1
EXHIBIT 2.2
ACQUISITION AGREEMENT
DATED AS OF MAY 16, 1997
BY AND BETWEEN
THE ▇. ▇. ▇▇▇▇▇▇▇ COMPANY
AND
▇▇▇▇▇-▇▇▇▇▇ COMMUNICATIONS, INC.
2
TABLE OF CONTENTS
PAGE
----
ARTICLE I
PURCHASE AND SALE OF SHARES
Section 1.1 Sale of Acquired Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.4 Purchase Price Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
CLOSING
Section 2.1 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.2 Delivery by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.3 Delivery by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.4 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.5 Acquired Business Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.7 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.8 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.9 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.12 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.13 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.14 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.15 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.16 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.18 FCC Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
i
3
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.3 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.5 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.6 Sufficient Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.7 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.8 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.9 Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V
COVENANTS PENDING THE CLOSING
Section 5.1 Covenants of Seller with Respect to the Acquired Business . . . . . . . . . . . . . . . 15
Section 5.2 Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.3 Covenants of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.4 Control of the Seller Stations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.3 Legal Conditions to Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.4 Use of Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.5 Intercompany Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.6 Employee Matters; Seller Stock Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.7 Defense and Payment of Certain Claims . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.9 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.11 Sales and Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.12 Assignment of Contracts and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.13 Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.14 Indemnity Relating to Certain Litigation; and Certain Benefits Liabilities . . . . . . . 26
ii
4
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation to Effect the Closing . . . . . . . . . . . . . . 28
Section 7.2 Conditions of Obligations of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.3 Conditions of Obligations of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonsurvival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 31
Section 9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.5 Entire Agreement; No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . 32
Section 9.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.7 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.8 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
iii
5
SCHEDULES AND EXHIBITS
Seller Disclosure Schedule
Exhibit A - Noncompetition Agreement
Exhibit B - Television Financial Statements
Exhibit C - Newspaper Financial Statements
iv
6
ACQUISITION AGREEMENT
ACQUISITION AGREEMENT (this "Agreement"), dated as of May 16, 1997, by
and between THE ▇. ▇. ▇▇▇▇▇▇▇ COMPANY, an Ohio corporation ("Buyer"), and
▇▇▇▇▇-▇▇▇▇▇ COMMUNICATION'S, INC., a Delaware corporation ("Seller").
WHEREAS, Buyer and Seller have entered into an Agreement and Plan of
Reorganization dated as of May 16, 1997 (the "Merger Agreement") providing for
the merger (the "Merger") of Seller into Buyer after Seller shall have effected
the Distribution (as defined in the Merger Agreement);
WHEREAS, in the event that the Merger Agreement is terminated, Buyer
desires to purchase, and Seller desires to sell, substantially all of Seller's
newspaper, television and radio operations, on the terms and subject to the
conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF BUSINESS
Section 1.1 Sale of Acquired Business. Upon the terms and
subject to the conditions hereof, at the closing of the transactions
contemplated hereby (the "Closing"), Seller will sell and assign to Buyer, and
Buyer will purchase and acquire from Seller, the Acquired Business. The
"Acquired Business" means and includes the assets, liabilities, capital stock
and interests reflected on the Acquired Business Balance Sheet (as defined in
Section 3.5), as such assets and liabilities may have changed since the date of
the Acquired Business Balance Sheet, but in any event shall include all of
Seller's direct and indirect right, title and interest in the assets used
primarily in, and all of Seller's liabilities and obligations (accrued,
absolute, contingent, undisclosed or otherwise) which are primarily related to
or have arisen or will arise from Seller's newspaper, television and radio
businesses, including the ownership and operation of the newspapers listed in
Section 1.1 of the Seller Disclosure Schedule, KENS-TV and KENS-AM. The
Acquired Business shall include the following Subsidiaries of Seller
(individually, a "Acquired Subsidiary" and collectively, the "Acquired
Subsidiaries"): Independent Publishing Company, a South Carolina corporation
("IPC"), ▇▇▇▇▇-▇▇▇▇▇ Community Newspapers, Inc., a Texas corporation
("Community Newspapers"), and ▇▇▇▇▇-▇▇▇▇▇ Television, Inc., a Delaware
corporation ("HHTV"). As used in this Agreement, the word "Subsidiary" means,
with respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any other Subsidiary
of such party is a general partner (excluding partnerships the general
partnership interests of which held by such party and any Subsidiary of such
party do not have a majority of the voting interest in such partnership) or
(ii) securities or
1
7
other interests having by their terms a majority of the outstanding voting
power with respect to such corporation or other organization are directly or
indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries.
Section 1.2 Purchase Price. The total consideration (the
"Purchase Price") for the Acquired Business will be the sum of $775 million,
plus or minus the positive or negative amount of net working capital (current
assets less current liabilities) of the Acquired Business estimated by the
chief financial officer of Seller as the net working capital as of the Closing
Date pursuant to Section 7.2(c) (the "Cash Payment"), plus Buyer's assumption
of Seller's liabilities included in the Acquired Business, plus or minus the
adjustment amount calculated pursuant to Section 1.3. At the Closing, Buyer
will pay the Cash Payment to Seller by wire transfer of immediately available
funds.
Section 1.3 Purchase Price Adjustment.
(a) No later than 45 days after the Closing Date, Seller
shall deliver to Buyer a balance sheet of the Acquired Business at the Closing
Date (the "Closing Balance Sheet"). The Closing Balance Sheet shall be
prepared in accordance with generally accepted accounting principles on a basis
consistent with the Acquired Business Financial Statements (as defined below),
except that the Closing Balance Sheet will not include (i) any liabilities or
reserves in respect of Continuing Claims (as defined below), (ii) will reflect
all film contracts as long term assets and all film contract payables as long
term liabilities and (iii) will not reflect as current liabilities the
severance obligations for Employees referenced in Section 6.6(a) below. To the
extent that the net working capital (current assets less current liabilities)
of the Acquired Business as shown on the Closing Balance Sheet is more or less
than the amount estimated by the chief financial officer of Seller as the net
working capital as of the Closing Date pursuant to Section 7.2(c), Buyer shall
pay to Seller, or Seller shall pay to Buyer, the amount of such excess or
shortfall, respectively, by wire transfer of immediately available funds within
five days of the earlier to occur of (i) acceptance by Buyer or (ii) the
Neutral Auditors' determination.
(b) After receipt of the Closing Balance Sheet, Buyer
shall have 20 days to review the Closing Balance Sheet, together with the
workpapers used in the preparation thereof. Representatives of Buyer and
Seller shall be given access to all work papers, books, records and other
information related to the preparation of the Closing Balance Sheet to the
extent required to complete their review of the Closing Balance Sheet. Buyer
may dispute items reflected on the Closing Date Balance Sheet only on the basis
that such amounts were not arrived at in accordance with the consistent
application of accounting principles used in the preparation of the Acquired
Business Financial Statements. Unless Buyer delivers written notice to Seller
on or prior to the 20th day after Buyer's receipt of the Closing Balance Sheet
specifying in reasonable detail all disputed items and the basis therefor,
Buyer shall be deemed to have accepted and agreed to the Closing Balance Sheet.
If Buyer so notifies Seller of its objection to the Closing Balance Sheet,
Buyer and Seller shall, within 30 days following such notice (the "Resolution
Period"), attempt to resolve their differences and any resolution by them as to
any disputed amounts shall be final, binding and conclusive.
2
8
(c) If at the conclusion of the Resolution Period there
remain amounts in dispute pursuant to paragraph (b) of this Section 1.3, then
all amounts remaining in dispute shall be submitted to a firm of nationally
recognized independent public accountants who shall not have had a material
relationship with Buyer or Seller within the past two years (the "Neutral
Auditors") and who shall be selected by mutual agreement of Buyer and Seller
within 10 days after the expiration of the Resolution Period. Each party
agrees to execute, if requested by the Neutral Auditors, a reasonable
engagement letter. All fees and expenses relating to the work, if any, to be
performed by the Neutral Auditors shall be borne equally by Buyer and Seller.
The Neutral Auditors shall act as an arbitrator to determine, based solely on
presentations by Buyer and Seller, and not by independent review or audit, only
those issues still in dispute. The Neutral Auditors' determination shall be
made within 30 days of their selection, shall be set forth in a written
statement delivered to Buyer and Seller and shall be final, binding and
conclusive.
(d) "Continuing Claims" means all suits, claims, actions,
arbitrations, inquiries, proceedings or investigations by or before any court,
arbitral tribunal, administrative agency or commission or other governmental,
regulatory or administrative agency or commission against Seller or any of the
Acquired Subsidiaries that arise from facts or events occurring prior to the
Closing Date relating to bodily injury, property damage or worker's
compensation and that would fall under Seller's automobile, general liability,
or worker's compensation coverage.
Section 1.4 Purchase Price Allocation. The Purchase Price will
be allocated among the Shares and assets of Seller constituting the remainder
of the Acquired Business as agreed by Seller and Buyer on or prior to Closing.
Except as otherwise provided in Section 6.10(b) in the event a Section
338(h)(10) election is made, Buyer and Seller will, not later than 90 days
after the Closing, execute and cause to be filed Forms 8594 under Internal
Revenue Code of 1986, as amended (the "Code") reflecting such allocation. Upon
any adjustment to the Purchase Price under Section 1.3, Buyer and Seller will
each execute additional Forms 8594, if necessary.
ARTICLE II
CLOSING
Section 2.1 Time and Place. On the terms and subject to the
conditions of this Agreement, the Closing will take place at the offices of
Seller's outside counsel, ▇▇▇▇▇▇ & ▇▇▇▇, L.L.P., located at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m. local time on the third business
day following the date on which the last remaining condition set forth in
Article VII has been satisfied or waived, or at such other time and place as
the parties hereto agree upon in writing (the "Closing Date").
3
9
Section 2.2 Delivery by Seller. At the Closing, Seller will
deliver to Buyer the following:
(a) Certificates representing all of the issued and
outstanding shares of capital stock in IPC, Community Newspapers and
HHTV (collectively, the "Shares"), endorsed in blank or together with
duly executed stock transfer powers in favor of Buyer;
(b) A receipt for the Cash Payment;
(c) A ▇▇▇▇ of sale and assignment, in form reasonably
acceptable to Buyer, conveying to Buyer all of the assets included in
the Acquired Business that are owned by Seller, together with
certificates of title with respect to motor vehicles;
(d) Instruments of assignment, in form reasonably
acceptable to Buyer, assigning to Buyer all of Seller's rights under
the Contracts (as defined below) to which Seller is a party, and
Seller shall have obtained all necessary consents to such assignments
other than consents which the failure to obtain will not have a
material adverse effect on the Acquired Business taken as a whole;
(e) A good and sufficient deed, in form reasonably
acceptable to Buyer, conveying a good and clear record and marketable
title to all of the real property owned by Seller and included in the
Acquired Business;
(f) the Noncompetition Agreement in the form attached here
to as Exhibit A;
and
(g) Each of the other documents and instruments required
to be delivered under the terms of this Agreement.
Section 2.3 Delivery by Buyer. At the Closing, Buyer will
deliver to Seller the following:
(a) The Cash Payment, in the manner required in Section
1.2;
(b) A receipt for the delivery of the Shares;
(c) An instrument of assumption of liabilities, in form
reasonably acceptable to Seller, covering those liabilities of Seller
included in the Acquired Business;
(d) the Noncompetition Agreement in the form attached
hereto as Exhibit A; and
(e) Each of the other documents and instruments required
to be delivered under the terms of this Agreement.
4
10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
Section 3.1 Organization. Each of Seller and the Acquired
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and Seller and each Acquired
Subsidiary has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing or
to have such power and authority would not have a material adverse effect on
the Acquired Business taken as a whole. Seller and the Acquired Subsidiaries
are each duly qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by them or the
nature of the business conducted by them makes such qualification or licensing
necessary, except where the failure to be so qualified or licensed and in good
standing would not in the aggregate have a material adverse effect on the
Acquired Business taken as a whole or on the ability of Seller to consummate
the transactions contemplated hereby. True, accurate and complete copies of
the charters and bylaws, including all amendments thereto, of the Acquired
Subsidiaries have heretofore been delivered to Buyer. As used in this
Agreement, any reference to any event, change or effect having a material
adverse effect on or with respect to the Acquired Business taken as a whole or
an entity (or group of entities taken as a whole) means that such event, change
or effect is materially adverse to the business, properties, assets, results of
operations or financial condition of the Acquired Business or such entity (or,
if with respect thereto, of such group of entities taken as a whole).
Section 3.2 Capitalization. The authorized capital stock of IPC
consists of 150 shares of common stock, $100.00 par value per share, all of
which shares are issued and outstanding and owned by Seller. The authorized
capital stock of Community Newspapers consists of 6,000 shares of common stock,
no par value per share, all of which shares are issued and outstanding and
owned by Seller. The authorized capital stock of HHTV consists of 1,000 shares
of common stock, $1.00 par value per share, all of which shares are issued and
outstanding and owned by Seller. All the Shares are duly authorized, validly
issued, fully paid and non-assessable and free of any preemptive rights in
respect thereof. There are no existing options, warrants, calls, subscriptions
or other rights or other agreements, commitments, understandings or
restrictions of any character binding on any of the Acquired Subsidiaries with
respect to the issued or unissued capital stock of any of the Acquired
Subsidiaries. There are no outstanding contractual obligations of any of the
Acquired Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of any of the Acquired Subsidiaries. Upon the sale of the Shares
to Buyer at the Closing, Buyer will acquire the entire legal and beneficial
ownership in all of the Shares, free and clear of any liens, claims, security
interests or encumbrances.
Section 3.3 Authority. Seller has the requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
5
11
The execution, delivery and performance of this Agreement by Seller and the
consummation by Seller of the transactions contemplated hereby have been duly
authorized by Seller's Board of Directors, and no other corporate proceedings
on the part of Seller are necessary to authorize this Agreement or for Seller
to consummate the transactions so contemplated hereby. This Agreement has been
duly executed and delivered by Seller and, assuming this Agreement constitutes
a valid and binding obligation of Buyer, constitutes a valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms.
Section 3.4 Consents and Approvals; No Violations. Except (a) as
set forth in Section 3.4 of the Seller Disclosure Schedule, (b) for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the ▇▇▇▇-▇▇▇▇▇- ▇▇▇▇▇▇ Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), and the Communications Act of 1934, as
amended (the "FCC Act"), and (c) as may be necessary as a result of any facts
or circumstances relating solely to Buyer or any of its Subsidiaries, none of
the execution, delivery or performance of this Agreement by Seller or the
consummation by Seller of the transactions contemplated hereby and compliance
by Seller with any of the provisions hereof will (i) conflict with or result in
any breach of any provisions of the charters or bylaws of Seller or of any of
the Acquired Subsidiaries, (ii) require any filing by Seller or any of the
Acquired Subsidiaries with, or any permit, authorization, consent or approval
to be obtained by Seller or any of the Acquired Subsidiaries of, any court,
arbitral tribunal, administrative agency or commission or other governmental or
other regulatory authority or agency (a "Governmental Entity"), (iii) result in
a violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument, obligation or commitment to which Seller or any of the
Acquired Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound ("Contracts") or result in the creation of
any lien upon any of the property or assets of the Acquired Business, or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Seller or any of the Acquired Subsidiaries, except, in the case
of clause (ii), (iii) or (iv), for failures to file or obtain, violations,
breaches, defaults or liens which would not have a material adverse effect on
the Acquired Business taken as a whole or the ability of Seller to consummate
the transactions contemplated hereby. The Seller has no knowledge of any facts
or circumstances relating to the Seller or any of its Acquired Subsidiaries
that, individually or in the aggregate, would prevent any necessary approval of
the transactions contemplated by this Agreement under the FCC Act.
Section 3.5 Acquired Business Financial Statements. Attached
hereto as Exhibits B and C are the audited balance sheets (the "Acquired
Business Balance Sheets") of the Acquired Business as of December 31, 1996 (
the "Balance Sheet Date") and December 31, 1995, and the related statement of
operations and cash flows for the three years ended December 31, 1996 and the
accompanying notes for the Seller's television and radio operations and
newspaper operations, respectively (together with the Acquired Business Balance
Sheets, the "Acquired Business Financial Statements"). The Acquired Business
Financial Statements have been prepared in accordance with generally accepted
accounting principles consistently applied, and,
6
12
except as set forth in Section 3.5 of the Seller Disclosure Schedule, fairly
present in all material respects the financial position of the Acquired
Business as at the dates thereof, and the results of its operations for the
periods then ended. After the Closing, except as otherwise contemplated by
this Agreement, neither Seller nor any of its other Subsidiaries will own or
have rights to use any of the assets or property, whether tangible, intangible
or mixed, which are necessary for the conduct of the Acquired Business as
conducted on the date hereof.
Section 3.6 Litigation. Except as disclosed in the Acquired
Business Financial Statements or as set forth in Section 3.6 of the Seller
Disclosure Schedule, there is no suit, action, proceeding or investigation
relating to the Acquired Business pending or, to the knowledge of Seller,
threatened, against Seller or any of the Acquired Subsidiaries before any
Governmental Entity which, individually or in the aggregate, is reasonably
likely to have a material adverse effect on the Acquired Business taken as a
whole or the ability of Seller to consummate the transactions contemplated
hereby. Except as set forth in Section 3.6 of the Seller Disclosure Schedule,
neither Seller nor any of the Acquired Subsidiaries is subject to any
outstanding order, writ, injunction or decree relating to the Acquired Business
which, individually or in the aggregate, is reasonably likely to have a
material adverse effect on the Acquired Business taken as a whole or a material
adverse effect on the ability of Seller to consummate the transactions
contemplated hereby.
Section 3.7 Employee Benefits.
(a) Section 3.7 of the Seller Disclosure Schedule
contains a list of all "employee benefit plans" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and all other material benefit plans, programs, agreements and
arrangements (the "Benefit Plans"), which cover employees or former employees
of Seller and the Acquired Subsidiaries who are or were employed in the
Acquired Business (the "Employees"). True and complete copies of all Benefit
Plans, any trust instruments and/or insurance contracts, if any, forming a part
of any such plans, and all amendments thereto; current summary plan
descriptions; where applicable, the most current determination letter received
from the Internal Revenue Service (the "Service"); and where applicable, annual
reports, financial statements and actuarial reports for the last plan year,
which fairly and accurately reflect the financial condition of the plans have
been made available to Buyer.
(b) All Benefit Plans are in compliance with ERISA, the
Code, and all other applicable laws in all material respects. Each Benefit
Plan which is an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA (a "Pension Plan") and which is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Service, and Seller is not aware of any circumstances likely to result in
revocation of any such favorable determination letter. Neither Seller, the
Acquired Subsidiaries nor any ERISA Affiliate (as defined below) has
contributed or been required to contribute to any Multiemployer Plan (as
defined in ERISA) with respect to any Employees.
7
13
(c) No liability under Subtitle C or D of Title IV of
ERISA has been incurred by Seller or any of the Acquired Subsidiaries with
respect to any ongoing, frozen or terminated Pension Plan, currently or
formerly maintained by any of them, or the Pension Plan of any entity which is
or has been considered one employer with Seller or any of the Acquired
Subsidiaries, as the case may be, under Section 4001 of ERISA or Section 414 of
the Code (an "ERISA Affiliate") which would have a material adverse effect on
the Acquired Business taken as a whole.
(d) All contributions required to be made or accrued as
of the Balance Sheet Date under the terms of any Benefit Plan for which Seller
or any of the Acquired Subsidiaries may have liability have been timely made or
have been reflected on the Acquired Business Balance Sheet. Neither any
Pension Plan nor any single-employer plan of an ERISA Affiliate has incurred an
"accumulated funding deficiency" (whether or not waived) within the meaning of
Section 412 of the Code or Section 302 of ERISA in an amount which would have a
material adverse effect on the Acquired Business taken as a whole. Neither
Seller nor any of the Acquired Subsidiaries has provided, or is required to
provide, security to any Pension Plan pursuant to Section 401(a)(29) of the
Code.
(e) Neither Seller nor any of the Acquired Subsidiaries
has any obligations for retiree health and life benefits for Employees or
former Employees under any Benefit Plan, except as set forth in Section 3.7 of
the Seller Disclosure Schedule or as required by Part 6 of Title I of ERISA.
Section 3.8 Absence of Certain Changes or Events. Except as set
forth in Section 3.8 of the Seller Disclosure Schedule, since the Balance Sheet
Date, the Acquired Business has been conducted only in the ordinary course
consistent with past practice, and there has not been any change or
development, or combination of changes or developments (other than changes
relating to or arising from legislative or regulatory changes, developments
generally affecting the newspaper or broadcasting industries or general
economic conditions in the United States), which individually or in the
aggregate have had or are reasonably likely to have a material adverse effect
on the Acquired Business taken as a whole.
Section 3.9 No Violation of Law. Except as disclosed in the
Acquired Business Financial Statements or as set forth in Section 3.9 of the
Seller Disclosure Schedule, neither Seller nor any of the Acquired Subsidiaries
is in violation of, or, to the knowledge of Seller, under investigation with
respect to or has been given notice or been charged by any Governmental Entity
with any violation of, any law, statute, order, rule, regulation or judgment of
any Governmental Entity, except for violations which, in the aggregate, would
not have a material adverse effect on the Acquired Business taken as a whole.
Seller and the Acquired Subsidiaries have all permits, licenses, franchises and
other governmental authorizations, consents and approvals necessary to conduct
the Acquired Business as presently conducted, except for any such permits,
licenses, franchises or other governmental authorizations, consents and
approvals the failure of which to have would not have a material adverse effect
on the Acquired Business taken as a whole.
8
14
Section 3.10 Taxes.
(a) Except as disclosed in the Acquired Business
Financial Statements or as set forth in Section 3.10 of the Seller Disclosure
Schedule:
(i) Seller, the Acquired Subsidiaries and the
consolidated group (the "Group") of which Seller and/or the Acquired
Subsidiaries are members, have (A) duly filed with the appropriate
governmental authorities all Tax Returns (as hereinafter defined)
required to be filed by them on or prior to the Closing Date, other
than those Tax Returns the failure of which to file would not have a
material adverse effect on the entity required to file such Tax
Return, and such Tax Returns are true, correct and complete in all
material respects, and (B) duly paid in full or made provision in
accordance with generally accepted accounting principles for the
payment of all Taxes (as hereinafter defined) due with respect to
periods ending on or prior to the Closing Date;
(ii) all monies which Seller, the Acquired
Subsidiaries or any member of the Group has been required by law to
withhold from employees or other contractors with respect to payments
made or periods ending on or before the Closing Date have been
withheld and timely paid to the appropriate governmental authority;
(iii) as of the date hereof, the Tax Returns for
Seller, the Acquired Subsidiaries and/or any member of the Group are
not currently the subject of any audit, investigation or proceeding by
the Service or, to Seller's, any Acquired Subsidiary's or the Group's
knowledge, any state or local taxing authority, and Seller, the
Acquired Subsidiaries and/or any member of the Group have not received
any written notice of deficiency or assessment from any taxing
authority with respect to liabilities for material Taxes of Seller,
the Acquired Subsidiaries and/or any member of the Group which have
not been paid or finally settled, other than audits, deficiencies or
assessments disclosed in Section 3.10 of the Seller Disclosure
Schedule which are being contested in good faith through appropriate
proceedings; and
(iv) the consolidated federal income tax return of
the Group has been audited through December 31, 1990 and no waiver of
any statute of limitations in respect of Taxes or any extension of
time with respect to a Tax assessment or deficiency granted by Seller,
any of the Acquired Subsidiaries and/or any member of the Group is
currently in effect.
(b) "Taxes" means all taxes, charges, fees, levies,
imposts, duties or other assessments, including, without limitation, income,
gross receipts, estimated taxes, excise, personal property, real property,
sales, ad valorem, value-added, leasing, withholding, social security, workers
compensation, unemployment insurance, occupation, use, service, service use,
license, stamp, payroll, employment, windfall profit, environmental,
alternative or add-on minimum tax, franchise, transfer and recording taxes,
fees and charges, imposed by the United States or any state, local, or foreign
governmental authority whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest,
9
15
fines, penalties or additional amounts attributable or imposed on or with
respect to any such taxes, charges, fees, levies, imposts, duties or other
assessments. "Tax Return" means any return, report or other document or
information required to be supplied to a taxing authority in connection with
Taxes.
(c) Except as provided in Section 3.10 of the Seller
Disclosure Schedule, neither Seller, any Acquired Subsidiary, nor any member of
the Group (i) has filed a consent pursuant to Section 341(f) of the Code nor
agreed to have Section 341(f)(2) apply to any disposition of a subsection (f)
asset (as such term is defined in Section 341(f) of the Code) owned by a member
of the Group, (ii) has agreed, or is required, to make any adjustment under
Section 481(a) of the Code by reason of a change in accounting method or
otherwise that will affect the liability of the Group for Taxes, (iii) has made
an election, or is required, to treat any asset of the Group as owned by
another person pursuant to the provisions of former Section 168(f)(8) of the
Code, (iv) is now or has ever been a party to any agreement, contract,
arrangement, or plan that would result, separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Section 280G
of the Code, (v) has participated in an international boycott as defined in
Section 999 of the Code, (vi) is now or has ever been a "foreign person" within
the meaning of Section 1445(b)(2) of the Code, or (vii) has made any of the
foregoing elections or is required to apply any of the foregoing rules under
any comparable state or local tax provision. After the date hereof, no
election with respect to Taxes or extension of the period of limitation will be
made without the written consent of Buyer.
Section 3.11 Environmental Matters.
(a) Except as disclosed in the Acquired Business
Financial Statements or as set forth in Section 3.11 of the Seller Disclosure
Schedule and except for such matters that, individually or in the aggregate,
would not have a material adverse effect on the Acquired Business taken as a
whole, (i) to the knowledge of Seller, the Acquired Business is in compliance
in all material respects with all applicable Environmental Laws (as hereinafter
defined); (ii) to the knowledge of Seller, the properties included in the
Acquired Business and presently owned or operated by Seller or the Acquired
Subsidiaries (the "Acquired Properties") do not contain any Hazardous Substance
(as hereinafter defined) other than as permitted under applicable Environmental
Laws; (iii) neither Seller nor any of the Acquired Subsidiaries has since
December 31, 1994 received any claims, notices, demand letters, lawsuits or
requests for information from any Governmental Entity or any private third
party alleging that the Acquired Business is in violation of, or liable under,
any Environmental Laws; and (iv) none of Seller, the Acquired Subsidiaries or
the Acquired Properties is subject to any court order, administrative order or
decree relating to the Acquired Business arising under any Environmental Law.
(b) "Environmental Law" means any applicable Federal,
state or local law, regulation, permit, judgment or agreement with any
Governmental Entity, relating to (x) the protection, preservation or
restoration of the environment or to human health or safety, or (y) the
exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of Hazardous Substances. "Hazardous
10
16
Substance" means any substance presently listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law.
Section 3.12 Material Contracts. Section 3.12 of the Seller
Disclosure Schedule identifies any Contract included in the Acquired Business
to which Seller or any of the Acquired Subsidiaries is a party or by which any
of its assets or operations may be bound as of the date of this Agreement that
is (i) a loan or similar agreement or indebtedness evidenced by a note or other
instrument, or any direct or indirect guarantee of indebtedness of any other
person, in excess of $1,000,000; (ii) any Contract that expressly limits the
right to terminate the Contract without penalty upon less than one year's
notice and such Contract provides for future payments in excess of $250,000
within the next twelve (12) months from the date hereof; (iii) a network
affiliation agreement; (iv) an employment or severance agreement providing for
payments in excess of $100,000 to any Employee; and (v) any Contract related to
capital expenditures, which provides for future payments in excess of $500,000
within the next twelve (12) months from the date hereof. Except as set forth
in Section 3.12 of the Seller Disclosure Schedule (i) each of the Contracts set
forth on Section 3.12 of the Seller Disclosure Schedule is in full force and
effect, except where the failure to be in full force and effect would not have
a material adverse effect on the Acquired Business taken as a whole and (ii)
there are no existing defaults by Seller or any Acquired Subsidiary thereunder
which default would result in a material adverse effect on the Acquired
Business taken as a whole.
Section 3.13 Brokers or Finders. Neither Seller nor any of the
Acquired Subsidiaries has any liability to any agent, broker, investment
banker, financial advisor or other firm or person for any broker's or finder's
fee or any other commission or similar fee in connection with any of the
transactions contemplated by this Agreement except ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
Securities Corporation ("DLJ"), whose fees and expenses, as previously
disclosed to Buyer, will be paid by Seller in accordance with Seller's
agreement with such firm.
Section 3.14 Title to Assets. Except as set forth in Section 3.14
of the Seller Disclosure Schedule, Seller and the Acquired Subsidiaries own all
of the material assets of the Acquired Business free and clear of any liens,
claims, security interests or encumbrances that, individually or in the
aggregate, are reasonably likely to have a material adverse effect on the
Acquired Business taken as a whole.
Section 3.15 Condition of Assets. All of the material assets of
the Acquired Business are in good operating condition and repair, ordinary wear
and tear excepted.
Section 3.16 Employees. With respect to the Acquired Business,
neither Seller nor any Acquired Subsidiary is a party to, or is bound by, any
collective bargaining agreement or other contract with a labor union, nor is
Seller or any of the Acquired Subsidiaries the subject of any proceeding or
organizing activity seeking to compel it to bargain with any labor union as to
wages and conditions of employment, nor is there any strike, labor dispute,
slow down or stoppage involving Seller or any of the Acquired Subsidiaries
pending or, to the knowledge of Seller, threatened that, individually or in the
aggregate, are reasonably likely to have a material adverse effect on the
Acquired Business taken as a whole.
11
17
Section 3.17 Insurance. Set forth in Section 3.17 of the Seller
Disclosure Schedule is a schedule of the insurance coverage (including policy
limits, coverage layers, and named insureds) maintained by Seller on the
assets, properties, premises, operations and personnel of the Acquired
Business.
Section 3.18 FCC Licenses. The Seller has provided Buyer with a
complete list of the FCC Licenses held or controlled by the Seller, Tall Tower,
Inc. or any of the Acquired Subsidiaries. Except as does not materially
jeopardize the operation by the Seller or the applicable Acquired Subsidiary of
any of the Seller Stations to which the FCC Licenses apply or as set forth in
Section 3.18 of the Seller Disclosure Schedule: (i) the Seller and those of
its Acquired Subsidiaries that are required to hold FCC Licenses, or that
control FCC Licenses, are qualified to hold such FCC Licenses or to control
such FCC Licenses, as the case may be; (ii) the Seller and those of its
Acquired Subsidiaries that are required to hold FCC Licenses hold such FCC
Licenses; (iii) the Seller is not aware of any facts or circumstances relating
to the Seller or any of its Acquired Subsidiaries that would prevent the FCC's
granting the requisite consent to the FCC Form 315 Transfer of Control
Application to be filed (the "FCC Application"), except that the Seller has
filed a renewal application with the FCC relating to KENS-AM, which renewal
application may delay the granting of the FCC Application; (iv) each Seller
Station is in material compliance with all FCC Licenses held by it; and (v)
there is not pending or, to the knowledge of the Seller, threatened any
application, petition, objection or other pleading with the FCC or other
Governmental Entity which challenges the validity of, or any rights of the
holder under, any FCC License held by the Seller or one of its Acquired
Subsidiaries, except for rule making or similar proceedings of general
applicability to persons engaged in substantially the same business conducted
by the Seller Stations. As used herein, the term "Seller Station" shall mean
KENS-TV and KENS-AM and the term "FCC License" shall mean any permit, license,
waiver or authorization that a person is required by the FCC to hold in
connection with the operation of its business.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
Section 4.1 Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted
except where the failure to be so organized, existing and in good standing or
to have such power and authority would not have a material adverse effect on
the ability of Buyer to consummate the transactions contemplated hereby. Buyer
is duly qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good
12
18
standing would not in the aggregate have a material adverse effect on the
ability of Buyer to consummate the transactions contemplated hereby.
Section 4.2 Authority. Buyer have the requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by Buyer and the consummation by Buyer of the purchase of the
Shares and of the other transactions contemplated hereby have been duly
authorized by the Board of Directors of Buyer, and no other corporate
proceedings on the part of Buyer is necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has been duly
executed and delivered by Buyer and, assuming this Agreement constitutes a
valid and binding obligation of Seller, constitutes a valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
Section 4.3 Consents and Approvals; No Violations. Except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of the Exchange Act, the HSR Act and
the FCC Act, and as may be necessary as a result of any facts or circumstances
relating solely to Seller and its Subsidiaries, neither the execution, delivery
or performance of this Agreement by Buyer nor the consummation by Buyer of the
transactions contemplated hereby nor compliance by Buyer with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the respective charter or bylaws of Buyer, (ii) require any filing
by Buyer or its Subsidiaries with, or permit, authorization, consent or
approval to be obtained by Buyer or its Subsidiaries of, any Governmental
Entity, (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any Contract to which Buyer or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound or (iv) violate any order, writ, injunction, decree,
statute, ordinance, rule or regulation applicable to Buyer or any of its
Subsidiaries, except, in the case of clause (ii), (iii) or (iv), for failures
to file or obtain, violations, breaches or defaults which would not,
individually or in the aggregate, have a material adverse effect on the ability
of Buyer to consummate the transactions contemplated hereby.
Section 4.4 Litigation. There is no suit, action, proceeding or
investigation pending or, to the knowledge of Buyer, threatened, against Buyer
or any of its Subsidiaries before any Governmental Entity which, individually
or in the aggregate, might reasonably be expected to have a material adverse
effect on the ability of Buyer to consummate the transactions contemplated by
this Agreement. Neither Buyer nor any of its Subsidiaries is subject to any
outstanding order, writ, injunction or decree which, individually or in the
aggregate, might reasonably be expected to have a material adverse effect on
the ability of Buyer to consummate the transactions contemplated hereby. Buyer
has no knowledge of any facts or circumstances relating to Buyer or any of its
Subsidiaries, that, individually or in the aggregate, would prevent any
necessary approval of the transactions contemplated by this Agreement under the
FCC Act. Buyer is legally and financially qualified and, to Buyer's knowledge,
otherwise qualified to hold, or control the entities which hold or will hold,
the FCC Licenses currently held or controlled by the Seller or to be held by
Buyer, or any person under their control after the Closing Date, and
13
19
are not aware of any facts or circumstances that might prevent or delay prompt
consent to or waivers for the FCC Application.
Section 4.5 No Violation of Law. Neither Buyer nor any of its
Subsidiaries is in violation of, or, to the knowledge of Buyer, is under
investigation with respect to or has been given notice or been charged by any
Governmental Entity with any violation of, any law, statute, order, rule,
regulation or judgment of any Governmental Entity, except for violations which,
in the aggregate, do not have a material adverse effect on the ability of Buyer
to consummate the transactions contemplated hereby. Buyer and its Subsidiaries
have all permits, licenses, franchises and other governmental authorizations,
consents and approvals necessary to conduct their businesses as presently
conducted, except for any such permits, licenses, franchises or other
governmental authorizations, consents and approvals the failure of which to
have would not have a material adverse effect on the ability of Buyer to
consummate the transactions contemplated hereby.
Section 4.6 Sufficient Funds. Buyer has, on the date hereof, the
financial capability to purchase the Acquired Business on the terms and subject
to the conditions set forth in this Agreement, and will have such capability on
the Closing Date.
Section 4.7 Purchase for Investment. Buyer is acquiring the
Shares for its own account for investment purposes and not with a view to or
for resale in connection with any distribution thereof within the meaning of
the Securities Act of 1933, as amended. Buyer will refrain from transferring
or otherwise disposing of the Shares, or any interest therein, in such a manner
as to violate any securities laws.
Section 4.8 Brokers or Finders. Neither Buyer nor any of its
Subsidiaries has any liability to any agent, broker, investment banker,
financial advisor or other firm or person for any broker's or finder's fee or
any other commission or similar fee in connection with any of the transactions
contemplated by this Agreement.
Section 4.9 Investigations. Buyer is an informed and
sophisticated participant in the transactions contemplated by this Agreement
and has been advised by persons experienced in the evaluation and purchase of
enterprises such as the Acquired Business, and along with such persons has
undertaken such investigation, and has been provided with and have evaluated
such documents and information, as Buyer and its advisors have deemed necessary
to enable them to make an informed and intelligent decision with respect to the
execution, delivery and performance of this Agreement. Anything herein to the
contrary notwithstanding, Buyer acknowledges that Buyer is acquiring the
Acquired Business without any representation or warranty, express or implied,
by Seller or any of its affiliates except as expressly set forth herein. In
furtherance of the foregoing, and not in limitation thereof, Buyer acknowledges
that neither Seller nor any of its advisors, including, without limitation,
DLJ, nor any of their respective affiliates or representatives have made any
representation or warranty (express or implied) with respect to, and Buyer is
not relying upon, (i) the information set forth in the Confidential Memorandum
provided to Buyer relating to the Acquired Business, (ii) any other information
14
20
provided to Buyer pursuant to the Confidentiality Agreement (as defined below),
or (iii) any financial projection or forecast delivered to Buyer with respect
to the revenues, profitability, cash flow, capital expenditures, or other
financial or operating aspect that may arise from the operation of the Acquired
Business either before or after the Closing Date. With respect to any
projection or forecast delivered by or on behalf of the Seller to Buyer, Buyer
acknowledges that (i) there are uncertainties inherent in attempting to make
such projections and forecasts, (ii) Buyer is familiar with such uncertainties,
(iii) Buyer is taking full responsibility for making its own evaluation of the
adequacy and accuracy of all such projections and forecasts furnished to Buyer
and (iv) Buyer will not have a claim against either Seller or any of its
advisors including, without limitation, DLJ, or any of their respective
affiliates with respect to such projections or forecasts or with respect to any
related matter.
ARTICLE V
COVENANTS PENDING THE CLOSING
Section 5.1 Covenants of Seller with Respect to the Acquired
Business. During the period from the date of this Agreement and continuing
until the Closing Date, Seller agrees that, except (i) as contemplated or
permitted by this Agreement, (ii) as set forth in Section 5.1 of the Seller
Disclosure Schedule, or (iii) to the extent that Buyer shall otherwise consent
in writing (which consent will not be unreasonably withheld or delayed):
(a) Ordinary Course. Seller and the Acquired
Subsidiaries shall carry on the Acquired Business in the usual, regular and
ordinary course consistent with past practice and use all reasonable efforts to
preserve intact the present business organization, keep available, consistent
with past practice, the services of the present officers and employees and
preserve the relationships with customers, suppliers and others having business
dealings with the Acquired Business, it being understood, however, that the
failure of any Employees to remain employees of the Acquired Business or become
employees of Buyer or any Subsidiary of Buyer shall not constitute a breach of
this covenant.
(b) Changes in Stock. Seller will not permit the
Acquired Subsidiaries to split (including a reverse stock split), combine or
reclassify any of their capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of their capital stock.
(c) Issuance of Securities. Seller shall not permit any
of the Acquired Subsidiaries to, issue, transfer or sell, or authorize or
propose or agree to the issuance, transfer or sale of, any shares of their
capital stock of any class, any other equity interests or any securities
convertible into, or any rights, warrants, calls, subscriptions, options or
other rights or agreements, commitments or understandings to acquire, any such
shares, equity interests or convertible securities, other than issuances by a
wholly owned Subsidiary of its capital stock to its parent.
15
21
(d) Governing Documents. None of the Acquired
Subsidiaries will amend their charters or bylaws in a manner adverse to Buyer
or otherwise inconsistent with the transactions contemplated hereby.
(e) Indebtedness. Seller shall not permit any of the
Acquired Subsidiaries to incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or warrants or
rights to acquire any debt securities of any of the Acquired Subsidiaries or
guarantee any such obligations of others other than in the ordinary course of
business consistent with past practice.
(f) Changes to Benefit Plans. Except as would not
materially increase the costs of the Acquired Business and except for changes
required to comply with applicable law, Seller shall not, nor shall it permit
any of the Acquired Subsidiaries to, (i) enter into, adopt, amend (except as
may be required by law and except for immaterial amendments) or terminate any
Benefit Plan or any agreement, arrangement, plan or policy between Seller or
any such Acquired Subsidiary and one or more of its directors, officers or
Employees or (ii) except for normal increases in the ordinary course of
business consistent with past practice and the payment of bonuses and other
consideration to Employees in the aggregate not to exceed the amount set forth
in Section 5.1 of the Seller Disclosure Schedule, increase in any manner the
compensation or fringe benefits of any director, officer or Employee or pay any
benefit to any director, officer or Employee not required by any plan or
arrangement as in effect as of the date hereof or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing; provided that
the foregoing shall not prohibit Seller or the Acquired Subsidiaries from
hiring and paying new employees in the ordinary course of business consistent
with past practice.
(g) Filings. Seller shall promptly provide Buyer (or its
counsel) copies of all filings (other than those portions of filings under the
HSR Act which Buyer has no reasonable interest in obtaining in connection with
the acquisition of the Acquired Business) made by Seller with any Federal,
state or foreign Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
(h) Accounting Policies and Procedures. Seller will not
and will not permit any of the Acquired Subsidiaries to change any of its
accounting principles, policies or procedures with regard to the Acquired
Business, except as may be required by generally accepted accounting
principles.
(i) Sale of Assets. Seller will not and will not permit
any of the Acquired Subsidiaries to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, or agree to sell, lease, exchange, mortgage,
pledge, transfer or otherwise dispose of, any of the assets included in the
Acquired Business, except for dispositions of inventories and equipment in the
ordinary course of business and consistent with past practice.
Section 5.2 Covenants of Seller. During the period from the date
of this Agreement and continuing to the Closing Date, Seller agrees that Seller
will not and will not permit the Acquired Subsidiaries to take any action that
would or is reasonably likely to result in any of the
16
22
conditions to the Closing set forth in Article VII not being satisfied or that
would materially impair the ability of Seller to consummate the transactions
contemplated herein in accordance with the terms hereof or would materially
delay such consummation, and Seller shall promptly advise Buyer orally and in
writing of any change in, or event with respect to, the business or operations
of Seller having, or which insofar as can reasonably be foreseen, could have, a
material adverse effect on the ability of Seller to consummate the transactions
contemplated hereby.
Section 5.3 Covenants of Buyer. During the period from the date
of this Agreement and continuing until the Closing Date, Buyer agrees that
except (i) as contemplated or permitted by this Agreement or (ii) to the extent
that Seller shall otherwise consent in writing (which consent will not be
unreasonably withheld or delayed):
(a) Filings. Buyer shall promptly provide Seller (or its
counsel) copies of all filings (other than those portions of filings under the
HSR Act which Seller has no reasonable interest in obtaining in connection with
the acquisition of the Acquired Business) made by Buyer with any Federal, state
or foreign Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
(b) Cooperation. Buyer shall not take any action that
would or is reasonably likely to result in any of the conditions to the Closing
set forth in Article VII not being satisfied or that would materially impair
the ability of Buyer to consummate the transactions contemplated herein in
accordance with the terms hereof or materially delay such consummation, and
Buyer shall promptly advise Seller orally and in writing of any change in, or
event with respect to, the business or operations of Buyer having, or which,
insofar as can reasonably be foreseen, could have, a material adverse effect on
the ability of Buyer to consummate the transactions contemplated hereby.
Section 5.4 Control of the Seller Stations. Prior to the Closing
Date, control of the Seller's television and radio broadcasting operations,
along with all of the Seller's other operations, shall remain with Seller.
Seller and Buyer acknowledge and agree that neither Buyer nor any of its
employees, agents or representatives, directly or indirectly, shall, or have
any right to, control, direct or otherwise supervise, or attempt to control,
direct or otherwise supervise, such broadcast and other operations, it being
understood that supervision of all programs, equipment, operations and other
activities of such broadcast and other operations shall be the sole
responsibility, and at all times prior to the Closing Date remain within the
complete control and discretion, of the Seller, subject to the terms of
Sections 5.1 and 5.2.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Reasonable Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be
17
23
taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement including,
without limitation, (i) the prompt preparation and filing of all necessary
documents under the HSR Act and the FCC Act including (but not limited to) any
required waiver of the FCC one-to-a-market rule, and (ii) such actions as may
be required to have the applicable waiting period under the HSR Act expire or
terminate as promptly as practicable, including by consulting with each other
as to, and responding promptly to any comments or requests for information with
respect thereto. Each party shall promptly consult with the other and provide
any necessary information with respect to all filings made by such party with
any Governmental Entity in connection with this Agreement and the transactions
contemplated hereby.
Section 6.2 Access to Information. Upon reasonable notice,
Seller shall (and shall cause each of the Acquired Subsidiaries to) afford to
the officers, employees, accountants, counsel and other representatives of
Buyer, access, during normal business hours during the period prior to the
Closing Date, to all of the properties, books, contracts, commitments and
records relating to the Acquired Business, and, during such period, Seller
shall (and shall cause the Acquired Subsidiaries to) furnish promptly to Buyer
all other information concerning the business, properties and personnel of the
Acquired Business as Buyer may reasonably request. After the Closing Date,
upon reasonable notice, Buyer shall cause the Acquired Subsidiaries to afford
to the officers, employees, accountants, counsel and other representatives of
Seller access, during normal business hours, to the Acquired Subsidiaries'
books and records which Seller may reasonably request in order to complete tax
filings or for other legitimate business purposes. Unless otherwise required
by law, the parties will hold any information made available pursuant to this
Section 6.2 which is nonpublic in confidence in accordance with the
confidentiality agreement, dated March 11, 1997 (the "Confidentiality
Agreement"), between Buyer and Seller.
Section 6.3 Legal Conditions to Purchase. Each of Seller and
Buyer will use all reasonable efforts to comply promptly with all legal
requirements which may be imposed on it or its respective Subsidiaries with
respect to the purchase of the Acquired Business by Buyer (which actions shall
include, without limitation, furnishing all information required under the HSR
Act and the FCC Act and will promptly cooperate with and furnish information to
each other in connection with any such requirements imposed upon any of them or
any of their respective Subsidiaries in connection with the purchase of the
Acquired Business by Buyer). Subject to the terms and conditions hereof, each
of Seller and Buyer will, and will cause its respective Subsidiaries to,
promptly use all reasonable efforts to obtain (and will consult and cooperate
with each other in obtaining) any consent, authorization, order or approval of,
or any exemption by, any Governmental Entity or other public or private third
party, required to be obtained or made by such party in connection with the
purchase of the Acquired Business by Buyer or the taking of any action
contemplated by this Agreement.
Section 6.4 Use of Names. (a) Following the Closing Date,
Seller shall have the sole and exclusive ownership of and right to use, as
between Buyer and the Acquired Subsidiaries on the one hand, and the Seller on
the other hand, each of the names, trademarks, trade names and other
proprietary rights set forth in Section 6.4 of the Seller Disclosure Schedule
(the "Acquired
18
24
Proprietary Name Rights"). The Acquired Proprietary Name Rights include,
without limitation, the name "▇▇▇▇▇-▇▇▇▇▇" and derivatives thereof.
(b) Following the Closing Date, Buyer shall, and shall
cause the Acquired Subsidiaries and other affiliates to, take all action
necessary to cease using, and change as promptly as practicable (including by
amending any charter documents), any corporate or other names which are the
same as or confusing similar to any of the Acquired Proprietary Name Rights.
Section 6.5 Intercompany Balances. All amounts owing between the
Acquired Subsidiaries, on the one hand, and Seller and its other Subsidiaries,
on the other hand, other than amounts arising in the ordinary course of
business for the purchase of goods or services in commercial transactions,
shall be eliminated in full (without any payment to either party) at or prior
to the Closing Date.
Section 6.6 Employee Matters; Seller Stock Plans.
(a) Buyer and the Acquired Subsidiaries shall assume and
retain, with respect to the Employees, any and all severance obligations that
arise due to (i) the purchase of the Acquired Business by Buyer being deemed a
"Change of Control" under the severance agreements for Employees specified in
Section 6.6 of the Seller Disclosure Schedule, (ii) events or actions occurring
as a result of the transactions consummated on the Closing Date, subject to the
provisions of Section 6.14 below, and (iii) events or actions occurring after
the Closing Date.
(b) Seller and Buyer agree that Buyer will, immediately
after the Closing Date and for at least one year thereafter, permit the
Employees (i) to participate in a group health plan of Buyer, or one of its
Subsidiaries in which similarly situated employees of Buyer participate, in
accordance with the terms of the plan and, to waive any pre- existing condition
clause or waiting period requirement in such group health plan and to give
credit for deductible amounts paid by an Employee during the current deductible
year of such group health plan while employed by Seller or any of the Acquired
Subsidiaries; provided, however, that Buyer will be in compliance with this
clause (i) regarding Employees employed by Seller or the Acquired Subsidiaries
if it assumes the current group health contracts of Seller or the Acquired
Subsidiaries relating to the Employees; (ii) to participate in and receive
credit, for vesting and eligibility purposes, under tax qualified retirement
plans of Buyer or any of its Subsidiaries in which similarly situated employees
of Buyer participate, for which they are otherwise eligible, for their service
with Seller or any of the Acquired Subsidiaries, to the extent permitted by
applicable tax-qualification requirements; (iii) to participate in other
benefit plans of Buyer which are offered to similarly situated employees and
(iv) to participate in stock option programs and stock purchase programs of
Buyer which are offered to similarly situated employees.
(c) Effective as of the Closing Date, the Employees shall
cease to be eligible to participate in the Benefit Plans, shall no longer
accrue benefits under the Benefit Plans, and shall not be eligible under the
Benefit Plans for payment of claims incurred thereafter, except to the extent
Buyer has assumed and continued any such Benefit Plan with the consent of
Seller.
19
25
(d) Notwithstanding any contrary provisions of this
Agreement, (i) Seller shall remain liable for any and all obligations arising
under or relating to the Benefit Plans (except as otherwise provided in
Schedule 6.6 of the Seller Disclosure Schedule), and (ii) with respect to
Employees who as of the Closing Date are former employees of the Acquired
Business, or are not actively at work, the Buyer shall assume liability only
for (1) any leave entitlements, reemployment obligations, reinstatement rights,
or related rights, under applicable law, including, without limitation, the
Family and Medical Leave Act of 1993, the Uniformed Services Employment and
Reemployment Rights Act of 1994, workers' compensation laws, or similar laws,
and (2) any rights, benefits or entitlements under the Acquired Welfare Plans
listed on Schedule 6.6, including, without limitation, health care continuation
pursuant to Part 6 of Title I of ERISA.
(e) Each outstanding option (a "Seller Option") to
purchase shares of Seller's common stock held by an Employee under any stock
option plan of Seller, whether vested or unvested, exercisable or
unexerciseable, shall remain the responsibility of Seller; and Buyer shall have
no obligation or responsibility whatsoever with respect to any Seller Options.
(f) All of the Employees of the Acquired Business will
become Employees of Buyer as of the Closing Date; however, nothing in this
Agreement shall be construed to require Buyer or the Acquired Subsidiaries to
continue the employment of any Employee for any period of time, or, except as
required by Section 6.6(b) above, to offer any particular type or level of
benefits to any employee. Nothing in this Agreement shall prevent Buyer or the
Acquired Subsidiaries from disciplining or terminating any Employee or from
amending or terminating any benefit plans at any time.
Section 6.7 Defense and Payment of Certain Claims. (a) The
parties hereto undertake and agree that, after the Closing Date, and in the
name and on behalf of Buyer and the Acquired Subsidiaries, Seller will assume
all of the Continuing Claims and, in connection therewith, will (i) conduct, or
cause to be conducted, the administration and defense of the Continuing Claims,
and (iii) pay or cause to be paid, as may be necessary and appropriate, all
liabilities to third parties, cost and expenses resulting from the Continuing
Claims that are not paid to or for the account of claimants or Buyer or the
Acquired Subsidiaries by insurance or by any third party ("Continuing Claims
Costs"). In connection with the foregoing, Seller hereby agrees to indemnify
and hold Buyer and its directors, officers, employees, agents and affiliates
harmless from all liability to third parties asserting Continuing Claims.
(b) In consideration for the undertaking and agreement of
Seller set forth in this Section 6.7 and the other consideration provided for
in this Agreement, Buyer agrees, that:
(i) subject to the obligations of Seller and
Buyer after the Closing Date under this Section 6.7, at all times after the
Closing Date, Seller will have the sole and exclusive right to conduct, or
cause to be conducted, and, whether through insurance carriers or otherwise,
the administration and defense of all Continuing Claims as provided above;
provided, however, that (i) Buyer will be entitled to monitor, at its own
expense, and with any counsel
20
26
selected by it, the administration and defense of all material Continuing
Claims by Seller and (ii) Buyer may, in its sole and absolute discretion, at
any time and from time to time in respect of any Continuing Claim, elect to
terminate Seller's rights to conduct or cause to be conducted the
administration and defense thereof by giving notice in writing to Seller of
such election, whereupon such rights by Seller will automatically terminate and
Seller will automatically be deemed released from any further liability or
obligation under this Section 6.7 in respect of the Continuing Claims as to
which Buyer has terminated Seller's rights and obligations (a "Discontinued
Claim"). Notwithstanding any provision of this Agreement to the contrary, any
liabilities, costs or expenses resulting from or in connection with a
Discontinued Claim that are incurred or paid subsequent to Seller's receipt of
Buyer's election to terminate Seller's rights and obligations with respect
thereto will not thereafter be deemed or treated as Continuing Claims Costs for
purposes of this Section 6.7. If Buyer terminates Seller's rights with respect
to the administration and defense of a Discontinued Claim, Seller will make
commercially reasonable efforts to change counsel of record and otherwise fully
vest in Buyer or the appropriate Acquired Subsidiary the full and sole right
and power to conduct the administration and defense of such Discontinued Claim;
(ii) at all times after the Closing Date, Buyer
will give notice, within five business days, to Seller of the assertion or
commencement of any action which would be a Continuing Claim, but no failure to
give such notice will relieve Seller from its obligations provided above
(except to the extent that Seller has suffered actual prejudice thereby).
Further, Seller will have a period of 30 days from the receipt of notice of any
such action which to investigate such action and to determine whether to
execute an acknowledgment of claim; provided, however, in the event that Buyer
or any of the Acquired Subsidiaries take any action believed to be reasonable
with respect to such action before the end of such 30-day period, such action
will not relieve Seller from its obligations provided above; and provided,
further that Buyer has provided Seller with prior written notification of such
action to the extent practicable;
(iii) Buyer and the Acquired Subsidiaries will
provide or make available to Seller and its representatives, all records,
materials and personnel of the Acquired Business reasonably required by Seller
or its representatives for use in the conduct of the administration and defense
of the Continuing Claims and, further, Buyer and the Acquired Subsidiaries will
cooperate fully with Seller and its representatives in the conduct of the
administration and defense of the Continuing Claims;
(iv) Buyer and the Acquired Subsidiaries will
maintain all books, records, materials and files of the Acquired Business
existing as of the Closing Date and relating to any of the Continuing Claims
for a period of ten years following the Closing Date;
(v) Neither Buyer nor any of the Acquired
Subsidiaries will take any action that would impair or invalidate the insurance
under which any of the Continuing Claims are or may be covered that are in
existence at the Closing Date. For purposes of this Section 6.7, all
references to the representatives of Seller will include the attorneys and
insurance carriers of Seller and its affiliates as well as the personnel of
Seller and its affiliates; and
21
27
(vi) Seller will retain, and Buyer, on behalf of
the Acquired Subsidiaries, agrees to assign to Seller, any and all insurance
claims, insurance receivables and all other benefits (including premium
refunds) arising under any and all insurance policies covering the Continuing
Claims for which Seller is liable or obligated under this Section 6.7. With
respect to the Continuing Claims, Buyer will not have any obligation to make a
claim under any insurance policy procured by Buyer after the Closing Date; any
such insurance policy will expressly negate or waive any right of subrogation
with respect to any contractual rights against Seller or any affiliate of
Seller or any insurance carrier of Seller relating to the Continuing Claims.
Section 6.8 Insurance. Buyer agrees and acknowledges that the
insurance policies listed on Section 3.16 of the Seller Disclosure Schedule are
maintained by Seller and that immediately after the Closing, the Acquired
Subsidiaries will no longer be designated insureds thereunder and, except to
benefit Seller with respect to Continuing Claims assumed by Seller, such
insurance policies will cease to insure any of the business, operations,
assets, or affairs of the Acquired Business.
Section 6.9 Fees and Expenses. Whether or not the transactions
contemplated herein are consummated and except as otherwise provided herein,
all fees, costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses; provided, however, that Seller and Buyer shall each pay one-half of
(i) the filing fee required under the HSR Act and (ii) any filing fee required
by the FCC to file FCC applications.
Section 6.10 Taxes.
(a) Apportionment of Taxes Between Pre-Closing and
Post-Closing Tax Periods. In order to apportion appropriately any Taxes
relating to any taxable year or any other period that is treated as a taxable
year (a "Tax Period") that includes (but that would not, but for this Section
6.10, close on) the Closing Date, the parties hereto will, unless specifically
prohibited by applicable law, elect with the relevant taxing authority to treat
for all purposes the Closing Date as the last day of a taxable period of the
Acquired Subsidiaries, and such Tax Period will be treated as a Short Tax
Period and a Pre-Closing Tax Period for purposes of this Agreement. In any
case in which applicable law specifically prohibits any of the Acquired
Subsidiaries from treating the Closing Date as the last day of a Short Tax
Period, then for purposes of this Agreement, the portion of such Taxes that is
attributable to the operations of such Acquired Subsidiary for such Interim Tax
Period will be the Income Tax that would be due with respect to the Interim Tax
Period if such Interim Tax Period were a Short Tax Period. "Short Tax Period"
means any Tax Period ending on the Closing Date. "Interim Tax Period" means,
with respect to any Taxes imposed on the Acquired Subsidiaries on a periodic
basis for which the Closing Date is not the last day of a Short Tax Period, the
period of time beginning on the first day of the actual Tax Period that
includes (but does not end on) the Closing Date and ending on the Closing Date.
"Pre-Closing Tax Period" means any Tax Period, Short Tax Period or Interim Tax
Period ending on or before the Closing Date.
22
28
(b) Section 338 Election. At Buyer's option, Seller will
join with Buyer (or any of its wholly- owned subsidiaries) in making an
election (or elections) under Section 338(h)(10) and Treasury Regulation
Section 1.338(h)(10)-1 of the Code, and any corresponding elections permitted
under state, local or foreign law, with respect to the purchase and sale of the
Shares. The Purchase Price will be allocated among the assets of the Acquired
Subsidiaries as agreed to by Seller and Buyer prior to the Closing. Seller and
Buyer will exchange completed copies of Internal Revenue Service Form 8023-A,
required schedules thereto, and any similar state, local or foreign forms or
schedules, executed by the Seller, as soon as practicable after the Closing
Date. Seller and Buyer agree that as a result of the election under Section
338(h)(10), the deemed asset sale resulting from the Section 338(h)(10)
election must be included in the final Short Tax Period. In any case where
applicable law specifically prohibits any of the Acquired Subsidiaries from
treating the Closing Date as the last day of a Short Tax Period, then for
purposes of this Agreement, the portion of such Tax that is attributable to the
operations of such Acquired Subsidiaries for such Interim Tax Period will be
the Tax that would be due with respect to the Interim Tax Period if such
Interim Tax Period were a Short Tax Period. The Seller will not, and will not
permit any of the Acquired Subsidiaries to, take, cause or permit to be taken
any action that would disqualify the sale of the Shares as a deemed asset sale
under Section 338(h)(10) and Treasury Regulation Section 1.338(h)-(10)(a).
(c) Preparation and Filing of Income Tax Returns. Seller
will be responsible, at its expense, for the preparation and filing of all Tax
Returns for all Tax periods ending prior to the Closing Date and for any Short
Tax Period. Seller will prepare such Tax Returns in a manner consistent with
prior years and will, in respect of such Tax Returns, determine the income,
gain, expenses, losses, deductions and credits of the Acquired Subsidiaries in
a manner consistent with prior practice. The results of operations of the
Acquired Subsidiaries from the first day of the taxable year through the
Closing Date will be included in Seller's consolidated federal income Tax
Return and in any consolidated, combined or unitary income Tax Returns required
to be filed by Seller after the Closing Date. The results of operations of the
Acquired Subsidiaries from the first day of the taxable year through the
Closing Date will be included in any separate Tax Returns filed by the Acquired
Subsidiaries after the Closing Date; provided, however, that Seller will
prepare (without cost to Buyer or the Acquired Subsidiaries) all such separate
Tax Returns for any Short Tax Period (but not for any Tax Period which includes
or ends after the Closing Date) and submit them to Buyer, and Buyer will have
all such separate Tax Returns appropriately executed and filed on a timely
basis. With respect to any Tax Return to be prepared by Seller, Buyer will,
and will cause the Acquired Subsidiaries to, provide to Seller information in a
manner consistent with past practice for use in preparation of such Tax
Returns, in each case, no later than 60 days after the relevant Tax Period
ends. Notwithstanding the foregoing, Buyer will be responsible for preparing
and filing all Tax Returns of the Acquired Subsidiaries for Tax Periods not
ending on or before the Closing Date, even if such Tax Returns cover Tax
Periods prior to the Closing Date.
(d) Cooperation. Seller, on the one hand, and Buyer, on
the other hand, will, and will cause the Acquired Subsidiaries to, provide each
other with such assistance as may reasonably be requested by them in connection
with the preparation of any Tax Return, any Tax audit or other examination by
any Governmental Entity, or any judicial or administrative
23
29
proceedings related to liability for Taxes. Seller, on the one hand, and
Buyer, on the other hand, will, and will cause the Acquired Subsidiaries to,
retain and provide each other with any records or information which may be
relevant to such preparation, audit, examination, proceeding or determination.
Such assistance will include making employees available on a mutually
convenient basis to provide and explain such records and information and will
include providing copies of any relevant Tax Returns and supporting work
schedules. The party requesting assistance hereunder will reimburse the other
for reasonable out-of-pocket expenses incurred in providing such assistance.
(e) Refund Claims. Seller will provide Buyer and the
Acquired Subsidiaries with such assistance as they may reasonably request to
prepare any refund claim attributable to the carryback of any tax losses or tax
credits incurred by Buyer or the Acquired Subsidiaries in any Post-Closing Tax
Period to any consolidated, combined or unitary income Tax Return of Seller or
to any separate Tax Return of any of the Acquired Subsidiaries for any
Pre-Closing Tax Period, and Seller will receive and retain the amount of any
resulting refunds together with any interest thereon upon receipt by any party
hereto. "Post-Closing Tax Period" means any Tax Period that begins after the
Closing Date and, with respect to any Tax Period beginning before and ending
after the Closing Date, the portion of such Tax Period commencing on the day
following the Closing Date.
(f) Tax Sharing Agreements. Any and all Tax (or similar)
agreements, arrangements or undertaking among Seller and the Acquired
Subsidiaries or the Group or any member of the Group and the Company that
relate to any liability of the Acquired Subsidiaries for the Taxes of Seller,
the Group or any member of the Group will terminate as of the Closing Date and
any rights or obligations resulting from such agreements will be eliminated as
of the Closing Date.
(g) Notice of Audit. If, in connection with any
examination, investigation, audit or other proceeding concerning any Tax Return
covering the operations of any of the Acquired Subsidiaries on or before the
Closing Date, Seller, on the one hand, or Buyer or such Acquired Subsidiary, on
the other hand, receives from any Governmental Entity a notice of deficiency, a
proposed adjustment, an assertion of claim or a demand concerning the Tax
Period covered by such Tax Return, Seller will notify Buyer and such Acquired
Subsidiary (if received by Seller) and Buyer will notify Seller (if received by
Buyer or such Acquired Subsidiary), as the case may be, in writing promptly
(and in any case within 20 days) (i) of its receipt of same and (ii) upon
learning of any examination, investigation, audit or other proceeding relating
to same.
(h) Audits Controlled by Seller. Seller will, at its own
expense, have the sole and exclusive right, power and authority to negotiate,
resolve, settle or contest any such notice of deficiency, proposed adjustment
or assertion of claim or demand, and to represent and act for and on behalf of
the Acquired Subsidiaries in connection with any such examination,
investigation, audit or other proceeding related thereto, including refund
claims relating to any Tax Return of the Acquired Subsidiaries, for Tax Periods
ending on or before the Closing Date. Seller will keep Buyer informed of the
progress thereof and consult with Buyer in good faith in connection therewith.
Notwithstanding the first sentence of this Section 6.10(h), Seller agrees that
it will
24
30
not, and that it will not permit its Acquired Subsidiaries to, resolve, settle,
compromise or abandon any issue or claim without the prior written consent of
Buyer if such action would materially and adversely affect the Taxes of Buyer
or the Acquired Subsidiaries with respect to any Post-Closing Tax Period. Such
consent will not be unreasonably withheld.
(i) Audits Controlled by Buyer. Buyer will, at its own
expense, have the sole and exclusive right, power and authority to negotiate,
resolve, settle or contest any such notice of deficiency, proposed adjustment
or assertion of claim or demand, and to represent and act for and on behalf of
the Acquired Subsidiaries in connection with any such examination,
investigation, audit or other proceeding of any Tax Return of Buyer or the
Acquired Subsidiaries for Tax Periods ending after the Closing Date. In the
event that any such examination, investigation, audit or other proceeding could
affect Tax Returns of the Acquired Subsidiaries for Tax Periods ending on or
before the Closing Date, Buyer will keep, and will cause the Acquired
Subsidiaries to keep, Seller informed of the progress of any such proceedings
and will consult, and will cause the Acquired Subsidiaries to consult, with
Seller in good faith in connection therewith. Notwithstanding the first
sentence of this Section 6.10(i), to the extent that Seller has indemnified
Buyer and the Acquired Subsidiaries with respect to any such notice of
deficiency, proposed adjustment or assertion or claim or demand herein, Buyer
will not, and will not permit the Acquired Subsidiaries to, resolve, settle,
compromise, or abandon any issue or claim without the prior written consent of
Seller if such action would materially and adversely affect the Taxes of Seller
for any Tax Period. Such consent will not be unreasonably withheld, and will
not be necessary to the extent that Buyer notifies Seller that Buyer will
forego any obligation of Seller to indemnify Buyer against the effects of any
such settlement.
Section 6.11 Sales and Transfer Taxes. Buyer will be responsible
for and pay all sales and use Taxes, duties, and transfer fees applicable to
the transactions contemplated herein.
Section 6.12 Assignment of Contracts and Permits. Notwithstanding
any other provision hereof, in connection with any Contract identified on
Section 3.12 of the Seller Disclosure Schedule or any permit, approval, license
or authorization issued by a Governmental Entity (each a "Governmental
Authorization") held by Seller or the Acquired Subsidiaries which relates
exclusively to the Acquired Business and which, as a matter of law or by its
terms, is (i) not assignable, or (ii) not assignable without the prior approval
or consent of the issuer thereof or the other party or parties thereto
(collectively "Non-Assignable Rights"), Seller shall:
(a) apply for and use all reasonable efforts to obtain
all consents or approvals contemplated by the Contracts or Governmental
Authorizations, in form and substance satisfactory to Buyer;
(b) cooperate with Buyer in any reasonable and lawful
arrangements designed to provide the benefits and burdens of such
Non-Assignable Rights to Buyer, including holding any such Non-Assignable
Rights in trust for Buyer or acting as agent for Buyer;
(c) enforce any rights of Seller arising from such
Non-Assignable Rights against the issuer thereof or the other party or parties
thereto;
25
31
(d) take all such actions and do, or cause to be done,
all such things at the request of Buyer as shall reasonably be necessary and
proper in order that the value of any Non-Assignable Rights shall be preserved
and shall inure to the benefit of Buyer; and
(e) pay over to Buyer all monies or other assets
collected by or paid to Seller in respect of such Non-Assignable Rights.
Buyer shall reimburse Seller for all reasonably incurred payments,
costs and expenses made, incurred or suffered in performing Seller's
obligations as requested by Buyer under this Section 6.12. If Seller is unable
to lawfully provide the benefit of any Governmental Authorization to Buyer, it
shall not, at any time, use such Governmental Authorization for its own
purposes or assign or provide the benefit of such Governmental Authorization to
any other party.
6.13 Notification. Each party hereto shall, in the event of, or
promptly after obtaining knowledge of, the occurrence or threatened occurrence
of any fact or circumstance that would cause or constitute a material breach of
any of its representations and warranties set forth herein, give notice thereof
to the other party and shall use its reasonable efforts to prevent or remedy
such breach.
6.14 Indemnity Relating to Certain Litigation and Certain Benefits
Liabilities. (a) Seller shall indemnify from and after the Closing Date (i)
Buyer and its subsidiaries against all losses in connection with any suit,
action, proceeding or investigation pending at or arising after the Closing
Date that relates to the Company or any of its subsidiaries prior to the
Closing Date ("Indemnifiable Claim") and (ii) any person who was an officer,
director, partner or employee of the Company or any of its subsidiaries against
all losses in connection with any Indemnifiable Claim.
(b) If a party entitled to be indemnified hereunder (an
"Indemnified Party") shall receive notice of the assertion by a person who is
not a party to this Agreement of an Indemnifiable Claim, such Indemnified Party
shall give Seller prompt notice thereof after becoming aware of such
Indemnifiable Claim; provided, however, that the failure of the Indemnified
Party to give notice as provided in this Section 6.14(b) shall not relieve
Seller of its obligations under Section 6.14(a), except to the extent that
Seller is actually prejudiced by such failure to give notice. Such notice
shall describe the Indemnifiable Claim in reasonable detail, and, if
practicable, shall indicate the estimated amount of the loss sustained by
Indemnified Party.
(c) Seller may elect to defend, at its own expense and by
its own counsel, any Indemnifiable Claim. If Seller elects to defend an
Indemnifiable Claim, it shall, within 30 days of notice of such Indemnifiable
Claim (or sooner, if the nature of such Indemnifiable Claim so requires),
notify the related Indemnified Party of its intent to do so and acknowledge its
liability therefor, and such Indemnified Party shall cooperate in the defense
of such Indemnifiable Claim. After notice from Seller to an Indemnified Party
of its election to assume the defense of an
26
32
Indemnifiable Claim, Seller shall not be liable to such Indemnified Party under
this Section 6.14 for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof; provided, however,
that if, under applicable standards of professional conduct (as advised by
counsel to Seller), a conflict on any significant issue between such
Indemnified Party and Seller or between any two or more Indemnified Parties may
exist in respect of such claim, then Seller shall pay the reasonable fees and
expenses of one such additional counsel as may be required to be Acquired in
light of such conflict. If Seller elects not to defend against an
Indemnifiable Claim, or fails to notify an Indemnified Party of its election as
provided in this Section 6.14 within the time period specified, such
Indemnified Party may defend, compromise and settle such Indemnifiable Claim.
Notwithstanding the foregoing, (i) neither Seller nor an Indemnified Party, as
the party controlling the defense of an Indemnifiable Claim, may compromise or
settle any claim or consent to the entry of any judgment for other than
monetary damages without the prior written consent of the other; provided that
(upon reasonable notice thereof) consent to compromise or settlement or the
entry of a judgment shall not be unreasonably withheld or delayed, and (ii)
Seller shall not consent to the entry of any judgment or enter into any
compromise or settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party and
all other Indemnified Parties, as the case may be, subject to such
Indemnifiable Claim of a full and final release from all liability in respect
of such claim or litigation.
(d) Notwithstanding any other provision of this Agreement
to the contrary, and except with respect to Tax Losses (as defined below): (i)
Seller will not be liable to any Indemnified Party for any Losses pursuant to
this Section 6.14 or otherwise except to the extent that the aggregate amount
of Losses indemnified thereunder exceeds $2,500,000; (ii) the total aggregate
liability of Seller Losses that may arise under this Section 6.14 or otherwise
will not exceed $50,000,000; and (iii) any claims for Losses pursuant to this
Section 6.14 or otherwise can only be made in respect of Indemnifiable Claims
actually filed or commenced on or prior to eighteen months after the Closing
Date. Notwithstanding any other provision of this Agreement to the contrary,
Seller's liability for Losses relating to Indemnifiable Claims for Taxes ("Tax
Losses") shall be without limit in dollar amount (although still subject to
Section 6.14(d)(i)) and claims for Tax Losses pursuant hereto may be made at
any time.
(e) Notwithstanding the foregoing provisions, Seller
shall indemnify, from and after the Closing Date, Buyer or any of its
Subsidiaries against any Indemnifiable Claim resulting directly from (i) claims
by Employees under the Acquired Welfare Plans that were incurred but unpaid
prior to the Closing Date, but only to the extent such claims exceed (A) the
insurance coverage and trust assets available to cover such claims, plus (B)
the amounts reserved on the Closing Balance Sheet with respect to such claims;
and (ii) any claims by Employees resulting solely from (A) the failure of
Seller to accelerate the exercisability of such Employees' outstanding options
under the Company Stock Plans (as defined in the Merger Agreement) or (B) the
lapse or cancellation of such options.
27
33
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation to Effect the
Closing. The respective obligations of the parties to effect the transactions
contemplated herein are subject to the satisfaction, on or prior to the Closing
Date, of the following conditions:
(a) Approvals. All authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations of waiting
periods imposed by, any Governmental Entity or other public or private third
party, the failure of which to obtain would have a material adverse effect on
the Acquired Business as a whole or the ability of Buyer to own the Shares or
the assets included in the Acquired Business or to operate the Acquired
Business, shall have been filed, occurred or been obtained.
(b) No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated herein shall be in
effect (each party agreeing to use all reasonable efforts to have any such
order reversed or injunction lifted).
(c) HSR and FCC Approvals. Any applicable waiting period
under the HSR Act shall have expired or been terminated and the FCC Application
shall have been approved by the FCC. As used herein, "FCC Approval" means
action by the FCC or its staff granting consent to the transfer of control of
the FCC Licenses to Buyer which, except as may be waived in writing by Buyer in
its sole discretion, has not been reserved, stayed, enjoined, set aside,
annulled or suspended; with respect to which no timely request for stay,
petition for reconsideration or appeal of sua sponte action of the FCC with
comparable effect is pending; and as to which the time for filing any such
request, petition or appeal or for the taking of any such sua sponte action by
the FCC has expired; provided further that, the FCC Approval shall include
grant of a waiver of Section 73.3555(c) of the rules, the one-to-a-market rule
(if necessary under the rules then in effect), permitting common ownership of
Station KENS-TV and KENS-AM.
(d) Termination of Merger Agreement. The Merger
Agreement shall have been terminated in accordance with its terms.
Section 7.2 Conditions of Obligations of Buyer. The obligations
of Buyer to effect the transactions contemplated herein are subject to the
satisfaction, on or prior to the Closing Date, of the following conditions
unless waived by Buyer:
(a) Representations and Warranties. The representations
and warranties of Seller contained herein shall be true and correct in all
material respects as of the Closing Date as though made on and as of the
Closing Date, except to the extent such representations and warranties speak as
of an earlier date (in which case, such representations and warranties shall be
true and correct in all material respects as of such earlier date) and except
as otherwise
28
34
contemplated by this Agreement, and Buyer shall have received a certificate
signed on behalf of Seller by the chief executive officer or the chief
financial officer of Seller to such effect.
(b) Performance of Obligations of Seller. Seller shall
have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and Buyer
shall have received a certificate signed on behalf of Seller by the chief
executive officer or the chief financial officer of Seller to such effect.
(c) Working Capital at Closing. Buyer shall have
received a certificate signed on behalf of Seller by the chief financial
officer of Seller setting forth the estimated net working capital of the
Acquired Business (which shall be calculated on a basis consistent with the
provisions of Section 1.3) as of the Closing Date.
Section 7.3 Conditions of Obligations of Seller. The obligation
of Seller to effect the transactions contemplated herein is subject to the
satisfaction of the following conditions, on or prior to the Closing Date,
unless waived by Seller:
(a) Representations and Warranties. The representations
and warranties of Buyer contained in this Agreement shall be true and correct
in all material respects as of the Closing Date as though made on and as of the
Closing Date, except to the extent such representations and warranties speak as
of an earlier date (in which case, such representations and warranties shall be
true and correct in all material respects as of such earlier date) and except
as otherwise contemplated by this Agreement, and Seller shall have received a
certificate signed on behalf of Buyer by the chief executive officer or the
chief financial officer of Buyer to such effect.
(b) Performance of Obligations of Buyer. Buyer shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
Seller shall have received a certificate signed on behalf of Buyer by the chief
executive officer or the chief financial officer of Buyer to such effect.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by mutual consent of Buyer and Seller, it being
understood that without limiting the generality of the foregoing, the
consummation of the Merger shall constitute the mutual consent of Buyer and
Seller to the termination of this Agreement;
29
35
(b) by either Buyer or Seller if the Closing shall not
have been consummated before April 30, 1998 (unless the failure to so
consummate the Closing by such date shall be due to the action or failure to
act of the party seeking to terminate this Agreement);
(c) by Buyer, upon a material breach of any
representation, warranty, covenant or agreement on the part of Seller set forth
in this Agreement, or if any representation or warranty of Seller shall have
become untrue in any material respect, in either case such that the conditions
set forth in Section 7.2(a) or Section 7.2(b) of this Agreement, as the case
may be, would be incapable of being satisfied by April 30, 1998; provided, that
in any case, a willful breach shall be deemed to cause such conditions to be
incapable of being satisfied for purposes of this Section 8.1(c) if such
willful breach shall not have been remedied within ten (10) days after receipt
by Seller of written notice from Buyer specifying the nature of such willful
breach and requesting that it be remedied;
(d) by Seller, upon a material breach of any
representation, warranty, covenant or agreement on the part of Buyer set forth
in this Agreement, or if any representation or warranty of Buyer shall have
become untrue in any material respect, in either case such that the conditions
set forth in Section 7.3(a) or Section 7.3(b) of this Agreement, as the case
may be, would be incapable of being satisfied by April 30, 1998; or provided,
that in any case, a willful breach shall be deemed to cause such conditions to
be incapable of being satisfied for purposes of this Section 8.1(d) if such
willful breach shall not have been remedied within ten (10) days after receipt
by Buyer of written notice from Seller, specifying the nature of such willful
breach and requesting that it be remedied; or
(e) automatically, without any action by either Buyer or
Seller, at 12:01 a.m. Eastern Time on January 1, 1998, so long as the Merger
Agreement has not been terminated.
Section 8.2 Effect of Termination. In the event of a termination
of this Agreement by either Seller or Buyer as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Buyer or Seller or their affiliates or respective
officers or directors; provided, however, that any such termination shall not
relieve any party from liability for willful breach of this Agreement or from
its obligations under the Confidentiality Agreement.
Section 8.3 Amendment. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
Section 8.4 Extension; Waiver. At any time prior to the Closing
Date, the parties hereto, by action taken or authorized by the respective
Boards of Directors, may, to the extent legally allowed, (i) extend the time
for the performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions contained here.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in a written instrument signed on behalf of
such party.
30
36
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonsurvival of Representations and Warranties. None
of the representations or warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Closing Date. This
Section 9.1 shall not limit any other covenant or agreement of the parties set
forth in this Agreement or in any instrument delivered pursuant to the terms
hereof.
Section 9.2 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given on the date delivered
if delivered personally (including by reputable overnight courier), on the date
transmitted if sent by facsimile (which is confirmed) or mailed by registered
or certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Buyer, to
The ▇. ▇. ▇▇▇▇▇▇▇ Company
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attn: M. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Secretary
Facsimile:
Confirmation:
with a copy to
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
3200 National City Center
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Facsimile:
Confirmation:
Attn:
Facsimile:
Confirmation:
31
37
and
(b) if to Seller, to
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile: 210/829-9403
Confirmation: 210/829-9000
with a copy to
▇▇▇▇▇▇ & ▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile: 214/939-6100
Confirmation: 214/939-5500
Section 9.3 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in
this Agreement shall mean that the information referred to has been made
available if requested by the party to whom such information is to be made
available.
Section 9.4 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when a counterpart has been signed by each of the
parties and delivered to each of the other parties, it being under stood that
all parties need not sign the same counterpart.
Section 9.5 Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein) and
the Confidentiality Agreement (a) constitute the entire agreement and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof and thereof, and (b) except
as provided in Section 6.6, are not intended to confer upon any person other
than the parties hereto and thereto any rights or remedies hereunder or
thereunder.
Section 9.6 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Texas without regard to
any applicable conflicts-of-law principles.
32
38
Section 9.7 Specific Performance. The parties hereto agree that
if any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached, irreparable damage would
occur, no adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of
the terms hereof, in addition to any other remedy at law or equity.
Section 9.8 Publicity. Except as otherwise required by law or
the rules of the New York Stock Exchange, Inc., for so long as this Agreement
is in effect and then with as much advance notice to the other party as is
practicable under the circumstances, neither Seller nor Buyer shall, or shall
permit any of its Subsidiaries to, issue or cause the publication of any press
release or other public announcement with respect to the transactions
contemplated by this Agreement without the consent of the other party, which
consent shall not be unreasonably withheld or delayed.
Section 9.9 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Buyer may assign, in its sole
discretion, any or all of its rights hereunder to any direct or indirect wholly
owned Subsidiary of Buyer. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
Section 9.10 Further Assurances. Subject to the terms and
conditions hereof, Seller and Buyer will, and will cause their respective
Subsidiaries to, do such additional things as are necessary or proper to carry
out and effectuate the intent of this Agreement or any part hereof or the
transactions contemplated hereby.
IN WITNESS WHEREOF, Buyer and Seller have caused this Acquisition
Agreement to be signed by their respective officers thereunto duly authorized
as of the date first written above.
THE ▇. ▇. ▇▇▇▇▇▇▇ COMPANY
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Senior Vice President,
Corporate Development
▇▇▇▇▇-▇▇▇▇▇ COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Senior Vice President, Legal
33
39
EXHIBIT A TO THE ACQUISITION AGREEMENT
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement"), dated as of
________________, 1997, is made by and among The ▇.▇. ▇▇▇▇▇▇▇ Company, an Ohio
corporation (the "Parent"), E.W.S. Acquisition Corp., a Delaware corporation
and wholly owned subsidiary of the Parent (the "Sub"), ▇▇▇▇▇-▇▇▇▇▇
Communications, Inc., a Delaware corporation (the "Company") and [NEWCO], a
Delaware corporation and a wholly owned subsidiary of the Company ("Newco").
RECITALS
WHEREAS, the Parent, Sub and Company are parties to that certain
Agreement and Plan of Merger and Reorganization dated as of May ___, 1997 (the
"Merger Agreement") which, among other things, provides for the Merger of Sub
with and into the Company, with the Company as the surviving corporation (the
"Surviving Corporation");
WHEREAS, immediately prior to the Merger, pursuant to the terms of the
Agreement and Plan of Distribution (this and other capitalized terms used and
not defined herein shall have the meanings given to such terms in the Merger
Agreement), the Company will distribute certain businesses and operations to
Newco which Parent is unwilling to acquire (the "Distribution"); and
WHEREAS, the Distribution is one step in a series of transactions as a
result of which (i) Parent will acquire the television and radio broadcasting
and non-shopper newspaper publishing businesses of the Company and its
Television and Newspaper Subsidiaries (the "TV/Newspaper Business") by merging
the Sub with and into the Company, and (ii) Newco will acquire and conduct all
other businesses previously conducted by the Company and its Subsidiaries.
NOW, THEREFORE, in consideration of the foregoing and the agreements
set forth below, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
NONCOMPETITION COVENANTS
1.1 Noncompetition Covenants. Newco acknowledges that (i) it, on
its own and through the Company and its Subsidiaries and their respective
officers, employees and other representatives, has specialized knowledge and
experience in the operation of television and radio broadcasting stations and
non-shopper newspaper publishing businesses (the "Restricted Business"), (ii)
its reputation and contacts within the Restricted Business and those of the
Company and its Subsidiaries are considered of great value to Parent and the
Company, and (iii) if such knowledge, experience, reputation or contacts were
used to compete with Parent and the
40
Surviving Corporation, serious harm to Parent and the Surviving Corporation
could result. Thus, Newco agrees that, for a period of five (5) years after
the Closing Date, neither it nor any of its Subsidiaries shall, directly or
indirectly, on its own behalf or in the service or on behalf of others:
(1) actively solicit for employment (including as an independent
contractor but excluding general solicitations of employment), interfere with
or endeavor to entice away any person who at any time on or after May ___,
1997, was an officer or employee of the Company or any of its Subsidiaries
engaged on behalf of the Company in the TV/Newspaper Business and whom the
Parent or the Surviving Corporation employs effective upon the Closing;
(2) own, manage, operate, finance, join, control, participate or
assist in the ownership, management, operation, financing or control of, or be
connected as a stockholder, partner, principal, agent, representative,
consultant or otherwise with, any business or enterprise engaged in the
Restricted Business in the Restricted Area (a "Restricted Party"); or
(3) use or permit the Company's or Newco's name to be used in
connection with any business or enterprise engaged in the Restricted Business
in the Restricted Area; provided, however, that the provisions of this Section
1.1 shall not be construed to prohibit (i) the ownership by Newco or any
Subsidiary of Newco, as a passive investor, of not more than 5% of any class of
securities registered pursuant to the Exchange Act of any corporation which is
engaged in the Restricted Business, or passive investments in partnerships or
joint ventures representing not more than 5% of any class of any equity
interests therein or (ii) Newco or its Subsidiaries from having a Restricted
Party as an investor in any business, other than a Restricted Business, in
which Newco or its Subsidiaries own an interest. For purposes hereof, the term
"Restricted Area" means the geographic areas served by the TV/Newspaper
Business at the date hereof.
1.2 Reasonableness of Covenants, etc. In the event that the
provisions of Section 1.1 should ever be adjudicated to exceed the time,
geographic or service limitations permitted by applicable law in any
jurisdiction, then such provisions shall be deemed reformed in such
jurisdiction to the maximum time, geographic or service limitations permitted
by applicable law. Newco agrees that its covenants set forth in Section 1.1
(the "Noncompetition Covenants") are appropriate and reasonable when considered
in light of the nature and extent of the Restricted Business and the
transactions contemplated in connection with the Merger Agreement, including,
without limitation, the distribution of certain businesses and operations to
Newco by the Company pursuant to the Agreement and Plan of Distribution.
Without limiting the generality of the foregoing, Newco specifically agrees
that prohibitions on the active solicitation, interference or enticement of
officers, directors, employees or agents of the Parent or any of its
Subsidiaries, as set forth in Section 1.1, are appropriate and reasonable in
all respects. Newco agrees that the Noncompetition Covenants are of the
essence of this Agreement and the Merger Agreement, that each such
Noncompetition Covenant is reasonable and necessary to protect and preserve the
interests and properties of the Parent and its Subsidiaries and the Restricted
Business of the Parent and its Subsidiaries; that irreparable loss and damage
will be suffered by the Parent should Newco or any of its Subsidiaries breach
any such Noncompetition Covenant; that each of such covenants is separate,
distinct and severable not only from the other of such covenants but also from
the other and remaining provisions of this Agreement and the Merger Agreement;
that the
-2-
41
unenforceability of all or any of the Noncompetition Covenants shall not affect
the validity or enforceability of any other such covenants; that, in addition
to other remedies available to it, the Parent shall be entitled to both
temporary and permanent injunctions to prevent a breach or contemplated breach
by Newco of any of the Noncompetition Covenants, and that Newco hereby waives
any requirements for the posting of a bond or any other security by the Parent
in connection therewith.
1.3 Specific Performance; Other Remedies. Newco recognizes that
the Noncompetition Covenants are unique and, accordingly, the Parent shall, in
addition to such other remedies as may be available to it at law or in equity,
have the right to enforce its rights under Section 1.1 by actions for
injunctive relief and specific performance to the extent permitted by law.
ARTICLE 2
MISCELLANEOUS
2.1 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the specific subject matter thereof
and supersedes all prior written and oral and all contemporaneous oral
agreements and understandings with respect to the specific subject matter
hereof.
2.2 Governing Law. This Agreement shall governed by and construed
in accordance with the laws of the State of Ohio regardless of conflict of law
principles.
2.3 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
2.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given when delivered in
person, by telecopy with answerback, by express or overnight mail delivery by a
nationally recognized air courier (delivery charges prepaid) or by registered
or certified mail (postage prepaid, return receipt requested) to the respective
parties as follows:
if to the Parent or the Company:
The ▇.▇. ▇▇▇▇▇▇▇ Company
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: M. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Secretary
-3-
42
with a copy to:
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
3200 National City Center
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
if to Newco:
c/o [Newco]
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Any notice or communication delivered in person shall be deemed effective on
delivery. Any notice or communication sent by telecopy or by air courier shall
be deemed effective on the first business day at the place at which such notice
or communication is received following the day on which such notice or
communication was sent. Any notice or communication sent by registered or
certified mail shall be deemed effective on the fifth business day at the place
from which such notice or communication was mailed following the day in which
such notice or communication was mailed.
2.5 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement except for Section 2.7 and 2.8 (which are intended to be for the
benefit of the Persons provided for therein, and may be enforced by such
Persons).
2.6 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
2.7 Personal Liability. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect stockholder of any party hereto or any officer,
director, employee, agent, representative or investor of any party hereto.
-4-
43
2.8 Binding Effect; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives and successors, including the Company as the surviving
corporation in the Merger. This Agreement may not be assigned by any party
hereto.
2.9 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
2.10 Legal Fees; Costs. If any party hereto institutes any action
or proceeding to enforce any provision of this Agreement, the prevailing party
therein shall be entitled to receive from the losing party reasonable
attorneys' fees and costs incurred in such action or proceeding, whether or not
such action or proceeding is prosecuted to judgment.
2.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized on the day
and year first above written.
THE ▇. ▇. ▇▇▇▇▇▇▇ COMPANY
By:
------------------------------------
Name:
Title:
E.W.S. ACQUISITION CORP.
By:
------------------------------------
Name:
Title:
-5-
44
▇▇▇▇▇-▇▇▇▇▇ COMMUNICATIONS, INC.
By:
------------------------------------
Name:
Title:
[NEWCO]
By:
------------------------------------
Name:
Title:
-6-
45
EXHIBIT B TO ACQUISITION AGREEMENT
KPMG
The Global Leader
▇▇▇▇▇ ▇▇▇▇▇ TELEVISION
FINANCIAL STATEMENTS
46
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.:
We have audited the accompanying balance sheets of ▇▇▇▇▇-▇▇▇▇▇ Television as of
December 31, 1996 and 1995, and the related statements of operations and cash
flows for each of the years in the three-year period ended December 31, 1996.
These financial statements are the responsibility of ▇▇▇▇▇-▇▇▇▇▇
Communications, Inc.'s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
The accompanying financial statements were prepared on the basis of
presentation described in note A, and include the assets, liabilities, revenues
and expenses of ▇▇▇▇▇-▇▇▇▇▇ Television.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ▇▇▇▇▇-▇▇▇▇▇ Television as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996,
pursuant to the basis of presentation described in note A, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
San Antonio, Texas
April 14, 1997
47
▇▇▇▇▇-▇▇▇▇▇ TELEVISION
BALANCE SHEETS
--------------------------------------------------------------------------------
DECEMBER 31,
IN THOUSANDS 1996 1995
--------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 228 $ 338
Accounts receivable (less allowance for doubtful
accounts of $67 in 1996 and $47 in 1995) 5,146 5,208
Inventory 29 30
Prepaid expense 261 237
Film contracts 1,517 1,203
Other current assets 188 191
-------- -------
Total current assets 7,369 7,207
-------- -------
Property, plant and equipment
Land 354 354
Buildings and improvements 6,169 6,169
Equipment and furniture 11,701 10,939
-------- -------
18,224 17,462
Less accumulated depreciation 10,621 9,537
-------- -------
7,603 7,925
Construction and equipment installations in progress 67 0
-------- -------
Net property, plant and equipment 7,670 7,925
-------- -------
Intangible and other assets
Goodwill (less accumulated amortization
of $21,481 in 1996 and $19,733 in 1995) 48,575 50,323
Receivable from ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. 34,251 27,665
Film contracts 2,187 1,275
Other assets 232 176
-------- -------
Total intangible and other assets 85,245 79,439
-------- -------
Total assets $100,284 $94,571
======== =======
LIABILITIES AND EQUITY
Current liabilities
Accounts payable $685 $632
Accrued payroll and related expenses 727 653
Film contract payable 1,581 1,145
Other current liabilities 37 369
-------- -------
Total current liabilities 3,030 2,799
-------- -------
Film contract payable 1,488 985
Deferred income tax liability 1,841 1,780
Other long term liabilities 489 532
-------- -------
Total liabilities 6,848 6,096
-------- -------
Equity 93,436 88,475
-------- -------
Total liabilities and equity $100,284 $94,571
======== =======
See Notes to Financial Statements
48
▇▇▇▇▇-▇▇▇▇▇ TELEVISION
STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
------------------------------------------------------------------------------------------------------------
Revenues $26,100 $25,132 $28,629
------- ------- -------
Operating expenses
Payroll 8,361 8,008 8,624
Production and distribution 1,739 2,040 2,864
Advertising, selling, general
and administrative 2,880 2,848 2,800
Depreciation 1,044 1,066 1,041
Film amortization 1,347 2,224 2,746
Goodwill amortization 1,748 1,748 1,748
------- ------- -------
17,119 17,934 19,823
------- ------- -------
Operating income 8,981 7,198 8,806
Other expenses (income)
Interest expense 20 26 26
Other, net - (85) -
------- ------- -------
20 (59) 26
------- ------- -------
Income before income taxes 8,961 7,257 8,780
Income tax expense 4,000 3,366 3,954
------- ------- -------
Net income $ 4,961 $ 3,891 $ 4,826
======= ======= =======
See Notes to Financial Statements
49
▇▇▇▇▇-▇▇▇▇▇ TELEVISION
STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $4,961 $3,891 $ 4,826
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 1,044 1,066 1,041
Goodwill amortization 1,748 1,748 1,748
Amortization of option related
compensation 93 163 131
Film amortization 1,347 2,224 2,746
Deferred income taxes 37 42 (10)
Other, net - (85) -
Changes in operating assets and liabilities:
Decrease in accounts receivable, net 62 677 52
Decrease (increase) in inventory 1 6 (6)
Decrease (increase) in prepaid expenses
and other current assets 61 (59) 99
Increase (decrease) in accounts payable 53 (324) 329
(Decrease) in other accrued expenses
and other liabilities (312) (291) (100)
Other, net (258) (114) 15
------ ------ -------
Net cash provided by operating activities $8,837 $8,944 $10,871
------ ------ -------
Cash Flows from Investing Activities
Purchases of property, plant and
equipment (789) (1,060) (883)
Proceeds from the sale of property,
plant and equipment - 123 142
Payments on film contracts (1,572) (1,817) (2,123)
------ ------ ------
Net cash (used in) investing activities (2,361) (2,754) (2,864)
------ ------ ------
Cash Flows from Financing Activities
Distributions to ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.
including payments for income taxes (6,586) (6,406) (7,874)
------ ------ ------
Net increase (decrease) in cash (110) (216) 133
Cash at beginning of period 338 554 421
------ ------ -------
Cash at end of period $ 228 $ 338 $ 554
====== ====== =======
50
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
NOTE A -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements present the financial position of
▇▇▇▇▇-▇▇▇▇▇ Television (the "Company"). The financial statements exclude all
assets, liabilities, revenues and expenses of ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.
and its subsidiaries other than assets, liabilities, revenues and expenses of
its television business.
The financial statements have been prepared as if the television business had
operated as an independent, stand alone entity for all periods presented.
Except as described below, such financial statements have been prepared using
the historical basis of accounting and include the assets, liabilities,
revenues, expenses and income taxes of ▇▇▇▇▇-▇▇▇▇▇' television business. These
financial statements do not include any liabilities or disclosure related to
the Company's employee benefit plans other than as disclosed in note C.
However, the cost of all employee benefit plans which relate to employees of
▇▇▇▇▇-▇▇▇▇▇ Television is included in these financial statements. Direct
expenses incurred by ▇▇▇▇▇- ▇▇▇▇▇ Communications, Inc. on behalf of the Company
are identified and allocated to the Company based on the actual costs incurred.
Any remaining indirect expenses incurred by ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.
have not been allocated to the Company because they have been insignificant.
Management believes that this method of allocation is reasonable and that such
costs would not be materially different if they had been incurred with
unaffiliated third parties.
Certain prior year amounts have been reclassified for comparative purposes.
TELEVISION REVENUES
Television revenues are presented net of advertising agency commissions.
INVENTORY
Inventory, consisting primarily of film and television tubes, is stated at the
lower of cost (first-in, first-out method) or market.
1
(Continued)
51
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Depreciation
of buildings and equipment is computed generally on the straight-line method
at rates calculated to amortize the cost of the assets over their useful
lives. The general ranges of estimated useful lives are:
Buildings and improvements 10 to 40 years
Equipment and furniture 4 to 20 years
GOODWILL
Goodwill is stated on the basis of cost, adjusted as discussed below, and is
amortized on a straight-line basis over 40- year periods.
The Company assesses the recoverability of its goodwill by determining whether
the amortization of the goodwill balance over its remaining life can be
recovered through projected undiscounted future cash flows over the remaining
amortization period. If projected undiscounted future cash flows indicate that
unamortized goodwill and the net book value of long-lived assets will not be
recovered, net goodwill is adjusted to an amount consistent with projected
discounted future cash flows. Cash flow projections are based on trends of
historical performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
FILM CONTRACTS
Film contract rights represent agreements with film syndicators for television
program material. The capitalized costs of film rights and related liabilities
are recorded when the licensed period begins and the film rights are available
for use. The cost is amortized over the expected number of telecasts. The
portions of the cost to be amortized within one year and after one year are
reflected in the consolidated balance sheets as current and noncurrent assets,
respectively. The payments under these contracts due within one year and after
one year are classified as current and noncurrent liabilities.
INCOME TAXES
Income taxes are calculated using the asset and liability method required by
Statement of Financial Accounting Standards ("SFAS") No. 109. Deferred income
taxes are recognized for the tax consequences resulting from "temporary
differences" by applying enacted statutory tax rates applicable to future
years. These "temporary differences" are associated with differences between
the financial and the tax basis of existing assets and liabilities. Under SFAS
No. 109, a statutory change in tax rates will be recognized immediately in
deferred taxes and income.
2
(Continued)
52
USE OF 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 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.
NOTE B - INCOME TAXES
The components of income tax expense are as follows:
-----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
-----------------------------------------------------------------------------------------------------------
Current
Federal $3,607 $3,025 $3,580
State and local 356 299 384
------ ------ ------
Total current $3,963 $3,324 $3,964
====== ====== ======
Deferred
Federal $ 33 $ 37 $ (9)
State and local 4 5 (1)
------ ------ ------
Total deferred $ 37 $ 42 $ (10)
====== ====== ======
The differences between total income tax expense and the amount computed by
applying the statutory Federal income tax rate to income before income taxes
were as follows:
-----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
-----------------------------------------------------------------------------------------------------------
Computed expected
income tax
expense $3,136 35% $2,650 35% $3,073 35%
Effect of goodwill
amortization 605 7% 605 8% 605 7%
Net effect of state
income taxes 234 3% 198 3% 249 3%
Other net 25 - 23 - 27 -
Income tax expense --------------------------------------------------------------
for the period $4,000 45% $ $3,366 46% $3,954 45%
==============================================================
3
(Continued)
53
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities were as follows:
--------------------------------------------------------------------------------
DECEMBER 31,
IN THOUSANDS 1996 1995
--------------------------------------------------------------------------------
Deferred tax assets:
Accrued vacation pay $ 109 $ 99
Accrued stock option liability 167 157
Accounts receivable, net 23 16
------- -------
Total gross deferred tax assets 299 272
------- -------
Deferred tax liabilities:
Property, plant and equipment (1,805) $(1,756)
State income tax (123) (120)
Other, net (36) (24)
------- -------
Total gross deferred tax liabilities (1,964) 1,900)
------- -------
Net deferred tax liability $(1,665) $ 1,628)
======= =======
The net deferred tax liability is recorded both as a current deferred income
tax benefit and as other long term liabilities based upon the classification of
the related temporary difference. In assessing the reliability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, recoverable taxes paid, projected future taxable income and tax
planning strategies in making this assessment. Based on the level of
historical taxable income, the reversal of existing deferred tax liabilities
and projections for future taxable income over the periods which the deferred
tax assets are deductible at December 31, 1996, management believes it is more
likely than not the Company will realize the benefits of these deductible
differences.
4
(Continued)
54
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
NOTE C -- EMPLOYEE BENEFIT PLANS
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. maintains a defined benefit pension plan for
which most of ▇▇▇▇▇-▇▇▇▇▇ Television employees are eligible. Benefits are based
on years of service and the employeeGs compensation for the five highest
consecutive years of salary during the last ten years of service. Benefits
vest to the participants upon completion of five years of service or upon
reaching age 65, whichever is earlier. ▇▇▇▇▇-HanksG policy is to accrue as
expense an amount computed by its actuary and to fund at least the minimum
amount required by ERISA.
In 1994, the ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. adopted a non-qualified,
supplemental pension plan covering certain ▇▇▇▇▇- ▇▇▇▇▇ Television employees,
which provides for incremental pension payments so that total pension payments
equal amounts that would have been payable from the principal pension plan if
it were not for limitations imposed by income tax regulation.
In determining the 1996, 1995 and 1994 actuarial present value of benefit
obligations, discount rates of 73/4%, 71/4% and 8% were used, respectively.
The assumed annual rate of increase in future compensation levels was 4%, and
the expected long term rate of return on plan assets was 10%. Pension expense
for the years ended December 31, 1996, 1995 and 1994 was $183, $176 and $201,
respectively.
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. also sponsors a 401(k) plan which provides
employees of ▇▇▇▇▇-▇▇▇▇▇ Television with additional income upon retirement.
The Company matches a portion of employees' voluntary before-tax contributions.
Employees are fully vested in their own contributions and vest in the Company's
matching contributions upon three years of service. Contributions made during
the years ended December 31, 1996, 1995 and 1994 were $36, $40 and $42,
respectively.
The 1994 ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. Employee Stock Purchase Plan provides
for a total of 450,000 shares to be sold to participating employees at all
▇▇▇▇▇-▇▇▇▇▇ subsidiaries at 85% of the fair market value at specified quarterly
investment dates. At December 31, 1996, 1995 and 1994, ▇▇▇▇▇-▇▇▇▇▇ Television
had $21, $18 and $17, respectively recorded as a liability for amounts withheld
by the Company to be used for the purchase of ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.
shares in the subsequent January.
All costs related to the above described plans are recorded in the ▇▇▇▇▇-▇▇▇▇▇
Television financial statements to the extent that these costs relate to the
employees of ▇▇▇▇▇-▇▇▇▇▇ Television.
5
(Continued)
55
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
NOTE D -- EQUITY
A summary of changes in equity is as follows:
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994
--------------------------------------------------------
Beginning balance $88,475 $84,584 $79,758
Net earnings 4,961 3,891 4,826
------- ------- -------
Ending balance $93,436 $88,475 $84,584
======= ======= =======
NOTE E -- STOCK OPTION PLANS
1984 PLAN
In 1984, ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. adopted a Stock Option Plan ("1984
Plan") pursuant to which it issued to officers and key employees options to
purchase shares of common stock at prices equal to the market price on the
grant date. Market price was determined by the Board of Directors for purposes
of granting stock options and making repurchase offers. Options granted under
the 1984 Plan become exercisable five years after date of grant. At December
31, 1996, 1995 and 1994, options held by employees of ▇▇▇▇▇-▇▇▇▇▇ Television to
purchase 37,500 shares, 37,500 shares and 52,500 shares, respectively, were
outstanding under the 1984 Plan, with exercise prices ranging from $3.33 to
$6.67 per share. No additional options will be granted under the 1984 Plan.
1991 PLAN
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. adopted the 1991 Stock Option Plan ("1991
Plan") pursuant to which it may issue to officers and key employees options to
purchase up to 3,000,000 shares of common stock. Options have been granted to
certain employees of the Company at prices equal to the market price on the
grant date ("market price options") and at prices below market price
("performance options"). As of December 31, 1996, 1995 and 1994, market
price options, held by employees of ▇▇▇▇▇-▇▇▇▇▇ Television, to purchase
175,000 shares, 159,750 shares and 132,750 shares, respectively, were
outstanding with exercise prices ranging from $6.67 to $20.50 per share.
▇▇▇▇ ▇▇▇▇▇ options become exercisable after the fifth anniversary of their
date of grant.
6
(Continued)
56
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
At December 31, 1996, 1995 and 1994 performance options held by employees of
▇▇▇▇▇-▇▇▇▇▇ Television to purchase 49,200 shares, 52,200 shares and 45,450
shares, respectively, were outstanding with exercise prices ranging from $0.67
to $2.00 per share. The performance options become exercisable after the third
anniversary of their date of grant, and the extent to which they become
exercisable at that time depends upon the extent to which ▇▇▇▇▇-▇▇▇▇▇
Communications, Inc. achieves certain goals which are established at the time
the options are granted. That portion of the performance options which does
not become exercisable on the third anniversary of the date of grant becomes
exercisable after the ninth anniversary of the date of grant. Compensation
expense of $93, $163 and $131 was recognized by ▇▇▇▇▇-▇▇▇▇▇ Television for the
performance options held by employees of ▇▇▇▇▇-▇▇▇▇▇ Television for the years
ended December 31, 1996, 1995 and 1994, respectively.
The following summarizes stock option plans activity:
---------------------------------------------------------------------------------
Number Weighted Average
of Shares Option Price
---------------------------------------------------------------------------------
Options outstanding
at January 1, 1994 236,250 $5 .24
Granted 23,700 9 .91
Exercised (29,250) 4 .49
-------
Options outstanding
at December 31, 1994 230,700 5 .82
Granted 33,750 10.40
Exercised (15,000) 5.00
-------
Options outstanding
at December 31, 1995 249,450 6.49
Granted 22,500 18.03
Exercised (5,250) 0.67
Cancelled (5,000) 11.78
-------
OPTIONS OUTSTANDING AT
DECEMBER 31, 1996 261,700 7 .50
=======
EXERCISABLE AT
DECEMBER 31, 1996 102,000 4 .55
=======
7
57
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123,"Accounting For Stock-Based Compensation."
Accordingly, no compensation expense has been recognized for options granted
where the exercise price is equal to the market price of the
underlying stock at the date of grant. The Company does recognize compensation
expense for options whose market price of the underlying stock exceeds the
exercise price on the date of grant under the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," as permitted under SFAS No. 123.
Had compensation expense for the Company's options been determined based on the
fair value at the grant date for awards in 1996 and 1995, the Company's net
income and earnings per share would have been reduced to the proforma amounts
indicated below.
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1996 1995
-----------------------------------------------------------------
Net income - as reported $4,961 $3,891
Net income - proforma 4,925 3,877
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995:
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995
-----------------------------------------------------------------
Expected dividends yield 0.3% 0.3%
Expected stock price volatility 22.1% 21.3%
Risk-free interest rate 6.4% 6.4%
Expected life of options 3-10 years 3-10 years
The weighted-average fair value of market price options granted during 1996 and
1995 was $7.00 and $5.52, respectively. The weighted-average fair value and
exercise price of performance options was $14.35 and $1.11 in 1996, and $12.15
and $0.67 in 1995, respectively.
NOTE F -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Because of their maturities and/or interest rates, the Company's financial
instruments have a fair value approximating their carrying value. These
instruments include accounts receivable, trade and film payables, and
miscellaneous notes receivable and payable.
8
(Continued)
58
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
NOTE G -- COMMITMENTS AND CONTINGENCIES
The Company has pending claims incurred in the normal course of business which,
in the opinion of management, and legal counsel, can be disposed of without
material effect on the accompanying financial statements.
NOTE H -- LEASES
The Company leases certain real estate and equipment under various operating
leases. Most of the leases contain renewal options for varying periods of time.
the total rent expense under all operating leases was $320, $307 and $302 for
the years ended December 31, 1996, 1995 and 1994, respectively.
The future minimum rental commitments for all non-cancelable operating leases
with terms in excess of one year as of December 31, 1996 are as follows:
In thousands
-------------------------------------------
1997 $140
1998 78
1999 26
2000 6
-------------------------------------------
Total $250
-------------------------------------------
9
(Continued)
59
EXHIBIT C TO ACQUISITION AGREEMENT
▇▇▇▇▇ ▇▇▇▇▇ NEWSPAPERS
FINANCIAL STATEMENTS
60
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.:
We have audited the accompanying balance sheets of ▇▇▇▇▇-▇▇▇▇▇ Newspapers as of
December 31, 1996 and 1995, and the related statements of operations and cash
flows for each of the years in the three-year period ended December 31, 1996.
These financial statements are the responsibility of ▇▇▇▇▇-▇▇▇▇▇
Communications, Inc.'s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
The accompanying financial statements were prepared on the basis of
presentation described in note A, and include the assets, liabilities, revenues
and expenses of ▇▇▇▇▇-▇▇▇▇▇ Newspapers.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ▇▇▇▇▇-▇▇▇▇▇ Newspapers as of
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1996,
pursuant to the basis of presentation described in note A, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
San Antonio, Texas
April 14, 1997
61
▇▇▇▇▇-▇▇▇▇▇ NEWSPAPERS
BALANCE SHEETS
DECEMBER 31,
IN THOUSANDS 1996 1995
----------- -----------
ASSETS
Current assets
Cash $ 2,498 $ 1,257
Accounts receivable (less allowance for doubtful
accounts of $808 in 1996 and $776 in 1995) 14,903 13,679
Inventory 4,679 8,698
Prepaid expense 852 628
Other current assets 1,391 1,402
----------- -----------
Total current assets 24,323 25,664
----------- -----------
Property, plant and equipment
Land 4,381 4,381
Buildings and improvements 18,640 18,341
Equipment and furniture 51,496 52,124
----------- -----------
74,517 74,846
Less accumulated depreciation 41,664 40,728
----------- -----------
32,853 34,118
Construction and equipment installations in progress 170 243
----------- -----------
Net property, plant and equipment 33,023 34,361
----------- -----------
Intangible and other assets
Goodwill (less accumulated amortization
of $58,746 in 1996 and $54,109 in 1995) 128,661 133,298
Receivable from ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. 122,980 99,204
Other assets 79 56
----------- -----------
Total intangible and other assets 251,720 232,558
----------- -----------
Total assets $ 309,066 $ 292,583
=========== ===========
LIABILITIES AND EQUITY
Accounts payable $ 2,532 $ 2,861
Accrued payroll and related expenses 3,590 3,456
Customer deposits 3,567 3,667
Other current liabilities 1,874 1,760
----------- -----------
Total current liabilities 11,563 11,744
----------- -----------
Deferred income tax liability 5,546 5,315
Other long term liabilities 1,083 931
----------- -----------
Total liabilities 18,192 17,990
----------- -----------
Equity 290,874 274,593
----------- -----------
Total liabilities and equity $ 309,066 $ 292,583
=========== ===========
See Notes to Financial Statements
62
▇▇▇▇▇-▇▇▇▇▇ NEWSPAPERS
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
--------- --------- ---------
Revenues $ 124,313 $ 117,744 $ 110,949
--------- --------- ---------
Operating expenses
Payroll 41,023 40,547 40,800
Production and distribution 32,170 29,091 24,852
Advertising, selling, general
and administrative 13,302 12,684 12,520
Depreciation 3,927 3,735 3,438
Goodwill amortization 4,637 4,637 4,637
--------- --------- ---------
95,059 90,694 86,247
--------- --------- ---------
Operating income 29,254 27,050 24,702
Other expenses (income) (32) 116 192
--------- --------- ---------
Income before income taxes 29,286 26,934 24,510
Income tax expense 13,005 12,091 11,160
--------- --------- ---------
Net income $ 16,281 $ 14,843 $ 13,350
========= ========= =========
See Notes to Financial Statements
63
▇▇▇▇▇-▇▇▇▇▇ NEWSPAPERS
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
-------- -------- --------
Cash Flows from Operating Activities
Net income $ 16,281 $ 14,843 $ 13,350
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 3,927 3,735 3,438
Goodwill amortization 4,637 4,637 4,637
Amortization of option related
compensation 217 274 315
Deferred income taxes 211 346 (201)
Other, net (55) 116 192
Changes in operating assets and liabilities:
Increase in accounts receivable, net (1,224) (473) (1,177)
Decrease (increase) in inventory 4,019 (2,908) (3,155)
Decrease (increase) in prepaid expenses
and other current assets (173) (149) 222
Increase (decrease) in accounts payable (330) (44) 446
Increase in other accrued expenses and
other liabilities 128 643 589
Other, net (65) (341) (158)
-------- -------- --------
Net cash provided by operating activities 27,573 20,679 18,498
-------- -------- --------
Cash Flows from Investing Activities
Purchases of property, plant and
equipment (2,826) (3,544) (4,258)
Proceeds from the sale of property,
plant and equipment 270 187 193
-------- -------- --------
Net cash (used in) investing activities (2,556) (3,357) (4,065)
-------- -------- --------
Cash Flows from Financing Activities
Distributions to ▇▇▇▇▇-▇▇▇▇▇
Communications, Inc., including
payments for income taxes (23,776) (17,007) (14,308)
-------- -------- --------
Net increase in cash 1,241 315 125
Cash at beginning of period 1,257 942 817
-------- -------- --------
Cash at end of period $ 2,498 $ 1,257 $ 942
======== ======== ========
See Notes to Financial Statements
64
▇▇▇▇▇-▇▇▇▇▇ Newspapers
Notes to Financial Statements
NOTE A -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements present the financial position of
▇▇▇▇▇-▇▇▇▇▇ Newspapers (the "Company"). The financial statements exclude all
assets, liabilities, revenues and expenses of ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.
and its subsidiaries other than assets, liabilities, revenues and expenses of
its newspapers business.
The financial statements have been prepared as if the newspapers business had
operated as an independent, stand alone entity for all periods presented.
Except as described below, such financial statements have been prepared using
the historical basis of accounting and include the assets, liabilities,
revenues, expenses and income taxes of ▇▇▇▇▇-▇▇▇▇▇' newspapers business.
In March 1995, ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. sold its suburban Boston
community newspapers. As these newspapers ceased to be a part of ▇▇▇▇▇-▇▇▇▇▇
Newspapers in 1995, their assets, liabilities, revenues and expenses have been
excluded from these financial statements. In addition, all related gain on
divestiture as well as tax assets/liabilities which resulted from this
transaction, have been excluded from these financial statements for all years
presented.
These financial statements do not include any liabilities or disclosure related
to the Company's employee benefit plans other than as disclosed in note C.
However, the cost of all employee benefit plans which relate to employees of
▇▇▇▇▇-▇▇▇▇▇ Newspapers is included in these financial statements. Intercompany
balances and transactions have been eliminated. Direct expenses incurred by
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. on behalf of the Company are identified and
allocated to the Company based on the actual costs incurred. Any remaining
indirect expenses incurred by ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. have not been
allocated to the Company because they have been insignificant. Management
believes that this method of allocation is reasonable and that such costs would
not be materially different if they had been incurred with unaffiliated third
parties.
Certain prior year amounts have been reclassified for comparative purposes.
INVENTORY
Inventory, consisting primarily of newsprint and other operating supplies, is
stated at the lower of cost (first-in, first-out method) or market.
1
65
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Depreciation of
buildings and equipment is computed generally on the straight-line method at
rates calculated to amortize the cost of the assets over their useful lives.
The general ranges of estimated useful lives are:
Buildings and improvements 10 to 40 years
Equipment and furniture 4 to 20 years
GOODWILL
Goodwill is stated on the basis of cost, adjusted as discussed below, and is
amortized on a straight-line basis over 40-year periods.
For each of its investments, the Company assesses the recoverability of its
goodwill by determining whether the amortization of the goodwill balance over
its remaining life can be recovered through projected undiscounted future cash
flows over the remaining amortization period. If projected undiscounted future
cash flows indicate that unamortized goodwill and the net book value of
long-lived assets will not be recovered, net goodwill is adjusted to an amount
consistent with projected discounted future cash flows. Cash flow projections
are based on trends of historical performance and management's estimate of
future performance, giving consideration to existing and anticipated
competitive and economic conditions.
INCOME TAXES
Income taxes are calculated using the asset and liability method required by
Statement of Financial Accounting Standards ("SFAS") No. 109. Deferred income
taxes are recognized for the tax consequences resulting from "temporary
differences" by applying enacted statutory tax rates applicable to future
years. These "temporary differences" are associated with differences between
the financial and the tax basis of existing assets and liabilities. Under SFAS
No. 109, a statutory change in tax rates will be recognized immediately in
deferred taxes and income.
USE OF 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 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.
2
66
NOTE B - INCOME TAXES
The components of income tax expense are as follows:
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
--------- --------- ---------
Current
Federal $ 11,254 $ 10,324 $ 10,003
State and local 1,540 1,421 1,357
--------- --------- ---------
Total current $ 12,794 $ 11,745 $ 11,360
========= ========= =========
Deferred
Federal $ 188 $ 307 $ (178)
State and local 23 39 (22)
--------- --------- ---------
Total deferred $ 211 $ 346 $ (200)
========= ========= =========
The differences between total income tax expense and the amount computed by
applying the statutory Federal income tax rate to income before income taxes
were as follows:
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
------- ------- -------
Computed expected income tax
expense $10,251 35% $ 9,427 35% $ 8,579 35%
Effect of goodwill amortization 1,622 6% 1,622 6% 1,622 7%
Net effect of state income taxes 1,016 3% 949 4% 867 4%
Other, net 116 -- 93 -- 92 --
------- -- ------- -- ------- --
Income tax expense for the period $13,005 44% $12,091 45% $11,160 46%
======= == ======= == ======= ==
3
67
▇▇▇▇▇-▇▇▇▇▇ Newspapers
Notes to Financial Statements
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities were as follows:
DECEMBER 31,
IN THOUSANDS 1996 1995
--------- ---------
Deferred tax assets:
Accrued vacation pay $ 472 $ 503
Accrued stock option liability 371 326
Accounts receivable, net 283 272
Other, net 18 9
--------- ---------
Total gross deferred tax assets 1,144 1,110
--------- ---------
Deferred tax liabilities:
State income tax (352) (337)
Property, plant and equipment (5,546) (5,315)
--------- ---------
Total gross deferred tax liabilities (5,898) (5,652)
--------- ---------
Net deferred tax liability $ (4,754) $ (4,542)
========= =========
The net deferred tax liability is recorded both as a current deferred income
tax benefit and as other long term liabilities based upon the classification of
the related temporary difference. In assessing the reliability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, recoverable taxes paid, projected future taxable income and tax
planning strategies in making this assessment. Based on the level of historical
taxable income, the reversal of existing deferred tax liabilities and
projections for future taxable income over the periods which the deferred tax
assets are deductible at December 31, 1996, management believes it is more
likely than not the Company will realize the benefits of these deductible
differences.
NOTE C -- EMPLOYEE BENEFIT PLANS
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. maintains a defined benefit pension plan for
which most of ▇▇▇▇▇-▇▇▇▇▇ Newspapers employees are eligible. Benefits are based
on years of service and the employee's compensation for the five highest
consecutive years of salary during the last ten years of service. Benefits vest
to the participants upon completion of five years of service or upon reaching
age 65, whichever is earlier. ▇▇▇▇▇-▇▇▇▇▇' policy is
4
68
▇▇▇▇▇-▇▇▇▇▇ Newspapers
Notes to Financial Statements
to accrue as expense an amount computed by its actuary and to fund at least the
minimum amount required by ERISA.
In 1994, the ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. adopted a non-qualified,
supplemental pension plan covering certain ▇▇▇▇▇-▇▇▇▇▇ Newspapers employees,
which provides for incremental pension payments so that total pension payments
equal amounts that would have been payable from the principal pension plan if
it were not for limitations imposed by income tax regulation.
In determining the 1996, 1995 and 1994 actuarial present value of benefit
obligations, discount rates of 73/4%, 71/4% and 8% were used, respectively. The
assumed annual rate of increase in future compensation levels was 4%, and the
expected long term rate of return on plan assets was 10%. Pension expense for
the years ended December 31, 1996, 1995 and 1994 was $828, $823 and $789,
respectively.
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. also sponsors a 401(k) plan which provides
employees of ▇▇▇▇▇-▇▇▇▇▇ Newspapers with additional income upon retirement. The
Company matches a portion of employees' voluntary before-tax contributions.
Employees are fully vested in their own contributions and vest in the Company's
matching contributions upon three years of service. Contributions made during
the years ended December 31, 1996, 1995 and 1994 were $199, $205 and $167,
respectively.
The 1994 ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. Employee Stock Purchase Plan provides
for a total of 450,000 shares to be sold to participating employees at all
▇▇▇▇▇-▇▇▇▇▇ subsidiaries at 85% of the fair market value at specified quarterly
investment dates. At December 31, 1996, 1995 and 1994, ▇▇▇▇▇-▇▇▇▇▇ Newspapers
had $71, $71 and $69, respectively recorded as a liability for amounts withheld
by the Company to be used for the purchase of ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.
shares in the subsequent January.
All costs related to the above described plans are recorded in the ▇▇▇▇▇-▇▇▇▇▇
Newspapers financial statements to the extent that these costs relate to the
employees of ▇▇▇▇▇-▇▇▇▇▇ Newspapers.
5
(Continued)
69
NOTE D -- EQUITY
A summary of changes in equity is as follows:
YEARS ENDED DECEMBER 31,
1996 1995 1994
-------- -------- --------
Beginning balance $274,593 259,750 $246,400
Net earnings 16,281 14,843 13,350
-------- -------- --------
Ending balance $290,874 $274,593 $259,750
======== ======== ========
NOTE E -- STOCK OPTION PLANS
1984 PLAN
In 1984, ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. adopted a Stock Option Plan ("1984
Plan") pursuant to which it issued to officers and key employees options to
purchase shares of common stock at prices equal to the market price on the
grant date. Market price was determined by the Board of Directors for purposes
of granting stock options and making repurchase offers. Options granted under
the 1984 Plan become exercisable five years after date of grant. At December
31, 1996, 1995 and 1994, options held by employees of ▇▇▇▇▇-▇▇▇▇▇ Newspapers to
purchase 96,800 shares, 107,400 shares and 149,400 shares, respectively, were
outstanding under the 1984 Plan, with exercise prices ranging from $3.33 to
$6.67 per share. No additional options will be granted under the 1984 Plan.
1991 PLAN
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. adopted the 1991 Stock Option Plan ("1991
Plan") pursuant to which it may issue to officers and key employees options to
purchase up to 3,000,000 shares of common stock. Options have been granted to
certain employees of the Company at prices equal to the market price on the
grant date ("market price options") and at prices below market price
("performance options"). As of December 31, 1996, 1995 and 1994, market price
options held by employees of ▇▇▇▇▇-▇▇▇▇▇ Newspapers to purchase 302,075 shares,
258,675 shares and 235,200 shares, respectively, were outstanding with exercise
prices ranging from $6.67 to $25.38 per share. Market price options become
exercisable after the fifth anniversary of their date of grant.
At December 31, 1996, 1995 and 1994 performance options to purchase 110,300
shares, 107,100 shares and 116,850 shares, respectively, were outstanding with
exercise prices ranging from $0.67 to $2.00 per share. The performance options
become exercisable after the third anniversary of their date of grant, and the
extent to which they become exercisable at that time depends upon the extent to
which ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. achieves certain goals which are
established at the time the options are granted. That portion of the
performance options which does not become exercisable on the third
6
(Continued)
70
anniversary of the date of grant becomes exercisable after the ninth
anniversary of the date of grant. Compensation expense of $217, $274 and $315
was recognized by ▇▇▇▇▇-▇▇▇▇▇ Newspapers for the performance options held by
employees of ▇▇▇▇▇-▇▇▇▇▇ Newspapers for the years ended December 31, 1996, 1995
and 1994, respectively.
The following summarizes stock option plans activity:
Number Weighted Average
of Shares Option Price
------------ ----------------
Options outstanding
at January 1, 1994 507,000 $ 4.95
Granted 34,950 7.92
Exercised (40,500) 3.04
------------
Options outstanding
at December 31, 1994 501,450 5.30
Granted 59,100 10.34
Exercised (60,750) 4.28
Cancelled (26,625) 7.47
------------
Options outstanding
at December 31, 1995 473,175 5.94
Granted 67,450 18.40
Exercised (18,100) 4.19
Cancelled (13,350) 11.93
------------
OPTIONS OUTSTANDING AT
DECEMBER 31, 1996 509,175 7.51
============
EXERCISABLE AT
DECEMBER 31, 1996 207,050 4.18
============
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation expense has been recognized for
options granted where the exercise price is equal to the market price of the
underlying stock at the date of grant. The Company does recognize compensation
expense for options whose market price of the underlying stock exceeds the
exercise price on the date of grant under the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," as permitted under SFAS No. 123.
7
(Continued)
71
Had compensation expense for the Company's options been determined based on the
fair value at the grant date for awards in 1996 and 1995, the Company's net
income would have been reduced to the proforma amounts indicated below.
YEAR ENDED DECEMBER 31,
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1996 1995
----------- -----------
Net income - as reported $ 16,281 $ 14,843
Net income - proforma 16,190 14,816
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995:
YEAR ENDED DECEMBER 31,
1996 1995
--------- ----------
Expected dividends yield 0.3% 0.3%
Expected stock price volatility 22.1% 21.3%
Risk-free interest rate 6.4% 6.4%
Expected life of options 3-10 years 3-10 years
The weighted-average fair value of market price options granted during 1996 and
1995 was $7.64 and $5.52, respectively. The weighted-average fair value and
exercise price of performance options was $15.01 and $1.25 in 1996, and $12.15
and $0.67 in 1995, respectively.
NOTE F -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Because of their maturities and/or interest rates, the Company's financial
instruments have a fair value approximating their carrying value. These
instruments include accounts receivable, trade payables, and miscellaneous
notes receivable and payable.
NOTE G -- COMMITMENTS AND CONTINGENCIES
The Company has pending claims incurred in the normal course of business which,
in the opinion of management, and legal counsel, can be disposed of without
material effect on the accompanying financial statements.
NOTE H -- LEASES
The Company leases certain real estate and equipment under various operating
leases. Most of the leases contain renewal options for varying periods of time.
The total rent
8
(Continued)
72
expense under all operating leases was $1,054, $994 and $806 for the years
ended December 31, 1996, 1995 and 1994, respectively.
The future minimum rental commitments for all non-cancellable operating leases
with terms in excess of one year as of December 31, 1996 are as follows:
IN THOUSANDS
---------------------------------
1997 $ 812
1998 726
1999 556
2000 409
2001 244
After 2001 207
---------------------------------
TOTAL $ 2,954
---------------------------------
9
(Continued)