-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KFieMWAuALaFnMjIYvVltlfYC8GYF0BhMw/wmukzT8XUQ7rG0nNpowekZAGx8pzo noe5npsUGFgkchqOe4boQQ== 0000930661-97-000762.txt : 19970401 0000930661-97-000762.hdr.sgml : 19970401 ACCESSION NUMBER: 0000930661-97-000762 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARGYLE TELEVISION INC CENTRAL INDEX KEY: 0000949536 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 742717523 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-27000 FILM NUMBER: 97569782 BUSINESS ADDRESS: STREET 1: 200 CONCORD PLAZA STREET 2: STE 700 CITY: SAN ANTONIO STATE: TX ZIP: 78216 BUSINESS PHONE: 2108281700 MAIL ADDRESS: STREET 1: 200 CONCORD PLAZA STREET 2: STE 700 CITY: SAN ANTONIO STATE: TX ZIP: 78216 10-K405 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ______ to _______ Commission file number 0-27000 ARGYLE TELEVISION, INC. (Exact name of registrant as specified in its charter) DELAWARE 74-2717523 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 CONCORD PLAZA, SUITE 700, SAN ANTONIO, TEXAS 78216 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (210) 828-1700 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Series A Common Stock, par value $.01 per share (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Registrant's voting stock held by nonaffiliates on March 20, 1997, based on the closing price for the Registrant's Series A Common Stock on such date as reported on the Nasdaq National Market, was approximately $100,150,000. Shares of Common Stock outstanding at March 20, 1997: 11,346,914 shares. (Consisting of 4,010,914 shares of Series A Common Stock, 36,000 shares of Series B Common Stock and 7,300,000 shares of Series C Common Stock.) ================================================================================ PART I ------ ITEM 1. BUSINESS. - -------- --------- Argyle Television, Inc., a Delaware corporation (together with its direct and indirect subsidiaries, referred to herein as the "Company" or "Argyle"), owns and operates six network-affiliated television stations in diverse markets in the United States. In 1995, the Company completed the acquisition of five stations: WGRZ-TV, the NBC affiliate in Buffalo, New York ("WGRZ" or the "Buffalo Stations"); WZZM-TV, the ABC affiliate in Grand Rapids, Michigan ("WZZM"); WNAC-TV, the Fox affiliate in Providence, Rhode Island ("WNAC"); KITV- TV, the ABC affiliate in Honolulu, Hawaii, together with its satellite stations KMAU-TV in Wailuku, Hawaii, KHVO-TV in Hilo, Hawaii and TV translator K51BB in Lihue, Hawaii (such Hawaii stations referred to collectively as "KITV" or the "Hawaii Stations"); and WAPT-TV, the ABC affiliate in Jackson, Mississippi ("WAPT"). On June 11, 1996, the Company completed the acquisition of KHBS-TV and its S-2 satellite KHOG-TV, which serve as ABC affiliates in Fort Smith and Fayetteville, Arkansas, respectively (such Arkansas stations referred to collectively as "KHBS" or the "Arkansas Stations"), from Sigma Broadcasting, Inc. ("Sigma"). The acquisition was accomplished through the merger of Sigma into KHBS Argyle Television, Inc., a newly created, wholly-owned subsidiary of the Company. Pursuant to the merger, the Company issued to the Sigma stockholders (i) 227,654 shares of the Company's Series A Common Stock and (ii) shares of newly created preferred stock of the Company having a stated value $20,876,000. The Company also paid an additional $4 million, $3 million of which was paid in cash and the balance of which was paid in shares of newly created preferred stock, for certain real estate associated with the Arkansas Stations and for a non-competition covenant in connection with this acquisition. Effective July 1, 1996, the Company entered into a Joint Marketing and Programming Agreement with Clear Channel Communications, Inc. ("Clear Channel") relating to WNAC and WPRI-TV, the CBS affiliate in Providence, Rhode Island, which is owned by Clear Channel. Under the agreement (the "Clear Channel Venture"), Clear Channel programs certain air time, including news programming, on WNAC and manages the sale of commercial air time on both stations for an initial period of 10 years. The Company and Clear Channel each receive 50% of the broadcast cash flows generated by WNAC and WPRI subject to certain adjustments. In connection with this agreement the Company paid Clear Channel approximately $13 million. See "--Federal Regulation of Television Broadcasting." On November 20, 1996, the Company entered into a definitive agreement with Gannett Co. (the "Gannett Swap") Inc. ("Gannett") to exchange WZZM and WGRZ for Gannett's WLWT-TV, the NBC affiliate in Cincinnati, Ohio ("WLWT"), and KOCO-TV, the ABC affiliate in Oklahoma City, Oklahoma ("KOCO"). Gannett also received $20 million in additional consideration from the Company. The Company completed this transaction on January 31, 1997. On August 12, 1996, the Company announced that it was exploring strategic alternatives to achieve the benefits of the current consolidation in the television broadcast industry. After discussions with various third parties about strategic alliances and other alternatives, on March 26, 1997 Argyle entered into a definitive agreement with The Hearst Corporation ("Hearst") to combine the broadcasting division of Hearst with and into Argyle. The agreement has been approved by the boards of directors of both companies and is expected to be submitted to Argyle shareholders for approval in August or September. Argyle Television Investors, L.P., Television Investment Partners, L.P. and Argyle Television Partners, L.P. and certain other shareholders, which collectively own approximately two-thirds of the shares of Argyle common stock outstanding, have agreed to vote the Argyle shares they hold in favor of the transaction. As a result of the combination, Argyle will remain a public company and will be renamed Hearst-Argyle Television, Inc. Upon consummation of the transaction, Argyle shareholders will receive, at the election of each shareholder and subject to certain proration mechanisms, (i) $26.50 per share in cash; (ii) one share of Series A Common Stock of Hearst-Argyle Television; or (iii) a "mixed consideration" of $13.25 in cash and one-half share of Series A Common Stock of Hearst-Argyle Television. Shareholders electing the mixed consideration will not be subject to proration while shareholders electing all- cash and all-stock will be subject to proration if the aggregate cash election by all Argyle shareholders (including the cash portion of the mixed consideration elections) is more than $159.7 million or less than $100 million. -2- The transaction, which is also subject to FCC and other regulatory approvals, will result in Hearst receiving shares of Series B Common Stock of Hearst-Argyle Television, which will give Hearst in excess of 80% of the common equity to be outstanding and the right to elect a majority of the Board of Directors. Current Argyle shareholders who do not cash out entirely will hold Series A Common Stock representing the balance of the common equity to be outstanding and entitling the holders to elect at least two directors to the Board. Argyle's six television stations will be combined with six television stations owned by Hearst, together with certain other related assets. The television stations to be owned and managed by Hearst-Argyle Television will reach approximately 11.6% of U.S. television households and, other than Disney/ABC, Hearst-Argyle Television will own more ABC-affiliated television stations than any other television station group owner. The Hearst television stations to become part of Hearst-Argyle are WCVB, the ABC affiliate in Boston, MA; WTAE, the ABC affiliate in Pittsburgh, PA; WBAL, the NBC affiliate in Baltimore, MD; KMBC, the ABC affiliate in Kansas City, MO; WISN, the ABC affiliate in Milwaukee, WI; and WDTN, the ABC affiliate in Dayton, OH. Under current FCC regulations, Argyle's WNAC in Providence, RI, would have to be divested because of an overlap with Hearst's WCVB in Boston, MA, and Hearst's WDTN in Dayton, OH, would have to be divested because of an overlap with Argyle's WLWT in Cincinnati, OH. For the year ended December 31, 1996 (pro forma for the transactions), these 12 stations had combined net revenues of $369.0 million ($284.8 million from the Hearst stations and $84.2 million from the Argyle stations), and broadcast cash flow of $160.0 million ($122.0 million from the Hearst stations and $38.0 million from the Argyle stations). More detailed information about the Hearst/Argyle combination will be provided in the proxy statement/prospectus, which will be prepared in connection with the Argyle shareholder meeting later this year to approve the transaction. The Company was incorporated in Delaware in August 1994 to engage in the television broadcast business and related businesses. For purposes of this annual report, WLWT, KOCO, WNAC, the Hawaii Stations, WAPT, and the Arkansas Stations are referred to herein as the "Stations." For each Station other than WLWT and KOCO, the Company has a direct subsidiary (the "License Subsidiary") that holds the Station's Federal Communications Commission ("FCC") license. Each License Subsidiary owns all of the capital stock of a subsidiary, which in turn holds substantially all of the operating assets relating to the applicable FCC license and Station. All of the assets of WLWT and KOCO, including their FCC licenses, are held in a single subsidiary. THE STATIONS The following table sets forth certain general information for the Stations and the markets they serve.
DMA Network Channel/ Market Area Station Rank(a) Affiliation Frequency - ----------- ------- ------ ----------- --------- Cincinnati, OH WLWT 29 NBC 5/VHF Oklahoma City, OK KOCO 43 ABC 5/VHF Providence, RI WNAC 47 Fox 64/UHF Honolulu, HI KITV 69 ABC 4/VHF Jackson, MS WAPT 90 ABC 16/UHF Fort Smith/Fayetteville, AR KHBS 118 ABC 40/29/UHF
- -------------- (a) Ranking of DMA served by the Station among all DMAs is measured by the number of television households based on A.C. Nielsen Company ("Nielsen") estimates for the 1996-1997 broadcast season. -3- The current affiliation agreements with WLWT, KOCO, WNAC, KITV, WAPT and KHBS expire on September 29, 2000, January 2, 2000, October 31, 1998, January 2, 2005, March 6, 2005 and July 1, 1998, respectively. The affiliation agreement at WNAC with Fox may be terminated by Fox upon 90 days advance notice. In addition, the affiliation agreement between WNAC and Fox provides that the network may terminate the agreement upon 60 days notice if the network or an entity related to the network acquires a television broadcast station licensed within the Station's market. TELEVISION INDUSTRY Commercial television broadcasting began in the United States on a regular basis in the 1940s. Currently, there is a limited number of channels available for broadcasting in any one geographic area, and the license to operate a television station is granted by the FCC. Television stations that broadcast over the VHF band (channels 2-13) of the spectrum generally have some competitive advantage over television stations that broadcast over the UHF band (channels above 13) of the spectrum because the former usually have better signal coverage and operate at a lower transmission cost. The improvement of UHF transmitters and receivers, the complete elimination from the marketplace of VH only receivers and the expansion of cable television systems have, however, reduced the VHF signal advantage. Television station revenues are derived primarily from local, regional and national advertising and, to a much lesser extent, from network compensation and revenues from studio or tower rental and commercial production activities. Advertising rates are set based upon a variety of factors, including a program's popularity among the viewers an advertiser wishes to attract, the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. Rates also are determined by a station's overall ratings and share in its market, as well as the station's ratings and share among particular demographic groups that an advertiser may be targeting. Because broadcast television stations rely on advertising revenues, they are sensitive to cyclical changes in the economy. The size of advertisers' budgets, which are affected by broad economic trends, affect the broadcast industry in general and the revenues of individual broadcast television stations. The advertising revenues of the stations are generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to and including the holiday season. All television stations in the country are grouped into approximately 210 generally recognized television markets that are ranked in size according to various formulae based upon actual or potential audience. Each market is designated as an exclusive geographic area consisting of all counties in which the home-market commercial stations receive the greatest percentage of total viewing hours. Nielsen, a national audience measuring service, periodically publishes data on estimated audiences for the television stations in the various markets throughout the country. The estimates are expressed in terms of the percentage of the total potential audience in the market viewing a station (the station's "rating") and of the percentage of households using television actually viewing the station (the station's "share"). Nielsen provides such data on the basis of total television households and selected demographic groupings in the market. Each specific geographic market is called a designated market area, or DMA, by Nielsen. Nielsen uses two methods of determining a station's ability to attract viewers. In larger geographic markets, ratings are determined by a combination of meters connected directly to selected television sets and weekly diaries of television viewing, while in smaller markets only weekly diaries are utilized. Other than for WLWT in Cincinnati, Ohio, which is a metered market, all of the Stations operate in markets where only weekly diaries are used. Historically, three major broadcast networks--ABC, NBC and CBS--dominated broadcast television. In recent years; however, Fox has evolved into the fourth major network, even though it produces seven hours less of prime time programming, it ranks number two in the key adult category of 18-49. In addition, UPN and the Warner Brothers Network have been launched as television networks. The affiliation by a station with one of the four major networks has a significant impact on the composition of the station's programming, revenues, expenses and operations. A typical affiliate of a major network receives the majority of each day's programming from the network. This programming, along with cash payments ("network compensation"), is provided to the affiliate by the network in exchange for a substantial majority of the advertising time sold during the airing of network programs. The network then sells this advertising time for its own account. The -4- affiliate retains the revenues from time sold during breaks in and between network programs and during programs produced by the affiliate or purchased from non-network sources. In acquiring programming to supplement programming supplied by the affiliated network, network affiliates compete primarily with other affiliates and independent stations in their markets. Cable systems generally do not compete with local stations for programming, although various national cable networks from time to time have acquired programs that would have otherwise been offered to local television stations. In addition, a television station may acquire programming through barter arrangements. Under barter arrangements, a national program distributor may receive advertising time in exchange for the programming it supplies, with the station paying either a reduced fee or no fee for such programming. In contrast to a station affiliated with a network, a fully independent station purchases or produces all of the programming that it broadcasts, resulting in generally higher programming costs. The independent station, however, may retain its entire inventory of advertising time and all of the revenues obtained therefrom. Through the 1970s, network television broadcasting enjoyed virtual dominance in viewership and television advertising revenues because network- affiliated stations competed only with each other in local markets. Beginning in the 1980s, this level of dominance began to change as the FCC authorized more local stations and marketplace choices expanded with the growth of independent stations and cable television services. Cable television systems were first installed in significant numbers in the 1970s and were initially used primarily to retransmit broadcast television programming to paying subscribers in areas with poor broadcast signal reception. In the aggregate, cable-originated programming has emerged as a significant competitor for viewers of broadcast television programming, although no single cable programming network regularly attains audience levels amounting to more than a fraction of any of the major broadcast networks. The advertising share of cable networks has increased during the 1970s, 1980s and 1990s as a result of the growth in cable penetration (the percentage of television households that are connected to a cable system). Notwithstanding such increases in cable viewership and advertising, over-the-air broadcasting remains the dominant distribution system for mass market television advertising. According to the November 1996 Nielsen reports, cable penetration in each of the Cincinnati, Oklahoma City, Providence, Honolulu, Jackson and Fort Smith television markets is approximately 62%, 63%, 76%, 87%, 60% and 66%, respectively, compared to approximately 65% for the United States as a whole. The Company believes that the market shares of television stations affiliated with ABC, NBC and CBS declined during the 1980s and 1990s primarily because of the emergence of Fox and certain strong independent stations and because of increased cable penetration. In addition, there has been substantial growth in the number of home satellite dish receivers and VCRs, which has further expanded the number of programming alternatives for household audiences. Broadcast television stations compete for advertising revenues with other broadcast television stations and with the print media, radio stations and cable system operators serving the same market. Additional competitors for advertising revenues include a variety of other media, including direct marketing. Traditional network programming, and recently Fox programming, each has generally achieved higher audience levels than syndicated programs aired by independent stations. Since greater amounts of advertising time are available for sale by independent stations, independent stations typically achieve a greater proportion of television market advertising revenues relative to their share of the market's audience. Public broadcasting outlets in most communities compete with commercial broadcasters for viewers but not for advertising dollars. FEDERAL REGULATION OF TELEVISION BROADCASTING Television broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the "Communications Act"). The Communications Act prohibits the operation of television broadcasting stations except under a license issued by the FCC and empowers the FCC, among other actions, to issue, renew, revoke and modify broadcasting licenses; assign frequency bands; determine stations' frequencies, locations and power; regulate the equipment used by stations; adopt other regulations to carry out the provisions of the Communications Act; impose penalties for violation of such regulations; and, impose fees for processing applications and other administrative functions. The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC. Under the Communications Act, the FCC also regulates certain aspects of the operation of cable television systems and other electronic media that compete with broadcast stations. -5- The process for renewal of broadcast station licenses as set forth under the Communications Act has undergone significant change as a result of the Telecommunications Act of 1996 (the "1996 Act"). Prior to the passage of the 1996 Act, television broadcasting licenses generally were granted or renewed for a period of five years upon a finding by the FCC that the "public interest, convenience and necessity" would be served thereby. Under the 1996 Act, the statutory restriction on the length of broadcast licenses has been amended to allow the FCC to grant broadcast licenses for terms of up to eight years. The 1996 Act requires renewal of a broadcast license if the FCC finds that (i) the station has served the public interest, convenience and necessity; (ii) there have been no serious violations of either the Communications Act or the FCC's rules and regulations by the licensee; and, (iii) there have been no other serious violations that taken together constitute a pattern of abuse. In making its determination, the FCC may consider petitions to deny but cannot consider whether the public interest would be better served by a person other than the renewal applicant. Under the 1996 Act, competing applications for the same frequency may be accepted only after the FCC has denied an incumbent's application for renewal of license. The main station licenses of WLWT, KOCO, WNAC, WAPT and KHBS (including its satellite station KHOG) will expire on October 1, 1997, June 1, 1998, April 1, 1999, June 1, 1997 and June 1, 1997, respectively. The main station licenses of KITV (including its satellite stations KMAU and KHVO) will expire on February 1, 1999. Applications for renewal of the licenses for WAPT and KHBS (including its satellite station KHOG) are pending at the FCC. Petitions to deny the renewal applications are due on or before May 1, 1997. The Company is not aware of any facts or circumstances that would prevent the renewal of the licenses for the Stations at the end of the respective license terms. The Communications Act, FCC rules and regulations and the 1996 Act also regulate broadcast ownership. The FCC has promulgated rules that, among other matters, limit the ability of individuals and entities to own or have an official position or ownership interest above a certain level (an "attributable" interest) in broadcast stations as well as other specified mass media entities. On a local basis, FCC rules currently allow an individual entity to have an attributable interest in only one television station in a market. Furthermore, FCC rules, the Communications Act or both generally prohibit an individual or entity from having an attributable interest, or cross-ownership, in a television station and in a radio station, daily newspaper or cable television system that is located in the same local market area served by the television station. The FCC has instituted proceedings for the possible relaxation of certain of its rules regulating television station ownership, certain types of cross-ownership and the standards used to determine what types of interests are considered to be attributable under its rules. Among the proposals under consideration is whether to deem as attributable certain television local marketing agreements and, if deemed attributable, the extent to which currently effective agreements of this type should be exempted from any new FCC rules. Such attribution could implicate local television ownership rules that currently prohibit an entity from having an attributable interest in two stations serving the same market and could have a material effect on the Joint Marketing and Programming Agreement between the Company and Clear Channel. In addition, pursuant to the 1996 Act, the FCC (i) has eliminated the 12-station national limit for TV station ownership and increased the national audience reach limitation from 25% to 35% and (ii) is in the process of conducting a rulemaking proceeding to determine whether the local television cross-ownership rule should be retained, modified or eliminated. The Communications Act restricts the ability of foreign entities or individuals to own or hold certain interests in broadcast licenses. The 1996 Act, however, eliminated the restrictions on aliens being directors and officers of broadcast licensees or of entities holding interests in broadcast licensees. The FCC is considering the adoption of rules to institute closed captioning of video signals and the institution of a TV ratings system as mandated by the 1996 Act. The FCC has reduced significantly its past regulation of broadcast stations, including elimination of formal ascertainment requirements and guidelines concerning amounts of certain types of programming and commercial matter that may be broadcast. There are, however, FCC rules and policies, and rules and policies of other federal agencies, that regulate matters such as network-affiliate relations, cable systems' carriage of syndicated and network programming on distant stations, political advertising practices, obscene and indecent programming, equal employment opportunity, application procedures and other areas affecting the business or operations of broadcast stations. The FCC has also adopted rules to implement the Children's Television Act of 1990, which, among other matters, limits the permissible amount of commercial matter in children's programs and requires each television station to present "educational and informational" children's programming. The FCC also has adopted renewal processing guidelines -6- effectively requiring television stations to broadcast an average of three hours per week of children's educational programming commencing in September 1997. The FCC eliminated effective August 30, 1996 the prime time access rule ("PTAR"), which limited the ability of television stations within the 50 largest markets that are affiliated with ABC, CBS or NBC to broadcast network programming (including syndicated programming previously broadcast over a network) during prime time hours. Also, the FCC has eliminated its rules that restricted the ability of ABC, CBS and NBC to obtain financial interests in, or participate in syndication of, prime-time entertainment programming created by independent producers for airing during the networks' evening schedules. Additionally, in January 1996 the Supreme Court refused to review lower court decisions that upheld the FCC's restrictions on the broadcast of indecent material and also upheld the agency's policy of imposing substantial monetary sanctions on repeat offenders of the indecency rules. The FCC also has adopted regulations to implement certain provisions of the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), which regulates, among other matters, signal carriage, retransmission consent and equal employment opportunity requirements. Certain provisions of the 1992 Cable Act, including provisions respecting carriage by cable systems of local television stations, are the subject of pending judicial review proceedings. In February 1996, the Supreme Court agreed to review a lower court decision upholding the "must carry" provisions of the 1992 Cable Act, and a decision is expected to be issued during the first half of 1997. The 1996 Act modifies the 1992 Cable Act in several important respects. In addition to matters relating to broadcast ownership, the 1996 Act, among other things, repealed the cross-ownership ban between cable and telephone entities and the FCC's video dialtone rules. The 1996 Act also repealed the limitations on cross- ownership of broadcast network and cable entities and the statutory prohibition on TV/cable cross-ownership. These provisions, among others, allow for significant involvement in the future by telephone companies in providing video services. The FCC has proposed the adoption of rules for implementing advanced television ("ATV") service in the United States. Implementation of digital ATV will improve the technical quality of television signals receivable by viewers and will provide broadcasters the flexibility to offer new services, including high-definition television ("HDTV"), simultaneous multiple programs of standard definition television ("SDTV") and data broadcasting. The FCC is expected to release a final plan during the first half of 1997. As currently proposed, the FCC will assign all existing television licensees and permitees a second channel on which to provide ATV simultaneously with their current analog television broadcast. After a period of years (the 1992 proposal was for 15 years, although that period of time is under review in the pending FCC proceeding) broadcasters would be required to cease analog television broadcast service, return the analog channel and broadcast only with the newer digital ATV technology. The FCC has proposed auctioning certain spectrum currently allocated to broadcasting for other uses. Over the course of the ATV debate, several United States Senators have indicated that they would favor authorizing the FCC to auction the second channels as opposed to assigning them directly to existing broadcasters. Such authority could be contained in budget legislation or a stand-alone spectrum law. Although the Company believes the FCC will authorize ATV in the United States, the Company cannot predict precisely when or under what conditions such authorization might be given, when analog television broadcasts will be required to cease or the overall effect the transition to ATV might have on the Company's business. The foregoing does not purport to be a complete summary of all of the provisions of the Communications Act, the 1996 Act, the 1992 Cable Act or the related regulations and policies of the FCC. Proposals for additional or revised regulations and requirements are pending before and are being considered by Congress and federal regulatory agencies from time to time. Also, various of the foregoing matters are now, or may become, the subject of court litigation, and the Company cannot predict the outcome of any such litigation or the impact on its business. -7- EMPLOYEES As of February 28, 1997, the Stations had 601 full-time and part-time employees, of which WLWT accounted for 166 employees; KOCO for 117 employees; WNAC for 2 employees; KITV for 124 employees; WAPT for 77 employees; and KHBS for 115 employees. There are a total of 134 employees (84 at WLWT and 50 at KITV) represented by three different unions, the American Federation of Television and Radio Artists, the International Brotherhood of Electrical Workers and the National Association of Broadcast Employees and Technicians. The Company also employs 16 individuals who are not employees of the Stations. The Company believes that its employee relationships are satisfactory. ITEM 2. PROPERTIES - ------- ---------- The Company's principal executive offices are located at 200 Concord Plaza, Suite 700, San Antonio, Texas 78216. The Company leases approximately 9,110 square feet of space in San Antonio under a lease agreement that expires April 30, 1999. The Company also leases approximately 3,240 square feet of space for its corporate office in Los Angeles under a lease that expires December 31, 1998. Each Station's real properties generally include owned or leased offices, studios, transmitter sites and antenna sites. Typically, offices and main studios are located together, while transmitters and antenna sites are in a separate location that is more suitable for optimizing signal strength and coverage. Set forth below are the Stations' principal facilities as of December 31, 1996. In addition to the property listed below, the Company and the Stations also lease other property primarily for communications equipment.
OWNED OR APPROXIMATE EXPIRATION STATION/PROPERTY LOCATION USE LEASED SIZE OF LEASE - --------------------------- ---------------- ------ ------------ ---------- WLWT Office and studio Leased 60,000 sq. ft. 2039 Cincinnati, Ohio Tower Owned 4.2 acres -- KOCO Office, studio and tower Owned 85 acres -- Oklahoma City, OK WNAC Office, studio and tower Owned 33 acres -- Rehobeth, Massachusetts KITV(a) Office and studio Leased 14,500 sq. ft. 1/1/98 Honolulu, Hawaii Transmission tower site Leased 130 sq. ft. 12/31/06 Hilo, Hawaii Tower and retransmission site Leased 300 sq. ft. 9/30/06 Wailuku, Hawaii Tower and retransmission site Leased 0.8 acres 3/1/97 WAPT Office, studio and Owned 25 acres -- Jackson, Mississippi transmission tower site KHBS Fort Smith, Arkansas Office and studio Owned 35,000 sq. ft. -- Transmission tower site Owned 5 acres -- Fayetteville, Arkansas Office and studio Owned 15,000 sq. ft. -- Transmission tower site Owned 5 acres --
- -------------- (a) KITV plans to move to a new studio in 1997. -8- ITEM 3. LEGAL PROCEEDINGS - ------- ------------------ From time to time, the Company becomes involved in various claims and lawsuits that are incidental to its business. In the opinion of the Company, there are no legal proceedings pending against the Company or any of its subsidiaries that are likely to have a material adverse effect on the Company's consolidated financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- Not applicable. PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------- --------------------------------------------------------------------- Of the Company's 50,000,000 shares of authorized Common Stock, 35,000,000 shares are designated as Series A Common Stock, 200,000 shares are designated as Series B Common Stock and 14,800,000 shares are designated as Series C Common Stock. Except as otherwise described below, the issued and outstanding shares of Series A Common Stock and Series B Common Stock are entitled to vote together as a single class on all matters submitted to a vote of stockholders, with each issued and outstanding share of Series A Common Stock and Series B Common Stock entitling the holder thereof to one vote on all such matters. Except as required by Delaware law, the Series C Common Stock has no voting rights. With respect to any election of directors, (i) the holders of the shares of Series B Common Stock are entitled to vote separately as a class to elect a majority of the Company's Board of Directors (the "Series B Directors") and (ii) the holders of the shares of Series A Common Stock are entitled to vote separately as a class to elect the balance of the Company's Board of Directors (the "Series A Directors"). Only the holders of the Series A Common Stock voting as a class may remove any Series A Director, and any Series A Director so removed may be replaced only by the remaining Series A Directors or, if there are no remaining Series A Directors, by the holders of the Series A Common Stock voting separately as a class. Similarly, only the holders of the Series B Common Stock voting as a class may remove any Series B Director, and any Series B Director so removed may be replaced only by the remaining Series B Directors or, if there are no remaining Series B Directors, by the holders of the Series B Common Stock voting separately as a class. If no shares of Series A Common Stock are issued and outstanding at any given time, then the holders of shares of Series B Common Stock will elect all of the Company's directors. Conversely, if no shares of Series B Common Stock are issued and outstanding, then the holders of shares of Series A Common Stock will elect all of the Company's directors, subject to obtaining the FCC's prior consent. The holder of each share of Series B and Series C Common Stock may convert such share into one fully paid and nonassessable share of Series A Common Stock subject to the terms and conditions set forth in the Company's Certificate of Incorporation. Additional authorized shares of Series A Common Stock may be issued at any time and additional shares of Series C Common Stock may be issued upon the exercise of options therefore. The Company has 1,000,000 shares of authorized Preferred Stock. The Company has two issued and outstanding series of preferred stock, Series A Preferred Stock and Series B Preferred Stock (collectively, the "Preferred Stock"). The Preferred Stock pays a cash dividend at 6.5% annually. The Series A Preferred Stock, which currently comprises 50% of the issued and outstanding Preferred Stock, is convertible at the option of the holders into Series A Common Stock of the Company at a conversion price of $35 per share of Series A Common Stock. In the event the holders do not convert the Series A Preferred Stock into shares of Series A Common Stock by June 11, 2001, the Company may redeem such Series A Preferred Stock at its stated value. The Series B Preferred Stock, which comprises the other 50% of the issued and outstanding Preferred Stock, is redeemable by the Company at its stated value at any time after June 11, 2001. In the event the Company does not redeem Series B Preferred Stock by July 11, 2001, then from and after that date the holders may convert such Series B Preferred Stock into shares of Series A Common Stock at a conversion price equal to the then fair market value of the Series A Common Stock. In connection with the acquisition by the Company of the Arkansas Stations, on June 11, 1996 the Company sold to the Sigma stockholder (i) 227,654 shares of the Company's Series A Common Stock and (ii) shares of newly created preferred -9- stock of the Company having a stated value of $20,876,000 without registration under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to exemption from registration afforded by Section 4(2) of the Securities Act or the rules and regulations promulgated thereunder. The preferred stock pays a cash dividend at 6.5% annually, and 50% of the preferred stock, designated as Series A Preferred Stock, is convertible at the option of the holders into Series A Common Stock of the Company at a conversion price of $35 per share of Series A Common Stock. In the event the holders do not convert the Series A Preferred Stock into shares of Series A Common Stock by June 11, 2001, the Company may redeem such Series A Preferred Stock at its stated value. The other 50% of the preferred stock, designated as Series B Preferred Stock, is redeemable by the Company at its stated value at any time after June 11, 2001. In the event the Company does not redeem the Series B Preferred Stock by July 11, 2001, then from and after that date the holders may convert the Series B Preferred Stock into share of Series A Common Stock at a conversion price equal to the then fair market value of the Series A Common Stock. All of the outstanding shares of Series B Common Stock are held by Argyle Television Partners, L.P., a Delaware limited partnership ("ATP"), which was formed by Bob Marbut, Blake Byrne, Ibra Morales, Harry T. Hawks (the "Management Stockholders") and Robert J. Owen. Shares of Series B Common Stock may not be transferred to any person other than one or more of the Management Stockholders or Mr. Owen or any entity controlled by one or more of the Management Stockholders or Mr. Owen. Series B Common Stock, however, may be converted at any time into Series A Common Stock and freely transferred, subject to the terms and conditions set forth in the Certificate of Incorporation and applicable securities law limitations. Shares of the Company's Series A Common Stock are traded on the Nasdaq National Market System under the trading symbol "ARGL." There is no established trading market for the Company's Series B Common Stock or its Series C Common Stock. The table below sets forth for the fiscal quarters indicated the reported high and low sale prices of the Company's Series A Common Stock as reported on the Nasdaq National Market.
Price Range of Common Stock --------------------------- High Low ---- --- FISCAL 1995 Fourth Quarter (beginning October 24, 1995) $18 1/4 $15 1/2 FISCAL 1996 First Quarter $23 $17 Second Quarter $27 $19 1/2 Third Quarter $29 1/4 $22 Fourth Quarter $28 3/4 $23 3/4
On March 20, 1997, the closing price for the Company's Series A Common Stock as reported on the Nasdaq National Market was $27.75, and the approximate number of stockholders of record of the Series A Common Stock at the close of business on such date was 151. On March 20, 1997, there was one holder of record of shares of the Company's Series B Common Stock and two holders of record of shares of the Company's Series C Common Stock. The Company has not paid any dividends on its Common Stock since inception and does not expect to pay any dividends on its Common Stock in the foreseeable future. The Company's existing credit agreement and the indenture relating to the Company's Senior Subordinated Notes due 2005 (the "Notes") prohibit the Company from paying dividends on the Common Stock unless certain conditions are met. In addition, substantially all of the Company's assets are pledged to secure its obligations under the Company's existing credit agreement. -10- ITEM 6. SELECTED FINANCIAL DATA - ------- ----------------------- The selected financial data should be read in conjunction with the historical financial statements and notes thereto included elsewhere herein and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The historical financial data for the years ended December 31, 1992, 1993 and 1994 have been derived from the audited combined financial statements of WZZM, WNAC and WAPT (the "Northstar Stations" or the "Predecessor") acquired by the Company effective January 4, 1995. The historical financial data for the years ended December 31, 1995 and 1996 has been derived from the audited consolidated financial statements of the Company. The pro forma consolidated financial data for the year ended December 31, 1996, has been prepared as if the acquisition of the Arkansas Stations, acquired by the Company effective June 1, 1996; the Clear Channel Venture, which occurred effective July 1, 1996; and the Gannett Swap, which occurred effective January 31, 1997 had been completed at the beginning of the year presented. Such pro forma data is not necessarily indicative of the actual results that would have occurred nor of results that may occur. -11-
Year Ended December 31 --------------------------------- The Company The Company Predecessor Historical Historical Pro forma --------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA: 1992 1993 1994 1995(A) 1996(B) 1996(C) Total revenues $ 27,103 $28,440 $34,538 $ 46,944 $ 73,294 $ 84,243 Station operating expenses 13,209 14,295 16,430 23,603 37,639 41,772 Write-down of intangible assets 25,500 - - - - - Amortization of program rights 4,670 3,876 3,600 3,961 4,725 5,225 Depreciation and amortization 3,511 2,884 3,126 12,294 23,965 26,075 --------------------------------------------------------------------------- Station operating income (loss) (19,787) 7,385 11,382 7,086 6,965 11,171 Corporate expenses 786 1,174 1,103 2,324 4,285 4,285 Non-cash compensation expense - - - 675 675 675 --------------------------------------------------------------------------- Operating income (loss) (20,573) 6,211 10,279 4,087 2,005 6,211 Interest expense, net 7,849 5,885 4,745 12,052 16,566 18,119 --------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes (28,422) 326 5,534 (7,965) (14,561) (11,908) Income taxes - 301 170 - - - --------------------------------------------------------------------------- Income (loss) from continuing (28,422) 25 5,364 (7,965) (14,561) (11,908) Cumulative effect of a change in accounting principle(d) - (213) - - - - Extraordinary item(e) - - (774) (7,842) - - --------------------------------------------------------------------------- Net income (loss) $(28,422) $ (188) $ 4,590 $(15,807) $(14,561) $(11,908) ================================= Less preferred stock dividends (f) - (829) (1,422) ------------------------------------------ Loss applicable to common Stock $(15,807) $(15,390) $(13,330) ========================================== Loss per common share $(1.25) $(1.37) $(1.17) Number of shares used in per share calculation 6,388 11,246 11,347 OTHER DATA: Broadcast cash flow(g) $ 9,577 $ 9,868 $14,223 $ 20,440 $ 31,889 $ 37,800 Broadcast cash flow margin(h) 35.3% 34.7% 41.2% 43.5% 43.5% 44.3% Operating cash flow(i) $ 8,791 $ 8,694 $13,120 $ 18,116 $ 27,604 $ 33,515 Operating cash flow margin(j) 32.4% 30.6% 38.0% 38.6% 37.7% 39.2% Capital expenditures $ 669 $ 1,136 $ 701 $ 3,767 $ 6,633 $ 6,356 Program payments $ 4,317 $ 4,277 $ 3,885 $ 2,901 $ 3,766 $ 4,671 BALANCE SHEET DATA (AT YEAR END): Cash and cash equivalents $ 196 $ 93 $ 1,313 $ 2,206 $ 949 $ 736 Total assets 79,079 76,015 78,575 291,141 328,608 356,974 Total debt (including current portion) 66,635 63,235 42,670 150,000 171,500 191,500 Stockholders' equity (deficit)(k) (3,078) (3,440) 24,513 116,293 129,152 144,082
See footnotes on following page. -12- NOTES TO SELECTED FINANCIAL DATA (a) Includes the results of operations of Argyle Television, Inc., the results of operations of the acquired Northstar Stations for the full period, the results of operations of the Hawaii Stations from June 13, 1995, and the results of operations of the Buffalo Station from December 5, 1995. (b) Includes the results of Argyle Television, Inc., the results of operations of the acquired Arkansas Stations from June 1, 1996 and the Clear Channel Venture from July 1, 1996. (c) Gives effect to the acquisition of the Arkansas Stations, the Clear Channel Venture and the Gannett Swap and the financing thereof as if all such transactions had occurred at the beginning of the year presented. The acquisitions are being accounted for using the purchase method of accounting. (d) Represents the cumulative effect of the adoption of SFAS No. 109, Accounting for Income Taxes. (e) Represents the write-offs of unamortized financing costs due to early extinguishment of bank debt. (f) Dividends associated with Preferred Stock related to the acquisition of the Arkansas Stations. (g) Broadcast cash flow is defined as station operating income (loss), plus depreciation and amortization and write down of intangible assets, plus amortization of program rights, minus program payments. Broadcast cash flow does not present a measure of operating results and does not purport to represent cash provided by operating activities. Broadcast cash flow should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. (h) Broadcast cash flow margin is broadcast cash flow divided by total revenues, expressed as a percentage. (i) Operating cash flow is defined as operating income (loss), plus depreciation and amortization, write down of intangible assets, and amortization of program rights, minus program payments, plus non-cash compensation expense. Operating cash flow is presented here not as a measure of operating results, but rather as a measure of debt service ability. Operating cash flow does not purport to represent cash provided by operating activities and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. (j) Operating cash flow margin is operating cash flow divided by total revenues, expressed as a percentage. (k) The Company has not paid any dividends on its Common Stock since inception. (See footnote (f) above.) -13- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------- ----------------------------------------------------------------------- OF OPERATIONS ------------- RESULTS OF OPERATIONS Except as otherwise specifically indicated, the following discussion is based on (i) the historical combined financial statements for the year ended December 31, 1994, included elsewhere herein of the Northstar Stations, which do not reflect the capital structure of the Company or the effect of the acquisitions of the Northstar Stations, Hawaii Stations or Buffalo Station by the Company, (ii) the historical consolidated financial statements of the Company for the year ended December 31, 1995, which includes the Northstar Stations for the full year, the Hawaii Stations for the period from June 13, 1995 to December 31, 1995, the Buffalo Station for the period from December 5, 1995 through December 31, 1995 and a fee relating to the management of the Buffalo Station by the Company from June 1995 through December 4, 1995, (the management agreement terminated upon acquisition of the Buffalo Station) and (iii) the historical consolidated financial statements of the Company for the year ended December 31, 1996, which includes WZZM, WAPT, the Hawaii Stations and the Buffalo Station for the full year; the Arkansas Stations from June 1, 1996 to December 31, 1996; WNAC for the six months ended June 30, 1996; and the Company's share of the Clear Channel Venture for the six months ended December 31, 1996. The Company's share of the Clear Channel Venture broadcast cash flows is included in total revenues. The Company's acquisition of the Northstar Stations, the Hawaii Stations, the Buffalo Station and the Arkansas Stations were accounted for using the purchase method of accounting with the total purchase price allocated to the assets and liabilities acquired based upon their respective fair values. As a result, the Company's expenses for depreciation and amortization are in excess of historical levels for the Northstar Stations, the Hawaii Stations, the Buffalo Station and the Arkansas Stations. The results of operations of the Company, as compared with the historical results of operations of the Predecessor, will be significantly affected by the impact of the acquisitions of the Northstar Stations, the Hawaii Stations, the Buffalo Station, the Arkansas Stations and the Clear Channel Venture, and the impact of interest charges on the Company's indebtedness. Set forth below are the principal types of television revenues and related agency and national sales representative commissions for the Company's six Stations, including WAPT, WNAC, KITV, KHBS, WLWT and KOCO, on a combined historical full-year basis for the periods indicated and the percentage contribution of each to the total revenues. The information included in the table below does not include certain pro forma adjustments reflected in pro forma financial information set forth elsewhere herein.
YEAR ENDED DECEMBER 31 ------------------------------------------------------- 1994 % 1995 % 1996 % (dollars in thousands) Revenues: Local/Regional(a) $ 53,334 57.9% $ 56,546 58.1% $ 56,620 56.5% National(b) 27,309 29.7% 30,785 31.7% 28,904 28.8% Network Compensation(c) 1,845 2.0% 3,054 3.1% 3,525 3.5% Political(d) 4,279 4.6% 789 0.8% 5,082 5.1% Barter(e) 3,212 3.5% 4,118 4.2% 3,153 3.2% Other 2,103 2.3% 2,054 2.1% 2,948 2.9% -------- ----- -------- ----- -------- ---- 92,082 100.0% 97,346 100.0% 100,232 100% Agency and Sales Representative Commissions(f) (13,054) (13,637) (14,670) -------- -------- -------- Total Revenues $ 79,028 $ 83,709 $ 85,562 ======== ======== ========
See footnote explanations on following page. -14- (a) Represents sale of advertising time to local and regional advertisers. (b) Represents sale of advertising time to national advertisers. (c) Represents payment by the networks for broadcasting network programming. (d) Represents sale of advertising time to political advertisers. (e) Represents value of commercial time exchanged for syndicated programs (barter) and commercial time exchanged for goods and services (trade outs). (f) Represents commissions paid to local and national advertising agencies and to national sales representatives. Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Total revenues. Total revenues in the year ended December 31, 1996 were $73.3 million, as compared to $46.9 million in the year ended December 31, 1995, an increase of $26.4 million or 56.3%. The acquisition of KITV during June 1995, WGRZ during December 1995 and KHBS during June 1996 explains approximately $26.9 million of the increase in total revenues. In addition, WZZM experienced an increase of $2.6 million in total revenues, which was due to an increase in trade and barter revenues and an increase in local revenues and national political revenues. These revenue gains were offset by the net effects of the Clear Channel Venture, which accounts for a $3.1 million decrease in recorded total revenues, because only the Company's share of the Clear Channel Venture broadcast cash flows is included in total revenues. Station operating expenses. Station operating expenses in the year ended December 31, 1996 were $37.6 million, as compared to $23.6 million in the year ended December 31, 1995, an increase of $14.0 million or 59.3%. The acquisition of KITV during June 1995, WGRZ during December 1995 and KHBS during June 1996 explains approximately $15.3 million of the increase in station operating expenses. In addition, WZZM experienced a $1.0 million increase in trade and barter expenses, which was offset by a decrease in other operating expenses at WZZM and WAPT of $0.3 million. This was offset by the Clear Channel Venture, which accounts for a $2.0 million decrease in station operating expenses as a result of WNAC expenses being eliminated, and only the Company's share of the Clear Channel Venture broadcast cash flows being included in total revenues. Amortization of program rights. Amortization of program rights in the year ended December 31, 1996 were $4.7 million, as compared to $4.0 million in the year ended December 31, 1995, an increase of $0.7 million or 17.5%. The acquisition of KITV during June 1995, WGRZ during December 1995 and KHBS during June 1996 explains approximately $1.2 million of the increase in amortization of program rights. This was offset by the Clear Channel Venture, which accounts for a $0.5 million decrease in amortization of program rights as a result of WNAC amortization being eliminated, and only the Company's share of the Clear Channel Venture broadcast cash flows being included in total revenues. Depreciation and amortization. Depreciation and amortization of intangible assets was $24.0 million in the year ended December 31, 1996, as compared to $12.3 million in the year ended December 31, 1995, an increase of $11.7 million or 95.1%. The acquisition of KITV during June 1995, WGRZ during December 1995 and KHBS during June 1996 and the write-up of fixed assets and intangible assets to fair market value at their respective dates of acquisition explains approximately $10.5 million of the increase in depreciation and amortization expense. In addition, there was an increase in amortization of approximately $0.7 million related to the 1996 amortization of the Clear Channel Venture deferred charge, included in other assets. Station operating income. Station operating income in the year ended December 31, 1996 was $7.0 million, as compared to $7.1 million in the year ended December 31, 1995, a decrease of $0.1 million or 1.4%. The station operating income decrease was primarily attributable to a disproportionate increase in depreciation and amortization as compared to the increase in total revenues. -15- Corporate general and administrative expenses. Corporate general and administrative expenses were $4.3 million for the year ended December 31, 1996, as compared to $2.3 million for the year ended December 31, 1995, an increase of $2.0 million or 87.0%. The increase was primarily attributable to incentive compensation, expenses associated with transaction activities, the acquisition of KITV and WGRZ during 1995, incremental expenses associated with being a new company during 1995 and becoming a public company following the Company's initial public offering of its common stock in October 1995. Non-cash compensation expense. Non-cash compensation expense of $0.7 million during both 1996 and 1995, represents stock option expense recorded in compliance with FASB Statement 123. Interest expense, net. Interest expense, net was $16.6 million in the year ended December 31, 1996, as compared to $12.1 million in the year ended December 31, 1995, an increase of $4.5 million or 37.2%. This increase in interest expense was primarily attributable to a larger outstanding debt balance in 1996 than in 1995, which was the result of the acquisitions and related financings of the Arkansas Stations, the Clear Channel Venture and the issuance of the Notes in October 1995. Interest income was $1.0 million in the year ended December 31, 1995. This represents the interest earned on cash temporarily invested prior to the acquisition of the Buffalo Station. Interest income in the year ended December 31, 1996 was $0.08 million. Extraordinary item. The Company incurred an extraordinary loss of $7.8 million in 1995. This extraordinary loss resulted from a refinancing of the Company's senior bank debt in June 1995 and in October 1995. These refinancings resulted in a write-off of all unamortized financing costs associated with the senior bank debt incurred in connection with the acquisition of the Northstar Stations in January 1995 and the Hawaii Stations in June 1995. Net loss. Net loss was $14.6 million in the year ended December 31, 1996, as compared to $15.8 million in the year ended December 31, 1995, a decrease of $1.2 million. This decrease was attributable to the items discussed above. Broadcast Cash Flow. Broadcast cash flow was $31.9 million in the year ended December 31, 1996, as compared to $20.4 million in the year ended December 31, 1995, an increase of $11.5 million or 56.4%. The broadcast cash flow increase resulted primarily from the acquisition of KITV during June 1995, WGRZ during December 1995 and KHBS during June 1996. Broadcast cash flow margin remained constant between years at 43.5%. Year Ended December 31, 1995 (The Company) Compared to Year Ended December 31, 1994 (Predecessor) Total revenues. Total revenues in the year ended December 31, 1996 were $46.9 million, as compared to $34.5 million in the year ended December 31, 1994, an increase of $12.4 million or 35.9%. Excluding revenues in 1995 from KITV and WGRZ and a management fee relating to WGRZ, none of which contributed to total revenues in 1994, total revenues in the year ended December 31, 1995 were $35.6 million, which is a $1.1 million or a 3.2% increase over 1994. During 1995, the Northstar Stations experienced an increase in network compensation of $0.2 million or 30.5%, an increase in non-political advertising of $1.8 million or 5.3% and a decrease in political revenues of $1.1 million or 78.6%. Station operating expenses. Station operating expenses in the year ended December 31, 1995 were $23.6 million, as compared to $16.4 million in the year ended December 31, 1994, an increase of $7.2 million or 43.9%. Excluding station operating expenses in 1995 from KITV and WGRZ, neither of which contributed to station operating expenses in 1994, station operating expenses in the year ended December 31, 1995, were $18.4 million, which is a $2.0 million or 12.2% increase over 1994. The Northstar Stations incurred certain non-recurring expenses relating to their acquisition by the Company during 1995, which totaled $0.7 million. Also, the Northstar Stations trade and barter expenses increased by $0.6 million or 13.3% during 1995 over 1994. This was attributable to higher programming spot rates and increased trade activity in certain markets. -16- Amortization of program rights. Amortization of program rights in the year ended December 31, 1995 were $4.0 million, as compared to $3.6 million in the year ended December 31, 1994, an increase of 0.4 million or 11.1%. Excluding amortization of program rights in 1995 attributable to KITV and WGRZ of $0.4 million, amortization of program rights would have been $3.6 million, which is consistent with 1994. Depreciation and amortization. Depreciation and amortization of intangible assets was $12.3 million in the year ended December 31, 1995, as compared to $3.1 million in the year ended December 31, 1994, an increase of $9.2 million or 296.8%. Excluding depreciation and amortization of intangible assets in 1995 attributable to KITV and WGRZ of $2.5 million, depreciation and amortization of intangible assets would have been $9.8 million which is a $6.7 million or a 216.1% increase over 1994. This increase in depreciation and amortization of intangible assets resulted primarily from the write-up to fair market value of the Northstar Stations' assets upon their acquisition. Also, this increase was attributable to additions of plant and equipment during 1995 and 1994, the depreciation of which either began or had a full year effect in 1995. Station operating income. Station operating income in the year ended December 31, 1995 was $7.1 million, as compared to $11.4 million in the year ended December 31, 1994, a decrease of $4.3 million or 37.7%. The station operating income decrease was primarily attributable to a disproportionate increase in depreciation and amortization. Corporate general and administrative expenses. Corporate general and administrative expenses were $2.3 million for the year ended December 31, 1995, as compared to $1.1 million for the year ended December 31, 1994, an increase of $1.2 million or 109.1%. In 1994, the corporate expenses were attributable to and reflected the organizational structure of the seller of the Northstar Stations, which allocated corporate expenses to properties other than the Northstar Stations. Non-cash compensation expense. Non-cash compensation expense of $0.7 million during 1995, represents stock option expense recorded in compliance with FASB Statement 123. Interest expense, net. Interest expense, net was $12.0 million in the year ended December 31, 1995, as compared to $4.7 million in the year ended December 31, 1994, an increase of $7.3 million or 155.3%. This increase in interest expense, net was primarily attributable to a larger outstanding debt balance in 1995 than in 1994, which was the result of the acquisitions and related financings of the Northstar Stations, the Hawaii Stations and the Buffalo Station and the sale of the Notes in October 1995. In addition, $1.5 million of interest expense was incurred related to the Company's interest rate protection agreements. Interest income was $1.0 million in the year ended December 31, 1995. This represents the interest earned on cash temporarily invested prior to the acquisition of the Buffalo Station. Interest income in the year ended December 31, 1994 was $.017 million. Extraordinary item. The Company incurred an extraordinary loss of $7.8 million in 1995. This extraordinary loss resulted from a refinancing of the Company's senior bank debt in June 1995 and in October 1995. These refinancings resulted in a write-off of all unamortized financing costs associated with the senior bank debt incurred in connection with the acquisition of the Northstar Stations in January 1995 and the Hawaii Stations in June 1995. In 1994, the Predecessor recorded an extraordinary loss of $0.8 million, representing the write-off of all unamortized financing costs associated with superseded financing arrangements. Net income (loss). Net loss was $15.8 million in the year ended December 31, 1995, as compared to net income of $4.6 million in the year ended December 31, 1994, a decrease of $20.4 million. This decrease was attributable to the items discussed above. Broadcast Cash Flow. Broadcast cash flow was $20.4 million in the year ended December 31, 1995, as compared to $14.2 million in the year ended December 31, 1994, an increase of $6.2 million or 43.7%. The broadcast cash flow increase resulted from the acquisition of KITV and WGRZ and the management fee relating to WGRZ. Broadcast cash flow margin increased to 43.5% in 1995 from 41.2% in 1994. Excluding broadcast cash flow for KITV and WGRZ and excluding the WGRZ management fee, none of which contributed to broadcast cash flow during 1994, broadcast cash flow for 1995 was $14.6 million an increase of $0.4 million or 2.8%. -17- LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are current cash balances, cash flow from operations and borrowing capacity under an existing bank credit agreement. Including the Company's initial public offering of its Series A Common Stock in October 1995 and the November 1995 exercise by the underwriters of such offering of an over-allotment option, the Company has received $131.2 million in net equity capital contributions since inception. In October 1995, the Company and Chase Bank entered into an amendment to the Company's bank credit agreement existing at that time (the "Old Bank Credit Agreement"), which comprises the "New Bank Credit Agreement." The New Bank Credit Agreement establishes a senior secured credit facility in the principal amount of $215.0 million. During August 1996, in accordance with provisions established by the New Bank Credit Agreement, the Company reduced the committed amount of the facility to $50.0 million. Upon completion of the Gannett Swap in January 1997, the Company amended and restated its New Bank Credit Agreement providing up to $65.0 million of borrowing capacity of which $20.0 million outstanding was borrowed to fund the cash payment to Gannett. As of December 31, 1996, there was $21.5 million outstanding under the New Bank Credit Agreement. There was no outstanding balance as of December 31, 1995. The Company may borrow amounts under the New Bank Credit Agreement from time to time for additional acquisitions, capital expenditures and working capital, subject to the satisfaction of certain conditions on the date of borrowing. Under the terms of the Old Bank Credit Agreement and its subsequent amendments and restatements, including the New Bank Credit Agreement, the Company was required to enter into Interest Rate Protection Agreements covering approximately 50% of its floating rate debt. Accordingly, the Company, in compliance with its covenant obligations, entered into various appropriate swap and cap agreements in February 1995. In response to subsequent acquisition and financing transactions, modifications were made to the underlying agreements. See Notes 2 and 4 to the Company's audited consolidated financial statements included herein. In October 1995, the Company issued $150,000,000 of 9 3/4% Senior Subordinated Notes due 2005. Interest on the Notes is payable semi-annually, and no principal payments on the Notes are due prior to their maturity on November 1, 2005. The Notes are redeemable at the option of the Company, in whole or in part, at any time after November 1, 2000 at specified redemption prices. The annual interest expense associated with the Notes is $14.6 million. Capital expenditures were $3.8 million in 1995 and $6.6 million in 1996. The Company expects to incur approximately $9.3 million in 1997 related to the purchase of a new all digital studio for KITV, of which $1.8 million was escrowed in 1996. The Company anticipates that its operating cash flow, together with amounts available to it under the New Bank Credit Agreement, will be sufficient to finance the operating and working capital requirements of the Stations, the Company's debt service requirements and anticipated capital expenditures for Company for both the next 12 months and the foreseeable future thereafter. RECENT ACCOUNTING PRONOUNCEMENT In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets To Be Disposed Of (Statement 121), which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted Statement 121 in the first quarter of 1996, and the effect of adoption was not material. -18- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- ------------------------------------------- INDEX TO HISTORICAL FINANCIAL STATEMENTS ARGYLE TELEVISION, INC. Report of Independent Auditors............................................ 20 Consolidated Balance Sheets as of December 31, 1995 and 1996............................................................... 21 Consolidated Statements of Operations for the Period from Inception (August 5, 1994) through December 31, 1994 and for the Years Ended December 31, 1995 and 1996............................................. 23 Consolidated Statements of Stockholders' Equity for the Period from Inception (August 5, 1994) through December 31, 1994 and for the Years Ended December 31, 1995 and 1996................................. 24 Consolidated Statements of Cash Flows for the Period from Inception (August 5, 1994) through December 31, 1994 and for the Years Ended December 31, 1995 and 1996............................................. 25 Notes to Consolidated Financial Statements................................ 27 NORTHSTAR STATIONS (THE PREDECESSOR) Report of Independent Auditors............................................ 39 Combined Statement of Operations for the Year Ended December 31, 1994..... 40 Combined Statement of Changes in Stockholder's Equity for the Year Ended December 31, 1994................................................ 41 Combined Statement of Cash Flows for the Year Ended December 31, 1994..... 42 Notes to Combined Financial Statements.................................... 43 -19- REPORT OF INDEPENDENT AUDITORS BOARD OF DIRECTORS ARGYLE TELEVISION, INC. We have audited the accompanying consolidated balance sheets of Argyle Television, Inc. as of December 31, 1995 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for the period from inception (August 5, 1994) through December 31, 1994 and for each of the two years in the period ended December 31, 1996. Our audits also included the Financial Statement Schedule listed in the Index at Item 14a. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Argyle Television, Inc. at December 31, 1995 and 1996, and the consolidated results of their operations and their cash flows for the period from inception (August 5, 1994) through December 31, 1994 and for each of the two years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, the related Financial Statement Schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 2 to the financial statements, in 1995, the Company changed its method of accounting for stock-based compensation. Ernst & Young LLP February 12, 1997, except for the second paragraph of Note 11, as to which the date is March 26, 1997. San Antonio, Texas -20- ARGYLE TELEVISION, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 DECEMBER 31, 1996 ----------------- ----------------- ASSETS Current assets: Cash and cash equivalents $ 2,205,538 $ 948,942 Accounts receivable, net of allowance for doubtful accounts of $133,202 and $169,302 in 1995 and 1996, 11,362,007 14,936,522 respectively Barter program rights 5,102,072 5,911,936 Program rights 4,611,266 3,933,777 Other 1,139,357 1,894,607 ----------------- ----------------- Total current assets 24,420,240 27,625,784 Property, plant and equipment: Land, building and improvements 11,183,900 17,135,311 Broadcasting equipment 18,065,680 21,126,534 Office furniture, equipment and other 4,900,490 5,523,611 Construction in progress 817,426 2,357,016 ----------------- ----------------- 34,967,496 46,142,472 Less accumulated depreciation (2,333,494) (6,929,110) ----------------- ----------------- 32,634,002 39,213,362 Intangible assets: FCC licenses 112,634,500 126,008,807 Network affiliation agreements 107,125,714 121,272,207 Other 10,494,789 12,763,936 ----------------- ----------------- 230,255,003 260,044,950 Less accumulated amortization (9,880,092) (28,189,527) ----------------- ----------------- 220,374,911 231,855,423 Other assets: Deferred acquisition and financing costs, net of accumulated amortization of $839,049 and $1,050,748 in 1995 and 1996, respectively 6,250,335 5,788,169 Barter program rights, noncurrent 2,249,230 5,333,383 Program rights, noncurrent 3,299,284 3,580,012 Other 1,912,576 15,212,015 ----------------- ----------------- 13,711,425 29,913,579 ----------------- ----------------- Total assets $ 291,140,578 $ $328,608,148 ================= =================
-21- ARGYLE TELEVISION, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 DECEMBER 31, 1996 ----------------- ----------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,792,291 $ 1,001,479 Accrued liabilities 5,226,933 5,611,662 Barter program rights payable 5,270,081 6,775,940 Program rights payable 3,658,425 4,251,491 Other 646,919 867,530 ----------------- ----------------- Total current liabilities 16,594,649 18,508,102 Barter program rights payable 2,249,230 5,333,383 Program rights payable 3,649,559 3,609,897 Long-term debt 150,000,000 171,500,000 Other liabilities 2,354,290 504,742 Stockholders' equity: Series A preferred stock, 10,938 shares issued and outstanding in 1996 -- 109 Series B preferred stock, 10,938 shares issued and outstanding in 1996 -- 109 Series A common stock, par value $.01 per share, 35,000,000 shares authorized, 3,619,260 and 3,846,914 shares issued and outstanding in 1995 and 1996, respectively 36,193 38,469 Series B common stock, par value $.01 per share, 200,000 shares authorized, 200,000 shares issued and outstanding 2,000 2,000 Series C common stock, par value $.01 per share, 14,800,000 shares authorized, 7,300,000 shares issued and outstanding 73,000 73,000 Additional paid-in capital 132,038,544 159,455,134 Retained earnings (deficit) (15,856,887) (30,416,797) ----------------- ----------------- Total stockholders' equity 116,292,850 129,152,024 ----------------- ----------------- Total liabilities and stockholders' equity $ 291,140,578 $ 328,608,148 ================= =================
See accompanying notes. -22- ARGYLE TELEVISION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM INCEPTION (AUGUST 5, 1994) THROUGH DECEMBER 31, 1994 YEAR ENDED YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1996 ------------------- ----------------- ----------------- Total revenues $ $ 46,944,342 $ 73,293,966 Station operating expenses 23,603,454 37,638,657 Amortization of program rights 3,961,262 4,724,621 Depreciation and amortization 12,294,317 23,964,988 ------------------- ----------------- ----------------- Station operating income 7,085,309 6,965,700 Corporate general and administrative expenses 49,624 2,323,673 4,285,347 Non-cash compensation expense 674,569 674,569 Operating income (loss) (49,624) 4,087,067 2,005,784 ------------------- ----------------- ----------------- Interest expense, net 12,052,509 16,565,694 ------------------- ----------------- ----------------- Loss before extraordinary item (49,624) (7,965,442) (14,559,910) Extraordinary item, loss on early retirements of debt (7,841,821) ------------------- ----------------- ----------------- Net loss (49,624) (15,807,263) (14,559,910) Less preferred stock dividends (829,465) ------------------- ----------------- ----------------- Loss applicable to common stock $ $ $ (15,389,375) =================== ================= ================= Loss per common share: Loss before extraordinary item $ $ (1.25) $ (1.37) Extraordinary item (1.22) ------------------- ----------------- ----------------- Loss per common share $ $ (2.47) $ (1.37) =================== ================= ================= Weighted average number of common shares outstanding 6,388,101 11,246,149 =================== ================= =================
See accompanying notes. -23- ARGYLE TELEVISION, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
ADDITIONAL RETAINED COMMON PREFERRED PAID-IN EARNINGS STOCK STOCK CAPITAL (DEFICIT) TOTAL -------------------------------------------------------------------- BALANCES AT INCEPTION (AUGUST 5, 1994) $ - $ - $ - $ - $ - Issuance of 100 shares of voting common stock for cash* 1 - 999 - 1,000 Net loss - - - (49,624) (49,624) -------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1994 1 - 999 (49,624) (48,624) Issuance of 199,900 shares of voting common stock for cash* 1,999 - 1,997,001 - 1,999,000 Issuance of 7,300,000 shares of Series C common stock for cash 73,000 - 72,927,000 - 73,000,000 Issuance of 3,619,260 shares of Series A common stock for cash 36,193 - 56,280,977 - 56,317,170 Capital contribution of equipment - - 157,998 - 157,998 Compensation element of stock options - - 674,569 - 674,569 Net loss - - - (15,807,263) (15,807,263) -------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1995 111,193 - 132,038,544 (15,856,887) 116,292,850 Issuance of stock in connection with the acquisition of the Arkansas Stations: Series A common stock - 227,654 shares; Series A preferred stock - 10,938 shares; Series B preferred stock - 10,938 shares 2,276 218 27,571,486 - 27,571,486 Compensation element of stock options - - 674,569 - 674,569 Dividends paid on preferred stock - - (829,465) - (829,465) Net loss - - - (14,559,910) (14,559,910) -------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1996 $113,469 $218 $159,455,134 $(30,416,797) $129,152,024 ====================================================================
* Converted into Series B Common Stock during 1995 See accompanying notes. -24- ARGYLE TELEVISION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM INCEPTION (AUGUST 5, 1994) THROUGH YEAR ENDED DECEMBER 31 DECEMBER 31, ---------------------- 1994 1995 1996 -------------------------------------------------- OPERATING ACTIVITIES Net loss $(49,624) $ (15,807,263) $(14,559,910) Adjustments to reconcile net loss to net cash provided by operating activities: Extraordinary item, loss on early retirement of debt - 7,841,821 - Depreciation 202 2,333,292 4,672,093 Amortization of intangible assets - 9,961,025 19,292,895 Amortization of deferred financing costs - 839,049 899,241 Amortization of program rights - 3,961,262 4,724,621 Program rights payments - (2,901,208) (3,765,683) Provision for doubtful accounts - 69,914 234,963 Compensation element of stock options - 674,569 674,569 Fair value adjustments of interest rate protection agreements - 1,038,764 (1,150,616) Changes in operating assets and liabilities: Accounts receivable - (3,192,612) (1,900,070) Other assets 237,630 66,769 Accounts payable and accrued liabilities - 3,376,808 (1,179,587) Other liabilities 50,072 (1,573,972) (1,066,245) -------------------------------------------------- NET CASH PROVIDED BY 650 6,859,079 6,943,040 OPERATING ACTIVITIES INVESTING ACTIVITIES Payments made on clear channel venture agreement - - (13,526,887) Acquisition of stations (233,738,747) (5,889,477) Purchases of property, plant and equipment, net - (3,762,465) (6,633,156) Partial payment on relocation of studio - - (1,855,455) Acquisition costs - - (839,539) -------------------------------------------------- Net cash used in investing activities - (237,501,212) (28,744,504) FINANCING ACTIVITIES Financing costs - (13,923,589) (125,667) Issuance of common stock 1,000 131,316,170 Proceeds from issuance of senior subordinated debt - 150,000,000 - Proceeds from issuance of long-term debt - 170,250,000 31,500,000 Payment of long-term debt - (204,796,560) (10,000,000) Preferred dividends paid - - (829,465) -------------------------------------------------- Net cash provided by financing activities 1,000 232,846,021 20,544,868 -------------------------------------------------- Increase (decrease) in cash and cash equivalents 1,650 2,203,888 (1,256,596) Cash and cash equivalents at beginning of period - 1,650 2,205,538 -------------------------------------------------- Cash and cash equivalents at end of period $ 1,650 $ 2,205,538 $ 948,942 ==================================================
-25- ARGYLE TELEVISION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
PERIOD FROM INCEPTION (AUGUST 5, 1994) THROUGH YEAR ENDED DECEMBER 31 DECEMBER 31, 1994 1995 1996 ---------------------------------------------------- SUPPLEMENTAL CASH FLOW INFORMATION: Capital contribution of equipment $ - $ 157,998 $ Businesses acquired in purchase transaction: Fair market value of assets acquir - 282,928,893 38,259,261 Liabilities assumed - (14,643,586) (4,772,840) Note payable issued to seller - (34,546,560) Issuance of preferred stock - - (21,876,000) Issuance of common stock - - (5,720,944) ------------------------------------------------- Net cash paid for acquisitions $ $233,738,747 $ 5,889,477 ==================================================
See accompanying notes. -26- ARGYLE TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1996 1. NATURE OF OPERATIONS Argyle Television, Inc. (the Company) owns and operates six network- affiliated television stations in geographically diverse markets in the United States. Four of the stations are affiliates of the American Broadcasting Companies (ABC), one station is an affiliate of the National Broadcasting Company, Inc. (NBC), and one station is an affiliate of the Fox Broadcasting Company (Fox). The Company operates in one business segment, commercial television broadcasting. See Note 3 for information regarding an exchange of stations effected subsequent to December 31, 1996. 2. SUMMARY OF ACCOUNTING POLICIES AND USE OF ESTIMATES The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts have been eliminated in consolidation. CASH EQUIVALENTS All highly liquid investments with maturities of three months or less when purchased are considered to be cash equivalents. ACCOUNTS RECEIVABLE Concentration of credit risk with respect to accounts receivable is limited due to the large number of geographically diverse customers, individually small balances and short payment terms. PROGRAM RIGHTS Program rights and the corresponding contractual obligations are recorded when the license period begins and the programs are available for use. Costs are amortized based on the number of showings or license period. Program rights and the corresponding contractual obligations are classified as current or long- term based on estimated usage and payment terms, respectively. BARTER AND TRADE TRANSACTIONS Barter transactions represent the exchange of commercial air time for programming. Trade transactions represent the exchange of commercial air time for merchandise or services. Barter transactions are generally recorded at the fair market value of the commercial air time relinquished. Trade transactions are generally recorded at the fair market value of the merchandise or services received. Barter program rights and payables are recorded for barter transactions based upon the availability of the programming for broadcast. Revenue is recognized on barter and trade transactions when the commercials are broadcast; expenses are recorded when the program, merchandise or service received is utilized. Barter and trade revenues for the years ended December 31, 1995 and 1996 were $5,483,965 and $6,922,726, respectively, and are included in total revenues. Barter and trade expenses for the years ended December 31, 1995 and 1996 were $5,419,832 and $7,011,319, respectively, and are included in station operating expenses. -27- ARGYLE TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1996 2. SUMMARY OF ACCOUNTING POLICIES AND USE OF ESTIMATES (CONTINUED) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost. Depreciation is calculated on the straight-line method over the estimated useful lives as follows: buildings - 25 to 39 years; broadcasting equipment - five to seven years; office furniture, equipment and other - five years. Leasehold improvements are amortized on the straight-line method over the shorter of the lease term or the estimated useful life of the asset. INTANGIBLE ASSETS Intangible assets are recorded at cost. Amortization is calculated on the straight-line method over the estimated lives as follows: FCC licenses and network affiliation agreements - 15 years; other intangible assets - two to five years. INCOME TAXES Income taxes are provided using the liability method in accordance with FASB Statement No. 109. EARNINGS PER SHARE Earnings per common share is computed using the weighted average number of shares of common stock outstanding. Common stock equivalents are excluded as they are anti-dilutive. STOCK-BASED COMPENSATION During the fourth quarter of 1995, the Company adopted FAS Statement No. 123, "Accounting for Stock-Based Compensation" (FAS 123), in accounting for its employee stock options and elected to use the fair value method in accounting for its stock-based compensation plan. Previously, the Company had followed the provisions of APB No. 25. The effect of adopting FAS 123 was to increase the 1995 net loss by $474,569. INTEREST RATE AGREEMENTS The Company enters into interest-rate swap agreements to modify the interest characteristics of its outstanding debt. Each interest-rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. These agreements involve the exchange of amounts based on a fixed interest rate for amounts based on variable interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment to interest expense related to the debt. The related amount payable to or receivable from counterparties is included in other liabilities or assets. Gains and losses on terminations of interest-rate swap agreements are deferred as an adjustment to the carrying amount of the outstanding debt and amortized as an adjustment to interest expense related to the debt over the remaining term of the original contract life of the terminated swap agreement. In the event of the early extinguishment of a designated debt obligation, any realized or unrealized gain or loss from the swap would be recognized in income coincident with the extinguishment. Any swap agreements that are not designated with outstanding debt or notional amounts of interest-rate swap agreements in excess of the principal amounts of the underlying debt obligations are recorded as an asset or liability at fair value, with changes in fair value recorded as an adjustment to interest expense. -28- ARGYLE TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1996 2. SUMMARY OF ACCOUNTING POLICIES AND USE OF ESTIMATES (CONTINUED) Written options to enter into interest rate swap agreements are recorded as an other asset or other liability with changes in fair value recorded as an adjustment to interest expense. The Company purchases interest-rate cap agreements that are designed to limit its exposure to increasing interest rates. The interest-rate cap of these agreements exceeds the current market levels at the time they are entered into. The interest rate indices specified by the agreements have been and are expected to be highly correlated with the interest rates the Company incurs on its borrowings. Payments to be received as a result of the specified interest rate index exceeding the cap rate are accrued in other assets and are recognized as a reduction to interest expense. The cost of these agreements is included in other assets and amortized to interest expense ratably during the life of the agreement. Upon termination of an interest-rate cap agreement, any gain is deferred in other liabilities and amortized over the remaining term of the original contractual life of the agreement as a reduction to interest expense. Any notional amounts of agreements in excess of borrowings expected to be outstanding during their terms would be marked to market, with changes in market value recorded as an adjustment to interest expense. DEFERRED ACQUISITION AND FINANCING COSTS Acquisition costs are capitalized and included in the purchase price of the acquired stations. Financing costs are deferred and are amortized using the interest method over the term of the related debt when funded. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. RECLASSIFICATIONS Certain prior-year amounts have been reclassified to conform with the current-year presentation. 3. ACQUISITIONS In August 1994, the Company entered into an acquisition agreement with NTG, Inc. relating to the acquisition of WZZM, Grand Rapids, Michigan; WNAC, Providence, Rhode Island; and, WAPT, Jackson, Mississippi (the Northstar Stations). On January 4, 1995, the Company acquired the Northstar Stations for approximately $108 million in cash. In addition, the Company agreed to certain working capital adjustments and to assume certain state income tax liabilities of $1.7 million. Fees and expenses associated with the acquisition approximated $2.5 million. During January 1995, the Company entered into an asset purchase agreement with Tak Communications, Inc., debtor in possession, relating to the acquisition of WGRZ, Buffalo, New York (the Buffalo Station); and KITV, Honolulu; KMAU, Wailuku; KHVO, Hilo; and, TV Translator K51BB, Lihue, Hawaii (the Hawaii Stations) in two closings for an aggregate consideration of $146 million. -29- ARGYLE TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1996 3. ACQUISITIONS (CONTINUED) On June 13, 1995, the Company acquired the Hawaii Stations for approximately $16.5 million in cash and a note issued to the seller for $34.5 million, which was paid in December 1995. Fees and expenses associated with this acquisition were approximately $800,000. On December 5, 1995, the Company acquired the Buffalo Station for $91 million in cash. Under the terms of the acquisition agreement, the Company also made a supplemental payment to the seller of $4 million in cash as a result of the closing of both the Hawaii Stations and the Buffalo Station. Such additional consideration has been allocated to the assets acquired in the purchases of the Hawaii Stations and the Buffalo Station. Fees and expenses associated with the Buffalo acquisition were approximately $3.0 million. During 1996, there was a change in the Buffalo Station purchase price valuation, which affected equipment and FCC license by approximately $1.3 million. On June 11, 1996, the Company acquired KHBS, Fort Smith, Arkansas, and its S- 2 satellite KHOG, Fayetteville, Arkansas, (the Arkansas Stations). As consideration, the Company issued 227,654 shares of the Company's Series A Common Stock, 10,938 shares of the Company's Series A Preferred Stock and 10,938 shares of the Company's Series B Preferred Stock valued at approximately $27.6 million. The Company also paid approximately $5.9 million in cash for certain real estate, a non-competition convenant and affiliated debt associated with this acquisition. During the last part of 1996, there was a change in the Arkansas Stations purchase price valuation, which affected intangibles and other liabilities by approximately $2.3 million. These acquisitions have been accounted for as purchases and, accordingly, the purchase price and related acquisition costs have been allocated to the acquired assets and liabilities based upon their fair market values. The excess of the purchase price over the net fair market value of the tangible assets acquired and liabilities assumed has been allocated to identifiable intangible assets including FCC licenses and network affiliation agreements. The consolidated financial statements include the results of operations of the acquired stations since the date of the respective acquisitions. Effective July 1, 1996, the Company entered into a Joint Marketing and Programming Agreement (the Clear Channel Venture) with Clear Channel Communications, Inc. (Clear Channel) involving WNAC and WPRI, the CBS affiliate in Providence, Rhode Island, owned by Clear Channel. Under the agreement, Clear Channel will program certain air time, including news programming, on WNAC and will manage the sale of commercial air time on both stations for an initial period of 10 years. The Company and Clear Channel each will receive 50% of the broadcast cash flows generated by the two stations subject to certain adjustments. The Company's share of the Clear Channel Venture broadcast cash flows is included in total revenues. In connection with this agreement, the Company paid Clear Channel approximately $13 million, which is included in other non-current assets and is being amortized using the straight line method over the initial term of the contract. In November 1996, the Company entered into a definitive agreement (the Gannett Swap) with Gannett Co., Inc. (Gannett) to swap the Company's WZZM and WGRZ for Gannett's WLWT, the NBC affiliate in Cincinnati, Ohio, and KOCO, the ABC affiliate in Oklahoma City, Oklahoma. In connection with this transaction, the Company agreed to pay Gannett $20 million in additional consideration, funded by borrowings under the Company's credit agreement. This transaction closed on January 31, 1997. -30- ARGYLE TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1996 3. ACQUISITIONS (CONTINUED) Unaudited pro forma results of operations, reflecting combined historical results for WZZM, WAPT, KITV, WGRZ, the Arkansas Stations and the Company's share of the combined broadcast cash flows from the Clear Channel Venture as if all transactions had occurred at the beginning of the respective periods presented are as follows:
YEAR ENDED DECEMBER 31 1995 1996 ---------------------------- Total revenues $ 72,315,000 $ 75,646,000 Loss from continuing operations $(14,587,000) $(15,163,000) applicable to common stock Loss from continuing operations per $ (1.29) $ (1.34) share applicable to common stock Pro forma weighted average number of 11,346,914 11,346,914 shares used in calculations
Giving effect to the Gannett Swap discussed above, unaudited pro forma results of operations reflecting combined historical results for WAPT, KITV, WLWT, KOCO, the Arkansas Stations and the Company's share of the combined broadcast cash flows from the Clear Channel Venture; as if all transactions had occurred at the beginning of the respective periods presented are as follows:
YEAR ENDED DECEMBER 31 1995 1996 ---------------------------- Total revenues $ 79,683,000 $ 84,243,000 Loss from continuing operations applicable to common stock $(19,346,000) $(13,330,000) Loss from continuing operations per share applicable to common stock $ (1.70) $ (1.17) Pro forma weighted average number of shares used in calculations 11,346,914 11,346,914
The above pro forma results are presented in response to applicable accounting rules relating to business acquisitions and are not necessarily indicative of the actual results that would be achieved had each of the stations been acquired at the beginning of the periods presented, nor are they indicative of future results of operations.
4. LONG-TERM DEBT
Long-term debt at December 31, consists of the following:
1995 1996 ------------ ------------ Bank Credit Agreement dated October 27, 1995: Revolving credit facility $ $ 21,500,000 Senior Subordinated Notes 150,000,000 150,000,000 Less current maturities - - --------------------------- $150,000,000 $171,500,000 ===========================
-31- ARGYLE TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1996 4. LONG-TERM DEBT (CONTINUED) BANK CREDIT AGREEMENT In June 1995, the Company amended and restated an existing credit agreement. In October 1995, the agreement was again amended. The unamortized deferred financing costs related to these agreements were written off and are reflected as an extraordinary loss in 1995. Under the terms of the October 1995 amended and restated Bank Credit Agreement (the October 1995 Credit Agreement), the Company was able to borrow up to $215.0 million under a Senior Secured Reducing Revolving Credit Facility that on December 31, 1999 converted in part to a term loan facility. Borrowings under the revolving credit facility bear interest at a floating rate. During August 1996, in accordance with provisions established by the October 1995 Credit Agreement, the Company reduced the committed amount of the facility to $50 million. (See Note 11. Subsequent Events.) The final maturity of the term loan is December 31, 2002. Substantially all of the assets of the Company and its subsidiaries are pledged or mortgaged as collateral under the October 1995 Credit Agreement. The October 1995 Credit Agreement imposes various conditions, restrictions and limitations on the Company and its subsidiaries, including those that substantially restrict the payment of dividends and transactions with affiliates. To the extent the Company generates free cash flow in excess of fixed charges (or "excess cash flow"), the Company is required to make an annual prepayment on its outstanding debt in an amount equal to 66.7% of such excess cash flow from the preceding fiscal year. SENIOR SUBORDINATED NOTES In October 1995, the Company issued $150,000,000 of senior subordinated notes (the Notes). The Notes are due in 2005 and bear interest at 9 3/4% payable semi-annually. The Notes are general unsecured obligations of the Company. In addition, the indenture governing the Notes imposes various conditions, restrictions and limitations on the Company and its subsidiaries. At December 31, 1996, the fair value of the Notes approximated their carrying value. INTEREST RATE RISK MANAGEMENT Under terms of the December 1994 Credit Agreement (or Old Credit Agreement) and its subsequent amendments and restatements, the Company is required to enter into interest rate protection agreements to modify the interest characteristics of a portion (approximately 50%) of its outstanding borrowings thereunder from a floating rate to a fixed rate. Accordingly, the Company, in compliance with its covenant obligations, entered into two interest rate swap agreements in February 1995 with two different counterparties that effectively fixed the interest rate at approximately 7.9% on $35 million of its borrowings then outstanding until January 1997. With a portion of the proceeds of the Company's initial public offering in October 1995, the Company paid off its borrowings under the October 1995 Credit Agreement. As a result and in anticipation of future borrowings under the October 1995 Credit Agreement, in recognition of the continuing obligation to maintain interest rate risk protection agreements, and in order to defer the benefit of existing agreements and to minimize current cash outlays, the Company modified its interest rate management strategy accordingly. During 1995, the Company terminated one of its two existing interest rate swap agreements for a fee of $439,722 and entered into an additional interest rate swap agreement with another counterparty that, in substance, offset the existing agreement. -32- ARGYLE TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1996 4. LONG-TERM DEBT (CONTINUED) The fee for this additional interest rate swap agreement was $560,755. In addition, the Company wrote two options that gave the option holder the right to enter into two interest rate swap agreements with the Company during May and June 1996. Option premiums for these two options were $1,000,477. The option holder exercised these options in May and June 1996, effectively fixing the Company's interest rate at approximately 7% on $35 million of its borrowings until June 1999. Additional information regarding these interest rate protection agreements in effect at December 31, 1996 follows:
AVERAGE AVERAGE ESTIMATED NOTIONAL AMOUNT RECEIVE RATE PAY RATE FAIR VALUE ------------------------------------------------------ Interest rate swap agreements: Fixed rate agreement $20,000,000 LIBOR 7.01% $(488,064) Fixed rate agreement $15,000,000 LIBOR 6.98% $(361,159)
The fair value of the non-hedged portion of these agreements, $327,800, is included in other liabilities at December 31, 1996. The Company is exposed to credit loss in the event the other parties on the above agreements do not perform, but the Company does not anticipate non- performance by any of these counter parties, all of which are major financial institutions. At the closing of the acquisition of the Hawaii Stations, the Company issued a $34.5 million note to the seller (Hawaii note) as part of the purchase price. The Company paid this note in full, plus accrued interest, on December 5, 1995, in connection with the closing of the Buffalo Station acquisition. Interest expense net, for the years ended December 31, 1995 and 1996 consists of the following:
1995 1996 ------------------------- Interest on borrowings: Bank credit agreements $ 6,571,398 $ 2,230,709 Senior subordinated notes 2,644,521 14,580,478 Hawaii note 1,544,268 Amortization of deferred financing costs and other 839,049 988,311 ------------------------- 11,599,236 17,799,498 Interest rate swap agreements: Changes in fair value for agreements with notional amounts in excess of outstanding borrowings 452,545 436,080 Termination fee 439,722 Options related to interest rate swap agreements: Changes in fair value 586,219 (1,586,696) ------------------------- Total interest expense 13,077,722 16,648,882 Interest income 1,025,213 83,197 ------------------------- Total interest expense, net $12,052,059 $16,565,695 =========================
-33- ARGYLE TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1996 5. INCOME TAXES As a result of the losses incurred by the Company in the period from inception (August 5, 1994) to December 31, 1994, and for the years ended December 31, 1995 and 1996, no federal income tax expense has been recorded. Deferred tax liabilities and assets at December 31, consist of the following:
1995 1996 ------------------------- Deferred tax liabilities: Accelerated depreciation $ 79,321 $ 1,624,477 Allowance for doubtful accounts 18,239 4,883 Amortization of organizational and start-up costs 454,548 604,366 Prepaid expenses 44,112 140,848 Amortization of intangibles 8,465,586 ------------------------- Total deferred tax liabilities 596,220 10,840,160 Deferred tax assets: Charitable contributions carryover 3,470 Amortization of intangibles 435,410 Deferred compensation 65,383 65,383 Compensation element of stock options 180,221 499,181 Fair value adjustments of interest rate protection agreements 363,567 121,316 Net operating loss 5,192,880 11,070,531 ------------------------- Total deferred tax assets 6,237,461 11,759,881 Valuation allowance for deferred tax assets (5,641,241) (919,721) ------------------------- Net deferred tax assets 596,220 10,840,160 ------------------------- Net deferred tax assets/liabilities $ - $ - =========================
At December 31, 1996, the Company has available net operating loss carryforwards for federal income tax purposes of approximately $29,920,000, of which $13,351,000 expires in 2010 and $16,569,000 expires in 2011. The change in the valuation allowance in 1996 of $4,721,798 resulted primarily from the effect of recording the deferred tax liabilities resulting from the Arkansas Stations acquisition. -34- ARGYLE TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 AND 1995 6. COMMON STOCK AND PREFERRED STOCK In October 1995, the Company amended its Certificate of Incorporation to increase the number of shares of common stock authorized to 50,000,000 at $.01 par value per share. Of this amount, 35,000,000 shares were designated as Series A common stock, 200,000 shares were designated as Series B common stock and 14,800,000 shares were designated as Series C common stock. Series A and Series B common stock are voting while Series C common stock is non-voting. Under certain conditions, Series C Common Stock can be converted into Series A Common Stock on a one-for-one basis. Under the amendment, each share of previously outstanding voting common stock was converted into one share of the Company's Series B common stock, and each share of previously outstanding non- voting stock was redesignated as one share of the Company's Series C common stock. In addition, the Company is authorized to issue 1,000,000 shares of preferred stock, designated either as Series A Preferred Stock or Series B Preferred Stock. This preferred stock has a par value of $.01 per share. In June 1996, the Company issued 227,654 shares of Company's Series A Common Stock, 10,938 shares of the Company's Series A Preferred Stock and 10,938 shares of the Company's Series B Preferred Stock in connection with the acquisition of the Arkansas Stations. The preferred stock pays a cash dividend at 6.5% annually. Series A Preferred Stock is convertible at the option of the holders into Series A Common Stock of the Company at a conversion price of $35 per share of Series A Common Stock. In the event the holders do not convert the Series A Preferred Stock into shares of Series A Common Stock by June 11, 2001, the Company may redeem such Series A Preferred Stock at its stated value. Series B Preferred Stock is redeemable by the Company at its stated value at any time after June 11, 2001. In the event the Company does not redeem the Series B Preferred Stock by July 11, 2001, then from and after that date, the holders may convert the Series B Preferred Stock into shares of Series A Common Stock at a conversion price equal to the then fair market value of the Series A Common Stock. During 1995, the Company issued in a private placement 199,900 additional shares of voting common stock and 7,300,000 shares of non-voting common stock for total consideration of $74.999 million in cash. During October and November 1995, the Company sold, in an underwritten offering, 3,619,260 shares of Series A Common Stock at $17 per share for total consideration, net of expenses, of $56.3 million. 7. STOCK OPTIONS The Company has a stock based compensation plan under which options to purchase Series C common stock up to a maximum of 12% of the Company's fully diluted, as defined, common stock may be granted to directors and key employees. Options are granted at a price not less than the fair market value of the stock at the date of grant; vest either with the passage of time or upon the attainment of performance goals; and expire 10 years from the date of grant. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividends-none; forfeitures-time vesting none, performance vesting 30%; expected volatility - 33%, zero prior to the Company's initial public offering; risk free interest rate - 5.25%; and expected life - 5 years. The resulting fair value is charged to expense over the service period with a corresponding increase in additional paid in capital. During 1995 and 1996, the Company charged to expense $674,569 related to stock based compensation. -35- ARGYLE TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1996 7. STOCK OPTIONS (CONTINUED) A summary of the Company's stock option plan and changes during the years ended December 31, 1995 and 1996 follows:
Performance Time Vesting Vesting -------------------------- Balance at December 31, 1994 - - Options granted 573,432 747,583 Options exercised - - Options forfeited or expired (3,125) (3,125) -------------------------- Balance at December 31, 1995 570,307 744,458 Options granted 40,353 34,179 Options exercised - - Options forfeited or expired - (51,125) -------------------------- Balance at December 31, 1996 610,660 727,512 ==========================
Exercise prices range from $10 to $28 per share. The weighted average exercise price of options outstanding at December 31, 1995 and 1996 is $12.15 and $12.74 per share, respectively. The weighted average grant date fair value of options granted during 1995 and 1996 was $3.97 and $3.54, respectively. At December 31, 1996, 469,813 options are exercisable. 8. RELATED PARTY TRANSACTIONS The Company has entered into separate agreements with one of its shareholders, Argyle Television Investors, L.P., and the shareholder's general partner, ATI General Partner, L.P. (the Partnerships), under which the Company provides to the Partnerships personnel, office, property, services, expertise, systems and other assets and amenities. In consideration for such, the partnerships are required to reimburse the Company for expenses and costs allocated to providing these services to the Partnerships. During the year ended December 31, 1995 and 1996, the Company recognized total reimbursements of $839,695 and $893,205, respectively, under these agreements. Such reimbursements are offset against corporate general and administrative expenses in the accompanying statements of operations. During 1995, a related party contributed to the Company equipment with a value of $157,998. The related party did not receive any consideration for the contributed equipment. In connection with the acquisition of the Northstar Stations, the Hawaii Stations and the Buffalo Station, the Company incurred approximately $13.9 million in financing costs in 1995, a substantial portion of which were fees paid under the Company's credit agreements. Affiliates of certain of the banks in the credit agreement bank group are partners in a partnership that owns shares of the Company's non-voting common stock. -36- ARGYLE TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1996 8. RELATED PARTY TRANSACTIONS (CONTINUED) In June 1995, the Company entered into an agreement (the Buffalo Management Agreement) to provide interim management services to the Buffalo Station pending closing of the acquisition of the Buffalo Station. Subject to the seller's supervision, control and approval, the Company provided to the Buffalo Station, pursuant to the Buffalo Management Agreement, a number of management services, including recruitment and training of personnel, direction of advertising sales efforts, implementation of billing and collection practices, maintenance of accounting practices, negotiation of contracts and maintenance and acquisition of equipment. In consideration for the Company's services, the seller paid the Company $450,000 per month (half of which was paid into escrow pending the closing of the acquisition of the Buffalo Station). At the closing of the acquisition of the Buffalo Station on December 5, 1995, the Buffalo Management Agreement was terminated and that portion of the management fee placed in escrow was released to the Company. The Company recognized $2.7 million in management fees in 1995, which are included in total revenues in the accompanying statement of operations (associated expenses are included in station operating expenses). 9. COMMITMENTS The Company has obligations to various program syndicators and distributors in accordance with current contracts for the rights to broadcast programs. Future payments as of December 31, 1996 scheduled under contracts for programs available are as follows:
1997 $4,566,421 1998 2,845,209 1999 1,227,172 2000 191,286 ---------- $8,830,088 ==========
The Company has various agreements relating to non-cancelable operating leases with an initial term of one year or more (some of which contain renewal options), future program rights not available for broadcast at December 31, 1996, and employment contracts for key employees. Future minimum payments under terms of these agreements as of December 31, 1996 are as follows:
EMPLOYMENT OPERATING PROGRAM AND TALENT LEASES RIGHTS CONTRACTS ------------------------------------- 1997 $ 584,847 $ 883,029 $4,597,321 1998 568,534 2,539,045 2,410,760 1999 119,074 2,092,544 1,522,338 2000 36,070 1,739,956 510,188 2001 and thereafter 87,240 31,046 273,875 ------------------------------------- $1,395,765 $7,285,620 $9,314,482 =====================================
-37- ARGYLE TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 AND 1996 9. COMMITMENTS (CONTINUED) Rent expense for operating leases was $307,628 and $532,139 for the years ended December 31, 1995 and 1996, respectively. During the fourth quarter of 1997, the Company will make its final payment for KITV's new all-digital studio totaling $9.3 million, which includes $1.8 million currently in escrow. In the normal course of business, the Company is subject to various claims and lawsuits. In the opinion of the Company's management, liabilities, if any, arising from these matters will not have a significant effect on the Company's financial statements. During 1996, the Company entered into a "change in control" agreement with certain members of senior management (excluding Management Stockholders). Under terms of this agreement, if a change in control of the Company occurs (as defined by the agreement) and the employee is terminated without cause or the employee's duties are materially diminished (as described in the agreement), each individual would be entitled to a lump-sum payment of twice the sum of the individual's base salary plus the individual's target bonus for the calendar year in which the change in control occurs, less cash compensation received by the individual subsequent to the change in control. 10. BENEFIT PLAN In April 1995, the Company adopted a 401(k) Savings Plan. Qualified employees may contribute from 1% to 12% of their compensation up to certain dollar limits. The Company matches one-quarter of the employee contribution up to 6% of the employee's compensation. The Company's contributions to this plan for the years ended December 31, 1995 and 1996 were $67,788 and $186,101, respectively. During February 1997, the Company's compensation committee approved an increase in the Company's match. The match will increase from one- quarter to one-half of employee contributions up to 6% of each employee's compensation, effective July 1, 1997. 11. SUBSEQUENT EVENTS Upon completion of the Gannett Swap, as described in Note 3, "Acquisitions," the Company amended and restated its October 1995 Credit Agreement in order to provide up to $65.0 million of borrowing capacity under the revolving credit facility. On March 26, 1997, the Company entered into an agreement with The Hearst Corporation (Hearst) to combine the broadcasting divisions of Hearst with and into the Company. The agreement has been approved by the boards of directors of both companies and is expected to be submitted to shareholders of the Company for approval in August 1997. -38- REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholder Northstar Television Group, Inc. We have audited the accompanying combined statements of operations, cash flows and changes in stockholder's equity of Northstar Television of Grand Rapids, Inc., Northstar Television of Jackson, Inc., and Northstar Television of Providence, Inc. for the year ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined results of operations and cash flows of Northstar Television of Grand Rapids, Inc., Northstar Television of Jackson, Inc., and Northstar Television of Providence, Inc. for the year ended December 31, 1994, in conformity with generally accepted accounting principles. Ernst & Young LLP March 6, 1995 New York, New York -39- NORTHSTAR TELEVISION OF GRAND RAPIDS, INC., NORTHSTAR TELEVISION OF JACKSON, INC. AND NORTHSTAR TELEVISION OF PROVIDENCE, INC. COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 ------------- Gross broadcasting revenues $37,462,414 Less agency and national representative commissions (6,053,910) ----------- Net broadcasting revenues 31,408,504 Barter revenues 3,129,750 ----------- Total revenues 34,538,254 ----------- Station operating expenses 16,430,444 Amortization of program rights 3,599,515 Depreciation and amortization 3,125,984 ----------- Station operating income 11,382,311 Allocated corporate expenses 1,103,529 ----------- Operating income 10,278,782 Interest and other income 17,436 Allocated interest expense 4,762,724 ----------- Income before income taxes and extraordinary loss 5,533,494 Income taxes 170,106 ----------- Income before extraordinary loss 5,363,388 Extraordinary loss - early extinguishment of debt 773,668 ----------- Net income $ 4,589,720 ===========
See accompanying notes. -40- NORTHSTAR TELEVISION OF GRAND RAPIDS, INC, NORTHSTAR TELEVISION OF JACKSON, INC. AND NORTHSTAR TELEVISION OF PROVIDENCE, INC. COMBINED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
COMMON STOCK ADDITIONAL PAR PREDECESSOR PAID-IN ACCUMULATED SHARES VALUE BASIS CAPITAL DEFICIT TOTAL -------------------------------------------------------------------------- Balance at December 31, 1993 $300 $300 $(5,575,418) $42,145,385 $(40,009,767) $(3,439,500) Net capital distribution 500,824 500,824 Allocated debt refinanced with preferred stock 22,862,110 22,862,110 Net income 4,589,720 4,589,720 -------------------------------------------------------------------------- Balance at December 31, 1994 $300 $300 $(5,575,418) $65,508,319 $(35,420,047) $24,513,154 ==========================================================================
See accompanying notes. -41- NORTHSTAR TELEVISION OF GRAND RAPIDS, INC, NORTHSTAR TELEVISION OF JACKSON, INC. AND NORTHSTAR TELEVISION OF PROVIDENCE, INC. COMBINED STATEMENT OF CASH FLOW
YEAR ENDED DECEMBER 31, 1994 ----------------- OPERATING ACTIVITIES Net income $ 4,589,720 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,125,984 Gain on sale of assets (836) Allocated interest expense 4,762,724 Allocated corporate expenses 1,103,529 Extraordinary loss 773,668 Changes in operating assets and liabilities: Accounts receivable (1,215,311) Program rights (1,581,696) Other assets 493,896 Accounts payable and accrued liabilities (535,772) Program rights payable 1,296,161 Non-cash changes in operating assets and liabilities (37,840) ----------- Net cash provided by operating activities 12,774,227 INVESTING ACTIVITIES Capital expenditures (701,291) Proceeds from sale of assets 33,769 ------------ Net cash used in investing activities (667,522) FINANCING ACTIVITIES Cash transfers to Northstar (10,800,000) Principal payments on capital leases (87,095) ------------ Net cash used in financing activities (10,887,095) ------------ Increase in cash and cash equivalents 1,219,610 Cash and cash equivalents at beginning of period 92,961 ------------ Cash and cash equivalents at end of period $ 1,312,571 ============ SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for income taxes $ 170,106
See accompanying notes. -42- NORTHSTAR TELEVISION OF GRAND RAPIDS, INC, NORTHSTAR TELEVISION OF JACKSON, INC. AND NORTHSTAR TELEVISION OF PROVIDENCE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1994 1. NATURE OF BUSINESS AND ORGANIZATION Northstar Television of Grand Rapids, Inc. ("Grand Rapids"), Northstar Television of Jackson, Inc. ("Jackson") and Northstar Television of Providence, Inc. ("Providence") (collectively, the "Stations") are owned and operated through NTG, Inc. ("NTG"), a wholly-owned subsidiary of Northstar Television Group, Inc. ("Northstar"). Grand Rapids owns and operates television station WZZM, an ABC affiliate in Grand Rapids, Michigan; Jackson owns and operates television station WAPT, an ABC affiliate in Jackson, Mississippi; and Providence owns and operates television station WNAC, a Fox affiliate in Providence, Rhode Island. In 1989, Northstar, which was owned by Osborn Communications Corporation ("Osborn"), Equity-Linked Investors L.P./Equity Linked Investors-II ("Desai") and Bankers Trust (the "Bank"), purchased from certain subsidiaries of Price Communications Corporation ("Price"), for approximately $120.0 million, substantially all the assets and certain liabilities of four television stations, including the Stations. Prior to December 31, 1993, Price was also a shareholder of Northstar. On December 30, 1993, Desai purchased all of Price's interest in Northstar. On June 17, 1994, in exchange for certain consideration, the Bank and Osborn returned to Northstar all previously held shares of common stock. Upon completion of this transaction, Desai held 100% of the issued and outstanding shares of Northstar. The 1989 acquisition from Price was effected in a leveraged buyout. Given the common ownership interest of Price and the Stations, a 100% change in control of the assets acquired did not occur. Accordingly, $5,575,418 has been recorded as a reduction to stockholder's equity, representing a portion of the excess of the purchase price over the historical net book value of the assets acquired. The financial statements of the Stations reflect the acquisitions under the purchase method of accounting. Accordingly, the acquired assets and liabilities were recorded at the fair value as of the date of acquisition, adjusted for Price's continued interest in the assets of the Stations. 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATIONS The accompanying combined financial statements have been prepared in accordance with generally accepted accounting principles and assume that the Stations will continue as going concerns. All material intercompany items and transactions between the Stations have been eliminated. CASH EQUIVALENTS Cash equivalents consist of short-term, highly liquid investments with maturities of ninety days or less when purchased and are readily convertible into cash. PROPERTY, PLANT AND EQUIPMENT Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful fives of the assets, as follows: Buildings 25 years Broadcasting equipment 5-20 years Furniture and Fixtures 5-10 years Transportation 3-5 years -43- NORTHSTAR TELEVISION OF GRAND RAPIDS, INC, NORTHSTAR TELEVISION OF JACKSON, INC. AND NORTHSTAR TELEVISION OF PROVIDENCE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1994 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Expenditures for maintenance and repairs are charged to operations as incurred. PROGRAM RIGHTS Program rights and the corresponding contractual obligations are recorded when the license period begins and the programs are available for use. The capitalized cost of program rights is amortized on a straight-line basis over the period of the program rights agreements, which approximates amortization based on the estimated number of showings. Program rights and the corresponding obligation are classified as current or long-term based on the estimated usage and payment terms, respectively. INTANGIBLE ASSETS Intangible assets represent the excess of acquisition costs over the fair values of net assets acquired, and is being amortized on a straight-line basis over 40 years. It is management's policy to account for goodwill and other intangible assets at the lower of amortized cost or fair value. As part of an ongoing review of the valuation and amortization of intangible assets, management assesses the carrying values of the Stations' intangible assets if facts and circumstances suggest that they may be impaired. DEFERRED FINANCING COSTS Financing costs are deferred and amortized over the term of the related debt. In connection with Northstar's restructuring (see Note 4), Northstar incurred an additional $2.1 million in financing costs. Additionally, as part of the restructuring, the Company wrote off all unamortized financing costs associated with the previous financing arrangements resulting in an extraordinary loss of $773,668. BARTER AND TRADE TRANSACTIONS Barter transactions represent the exchange of commercial air time for programming. Trade transactions represent the exchange of commercial air time for merchandise or services. Barter transactions are generally recorded at the fair market value of the commercial air time relinquished. Trade transactions are generally recorded at the fair market value of the merchandise or service received. Revenue is recognized on barter and trade transactions when the commercials are broadcast; expenses are recorded when the programming, merchandise or service received is utilized. ALLOCATED CORPORATE EXPENSES Corporate expenses of $1,103,529 for the year ended December 31, 1994 represent allocated corporate overhead charges incurred by Northstar. Management is of the opinion that the allocation rates used by Northstar are reasonable and appropriate under the circumstances and the specific identification of such costs are not practicable. -44- NORTHSTAR TELEVISION OF GRAND RAPIDS, INC., NORTHSTAR TELEVISION OF JACKSON, INC. AND NORTHSTAR TELEVISION OF PROVIDENCE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1994 3. INCOME TAXES At December 31, 1994, the Stations had attributed to them on a separate return basis net operating loss carryforwards for income tax purposes of approximately $20.4 million that expire in years 2004 through 2009. For financial reporting purposes, a valuation allowance of $1,277,704 has been recognized to offset the deferred tax assets related to those carryforwards. The 1994 tax provision is comprised entirely of state and local income and franchise taxes. The Stations file a consolidated federal income tax return with Northstar. The Stations calculate their current and deferred income taxes on a separate return basis (i.e., as if the Stations had not been included in a consolidated income tax return with Northstar). Northstar's federal income tax returns for 1989 through 1991 are under examination by the Internal Revenue Service. The ultimate outcome of this examination is not expected to have a material effect of the financial position of the Stations. 4. ALLOCATED BORROWINGS/RESTRUCTURING The Stations have been allocated a portion of certain acquisition bank debt (the "Credit Agreement") payable to the Bank and 14 1/2% senior subordinated notes (the "Senior Notes") payable to Desai for its pro rata share of the total debt incurred to acquire the assets of the Stations. These debt obligations were incurred by NTG in 1989 and are accounted for on NTG's books. Such allocated borrowings were computed based on the Stations' percentage of revenue to the total revenue of Northstar. The Stations' allocated portion of the related obligations with respect to the Credit Agreement and the Senior Notes aggregated $42,670,000 at December 31, 1994. Related interest expense was $4,762,724 for the year ended December 31, 1994. On June 17, 1994, Northstar completed a restructuring of its indebtedness and a recapitalization. The restructuring and recapitalization consisted of the following: - The restructuring and extension of the terms and maturities of the Credit Agreement resulting in the Amended Credit Agreement (the "Amended Credit Agreement"). - The conversion of all of the Senior Notes and related interest, aggregating $26,896,600, into 268,966 shares of newly issued Class D Senior Preferred Stock with a liquidation value of approximately $26.9 million. The Bank agreed to restructure the terms and maturities of the $54.2 million obligation outstanding under the Credit Agreement at the time of the restructuring and waived any penalty interest accrued thereon. The restructuring resulted in the Amended Credit Agreement whose terms include a seven-year amortizing term loan. Principal payments are due quarterly in increasing increments, commencing on June 30, 1994 and culminating on December 31, 2000. Interest is payable at either the Prime Rate plus a margin of .75% to 2.00% or LIBOR plus a margin of 1.75% to 3.00%, such margin determined on the basis of a financial ratio of senior debt to consolidated adjusted operating cash flow, as defined under the Amended Credit Agreement. The Amended Credit Agreement contains certain restrictive covenants which require the maintenance of certain financial ratios and restricts capital expenditures, programming expenditures, management fees, distributions and acquisitions and dispositions. -45- NORTHSTAR TELEVISION OF GRAND RAPIDS, INC., NORTHSTAR TELEVISION OF JACKSON, INC. AND NORTHSTAR TELEVISION OF PROVIDENCE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1994 As part of the recapitalization, approximately $26.9 million of Senior Notes originally incurred in the principal amount of $17.5 million with Desai, together with all accrued and unpaid interest, was converted into 268,966 shares of a newly issued preferred equity security, Class D Senior Preferred Stock, valued at $.01 par with a liquidation value of approximately $26.9 million (see Note 8). The obligations of Northstar under the Amended Credit Agreement are secured by a valid, perfected, first priority lien in the capital stock of Northstar's subsidiaries and all of Northstar's and its subsidiary's assets including the Stations. 5. CAPITAL CONTRIBUTIONS/DISTRIBUTIONS Northstar allocates to the Stations their pro rata share of acquisition debt and related interest expense. The stations also advance, on an interest-free basis, their cash surpluses to Northstar. Such transactions are recorded as contributions or distributions to stockholder's equity. 6. COMMITMENTS The rights and obligations for programming that had not been recorded because the programs were not available for airing aggregated $4,440,210 at December 31, 1994 including $152,700 in commitments for barter programming. The Stations lease office space, vehicles and office equipment. Rental expense for operating leases amounted to $40,765 for the year ended December 31, 1994. The minimum aggregate annual rentals under non-cancelable operating leases and capital leases are payable as follows:
OPERATING CAPITAL LEASES LEASES -------------------- Year ending December 31: 1995 $ 37,054 $ 311,824 1996 28,358 16,828 1997 14,254 96,939 1998 12,045 1999 9,450 -------------------- Total minimum lease payments $101,161 425,591 ========= Less amount representing interest (35,091) Present value of minimum payments 390,500 Less current portion (144,884) Noncurrent capital lease obligations $ 245,616
7. SUBSEQUENT EVENT On January 4, 1995, Northstar sold all the stock of the Stations to Argyle Television, Inc. for $108 million plus working capital of approximately $6.6 million. Northstar realized a substantial gain on this transaction. On that same date, Northstar repaid $50.2 million in outstanding debt to the Bank and redeemed all of the Class D Senior Preferred Stock at its liquidation value of approximately $26.9 million. -46- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------- --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. - -------- --------------------------------------------------- DIRECTORS - --------- The Company's Certificate of Incorporation provides for classified directors and staggered director terms. Of the Company's five current directors, Ms. Williams and Mr. Pulver have been designated to serve as the Series A directors and Messrs. Marbut, Byrne and Morales have been designated to serve as the Series B directors. For as long as there are no more than two Series A directors, the Board of Directors shall also be divided into two classes, Class I and Class II, with the directors of each class generally having two-year terms. If the size of the Board of Directors is increased in the future to at least seven directors, the Certificate of Incorporation provides that the directors shall be divided into three classes, with the directors of each class generally having three-year terms. Ms. Williams and Messrs. Marbut and Morales have been designated to serve as Class I directors and Messrs. Pulver and Byrne have been designated to serve as Class II directors. Each director in Class I shall hold office until the annual meeting of stockholders in 1998 and each director in Class II shall hold office until the annual meeting of stockholders in 1997. Each director shall serve for a term ending on the second annual meeting date following the annual meeting at which such director was elected and until the director's successor is duly elected and qualified. CLASS II DIRECTORS (TERM EXPIRES IN 1997) SERIES A DIRECTOR: ------------------ DAVID PULVER, age 55. Mr. Pulver has been a director of the company since december 1994. He also has served as a director of each of the company's subsidiaries since such subsidiary's inception or acquisition by the Company. from June 1993 to April 1995, he served as a director of Argyle Television Holding, Inc. ("Argyle I"). Mr. Pulver also served as a director of each of the Argyle I subsidiaries from such subsidiary's inception in 1993 to April 1995. Mr. Pulver is President of Cornerstone Capital, Inc., a private investment company. Mr. Pulver serves as a director of Costco Wholesale Corporation, a wholly-owned subsidiary of Pricecostco Corporation (a chain of cash and carry general merchandise membership warehouses), County Seat Stores, Inc. (a chain of jeans and casual apparel stores) and J. Baker, Inc. (a diversified retailer of footwear and specialty clothing). Mr. Pulver is also a trustee of Colby College. SERIES B DIRECTOR: ------------------ Blake Byrne, age 61. Mr. Byrne has served in the broadcasting industry for 35 years and has served as President, Chief Operating Officer and a director of the Company since August 1994. He has served in the same positions with each of the Company's subsidiaries since such subsidiary's inception or acquisition by the Company. From June 1993 to April 1995, Mr. Byrne served as Vice President- Television of Argyle I. Mr. Byrne also served as Chief Operating Officer, President or Vice President of each of the subsidiaries of Argyle I from such subsidiary's inception in 1993 to April 1995. Mr. Byrne is currently a director and Senior Vice President of, and has been associated since 1991 with, Argyle Communications, Inc. and its predecessor. -47- CLASS I DIRECTORS (TERM EXPIRES IN 1998) SERIES A DIRECTOR: ------------------ Caroline L. Williams, age 50. Ms. Williams has been a director of the Company since December 1994. She also has served in the same position with each of the Company's subsidiaries since such subsidiary's inception or acquisition by the Company. From June 1993 to April 1995, she served as a director of Argyle I. Ms. Williams also served as a director of each of the subsidiaries of Argyle I from such subsidiary's inception in 1993 to April 1995. Ms. Williams is currently Acting Chair, nonprofit management program of the Milano School of Management and Urban Policy at the New School for Social Research from July 1992 through September 1993, Ms. Williams served as the Vice President, Program Support of Technoserve, a non-profit organization providing business, management and technical assistance to community-based enterprises in Latin America and Africa. From August 1988 to January 1992, Ms. Williams was a Managing Director of Donaldson, Lufkin & Jenrette Securities Corporation. Ms. Williams also serves as a director of Swing-N-slide Corp., DevCap Shared Return, and Burton Design Consultants, Inc. SERIES B DIRECTORS: ------------------- Bob Marbut, age 61. Mr. Marbut has served in the communications industry for 34 years and has served as Chairman of the Board of Directors, Chief Executive Officer and a director of the Company since august 1994. He has served in the same positions with each of the Company's subsidiaries since such subsidiary's inception or acquisition by the Company. From March 1993 to April 1995, Mr. Marbut served as Chief Executive Officer and a director of Argyle I. Mr. Marbut also served as Vice President and a director of each of the subsidiaries of Argyle I from such subsidiary's inception in 1993 to April 1995. Mr. Marbut is currently Chairman of the Board of Directors, President and Chief Executive Officer of, and has been associated since 1991 with, Argyle Communications, Inc. and its predecessor, both of which he founded to invest in and operate communications companies. Mr. Marbut is a director of Tupperware Corporation, Ultramar Diamond Shamrock Corporation, Tracor, Inc. and Katz Media Group, Inc. Ibra Morales, age 51. Mr. Morales has served in the broadcasting industry for 26 years and has served as Executive Vice President, Chief Revenue Officer and a director of the Company since august 1994. He has served in the same positions with each of the Company's subsidiaries since such subsidiary's inception or acquisition by the Company. Mr. Morales has also served as a Vice President or Senior Vice President of Argyle Communications, Inc. Since October 1993, and is currently a director. From March 1993 to April 1995, Mr. Morales served as Chairman of the Board of Directors and President of Argyle I. Mr. Morales also served as Chairman of the Board of Directors, Chief Executive Officer and Vice President-Sales of the subsidiary holding company of Argyle I and as Chairman of the Board of Directors and Chief Executive Officer of each of the other subsidiaries of Argyle I from such subsidiary's inception in 1993 to April 1995. From 1978 until March 1993, Mr. Morales was with Katz Communications, Inc., a national television advertising sales representative firm, where he served as Vice President-National Sales Manager/General Sales Manager from 1987 until 1993. Mr. Morales' responsibilities with Katz included the national sales training program, the oversight of all national sales for a group of seven television stations and all sales activities for Katz' New York office and four additional regional offices. -48- EXECUTIVE OFFICERS OF THE COMPANY - --------------------------------- The executive officers of the Company are as follows: Name Age Positions - --------------------------- -------- ----------------------------------------- Bob Marbut (1)............... 61 Chairman of the Board of Directors, Chief Executive Officer and director Blake Byrne (1).............. 61 President, Chief Operating Officer and director Ibra Morales (1)............. 51 Executive Vice President, Chief Revenue Officer and director Harry T. Hawks (2)........... 43 Chief Financial Officer, Assistant Secretary and Treasurer Dean H. Blythe (3)........... 38 Vice President-Corporate Development, Secretary and General Counsel Teresa Lopez (4)............. 33 Controller and Assistant Secretary - -------------------------- (1) Member of the Board of Directors. (See "Directors" above for additional information). (2) Harry T. Hawks. Mr. Hawks has served as Chief Financial Officer, Assistant Secretary and Treasurer of the Company since August 1994. He has served in the same positions with each of the Company's subsidiaries since such subsidiary's inception or acquisition by the Company. Mr. Hawks joined Argyle Communications, Inc. in January 1993, has served as its Vice President, Chief Financial Officer and Secretary since October 1993 and is currently a director. Mr. Hawks served as Vice President-Finance of Argyle I from March 1993 until June 1993 and from June 1993 to April 1995 he served as its Chief Financial Officer. Mr. Hawks also served as Secretary and Treasurer of each of the subsidiaries of Argyle I from such subsidiary's inception to April 1995. Prior to joining the Company, Mr. Hawks co-founded Cumberland Capital Corporation, a merchant banking firm, where he served as its President and as a director from 1989 until 1992. (3) Dean H. Blythe. Mr. Blythe has served as Vice President-Corporate Development, Secretary and General Counsel of the Company since October 1994. He has served in the same positions with each of the Company's subsidiaries since such subsidiary's inception or acquisition by the Company. Mr. Blythe has also served as a Vice President and Assistant Secretary of Argyle Communications, Inc. since October 1994. From February 1987 to October 1994, Mr. Blythe served at A. H. Belo Corporation, a Dallas- based New York Stock Exchange-listed media company, where he served the Dallas Morning News, Inc., a subsidiary of A. H. Belo corporation, as Vice President of Business Development from September 1993 to October 1994 and as Vice President of special projects from January 1992 to September 1993. from February 1987 to January 1992, Mr. Blythe served as Assistant General Counsel for A. H. Belo Corporation. (4) Teresa Lopez. Ms. Lopez has served as Controller and Assistant Secretary of the Company since August 1994. She has served in the same positions with each of the Company's subsidiaries since such subsidiary's inception or acquisition by the Company. From November 1993 to April 1995, she served as Controller and Assistant Secretary of Argyle I and as Assistant Secretary of each of its subsidiaries. From March 1992 to November 1993, she served as Vice President of Financial Affairs for the San Antonio Art Institute. From May 1989 to December 1990, Ms. Lopez served as an International Senior Auditor for the Coca-Cola Company. -49- ITEM 11. EXECUTIVE COMPENSATION. - -------- ----------------------- The following information summarizes annual and long-term compensation for services in all capacities to the Company for the fiscal years ended December 31, 1995 and 1996 of the Chief Executive Officer and the other four most highly compensated executive officers of the Company:
SUMMARY COMPENSATION TABLE Long-Term Compensation Annual Compensation Awards ---------------------------------------------------------------------- Other Annual Securities Underlying All Other Compensation Name and Compensation Options #) ($)(2) Principal Position Year Salary ($) Bonus ($) ($)(1) - --------------------------- ------------------------------------------------------------------------------------------------------ Bob Marbut Chairman of the Board of 1996 $200,000 $225,680 $45,756 6,671 $2,375 Directors, Chief Executive 1995 $175,000(3) -0- $19,786 321,081 $ 735 Officer Blake Byrne President, Chief Operating 1996 $200,000 $218,900 $48,285 6,671 $2,375 Officer and director 1995 $175,000(3) -0- $21,829 321,081 $1,490 Ibra Morales Executive Vice President, 1996 $200,000 $217,273 $30,271 6,671 $2,375 Chief Revenue Officer 1995 $175,000(3) -0- $ 6,400 321,081 $ 779 and director Dean H. Blythe Vice President- 1996 $150,000 $ 69,230 $ 6,000 -0- $2,112 Corporate Development, 1995 $130,000 $ 10,000 -0- 21,000 $1,500 Secretary and General Counsel Harry T. Hawks Chief Financial Officer, 1996 $135,000 $ 17,208 $10,672 1,668 $2,025 Assistant Secretary and 1995 $120,000(4) -0- $ 4,000 80,271 $1,294 Treasurer - ---------------------------
(1) Amounts in this column for the 1996 fiscal year consist of the following dollar values of premiums for life insurance reimbursed to the following individuals, their automobile allowances and tax preparation expenses reimbursement:
Life Tax Insurance Auto Preparation Premiums Allowance Fees ($) ($) ($) ---------- ---------- ------------ Bob Marbut...... $27,156 $9,600 $9,000 Blake Byrne..... $29,685 $9,600 $9,000 Ibra Morales.... $11,671 $9,600 $9,000 Dean H. Blythe.. -0- $6,000 -0- Harry T. Hawks.. $ 1,672 $6,000 $3,000
(2) Amounts in this column represent the amounts contributed by the Company to the Company's 401(k) Savings Plan (a non-discriminatory retirement plan established pursuant to Section 401(k) of the Internal Revenue Code). -50- (3) Includes $48,542 of salary that was deferred at the election of the Company's Compensation Committee pursuant to the named executive officer's employment agreement. Such amount bore interest at prime plus 1% and was paid in full, together with all accrued interest, on January 4, 1997. (4) Includes $33,750 of salary that was deferred at the election of the Company's Compensation Committee pursuant to Mr. Hawks' employment agreement. Such amount bore interest at prime plus 1% and was paid in full, together with all accrued interest, on January 4, 1997. OPTION GRANTS IN LAST FISCAL YEAR The following two tables provide information relating to stock options granted under the Company's Option Plan, which is described more fully below.
Number of % of Total Securities Options Underlying Granted To Exercise Potential Realizable Value Options Employees or Base at Assumed Annual Rates of Granted in Fiscal Price Expiration Stock Price Appreciation Name (#)(1) Year ($/Sh)(1) Date for Option Term (2) - ---------------- --------- ---------- -------- ---------- -------------------------- 5% ($) 10% (10) ------- -------- Bob Marbut 140 0.2% $16.75 1/4/05 $ 2,723 $ 5,008 13 * $17.00 1/4/05 $ 250 $ 462 11 * $21.50 1/4/05 $ 162 $ 341 6,507 8.7% $21.96 1/4/05 $68,225 $163,412 Blake Byrne 140 0.2% $16.75 1/4/05 $ 2,723 $ 5,008 13 * $17.00 1/4/05 $ 250 $ 462 11 * $21.50 1/4/05 $ 162 $ 341 6,507 8.7% $21.96 1/4/05 $68,225 $163,412 Ibra Morales 140 0.2% $16.75 1/4/05 $ 2,723 $ 5,008 13 * $17.00 1/4/05 $ 250 $ 462 11 * $21.50 1/4/05 $ 162 $ 341 6,507 8.7% $21.96 1/4/05 $68,225 $163,412 Harry T. Hawks 35 * $16.75 1/4/05 $ 681 $ 1,252 3 * $17.00 1/4/05 $ 58 $ 107 3 * $21.50 1/4/05 $ 44 $ 93 1,627 2.2% $21.96 1/4/05 $17,059 $ 40,859 Dean H. Blythe -- -- -- -- -- --
- ----------------------------------- * Less than 0.1% -51- (1) Stock Options to purchase Series C shares representing a total of 8.5% of the Company's fully-diluted Common Stock have been granted under the Option Plan to these executive officers (other than for Mr. Blythe) with 5% being granted in the form of performance-vesting options and 3.5% being granted in the form of time-vesting options. Since these Stock Options are for a percentage of the Company's fully-diluted shares and not for a specific number of shares, these Stock Option result in automatic anti-dilution "grants" upon the Company's issuance of additional shares or the vesting of other options so that the options maintain the same percentage of fully- diluted shares as they represented prior to such issuance or vesting. All grants in 1996 to these individuals were anti-dilution "grants". The exercise prices for the anti-dilution "grants" were, with respect to anti- dilution grants resulting from the issuance of additional shares, the per share issuance price, and with respect to anti-dilution grants resulting from the vesting of other options, the exercise price of the options that vested. (2) Calculated based on the fair market value of the Company's Series C shares on the date of grant. The amounts represent only certain assumed rates of appreciation. Actual gains, if any, on stock option exercises and Company Common Stock holdings cannot be predicted, and there can be no assurance that the gains set forth in the table will be achieved. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Underlying Unexercised Options Options at FY-End at FY-End Shares Acquired (#) ($)(1) On Exercise Value realized Exercisable/ Exercisable/ Name (#) ($) Unexercisable Unexercisable - ---------------- --------------- -------------- ------------- ------------- Bob Marbut 0 0 107,750/ $1,429,888/ 220,002 $ 2,518,828 Blake Byrne 0 0 107,750/ $1.429,888/ 220,002 $ 2,518,828 Ibra Morales 0 0 107,750/ $1,429,888/ 220,002 $ 2,518,828 Harry T. Hawks 0 0 26,938/ $ 357,488/ 55,001 $ 629,701 Dean H. Blythe 0 0 9,300/ $ 132,825/ 7,800(2) $ 96,900
- --------------------- (1) Based on the closing price of $24.50 per share of the Company's Series A shares on the NASDAQ National Market System on December 31, 1996, the last trading day of the fiscal year. (2) Reflects the forfeiture of 3,900 options under the terms of the option agreement. EMPLOYMENT AND OTHER AGREEMENTS As of January 1995, the Company entered into employment agreements with each of Messrs. Marbut, Byrne, Morales and Hawks (collectively, the "Management Stockholders"). Each of the employment agreements provides for a five-year term. Pursuant to the employment agreements, each of these executive officers is entitled to a base salary plus a bonus based upon the achievement of certain personal and corporate performance goals, as established and determined by the Compensation Committee, as well as certain perquisites and fringe benefits. The base salary and bonus potential as a percentage of base salary for each of the executive officers will increase as the Company's -52- broadcast cash flow increases. The minimum base salary for each of such executive officers is as follows: Mr. Marbut: $175,000, Mr. Byrne: $175,000, Mr. Morales: $175,000 and Mr. Hawks: $120,000. For 1997, the base salary of each of such executive officers is: Mr. Marbut: $250,000, Mr. Byrne: $250,000, Mr. Morales: $250,000 and Mr. Hawks: $145,000. The employment agreements provide that the executive officers may serve in any capacity with the Company, any of its direct and indirect subsidiaries and any other businesses that may or may not be affiliated with the Company. If an executive officer serves as an employee of any such entity other than the Company, such executive officer's base salary will be allocated between the Company and such other entity based upon the relative amounts of time devoted by the executive officer to performing his duties to the Company and such other entity. The employment agreements terminate upon the death of the executive officer and may be terminated by the Company upon the "disability" of the executive officer or for "cause" (in each case, as defined in the employment agreements). The employment agreements also provide that if employment is terminated by the executive officer with cause or by the Company without cause (including upon a change of control), then the executive officer will be entitled to his base salary for a period ending on the earlier of (i) two years from the date of termination and (ii) the balance of the five-year term of the employment agreement. The employment agreements will terminate and the executive officers will not be entitled to such post-termination payments, however, if the Company is sold without providing certain of the stockholders of the Company with a minimum return on investment. Under the employment agreements, the Management Stockholders must bring to an independent committee of the Company's Board of Directors any potential transaction or other corporate opportunity involving any business which derives a substantial portion of its revenues from broadcasting or the provision of services to another person in the broadcasting industry (except for cable television related ventures). The Management Stockholders may pursue such an opportunity outside of the Company only if the independent committee of the Board of Directors decides that the Company will not pursue such opportunity. In July 1996, the Company entered into a Change of Control Agreement with Mr. Blythe, which provides that if Mr. Blythe's employment is terminated or adversely impacted in certain other ways following a change of control of the Company, then Mr. Blythe will be entitled to a payment in an amount equal to two times the sum of his then base salary and target bonus. 401(K) SAVINGS PLAN Effective as of April 1995, the Company adopted the 401(k) Savings Plan (the "401(k) Plan"), which covers employees of the Company and its subsidiaries who have attained the age of 21. An employee may contribute an aggregate of 1% to 12% of his annual compensation to the 401(k) Plan, subject to statutory limitations. The employer will match 25% of each employee's contributions up to 6% of such employee's base salary. Contributions are allocated to each employee's individual account, which is intended to be invested in separate investment funds according to the direction of the employee. The Chief Executive Officer and the four other most highly compensated executive officers of the Company participate in the 401(k) Plan. DIRECTORS' COMPENSATION The Company pays each outside director a fee of $20,000 per year and reimburses all directors for their reasonable expenses incurred in connection with attending meetings of the Board of Directors of the Company. In addition, in 1996 the Company granted an option to purchase 5,000 shares of its Series C shares to each of Mr. Pulver and Ms. Williams and each of them will be entitled to a grant of an additional 5,000 shares for each year that he or she continues to serve as a director of the Company. Such stock options are or will be exercisable at the fair market value per share on the date of grant and vest two years after the date of grant. The stock options automatically vest upon the occurrence of certain specified events, including certain changes of control. -53- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. - -------- --------------------------------------------------------------- As of December 31, 1996, the Company had issued and outstanding 3,846,914 shares of Series A Common Stock, par value $ .01 per share ("Series A shares"), and 200,000 shares of Series B Common Stock, par value $ .01 per share ("Series B shares"). As of December 31, 1996, the Company also had issued and outstanding 7,300,000 shares of Series C Common Stock, par value $ .01 per share ("Series C shares). (The Series A shares, Series B shares and Series C shares together are referred to herein as the "Common Stock"). The following table provides information as to the beneficial ownership of the Company's Common Stock by (i) each director, the Chief Executive Officer and the four most highly compensated executive officers other than the Chief Executive Officer of the Company; (ii) all directors and executive officers of the Company as a group; and, (iii) each person known to the Company to be the beneficial owner of 5% or more of any class or series of the Company's voting securities. Argyle Television Investors, L.P., a Delaware limited partnership ("ATILP"), and Television Investment Partners, L.P., a Delaware limited partnership ("TIP"), currently hold 6,600,000 and 700,000 Series C shares, respectively. Although each of ATILP and TIP currently intends to continue to hold and not distribute or convert such Series C shares, the table below assumes that all Series C shares held by ATILP and TIP have been converted into Series A shares and (other than for the information with respect to ATILP and TIP) fully distributed by ATILP and TIP to their respective partners as of December 31, 1996. Argyle Television Partners, L.P., a Delaware limited partnership ("ATP"), which was formed by Bob Marbut, Blake Byrne, Ibra Morales and Harry T. Hawks (the "Management Stockholders") together with Robert J. Owen, is the general partner of both TIP and ATI General Partner, L.P. ("ATIGP"), the limited partnership that serves as ATILP's general partner.
Series A Series B Shares Shares Beneficially Owned(a) Beneficially Owned(b) ---------------------- --------------------- Percent Percent Name Shares of Series Shares of Series - ---------------------------------------- ---------------------- ---------- --------------------- ---------- Bob Marbut(b)........................... 1,131,730 (c) 10.0 % 105,263 52.6% Blake Byrne(d).......................... 736,324 (c) 6.5 65,789 32.9 Ibra Morales............................ 275,869 (c) 2.5 15,789 7.9 Harry T. Hawks.......................... 132,199 (c) 1.2 10,526 5.3 Dean H. Blythe.......................... 11,702 (e) 0.1 -- -- David Pulver............................ 106,656 (f) 0.9 -- -- Caroline L. Williams.................... 50,546 (f) 0.5 -- -- All directors and executive officers as a group (8 persons).................... 2,457,010 21.3 197,367 98.7 Argyle Television Partners, L.P.(b)..... 2,105,009 (g) 18.9 200,000 100.0 Argyle Television Investors, L.P.(b).... 6,600,000 59.2 -- -- Television Investment Partners, L.P.(b). 700,000 6.3 -- -- Chase Venture Partners.................. 1,366,163 (h) 12.3 -- -- Textron Collective Investment Trust Fund B................................. 835,918 (i) 7.5 -- -- - --------------------------
(a) Assumes conversion into Series A shares of all Series C shares and no Series B shares. -54- (b) ATP currently holds 100% of the Series B shares. The information in the table with respect to the individual partners of ATP assumes ATP has fully distributed all of the Series B shares to such partners. ATP's general partner is Argyle Communications, Inc. ("ACI"), a corporation owned principally by the Management Stockholders and controlled by Bob Marbut. Under applicable Securities and Exchange Commission ("SEC") regulations, Mr. Marbut may be considered the beneficial owner of all shares held by ATP, ATILP and TIP. The address for Mr. Marbut, ATP, ATILP and TIP is 200 Concord Plaza, Suite 700, San Antonio, Texas 78216. (c) Represents (i) any shares held by the individual directly; (ii) the individual's pro rata interest in shares held indirectly by ATP through ATP's interest in ATILP and TIP; (iii) for Messrs. Marbut and Byrne, such individuals' interest in shares held by TIP and, for Mr. Morales, such individual's interest in shares held by ATILP, respectively; and, (iv) shares subject to options exercisable within 60 days. (d) The address for Mr. Byrne is 9220 Sunset Boulevard, Suite 210, Los Angeles, California 90069. (e) Represents Mr. Blythe's interest in shares held by TIP and shares subject to options exercisable within 60 days. (f) Represents (i) the individual's interest in shares held by ATILP and TIP and (ii) shares subject to options exercisable within 60 days. (g) Represents ATP's interest in shares held by ATILP and TIP based on (i) ATP's partnership interest in such entities and (ii) ATP's interest, as the direct or indirect general partner of each partnership, in the gain on invested capital in the partnerships assuming the partnerships were liquidated as of December 31, 1996 (the "G.P. Interest"). (h) Represents such entity's interest in (i) shares held by ATILP and (ii) the G.P. Interest with respect to ATILP. Excludes 22,988 shares held by ATILP which are attributable to the interests of employees of such entity or its affiliates who personally invested in ATILP. The address of Chase Venture Partners is One Chase Manhattan Plaza, 8th Floor, New York, New York 10081. (i) Represents such entity's interest in shares held by ATILP. The address of Textron Collective Investment Trust Fund B is c/o RI Hospital Trust National Bank, Trustee, 150 Royall Street, Canton, Massachusetts 02021. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. - -------- ----------------------------------------------- The Company, ATILP and ATIGP have entered into an agreement pursuant to which the Company will be paid for providing to ATILP and ATIGP personnel, offices, property, services, expertise, systems and other assets and amenities. Payments to the Company for the 12 months ended December 31, 1996 under this agreement were approximately $893,200. The Chase Manhattan Bank ("Chase Bank"), an affiliate of Chase Venture Partners is the agent and a lender under the Company's current bank credit agreement and was the agent and a lender under its prior bank credit agreements. In connection with those activities, Chase Bank has received or will receive customary fees and reimbursement of expenses. -55- PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K. - -------- ---------------------------------------------------------------- (A) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS (1) The financial statements listed in the Table of Contents for Item 8 hereof are filed as part of this report. (2) The financial statement schedules required by Regulation S-X are included as part of this report or are included in the information provided in the Notes to Consolidated Financial Statements, which are filed as part of this report. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ARGYLE TELEVISION, INC. AND SUBSIDIARIES
Description Additions ========================================================================================================================= Charged to Balance at Charged to Other Beginning of Costs and Accounts- Deductions Balance at End Period Expenses Describe Describe of Period - ------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1995: Allowance for uncollectable accounts $ - $ 69,914 $ 63,288(1) $ - $ 133,202 - ------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, 1996: Allowance for uncollectable accounts $ 133,202 234,963 $ - $ (198,863)(2) $ 169,302 - ------------------------------------------------------------------------------------------------------------------------- (1) Amounts acquired in acquisitions. (2) Net write-offs of accounts receivable. - -------------------------------------------------------------------------------------------------------------------------- Note: The required information regarding the valuation allowance for deferred tax assets is included in Note 5 to the Company's Consolidated Financial Statements. ====================================================================================================================================
(3) The following documents are filed or incorporated by reference as exhibits to this report: EXHIBIT NO. *2.1a Stock Purchase Agreement dated August 26, 1994 among Argyle Television Holding II, Inc., NTG, Inc., Northstar Television of Grand Rapids, Inc., Northstar Television of Providence, Inc. and Northstar Television of Jackson, Inc. *2.1b Asset Purchase Agreement dated as of January 17,1995 by and between Argyle Television Holding II, Inc. and Tak Communications, Inc., as amended by Amendment to Asset Purchase Agreement dated March 13, 1995 and Second Amendment to Asset Purchase Agreement dated April 24, 1995. 2.1c Agreement and Plan of Reorganization by and among the Company, KHBS Argyle Television, Inc., Sigma Broadcasting, Inc. and the stockholders thereof (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 2.1d Asset Exchange Agreement dated as of November 20, 1996 by and among Combined Communications Corporation of Oklahoma, Inc., Multimedia Entertainment, Inc. and certain subsidiaries of the Company (incorporated by reference to the Company's Current Report on Form 8-K dated November 20, 1996). 2.1e Amendment No. 1 to Asset Exchange Agreement dated as of January 28, 1997 (incorporated by reference to the Company's Current Report on Form 8-K dated January 31, 1997). *3.1 Amended and Restated Certificate of Incorporation of the Company. 3.1a Certificate of Designation of the Company's Series A Preferred Stock (incorporated by reference to the Company's Current Report on Form 8-K dated June 11, 1996). 3.1b Certificate of Designation of the Company's Series B Preferred Stock (incorporated by reference to the Company's Current Report on Form 8-K dated June 11, 1996). *3.2 Bylaws of the Company, as amended by Amendment No. 1 to Bylaws of the Company. *4.1 Form of Indenture relating to the Senior Subordinated Notes due 2005 (including form of security). -56- 4.1a First Supplemental Indenture dated as of June 1, 1996 among KHBS Argyle Television, Inc. and Arkansas Argyle Television, Inc. and United States Trust Company of New York (incorporated by reference to the Company's Current Report on Form 8-K dated June 11. 1996). *4.2 Form of Note (included in Exhibit 4.1). *4.3 Amended and Restated Certificate of Incorporation of the Company (see Exhibits 3.1, 3.1a and 3.1b). *4.4 Bylaws of the Company, as amended by Amendment No. 1 to Bylaws of the Company (see Exhibit 3.2). *4.5 Specimen of the stock certificate for the Company's Series A Common Stock, $.01 par value per share. *10.1 Amended and Restated Agreement of Limited Partnership of Argyle Television Investors, L.P. dated as of May 10, 1995, as amended by Amendment dated June 13, 1995, and Second Amendment dated July 24, 1995. *10.2 Amended and Restated Employment Agreement of Bob Marbut.** *10.3 Amended and Restated Employment Agreement of E. Blake Byrne.** *10.4 Amended and Restated Employment Agreement of Ibra Morales.** *10.5 Amended and Restated Employment Agreement of Harry T. Hawks.** 10.6 Amended and Restated 1994 Stock Option Plan (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995).** *10.7a Option Agreements between the Company and Bob Marbut dated January 4, 1995, as amended.** *10.7b Option Agreements between the Company and E. Blake Byrne dated January 4, 1995, as amended.** *10.7c Option Agreements between the Company and Ibra Morales dated January 4, 1995, as amended.** *10.7d Option Agreements between the Company and Harry T. Hawks dated January 4, 1995, as amended.** 10.8a Affiliation Agreement among Multimedia, Inc., Multimedia Entertainment, Inc. (re: WLWT) and NBC. 10.8b Affiliation Agreement between combined Communications Corporation of Oklahoma, Inc. (re: KOCO) and ABC. *10.8c Affiliation Agreement between Providence Argyle Television, Inc. (re: WNAC) and Fox Broadcasting Company, dated December 9, 1994, as amended, and Amendment/NFL Package Agreement. *10.8d Affiliation Agreement between Tak Communications, Inc. (re: KITV) and ABC, dated November 4, 1994 and Satellite Television Affiliation Agreements, dated November 9, 1994. *10.8e Affiliation Agreement between Jackson Argyle Television, Inc. (re: WAPT) and ABC. 10.8f Affiliation Agreements between Sigma Broadcasting, Inc. (re: KHBS and KHOG) and ABC (incorporated by reference to the Company's Current Report on Form 8-K dated June 11, 1996). *10.9 Overhead Services Agreement between the Company and Argyle Television Investors, L.P. and ATI General Partner, L.P., dated as of January 4, 1995. *10.10 Form of Amended and Restated Tax Sharing Agreement. *10.11 Amended and Restated Bank Credit Agreement, dated June 13, 1995, as amended by Amendment No. 2 to Bank Credit Agreement. 10.11a Form of Amendment No. 3 to Amended and Restated Credit Agreement (incorporated by reference to the Company's Current Report on Form 8-K dated June 11, 1996). 10.11b Amendment No. 4 to Amended and Restated Credit Agreement. 10.12 Change of Control Agreement between the Company and Dean H. Blythe.** 21.1 List of subsidiaries of the Company. 23.1 Consent of Ernst & Young LLP. 24.1 Powers of Attorney (included on signature pages). 27.1 Financial data schedule. - ----------------------- * Incorporated by reference to the Company's Registration Statement No. 33- 96026 on Form S-1. ** All of the documents marked with a double asterisk are executive compensation plans and arrangements of the Company. (B) REPORTS ON FORM 8-K On November 27, 1996, the Company filed a Form 8-K relating to the transaction with Gannett to exchange WZZM and WGRZ for WLWT and KOCO, which filing included information under Article 5 thereof relating to such transaction and, attached as exhibits, the asset exchange agreement and the press release relating to such transaction. -57- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on March 31, 1997. ARGYLE TELEVISION, INC. By: /s/ Harry T. Hawks ------------------------------ Name: Harry T. Hawks Title: Chief Financial Officer, Assistant Secretary and Treasurer -58- Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Company in the capacities indicated on March 31, 1997. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of the undersigned directors and officers of Argyle Television, Inc. hereby constitutes and appoints Dean H. Blythe and Harry T. Hawks, or either of them, his or her true and lawful attorney-in-fact and agent, for him or her and in his or her name, place and stead, in any and all capacities, with full power to act alone, to sign any and all amendments to this Report, and to file each such amendment to this Report, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. NAME TITLE ---- ----- /s/ Bob Marbut Chief Executive Officer - -------------------------- and Chairman of the Board Bob Marbut (principal executive officer) /s/ Blake Byrne President, Chief - -------------------------- Operating Officer and Director Blake Byrne /s/ Ibra Morales Executive Vice President, - --------------------------- Chief Revenue Officer and Director Ibra Morales /s/ Harry T. Hawks Chief Financial Officer, - --------------------------- Assistant Secretary and Harry T. Hawks Treasurer (principal financial officer) /s/ Teresa Lopez Controller and Assistant - --------------------------- Secretary Teresa Lopez (principal accounting officer) /s/ Caroline L. Williams Director - ---------------------------- Caroline L. Williams /s/ David Pulver Director - ---------------------------- David Pulver -59- EX-10.8A 2 AFFILIATION AGREEMENT AMONG MULTIMEDIA AND NBC EXHIBIT 10.8a NBC TV NETWORK July 11, 1995 Multimedia, Inc. and Multimedia Entertainment, Inc. c/o WLWT 140 West Ninth Street Cincinnati, Ohio 45202 RE: WLWT (Cincinnati, Ohio) ----------------------- Gentlemen: The following shall comprise the agreement between us for the affiliation of television broadcasting station WLWT (Multimedia Entertainment, Inc. and WLWT collectively herein called "Station") with the NBC Television Network (herein called "NBC") and shall supersede and replace our prior agreement dated March 1, 1990, except for the most recent amendment with respect to network non- duplication protection under Federal Communications Commission ("FCC") Rules Section 76.92. 1. Term. This Agreement shall be deemed effective at 3:00 A.M., New York ---- City time as of the 29th day of August, 1994, and, unless sooner terminated as provided in this Agreement, it shall remain in effect for a period of six (6) years thereafter. It shall then be renewed on the same terms and conditions for a further period of four (4) years and for successive further periods of four (4) years each, unless and until either party shall, at least six (6) months prior to the expiration of the initial or then current term, give the other party written notice that it does not desire to have this Agreement renewed for a further period. 2. NBC Programming. --------------- (a) NBC shall deliver to Station for free, over-the-air television broadcasting all programming which NBC makes available for broadcasting in the community to which Station is presently licensed by the FCC, except as otherwise expressly provided herein. (b) NBC commits to supply sufficient news and entertainment programming throughout the term of this Agreement for the hours presently programmed by it (the "Programmed Time Periods"), which Programmed Time Periods are as follows (the specified times are all local time in Station's community of license): Prime Time: Monday thru Saturday - 8:00-11:00 P.M. Sunday - 7:00-11:00 P.M. Late Night: Monday thru Thursday - 11:35 P.M.-2:05 A.M. Friday - 11:35 P.M.-2:15 A.M. Saturday - 11:30 P.M.-1:00 A.M. News: Monday thru Friday - 5:30-6:00 A.M., 7:00-9:00 A.M. and 6:30-7:00 P.M. Saturday - 8:00-10:00 A.M. and 6:30-7:00 P.M. Sunday - 8:00-10:00 A.M. and 6:30-7:00 P.M. Daytime: Monday thru Friday - 1:00-3:00 P.M. Saturday - 11:00 A.M.-12:00 Noon The selection, scheduling, substitution and withdrawal of any program or portion thereof delivered to Station during the Programmed Time Periods shall at all times remain within the sole discretion and control of NBC. The parties acknowledge that local and network programming needs may change during the term of this Agreement, and each party agrees throughout the term to negotiate in good faith with the other party any proposed modification of the Programmed Time Periods. (c) In addition to the programming supplied pursuant to Paragraph 2(b) above, NBC shall offer Station throughout the term of this Agreement a variety of sports, special events and overnight news programming for television broadcast at times other than the Programmed Time Periods. Station shall have the right of first refusal with respect to any such programming good for seventy-two (72) hours as against any other television station located in Station's community of license or any television program transmission service furnishing a television signal to Station's community of license, including, but not limited to, any community antennae television system, subscription television service, multipoint distribution system and satellite transmission service. Station shall notify NBC of its acceptance or rejection of NBC'S offer of such programming as promptly as possible. Station's acceptance of NBC's offer shall constitute Station's agreement to broadcast such programming in accordance with the terms of such offer and this Agreement. Notwithstanding any other provision in this Agreement, no pre-existing acceptance of NBC programming shall be superseded or otherwise affected by this Agreement, and those acceptances shall remain in full force and effect. With respect to NBC programs outside the Programmed Time Periods (either offered or already contracted for pursuant to this Agreement), nothing herein contained shall prevent or hinder NBC from (i) substituting one or more sponsored or sustaining programs, in which event NBC shall offer such substituted programs, in which event NBC shall offer such substituted program or programs to Station in accordance with the provisions of this Paragraph 2(c), or (ii) canceling one or more such NBC programs; provided, however, that NBC shall exercise all reasonable efforts to give Station at least three (3) weeks prior written notice of such substitution or cancellation. Station shall not be obligated to broadcast, and NBC shall not be obligated 2 to deliver, subsequent to the termination of this Agreement, any programs which NBC may have offered and which Station may have accepted during the term hereof. 3. Station Carriage in Programmed Time Periods. ------------------------------------------- (a) Station agrees that, subject only to the preemption rights set forth herein, including but not limited to Station's unqualified right to preempt for local live coverage of news events, Station shall broadcast over Station's facilities all NBC programming supplied to Station for broadcast in the Programmed Time Periods on the dates and at the times the programs are scheduled by NBC, except to the extent that Station is actually broadcasting programming pursuant to (and within the specified limits of) a commitment contemplated by Paragraphs 3(b) or 3(d) below. (b) As an inducement for NBC to enter into this Agreement, Station covenants, represents and warrants to NBC that during any Broadcast Year (as hereinafter defined) during the term hereof, Station shall preempt no more than twenty-four (24) hours in the aggregate of NBC programs during the Prime Time Programmed Time Period, for any reason other than the live coverage of news events (the "Prime Time Preemption Amount"); provided, however, that Station -------- ------- shall be permitted to make additional preemptions for the broadcast of Cincinnati Reds baseball games (the "Cincinnati Reds Games"); provided, further, -------- ------- that the availability of the foregoing proviso to Station is conditioned upon Station's compliance with the provisions of Paragraph 3(d) below. For the purposes of this Agreement, a "Broadcast Year" shall mean a twelve (12) month period during the term hereof which commences on any September 1 during the term hereof and which ends on August 31 of the immediately following year. Notwithstanding the foregoing, Station agrees that in no event shall it preempt any NBC movie scheduled by NBC for broadcast during the Prime Time Programmed Time Period to broadcast any other movie. (c) The Station hereby agrees to accept and clear all weekend sports programming offered to the Station by NBC outside the Programmed Time Periods ("NBC Sports Programming"), except for (i) NBC sports programming which directly conflicts with Station's coverage of sports events and special events or other programs of particular local interest (collectively, such coverage of such sports events and special events other than the Station's broadcast of Cincinnati Reds Games are referred to below as "Special Programs") and (ii) as provided in Paragraph 3(d) below with respect to the Cincinnati Reds Preemption Amount. Notwithstanding the foregoing clause (i), the parties hereto acknowledge that the definition of "Special Programs" shall be interpreted consistent with Station's prior programming practice. Station agrees not to broadcast more than thirty-five (35) hours of Special Programs outside the Programmed Time Periods in the aggregate during any 3 Broadcast Year during the term of this Agreement which would conflict with NBC Sports Programming outside the Programmed Time Periods (the "Sports Preemption Amount"); provided, however, that if NBC materially increases the aggregate -------- ------- total number of hours of NBC Sports Programming from the aggregate total number of scheduled hours during the 1993-1994 Broadcast Year (the "1993-1994 NBC Sports Programming Schedule"), Station shall have the right to preempt NBC Sports Programming for the broadcast of one (1) additional hour of Special Programs for each one (1) additional hour of NBC Sports Programming in excess of the hours of programming included in NBC's 1993-1994 Sports Programming Schedule. (d) Station shall have the right to preempt NBC programming for the broadcast of Cincinnati Reds Games; provided, however, that in each Broadcast Year during the term of this Agreement, the number of programming hours included for purposes of determining such preemption amount shall not exceed the aggregate number of programming hours scheduled by Station for the broadcast of fifty-five (55) Cincinnati Reds Games during the 1994 Major League Baseball season (the "Cincinnati Reds Preemption Amount"); and provided, further, that in -------- ------- each Broadcast Year during the term of this Agreement, the number of hours of programming included in such Cincinnati Reds Preemption Amount utilized in a specific daypart shall be approximately the same as the number of hours of such programming scheduled for broadcast by Station during the 1994 Major League Baseball season. Station agrees to regularly discuss with NBC the coordination of the scheduling of Cincinnati Reds Games and NBC programming in order to set program priorities and reduce the impact of preemptions of NBC programming by Station, and Station will advise NBC of the broadcast schedule of Cincinnati Reds Games for each Major League Baseball Season during the term hereof promptly after the determination of each such schedule. (e) Upon the expiration or termination of any of Station's existing contractual commitments (it being understood that Station's renewal of an existing commitment shall not be deemed an expiration or termination) for non- NBC programming broadcast by the Station during the hours of 8:00 A.M.-4:00 P.M. ("Other Programming"), the Station agrees to clear additional NBC Daytime programming Monday through Friday in the Live Time Period for such programming as scheduled by NBC (the "Additional Daytime Programs") until such time as Station clears a total of four (4) hours of NBC Daytime programming Monday through Friday, except to the extent that Station broadcasts, in the hours formerly utilized for the broadcast of such Other Programming: (i) programming which is distributed by a syndicator other than Multimedia Entertainment, Inc. ("Multimedia Entertainment") and which is in its second or subsequent year of actual distribution; or 4 (ii) Multimedia Programming; As used herein, "Multimedia Programming" shall mean programming produced syndicated or distributed by Multimedia Entertainment; provided that Multimedia Entertainment is a -------- direct or indirect subsidiary of Multimedia, Inc. ("Multimedia") and the majority of the outstanding shares of voting stock of Multimedia is beneficially owned, directly or indirectly by the holders of such majority stock interest as of the date hereof ("Current Multimedia"), provided, -------- however, that if Multimedia Entertainment is owned or controlled by a ------- person or entity other than the Current Multimedia (a "Third Party Owner"), "Multimedia Programming" shall mean (A) programs being produced, syndicated or distributed by Multimedia Entertainment or (B) programs actually in development by Multimedia Entertainment, in each case as of the date of this Agreement. In the event of any such additional clearance of NBC Daytime programming by Station, the time period for such additional clearance shall then be added to the Daytime Programmed Time Period for purposes of Paragraphs 2(b) and 3(a) of the Agreement. Notwithstanding the foregoing, if any Additional Daytime Program (including any replacement programming) does not achieve an A.E. Nielsen Co. rating of three (3) DMA (as defined by Nielsen) Households (HH) or more by the second ratings sweeps periods (i.e. November, February, or May ratings periods) following such additional clearance by Station (the "Three Rating") during any full Broadcast Year in which such program is broadcast by Station, the Station may, no earlier than one year after Station commences its broadcast of such NBC program, cancel its clearance of such NBC Program and enter into an agreement to broadcast programming set forth in clauses (i) or (ii) of this Paragraph 3(c); provided that in the event NBC replaces such NBC program, Station agrees to - -------- clear such replacement program in accordance with the procedure as set forth in this Paragraph 3(e). 4. Preemptions. ----------- (a) In the event that Station, for any reason, fails to broadcast or advises NBC that it will not broadcast any NBC programming as provided herein, then, in each case, Station, upon notice from NBC to Station, shall broadcast such omitted programming and the commercial announcements contained therein (or any replacement programming and the commercial announcements contained therein) during a time period or periods which the parties shall use reasonable efforts to promptly and mutually agree upon and which shall, to the extent possible, be of a quality and rating value comparable to that of the time period or periods at which such omitted programming was not broadcast as provided herein. In the event that the parties do not promptly agree upon a time period or periods as provided in the preceding sentence, then, without limitation to any other right of NBC under this 5 Agreement or otherwise, NBC shall have the right to license the broadcast rights to the applicable omitted programming (or replacement programming) to another television station located in Station's community of license. (b) In the event that Station preempts or fails to clear or broadcast any NBC programming as provided herein for any reason other than: (i) the live coverage of local news events, (ii) as permitted by Paragraphs 3(b), 3(c) or 3(d) above, (iii) force majeure as provided for in Paragraph 12 below, or (iv) because: (A) the programming is delivered in a form which does not meet accepted standards of good engineering practice; (B) the programming does not comply with the rules and regulations of the FCC; or (C) Station reasonably believes that such programming would not meet prevailing contemporary standards of good taste in its community of license, then, without limiting any other rights of NBC under this Agreement or otherwise, upon NBC's request, Station shall pay NBC, or NBC may deduct or offset from any amounts payable to Station hereunder or under any other agreement between Station and NBC (or an entity controlling, controlled by or under common control with NBC), an amount equivalent to NBC's loss in net advertising revenues attributable to the failure of Station to broadcast such program in Station's market as scheduled by NBC which amount shall be calculated in accordance with Exhibit A hereto; provided, -------- however, that the maximum amounts payable by Station to NBC pursuant to this - ------- Paragraph 4(b) shall not exceed (i) with respect to the first three hours of preemptions of NBC programs, in the aggregate, in any Broadcast Year in excess of the preemption amounts set forth in Paragraphs 3(b), 3(c) and 3(d) hereof (the "Three Hour Amount"), an amount equal to the aggregate of the compensation that would have been payable by NBC to Station pursuant to Paragraph 5 hereof and any additional consideration payable to Multimedia pursuant to Paragraph 6 hereof, if Station had not preempted such NBC programming and (ii) with respect to any and all preemptions in excess of the Three Hour Amount, an amount equal to the product of (x) two (2) times (y) such amounts set forth in (i) above in ----- respect of such preempted NBC programming. Notwithstanding the foregoing, NBC shall not deduct or offset from any amounts payable to Station or Multimedia hereunder any amounts with respect to NBC's loss in net advertising revenues due to Station's preemption of NBC programs in connection with Station's broadcast of Cincinnati Reds Games in compliance with Paragraphs 3(b), 3(c) or 3(d) hereof. Station acknowledges that NBC programming previously broadcast by Station has been generally consistent with the standards set forth in the foregoing clause (C); Station also agrees that Station's reasonable belief that an NBC program does not meet such standards will be based on a substantial difference in such program's style and content from NBC programs previously broadcast by Station unless the relevant standards in the Station's community of license have changed. 6 (c) With respect to programs offered or already contracted for pursuant to this Agreement, nothing herein contained shall be construed to prevent or hinder Station from: (i) rejecting or refusing any NBC program which Station reasonably believes to be unsatisfactory or unsuitable or contrary to the public interest, or (ii) substituting a program which, in Station's opinion, is of greater local or national importance; provided, however, that Station shall give NBC written notice of each such rejection, refusal or substitution, and the reason therefor at least three (3) weeks in advance of the scheduled broadcast or as soon as possible (including and explanation of the cause for any lesser notice). Station confirms that its determination that a substitute program is of greater local or national importance shall be based on Station's reasonable good faith judgment. 5. Station Compensation. In further consideration of Station's -------------------- performance of its obligations under this Agreement NBC shall compensate Station as follows: (a) (i) NBC shall pay Station for Station's broadcast of each network sponsored program or portion thereof (except those specified in Paragraph 5(b) below which is broadcast during the Live Time Period therefor the amount resulting from multiplying the following: (A Station's Network Station Rate which is $___,880; by (B The percentage set forth in the compensation matrix table attached hereto as Exhibit B (the "Compensation Table") opposite the applicable time period; by (C The fraction of an hour substantially occupied by such program or portion thereof; by (D The fraction of the aggregate length of all Commercial Availabilities during such program or portion thereof occupied by Network Commercial Announcements. As used herein, "Live Time Period" shall mean the time period or periods as specified by NBC for the broadcast of a program by Station. "Commercial Availability" shall mean a period of time made available by NBC during a network sponsored program for one or more Network Commercial Announcements; and "Network Commercial Announcement" shall mean a commercial announcement broadcast over Station during a Commercial Availability and paid for by or on behalf of one or more of NBC's network advertisers, not including, however, announcements consisting of billboards, credits, public 7 service announcements, promotional announcements and announcements required by law. (ii) For each network sponsored program or portion thereof (except those specified in Paragraph 5(b) below) which is broadcast by Station during a time period other than the Live Time Period therefor, NBC shall pay Station as if Station had broadcast the program or portion thereof during such Live Time Period, except that if the percentage set forth in the Compensation Table opposite the time period during which Station broadcasts the program or portion thereof is less than that set forth opposite such Live Time Period, NBC shall pay Station on the basis of the time period during which Station broadcasts the program or portion thereof. (b) NBC shall pay Station such amounts as NBC and Station shall agree upon for all network sponsored programs broadcast by Station consisting of: (i) Sports programs (ii) Special events programs, and (iii) Programs for which NBC specifies a Live Time Period which straddles any of the time period categories in the Compensation Table. (c) (i) On or about the fifteenth day of the last month of each calendar quarter during the term hereof, subject to the timely receipt of reports requested under Paragraph 10 below, NBC shall pay Station, by electronic transfer or such other means as NBC shall determine, an estimate of the amounts due hereunder for such calendar quarter. NBC shall make the appropriate adjustment for the payment actually due for such calendar quarter in the payment of the estimated amount due for the next calendar quarter. NBC shall calculate the amounts due hereunder on a weekly basis and shall report such amounts to Station within a reasonable period of time after the close of each month during the term. (ii) From the amounts otherwise payable to Station hereunder, NBC shall deduct for each week during each calendar quarter of the term hereof a sum equal to 117% of Station's Network Station Rate provided in subparagraph 5(a)(i)(A) above (the "Waiver Percentage"). This deduction shall be calculated on a weekly basis, with 4.2857 as the agreed number of weeks per month, and shall be reported to Station with the reports due under subparagraph 5(c)(i) above. NBC shall make other deductions from the amounts otherwise payable to Station hereunder for additional services made available by NBC and utilized by Station such as, but not limited to NNC News Channel. 8 (d) (i) Subject to the limitations set forth below, NBC reserves the right as part of a general rate revision to reevaluate and change at any time (A) the percentages set forth in the Compensation Table, or (B) the Waiver Percentage set forth in subparagraph 5(c)(ii) above by giving written notice to Station at least thirty (30) days prior to the effective date of such change. Notwithstanding the foregoing, NBC agrees that: (X) the Compensation Table attached hereto as Exhibit B shall be modified during the term of this Agreement only as mutually agreed to by NBC and Station; and (Y) NBC may increase the Waiver Percentage only by reason of an increase in NBC's technical costs of delivering programming to the NBC Television Network provided that any such increase in the Waiver Percentage -------- shall be subject to review by the NBC Affiliate Board. (ii) Notwithstanding anything contained in subparagraph 5(d)(i) to the contrary, the parties acknowledge that the payment of compensation to Station hereunder is in consideration of certain commitments by Station, including commitments regarding Station's local news program schedule and promotion of NBC programming as respectively set forth in Exhibits C and D attached hereto, which Exhibits are incorporated herein by this reference. In the event that Station (A) materially reduces its local news program schedule as set forth in Exhibit C or B) does not fulfill such commitments as are set forth in Exhibit D in all years during the term of this Agreement. NBC reserves the right to decrease Station's Network Station Rate by notifying Station in writing at least ninety (90) days prior to the effective date of such change. (e) The parties agree that the letter dated April 21, 1994 from NBC to Station relating to NBC's "Affiliate Olympic Contribution Plan" shall continue to effect with respect to Station and that the Station's contribution amount shall remain in effect during the applicable time periods as set forth therein. 6. Additional Consideration. In consideration of Multimedia causing ------------------------ Station to enter into this Agreement and Station's performance of its obligations under this Agreement, NBC agrees to pay to Multimedia the additional amounts (the "Additional Payments") set forth on Exhibit E hereto subject to the provisions thereof. 7. Local Commercial Announcements. Subject to the following sentence, ------------------------------ NBC agrees that during each quarter during the term of this Agreement, the average weekly number of minutes available for Station's local commercial announcements in and adjacent to regularly scheduled NBC programming in each daypart (with pro-rated adjustments for national sports programming, special news coverage or other special events) shall not be less than ninety-five percent 9 (95%) of the average weekly number of minutes for the applicable daypart during the 1993-94 Broadcast Year as set forth in Exhibit F attached hereto (except if the reduction is due to a change in applicable government regulations). In the event of a reduction in the average weekly number of minutes available for Station's local commercial announcements in the adjacent to regularly scheduled NBC programming which causes NBC not to be in compliance with the foregoing provision, NBC agrees to offset the effects of such reduction by providing Station with a comparable economic benefit, which benefit may take the form of local coverage of NBC promotional announcements, an increase in the amount of Station's preemptions permitted under Paragraphs 3(b), 3(c) or 3(d) hereof, or other form of benefit. The foregoing provisions of this Paragraph 7 are not intended to facilitate any disproportionate change by NBC in the allocation of the number of minutes available for Station's local commercial announcements in and adjacent to regularly scheduled NBC programming among different time periods in any daypart if such change is soley for NBC's economic benefits. 8. Delivery. NBC shall transmit the programming hereunder by satellite -------- and shall notify Station as to both the satellite and transponder being used for such transmission, and the programming shall be deemed delivered to Station when transmitted to the satellite. Where, in the opinion of NBC, it is impractical or undesirable to furnish a program over satellite facilities, NBC may deliver the program to Station in any other manner, including but not limited to, in the form of motion picture film, video tape or other recorded version, postage prepaid, in sufficient time for Station to broadcast the program at the time scheduled. Such recordings shall be used only for a single television broadcast over Station, and Station shall comply with all NBC instructions concerning the disposition to be made of each such recording received by Station hereunder. 9. Conditions of Station's Broadcast. Station's broadcast os NBC --------------------------------- programming shall be subject to the following terms and conditions: (a) Station shall not make any deletions from, or additions or modifications to, any NBC program furnished to Station hereunder or any commercial, NBC identification, program promotional or production credit announcements or other interstitial material contained therein, nor broadcast any commercial or other announcements (except emergency bulletins) during any such program, without NBC's prior written authorization. Station may however, delete announcements promoting any NBC program which is not to be broadcast by Station, provided that such deletion shall be permitted only in the event and to the extent that Station substitutes for any such deleted promotional announcements other announcements promoting NBC programs to be broadcast by Station. 10 (b) For purposes of identification of Station with the NBC programs, and until written notice to the contrary is given by NBC, Station may superimpose on various Entertainment programs, where designated by NBC, a single line of type, not to exceed fifty (50) video lines in height and situated in the lower eighth raster of the video screen, which single line shall include (and be limited to) Station's call letters community of license or home market, channel number, and the NBC logo. No other addition to any Entertainment program is contemplated by this consent, and the authorization contained herein specifically excludes and prohibits any addition whatsoever to News and Sports programs, except identification of Station as provided in the preceding sentence as required by the FCC. (c) The placement and duration of station-break periods provided for locally originated announcements between NBC programs or segments thereof shall be designated by NBC. Station shall broadcast each NBC program delivered to Station hereunder from the commencement of network origination until the commencement of the terminal station break. (d) In the event of the confirmation by NBC of any violation by Station of any of the provisions of this Paragraph 9, NBC may, in its reasonable discretion following written notice to Station and an opportunity for Station to respond, withhold an amount of compensation otherwise due Station under Paragraph 5 above which is appropriate in view of the nature of the specific violation, it being understood that the amount withheld for any violation shall not exceed the total compensation due Station for the week in which such violation occurs. Nothing herein contained shall limit the rights of Station under Paragraph 4(c) above. 10. Station Reports. Station shall submit to NBC in writing, upon forms --------------- provided by NBC, such reports as NBC may request covering the broadcast by Station of programs furnished to Station hereunder. 11. Music Performance Rights. All programs delivered to Station pursuant ------------------------ to this Agreement shall be furnished with all music performance rights necessary for broadcast by Station included. Station shall have no responsibility for obtaining such rights from ASCAP, BMI or other music licensing societies insofar as the programs delivered by NBC to Station for broadcasting are concerned. As used in this paragraph, "programs" shall include, but shall not be limited to, program and promotional material and commercial and public service announcements furnished by NBC. Station shall be responsible for all music license requirements for any commercial and public service announcements or other material inserted by Station within or adjacent to the programs as permitted under the terms of this Agreement, except for cut-ins produced by or on behalf of NBC and inserted by Station at NBC's direction. 11 12. Force Majeure. Neither Station nor NBC shall incur any liability ------------- hereunder because of NBC's failure to deliver, or the failure of Station to broadcast, any or all programs due to failure of facilities, labor disputes, government regulations or causes beyond the reasonable control of the party so failing to deliver or to broadcast. Without limiting the generality of the foregoing, NBC's failure to deliver a program for any of the following reasons shall be deemed to be for causes beyond NBC's reasonable control: cancellation of a program because of the death, illness or refusal to appear or perform of a star or principal performer therein, or because of such person's failure to conduct himself or herself with due regard to social conventions and public morals and decency, or because of such person's commission of any act or involvement in any situation or occurrence tending to degrade him or her in society, or bringing him or her into public disrepute, contempt, scandal or ridicule, or tending to shock, insult or offend the community, or tending to reflect unfavorable upon NBC or the program sponsor. 13. Indemnification. NBC shall indemnify, defend and hold Station, its --------------- parent, subsidiary and affiliated companies, and their respective directors, officers and employees, harmless from and against all claims, damages, liabilities, costs and expenses (including reasonable attorney's fees) arising out of the use by Station, in accordance with this Agreement, of any program or other material as furnished by NBC hereunder, provided that Station promptly notifies NBC of any claim or litigation to which this indemnity shall apply and that Station cooperates fully with NBC in the defense or settlement of such claim or litigation. Similarly, Station shall indemnify, defend and hold NBC, its parent, subsidiary and affiliate companies and their respective directors, officers and employees, harmless with respect to material added to or deleted from any program by Station, except for cut-ins produced by or on behalf of NBC and inserted by Station at NBC's direction. These indemnities shall not apply to litigation expenses, including attorneys' fees, which the indemnified party elects to incur on its own behalf. Except as otherwise provided herein, neither Station nor NBC shall have any rights against the other for claims by third persons, or for the non-operation of facilities or the non-furnishing of programs for broadcasting, if such non-operation or non-furnishing is due to failure of equipment, actions or claims by any third person, labor disputes or any cause beyond such party's reasonable control. 14. Station's Right of First Negotiation. Throughout the term of this ------------------------------------ Agreement, NBC shall give Station prompt notice of any determination by NBC to engage in new over-the-air broadcast ventures within Station's community of license (whether or not involving the transmission of television programs, but excluding any acquisition of an ownership interest in any broadcast television station) (a "Broadcast Venture"). NBC shall negotiate exclusively with Station in good faith, for a period of time 12 following such notice to Station as shall be determined by NBC to be appropriate to the circumstances and as shall be specified in such notice, with respect to Station's participation on a financial and/or operational basis in any such Broadcast Venture within Station's community of license before NBC may enter into any such negotiations with a Third Party (as defined below) within such community of license. "Third Party" shall mean any person or entity other than an NBC Party; "NBC Party" shall mean any of NBC, National Broadcasting Company, Inc. or their respective parent, subsidiary, affiliated, related or successor entities. 15. Change in Operations. Station represents and warrants that it holds a -------------------- valid license granted by the FCC to operate the Station as a television broadcast station; such representation and warranty shall constitute a continuing representation and warranty by Station. In the event that Station's transmitter location, power frequency, programming format or hours of operation are materially changed at any time so that Station is of less value to NBC as a broadcaster of NBC programming than at the date of this Agreement, then NBC shall have the right to terminate this Agreement upon thirty (30) days prior written notice to Station. 16. Assignment. ---------- (a) This Agreement shall not be assigned without the prior written consent of NBC, and any permitted assignment shall not relieve Station of its obligations hereunder; provided, however, that NBC agrees to not unreasonably -------- ------- withhold its consent to an assignment of this Agreement by Station and; provided, further, that NBC's consent shall not be required in the event that - -------- ------- Station assigns its rights and obligations hereunder to a direct or indirect subsidiary of Multimedia, and the majority of the outstanding shares of voting stock of Multimedia continues to be owned and controlled by the current holders of such majority stock interest. Without limiting the foregoing or the provisions of Paragraph 16(b) below, the parties agree that NBC shall not have been deemed to have unreasonably withheld its consent or unreasonably terminated this Agreement if it withholds its consent to an assignment of this Agreement or terminates this Agreement pursuant to Paragraph 16(b) below if the assignee or transferee of the Station or control of the Station's license is an entity which (i) is a Network (as defined below), (ii) is directly or indirectly controlled by, controls or is under common control with a Network (a "Common Control Entity"), (iii) has a significant direct or indirect beneficial ownership interest in a Network or a Common Control Entity, or (iv) is an entity in which a Network or a Common Control Entity has a significant direct or indirect beneficial ownership interest. Any purported assignment by Station without such consent shall be null and void and not enforceable against NBC. In the event of any such permitted assignment, the assignee shall deliver to NBC an assumption agreement in form satisfactory to NBC. As used herein, "Network" shall refer to any of the CBS, 13 ABC, Fox, Warner or UPN broadcast television networks or any other broadcast television "network" as defined by the FCC. (b) Station agrees that if any application is made to the FCC pertaining to an assignment or a transfer of control of Station's license, or any interest therein, Station shall immediately notify NBC in writing of the filing of such application. Except as to "short form" assignments or transfers of control made pursuant to Section 73.3540(f) of the FCC Rules, NBC shall have the right to terminate this Agreement in the event of any such assignment or transfer; provided that NBC agrees not to unreasonably exercise such termination -------- right. Station agrees, except in the case of "short form" assignments or transfers of control, that promptly following Station's notice to NBC, Station (i) shall arrange for a meeting between NBC and the proposed assignee or transferee to review the financial and operating plans of the proposed assignee or transferee, and (ii) shall procure and deliver to NBC, in form satisfactory to NBC, the agreement of the proposed assignee or transferee that, upon consummation of the assignment or transfer of control of the Station's license, the assignee or transferee will assume and perform this Agreement in its entirety without limitation of any kind for (i) the remainder of the then- current term of this Agreement or (ii) three (3) years from the date of said assignment or transfer, whichever period is greater. Station agrees to include as a condition of any proposed assignment, sale or transfer of Station (including any assignment or transfer of control of Station's license) a contractually binding provision that the assignee or transferee shall provide the foregoing assumption agreement. If Station complies with its obligations set forth in the preceding sentence and NBC does not terminate this Agreement upon written notice to Station within the thirty (30) day period following the later of the meeting with the proposed assignee or transferee or the delivery to NBC of a satisfactory assumption agreement, NBC shall be deemed to have consented to the assignment or transfer of control. (c) NBC agrees that in the event of a sale or transfer of all or substantially all of the assets or business of NBC (whether structured as a sale or transfer of equity or assets of NBC), NBC agrees to assign this Agreement to the purchaser or transferee and to cause such purchaser or transferee to assume NBC's obligations hereunder; provided that the foregoing agreement shall not apply in the event that this Agreement becomes an obligation of such purchaser or transferee by operation of law. Upon such assignment and assumption, NBC shall have no liability to Station or Multimedia under this Agreement with respect to obligations arising after the effective date of such assignment and assumption. 17. Unauthorized Copying and Transmission. Station shall not authorize, ------------------------------------- cause, or permit, without NBC's consent, any program or other material furnished to Station hereunder to be recorded, 14 duplicated, rebroadcast or otherwise transmitted or used for any purpose other than broadcasting by Station as provided herein. Notwithstanding the foregoing, Station shall not be restricted in the exercise of its signal carriage rights pursuant to any applicable rule or regulation of the FCC with respect to retransmission of its broadcast signal by any cable system or multichannel video program distributor ("MVPD"), as defined in Section 76.64(d) of the FCC Rules, which (a) is located within the Area of Dominant Influence ("ADI") as defined by Arbitron, in which Station is located, or (b) was actually carrying Station's signal as of April 1, 1993, or (c) with respect to cable systems, serving an area in which Station is "significantly viewed" (as determined by the FCC) as of April 1, 1993; provided, however, that any such exercise pursuant to FCC Rules with respect to NBC programs shall not be deemed to constitute a license by NBC; and provided, further, that at such time as NBC adopts a term in substitution -------- ------- for the term "ADI" by reason of any similar action by the FCC or other appropriate authority, such substitute term shall replace the references to "ADI" herein. NBC reserves the right to restrict such signal carriage with respect to NBC programming in the event of a change in applicable law, rule or regulation. 18. Limitations on Retransmission Consent. In consideration of the grant ------------------------------------- by NBC to Station of the non-duplication protection provided in the most recent amendment to this Agreement, Station hereby agrees as follows: (a) Station shall not grant consent to the retransmission of its broadcast signal by any cable television system, or, except as provided in Paragraph 18 (b) below, to any other MVPD whose carriage of broadcast signals requires retransmission consent, if such cable system or MVPD is located outside the ADI to which Station is assigned, unless Station's signal was actually carried by such cable system or MVPD as of April 1, 1993, or, with respect to such cable system, is "significantly viewed" (as determined by the FCC) as of April 1, 1993; provided, however, that at each renewal of the Agreement, in the event Station can demonstrate to NBC that it is "significantly viewed" (as determined by the FCC) in areas in addition to those in which it was "significantly viewed" as of April 1, 1993 ("Additional Viewing Areas"), NBC agrees that it will negotiate in good faith with Station regarding a possible extension of Station's grant of the right to retransmit its broadcast signal to cable systems in the Additional Viewing Areas. (b) Station shall not grant consent to the retransmission of its broadcast signal by any MVPD that provides such signal to any home satellite dish user, unless such user is located within Station's own ADI or is an "unserved household" as defined in Section 119(d) or any successor provision of Title 17 of the United States Code. 15 19. Remedies for Unauthorized Copying and Transmission. If Station -------------------------------------------------- violates any of the provisions set forth in Paragraphs 17 and 18 above, NBC may, in addition to any other of its rights or remedies at law or in equity under this Agreement or any amendment thereto, terminate this Agreement by written notice to Station given at least ninety (90) days prior to the effective date of such termination. 20. Termination. Without limiting any other remedy which may be available ----------- hereunder or at law, either Station or NBC may terminate this Agreement, effective at any time by giving the other party at least thirty (30) days' prior written notice in the event that such other party materially breaches any or its obligations hereunder, unless such breach is cured within such thirty (30) day period. 21. Applicable Law. The obligations of Station and NBC under this -------------- Agreement are subject to all applicable federal, state, and local laws, rules and regulations (including but not limited to, the Communications Act of 1934, as amended, and the rules and regulations of the FCC), and this Agreement and all matters or issues collateral thereto shall be governed by the law of the State of New York applicable to contracts negotiated, executed and performed entirely therein (without regard to principles of conflicts of laws). 22. Waiver. A waiver by either of the parties hereto of a breach of any ------ provision of this Agreement shall not be deemed to constitute a waiver of any preceding or subsequent breach of the same provision or any other provision hereof. 23. Notices. Any notices hereunder shall be in writing and shall be given ------- by personal delivery, facsimile, overnight courier service, or registered or certified mail, addressed to the respective addresses set forth on the first page of this Agreement or at such other address or addresses as may be specified in writing by the party to whom the notice is given. Such notices shall be deemed given when personally delivered, faxed with receipt acknowledged, delivered to an overnight courier service or mailed, except that notice of change of address shall be effective only from the date of its receipt. 24. Captions. The captions of the paragraphs in this Agreement are for -------- convenience only and shall not in any way affect the interpretation hereof. 25. Entire Agreement. The foregoing constitutes the entire agreement ---------------- between Station and NBC with respect to the subject matter hereof, all prior understandings being merged herein, except for the most recent amendment with respect to network nonduplication protection under FCC Rules Section 76.92. This Agreement may not be changed, modified, renewed, extended or 16 discharged, except as specifically provided herein or by an agreement in writing signed by the parties hereto. 26. Confidentiality. The parties agree to use their best efforts to --------------- preserve the confidentiality of this Agreement and of the terms and conditions set forth herein, and the exhibits annexed hereto, to the fullest extent permissible by law. The parties recognize that Section 73.3613 of the FCC's Rules and Regulations requires the filing with the FCC of television network affiliation agreements by each affiliate, but are unaware of any requirement for the filing of exhibits annexed to such affiliation agreements. In the event that the FCC should request either party to file said exhibits, that party shall give prompt notice to the other, and shall submit said exhibits to the FCC with a request that said exhibits be withheld from public inspection pursuant to Section 0.459 of the FCC's Rules and Regulations on the grounds that said exhibits contain confidential commercial or financial information that would customarily be guarded from competitors and not be released to the public. 27. Counterparts. This Agreement may be signed in any number of ------------ counterparts with the same effect as if the signature to each such counterpart were upon the same instrument. 17 If the foregoing is in accordance with your understanding, please indicate your acceptance on the copy of this Agreement enclosed for that purpose and return that copy to NBC. Very truly yours, NATIONAL BROADCASTING COMPANY, INC. By: s/ -------------------------------- AGREED: MULTIMEDIA ENTERTAINMENT, INC. By: s/ -------------------------- MULTIMEDIA, INC. By: s/ --------------------------- 18 EXHIBIT "A" ----------- ECONOMIC ADJUSTMENTS Adjustments due to an Unauthorized Preemption of an NBC program (as utilized in Paragraph 4(b) of the Agreement) will be calculated using the following two factors: 1. "Station's NBC delivery percentages" which is the Station's audience contribution to NBC Network programs expressed as a percentage. (This is the same NBC delivery percentage used in the annual compensation evaluation.) 2. "Program revenue" which is the average NBC Network revenue for the preempted program. (NOTE: Program revenue will be the average revenue per program based on total annual revenue for that program, except revenue for each prime time program, which will be adjusted for the day of the week and the quarter in which the program is aired.) Station's NBC delivery percentage is multiplied by the program revenue to yield the dollar adjustment. An example: Station preempts "Program X" Station's NBC Network delivery % = 2.1% NBC'S revenue for "Program X = $900,000 $900,000 x 2.1% = $18,900 payment to NBC 19 EXHIBIT "B" WLWT, CINCINNATI, OHIO Compensation Matrix ------------------- (NETWORK STATION RATE ________________ X HOURS CARRIED X % BELOW) MON - SUN 6PM - 11PM* 30% - ----------------------------------------------------------------------- MON - SUN 5PM - 6PM* 15% 11PM - 1AM SAT - SUN 4PM - 5PM - ----------------------------------------------------------------------- MON - FRI 9AM - 5PM 13.38% - ----------------------------------------------------------------------- SUN 7AM - 4PM** 10.5% SAT 2PM - 4PM - ------------------------------------------------------------------------ SAT 7AM - 2PM 7.88% - ------------------------------------------------------------------------ NIGHTLY NEWS MON - FRI 0% NIGHTLY NEWS SAT - SUN 10% - ------------------------------------------------------------------------ TONIGHT SHOW 7.5% - ------------------------------------------------------------------------ LATE NIGHT 10.25% - ------------------------------------------------------------------------ FRIDAY NIGHT 4.75% - ------------------------------------------------------------------------ LATER 4% - ------------------------------------------------------------------------ SATURDAY NIGHT LIVE 6.67% - ------------------------------------------------------------------------ * EXCLUDING NIGHTLY NEWS ** EXCLUDING SATURDAY AND SUNDAY TODAY All times above are expressed in terms of your station's then current local time. 20 EXHIBIT "C" ----------- WLWT NEWS PROGRAMS Monday - Friday ---------------------------- 6:00 A.M. 7:00 A.M. 12:00 Noon 12:30 P.M. 5:00 P.M. 6:30 P.M. 11:00 P.M. 11:35 P.M. Saturday -------- 7:00 A.M. 8:00 A.M. 10:00 A.M. 11:00 A.M. 6:00 P.M. 6:30 P.M. 11:00 P.M. 11:30 P.M. Sunday ------ 7:00 A.M. 8:00 A.M. 10:00 A.M. 11:00 A.M. 6:00 P.M. 6:30 P.M. 11:00 P.M. 11:35 P.M. Notwithstanding the foregoing, NBC agrees that Station may reduce or change such local news program schedule so long as Station broadcasts at all times during the term of the Agreement, local news programs of at least thirty (30) minutes in length as a lead-in to "The Today Show" (or replacement programming), "NBC Nightly News" (or any replacement programming) and NBC's Late Night Programming. 21 EXHIBIT "E" ------------ ADDITIONAL PAYMENTS ------------------- In consideration of Multimedia, Inc. ("Multimedia") causing Station to enter into this Agreement and the Station's performance of its obligations hereunder, and subject to the Station's compliance with each of its commitments regarding clearance and preemption of NBC programming as set forth in this Agreement (which the parties expressly agree and acknowledge are the essence of this Agreement), NBC agrees to pay Multimedia, for each quarter during the term of this Agreement, (i) an Additional Payment Amount as calculated herein and (ii) if applicable, certain amounts pursuant to Paragraph 5 of this Exhibit E: 1. The "Additional Payment Amount" for each quarter shall equal the product of (a) the total during such quarter of the hours broadcast live by the Station of NBC Prime Time programming for which compensation is payable, multiplied by (b) the Station's Additional Payment Rate (as defined below). 2. The Station's "Additional Payment Rate" shall be calculated by dividing (a) the Gross Additional Consideration for the Station as set forth below by (b) the difference of 1100 Prime Time Hours (i.e. assumed number of compensable hours of NBC programming in a Broadcast Year) minus all Prime Time preemptions permitted under Paragraphs 3(b) and 3(d) of the Agreement for such year. 3. With respect to each Broadcast Year during the initial term of this Agreement, the Gross Additional Consideration for the Station in any Broadcast Year during the initial term of this Agreement shall be the difference between (a) the "Total Amount" (as defined below) for such Broadcast Year and (b) the amount of compensation payable for such Broadcast Year calculated on the basis of Station's Network Station Rate as of the date hereof, the Compensation Table set forth as Exhibit B to this Agreement and Station's agreed clearance levels for NBC programming for such year (giving effect to all preemptions permitted under Paragraphs 3(b), 3(c) and 3(d) of this Agreement) for such Broadcast Year. For 1996 and other years in which there are Olympic or other special event programs for which compensation is not payable, such programs will be treated as if they are compensable for purposes of calculating the amount of Station's compensation pursuant to the foregoing clause (b) of this Paragraph 3. The "Total Amount" shall be as set forth for each Broadcast Year during the initial term of this Agreement: 22 Broadcast Year Total Amount -------------- ------------ 1994-1995 $1,500,000 1995-1996 $1,900,000 1996-1997 $1,900,000 1997-1998 $1,900,000 1998-1999 $1,900,000 1999-2000 $2,100,000 provided, that if Station enters into, renews or is bound by any agreement, commitment or understanding to broadcast Cincinnati Reds Games for any portion of the 1996 Major League Baseball season or any season thereafter, the Total Amount shall be reduced by $1,000,000 for each such Broadcast Year. If, after such reduction, Station's compensation payable pursuant to Paragraph 5 of the Agreement exceeds the Total Amount, NBC shall not be obligated to pay any "Additional Payment Amount" to Multimedia. 4. The Additional Payment Amount for the Station shall be paid to Multimedia on a quarterly basis at the time compensation is payable to the Station. In calculating the Additional Payment Amount for a quarter during a particular Broadcast Year, NBC shall estimate the amount of compensation referred to in Paragraph 3(b) of this Exhibit E. In the event that such estimated amount differs from the actual amount referred to in such Paragraph 3(b), NBC shall make an appropriate or decrease to the Additional Payment Amount sayable in respect of the final quarter during a year to give effect to such difference between such estimated and actual amounts. 5. In the event that Station accepts and clears NBC Programming outside the Programmed Time Periods in effect as of the date hereof" for which compensation is payable pursuant to Paragraph 5 (a)(i) of this Agreement ("Additional Clearances"), NBC agrees to pay Station in respect of such Additional Clearances an amount equal to (a) the product of (i) the Imputed Rate times (ii) the number of hours of such Additional Clearances of NBC Programming minus (b) the compensation otherwise payable to Station pursuant to Paragraph 5(a)(i) of this Agreement in respect of such Additional Clearances utilizing Station's actual Network Station Rate. The "Imputed Rate" shall mean the Network Station Rate that would yield total compensation (without giving effect to any Additional Payments) equal to the Total Amount based on Station's 1994 clearances and Station's Compensation Table in effect as of the date hereof. 23 EXHIBIT "F" LOCAL INVENTORY REGULAR SCHEDULED PROGRAMS Weekly Weekly Units Minutes ------ -------- Primetime 106 53' Late Night 215 107' 30" Daytime 115 57' 30" News 219 109' 30" 24 July 11, 1995 Multimedia, Inc. and Multimedia Entertainment, Inc. c/o WLWT 140 West Ninth Street Cincinnati, Ohio 45202 Gentlemen: In connection with that certain Affiliation Agreement (the "Agreement") dated July 11, 1995 between NBC Television Network ("NBC"), Multimedia, Inc. and Multimedia Entertainment, Inc., licensee of television broadcast station WLWT, Cincinnati Ohio (collectively, the "Station"), the Station and NBC hereby agree as follows: 1. NBC hereby confirms that Paragraphs 2 and 3 of the Agreement notwithstanding, the Station shall be Permitted to: (a) broadcast "Late Night with Conan O'Brien" (or any replacement programming) up to one hour later than its scheduled Live Time Period; provided, -------- however, that the Station broadcasts programming produced, syndicated or - ------- distributed by Multimedia during the scheduled Live Time Period for such NBC programming; (b) broadcast "Later with Greg Kinnear" (or any replacement programming) and "Friday Night" (or any replacement programming) after the Station's broadcast of "Late Night with Conan O'Brien" (or any replacement programming) (i.e. the Station shall be permitted to broadcast such programs up to one hour later than their respective scheduled Live Time Periods in the event that Station delays the broadcast of "Late Night with Conan O'Brien" (or any replacements programming) pursuant to clause (a) above); (c) not broadcast "The Other Side" or "Leeza" (or any respective replacement programming) in the daytime (9:00 a.m. to 4:00 p.m. local time) Monday through Friday time period; provided, the provisions of Paragraph 3(e) of -------- the Agreement shall apply to the foregoing programming; and (d) not broadcast "Saved By The Bell-B (second half hour)," "California Dreams," or "Inside Stuff" (or any respective replacement programming) on Saturdays. 25 2. Each defined term used herein without definition shall have the meaning assigned to such term in the Agreement. Please indicate your acceptance of the foregoing by signing in the space indicated below. Very truly yours, NBC TELEVISION NETWORK By: s/ ---------------------------------- Name: Title: The foregoing has been reviewed by, and is acceptable to: MULTIMEDIA ENTERTAINMENT, INC. By: s/ Robert E. Hamby, Jr. ----------------------- Name: Robert E. Hamby, Jr. Title: Vice President MULTIMEDIA, INC. By: s/ Robert E. Hamby, Jr. ----------------------- Name: Robert E. Hamby, Jr. Title: Vice President 26 EX-10.8B 3 AFFILIATION AGREEMENT BETWEEN COMBINED COMM. & ABC EXHIBIT 10.8b Capital Cities/ABC, Inc. 77 West 66 Street New York NY 10023 (212) 456-7777 February 8, 1990 PRIMARY TELEVISION AFFILIATION AGREEMENT ---------------------------------------- Combined Communications Corporation of Oklahoma Inc. Oklahoma City, Oklahoma TELEVISION STATION: KOCO Gentlemen: In order that your station may continue to serve the public interest, convenience and necessity, this Company and your Television Station KOCO hereby ---- mutually agree upon the following plan of network cooperation, which shall replace the affiliation agreement between you and us dated October 21, 1980, as amended. I. NETWORK AFFILIATION AND PROGRAM SERVICE --------------------------------------- A. FIRST CALL. We will offer you, for television broadcasting by your ---------- station, the first call on all our network television programs which are to be broadcast on a television network basis in the community to which your station is licensed by the Federal Communications Commission, except as hereinafter provided in Paragraph V.3. Notwithstanding the foregoing, ABC shall have the right to authorize any television broadcasting station regardless of the community to which it is licensed by the FCC, to broadcast any network presentation of a subject we deem to be of immediate national significance including, but not limited to, a Presidential address. B. PROGRAM SERVICE. The program service we are offering will be as --------------- follows: 1. Network Sponsored Programs. "Network sponsored programs", as used -------------------------- in this agreement, shall mean those television network programs which contain one or more commercial announcements paid for by or on behalf of one or more ABC Network advertisers. You agree to broadcast network sponsored programs in their entirety, including but not limited to the network commercial announcements ordered for your station, network identifications, program promotional material or credit announcements contained in such programs which you accept, without interruption or deletion or addition of any kind. Notwithstanding the foregoing, you may substitute other ABC-TV promotional announcements in lieu of program promotional material which is inaccurate as it pertains to your station. It is also understood that no commercial announcement, promotional announcement or public service, announcement will be broadcast by you during any interval within a network program designated by ABC as being for the sole purpose of making a station identification announcement. 2. Network Sustaining, Cooperative and Spot Carrier Programs. --------------------------------------------------------- (a) We will from time to time offer you live or recorded network programs identified as sustaining programs, cooperative programs or spot carrier programs. Except as set forth below in subparagraphs (b) and (c), you agree to broadcast such programs which you accept in their entirety without interruption or deletion or addition of any kind. (b) The network sustaining programs which we may offer to you may not, without our prior written consent, be sold by your station for commercial sponsorship or interrupted for commercial announcements or used for any purpose other than sustaining broadcasting. (c) You may carry the cooperative or spot carrier programs on the same basis as regular sustaining programs or you may offer them for commercial sponsorship on terms and conditions specified by us at the time such programs are offered to you. C. PROGRAM ACCEPTANCE. You agree that you will advise us within 15 days ------------------ of the date of our offer of your acceptance (if requested to do so by the terms of our offer) or rejection of any offer by us relating to a regularly scheduled network program. With respect to any network program not regularly scheduled, you will advise us of your acceptance or rejection of our offer within 72 hours (exclusive of Saturdays, Sundays and holidays) after such offer has been received at your station. However, if the first broadcast referred to in our offer is scheduled to occur within less than 15 days after the date of our offer with respect to regularly scheduled network programs or less than 72 hours after our offer has been received at your station with respect to network programs not regularly scheduled, you shall notify us of your acceptance or rejection of such offer as promptly as possible, but in no event after the first broadcast time specified in such offer. Acceptance by you of our offer of a network program(s) shall constitute your agreement to broadcast such network program(s) in 2 accordance with the terms of this agreement and of our offer to you. D. PROGRAM DELIVERY. By means satisfactory to us, we will arrange, at ---------------- our own expense, for programs to be delivered to your station. II. NETWORK STATION COMPENSATION ---------------------------- 1. We agree to pay you, and you agree to accept, compensation in accordance with the provisions set forth in Schedule A attached hereto and hereby made a part hereof. The network station rate for your station shall be $1,600.00 and shall be used by us in determining your station compensation in accordance with the formula set forth in Schedule A. 2. If you should be unable, for any reason to broadcast any network sponsored program(s), or any portion thereof, your compensation hereunder from us for that period shall be reduced accordingly. 3. We reserve the right to reevaluate and change at any time (a) the network station rate set forth in Subparagraph 1 above, (b) the percentage(s) set forth in the Table in Schedule A, or (c) your network weekly deduction, by notice to you in writing to such effect. Any increase in your station rate or in the percentage(s) in Schedule A, or any decrease in your network weekly deduction, will become effective on the date specified in our notice to you. Should we (a) decrease the network station rate below that set forth in Subparagraph 1 above, (b) decrease the percentage(s) in Schedule A, or (c) increase your network weekly deduction, we will notify you in writing at least ninety (90) days prior to the effective date of such change, and you may, if you so elect, terminate this affiliation agreement as of the effective date by giving us prior written notification within forty-five (45) days after the date of our notice to you. However, if such reduction in compensation is part of a general rate revision on the ABC Network, we will notify you in writing at least thirty (30) days prior to the effective date of such change, and you may, if you so elect, terminate this affiliation agreement as of the effective date by giving us prior written notification within fifteen (15) days after the date of our notice to you of such change. You agree that a general rate revision on the ABC Television Network may be expressed by us as a modification of your network rate, and/or as a modification of the percentage(s) set forth in Schedule A and/or as a modification of your network weekly deduction. 3 III. NETWORK NON-DUPLICATION PROTECTION ---------------------------------- As of January 1, 1990 (or such other effective date established by the Federal Communications Commission for operation of the revised network non- duplication rules), you shall be entitled to network non-duplication protection provided as and to the extent set forth in Rider One to this agreement, which is attached hereto and made a part hereof. IV. CUT-IN ANNOUNCEMENTS AND LOCAL TAG SERVICES ------------------------------------------- A. CUT-IN ANNOUNCEMENTS. "Cut-In Announcements", as used herein, shall -------------------- mean the substitution of a special commercial in place of a regularly scheduled network commercial. 1. Upon at least twenty-four (24) hours' notice, you shall, at our request, furnish such personnel and equipment as may be necessary to (a) broadcast cut-in announcements from your station alone, or (b) originate from your station cut-in announcement(s) to one or more other stations, without regard to whether or not your station is requested to broadcast said cut-in announcement(s). Notwithstanding anything contained in this agreement, you may refuse to broadcast any such cut-in announcement in the community to which your station is licensed by the FCC if, in your opinion, it is not in the public interest, convenience or necessity, but you shall nevertheless furnish such personnel and equipment as may be necessary to originate such cut-in announcement(s) from your station to one-or more other stations. 2. Cut-in announcements shall be broadcast only when authorized by us and then only in accordance with the instructions furnished to you. You will be supplied, as promptly as possible, with the material and instructions for these announcements. 3. We may cancel any order for cut-in announcements without liability on our part, provided we do so upon not less than twenty-four (24) hours' notice to you, failing which, we will pay you the compensation you would have received if the announcement(s) had continued as scheduled for twenty- four (24) hours following receipt by you of such notice of cancellation. 4. For each program during which such cut-in announcements are included, we shall pay you in accordance with the applicable table set forth in Schedule B hereto and hereby made a part hereof. B. LOCAL TAG SERVICES. "Local Tag Announcements", as used herein, shall ------------------ mean a visual commercial announcement, made by you on 4 behalf of a local dealer of a network advertiser, not exceeding ten seconds of a one-minute network commercial announcement or five seconds of a thirty-second network commercial announcement projected by means of a slide and not utilizing more than two (2) slides. 1. Upon at least twenty-four (24) hours' notice, you shall, at our request, furnish such personnel and equipment as may be necessary to broadcast "local tag announcements". 2. Local tag announcements shall be broadcast in accordance with our instructions. The network advertiser shall supply to you or purchase from you, as promptly as possible, the slide(s) for each local tag announcement. Local tag announcements shall not be accompanied by oral announcements unless the network advertiser shall make direct requests of you therefor and shall have assumed sole responsibility for payment of such oral announcements. 3. We may cancel any order for local tag announcements without liability on our part provided we do so upon not less than twenty-four (24) hours' notice to you, failing which we will pay you the compensation you would have received if the local tag announcements had continued as scheduled for twenty-four (24) hours following receipt by you of such notice of cancellation. 4. For each local tag announcement which you broadcast, we shall compensate you in accordance with the applicable table set forth in Schedule B hereto and hereby made a part hereof. V. GENERAL ------- 1. We may at any time, upon notice to you, substitute for any scheduled network program another,network program, except that if such other network program in our judgment involves a special event of public interest or importance, no such notice is required. No compensation will be paid to you for the scheduled program or for the substitute program unless such substitute program is a "network sponsored program" in which event you shall be compensated in accordance with the terms or formula, whichever is applicable, set forth in Schedule A hereof. 2. Nothing contained in this agreement shall be construed to prevent or hinder us, at any time upon notice to you as soon as practicable, from cancelling one or more network programs, whether sponsored or sustaining, in which event you shall receive no compensation for any such canceled network sponsored program(s). 5 3. With respect to network programs offered or already contracted for pursuant to this affiliation agreement, nothing herein contained shall be construed to prevent or hinder you from: (a) rejecting or refusing network programs which you reasonably believe to be unsatisfactory, unsuitable or contrary to the public interest; or (b) substituting a program, which in your good faith opinion, is of greater local or national importance. We shall not compensate you for any such program you have refused or rejected or for which you have substituted a program which is of greater local or national importance. With respect to programs already contracted for hereunder, you shall give us prompt telegraphic notification of any such refusal, rejection or substitution no later than fourteen (14) days prior to the air date of such programming, except where the nature of the substitute program makes such notice impracticable (e.g., coverage of breaking news or other unscheduled events), in which case you agree to give us as much advance notice as possible under the circumstances. Such notice shall include a statement of the reason(s) you believe that a rejected or refused network program is unsatisfactory, unsuitable or contrary to the public interest, and/or that a substituted program is of greater local or national importance. In addition to all other remedies, we shall have the right, upon thirty (30) days' notice, to terminate your "First Call" rights on any program series already contracted for hereunder and withdraw all future episodes of that series if one or more individual program episode(s) is pre-empted by you in violation of this Paragraph. We shall also have the right, upon thirty (30) days' notice, to terminate your "First Call" rights concerning any program series already contracted for hereunder and to withdraw all future episodes of that series if three or more individual program episodes are pre-empted by you in any thirteen-week period, whether or not such pre-emptions are for the reasons set forth in (a) and (b) above. Such thirteen-week periods shall be measured consecutively from the first broadcast date of the program series in question. We reserve the right not to offer you the "First Call" for the next broadcast season on any program series as to which we have terminated your "First Call" rights and withdrawn future episodes of that series pursuant to this Paragraph and which has been placed by ABC on another station serving your market. 6 4. You will submit to us in writing, upon forms provided by us for that purpose, such reports covering network programs broadcast by your station as ABC may request from time to time. 5. Subject to Subparagraph 2 of Section II of this agreement, neither you nor we shall incur any liability hereunder because of our failure to deliver, or your failure to broadcast, any or all network programs due to: (a) failure of facilities (b) labor disputes, or (c) causes beyond the control of the party so failing to broadcast. 6. In the event that the transmitter location, power, frequency or hours of operation of your station are changed at any time so that your station is of less value to us as a network outlet than it is as of the effective date of this agreement, we will have the right to terminate this agreement upon thirty (30) days' advance written notice. 7. You agree not to assign or to transfer any of the rights or privileges granted to you under this agreement without our prior consent in writing. You also agree that if any application is made to the Federal Communications Commission pertaining to an assignment or a transfer of control of your license, or any interest therein, you shall notify us in writing immediately of the filing of such application. Except as to assignments or transfers of control comprehended by Section 73.3540(f) of the Rules and Regulations of the Federal Communications Commission, we shall have the right to terminate this agreement effective as of the effective date of any assignment or transfer of control (voluntary or involuntary) of your license or any interest therein, provided ABC shall have given you notice in writing of such termination within thirty (30) days after we have been advised that such application for assignment or transfer has been filed with the Federal Communications Commission. If we do not so terminate this agreement, you agree, prior to the effective date of any such assignment or transfer of control of your station to procure and deliver to us, in form satisfactory to us, the agreement of the proposed assignee or transferee that, upon consummation of the assignment or transfer of control of your station's authorization, the assignee or transferee will assume and perform this agreement in its entirety without limitation of any kind. If you fail to notify us of the proposed assignment or transfer of control of your station's authorization, or fail to procure the agreement of the proposed assignee or transferee in accordance with the preceding sentence, we shall have the right to terminate this agreement upon thirty (30) days' advance written 7 notice to you and the transferee or assignee, after the effective date of such assignment or transfer or the date on which we learn of such assignment or transfer, whichever is later. 8. You agree not to authorize, cause, permit or enable anything to be done whereby any program which we supply to you herein may be used for any purpose other than broadcasting by your station in the community to which it is licensed, which broadcast is intended for reception by the general public in places to which no admission is charged. You agree when you are authorized to tape a program for subsequent broadcast that the recording will be broadcast not more than once in its entirety and will be erased within six (6) hours of use. 9. Except with our prior written consent and except upon such terms and conditions as we may impose, you agree not to authorize, cause, permit or enable anything to be done whereby a recording on film, tape or otherwise is made or a recording is broadcase, of a program which has been, or is being, broadcase on our network, or a rebroadcase is made of the broadcast transmission of your station during any hours when your station is broadcasting a program provided by ABC. 10. With respect to any and all promotional material issued by you or under your direction or control, you agree to abide by any and all restrictions of which we advise you pertaining to the promotion of a network program(s) scheduled to be broadcast by you in your community, including, but without limitation, on-the-air promotion, billboards, and newspaper or other printed advertisements, announcements or promotions. 11. You agree to maintain for your television station such licenses, including performing rights licenses as now are or hereafter may be in general use by television broadcasting stations and necessary for you to broadcast the television programs which we furnish to you hereunder. We will clear all music in the repertory of ASCAP and of BMI used in our network programs, thereby licensing the broadcasting of such music in such programs over your station. You will be responsible for all music license requirements for any commercial or other material inserted by you within or adjacent to our network programs in accordance with this agreement. 12. The furnishing of film or tape recorded programs hereunder is contingent upon our ability to make arrangements satisfactory to us for the film or tape recordings necessary to deliver the programs to you. Such film or tape recorded programs shall be used only for a single television broadcast over your station. Positive prints of film or tape recorded programs are to he shipped by us, shipping charges prepaid, and you agree to return to us or to forward to such television 8 station as we designate, shipping charges prepaid, each print or copy of said film or tape recording received by you hereunder, together with the original reels and containers furnished therewith. You will return or forward all prints in the same condition as received by you, ordinary wear and tear excepted, immediately after a single TV broadcast over your station. In the event you damage a print of any film or tape recorded program which is delivered to you, or fail to return or forward the original reels and containers furnished therewith, as aforesaid, you agree to pay the cost of replacing the complete print, original reels and/or containers as and when billed by us. 13. No inducements, representations or warranties except as specifically set forth herein have been made by any of the parties to this agreement. This agreement constitutes the entire contract between the parties hereto and no provision thereof shall be changed or modified, nor shall this agreement be discharged in whole or in part, except by an agreement in writing, signed by the party against whom the change, modification or discharge is claimed or sought to be enforced; nor shall any waiver of any of the conditions or provisions of this agreement be effective and binding unless such waiver shall be in writing and signed by the party against whom the waiver is asserted, and no waiver of any provision of this agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or of any other provision. 14. This agreement shall be governed by and construed in accordance with the laws of the State of New York. 15. Upon termination of this agreement, the consent theretofore granted to broadcast our Network programs shall be deemed immediately withdrawn and you shall have no further rights of any nature whatsoever in such programs. 16. We agree to indemnify, defend and hold you harmless against and from all claims, damages, liabilities, costs and expenses arising out of the use or exercise by you, in accordance with this agreement, of any rights or material furnished by us hereunder, provided that you promptly notify us of any claim or litigation to which this indemnity shall apply, and that you cooperate fully with us in the defense at our request. You similarly agree to indemnify, defend and hold us harmless with respect to material furnished by you. VI. TERM ---- This agreement shall become effective at 3:00 AM, NYT, on the 1st day of October, 1990, and it shall continue until 3:00 AM, NYT, on the 1st day of October 1992. It shall then be renewed on the 9 same terms and conditions for a further period of two years, and so on for successive further periods of two years each, unless and until either party hereto shall, at least six (6) months prior to the expiration of the then current term, give the other party written notice that it does not desire the contract renewed for a further period. It is understood and agreed, however, that this agreement may be terminated at any time, both during the initial term and any subsequent renewal term, by either party upon giving the other party six (6) months, advance written notice. If, after examination, you find that the arrangement herein proposed is satisfactory to you, please indicate your acceptance on the copy of this letter enclosed for that purpose and return that copy to us. Very sincerely yours, AMERICAN BROADCASTING COMPANIES, INC. By: s/ ----------------------------------- Executive Vice President, In Charge Of Affiliate Relations Accepted this 18 day of September, 1990 Television Station KOCO By: s/ ------------------- 10 RIDER ONE --------- As of January 1, 1990 (or such other effective date established by the Federal Communications Commission for operation of the revised network non- duplication rules), you shall be entitled to network non-duplication protection (gainst simultaneous or non-simultaneous presentation of ABC Television Network programs via cable pursuant to the compulsory license) as follows: a. The geographic zone of network non-duplication protection shall be the Area of Dominant Influence ("ADI") (as defined by Arbitron) in which your station is located, or any lesser zone pursuant to any geographic restrictions contained in the Federal Communications Commission rules and regulations, now or as subsequently modified. b. Network non-duplication protection shall extend to all ABC Television Network programs that you broadcast in accordance with this agreement. Protection shall not extend to individually pre-empted programs of an otherwise cleared series. c. Network non-duplication protection shall begin 48 hours prior to the live time period designated by us for broadcast of that network program by your station, and shall end at 12:00 Midnight on the seventh day following that designated time period. You are under no obligation to exercise in whole or in part the network non- duplication rights granted under this agreement. AMERICAN BROADCASTING COMPANIES, INC. By: s/ ----------------------------------- Executive Vice President, In Charge Of Affiliate Relations Accepted this 18 day of September, 1990 Television Station KOCO By: s/ ------------------- SCHEDULE A ---------- STATION COMPENSATION - -------------------- (a) We will pay you within a reasonable period of time after the close of each four or five week accounting period, as the case may be, for broadcasting each network sponsored program or portion thereof hereunder, except those specified in paragraph (b) hereof, which is broadcast over your station during the live time period/*/ therefor, the amount resulting from multiplying the following: (i) Your network station rate, set forth in Section II of the agreement; by (ii) the percentage set forth in the table below opposite such applicable time period; by (iii) the fraction of an hour substantially occupied by such program or portion thereof; by (iv) the fraction of the aggregate length of all Commercial availabilitie/**/ during such program or portion thereof occupied by network Commercial announcements./***/ - ------------------------- /*/ Live time period, as used herein, means the time period or periods as specified by us in our initial offer of a network program for the broadcast of such program over your station. /**/ Commercial availability, as used herein, means a period of time made available by us during a, network sponsored program for one or more network commercial announcements or local cooperative commercial announcements. /***/ Network commercial announcement, as used herein, means a commercial announcement broadcast over your station during a commercial availability and paid for by or on behalf of one or more of our network advertisers, not including, however, announcements consisting of billboards, credits, public service announcements, promotional announcements, and announcements required by law. -1- TABLE ----- CENTRAL ------- Monday through Friday --------------------- Sign-on to 10:00 AM -- 7% 10:00 am to 5:00 PM -- 10.9% 5:00 PM to 6:00 PM -- 15% 6:00 PM to 11:00 PM -- 30% 11:00 PM to Sign-off -- 15% Saturday Sunday -------- ------ Sign-on to 8:00 AM -- 5% Sign-on to 8:00 PM -- 5% 8:00 AM to 1:00 PM -- 8% 8:00 AM to 1:00 PM -- 6% 1:00 PM to 6:00 PM -- 15% 1:00 PM to 6:00 PM -- 15% 6:00 PM to 11:00 PM -- 30% 6:00 PM to 11:00 PM -- 30% 11:00 PM to Sign-off -- 15% 11:00 PM to Sign-off -- 15% All times in this paragraph are expressed in terms of your station's then current local time. -2- For each network sponsored program or portion thereof, except those specified in paragraph (b) hereof, which is broadcast by your station during a time period other than the live time period therefor, we will pay you as if your station had broadcast such program or portion thereof during such live time period, except that: (i) if the percentage set forth above opposite the time period during which your station broadcast such program or portion thereof is less than that set forth opposite such live time period, then we will pay you on the basis of the time period during which your station broadcast such program or portion thereof. (b) Payment For Other Programs - ------------------------------ We will establish such compensation arrangements as we and you shall agree upon prior to the expiration of the applicable periods of time for program acceptantc, as set forth in Section I.C. of this affiliation agreement, for all network sponsored programs broadcast by your station consisting of: (i) Sports programs; (ii) special events programs (including, but not limited to, special news programs, awards programs entertainment specials and miniseries); (iii) programs for which we specified a live time period, which time period straddles any of the time period categories in the table in paragraph (a) above; and (iv) any other programs which we may designate from time to time. (c) Deductions - -------------- (i) From the amounts we are to pay you for station compensation hereunder, we shall throughout the term of this affiliation agreement deduct during each accounting period a sum equal to 168% of your station's network rate for each week of said period. (ii) We will deduct a sum equal to the total of whatever fees, if any, may have mutually been agreed upon by you and us with respect to local cooperative commercial announcements broadcast during the applicable accounting period for which your station is being compensated. -3- SCHEDULE B ---------- COMPENSATION FOR CUT-IN AND LOCAL TAG ANNOUNCEMENT(S) ----------------------------------------------------- A. CUT-IN ANNOUNCEMENTS - -- -------------------- I. With respect to programs broadcast by you during the time Periods ----------------------------------------------------------------- specified by us in our initial offer for such programs. ------------------------------------------------------ For each local cut-in announcement you broadcast within a program, which program is broadcast during the time period(s) specified by us in our initial offer for such program, we will pay you the amount resulting from multiplying your network station rate (set forth in Section II of the agreement) by the percentage for cutin announcement(s) set forth in the applicable Table in Section C below opposite such applicable time period. II. With respect to programs broadcast by you during time Periods other ------------------------------------------------------------------- than that specified by us in our initial offer of such programs. --------------------------------------------------------------- For each local cut-in announcement you broadcast within a program, which program is broadcast by you during a time period other than that specified by us in our initial offer of such program, we will pay you an amount as set forth in Section A.I. above, except that: (i) if the percentage set forth in the applicable Table in Section C below for cut-in announcement(s) opposite the time period during which your station actually broadcast the program in which you broadcast or originated such cut-in announcement(s) is less than that set forth opposite the applicable time period specified in our initial offer of such program, then we will pay you for each cut-in announcement(s) on the basis of the time period during which your station actually broadcast such program. III. With respect to Programs broadcast by you in a time period which ---------------------------------------------------------------- straddles any of the time period categories set forth in the ------------------------------------------------------------ applicable Table in Section C below. ----------------------------------- In the event that we offer you a program for broadcast in a time period which straddles any of the time period categories set forth in the applicable Table in Section C below, and you broadcast such program within which you -1- also broadcast or originate one or more cut-in announcements), we will pay you such amounts as we and you shall have agreed upon prior to your broadcast or origination of such cut-in announcements). B. LOCAL TAG ANNOUNCEMENTS - -- ----------------------- I. With respect to programs broadcast by you during the time period(s) ---------------------------------------------------- -------------- specified by us in our initial offer for such programs. ---------------------------------------- ------------- For each local tag announcement you broadcast within a program, which program is broadcast during the time period(s) specified by us in our initial offer for such program, we will pay you the amount resulting from multiplying your network station rate (set forth in Section II of the agreement) by the percentage for each local tag announcement set forth in the applicable Table in Section C below opposite such applicable time period. II. With respect to programs broadcast by you during time Periods other ------------------------------------------------------------------- than that specified by us in our initial offer of such programs. --------------------------------------------------------------- For each local tag announcement you broadcast within a program, which program is broadcast by you during a time period other than that specified by us in our initial offer of such program, we will pay you an amount as set forth in Section B.I. above, except that: (i) if the percentage set forth in the applicable Table in Section C below for each local tag announcement opposite the time period during which your station actually broadcast the program in which you broadcast such local tag announcement is less than that set forth opposite the applicable time period specified in our initial offer of such program, then we will pay you for each local tag announcement on the basis of the time period during which your station actually broadcast such program. III. With respect to programs broadcast by you in a time period which ---------------------------------------------------------------- straddles any of the time period categories set forth in the ------------------------------------------------------------ applicable Table in Section C below. ----------------------------------- In the event that we offer you a program for broadcast in a time period which straddles any of the time period categories set forth in the applicable Table in Section C below, and you broadcast such program within which you also broadcast one or more local tag announcement(s), we will pay you such amounts as we and you shall have -2- agreed upon prior to your broadcast of such local tag announcement(s). -3- C. COMPENSATION TABLE FOR CUT-IN OR LOCAL TAG ANNOUNCEMENTS ------------------------------------------------------------ CENTRAL ------- Cut-In Announcements -------------------- Monday through Sunday -- 6:00 PM to 11:00 PM - 18.75% All other times - 7.50% Local Tag Announcements ----------------------- Monday through Sunday -- 6:00 PM to 11:00 PM - 9.38% All other times - 3.75% All times in this paragraph are expressed in terms of your station's then current local time. -4- TABLE ----- CENTRAL ------- Monday through Friday --------------------- Sign-on to 10:00 AM -- 7% 10:00 am to 12:00 N -- 18.25% 12:00 N to 3:00 PM - 6% 3:00 PM to 7:00 PM -- 10% 7:00 PM to 11:00 PM -- 28% 11:00 PM to Sign-off -- 15% Saturday Sunday -------- ------ Sign-on to 8:00 AM -- 5% Sign-on to 8:00 AM -- 5% 8:00 AM to 1:00 PM -- 8% 8:00 AM to 1:00 PM -- 6% 1:00 PM to 5:00 PM -- 15% 1:00 PM to 5:00 PM -- 15% 5:00 PM to 7:00 PM -- 10% 5:00 PM to 6:00 PM -- 10% 7:00 PM to 11:00 PM -- 28% 6:00 PM to 11:00 PM -- 28% 11:00 PM to Sign-off -- 15% 11:00 PM to Sign-off -- 15% All times in this paragraph are expressed in terms of your station's then current local time. EX-10.11B 4 AMENDMENT # 4 TO CREDIT AGREEMENT EXHIBIT 10.11b - -------------- AMENDMENT NO. 4 AMENDMENT NO. 4 dated as of January 31, 1997, between ARGYLE TELEVISION, INC., a corporation duly organized and validly existing under the laws of the State of Delaware (the "Company"); each of the Subsidiaries of the ------- Company identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereto (individually, a "Subsidiary Guarantor" and, collectively, the -------------------- "Subsidiary Guarantors" and, together with the Company, the "Obligors"); each of - ---------------------- -------- the lenders that is a signatory hereto (individually, a "Lender" and, ------ collectively, the "Lenders"); THE CHASE MANHATTAN BANK (successor by merger to ------- The Chase Manhattan Bank, N.A.), a New York State banking corporation, as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent"); and BANK OF MONTREAL, -------------------- BANQUE PARIBAS and UNION BANK, as co-agents (in such capacity, the "Co-Agents"). --------- The Company, the Subsidiary Guarantors, the Lenders, the Administrative Agent and the Co-Agents are parties to an Amended and Restated Credit Agreement dated as of June 13, 1995 (as heretofore modified and supplemented by Amendments No. 1, 2 and 3, and as in effect on the date hereof, the "Credit Agreement"), providing, subject to the terms and conditions thereof, ---------------- for extensions of credit (by making of loans and issuing letters of credit) to be made by said Lenders to the Company in an aggregate principal or face amount not exceeding $215,000,000. The Company has requested that the Lenders consent to the modification of the Credit Agreement (i) to permit the exchange of the Buffalo Station and Grand Rapids Station for television stations in Cincinnati, Ohio and Oklahoma City, Oklahoma and (ii) to increase the aggregate amount of the Revolving Credit Commitments under the Credit Agreement from $45,000,000 (the aggregate amount available as of December 31, 1996, after giving effect to previous voluntary and scheduled reductions of such Commitments) to $65,000,000, and to the modification of the Credit Agreement in certain other respects. The Lenders are willing to so consent as provided herein and, accordingly, the parties hereto hereby agree as follows: Section 1. Definitions. Except as otherwise defined in this ----------- Amendment No. 4, terms defined in the Credit Agreement are used herein as defined therein (including the Credit Agreement as amended by this Amendment No. 4). Section 2. Amendments. Subject to the satisfaction of the conditions ---------- precedent set forth in Section 3 hereof, but effective as of the date hereof, the Credit Agreement is hereby amended as follows: 2.01. References in the Credit Agreement (including references to the Credit Agreement as amended hereby) to "this Agreement" (and indirect references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be references to the Credit Agreement as amended hereby. 2.02. Section 1.01 of the Credit Agreement shall be amended by adding the following new definitions (to the extent not already included in said Section 1.01) and inserting the same in the appropriate alphabetical locations and amending in their entirety the following definitions (to the extent already included in said Section 1.01), as follows: Amendment No. 4 --------------- - 2 - "Acquisitions" shall mean, collectively, the Buffalo Acquisition, the ------------ Exchange Acquisition, the Hawaii Acquisition and the NTG Acquisition. "Amendment No. 4 Effective Date" shall mean the date the conditions ------------------------------ set forth in Section 3 of Amendment No. 4 hereto shall have been satisfied or waived. "Cincinnati Station" shall mean WLWT-TV, Cincinnati, Ohio. ------------------ "Disposition" shall mean any sale, assignment, transfer or other ----------- disposition of any Property (whether now owned or hereafter acquired) by the Company or any of its Consolidated Subsidiaries to any other Person excluding any sale, assignment, transfer or other disposition of (x) any Property sold or disposed of in the ordinary course of business and on ordinary business terms and (y) any Investment permitted under Section 9.08(h) hereof. The term "Disposition" shall include (a) the entering into by the Company or any of its Consolidated Subsidiaries of any LMA Arrangement (without limiting the obligation of the Company and its Consolidated Subsidiaries to first obtain the consent of the Majority Lenders to such LMA Arrangement pursuant to Section 12.04 hereof, to the extent required hereunder) and (b) the disposition of the Buffalo Station and Grand Rapids Station pursuant to the Exchange Acquisition. "EBITDA" shall mean, for any period, the amount, determined without ------ duplication, for the Company and its Consolidated Subsidiaries, of (a) net revenue (defined as gross operating revenue plus rental income minus the ---- ----- sum of barter and trade revenue, agency and advertising commissions and sales representative fees) minus (b) operating expenses (determined as ----- provided in the next sentence) minus (c) Film Cash Payments minus (d) ----- ----- Corporate Overhead minus (e) any payments made by the Company and its ----- Consolidated Subsidiaries during such period in respect of any LMA Arrangement (without limiting the obligation of the Company and its Consolidated Subsidiaries to first obtain the consent of the Majority Lenders to such LMA Arrangement pursuant to Section 12.04 hereof, to the extent required hereunder), excluding, however, any LMA Purchase Price Payments and any LMA Capital Expenditures. In calculating "EBITDA" for any period: (i) if any portion of such period shall occur prior to an Acquisition of a Station, EBITDA shall be calculated as if such Station had been acquired by the Company and its Consolidated Subsidiaries at the beginning of such period; (ii) "operating expenses" shall be determined exclusive of barter and trade expenses, depreciation and amortization (including amortization in respect of Film Obligations and barter expenses), Interest Expense, any non-cash charges (including, without limitation, non-cash pension expenses and any write-offs of programming rights), Acquisition Related Compensation Expenses, Excludable NTG Acquisition Expenses, Excludable Exchange Acquisition Expenses, income taxes accrued for the relevant period and any expense items that are required to be treated as Capital Expenditures in accordance with the definition of such term in this Section 1.01, and "net revenue" and "operating expenses" shall both be determined exclusive of (x) any payments made or received under Interest Rate Protection Agreements, (y) extraordinary and non-recurring gains or losses, and any gains or losses from the sale of assets and (z) any non-cash stock option expense or non-cash stock option gain in respect of options for the capital stock of the Company issued to any of its officers, directors or employees; (iii) performance bonuses shall be treated as an "operating expense" only in the period in which such bonuses are paid, whether or not such bonuses are accrued during or in respect of such period; (iv) for all purposes of this Agreement (other than for purposes of EBITDA as used in the definition of Excess Cash Flow), any Film Cash Payment to the extent consisting of an Amendment No. 4 --------------- - 3 - up-front payment made with respect to a Film Obligation incurred during such period, shall not be deducted in determining EBITDA for such period but shall instead (x) in the event such contract has a term of twelve months or less, be amortized over the term of such contract and (y) in the event such contract has a term of more than twelve months, be amortized over the term of such contract (or, if shorter, the pay period of such contract), and in the case of both (x) and (y), only the portion of such Film Cash Payment so amortized during such period shall be deducted in determining EBITDA for such period, provided that Film Cash Payments for any month listed in -------- Schedule X hereto ending after the respective Acquisition therein identified shall be deemed to be in the respective amount for such month set forth in said Schedule X hereto; and (v) if during any period for which EBITDA is being determined the Company or any Consolidated Subsidiary shall have acquired any new Station or Stations (including, without limitation, the Buffalo Station, the Grand Rapids Station, the Hawaii Stations, the Jackson Station and the Providence Station), then, for all purposes of this Agreement (other than for purposes of the definition of EBITDA as used in making the calculations to determine (x) compliance with Sections 9.10(c) and 9.10(d) hereof, (y) Excess Cash Flow or (z) Broadcast Cash Flow, for each of which purposes actual EBITDA for the relevant period shall be used), EBITDA shall be determined on a pro forma basis for such period as if the relevant acquisition had been made or consummated on the first day of such period. "Exchange Acquisition" shall mean the acquisition of the Cincinnati -------------------- Station and Oklahoma City Station pursuant to the Exchange Agreement. "Exchange Agreement" shall mean the Asset Exchange Agreement by and ------------------ among Combined Communications Corporation of Oklahoma, Inc., Multimedia Entertainment, Inc., the Operating Corporation and License Corporation for the Grand Rapids Station and the Operating Corporation and License Corporation for the Buffalo Station, as the same shall, subject to Section 9.17 hereof, be modified and supplemented and in effect from time to time. "Exchange Effective Date" shall mean the date upon which the ----------------------- disposition of the Buffalo Station and Grand Rapids Station, in exchange for the acquisition of the Cincinnati Station and the Oklahoma City Station pursuant to the Exchange Agreement, occurs. "Excludable Exchange Acquisition Expenses" shall mean for the fiscal ---------------------------------------- quarters ended in 1996 and 1997 set forth in Schedule XIII hereto, the respective expenses associated with the Exchange Acquisition listed on said Schedule XIII opposite such fiscal quarters. "License Corporation" shall mean (a) in the case of the Buffalo ------------------- Station, WGRZ Argyle Television, Inc., a Nevada corporation, (b) in the case of the Grand Rapids Station, WZZM Argyle Television, Inc., a Nevada corporation, (c) in the case of the Hawaii Stations, KITV Argyle Television, Inc., a Nevada corporation, (d) in the case of the Jackson Station, WAPT Argyle Television, Inc., a Nevada corporation, (e) in the case of the Providence Station, WNAC Argyle Television, Inc., a Nevada corporation, and (f) in the case of any Station acquired pursuant to a Subsequent Acquisition, the Consolidated Subsidiary of the Company that shall hold the respective Station Licenses under the authority of which such Station is operated. Notwithstanding the foregoing, as contemplated by the last sentence of Section 9.13(c) hereof, neither the Cincinnati Station nor the Oklahoma City Station shall have License Corporations. "Ohio/Oklahoma Company" shall mean WZZM Argyle Television, Inc., to be --------------------- renamed Ohio/Oklahoma Argyle Television, Inc., immediately prior to the consummation of the Exchange Acquisition. "Oklahoma City Station" shall mean KOCO-TV, Oklahoma City, Oklahoma. --------------------- Amendment No. 4 --------------- - 4 - "Operating Corporation" shall mean (a) in the case of the Buffalo --------------------- Station, Buffalo Argyle Television, Inc., (b) in the case of the Grand Rapids Station, Grand Rapids Argyle Television, Inc., (c) in the case of the Hawaii Stations, Hawaii Argyle Television, Inc., (d) in the case of the Jackson Station, Jackson Argyle Television, Inc., (e) in the case of the Providence Station, Providence Argyle Television, Inc., and (f) in the case of any Station acquired pursuant to a Subsequent Acquisition, the Consolidated Subsidiary of the Company that shall own the operating assets and other Property relating to the operations of such Station. Notwithstanding the foregoing, as contemplated by the last sentence of Section 9.13(c) hereof, neither the Cincinnati Station nor the Oklahoma City Station shall have Operating Corporations. "Revolving Credit Commitment" shall mean, for each Revolving Credit --------------------------- Lender, the obligation of such Lender to make Revolving Credit Loans (or to acquire Letter of Credit Interests) in an aggregate principal amount at any one time outstanding up to but not exceeding the amount set opposite the name of such Lender on the signature pages of Amendment No. 4 under the caption "Revolving Credit Commitment" or, in the case of any Person that becomes a Revolving Credit Lender pursuant to an assignment permitted under Section 12.06(b) hereof, as specified in the respective instrument of assignment pursuant to which such assignment is effected (in each case as the same may be reduced from time to time pursuant to Section 2.03 hereof or reduced or increased pursuant to an assignment permitted under Section 12.06(b) hereof). The aggregate principal amount of the Revolving Credit Commitments as of the Amendment No. 4 Effective Date is $65,000,000. "Revolving Credit Lenders" shall mean (a) on the Amendment No. 4 ------------------------ Effective Date, the Lenders having Revolving Credit Commitments on the signature pages of Amendment No. 4 and (b) thereafter, the Lenders from time to time holding Revolving Credit Loans and Revolving Credit Commitments after giving effect to any assignments thereof permitted by Section 12.06(b) hereof. "Stations" shall mean, collectively, (a) the Buffalo Station, (b) the -------- Grand Rapids Station, (c) the Hawaii Stations, (d) the Jackson Station, (e) the Providence Station and (f) any additional television broadcasting station acquired by the Company or any of its Consolidated Subsidiaries after the date hereof pursuant to a Subsequent Acquisition, provided that, -------- upon the Exchange Effective Date, such term shall no longer include the Buffalo Station and the Grand Rapids Station, but shall include the Cincinnati Station and the Oklahoma City Station. "Subsequent Acquisition" shall mean any acquisition (including, ---------------------- without limitation, entering into an LMA Arrangement) pursuant to Section 9.05(b)(v) hereof and the Exchange Acquisition. "Term Loan Commitment" shall mean, for each Lender, the obligation of -------------------- such Lender to make a Term Loan in a principal amount up to but not exceeding the amount set opposite the name of such Lender on the signature pages of Amendment No. 4 under the caption "Term Loan Commitment" or, in the case of any Person that becomes a Lender pursuant to an assignment permitted under Section 12.06(b) hereof, as specified in the respective instrument of assignment pursuant to which such assignment is effected (in each case as the same may be reduced from time to time pursuant to Section 2.03 hereof or reduced or increased pursuant to an assignment permitted under Section 12.06(b) hereof). The aggregate principal amount of the Term Loan Commitments as of the Amendment No. 4 Effective Date is $65,000,000. 2.03. Section 2.03(a) of the Credit Agreement is hereby amended in its entirety to read as follows: Amendment No. 4 --------------- - 5 - "(a) The aggregate amount of the Revolving Credit Commitments shall be automatically reduced to zero on the Revolving Credit Commitment Termination Date. In addition, the aggregate amount of the Revolving Credit Commitments shall be automatically reduced on the Revolving Credit Conversion Date to the lesser of (i) $25,000,000 or (ii) $65,000,000 minus ----- the aggregate amount of Revolving Credit Loans designated as Term Loans hereunder on the Revolving Credit Conversion Date." 2.04. Section 8.15(d) of the Credit Agreement is hereby amended in its entirety to read as follows: "(d) All of the issued and outstanding shares of capital stock of whatever class of each License Corporation is owned by the Company. All of the issued and outstanding shares of capital stock of whatever class of each Operating Corporation for any Station is owned by the License Corporation for such Station. All of the issued and outstanding shares of capital stock of whatever class of the Ohio/Oklahoma Company is owned by the Company." 2.05. Section 8.17 of the Credit Agreement is hereby amended by adding a new paragraph thereto to read as follows: "Set forth on Schedule IV attached hereto is a list of all of the real property interests of the Company and its Subsidiaries relating to the Cincinnati Station and the Oklahoma City Station that (after giving effect to the Exchange Acquisition) will be held by the Company or any of its Subsidiaries on the Exchange Effective Date, indicating in each case whether the respective Property is owned or leased, the identity of the owner or lessee and the location of the respective Property. All such Property owned (or to be owned) by the Company and its Subsidiaries is identified in Part A of said Schedule IV and all such Property leased (or to be leased) by the Company and its Subsidiaries is identified in Part B of said Schedule IV." 2.06. Section 8.18 of the Credit Agreement is hereby amended by adding two new paragraphs thereto to read as follows: "Schedule III attached hereto accurately and completely lists, for the Cincinnati Station and the Oklahoma City Station, respectively, after giving effect to the Exchange Acquisition, all Station Licenses (other than non-material incidental microwave relay and remote transmitter licenses) that will be granted or assigned to the Company or any Consolidated Subsidiary, or under which the Company and its Consolidated Subsidiaries will have the right to operate such Stations. The Station Licenses listed on said Schedule III with respect to such Stations include all material authorizations, licenses and permits issued by the FCC that are required or necessary for the operation of such Stations, and the conduct of the business of the Company and its Consolidated Subsidiaries with respect to such Stations, as now conducted or proposed, as of the date hereof, to be conducted. The Station Licenses listed in said Schedule III, after giving effect to the transactions contemplated hereby to occur on or before the Exchange Effective Date, will be validly issued in the name of, or will be validly assigned to the Ohio/Oklahoma Company and will be in full force and effect, and the Company and its Consolidated Subsidiaries will have fulfilled and performed in all material respects all of their obligations with respect thereto and have full power and authority to operate thereunder, and all consents of the FCC to the assignment of the principal broadcasting licenses and any other material Station Licenses in connection with the transactions contemplated hereby will have been approved by orders of the FCC. On the Exchange Effective Date, after giving effect to the Exchange Acquisition, all operating assets, rights and other Property (including the Station Licenses) relating to, and material to the operations of, the Cincinnati Station and the Oklahoma City Station, respectively, will be owned (or will be available for use under lease, license or other arrangements entered into with Third Parties) by the Ohio/Oklahoma Company." Amendment No. 4 --------------- - 6 - 2.07. A new clause (vi) is hereby added to Section 9.05(b) of the Credit Agreement (and, in that connection, the word "and" at the end of clause (iv) of said Section 9.05(b) is hereby deleted, and the period at the end of clause (v) of said Section 9.05(b) is hereby replaced with "; and") as follows: "(vi) the Ohio/Oklahoma Company may acquire the Cincinnati Station and the Oklahoma City Station pursuant to the Exchange Acquisition, so long as: (A) immediately prior to such acquisition (and the related disposition of the Buffalo Station and Grand Rapids Station) and after giving effect thereto, (1) no Default shall have occurred or be continuing and (2) the Company shall be in pro forma compliance with Sections 9.10(a), 9.10(b), 9.10(c) and 9.10(d) hereof (the determination of such pro forma compliance to be calculated, as at the end of and for the period of four fiscal quarters most recently ended prior to the date of such acquisition for which financial statements of the Company and its Subsidiaries are available, under the assumption that such acquisition and disposition shall have occurred at the beginning of the applicable period) and the Company shall have delivered to the Administrative Agent a certificate of the chief financial officer of the Company showing such calculations in reasonable detail to demonstrate such compliance; (B) the assignment of the Station Licenses to the Ohio/Oklahoma Company with respect to the Cincinnati Station and the Oklahoma City Station shall have been approved by an order of the FCC, which order need not be final (i.e. no longer subject to further judicial or administrative review); (C) no Indebtedness is to be incurred or assumed in connection with such acquisition (except for borrowings under this Agreement and except for the incurrence of Capital Lease Obligations in respect of a long-term lease of the studio and related facilities for the Cincinnati Station to be accounted for as a net asset on the balance sheet of the Ohio/Oklahoma Company); (D) in connection with such acquisition the Company shall have delivered to the Administrative Agent and each Lender environmental surveys and assessments prepared by a firm of licensed engineers in form and substance satisfactory to the Administrative Agent and the Majority Lenders reflecting that such Stations (or the entity owning such Stations) will not be subject to any material environmental liabilities; and (E) the Company shall have delivered evidence satisfactory to the Administrative Agent and the Majority Lenders that the Company and its Consolidated Subsidiaries will not become liable, contingently or otherwise, in respect of any material tax or ERISA liability of the previous owner of such Stations (or the entity owning such Stations) as a result of such acquisition." 2.08. Section 9.05(c) of the Credit Agreement is hereby amended by replacing the "and" at the end of clause (i) thereof with a comma and adding the following at the end of clause (ii) thereof: "and (iii) the Company may dispose of the Buffalo Station and the Grand Rapids Station pursuant to the Exchange Acquisition." 2.09. Paragraphs (a) and (b) of Section 9.10 of the Credit Agreement are hereby amended in their entirety to read as follows: (a) Debt Ratio. The Company will not permit the Debt Ratio at any ---------- time during the following respective periods to exceed the ratios set forth below opposite such periods: Amendment No. 4 --------------- - 7 - Period Ratio ------ ----- From the Amendment No. 2 Effective Date through September 29, 1997 6.25 to 1 From September 30, 1997 through March 30, 1998 6.00 to 1 From March 31, 1998 through September 29, 1998 5.75 to 1 From September 30, 1998 through March 30, 1999 5.25 to 1 From March 31, 1999 through September 29, 1999 5.00 to 1 From September 30, 1999 through March 30, 2000 4.75 to 1 From March 31, 2000 through September 29, 2000 4.50 to 1 From September 30, 2000 and at all times thereafter 4.25 to 1 (b) Senior Debt Ratio. The Company will not permit the Senior Debt ----------------- Ratio at any time during the following respective periods to exceed the ratios set forth below opposite such periods: Amendment No. 4 --------------- - 8 - Period Ratio ------ ----- From the Amendment No. 2 Effective Date through September 29, 1997 4.00 to 1 From September 30, 1997 through March 30, 1998 3.75 to 1 From March 31, 1998 through September 29, 1998 3.50 to 1 From September 30, 1998 through March 30, 1999 3.00 to 1 From March 31, 1999 through September 29, 1999 2.75 to 1 From September 30, 1999 through March 30, 2000 2.50 to 1 From March 31, 2000 through September 29, 2000 2.25 to 1 From September 30, 2000 and at all times thereafter 2.00 to 1" 2.10 Section 9.11 of the Credit Agreement is hereby amended by inserting a new clause (h) after clause (g) therein, and amending the last paragraph of said Section 9.11 in its entirety to read, as follows: "(h) The Cincinnati Station may make Capital Expenditures in an aggregate amount up to but not exceeding $15,000,000 in respect of the construction of a new studio and related facilities for the Cincinnati Station. In determining the amount of Capital Expenditures (other than HDTV Expenditures) permitted to be made by the Company or any of its Consolidated Subsidiaries in any fiscal year pursuant to this Section 9.11, Capital Expenditures made during any fiscal year shall be deemed to have been made first from the amount permitted under clause (a) above, second from the amount permitted under clause (b) above, third from the amount permitted under clause (c) above and last from the amount permitted under clause (d) above, provided that (x) LMA Capital Expenditures made during -------- any fiscal year shall be deemed to have been made first from the amount permitted under clause (f) above, and thereafter in the order provided above in this sentence, (y) Capital Expenditures made by Hawaii Argyle Television, Inc. in respect of the studio and related facilities referred to in clause (g) above shall be deemed to have been made first from the amount permitted under clause (g) above, and thereafter in the order provided above in this sentence and (z) Capital Expenditures made by the Cincinnati Station in respect of the studio and related facilities referred to in clause (h) above shall be deemed to have been made first from the amount permitted under clause (h) above, and thereafter in the order provided above in this sentence. 2.11. Section 9.13(c) of the Credit Agreement is hereby amended in its entirety to read as follows: Amendment No. 4 --------------- - 9 - "(c) Station Licenses. The Company will cause all Station Licenses ---------------- at all times to be held in the name of the respective License Corporation for the Station being operated under authority of such Station Licenses and will not permit such License Corporation to become directly or indirectly obligated in respect of any Film Obligations or in respect of any Indebtedness (other than Indebtedness hereunder or under the Security Documents). The Company will at all times cause all operating assets, rights and other Property relating to, and material to the operations of, any Station to be owned (or available for use under lease, license or other arrangements entered into with Third Parties) by the respective Operating Corporation for such Station. Notwithstanding the foregoing, the Stations Licenses and operating assets, rights and other Property relating to the Cincinnati Station and Oklahoma City Station shall be held by the Ohio/Oklahoma Company." 2.12. The first parenthetical phrase in the first sentence of Section 9.16(b) of the Credit Agreement is hereby amended in its entirety to read as follows: "(other than any License Corporation or Operating Corporation for any Station and other than the Ohio/Oklahoma Company)". 2.13. Section 9.17 of the Credit Agreement is hereby amended by inserting ", the Exchange Agreement" after the words "the Asset Purchase Agreement" in clause (iv) thereof. 2.14. Clause (ii) of Section 9.18 of the Credit Agreement is hereby amended in its entirety to read as follows: "(ii) cause such Subsidiary to take such action (including, without limitation, delivering such shares of stock, executing and delivering such Uniform Commercial Code financing statements and executing and delivering Mortgages covering the real Property and fixtures owned or leased by such Subsidiary) as shall be necessary to create and perfect valid and enforceable first priority Liens on substantially all of the Property of such new Subsidiary as collateral security for the obligations of such new Subsidiary hereunder, provided that the Company shall not be required to -------- execute and deliver Mortgages covering the real Property and fixtures with respect to the Cincinnati Station or the Oklahoma City Station, and" 2.15. Schedules III and IV, respectively, to the Credit Agreement are hereby supplemented by adding thereto the information set forth in Schedules III and IV hereto. 2.16. The Credit Agreement is hereby amended by adding a new Schedule XIII as attached hereto. Section 3. Conditions to Effectiveness. The effectiveness of the --------------------------- amendments set forth in Section 2 above is subject to: (i) the condition precedent that such effectiveness shall occur on or before February 28, 1997, and (ii) the receipt by the Administrative Agent of the following documents, each of which shall be satisfactory to the Administrative Agent (and to the extent specified below, to each Lender or the Majority Lenders) in form and substance: (a) Executed Amendment. A copy of this Amendment No. 4 duly executed ------------------ and delivered by each Obligor, each Lender and the Administrative Agent. Notwithstanding the foregoing, although a Lender's name may appear on the signature pages hereto, to the extent that the Commitments and related Loans and Letter of Credit Interests of such Lender have been assigned to another Lender, it shall not be necessary for such first-named Lender to execute and deliver this Amendment No. 4 in order for the amendments set forth in Section 2 above to become effective. (b) Corporate Documents. A certified copy of the charter and by-laws ------------------- (or equivalent documents) of the Company (or, in the alternative, a certificate to the effect that such charter and by-laws have not been amended since the Amendment No. 2 Effective Date) and of all corporate authority for the Company Amendment No. 4 --------------- - 10 - (including, without limitation, board of director resolutions and evidence of the incumbency of officers) with respect to the execution, delivery and performance of this Amendment No. 4 (and the Administrative Agent and each Lender may conclusively rely on such certificate until it receives notice in writing from the Company to the contrary). (c) Opinion of Counsel to the Obligors. An opinion dated the ---------------------------------- Amendment No. 4 Effective Date, of Locke Purnell Rain Harrell (A Professional Corporation), counsel to the Obligors in form and substance reasonably satisfactory to, the Majority Lenders and the Administrative Agent (and each Obligor hereby instructs such counsel to deliver such opinions to the Lenders and the Administrative Agent). (d) Revolving Credit Notes and Loans. The Company shall have -------------------------------- delivered to Chase, in exchange for the Revolving Credit Notes heretofore delivered by it to such Lender pursuant to Section 5(g) of Amendment No. 2, new promissory notes in substantially the form of Exhibit A-1 to the Credit Agreement, dated the date of the Revolving Credit Notes being exchanged, payable to Chase in a principal amount equal to the amount of its Revolving Credit Commitment (as increased hereby), and each of such promissory notes (a "New Revolving Credit Note") shall constitute a "Revolving Credit Note" ------------------------- under the Credit Agreement as amended hereby. In addition to the foregoing, the Company shall have borrowed from, and each of the Revolving Credit Lenders shall have made Revolving Credit Loans to, the Company and (notwithstanding the provisions of Section 4.02 of the Credit Agreement requiring that prepayments of Revolving Credit Loans be made ratably in accordance with the principal amounts of the Revolving Credit Loans held by the Revolving Credit Lenders) the Company shall have prepaid Revolving Credit Loans held by the Revolving Credit Lenders (and the Revolving Credit Lenders shall have assigned and reallocated any participations in respect of outstanding Letters of Credit among themselves, which assignment and reallocation the Revolving Credit Lenders hereby agree to do on the date of such effectiveness) in such amounts as shall be necessary, together with accrued interest and any amounts payable under Section 5.05 of the Credit Agreement, so that after giving effect to such Loans, prepayments, assignments and reallocations, the Revolving Credit Loans and Letter of Credit Liabilities shall be held by the Revolving Credit Lenders pro rata in accordance with the respective amounts of their Revolving Credit Commitments (as increased hereby). (e) Other Documents. Such other documents as the Administrative --------------- Agent or any Lender or special New York counsel to the Administrative Agent may reasonably request. Section 4. Representations and Warranties. The Company represents ------------------------------ and warrants to the Administrative Agent and the Lenders that the representations and warranties set forth in Section 8 of the Credit Agreement are true and complete on the date hereof as if made on and as of the date hereof and as if each reference in said Section 8 to "this Agreement" included reference to this Amendment No. 4. In addition, the Company represents and warrants to the Administrative Agent and the Lenders that it has heretofore delivered to the Administrative Agent a complete and correct copy of the Exchange Agreement as in effect on the date hereof (including, without limitation, any related management, non-compete, employment, option or other material agreements), any schedules to such agreements or instruments and all other material ancillary documents to be executed or delivered in connection therewith. Section 5. Compensation for Repurchases of Loans. In order to obtain ------------------------------------- the consent of all of the Lenders to the amendments contemplated by this Amendment No. 4, Chase may (at the request of the Company) have purchased the Loans and assumed the Commitments of certain of the Lenders outstanding under the Credit Agreement immediately prior to the effectiveness of such amendments. The Company hereby agrees to pay to Chase in respect of any Eurodollar Loans so purchased by it from any other Lender the following amounts: Amendment No. 4 --------------- - 11 - (i) an amount equal to the excess, if any, of (x) the interest that Chase would have been entitled to receive hereunder in respect of such Eurodollar Loans through the remaining portion of the Interest Periods therefor (assuming such Loans had been made under the Credit Agreement by Chase to the Company, on the date of such purchase, as Eurodollar Loans having Interest Periods equal in duration to the period from and including the date such Loans were so purchased by Chase to and including the date such Interest Periods expire) over (y) the interest Chase will in fact ---- receive on such Loans for such period pursuant to Section 3.02 of the Credit Agreement, such excess to be payable on the last day of such continued Interest Periods and (ii) such amounts as Chase shall be required to pay to any Lender in order to induce such Lender to assign all of its Loans then outstanding to Chase, such amount not to exceed (without the consent of the Company) an amount equal to the amount that such Lender would be entitled to receive under Section 5.05 of the Credit Agreement in respect of the Eurodollar Loans held by it at the time of such assignment (assuming such Loans were being paid in full on the date of such assignment). Section 6. Release. Each of the Lenders hereby authorizes and ------- directs the Administrative Agent to execute and deliver to the Company (and the Administrative Agent hereby so agrees to execute and deliver) such releases of Liens and other instruments as shall be necessary to release, effective upon the consummation of the Exchange Acquisition, any Liens in favor of the Lenders or the Administrative Agent covering assets relating to the Buffalo Station or Grand Rapids Station. Section 7. Miscellaneous. Except as herein provided, the Credit ------------- Agreement shall remain unchanged and in full force and effect. This Amendment No. 4 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 4 by signing any such counterpart. This Amendment No. 4 shall be governed by, and construed in accordance with, the law of the State of New York. Amendment No. 4 --------------- - 12 - IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 4 to be duly executed and delivered as of the day and year first above written. ARGYLE TELEVISION, INC. By ---------------------------------------- Title: Chief Financial Officer, Assistant Secretary and Treasurer SUBSIDIARY GUARANTORS --------------------- WZZM ARGYLE TELEVISION, INC. (to be renamed Ohio/Oklahoma Argyle Television, Inc.) KITV ARGYLE TELEVISION, INC. WAPT ARGYLE TELEVISION, INC. WNAC ARGYLE TELEVISION, INC. WGRZ ARGYLE TELEVISION, INC. KHBS ARGYLE TELEVISION, INC. HAWAII ARGYLE TELEVISION, INC. GRAND RAPIDS ARGYLE TELEVISION, INC. JACKSON ARGYLE TELEVISION, INC. PROVIDENCE ARGYLE TELEVISION, INC. BUFFALO ARGYLE TELEVISION, INC. ARKANSAS ARGYLE TELEVISION, INC. By --------------------------------------- Title: Chief Financial Officer, Assistant Secretary and Treasurer Amendment No. 4 --------------- - 13 - LENDERS ------- Revolving Credit Commitment THE CHASE MANHATTAN BANK - --------------------------- (successor by merger to The $19,674,418.60 Chase Manhattan Bank, N.A.) Term Loan Commitment - --------------------------- By $19,674,418.60 --------------------------------- Title: Revolving Credit Commitment BANK OF MONTREAL - --------------------------- $ 7,558,139.53 Term Loan Commitment By - --------------------------- --------------------------------- $ 7,558,139.53 Title: Revolving Credit Commitment BANQUE PARIBAS - --------------------------- $ 7,558,139.53 By Term Loan Commitment --------------------------------- - --------------------------- Title: $ 7,558,139.53 By --------------------------------- Title: Revolving Credit Commitment UNION BANK - --------------------------- $ 7,558,139.53 Term Loan Commitment By - --------------------------- --------------------------------- $ 7,558,139.53 Title: Revolving Credit Commitment CIBC, INC. - --------------------------- $ 6,046,511.62 Term Loan Commitment By - --------------------------- --------------------------------- $ 6,046,511.62 Title: Revolving Credit Commitment THE BANK OF NEW YORK - --------------------------- $ 4,534,883.75 Term Loan Commitment By - --------------------------- --------------------------------- $ 4,534,883.75 Title: Amendment No. 4 --------------- - 14 - Revolving Credit Commitment FIRST HAWAIIAN BANK - --------------------------- $ 3,000,000.00 Term Loan Commitment By - --------------------------- --------------------------------- $ 3,000,000.00 Title: Revolving Credit Commitment FLEET NATIONAL BANK - --------------------------- $ 3,023,255.82 Term Loan Commitment By - --------------------------- --------------------------------- $ 3,023,255.82 Title: Revolving Credit Commitment BANK OF HAWAII - --------------------------- $ 3,023,255.81 Term Loan Commitment By - --------------------------- --------------------------------- $ 3,023,255.81 Title: Revolving Credit Commitment WELLS FARGO BANK (TEXAS) N.A. - --------------------------- (formerly First Interstate Bank $ 3,023,255.81 of Texas, N.A.) Term Loan Commitment - --------------------------- By $ 3,023,255.81 --------------------------------- Title: --------------------- THE CHASE MANHATTAN BANK (successor by merger to The Chase Manhattan Bank, N.A.), as Administrative Agent By ------------------------------------------ Amendment No. 4 --------------- Schedule III [Station Licenses] Amendment No. 4 --------------- Schedule IV [Real Property] Scedule III ----------- Schedule XIII Excludable Exchange Acquisition Expenses - ---------------------------------------- [See definition of same in Section 1.01]
1Q96 2Q96 3Q96 4Q96 1Q97 2Q97 -------- -------- -------- -------- -------- -------- Stay Bonuses $ - $ - $ - $213,000 $ - $ - Severance - - - - 238,000 - Reorganization 39,000 39,000 39,000 39,000 13,000 - Pension 188,442 188,414 188,496 188,491 72,862 - Transaction - - - - 238,000 25,000 Transition - - - - 130,000 130,000 -------- -------- -------- -------- -------- -------- TOTAL $227,442 $227,414 $277,496 $440,491 $503,862 $155,000 ======== ======== ======== ======== ======== ========
NOTES: Stay Bonuses: Paid by Gannett to retain employees during divestiture process Severance: Paid by Argyle to terminated employees Reorganization: Positions which have been eliminated/restructured Pension: Elimination of Gannett pension - Argyle has no pension Transaction: Legal, accounting, consulting and related Transition: Recruiting, relocation, consulting, research, conversion, assimilation EX-10.12 5 CHANGE OF CONTROL AGREEMENT EXHIBIT 10.12 - ------------- CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (the "Agreement") is made and entered into as of the 3rd day of January, 1997, by and between Argyle Television, Inc.. (the "Company") and Dean Blythe ("Employee"). Initially capitalized terms are defined in Section 2 below. In consideration for Employee's continued employment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Change of Control Payment. In the event that following a Change of ------------------------- Control: (i) Employee is terminated without Cause; (ii) without the prior consent of Employee, Employer materially diminishes the duties of Employee to a level where Employee's duties are substantially dissimilar to the duties performed by persons employed in similar positions with other similar companies; or, (iii) the total of employee's annual compensation (base salary and bonus target) is reduced by 10% or more over any two-year period following the Change of Control; then the Company shall, within 10 days following such an event, make the Change of Control Payment to Employee. The Change of Control Payment shall be subject to applicable taxes and other amounts required by governmental authorities to be withheld or deducted. The Change of Control Payment shall be made without any deduction or offset relating to or otherwise with regard to any concept of mitigation of loss or mitigation of damages by Employee, and without any obligation of Employee to seek alternative employment. 2. Definitions. ----------- "Cause" shall mean that any one or more of the following conditions exist: (i) Employee has incurred a Disability; (ii) Employee has died; (iii) Employee has been convicted of a crime that is a felony (other than a traffic or moving violation, such as driving while intoxicated); or, (iv) Employee has willfully and materially breached or habitually neglected the duties that Employee is required to perform to discharge the duties of the position, or if Employee commits any material act of fraud or dishonesty during the course of employment. "Change of Control" shall mean: (i) a sale or transfer by the Company or any of its subsidiaries, of all or substantially all of the consolidated assets of (x) the Company; (y) all of the subsidiaries; or, (z) the Employer, to an entity that is not a subsidiary of the Company; (ii) within any two-year period, a majority of the Company's Board of Directors is no longer composed of persons who were directors at the beginning of such two-year period, unless the continuing directors, together with the new directors who were approved by a majority of the prior directors, constitute a majority of the Board; or, (iii) the Company adopts a plan of dissolution or liquidation or liquidates or dissolves "Change of Control Payment" shall mean the payment, in immediately available funds, of an amount equal to the difference of (i) twice the sum of (x) Employee's base salary at the time of the occurrence of an event specified in clauses (i) - (iii) of Section 1 resulting in such payment, plus (y) Employee's bonus target for the calendar year in which an event specified in clauses (i) - (iii) in Section 1 occurs; less (ii) cash compensation received by Employee from the Company or any of its subsidiaries subsequent to a Change of Control Notwithstanding the foregoing, the total of the Change of Control Payment plus all other payments and non-cash benefits to which Employee may be entitled (whether pursuant to the terms of this Agreement or otherwise) shall be reduced to the maximum amount that can be paid to Employee so that the aggregate present value of all "parachute payments" (as defined in Section 280G of the Internal Revenue Code of 1986, as amended from time to time [the "Code"]) to which Employee is entitled does not equal or exceed 300% of Employee's "annualized includible compensation for the base period" as defined in the Code. For the purpose of applying the provisions of the above limitation, the Change of Control Payment shall be reduced first prior to reducing any other payments or non-cash benefits constituting parachute payments under the Code. Notwithstanding the foregoing, the Company shall not take into account any compensation or benefits the payment of which Employee has waived in writing prior to the payment thereof. "Company" shall mean Argyle Television, Inc. and its successors by merger, assignment or otherwise. "Disability" shall refer to Employee becoming physically or mentally disabled (as determined in good faith by the Company's Board of Directors) so that employee is unable to perform Employee's duties for a period of more than 120 consecutive days or more than 180 days in the aggregate during any calendar year. "Employer" shall mean Argyle Television Inc., or such other entity that is either the Company or one of its subsidiaries by which Employee is employed at the time of the Change of Control. 3. Term. This Agreement shall have a term of two years, and shall ---- automatically renew for additional two-year terms unless either party has given the other party written notice of intent not to renew within 90 days prior to the end of the then current term; provided, however, that this Agreement shall automatically renew for a two-year term upon a Change in Control, with such new two-year term beginning on the date of the Change in Control. Notwithstanding the foregoing, in the event that Employee's employment with Employer is terminated for any reason prior to a Change of Control, this Agreement shall automatically terminate upon such termination of employment. 4. No Change in Employment Relationship. Nothing contained herein ------------------------------------ shall be deemed to change the currently existing employment "at will" relationship between Employee and Employer, or otherwise to restrict or prohibit Employer from terminating Employee at any time. Additionally, this Agreement does not set forth or establish any payment to Employee for "severance" in the event of termination prior to a Change in Control. 5. Notices. Any notices to be given hereunder by either party to the ------- other may be effected either by personal delivery in writing or by mail, registered or certified, postage prepaid, with return receipt requested and shall be deemed delivered upon receipt at the respective addresses set forth below. Either party may change its address for notice by giving written notice in accordance with the terms of this Paragraph 5. (a) If to Employee: Dean Blythe ______________________ ______________________ (b) If to Company: Argyle Television, Inc.. 200 Concord Plaza, Suite 700 San Antonio, Texas 78216 Attention: Secretary 6. General Provisions. ------------------ (a) Law Governing. This Agreement shall be governed by and construed in ------------- accordance with the Laws of the State of Texas, without application of the conflict of law principles thereof. (b) Invalid Provisions. If any provision of this Agreement is held to be ------------------ illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provisions shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and still be legal, valid or enforceable. (c) Entire Agreement. This Agreement sets forth the entire understanding of the ---------------- parties with respect to the subject matter hereof and supersedes all prior agreements or understandings, whether written or oral, with respect to the subject matter hereof. No other terms, conditions or warranties, and no amendments or modifications hereto, shall be binding unless made in writing and signed by the parties hereof. (d) Binding Effect; Assignment. This Agreement shall extend to and be binding -------------------------- upon and inure to the benefit of the parties hereto and their respective heirs, representatives, successors and assigns. This Agreement may not be assigned by either the Company or Employee, except that the Company shall assign this Agreement to any successor to all or a substantial portion of the Company's or Employer's business or assets, and the Company will require any such successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall entitle Employee to receive the Change of Control Payment on the date on which such succession becomes effective. (e) Titles. Titles of the paragraphs herein are used solely for convenience and ------ shall not be used for interpretation or construing any word, clause, paragraph or provision of this Agreement. (f) Counterparts. This Agreement may be executed in two or more counterparts, ------------ each of which shall be deemed an original, but which together shall constitute one and the same instruments. The Company and Employee have executed this Agreement as of the date and year specified in the first paragraph of this Agreement. ARGYLE TELEVISION, INC. By: -------------------------- Name: ------------------------ Title: ----------------------- EMPLOYEE ----------------------------- Dean Blythe EX-21.1 6 SUBSIDIARIES EXHIBIT 21.1 LIST OF SUBSIDIARIES OF THE COMPANY - ------------ ----------------------------------- Ohio/Oklahoma Argyle Television, Inc. WAPT Argyle Television, Inc. WNAC Argyle Television, Inc. KHBS Argyle Television, Inc. KITV Argyle Television, Inc. Jackson Argyle Television, Inc. Grand Rapids Argyle Television, Inc. Buffalo Argyle Television, Inc. Hawaii Argyle Television, Inc. Arkansas Argyle Television, Inc. Providence Argyle Television, Inc. EX-23.1 7 CONSENT OF ERNST & YOUNG EXHIBIT 23.1 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-3, No. 333-19359) of Argyle Television, Inc. of our report dated February 12, 1997, (except for the second paragraph of note 11, as to which the date is March 26, 1997), with respect to the consolidated financial statements and schedule of Argyle Television, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1996. San Antonio, Texas March 28,1997 EX-27.1 8 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1996 DEC-31-1996 948,942 0 14,936,522 169,302 0 27,625,784 39,213,362 6,929,110 328,608,148 18,508,102 150,000,000 0 218 113,469 129,038,337 328,608,148 0 73,293,966 0 0 37,638,657 0 16,565,694 (14,559,910) 0 (14,559,910) 0 0 0 (14,559,910) (1.37) 0
EX-27.2 9 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND THE STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1995 DEC-31-1995 2,205,538 0 11,362,007 133,202 0 24,420,240 32,634,002 2,333,494 291,140,578 16,594,649 150,000,000 0 0 111,193 116,181,657 291,140,578 0 46,944,342 0 0 23,603,454 0 12,052,509 (7,965,442) 0 (7,965,442) 0 (7,841,821) 0 (15,807,263) (2.47) 0
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