good faith and (ii) the individual reasonably believed (A) in the case of
conduct in the individual's official capacity with the corporation that the
conduct was in the corporation's best interests and (B) in all other cases that
the individual's conduct was at least not opposed to the corporation's best
interests and (iii) in the case of a criminal proceeding, the individual either
(A) had reasonable cause to believe the individual's conduct was lawful or (B)
had no reasonable cause to believe the individual's conduct was unlawful. The
IBCL also permits a corporation to pay for or reimburse reasonable expenses
incurred before the final disposition of the proceeding and permits a court of
competent jurisdiction to order a corporation to indemnify a director or officer
if the court determines that the person is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not the
person met the standards for indemnification otherwise provided in the IBCL.
Emmis' Second Amended and Restated Articles of Incorporation generally
provide that any director or officer of Emmis or any person who is serving at
the request of Emmis as a director, officer, employee or agent of another entity
shall be indemnified and held harmless by Emmis to the fullest extent authorized
by the IBCL. The Second Amended and Restated Articles of Incorporation also
provide such persons with certain rights to be paid by Emmis the expenses
incurred in defending proceedings in advance of their final disposition and
authorize Emmis to maintain insurance to protect itself and any director,
officer, employee or agent of Emmis or any person who is or was serving at the
request of Emmis as a director, officer, partner, trustee, employee or agent of
another entity against expense, liability or loss, whether or not Emmis would
have the power to indemnify such person against such expense, liability or loss
under the Second Amended and Restated Articles of Incorporation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Second Amended and Restated Articles of Incorporation of
Emmis Communications Corporation, incorporated by reference
from Exhibit 3.1 to Emmis' Form 10-K/A for the year ended
February 29, 2000.
3.2 Amended and Restated Bylaws of Emmis Communications
Corporation, incorporated by reference from Exhibit 3.2 to
Emmis' Form 10-K/A for the year ended February 29, 2000.
4.1* Indenture, dated as of March 27, 2001, between Emmis Escrow
Corporation and The Bank of Nova Scotia Trust Company of New
York, as trustee, including as an exhibit thereto the form
of note.
4.2* Registration Rights Agreement, dated as of March 27, 2001,
by and among Emmis Escrow Corporation and Credit Suisse
First Boston Corporation, Goldman, Sachs & Co., Deutsche
Banc Alex. Brown Inc., Banc of America Securities LLC, CIBC
World Markets Corp. and First Union Securities, Inc.
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120
EXHIBIT DESCRIPTION
- ------- -----------
4.3** Form of the Supplemental Indenture by and among Emmis
Communications Corporation, Emmis Escrow Corporation and The
Bank of Nova Scotia Trust Company of New York, as trustee.
5.1** Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
regarding the legality of the securities being registered.
5.2** Opinion of Bose McKinney & Evans LLP regarding the legality
of the securities being registered.
8.1** Tax opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
10.1** Form of the Supplemental Indenture by and among Emmis
Communications Corporation, Emmis Operating Company and The
Bank of New York, as trustee.
10.2** Agreement of Merger, dated as of March 27, 2001, by and
among Emmis Communications Corporation, Emmis Escrow
Corporation and Emmis Escrow Holding Corporation.
12.1* Statement regarding the ratio of earnings to fixed charges.
23.1** Consent of Paul, Weiss, Rifkind, Wharton & Garrison,
included in Exhibit 5.1 and Exhibit 8.1.
23.2** Consent of Bose McKinney & Evans LLP, included in Exhibit
5.2.
23.3** Consent of Arthur Andersen LLP, Indianapolis, Indiana.
23.4** Consent of Arthur Andersen LLP, Baltimore, Maryland.
23.5** Consent of Deloitte & Touche LLP.
23.6** Consent of McGladrey & Pullen, LLP.
24.1* Power of Attorney, included on the signature page of the
registration statement.
25.1** Statement regarding the eligibility of The Bank of Nova
Scotia Trust Company of New York, as trustee.
99.1** Form of Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
- -------------------------
* Previously filed.
** Filed herewith.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act of 1934 (and where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
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121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Indianapolis, Indiana, on June 21,
2001.
EMMIS COMMUNICATIONS CORPORATION
By: /s/ WALTER Z. BERGER
------------------------------------
Name: Walter Z. Berger
Title: Executive Vice President,
Treasurer and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
*
- ------------------------------------------
Jeffrey H. Smulyan Chairman of the Board, President and June 21, 2001
Chief Executive Officer (Principal
Executive Officer)
/s/ WALTER Z. BERGER
- ------------------------------------------
Walter Z. Berger Executive Vice President, Treasurer and June 21, 2001
Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
*
- ------------------------------------------
Susan B. Bayh Director June 21, 2001
*
- ------------------------------------------
Gary L. Kaseff Director June 21, 2001
*
- ------------------------------------------
Richard A. Leventhal Director June 21, 2001
*
- ------------------------------------------
Greg A. Nathanson Director June 21, 2001
*
- ------------------------------------------
Doyle L. Rose Director June 21, 2001
*
- ------------------------------------------
Frank V. Sica Director June 21, 2001
*
- ------------------------------------------
Lawrence B. Sorrel Director June 21, 2001
*By: /s/ J. SCOTT ENRIGHT
------------------------------------
Name: J. Scott Enright
Title: Attorney-in-Fact
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122
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Second Amended and Restated Articles of Incorporation of
Emmis Communications Corporation, incorporated by reference
from Exhibit 3.1 to Emmis' Form 10-K/A for the year ended
February 29, 2000.
3.2 Amended and Restated Bylaws of Emmis Communications
Corporation, incorporated by reference from Exhibit 3.2 to
Emmis' Form 10-K/A for the year ended February 29, 2000.
4.1* Indenture, dated as of March 27, 2001, between Emmis Escrow
Corporation and The Bank of Nova Scotia Trust Company of New
York, as trustee, including as an exhibit thereto the form
of note.
4.2* Registration Rights Agreement dated as of March 27, 2001, by
and among Emmis Escrow Corporation and Credit Suisse First
Boston Corporation, Goldman, Sachs & Co., Deutsche Banc
Alex. Brown Inc., Banc of America Securities LLC, CIBC World
Markets Corp. and First Union Securities, Inc.
4.3** Form of the Supplemental Indenture by and among Emmis
Communications Corporation, Emmis Escrow Corporation and The
Bank of Nova Scotia Trust Company of New York, as trustee.
5.1** Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
regarding the legality of the securities being registered.
5.2** Opinion of Bose McKinney & Evans LLP regarding the legality
of the securities being registered.
8.1** Tax opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
10.1** Form of the Supplemental Indenture by and among Emmis
Communications Corporation, Emmis Operating Company and The
Bank of New York, as trustee.
10.2** Agreement of Merger, dated as of March 27, 2001, by and
among Emmis Communications Corporation, Emmis Escrow
Corporation and Emmis Escrow Holding Corporation.
12.1* Statement regarding the ratio of earnings to fixed charges.
23.1** Consent of Paul, Weiss, Rifkind, Wharton & Garrison,
included in Exhibit 5.1 and Exhibit 8.1.
23.2** Consent of Bose McKinney & Evans LLP, included in Exhibit
5.2.
23.3** Consent of Arthur Andersen LLP, Indianapolis, Indiana.
23.4** Consent of Arthur Andersen LLP, Baltimore, Maryland.
23.5** Consent of Deloitte & Touche LLP.
23.6** Consent of McGladrey & Pullen, LLP.
24.1* Power of Attorney, included on the signature page of the
registration statement.
25.1** Statement regarding the eligibility of The Bank of Nova
Scotia Trust Company of New York, as trustee.
99.1** Form of Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
- -------------------------
* Previously filed.
** Filed herewith.
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