<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1997
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ARGYLE TELEVISION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4833 74-2717523
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
200 CONCORD PLAZA, SUITE 700
SAN ANTONIO, TEXAS 78216
(210) 828-1700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DEAN H. BLYTHE
VICE PRESIDENT AND GENERAL COUNSEL
ARGYLE TELEVISION, INC.
200 CONCORD PLAZA, SUITE 700
SAN ANTONIO, TEXAS 78216
(210) 828-1700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENTS FOR SERVICE)
----------------
WITH COPIES TO:
GUY KERR STEVEN A. HOBBS
LOCKE PURNELL RAIN HARRELL ROGERS & WELLS
(A PROFESSIONAL CORPORATION) 200 PARK AVENUE
2200 ROSS AVENUE, SUITE 2200 NEW YORK, NEW YORK 10166-0153
DALLAS, TEXAS 75201-6776 (212) 878-8000
(214) 740-8000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger (the "Merger") of a wholly-owned subsidiary of The
Hearst Corporation, with and into the Registrant as provided in the Amended
and Restated Agreement and Plan of Merger, dated as of March 26, 1997,
described in the enclosed Proxy Statement/Prospectus, have been satisfied or
waived.
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A Common Stock,
$.01 par value per
share.................. 8,277,054 $26.00 $134,443,764 (2)
</TABLE>
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- -------------------------------------------------------------------------------
(1) These figures are estimates made solely for the purpose of calculating the
registration fee pursuant to Rule 457 under the Securities Act of 1933, as
amended. The registration fee has been calculated in accordance with
Sections (f)(1), (f)(2) and (f)(3) of Rule 457 based upon the market value
of the securities which are publicly traded and the book value of the
securities which are not publicly traded to be cancelled in the Merger,
less $ 160,000,000, the approximate aggregate amount of cash to be paid by
the Registrant in the Merger. On July 25 , 1997, there were 11,310,914
shares of Series A Common Stock of the Registrant outstanding (including
shares issuable upon conversion of outstanding securities and exercise of
outstanding options) and the average of the high and low prices of such
stock on the Nasdaq National Market was $ 26.00, and there were 36,000
shares of Series B Common Stock outstanding with a book value of $10.00
per share, resulting in an aggregate value of $ 294,443,764.
(2) Pursuant to Rule 457(b), the registration fee has been reduced by the
$72,395.31 previously paid to the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended, in connection
with the filing of the preliminary proxy material relating to the Merger.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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<PAGE>
ARGYLE TELEVISION, INC.
200 Concord Plaza, Suite 700
San Antonio, Texas 78216
July 31, 1997
Dear Stockholder,
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Stockholders Meeting") of Argyle Television, Inc., a Delaware corporation
("Argyle"), to be held on Thursday, August 28, 1997, at 200 Concord Plaza, San
Antonio, Texas 78216, starting at 9:00 a.m. (local time). The Stockholders
Meeting is being held to vote on the Hearst Transaction described below in
addition to matters to be submitted to the vote of stockholders at an annual
meeting.
At the Stockholders Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Amended and Restated Agreement and Plan of
Merger, dated as of March 26, 1997 (the "Merger Agreement"), among Argyle, The
Hearst Corporation, a Delaware corporation ("Hearst"), and certain wholly-
owned subsidiaries of Hearst, and related transactions (the "Hearst
Transaction"), including, among other things, (i) approval of the Amended and
Restated Certificate of Incorporation of Argyle; (ii) the issuance by Argyle
of 38,611,000 shares of its Series B Common Stock, par value $.01 per share,
to Hearst in exchange for Hearst's contribution of certain assets and
liabilities of the Hearst Broadcast Group; and, (iii) the merger of a Hearst
subsidiary with and into Argyle (the "Merger"), with Argyle as the surviving
corporation to be renamed "Hearst-Argyle Television, Inc." Upon consummation
of the Hearst Transaction, Hearst will own between 82.3% and 86.5% of the
outstanding shares of common stock of Hearst-Argyle.
In the Hearst Transaction, you will have the opportunity to choose among
several options for each of your Argyle shares. You will have the right to
choose to receive, subject to limits described below, in respect of each share
of your Argyle Series A Common Stock, (i) one share of Series A Common Stock
of Hearst-Argyle Television, Inc., which will be quoted on the Nasdaq National
Market under the symbol of "HATV"; (ii) $26.50 in cash, without interest; or,
(iii) a combination of 0.5 share of Series A Common Stock of Hearst-Argyle
Television, Inc. and $13.25 in cash, without interest. A Form of Election and
Letter of Transmittal for that purpose is enclosed.
The total number of shares of Hearst-Argyle Television, Inc. Series A Common
Stock to be issued to Argyle stockholders and optionholders in the Merger will
not exceed 8,277,054 shares and will not be less than 6,025,319 shares, and
the total amount of cash to be paid to Argyle stockholders and optionholders
in the Merger will not be less than $100 million or greater than approximately
$160 million. If elections to receive cash or Hearst-Argyle Series A Common
Stock exceed these limits, the amounts that otherwise would have been
allocated to stockholders electing to receive the form of consideration that
is oversubscribed will be reduced. The method for determining the precise
amount of cash and/or Series A Common Stock of Hearst-Argyle Television, Inc.
into which shares of Argyle Series A Common Stock are to be converted in the
Merger is described in the accompanying Proxy Statement/Prospectus.
The Board of Directors believes that the Hearst Transaction offers
significant benefits for Argyle and its stockholders and is an important step
toward Argyle's strategic goal of becoming a larger, more significant player
in the television broadcasting business and thereby a more profitable and
valuable company. As part of the Hearst Transaction, Hearst will contribute
six television stations to Argyle. The combination of these stations (five ABC
affiliates and one NBC affiliate) with Argyle's existing six-station
television group (four ABC affiliates, one NBC affiliate and one Fox
affiliate), along with additional Hearst stations to be managed by Hearst-
Argyle Television, Inc., will create a television broadcast company that
initially will own and manage 15 television stations reaching approximately
11.6% of U.S. television households, and will be the third-largest, non-
network owned television group in the U.S. in terms of audience delivered.
<PAGE>
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE HEARST TRANSACTION IS FAIR
TO, AND IN THE BEST INTERESTS OF, ARGYLE AND ITS STOCKHOLDERS. THE BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE HEARST TRANSACTION AND THE OTHER
PROPOSALS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS RELATING TO
THE AMENDMENT OF ARGYLE'S EXISTING STOCK OPTION PLAN AND THE ELECTION OF
DIRECTORS, AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE AND
ADOPT THE HEARST TRANSACTION AND THE OTHER PROPOSALS.
Certain Argyle stockholders, representing an aggregate of approximately 67%
of the outstanding shares of Argyle common stock, have agreed to vote in favor
of the Hearst Transaction.
A detailed description of the proposed Hearst Transaction and the other
proposals is set forth in the enclosed Proxy Statement/Prospectus, which you
should read carefully. Also, a copy of the Merger Agreement is included as
Appendix A to the Proxy Statement/Prospectus. A Notice of Annual Meeting of
Stockholders and the Annual Report to Stockholders of Argyle are also
enclosed. Holders of record of shares of Argyle common stock at the close of
business on July 14, 1997, the record date for the Stockholders Meeting, are
entitled to notice of, and to vote at, the Stockholders Meeting and at any
adjournments or postponements of the Stockholders Meeting.
It is important that your shares be represented at the Stockholders Meeting,
whether or not you plan to attend. Accordingly, you are requested to complete,
date and sign the enclosed proxy card and return it in the enclosed envelope,
which requires no postage if mailed in the United States. If you attend the
Stockholders Meeting, you may revoke your proxy at any time before it is voted
and vote in person if you wish, even if you have previously returned your
proxy card.
Please also complete and return the enclosed Form of Election and Letter of
Transmittal by August 28, 1997 (the "Election Deadline") in accordance with
its instructions. If you do not properly complete and return the Form of
Election and Letter of Transmittal by the Election Deadline, the form of
consideration you will be entitled to receive in the Merger will be determined
by the terms of the Merger Agreement.
I strongly support the Hearst Transaction and join with the other members of
the Board in enthusiastically recommending this transaction to you.
Very truly yours,
Bob Marbut
Chairman of the Board
and Chief Executive Officer
<PAGE>
ARGYLE TELEVISION, INC.
200 Concord Plaza, Suite 700
San Antonio, Texas 78216
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
An Annual Meeting of Stockholders (the "Stockholders Meeting") of Argyle
Television, Inc., a Delaware corporation ("Argyle"), will be held starting at
9:00 a.m., local time, on Thursday, August 28, 1997, at 200 Concord Plaza, San
Antonio, Texas 78216. Attendance at the Stockholders Meeting and any
adjournments or postponements thereof will be limited to stockholders of
record on July 14, 1997 (the "Record Date") or their proxies, beneficial
owners having evidence of ownership on that date and invited guests of Argyle.
A form of Proxy Statement/Prospectus containing detailed information about the
matters to be considered at the Stockholders Meeting accompanies this notice.
The purposes of the Stockholders Meeting are:
1. To consider and vote upon a proposal (the "Hearst Transaction
Proposal") to approve and adopt the Amended and Restated Agreement and Plan
of Merger, dated as of March 26, 1997 (the "Merger Agreement"), among The
Hearst Corporation, a Delaware corporation ("Hearst"), HAT Merger Sub,
Inc., a Delaware corporation and a wholly-owned subsidiary of Hearst
("Merger Sub"), HAT Contribution Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of Hearst ("Cash Sub"), and Argyle, and the
transactions contemplated thereby (collectively, the "Hearst Transaction"),
including among other things, (i) the amendment and restatement of the
Amended and Restated Certificate of Incorporation of Argyle pursuant to
which, among other things, (w) Argyle's authorized common stock will be
increased from 50 million to 200 million shares; (x) Argyle's existing
Series B Common Stock, par value $.01 per share ("Series B Common Stock"),
and Series C Common Stock, par value $.01 per share ("Series C Common
Stock"), will be reclassified as and changed into Series A Common Stock,
par value $.01 per share ("Series A Common Stock"); (y) a Series B Common
Stock will be authorized, which will be issued to Hearst in connection with
the Contribution described below; and, (z) Argyle's existing Series A
Preferred Stock and Series B Preferred Stock will receive voting rights, as
set forth in and pursuant to the Merger Agreement (the "Restated Charter");
(ii) the issuance by Argyle of 38,611,000 shares of Series B Common Stock
to Hearst and one share of Series B Common Stock to Cash Sub, in exchange
for their contribution of certain assets and liabilities to Argyle (the
"Contribution"); and, (iii) the merger of Merger Sub with and into Argyle,
with Argyle as the surviving corporation to be renamed "Hearst-Argyle
Television, Inc." ("Hearst-Argyle"). Upon consummation of the Hearst
Transaction, Hearst will own between 82.3% and 86.5% of the outstanding
shares of common stock of Hearst-Argyle. At the effective time of the
Merger, each outstanding share of Series A Common Stock will be converted
into the right to receive, at the holder's election and subject to certain
limitations and allocation prorations, one of the following (the "Merger
Consideration"): (i) one share of Series A Common Stock, par value $.01 per
share, of Hearst-Argyle ("Hearst-Argyle Series A Common Stock"); (ii)
$26.50 in cash, without interest; or, (iii) a combination of 0.5 share of
Hearst-Argyle Series A Common Stock and $13.25 in cash, without interest;
provided, however, the aggregate number of shares of Hearst-Argyle Series A
Common Stock issued in the Merger will not exceed 8,277,054 and will not be
less than 6,025,319 shares, and the aggregate amount of cash paid by
Hearst-Argyle as part of the Merger Consideration will not be less than
$100 million and will not exceed approximately $160 million. In the Merger,
each issued and outstanding share of Argyle Series A Preferred Stock will
be converted into one share of Hearst-Argyle Series A Voting Preferred
Stock, and each issued and outstanding share of Argyle Series B Preferred
Stock will be converted into one share of Hearst-Argyle Series B Voting
Preferred Stock. A copy of the Merger Agreement is attached as Appendix A
to the accompanying Proxy Statement/Prospectus, and the Restated Charter is
attached as Appendix C.
2. To consider and vote upon a proposal (the "Plan Proposal") to amend
and restate Argyle's Second Amended and Restated 1994 Stock Option Plan and
adopt such amendment and restatement as the resulting 1997 Stock Option
Plan.
<PAGE>
3. To consider and vote upon a proposal (the "Director Election
Proposal") to elect two Class II directors to hold office for a term of two
years or, if the Hearst Transaction is approved and consummated, to hold
office as described in the Proxy Statement/Prospectus and in either case
until their respective successors are elected and qualified.
4. To transact such other business as may properly come before the
Stockholders Meeting and any adjournments or postponements thereof.
Only holders of record of shares of Series A Common Stock and Series B
Common Stock at the close of business on the Record Date are entitled to
notice of, and to vote at, the Stockholders Meeting and at any postponements
or adjournments thereof. A list of holders of record of shares of Series A
Common Stock and Series B Common Stock at the close of business on the Record
Date will be available for inspection at Argyle's headquarters during ordinary
business hours for the 10-day period prior to the Stockholders Meeting.
Argyle's transfer books will not be closed.
Whether or not you plan to attend the Stockholders Meeting in person, you
are requested to complete, date and sign the enclosed proxy card and return it
in the enclosed envelope, which requires no postage if mailed in the United
States. If you attend the Stockholders Meeting, you may revoke your proxy at
any time before it is voted and vote in person if you wish, even if you have
previously returned your proxy card.
Please also complete and return (along with your certificates representing
shares of Series A Common Stock) the enclosed Form of Election and Letter of
Transmittal by August 28, 1997 (the "Election Deadline") in accordance with
its instructions. If you do not properly complete and return the Form of
Election and Letter of Transmittal by the Election Deadline, the form of
Merger Consideration you will be entitled to receive in the Merger will be
determined by the terms of the Merger Agreement.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE HEARST
TRANSACTION PROPOSAL; "FOR" THE PLAN PROPOSAL; AND, "FOR" THE DIRECTOR
ELECTION PROPOSAL.
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY
AND THE ENCLOSED FORM OF ELECTION AND LETTER OF TRANSMITTAL.
By Order of the Board of Directors,
Dean H. Blythe
Secretary
July 31, 1997
San Antonio, Texas
2
<PAGE>
ARGYLE TELEVISION, INC.
PROXY STATEMENT FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON
August 28, 1997
---------------
ARGYLE TELEVISION, INC.
PROSPECTUS
---------------
This Proxy Statement/Prospectus is being furnished to stockholders of Argyle
Television, Inc., a Delaware corporation ("Argyle"), in connection with the
solicitation by its Board of Directors of proxies for use at the annual
meeting of stockholders (the "Stockholders Meeting") and any adjournments or
postponements thereof. The Stockholders Meeting will be held on Thursday,
August 28, 1997, at 9:00 a.m., local time, at 200 Concord Plaza, San Antonio,
Texas 78216.
At the Stockholders Meeting, stockholders of Argyle will consider and vote
upon (i) a proposal (the "Hearst Transaction Proposal") to approve and adopt
the Amended and Restated Agreement and Plan of Merger, dated as of March 26,
1997 (the "Merger Agreement"), among The Hearst Corporation, a Delaware
corporation ("Hearst"), HAT Merger Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of Hearst ("Merger Sub"), HAT Contribution Sub, Inc.,
a Delaware corporation and a wholly-owned subsidiary of Hearst ("Cash Sub"),
and Argyle, pursuant to which, in addition to the transactions described
below, Merger Sub will merge with and into Argyle (the "Merger"), with Argyle
as the surviving corporation in the Merger to be renamed "Hearst-Argyle
Television, Inc." ("Hearst-Argyle"); (ii) a proposal (the "Plan Proposal") to
amend and restate Argyle's Second Amended and Restated 1994 Stock Option Plan
and adopt such amendment and restatement as the resulting 1997 Stock Option
Plan; (iii) a proposal (the "Director Election Proposal") to elect two Class
II directors to hold office for a term of two years or, if the Merger is
approved and consummated, to hold office as described in this Proxy
Statement/Prospectus and in either case until their respective successors are
elected and qualified; and, (iv) such other business as may properly come
before the Stockholders Meeting and any adjournments or postponements thereof.
Approval and adoption of the Merger Agreement will also constitute the
approval and adoption of the transactions in addition to the Merger
contemplated thereby (collectively, the "Hearst Transaction"), including,
among other things, (i) the amendment and restatement of the Amended and
Restated Certificate of Incorporation of Argyle pursuant to which, among other
things (w) Argyle's authorized common stock will be increased from 50 million
to 200 million shares, (x) Argyle's existing Series B Common Stock, par value
$.01 per share ("Series B Common Stock"), and Series C Common Stock, par value
$.01 per share ("Series C Common Stock"), will be reclassified as and changed
into Series A Common Stock, par value $.01 per share ("Series A Common
Stock"), (y) a Series B Common Stock will be authorized, which will be issued
to Hearst in connection with the Contribution described below, and (z)
Argyle's existing Series A Preferred Stock and Series B Preferred Stock will
receive voting rights, as set forth in, and pursuant to, the Merger Agreement
(the "Restated Charter") and (ii) the issuance by Argyle of 38,611,000 shares
of Series B Common Stock to Hearst and one share of Series B Common Stock to
Cash Sub, in exchange for their contribution of certain assets and liabilities
to Argyle (the "Contribution"). Depending on the working capital balance of
the Hearst Broadcast Group (as defined herein), additional shares of Series B
Common Stock may be issued to Hearst as part of the Hearst Transaction. See
"The Hearst Transaction Proposal--Overview" and "The Merger Agreement--Certain
Adjustments." Upon consummation of the Hearst Transaction, Hearst will own
between 82.3% and 86.5% of the outstanding shares of common stock of Hearst-
Argyle. See "The Hearst Transaction Proposal--Financing the Hearst
Transaction."
Pursuant to the Merger Agreement, Argyle stockholders will be entitled to
make an election to receive, subject to the limitations and allocation
prorations described in this Proxy Statement/Prospectus and as set forth in
the Merger Agreement, in exchange for each outstanding share of Series A
Common Stock, (i) $26.50 in cash, without interest; (ii) one share of Series A
Common Stock, par value $.01 per share, of Hearst-Argyle (the "Hearst-Argyle
Series A Common Stock"); or, (iii) a combination of 0.5 share of Hearst-Argyle
Series A Common Stock and $13.25 in cash, without interest. Each issued and
outstanding share of Argyle Series A Preferred Stock will be converted into
one share of Hearst-Argyle Series A Voting Preferred Stock, and each issued
and outstanding share of Argyle Series B Preferred Stock will be converted
into one share of Hearst-Argyle Series B Voting Preferred Stock. A Form of
Election and Letter of Transmittal (a "Form of Election") for making your
election accompanies the Proxy Statement/Prospectus. Assuming the Merger had
been consummated on July 14, 1997, which is the record date for the
Stockholders Meeting (the "Record Date"), and Argyle stockholders had elected
to receive the maximum amount of cash available in the Merger, the
stockholders of Argyle would hold in the aggregate approximately 13.5% of the
outstanding shares of Hearst-Argyle Common Stock. See "The Merger Agreement--
Merger Consideration and Conversion of Shares" and "Security Ownership Before
and After the Hearst Transaction."
Concurrently with the execution and delivery by Argyle and Hearst of the
Merger Agreement, certain Argyle stockholders, including limited partnerships
and foundations through which certain officers and directors of Argyle
indirectly own shares of Series A Common Stock and Series B Common Stock,
entered into voting agreements with Hearst (the "Voting Agreements"). Pursuant
to such Voting Agreements, these stockholders have agreed to vote all of their
shares of Argyle Common Stock subject to the Voting Agreements in favor of the
Hearst Transaction. The Voting Agreements cover approximately 66.6% of the
issued and outstanding shares of Series A Common Stock and 100% of the issued
and outstanding shares of Series B Common Stock (or approximately 66.7% of the
total voting power of the issued and outstanding shares of Argyle Common Stock
as of the Record Date). Accordingly, approval of the Hearst Transaction is
virtually assured regardless of the vote of any other stockholder of Argyle.
See "The Merger Agreement--Voting Agreements" and "Security Ownership Before
and After the Hearst Transaction."
On July 25, 1997, the closing sales price of Series A Common Stock on the
Nasdaq National Market (as reported in The Wall Street Journal), was $ 26.25
per share.
This Proxy Statement/Prospectus also serves as the prospectus of Argyle
filed as part of the Registration Statement (as defined herein) relating to up
to 8,277,054 shares of Hearst-Argyle Series A Common Stock expected to be
issued to Argyle stockholders in the Merger.
SEE "RISK FACTORS" COMMENCING ON PAGE 23 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED CAREFULLY BEFORE VOTING ON THE MATTERS DESCRIBED HEREIN.
This Proxy Statement/Prospectus and accompanying proxy and Form of Election
are first being mailed to the stockholders of Argyle on or about July 31,
1997.
THE SHARES OF HEARST-ARGYLE SERIES A COMMON STOCK TO BE ISSUED IN THE HEARST
TRANSACTION HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is July 31, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
AVAILABLE INFORMATION..................................................... 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................... 1
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................ 2
SUMMARY................................................................... 3
RISK FACTORS.............................................................. 23
THE ANNUAL MEETING........................................................ 28
Time, Date and Place; Purposes........................................... 28
Record Date; Quorum...................................................... 28
Voting Rights; Vote Required for Approval................................ 28
Proxies.................................................................. 29
THE HEARST TRANSACTION PROPOSAL........................................... 31
Overview................................................................. 31
Background............................................................... 32
Recommendation of Argyle Board; Argyle's Reasons for the Hearst
Transaction............................................................. 35
Fairness Opinion......................................................... 36
Hearst's Reasons for the Hearst Transaction.............................. 40
Interests of Certain Persons in the Hearst Transaction; Affiliate
Transactions............................................................ 41
Accounting Treatment..................................................... 44
Certain Federal Income Tax Consequences.................................. 44
Regulatory Approvals..................................................... 48
Listing of Hearst-Argyle Series A Common Stock........................... 49
Certain Federal Securities Laws Consequences............................. 49
Dissenters' Rights....................................................... 50
Financing the Hearst Transaction......................................... 52
Management and Directors of Hearst-Argyle................................ 56
THE MERGER AGREEMENT...................................................... 57
Pre-Merger Transactions.................................................. 57
The Merger............................................................... 58
Certain Adjustments...................................................... 58
Merger Consideration and Conversion of Shares............................ 58
Additional Election Procedures........................................... 62
Certain Representations and Warranties................................... 63
Certain Covenants........................................................ 64
Conditions to the Merger................................................. 66
Termination of the Merger Agreement...................................... 68
Termination Fee.......................................................... 68
Voting Agreements........................................................ 69
Registration Rights Agreement............................................ 70
PER SHARE MARKET PRICE AND DIVIDEND INFORMATION........................... 71
BUSINESS OF HEARST-ARGYLE................................................. 72
BUSINESS OF ARGYLE........................................................ 73
BUSINESS OF HEARST BROADCAST GROUP........................................ 74
General.................................................................. 74
The Hearst Stations...................................................... 75
Hearst Broadcast Productions............................................. 77
Network Affiliation Agreements and Relationships......................... 77
Employees................................................................ 78
Properties............................................................... 78
Legal Proceedings........................................................ 78
SELECTED FINANCIAL DATA OF ARGYLE......................................... 79
SELECTED HISTORICAL FINANCIAL DATA OF THE HEARST BROADCAST GROUP.......... 81
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA OF HEARST-ARGYLE.............. 83
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............... 86
Unaudited Pro Forma Combined Condensed Balance Sheet--Maximum............ 87
Unaudited Pro Forma Combined Condensed Statement of Operations--Maximum.. 88
Unaudited Pro Forma Combined Condensed Balance Sheet--Minimum 91
Unaudited Pro Forma Combined Condensed Statement of Operations--Minimum 92
</TABLE>
<TABLE>
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PAGE
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<S> <C>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements.... 95
HEARST BROADCAST GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................... 102
Quarter Ended March 31, 1997 Compared With Quarter Ended March 31,
1996................................................................... 102
Year Ended December 31, 1996 Compared With Year Ended December 31,
1995................................................................... 102
Year Ended December 31, 1995 Compared With Year Ended December 31,
1994................................................................... 103
Liquidity and Capital Resources......................................... 104
Impact of Inflation..................................................... 104
CAPITALIZATION........................................................... 105
MANAGEMENT OF HEARST-ARGYLE AFTER THE MERGER............................. 107
Board of Directors...................................................... 107
Executive Officers...................................................... 109
Summary Compensation Table.............................................. 111
Long-Term Incentive Plans--Awards in Last Fiscal Year................... 112
Pension Plan Table...................................................... 113
Option Grants in Last Fiscal Year....................................... 114
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values.......................................................... 115
Employment and Other Agreements......................................... 115
Additional Information.................................................. 116
PLAN PROPOSAL............................................................ 117
General................................................................. 117
Administration of the Option Plan....................................... 118
Awards under the Option Plan............................................ 119
Limitations on Awards................................................... 119
Transferability; Amendments; Termination................................ 120
Outstanding Grants...................................................... 120
Federal Income Tax Consequences......................................... 121
DESCRIPTION OF HEARST-ARGYLE CAPITAL STOCK............................... 123
Foreign Ownership....................................................... 124
Certain Anti-Takeover Matters........................................... 125
Transfer Agent and Registrar............................................ 126
SECURITY OWNERSHIP BEFORE AND AFTER THE HEARST TRANSACTION............... 127
COMPARISON OF STOCKHOLDERS' RIGHTS....................................... 130
THE COMMERCIAL TELEVISION BROADCAST INDUSTRY............................. 132
Industry Background..................................................... 132
Competition............................................................. 133
Technology.............................................................. 135
FEDERAL REGULATION OF TELEVISION BROADCASTING............................ 137
DIRECTOR ELECTION PROPOSAL............................................... 139
Meetings and Committees of the Board of Directors....................... 139
Compensation Committee Report on Executive Compensation................. 140
Stock Performance Graph................................................. 142
LEGAL MATTERS............................................................ 143
EXPERTS.................................................................. 143
FUTURE STOCKHOLDER PROPOSALS............................................. 143
INDEX TO SELECTED TERMS.................................................. 144
INDEX TO HISTORICAL FINANCIAL STATEMENTS................................. F-1
APPENDICES............................................................... A-1
</TABLE>
Appendix A--Amended and
Restated Agreement
and Plan of Merger
Appendix B--Fairness Opinion of
Merrill Lynch & Co.
Appendix C--Argyle's Amended
and Restated
Certificate of
Incorporation
Appendix D--Section 262 of the
Delaware General
Corporation Law
(Appraisal Rights)
Appendix E--Hearst-Argyle
Television, Inc.
1997 Stock Option
Plan
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO
OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF ARGYLE OR THE HEARST BROADCAST GROUP (AS DEFINED
HEREIN) SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS PROXY
STATEMENT/PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE THEREOF. IF ANY MATERIAL CHANGE
OCCURS DURING THE PERIOD IN WHICH THIS PROXY STATEMENT/PROSPECTUS IS REQUIRED
TO BE DELIVERED, THIS PROXY STATEMENT/PROSPECTUS WILL BE AMENDED AND
SUPPLEMENTED ACCORDINGLY.
AVAILABLE INFORMATION
Argyle is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the
Commission's Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, where copies may be obtained at
prescribed rates, as well as at the following regional offices: 7 World Trade
Center, Suite 1300, New York, New York 10048; and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission
also maintains a web site that contains reports, proxy and other information
filed electronically with the Commission, the address of which is
http://www.sec.gov. In addition, this material may also be inspected at the
offices of the Nasdaq Stock Market, Inc. Listing Section, 1735 K Street, N.W.,
Washington, DC 20006, where copies may be obtained at prescribed rates.
Argyle has filed a Registration Statement on Form S-4 (together with all
amendments, schedules and exhibits thereto, the "Registration Statement") with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of Hearst-Argyle Series A Common Stock to be
issued in connection with the Merger. This Proxy Statement/Prospectus also
constitutes the Prospectus of Argyle filed as part of the Registration
Statement. This Proxy Statement/Prospectus does not contain all the
information contained in the Registration Statement filed with the Commission
by Argyle in connection with the issuance of the shares of Hearst-Argyle
Series A Common Stock in the Merger, certain parts of which are omitted in
accordance with the Commission's rules and regulations. All information in
this Proxy Statement/Prospectus concerning Argyle has been furnished by Argyle
and all information in this Proxy Statement/Prospectus concerning Hearst has
been furnished by Hearst. Neither Argyle nor Hearst makes any representation
as to the accuracy or completeness of information relating to the other.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by Argyle (collectively,
the "Argyle Reports") are incorporated in this Proxy Statement/Prospectus by
reference:
1. Annual Report on Form 10-K for the year ended December 31, 1996 (the
"Argyle 1996 Form 10-K").
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
3. Current Report on Form 8-K dated January 31, 1997, filed on February 14,
1997, as amended by Current Report on Form 8-K/A dated January 31, 1997,
filed on April 15, 1997.
1
<PAGE>
All reports and other documents filed by Argyle pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the Election Deadline (as defined herein)
shall be deemed to be incorporated by reference herein and to be a part
hereof.
In each case, the material terms of all contracts or other documents filed
as exhibits to this Proxy Statement/Prospectus are described herein or in the
filings incorporated by reference. Statements contained in this Proxy
Statement/Prospectus as to the contents of any contract or document, however,
are not necessarily complete and in each instance such statements are
qualified in their entireties by reference to the copy of such contract or
other document filed as an exhibit to the Registration Statement or
incorporated by reference therein. Any statement contained in a document
incorporated or deemed to be incorporated in this Proxy Statement/Prospectus
by reference shall be deemed to be modified or superseded for the purpose of
this Proxy Statement/Prospectus to the extent that a statement contained in
this Proxy Statement/Prospectus or in any other subsequently filed document
that also is or is deemed to be incorporated in this Proxy
Statement/Prospectus by reference modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part of this Proxy Statement/Prospectus, except as such statement is so
modified or superseded.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE ARGYLE REPORTS (OTHER THAN
EXHIBITS TO ARGYLE REPORTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL
REQUEST FROM ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED, TO ARGYLE TELEVISION, INC., 200 CONCORD
PLAZA, SUITE 700, SAN ANTONIO, TEXAS 78216, ATTENTION: CORPORATE SECRETARY
(TEL. (210) 828-1700). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE
STOCKHOLDERS MEETING OR THE ELECTION DEADLINE AS THE CASE MAY BE. THE
COMMISSION FILE NUMBER FOR ARGYLE IS 0-27000.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus contains forward-looking statements that are
subject to risks and uncertainties. Forward-looking statements include the
information concerning possible or assumed future results of operations of
Argyle, the Hearst Broadcast Group or Hearst-Argyle set forth under "Risk
Factors;" "The Hearst Transaction Proposal--Recommendation of Argyle Board;
Argyle's Reasons for the Hearst Transaction;" "--Hearst's Reasons for the
Hearst Transaction;" "--Fairness Opinion;" "--Regulatory Approvals;" "Business
of Argyle;" "Business of Hearst Broadcast Group;" and, "Hearst Broadcast Group
Management's Discussion and Analysis of Financial Condition and Results of
Operations," and those preceded by, followed by or that include the words
"believes," "expects," "anticipates" or similar expressions. For those
statements, Argyle claims the protection of the safe harbor for forward-
looking statements contained in the Private Securities Litigation Reform Act
of 1995. Stockholders should understand that the following important factors,
in addition to those discussed elsewhere in this Proxy Statement/Prospectus
and in the documents that are incorporated by reference, could affect the
future results of Argyle and/or Hearst-Argyle and could cause those results to
differ materially from those expressed in each forward-looking statement:
material adverse changes in economic conditions in the markets served by
Argyle and the Hearst Broadcast Group; a significant delay in the expected
closing of the Hearst Transaction; future regulatory actions and conditions in
the television stations operating areas; the possibility that currently
unanticipated difficulties may arise in integrating the operations of two
major businesses; and, competition from others in the broadcast television
markets served by the businesses.
2
<PAGE>
SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Proxy Statement/Prospectus or incorporated by
reference herein. Unless the context otherwise requires, (i) all references to
"Argyle" are to Argyle Television, Inc. and its consolidated subsidiaries; (ii)
all references to "Hearst" are to The Hearst Corporation; (iii) all references
to "Hearst-Argyle" are to Hearst-Argyle Television, Inc., the surviving
corporation in the Merger; and, (iv) all references to the "Hearst Broadcast
Group" are to the Hearst assets and liabilities to be contributed to Argyle in
the Contribution (see "The Merger Agreement--Pre-Merger Transactions"). This
summary is not intended to be complete and is qualified in its entirety by the
more detailed information contained elsewhere in this Proxy
Statement/Prospectus, the Appendices hereto and the documents incorporated by
reference or otherwise referred to herein. Stockholders of Argyle are urged to
review this entire Proxy Statement/Prospectus carefully, including the
Appendices hereto and such other documents incorporated by reference or
otherwise referred to herein.
THE HEARST TRANSACTION PROPOSAL
OVERVIEW OF THE HEARST TRANSACTION PROPOSAL
General. The Hearst Transaction combines six Hearst television stations and
related Hearst broadcast operations with Argyle through a contribution and
merger transaction, with Argyle as the surviving corporation to be renamed
"Hearst-Argyle Television, Inc." This combination with Argyle's existing six-
station group, along with three additional Hearst television stations to be
managed by Hearst-Argyle, will create a television broadcast company that
initially will own or manage 15 television stations reaching approximately
11.6% of U.S. television households, and will be the third-largest, non-network
owned television group in the U.S. in terms of audience delivered. Upon
consummation of the Hearst Transaction, Hearst will become the majority
stockholder of Hearst-Argyle, owning in excess of 80% of Hearst-Argyle's
outstanding common stock with the remainder of Hearst-Argyle to continue to be
publicly-held by the holders of Series A Common Stock. See "The Hearst
Transaction Proposal--Financing the Hearst Transaction."
In addition to the 12 television stations to be owned by Hearst-Argyle,
Hearst-Argyle also will manage certain television stations and radio stations
that will continue to be owned or operated by Hearst. Hearst-Argyle will have
an option to acquire at a later date certain of the managed television
stations. Under Federal Communications Commission ("FCC") regulations, Hearst-
Argyle will be required to divest two of its television stations. A letter of
intent has been signed to divest one of those stations, and Argyle and Hearst
currently are in negotiations with a third party for the divestiture of the
other station. See "The Hearst Transaction Proposal--Overview", "The Merger
Agreement--Conditions to the Merger--Management Agreement," "--Television
Station Option Agreement," "Business of Hearst Broadcast Group," "Risk
Factors--Regulatory Matters" and "Federal Regulation of Television
Broadcasting."
The Contribution. One of the first steps in the Hearst Transaction is the
contribution by Hearst to Argyle of the assets and properties of Hearst's six
network-affiliated television broadcast stations (WCVB-TV, Boston,
Massachusetts; WTAE-TV, Pittsburgh, Pennsylvania; WBAL-TV, Baltimore, Maryland;
WISN-TV, Milwaukee, Wisconsin; KMBC-TV, Kansas City, Missouri; and, WDTN-TV,
Dayton, Ohio) and Hearst Broadcasting Productions, a unit of WCVB engaged in
the programming production business (collectively, the "Hearst Broadcast
Group"). The Hearst Broadcast Group will be subject to approximately $275
million of long-term debt, which Argyle will assume along with liabilities
related to operations of the Hearst Broadcast Group. In addition, Cash Sub (a
wholly-owned subsidiary of Hearst) will contribute to Argyle approximately $200
million in cash and Argyle will assume the $200 million of short-term debt
incurred by Cash Sub in respect thereof. In exchange for the Contribution to
Argyle, Hearst will receive 38,611,000 shares of Series B Common Stock of
Argyle and Cash Sub will receive one share. Depending on the working capital
balance of the Hearst Broadcast Group, additional shares of Series B Common
Stock may be issued to Hearst in the Hearst Transaction. See "The Hearst
Transaction Proposal--Overview," "The Merger Agreement--Pre-Merger
Transactions," "--Certain Adjustments" and "Business of Hearst Broadcast
Group."
3
<PAGE>
The Merger. Immediately following the Contribution, Merger Sub (a wholly-
owned subsidiary of Hearst) will merge with and into Argyle, and the holders of
Series A Common Stock will receive in the Merger either cash, stock in Hearst-
Argyle or a combination thereof.
In the Merger, each Argyle stockholder will be entitled to make an election
as to the consideration such stockholder would like to receive in exchange for
each share of Series A Common Stock. The election alternatives available to an
Argyle stockholder in exchange for each share of Series A Common Stock, subject
to the limits described below, are as follows:
. $26.50 in cash, without interest (the "Cash Election");
. one new share of Hearst-Argyle Series A Common Stock (the "Stock
Election"); or,
. a "Mixed Consideration," consisting of a combination of $13.25 in cash,
without interest, and 0.5 share of Hearst-Argyle Series A Common Stock (the
"Mixed Election").
In the Merger, optionholders also will be entitled to convert their options
into Hearst-Argyle options or make certain similar elections with respect to
their options. See "Summary--The Merger Agreement--Merger Consideration and
Conversion of Shares" and "The Merger Agreement--Merger Consideration and
Conversion of Shares."
The aggregate number of shares of Hearst-Argyle Series A Common Stock to be
issued to Argyle stockholders and optionholders in the Merger will be between
6,025,319 and 8,277,054 shares, and the aggregate amount of cash to be received
by Argyle stockholders and optionholders in the Merger will be between $100
million and approximately $160 million. The specific amounts of stock and cash
that will be received will depend on the individual elections by the Argyle
stockholders and optionholders.
If elections to receive cash or Hearst-Argyle Series A Common Stock exceed
their limits, the amounts that otherwise would have been allocated to
stockholders electing to receive the form of consideration that is
oversubscribed will be reduced. In all cases, however, stockholders making the
Mixed Election will receive the Mixed Consideration. In the event that cash
elections (including the cash portion of all elections) exceed approximately
$160 million, those stockholders making the Cash Election will receive some
shares of Hearst-Argyle Series A Common Stock (but in any event will receive
not less than $13.25 in cash, without interest, or not more than 0.5 share of
Hearst-Argyle Series A Common Stock for each share of Series A Common Stock
they currently hold). In the event that cash elections (including the cash
portion of all elections) are less than $100 million, those stockholders making
the Stock Election will receive some cash (but in any event will receive not
more than $8.30 in cash, without interest, or not less than approximately 0.69
share of Hearst-Argyle Series A Common Stock for each share of Series A Common
Stock they currently hold). See "The Hearst Transaction Proposal--Overview" and
"The Merger Agreement--Merger Consideration and Conversion of Shares."
The following two examples will illustrate the operation of the proration
provisions of the Merger Agreement:
Example 1:
----------
Holders of the following percentages of Argyle stock and Argyle options
make the following elections--35% Cash Election and Option Cash Election;
50% Mixed Election and Option Mixed Elections; and, 15% Stock Election and
Option Stock Election. Under these assumptions, a total of $191.5 million
in cash would have been elected by all stockholders and optionholders.
Since this amount exceeds the $160 million cap on total cash elections, the
cash to be received by stockholders and optionholders making Cash Elections
and Option Cash Elections would be reduced by the amount of aggregate
elections of cash exceeding the cap ($31.5 million).
4
<PAGE>
Under this example, an equivalent of 4.2 million shares are making the Cash
Election and Option Cash Election. Dividing the $31.5 million excess cash
elections by the 4.2 million shares, the amount of the proration would be
$7.57 for each share and "net" option share making a Cash Election or
Option Cash Election. The cash to be received for each share and "net"
option share for which a Cash Election or Option Cash Election was made,
therefore, would be $18.93, with the remainder of the consideration ($26.50
minus $18.93, or $7.57) to be in Hearst-Argyle Series A Common Stock valued
at $26.50 per share, or 0.29 share ($7.57 divided by $26.50).
Under this example, the proration provisions would result in the following
consideration per share (and with respect to options, per $26.50 in "net"
option value; i.e., the difference of the Cash Consideration of $26.50 less
the exercise price for each option):
<TABLE>
<CAPTION>
ELECTION CASH STOCK
-------- ------ ----------
<S> <C> <C>
Cash.................................................... $18.93 0.29 share
Mixed................................................... $13.25 0.5 share
Stock................................................... -0- 1 share
</TABLE>
Example 2:
Holders of the following percentages of Argyle stock and Argyle options
make the following elections--5% Cash Election and Option Cash Election;
25% Mixed Election and Option Mixed Election; and, 70% Stock Election and
Option Stock Election. Under these assumptions, a total of $55.9 million in
cash would have been elected by all stockholders and optionholders. Since
this amount is less than the $100 million minimum on total cash elections,
the stockholders and optionholders making the Stock Election and Option
Stock Election would receive cash equal to the shortfall of the aggregate
cash elections from the $100 million minimum ($44.1 million).
Under this example, an equivalent of 8.4 million shares are making the
Stock Election and Option Stock Election. Dividing the $44.1 million cash
elections shortfall by the 8.4 million shares, the amount of the proration
would be $5.23 for each share and "net" option share making a Stock
Election or Option Stock Election, with each such share receiving this
amount of cash. The remainder of the consideration ($26.50 minus $5.23, or
$21.27) would be in Hearst-Argyle Series A Common Stock valued at $26.50
per share, or 0.80 share ($21.27 divided by $26.50).
Under this example, the proration provisions would result in the following
consideration per share (and with respect to options, per $26.50 in "net"
option value; i.e., the difference of the Cash Consideration of $26.50 less
the exercise price for each option):
<TABLE>
<CAPTION>
ELECTION CASH STOCK
-------- ------ ----------
<S> <C> <C>
Cash.................................................... $26.50 0 share
Mixed................................................... $13.25 0.5 share
Stock................................................... $ 5.23 0.80 share
</TABLE>
5
<PAGE>
The following table shows the consideration to be received per share under
the Cash, Mixed and Stock Elections assuming various aggregate election
scenarios:
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES
AND OPTIONS CONSIDERATION PER SHARE(1)
SCENARIO MAKING ELECTION ELECTION TO BE RECEIVED BY STOCKHOLDERS AND OPTIONHOLDERS
-------- --------------- -------- ------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
A. 100% Cash $13.25 in cash and 0.5 share
0% Mixed --
0% Stock --
- --------------------------------------------------------------------------------
B. 15% Cash $22.08 in cash and 0.17 share
75% Mixed $13.25 in cash and 0.5 share
10% Stock 0 in cash and 1 share
- --------------------------------------------------------------------------------
C. 10% Cash $26.50 in cash and 0 share
75% Mixed $13.25 in cash and 0.5 share
15% Stock 0 in cash and 1 share
- --------------------------------------------------------------------------------
D. 35% Cash $18.93 in cash and 0.29 share
50% Mixed $13.25 in cash and 0.5 share
15% Stock 0 in cash and 1 share
- --------------------------------------------------------------------------------
E. 15% Cash $26.50 in cash and 0 share
50% Mixed $13.25 in cash and 0.5 share
35% Stock 0 in cash and 1 share
- --------------------------------------------------------------------------------
F. 50% Cash $19.66 in cash and 0.25 share
25% Mixed $13.25 in cash and 0.5 share
25% Stock $0 in cash and 1 share
- --------------------------------------------------------------------------------
G. 5% Cash $26.50 in cash and 0 share
25% Mixed $13.25 in cash and 0.5 share
70% Stock $5.23 in cash and 0.80 share
- --------------------------------------------------------------------------------
H. 0% Cash --
0% Mixed --
100% Stock $8.30 in cash and 0.69 share
</TABLE>
- --------------------------------------------------------------------------------
- --------
(1) For optionholders, per $26.50 in "net" option value (i.e., the difference
of the Cash Consideration of $26.50 less the exercise price for each
option).
Restated Charter. In order to effect the transactions described above, it
will be necessary for Argyle to amend and restate its existing Certificate of
Incorporation (the "Argyle Certificate of Incorporation") prior to the
Contribution and the Merger. This Restated Charter, among other things, will
(i) increase the number of authorized shares of Argyle common stock from 50
million to 200 million shares; (ii) reclassify and change Argyle's existing
Series B Common Stock and Series C Common Stock into Series A Common Stock;
(iii) authorize a Series B Common Stock, which will be issued to Hearst and
Cash Sub in connection with the Contribution; and, (iv) provide Argyle's Series
A Preferred Stock and Series B Preferred Stock with voting rights. See "The
Hearst Transaction Proposal--Overview," "The Merger Agreement--Pre-Merger
Transactions," "Description of Hearst-Argyle Capital Stock" and "Comparison of
Stockholders' Rights."
6
<PAGE>
THE COMBINED COMPANY
Upon consummation of the Merger, Argyle (which will be the surviving
corporation in the Merger) will be renamed "Hearst-Argyle Television, Inc." and
Hearst will own between 82.3% and 86.5% of the outstanding shares of common
stock of Hearst-Argyle. As a result of the Contribution, the business of
Hearst-Argyle will consist of the current separate businesses of the Hearst
Broadcast Group and Argyle. The principal executive offices of Argyle will be
relocated from San Antonio, Texas to New York, New York after the Merger. See
"Business of Hearst-Argyle," "Business of Hearst Broadcast Group" and "Business
of Argyle."
The following table sets forth information for each of the television
stations to be owned or managed by Hearst-Argyle (the "Hearst-Argyle Stations")
as a result of the Hearst Transaction:
<TABLE>
<CAPTION>
MARKET YEAR NETWORK PERCENTAGE OF U.S.
MARKET RANK(1) STATION ACQUIRED AFFILIATION CHANNEL TELEVISION HOUSEHOLDS(2)
------ ------- --------- -------- ----------- ------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Boston, MA.............. 6 WCVB 1986 ABC 5 2.22%
Tampa, FL(3)............ 15 WWWB 1996 WB 32 1.46%
Pittsburgh, PA.......... 19 WTAE 1958 ABC 4 1.19%
Baltimore, MD........... 23 WBAL 1948 NBC 11 1.02%
Cincinnati, OH.......... 30 WLWT 1997 NBC 5 0.83%
Milwaukee, WI........... 31 WISN 1954 ABC 12 0.81%
Kansas City, MO......... 32 KMBC 1982 ABC 9 0.81%
Kansas City, MO(3)(4)... 32 KCWB 1996 WB 29 ***
Oklahoma City, OK....... 43 KOCO 1997 ABC 5 0.61%
West Palm Beach, FL(3).. 44 WPBF 1997 ABC 25 0.61%
Providence, RI(5)(6).... 47 WNAC 1995 FOX 64 0.58%
Dayton, OH(5)........... 53 WDTN 1981 ABC 2 0.52%
Honolulu, HI............ 69 KITV 1995 ABC 4 0.40%
Jackson, MS............. 90 WAPT 1995 ABC 16 0.31%
Fort Smith/Fayetteville,
AR..................... 118 KHBS/KHOG 1996 ABC/ABC 40/29 0.22%
------
Total................. 11.59%
======
</TABLE>
- --------
(1) Market rank is based on the relative size of the Designated Market Area
(defined by A.C. Nielsen Co. ("Nielsen") as geographic markets for the sale
of national "spot" and local advertising time) ("DMA") among the 211
generally recognized DMAs in the U.S., based on Nielsen estimates for the
1996-97 season.
(2) Based on Nielsen estimates for the 1996-97 season.
(3) WWWB-TV (Tampa, FL) and WPBF-TV (West Palm Beach, FL) (if the pending
acquisition by Hearst of WPBF is completed) will be managed by Hearst-
Argyle under a management agreement with Hearst and will continue to be
owned by Hearst. In addition, Hearst-Argyle will provide certain management
services to Hearst in order to allow Hearst to fulfill its obligations
under the Missouri LMA (as defined below) with KCWB. For terms of the
Management Agreement and the Option Agreement, see "The Merger Agreement--
Conditions to the Merger--Management Agreement" and "--Television Station
Option Agreement." For a description of WPBF, see "Business of Hearst
Broadcast Group--The Hearst Stations."
(4) Hearst has a Program Services and Time Brokerage Agreement (or the
"Missouri LMA") with KCWB-TV, Inc., the permittee of KCWB. KCWB holds a
construction permit authorizing it to operate on Channel 32. Due to a lack
of available tower sites within the useable area for Channel 32, however,
KCWB is presently operating on Channel 29 pursuant to a Special Temporary
Authorization ("STA") granted by the FCC. KCWB is awaiting an FCC decision
on its proposal to permanently change the operating channel of the station
from Channel 32 to Channel 29. KCWB has pending an application to authorize
its permanent operation on Channel 29. KCWB's STA expires on September 29,
1997 and may be renewed at the FCC's discretion for periods of six months.
The STA has already been renewed once. Hearst anticipates that the FCC will
ultimately license KCWB to operate on Channel 29. However, there can be no
assurance that this will occur.
(5) WNAC-TV's (Providence, RI) broadcast signal overlaps with WCVB-TV's
(Boston, MA) broadcast signal, and WDTN-TV's (Dayton, OH) broadcast signal
overlaps with WLWT-TV's (Cincinnati, OH) broadcast signal. Under FCC rules,
a single entity cannot own stations with overlapping signals. Hearst-Argyle
will divest WNAC and WDTN. See "Risk Factors--Regulatory Matters" and
"Federal Regulation of Television Broadcasting."
(6) Subject to a Joint Marketing and Programming Agreement with Clear Channel
Communications, Inc. ("Clear Channel"), licensee of WPRI-TV, the CBS
affiliate in Providence, RI. Argyle has entered into a letter of intent to
divest WNAC. See "Business of Argyle."
7
<PAGE>
THE ANNUAL MEETING
The Stockholders Meeting will be held at 200 Concord Plaza, San Antonio,
Texas 78216, on Thursday, August 28, 1997, starting at 9:00 a.m., local time.
At the Stockholders Meeting, the stockholders of Argyle will be asked to
consider and vote upon (i) the Hearst Transaction Proposal; (ii) the Plan
Proposal; (iii) the Director Election Proposal; and, (iv) such other matters as
may properly come before the Stockholders Meeting. See "The Annual Meeting."
Holders of record of Series A Common Stock and Series B Common Stock
(collectively, "Argyle Common Stock") at the close of business on the Record
Date have the right to receive notice of and to vote at the Stockholders
Meeting and any adjournments or postponements thereof. As of the Record Date,
there were 11,310,914 shares of Series A Common Stock and 36,000 shares of
Series B Common Stock issued and outstanding and entitled to vote. Each share
of Series A Common Stock and each share of Series B Common Stock outstanding as
of the Record Date will be entitled to one vote per share. Each share of Series
A Common Stock is entitled to one vote and to vote separately as a class in
order to approve and adopt the Hearst Transaction Proposal and elect the Series
A Director, and each share of Series B Common Stock is entitled to one vote and
to vote separately as a class in order to approve and adopt the Hearst
Transaction Proposal and elect the Series B Director. The holders of shares of
Series A Common Stock and Series B Common Stock will vote together as a single
class on the Plan Proposal. Cumulative voting is not permitted in the election
of directors.
Pursuant to the Merger Agreement and Argyle's Certificate of Incorporation
and bylaws, (i) the affirmative vote of the holders of two-thirds of the
outstanding shares of Series A Common Stock and Series B Common Stock, voting
together as a class; (ii) the affirmative vote of the holders of two-thirds of
the outstanding shares of Series A Common Stock, voting together as a class;
and, (iii) the affirmative vote of the holders of two-thirds of the outstanding
shares of Series B Common Stock, voting together as a class, is required to
approve the Hearst Transaction Proposal. The Plan Proposal requires the
affirmative vote of a majority of the shares of Series A Common Stock and
Series B Common Stock, voting together as a class, represented at the
Stockholders Meeting. The Director Election Proposal requires the affirmative
vote of a plurality of the voting power of the shares of Series A Common Stock
represented at the Stockholders Meeting to elect the Series A Director and the
affirmative vote of a plurality of the voting power of the shares of Series B
Common Stock represented at the Stockholders Meeting to elect the Series B
Director. See "The Annual Meeting" and "Director Election Proposal."
The Voting Agreements delivered by certain Argyle stockholders, including
limited partnerships and foundations through which certain officers and
directors of Argyle indirectly own shares of Argyle Common Stock, cover
approximately 66.6% of the issued and outstanding shares of Series A Common
Stock and 100% of the issued and outstanding shares of Series B Common Stock
(or approximately 66.7% of the total voting power of the outstanding shares of
Argyle Common Stock as of the Record Date). Accordingly, approval of the Hearst
Transaction is virtually assured regardless of the vote of any other
stockholder of Argyle. See "The Merger Agreement--Voting Agreements" and
"Security Ownership Before and After the Hearst Transaction."
As of the Record Date, directors and executive officers of Argyle, its
subsidiaries and their respective affiliates as a group beneficially owned
7,687,000 shares of Series A Common Stock, or approximately 65.8% of the issued
and outstanding shares of Series A Common Stock, and 36,000 shares of Series B
Common Stock, or 100% of the issued and outstanding shares of Series B Common
Stock, which represented, in the aggregate, 65.9% of the total voting power of
the issued and outstanding shares of Argyle Common Stock as of the Record Date.
See "Security Ownership Before and After the Hearst Transaction."
RISK FACTORS
In determining whether to vote for the Hearst Transaction Proposal and in
making an election for Merger Consideration (as defined below), stockholders
should carefully read and evaluate certain risks associated with
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Hearst-Argyle and the Hearst Transaction, which risks include, without
limitation, reliance upon ABC television network; dependence on advertising
revenues; effect of economic conditions; control by majority stockholder;
competitive and operations impact; conflicts of interest; television industry
competition and technology; regulatory matters; uncertainty as to market price
and liquidity of Hearst-Argyle Series A Common Stock; risks associated with
expansion and integration of the combined operations; significant
uncertainties; uncertainty of composition of Merger Consideration; and, tax
risks. See "Risk Factors."
THE HEARST TRANSACTION PROPOSAL
The Merger Agreement provides for the contribution by Hearst of six network
television stations in six major cities in the U.S., as well as Hearst
Broadcasting Productions, to Argyle in exchange for 38,611,001 shares of Series
B Common Stock. Depending on the working capital balance of the Hearst
Broadcast Group, additional shares of Series B Common Stock may be issued to
Hearst as part of the Hearst Transaction. Upon consummation of the Merger,
Argyle will be the surviving corporation and renamed "Hearst-Argyle Television,
Inc." Upon consummation of the Hearst Transaction, Hearst will own between
82.3% and 86.5% of the outstanding shares of common stock of Hearst-Argyle.
Additional shares, if any, that may be issued to Hearst based on the working
capital balance of the Hearst Broadcast Group will be based on such balance at
Closing. If the Merger had occurred on December 31, 1996, Hearst would have
been entitled to receive an additional approximately 800,000 shares, resulting
in ownership of between 82.6% and 86.7% of the outstanding shares of common
stock of Hearst-Argyle. See "The Hearst Transaction Proposal."
THE MERGER AGREEMENT
The Merger. Pursuant to the Merger Agreement and subject to the terms and
conditions thereof, Merger Sub will be merged with and into Argyle, with Argyle
being the surviving corporation in the Merger. The closing of the Merger (the
"Closing") will take place on a date specified by Argyle and Hearst (the
"Closing Date"), which in no event will be later than the third business day
after the conditions set forth in the Merger Agreement have been satisfied or
waived. If the Closing has not occurred by December 31, 1997, Hearst or Argyle
may terminate the Merger Agreement. See "The Merger Agreement--Conditions to
the Merger."
The name of the surviving corporation will be "Hearst-Argyle Television,
Inc.," and the Restated Charter, as amended to reflect the name change, will be
the Certificate of Incorporation of the surviving corporation. The bylaws of
Argyle as in effect immediately prior to the effective time of the Merger (the
"Effective Time") will be the bylaws of Hearst-Argyle, except as amended to
provide that the number of directors of Hearst-Argyle will be 11 effective upon
the Merger and thereafter will be no less than seven and no more than 15.
Merger Consideration and Conversion of Shares. Each share of Series A Common
Stock (other than treasury shares or shares in respect of which statutory
appraisal rights have been perfected ("Dissenting Shares")) will be converted
into the right to receive (subject to the limitations and allocation prorations
set forth in this Proxy Statement/Prospectus (the "Limitations and Allocation
Prorations")) one of the following in the Merger: (i) $26.50 in cash, without
interest (the "Cash Consideration"); (ii) one share of Hearst-Argyle Series A
Common Stock (the "Stock Consideration"); or, (iii) a combination of 0.5 share
of Hearst-Argyle Series A Common Stock and $13.25 in cash, without interest
(the "Mixed Consideration"). The consideration to be provided in exchange for
each share of Series A Common Stock is referred to as the "Merger
Consideration."
Each holder of Series A Common Stock will have the right to choose to
receive, subject to the Limitations and Allocation Prorations set forth in this
Proxy Statement/Prospectus, one of the following in exchange for each share of
such holder's Series A Common Stock in the Merger (an "Election"):
(i) the Cash Consideration;
(ii) the Stock Consideration; or,
(iii) the Mixed Consideration.
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Each issued and outstanding share of Series B Common Stock immediately prior
to the Effective Time (other than treasury shares) will be converted into and
become one share of Hearst-Argyle Series B Common Stock, par value $.01 per
share ("Hearst-Argyle Series B Common Stock"). Since the only shares of Series
B Common Stock issued and outstanding immediately prior to the Effective Time
will be the shares of Series B Common Stock issued to Hearst and Cash Sub in
the Contribution, at the Effective Time all outstanding shares of Hearst-Argyle
Series B Common Stock will be owned by Hearst. See "The Merger Agreement--Pre-
Merger Transactions."
Each issued and outstanding share of Argyle's Series A Preferred Stock, par
value $.01 per share ("Series A Preferred Stock") (other than treasury shares
and Dissenting Shares) will be converted into one share of Hearst-Argyle Series
A Voting Preferred Stock, par value $.01 per share ("Hearst-Argyle Series A
Preferred Stock"), and each issued and outstanding share of Argyle's Series B
Preferred Stock, par value $.01 per share ("Series B Preferred Stock") (other
than treasury shares and Dissenting Shares) will be converted into and become
one share of Hearst-Argyle Series B Voting Preferred Stock, par value $.01 per
share ("Hearst-Argyle Series B Preferred Stock").
Each option or similar right to purchase shares of Series A Common Stock that
is outstanding at the Effective Time (each such option, as it relates to each
such share, being referred to herein as an "Argyle Option") will be cancelled,
by virtue of the Merger and without further action by Argyle or the holder of
an Argyle Option, without consideration except as provided below. Each person
shown on the books of Argyle to be a holder of an Argyle Option whether or not
immediately exercisable, will be entitled to receive, subject to the
Limitations and Allocation Prorations set forth in this Proxy
Statement/Prospectus, at such holder's election, one of the following (an
"Option Election"):
(i) an option to purchase shares of Hearst-Argyle Series A Common Stock
("Hearst-Argyle Options"), into which the Argyle Options will be converted
and assumed by Hearst-Argyle (a "Rollover Election"), with each such
Hearst-Argyle Option to be fully vested and otherwise to be exercisable
upon the same terms and conditions as set forth in the option agreement
respecting the Argyle Option converted into such Hearst-Argyle Option;
(ii) a number of shares of Hearst-Argyle Series A Common Stock ("Option
Stock") equal to (a) the number of shares of Series A Common Stock
underlying such Argyle Option multiplied by (b) a fraction, of which the
numerator is the amount by which the Cash Consideration exceeds the per
share exercise or purchase price provided under such Argyle Option and the
denominator is an amount equal to the Cash Consideration (an "Option Stock
Election");
(iii) cash ("Option Cash") in an amount equal to (a) the Cash
Consideration multiplied by (b) the number of shares of Option Stock that
such holder would be entitled to receive pursuant to paragraph (ii) above
(an "Option Cash Election"); or,
(iv) the sum of (a) a number of shares of Hearst-Argyle Series A Common
Stock equal to (1) the number of shares of Option Stock that such holder
would be entitled to receive pursuant to paragraph (ii) above multiplied by
(2) 50%, plus (b) cash in an amount equal to (1) the Cash Consideration
multiplied by (2) the number of shares by which the Option Stock that such
holder would be entitled to receive pursuant to paragraph (ii) above
exceeds the number of shares of Hearst-Argyle Series A Common Stock that
such holder is entitled to receive pursuant to this paragraph (iv) (the
consideration being the "Option Mixed Consideration" and the election being
the "Option Mixed Election").
As of June 30, 1997, there were outstanding options to purchase 1,404,520
shares of Series A Common Stock. Messrs. Bob Marbut, Blake Byrne, Ibra Morales
and Harry T. Hawks have agreed, among other things, that they will not make a
Rollover Election with respect to their Argyle Options and instead only will
make an Option Cash Election, Option Stock Election or Option Mixed Election.
For additional information regarding the Merger Consideration and the
conversion of shares of Argyle Common Stock and Argyle Options in the Merger,
see "The Merger Agreement--Merger Consideration and Conversion of Shares."
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Limitations and Allocation Prorations. Although each holder of Series A
Common Stock and Argyle Options will have the right to elect how their shares
and/or options are converted, certain limitations and allocation prorations
apply. Generally, each share of Series A Common Stock covered by a Mixed
Election and each Argyle Option covered by an Option Mixed Election will be
converted into the right to receive the Mixed Consideration and the Option
Mixed Consideration, respectively. The total number of shares of Hearst-Argyle
Series A Common Stock to be issued to Argyle stockholders and optionholders in
the Merger will not exceed 8,277,054 shares and will not be less than 6,025,319
shares, and the total amount of cash to be paid to Argyle stockholders and
optionholders in the Merger will not be less than $100 million or greater than
approximately $160 million. The specific manner in which shares covered by Cash
Elections, Option Cash Elections, Stock Elections and Option Stock Elections
will be converted at the time of the Merger into cash or Hearst-Argyle Series A
Common Stock will be subject to the Limitations and Allocation Prorations
described in "The Hearst Transaction Proposal--Overview" and "The Merger
Agreement--Merger Consideration and Conversion of Shares."
Because the aggregate number of shares of Hearst-Argyle Series A Common Stock
to be issued in the Merger and the aggregate amount of cash (other than cash
paid in lieu of fractional shares) to be paid in the Merger is fixed, an Argyle
stockholder may not receive exactly the consideration elected on the Form of
Election. Argyle stockholders will know the exact composition of the Merger
Consideration paid for their shares of Series A Common Stock only upon receipt
of the Merger Consideration payable to them, which payment will be accompanied
by a brief explanation of the application of the Limitations and Allocation
Prorations.
Election Procedures. Hearst and Argyle have prepared a Form of Election
pursuant to which each holder of Series A Common Stock may make an Election
with respect to each share of Series A Common Stock. To make an effective
Election, an Argyle stockholder must submit a properly completed Form of
Election, accompanied by such holder's certificates representing shares of
Series A Common Stock, so that it is received by the Exchange Agent (defined
below) prior to the deadline for making an Election (the "Election Deadline")
in accordance with the instructions on the Form of Election. Upon request to
the Exchange Agent, a Form of Election will be mailed to each person who
becomes a holder or beneficial owner of Series A Common Stock between the
Record Date and the business day prior to the Election Deadline. If a Form of
Election is not properly completed and received by the Exchange Agent prior to
the Election Deadline, the form of Merger Consideration to be received will be
determined pursuant to the provisions of the Merger Agreement. Hearst and
Argyle have authorized Harris Trust and Savings Bank to receive Elections and
to act as Exchange Agent (the "Exchange Agent"). See "The Merger Agreement--
Additional Election Procedures."
Certain Covenants. The Merger Agreement contains various covenants typical
for transactions similar to the Hearst Transaction, including, among others,
covenants relating to the conduct of business by Argyle and the Hearst
Broadcast Group pending the Merger, the solicitation of competing acquisition
proposals, indemnification and the payment of expenses. The Merger Agreement
also contains covenants relating to certain corporate governance and cross-
ownership situations attributable to Hearst's controlling interest in Hearst-
Argyle. See "The Merger Agreement--Certain Covenants."
Certain Conditions to the Merger. The obligations of the parties to effect
the Hearst Transaction are subject to the fulfillment of various conditions,
including, among others, conditions relating to Argyle stockholder approval,
continued effectiveness of the Registration Statement of which this Proxy
Statement/Prospectus is a part, FCC and other regulatory approvals, Nasdaq
National Market approval of the Hearst-Argyle Series A Common Stock, the number
of Dissenting Shares, the absence of certain governmental orders or judgments
prohibiting the Merger, continued accuracy of representations and warranties,
receipt of certain third party consents and legal opinions, and delivery of
conveyancing and other closing documents.
In addition, the parties' obligations under the Merger Agreement are subject
to (i) receipt by Argyle of financing necessary to enable Hearst-Argyle to
refinance after the Effective Time (a) the $275 million of Hearst
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private placement debt (the "Private Placement Debt"); (b) the $200 million of
bridge financing indebtedness to be incurred by Cash Sub in connection with the
Contribution (the "Bridge Debt"); and, (c) outstanding balances under Argyle's
$65 million revolving credit facility (the "Existing Credit Facility"), and to
enable Hearst-Argyle to redeem, if required, its 9 3/4% Senior Subordinated
Notes due 2005 (the "Senior Subordinated Notes"); and, (ii) execution and
delivery of the Management Agreement and the Television Station Option
Agreement described below and certain other agreements between Hearst and
Hearst-Argyle. See "The Merger Agreement--Conditions to the Merger."
Management Agreement. As a condition to each party's obligation to effect the
Hearst Transaction, Hearst and Argyle are required to execute a Management
Agreement (the "Management Agreement") pursuant to which Hearst-Argyle will
provide certain management services (i.e., sales, news, programming and
financial and accounting management services) with respect to WWWB, KCWB (the
Missouri LMA), Hearst's Baltimore AM/FM radio stations, the WPBF television
station under contract to be acquired by Hearst from Paxson Communications
Corporation, and all other television stations that may be acquired by Hearst
or any of its subsidiaries or affiliates prior to the Effective Time. For a
discussion of the material terms of the Management Agreement, see "The Merger
Agreement--Conditions to the Merger--Management Agreement."
Television Station Option Agreement. As a condition to each party's
obligation to effect the Hearst Transaction, Hearst and Argyle are required to
execute a Television Station Option Agreement (the "Option Agreement") pursuant
to which Hearst will grant to Hearst-Argyle an option to acquire WWWB and
Hearst's interests and option with respect to KCWB, as well as a right of first
refusal for a period of 36 months following the closing of the Hearst
Transaction with respect to WPBF (if such station is acquired by Hearst and
thereafter proposed to be sold to a third party). If Hearst elects to sell a
station prior to the commencement of, or during the option period, Hearst-
Argyle will have a right of first refusal to acquire the station. Hearst may
elect to receive the purchase price in either cash or shares of stock of
Hearst-Argyle. For a discussion of the material terms of the Option Agreement,
see "The Merger Agreement--Conditions to the Merger--Television Station Option
Agreement."
Termination of the Merger Agreement. The Merger Agreement may be terminated
prior to the Effective Time, whether before or after the approval by the
stockholders of Argyle (i) by mutual written consent of Hearst and Argyle or
(ii) by the Board of Directors of either Hearst or Argyle under the following
circumstances: (x) if the Merger shall not have been consummated by December
31, 1997; (y) the approval of Argyle's stockholders has not been obtained; or,
(z) a governmental or regulatory authority shall have issued an order, decree
or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by the Merger Agreement,
which action shall have become final and non-appealable. Argyle may further
terminate the Merger Agreement by action of its Board of Directors if (i) in
the exercise of its good faith judgment as to fiduciary duties to its
stockholders imposed by law, on the basis of written advice given by outside
counsel, the Board of Directors approves an acquisition proposal or recommends
an acquisition proposal (either an "Acquisition Proposal") to Argyle's
stockholders; (ii) there has been a breach by Hearst of any representation or
warranty contained in the Merger Agreement that would have or would be
reasonably likely to have a material adverse effect on the Hearst Broadcast
Group; or, (iii) there has been a material breach by Hearst, Merger Sub or Cash
Sub of any of the covenants contained in the Merger Agreement that is not cured
within 30 days after written notice of such breach. Hearst may further
terminate the Merger Agreement prior to the Effective Time by action of its
Board of Directors if (i) the Board of Directors of Argyle withdraws or
modifies in a manner materially adverse to Hearst its approval or
recommendation of the Merger Agreement or the Merger or approves an Acquisition
Proposal or recommends an Acquisition Proposal to Argyle's stockholders; (ii)
there has been a breach by Argyle of any representation or warranty contained
in the Merger Agreement that would have or would be reasonably likely to have a
material adverse effect on Argyle; or, (iii) there has been a material breach
by Argyle of any of the covenants contained in the Merger Agreement that is not
cured within 30 days after written notice of such breach. See "The Merger
Agreement--Termination of the Merger Agreement."
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Termination Fee. In the event that an Acquisition Proposal is made and
thereafter the Merger Agreement is terminated (i)(a) by action of Hearst's
Board of Directors or by action of Argyle's Board of Directors if the Argyle
Board of Directors has approved an Acquisition Proposal or has recommended an
Acquisition Proposal to Argyle's stockholders, in the exercise of the Argyle
Board's fiduciary duties, or (b) by action of the Hearst Board of Directors if
the Argyle Board has withdrawn or modified in a manner materially adverse to
Hearst its approval or recommendation of the Merger Agreement or the Merger, or
(ii) (a) because the Merger has not occurred by December 31, 1997 and the
proximate cause for such failure is (x) Argyle did not obtain financing; (y)
the Management Agreement, the Option Agreement, the Tax Sharing Agreement (the
"Tax Sharing Agreement"), the Name License Agreement (the "Name License
Agreement") and the Radio Facilities Lease (the "Radio Facilities Lease") by
and between Hearst-Argyle and Hearst were not executed and delivered; or, (z)
third-party consents to certain of Hearst's material contracts were not
obtained, or (b) because Argyle stockholder approval was not obtained, or (c)
because a governmental or regulatory authority (other than the FCC, the Federal
Trade Commission (the "FTC"), or the Antitrust Division of the Department of
Justice (the "Antitrust Division")) issued a final and non-appealable order
restraining or enjoining the Hearst Transactions, or (d) by action of Hearst's
Board of Directors if (y) there has been a breach by Argyle of any
representation or warranty in the Merger Agreement that would have, or that
would reasonably be likely to have, a material adverse effect on Argyle, or (z)
there has been a material breach of any of the covenants or agreements in the
Merger Agreement on the part of Argyle, which breach is not curable or not
cured within 30 days after written notice of such breach is given by Hearst to
Argyle, and in the case of clause (ii) a definitive agreement with respect to
such Acquisition Proposal is executed, or the transaction contemplated by the
Acquisition Proposal is consummated, within 18 months after such termination,
then Argyle is required to pay Hearst a fee of $15,850,000 by wire transfer in
same day funds. If Argyle fails to pay the termination fee when due, and in
order to obtain such payment, Hearst commences a suit resulting in a judgment
against Argyle for the fee, Argyle is required to pay Hearst its costs and
expenses (including attorneys' fees) in connection with such suit, together
with interest on the fee at the rate of 12% per annum. Moreover, neither party
is precluded from seeking damages for willful breach of the Merger Agreement or
pursuing any other remedy at law or in equity. See "The Merger Agreement--
Termination of the Merger Agreement."
Voting Agreements. Simultaneously with the execution and delivery of the
Merger Agreement, Hearst entered into Voting Agreements with stockholders,
including limited partnerships and foundations through which certain officers
and directors indirectly own shares of Series A Common Stock and Series B
Common Stock, that own, in the aggregate, over two-thirds of the outstanding
shares of Argyle Common Stock. Each of these stockholders agreed to vote all
shares of Argyle Common Stock subject to the Voting Agreements in favor of the
Restated Charter and the Merger and against any Acquisition Proposals. In
addition, each of these stockholders has agreed not to initiate, solicit,
encourage, accept or take any action knowingly to facilitate any inquiries or
the making of, or participate in any discussions or negotiations regarding, any
Acquisition Proposal. The Voting Agreements cover approximately 66.6% of the
issued and outstanding shares of Series A Common Stock and 100% of the issued
and outstanding shares of Series B Common Stock (or approximately 66.7% of the
total voting power of the issued and outstanding shares of Argyle Common Stock)
as of the Record Date. For additional information regarding the Voting
Agreements, see "The Merger Agreement--Voting Agreements."
RECOMMENDATION OF ARGYLE BOARD; REASONS FOR THE HEARST TRANSACTION
THE ARGYLE BOARD HAS UNANIMOUSLY APPROVED THE HEARST TRANSACTION AND HAS
DETERMINED THAT THE HEARST TRANSACTION IS FAIR TO, AND IN THE BEST INTERESTS
OF, ARGYLE AND ITS STOCKHOLDERS. THE ARGYLE BOARD ALSO HAS UNANIMOUSLY APPROVED
THE PLAN PROPOSAL AND THE DIRECTOR ELECTION PROPOSAL. THE ARGYLE BOARD
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF
THE HEARST TRANSACTION PROPOSAL, "FOR" THE PLAN PROPOSAL AND "FOR" THE DIRECTOR
ELECTION PROPOSAL.
In reaching its decision to approve the Hearst Transaction and to recommend
approval and adoption of the Hearst Transaction, the Argyle Board considered
and believed relevant a number of factors including, among
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others, (i) Argyle's business operations, financial condition and operating
results; (ii) Argyle's future prospects, which indicated to the Board the
difficulty for a company the size of Argyle to remain competitive in a
consolidating industry and the desirability of expanding television operations;
(iii) the substantial benefits to Argyle associated with the resulting increase
in size of its television broadcasting business from the Hearst Transaction;
(iv) the future prospects for Hearst-Argyle; (v) the current and prospective
environment in which Argyle and the Hearst Broadcast Group operate (all of
which the Board believes favor larger corporations with greater financial
resources than Argyle); (vi) the oral opinion (subsequently confirmed in a
written opinion dated as of March 26, 1997 and as of the date of this Proxy
Statement/Prospectus) of Merrill Lynch & Co. ("Merrill Lynch"), Argyle's
financial advisor in connection with the Hearst Transaction, that based upon
and subject to the matters set forth in its written opinion, as of such date,
the Merger Consideration, taken as a whole, is fair to holders of the Series A
Common Stock from a financial point of view; and, (vii) other strategic
alternatives available to Argyle. See "The Hearst Transaction Proposal--
Recommendation of Argyle Board; Argyle's Reasons for the Hearst Transaction."
FAIRNESS OPINION
Merrill Lynch delivered written opinions, dated March 26, 1997 and the date
of this Proxy Statement/Prospectus, to the Board of Directors of Argyle to the
effect that, as of such dates, and based upon the assumptions made, matters
considered and limits of review as set forth therein, the Merger Consideration,
taken as a whole, is fair to holders of the Series A Common Stock from a
financial point of view. A copy of the Merrill Lynch opinion, dated the date of
this Proxy Statement/Prospectus (the "Merrill Lynch Opinion"), which sets forth
the assumptions made, matters considered and limitations on the scope of review
being undertaken by Merrill Lynch, is attached as Appendix B to this Proxy
Statement/Prospectus and is incorporated by reference in this Proxy
Statement/Prospectus. Holders of Series A Common Stock are urged to read such
opinion in its entirety. See "The Hearst Transaction Proposal--Fairness
Opinion."
ACCOUNTING TREATMENT
The Hearst Transaction will be accounted for under the purchase method of
accounting, in accordance with generally accepted accounting principles. See
"The Hearst Transaction Proposal--Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
No ruling has been (or will be) requested from the Internal Revenue Service
("IRS") as to the anticipated federal income tax consequences of the Hearst
Transaction. A holder of Argyle Common Stock who receives solely Hearst-Argyle
Series A Common Stock as a result of the Merger generally will not recognize
gain or loss on the transaction. A holder of Argyle Common Stock who receives
solely cash as a result of the Merger generally will recognize gain or loss
equal to the difference between the tax basis of such holder's Argyle Common
Stock and the amount of cash received therefor. A holder of Argyle Common Stock
who makes a Mixed Election, or who makes a Cash Election but receives some
Hearst-Argyle Series A Common Stock because of the Limitations and Allocation
Prorations, or who makes a Stock Election and receives some cash because of the
Limitations and Allocation Prorations, or who makes different elections with
respect to different blocks of Argyle Common Stock, generally will recognize
gain or loss only with respect to those shares of Argyle Common Stock
considered exchanged for cash. See "Risk Factors--Tax Risks" and "The Hearst
Transaction Proposal--Certain Federal Income Tax Consequences" for a more
detailed description of the above matters. The actual federal income tax
consequences to a holder of Argyle Common Stock of making the Stock Election or
the Cash Election will not be ascertainable at the time the Election is made
because holders of Argyle Common Stock will not know at such time if, or to
what extent, the Limitations and Allocation Prorations will apply.
BECAUSE THE FEDERAL INCOME TAX CONSEQUENCES WILL DIFFER DEPENDING UPON THE
FORM OF CONSIDERATION TO BE RECEIVED IN THE MERGER, EACH HOLDER OF ARGYLE
COMMON STOCK IS URGED TO READ CAREFULLY THE INFORMATION SET FORTH UNDER "RISK
FACTORS--TAX RISKS" AND "THE HEARST TRANSACTION PROPOSAL--CERTAIN FEDERAL
INCOME TAX CONSEQUENCES."
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REGULATORY APPROVALS
The Hearst Transaction is subject to the requirements of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), which
provide that certain transactions may not be consummated until required
information and materials are furnished to the Antitrust Division and the FTC
and the requisite waiting period has expired or is terminated. Argyle and
Hearst each filed with the Antitrust Division and the FTC a Notification and
Report Form for certain Mergers and Acquisitions (the "Notification and Report
Form") with respect to the Hearst Transaction on April 29, 1997. Early
termination of the initial waiting period for each of these filings was granted
on May 9, 1997. See "The Hearst Transaction Proposal--Regulatory Approvals."
The Hearst Transaction is also subject to the requirements of the
Communications Act of 1934, as amended, and the rules and regulations
thereunder (the "Communications Act"), which provide that the transfer of
control of an entity that directly or indirectly holds television broadcast
licenses requires the prior approval of the FCC. Argyle and Hearst filed the
required applications for transfer of control with the FCC in early April 1997,
and the FCC granted its approval to the Hearst Transaction on July 15, 1997.
The order containing the FCC approval also grants a six-month temporary waiver
of the FCC's duopoly rules, permitting Hearst-Argyle during the waiver period
to own television stations with overlapping signals (WCVB (Boston) and WNAC
(Providence), and WLWT (Cincinnati) and WDTN (Dayton)). To comply with the FCC
duopoly rules, Hearst-Argyle will divest WNAC and WDTN. A letter of intent has
been signed to divest WNAC for $47.5 million, and Argyle and Hearst currently
are negotiating with a third party to divest WDTN. See "Risk Factors--
Regulatory Matters" and "The Hearst Transaction Proposal--Regulatory
Approvals."
FINANCING THE MERGER
To complete the Hearst Transaction, Argyle is required to obtain
approximately $704.5 million of financing to refinance certain existing
indebtedness of Argyle, to refinance the Bridge Debt and the Private Placement
Debt and to pay the estimated fees and expenses associated with the Hearst
Transaction. On June 17, 1997, Argyle entered into a commitment letter with The
Chase Manhattan Bank ("Chase") under which Chase has committed to provide a $1
billion credit facility to Hearst-Argyle for these purposes, with the excess
available for future acquisitions and general corporate purposes. See "The
Hearst Transaction Proposal--Financing the Hearst Transaction."
It is contemplated that shares of Hearst-Argyle Series A Common Stock or debt
securities may be offered for sale in the future. See "The Hearst Transaction
Proposal--Financing the Hearst Transaction."
MANAGEMENT OF HEARST-ARGYLE AFTER THE MERGER
The Merger Agreement provides that the Board of Directors of Hearst-Argyle
initially will consist of 11 directors, nine of which will be elected by
Hearst. The Merger Agreement also provides that Mr. Bob Marbut will become
Chairman of the Board and Co-Chief Executive Officer, Mr. John G. Conomikes
will become President and Co-Chief Executive Officer, Mr. David J. Barrett will
become Executive Vice President and Chief Operating Officer and Mr. Anthony J.
Vinciquerra will become Executive Vice President. The other individuals to
become executive officers of Hearst-Argyle are set forth in "Management of
Hearst-Argyle After The Merger."
INTERESTS OF CERTAIN PERSONS IN THE HEARST TRANSACTION; AFFILIATE TRANSACTIONS
Certain members of the management of Argyle and other persons have certain
interests in the Hearst Transaction that are different from, or in addition to,
the interests of stockholders of Argyle generally.
Directors and Officers of Hearst-Argyle. Upon the Effective Time, the Board
of Directors of Hearst-Argyle will be increased in size from five to 11
members. Ms. Caroline Williams and Messrs. Bob Marbut and David Pulver, each a
current director of Argyle, will be directors of Hearst-Argyle. Mr. Blake
Byrne, currently a director of Argyle, has announced his retirement from the
Argyle Board effective as of the Closing. As a result
15
<PAGE>
of its ownership of Hearst-Argyle Series B Common Stock, Hearst will have the
right to elect in the future nine of the 11 board members of Hearst-Argyle.
Also, certain executive officers of Argyle, including Messrs. Marbut, Blythe,
Hawks and Morales, will remain as executive officers of Hearst-Argyle. See
"Management of Hearst-Argyle After the Merger" and "The Merger Agreement--
Certain Covenants."
Chase is the lead agent bank under Argyle's Existing Credit Facility, and an
affiliate of Chase beneficially owns 12.1% of the Series A Common Stock. Mr.
Frank A. Bennack, Jr., Hearst's President and Chief Executive Officer, is a
director of Chase and is expected to be a director of Hearst-Argyle. See
"Security Ownership Before and After the Hearst Transaction" and "Management of
Hearst-Argyle After the Merger."
In addition, all directors and executive officers of Argyle who continue to
serve as a director or executive officer of Hearst-Argyle will be entitled to
participate in benefit plans of Hearst-Argyle applicable to them. If the Plan
Proposal to amend and restate Argyle's existing stock option plan is approved
by Argyle's stockholders, the executive officers of Hearst-Argyle (who will
include the executive officers of Argyle) and the outside directors of Hearst-
Argyle will receive option awards under such plan. Executive officers of Hearst
who are Hearst-Argyle Board members and are not otherwise executive officers of
Hearst-Argyle will not receive option awards. See "Plan Proposal" for a
discussion of the terms of the amended and restated stock option plan.
Employment Agreements and Other Benefit Plans. It is anticipated that the
executive officers of Hearst-Argyle (who will include certain of the executive
officers of Argyle) will enter into employment agreements with Hearst-Argyle
upon the closing of the Hearst Transaction, which will supersede their existing
employment agreements. The complete terms of the employment agreements have not
been finalized. It is currently anticipated that as of the Effective Time,
Hearst-Argyle will establish a defined benefit plan for its employees. See
"Management of Hearst-Argyle After the Merger."
Indemnification; Directors and Officers Insurance. The Merger Agreement
provides that until the sixth anniversary of the Effective Time, Hearst-Argyle
will maintain in effect provisions in its charter and bylaws regarding
indemnification of officers and directors that are no less favorable than
Argyle's current provisions. The Merger Agreement further provides that Hearst-
Argyle will cause to be maintained for a period of six years following the
Effective Time Argyle's current directors' and officers' liability insurance
(or policies of at least equal coverages and amounts) to the extent that it
provides coverage for events occurring prior to or at the Effective Time,
provided that Hearst-Argyle will not be required to spend an amount per year in
excess of 200% of the aggregate premiums to be paid by Argyle and its
subsidiaries in 1997 to procure such insurance. See "The Merger Agreement--
Certain Covenants."
Registration Rights Agreement. Upon consummation of the Hearst Transaction,
Hearst-Argyle will enter into a Registration Rights Agreement (the
"Registration Rights Agreement") with certain holders of Hearst-Argyle Series A
Common Stock that are former partners of Argyle Television Investors, L.P.
("ATILP"). These partners (collectively, the "ATI Holders") include Mr. Marbut
and certain other persons, as well as Chase and Credit Suisse First Boston. The
Registration Rights Agreement provides that such ATI Holders will have the
right, subject to certain limitations and conditions, to require Hearst-Argyle
to register for distribution through a firm commitment underwriting all or any
portion of Hearst-Argyle Series A Common Stock issued to them in the Merger. In
addition, the ATI Holders also will have piggyback registration rights with
respect to any proposed offering of Hearst-Argyle Series A Common Stock for
cash through a firm commitment underwriting sought by Hearst-Argyle. See "The
Merger Agreement--Registration Rights Agreement."
Related Agreements. As conditions under the Merger Agreement, Hearst and
Hearst-Argyle will enter into a series of agreements with each other, including
the Management Agreement, the Television Station Option Agreement, the Radio
Facilities Lease (whereby Hearst will lease from Hearst-Argyle certain premises
for Hearst's radio broadcast stations), the Tax Sharing Agreement (whereby
Hearst and Hearst-Argyle establish the
16
<PAGE>
sharing of federal, state and local taxes after Hearst-Argyle becomes part of
the consolidated tax return of Hearst) and the Name License Agreement (whereby
Hearst permits Hearst-Argyle to use the Hearst name in connection with the
Hearst-Argyle name and operation of its business). In addition, it is expected
that Hearst and Hearst-Argyle will enter into a Services Agreement (whereby
Hearst will provide Hearst-Argyle certain administrative services such as
accounting, financial, legal, tax, insurance, data processing and employee
benefits) (the "Services Agreement"). The complete terms of certain of these
agreements have not yet been finalized. See "Risk Factors--Control by Majority
Stockholder; Competitive and Operations Impact; Conflicts of Interest," "The
Hearst Transaction Proposal--Interests of Certain Persons in the Hearst
Transaction; Affiliate Transactions" and "The Merger Agreement--Conditions to
the Merger."
Hearst Retransmission Consent Agreements. Hearst is as party to certain
retransmission agreements with cable operators who have agreed to carry ESPN 2
or ESPN News. ESPN, Inc. is owned 20% by Hearst and 80% by ABC. These
agreements will be applicable to the Hearst-Argyle Stations following the
Merger (subject to any conflicting retransmission consent agreements or must-
carry elections that have been entered into or made by Argyle). See "The Hearst
Transaction Proposal--Interests of Certain Persons in the Hearst Transaction;
Affiliate Transactions."
Certain Transactions Between Hearst and The Hearst Broadcast Group. Hearst
currently provides certain management services to the Hearst Broadcast Group,
including accounting, data processing, legal, tax, treasury, internal audit,
risk management and other support services. In connection with these services,
the Hearst Broadcast Group is allocated expenses related to these services
based on Hearst's estimate of expenses. Although these allocations are believed
by Hearst to be made on a reasonable basis, such allocations are not
necessarily indicative of the level of expenses that might have been incurred
for these services directly with third parties. Following the Merger, it is
expected that Hearst will provide Hearst-Argyle with certain administrative
services such as accounting, financial, tax, legal, insurance, data processing
and employee benefits pursuant to the Services Agreement, the terms of which
have not yet been finalized. See "The Hearst Transaction Proposal--Interests of
Persons in the Hearst Transaction; Affiliate Transactions."
For additional information regarding the interests of certain persons in the
Hearst Transaction, see "The Hearst Transaction Proposal--Interests of Certain
Persons in the Hearst Transaction; Affiliate Transactions."
DISSENTERS' RIGHTS
Holders of record of Series A Common Stock who comply with the requirements
of Section 262 ("Section 262") of the Delaware General Corporation Law ("DGCL")
will be entitled to appraisal rights in connection with the Hearst Transaction.
A copy of Section 262 is attached to this Proxy Statement/Prospectus as
Appendix D. It is a condition to the closing of the Hearst Transaction that the
period for execution and perfection of stockholders' appraisal rights shall
have expired and that such appraisal rights shall have been exercised and
perfected by not more than 5% of the outstanding shares of Argyle Common Stock
(including Argyle's Preferred Stock on an as converted basis). See "The Merger
Agreement--Conditions to the Merger" and "The Hearst Transaction Proposal--
Dissenters' Rights."
17
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA OF HEARST-ARGYLE
The summary unaudited pro forma financial data of Hearst-Argyle gives effect
to the Hearst Transaction as if it occurred at the beginning of the periods
presented (except for balance sheet data which gives effect to the Hearst
Transaction as of the balance sheet date) and assumes elections by Argyle
stockholders of the maximum cash consideration payable in the Merger of
approximately $160 million (maximum) or the minimum cash consideration payable
in the Merger of $100 million (minimum). The data also assumes the refinancing
of the Existing Credit Facility and the Bridge Debt. The pro forma financial
data should be read in conjunction with Hearst-Argyle's unaudited pro forma
combined condensed financial statements and notes thereto included elsewhere in
this Proxy Statement/Prospectus. The pro forma financial data for the year
ended December 31, 1996 have been derived from the unaudited pro forma combined
condensed financial statements of Argyle and the audited combined historical
financial statements of the Hearst Broadcast Group. The pro forma financial
data for the three months ended March 31, 1996 and 1997 have been derived from
the unaudited pro forma combined condensed financial statements of Argyle and
the unaudited combined historical financial statements of the Hearst Broadcast
Group.
<TABLE>
<CAPTION>
HEARST-ARGYLE PRO FORMA(A)
------------------------------
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------ -----------------
1996(A) 1996(A) 1997(A)
------------ ------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
MAXIMUM:
STATEMENT OF OPERATIONS DATA:
Total revenues................................ $370,249 $80,597 $ 81,321
Station operating expenses.................... 163,273 40,569 41,134
Amortization of program rights................ 45,522 11,513 10,592
Depreciation and amortization................. 32,050 8,062 8,287
-------- ------- --------
Station operating income...................... 129,404 20,453 21,308
Corporate expenses............................ 11,000 2,750 2,750
-------- ------- --------
Operating income.............................. 118,404 17,703 18,558
Interest expense, net......................... 48,062 12,016 12,016
-------- ------- --------
Income from continuing operations before
income taxes................................. 70,342 5,687 6,542
Income taxes.................................. 30,847 2,799 3,130
-------- ------- --------
Income from continuing operations............. 39,495 2,888 3,412
Less preferred stock dividends................ (1,422) (356) (356)
-------- ------- --------
Earnings applicable to common stock........... $ 38,073 $ 2,532 $ 3,056
======== ======= ========
Earnings per common share..................... $ 0.85 $ 0.06 $ 0.07
======== ======= ========
Number of shares used in per share
calculation(b)............................... 44,636 44,636 44,636
OTHER DATA:
Broadcast cash flow, as defined(c)............ $157,782 $27,575 $ 29,437
Broadcast cash flow margin(d)................. 42.6% 34.2% 36.2%
Operating cash flow, as defined(e)............ $146,782 $24,825 $ 26,687
Operating cash flow margin(f)................. 39.6% 30.8% 32.8%
Program payments(g) .......................... $ 49,194 $12,453 $ 10,750
BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 6,999
Total assets....................................................... 879,428
Total debt......................................................... 656,500
Stockholders' equity............................................... 81,017
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
HEARST-ARGYLE PRO FORMA(A)
------------------------------
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------ -----------------
1996(A) 1996(A) 1997(A)
------------ ------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
MINIMUM:
STATEMENT OF OPERATIONS DATA:
Total revenues................................ $370,249 $80,597 $ 81,321
Station operating expenses.................... 163,273 40,569 41,134
Amortization of program rights................ 45,522 11,513 10,592
Depreciation and amortization................. 31,848 8,011 7,807
-------- ------- --------
Station operating income...................... 129,606 20,504 21,788
Corporate expenses............................ 11,000 2,750 2,750
-------- ------- --------
Operating income.............................. 118,606 17,754 19,038
Interest expense, net......................... 44,162 11,041 11,041
-------- ------- --------
Income from continuing operations before
income taxes................................. 74,444 6,713 7,997
Income taxes.................................. 32,542 3,199 3,702
-------- ------- --------
Income from continuing operations............. 41,902 3,514 4,295
Less preferred stock dividends................ (1,422) (356) (356)
-------- ------- --------
Earnings applicable to common stock........... $ 40,480 $ 3,158 $ 3,939
======== ======= ========
Earnings per common share..................... $ .86 $ .07 $ .08
======== ======= ========
Number of shares used in per share
calculation(b)............................... 46,888 46,888 46,888
OTHER DATA:
Broadcast cash flow, as defined(c)............ $157,782 $27,575 $ 29,437
Broadcast cash flow margin(d)................. 42.6% 34.2% 36.2%
Operating cash flow, as defined(e)............ $146,782 $24,825 $ 26,687
Operating cash flow margin(f)................. 39.6% 30.8% 32.8%
Program payments(g) .......................... $ 49,194 $12,453 $ 10,750
BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 6,999
Total assets....................................................... 871,342
Total debt......................................................... 596,500
Stockholders' equity............................................... 132,931
</TABLE>
See notes on the following page.
19
<PAGE>
NOTES TO THE SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA OF HEARST-ARGYLE
(a) Includes the unaudited pro forma combined results of operations of Argyle
and the historical results of operations of the Hearst Broadcast Group on a
combined pro forma basis as if the Hearst Transaction had occurred at the
beginning of the periods presented. The unaudited pro forma balance sheet
data assumes the Hearst Transaction occurred as of the Balance Sheet Date.
The data does not give effect to the required divestiture of WNAC and WDTN.
See "Unaudited Pro Forma Combined Condensed Financial Statements".
(b) Represents shares issued assuming the maximum cash payment (approximately
$160 million) or the minimum cash payment ($100 million), as the case may
be, and excludes any effect of preferred stock conversion and the effect of
any Hearst-Argyle stock options.
(c) Broadcast cash flow is defined as station operating income, plus
depreciation and amortization and write down of intangible assets, plus
amortization of program rights, minus program payments. Pro forma broadcast
cash flow would be $160,330 for the year ended December 31, 1996 and
$28,334 for the three months ended March 31, 1996 using normalized program
payments for each respective period. (See note (g) below.) 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. This measure may not be comparable to similarly titled measures
used by other companies.
(d) Broadcast cash flow margin is broadcast cash flow divided by total
revenues, expressed as a percentage.
(e) Operating cash flow is defined as operating income, plus depreciation and
amortization, and amortization of program rights, minus program payments
and adjusted for any non-cash compensation expense. Pro forma operating
cash flow would be $149,330 for the year ended December 31, 1996 and
$25,584 for the three months ended March 31, 1996 using normalized program
payments for each respective period. (See note (g) below.) 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. This
measure may not be comparable to similarly titled measures used by other
companies.
(f) Operating cash flow margin is operating cash flow divided by total
revenues, expressed as a percentage.
(g) Program payments for the year ended December 31, 1996 and the quarter ended
March 31, 1996 include $2.5 million and $0.8 million, respectively, of the
last year of Hearst Broadcast Group scheduled payments for a program which
was replaced during the end of 1995. Without these amounts, program
payments are normalized period to period.
20
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are historical loss per share and book value per share data
of Argyle, unaudited pro forma earnings per share and book value per share data
of Argyle and unaudited pro forma earnings per share and book value per share
data of Hearst-Argyle. The unaudited pro forma earnings per share and book
value per share of Hearst-Argyle have been prepared assuming the maximum amount
of cash consideration, or approximately $160 million (maximum), and the minimum
amount of cash consideration, $100 million (minimum). The data below should be
read in conjunction with the Argyle audited consolidated financial statements
and unaudited interim condensed consolidated financial statements, including
notes thereto, which are included elsewhere in this Proxy Statement/Prospectus.
The data should also be read in conjunction with the Hearst-Argyle unaudited
pro forma combined condensed financial statements, included elsewhere in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1996 1996 1997
------------ --------- ---------
<S> <C> <C> <C>
ARGYLE HISTORICAL:
Loss from continuing operations applicable
to common stock, per share................. $(1.37) $(0.39) $(0.58)
Book value per share........................ $ 9.45 N/A $ 8.90
ARGYLE PRO FORMA:
Loss from continuing operations applicable
to common stock, per share................. $(1.17) $(0.48) $(0.53)
Book value per share........................ $10.77 N/A $ 8.90
HEARST-ARGYLE PRO FORMA:
MAXIMUM
Earnings from continuing operations
applicable to common stock, per share...... $ 0.85 $ 0.06 $ 0.07
Book value per share........................ N/A N/A $ 1.32
MINIMUM
Earnings from continuing operations
applicable to common stock, per share...... $ 0.86 $ 0.07 $ 0.08
Book value per share........................ N/A N/A $ 2.37
</TABLE>
PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
The Series A Common Stock is currently quoted on the Nasdaq National Market
under the symbol "ARGL." On August 9, 1996, the last full trading day prior to
the public announcement of Argyle's exploration of strategic alternatives, the
closing price of the Series A Common Stock on the Nasdaq National Market (as
reported in The Wall Street Journal) was $23.00 per share. See "The Hearst
Transaction Proposal--Background." On March 26, 1997, the last full trading day
prior to the public announcement of the Hearst Transaction, the closing price
of the Series A Common Stock on the Nasdaq National Market (as reported in The
Wall Street Journal) was $27.50 per share. On July 25, 1997, the most recent
practicable date prior to the mailing of this Proxy Statement/Prospectus, the
closing price of the Series A Common Stock on the Nasdaq National Market (as
reported in The Wall Street Journal) was $26.25 per share. Holders of Argyle
Common Stock are urged to obtain current market quotations for the Series A
Common Stock prior to making any decision with respect to the Hearst
Transaction.
Argyle 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.
LISTING OF HEARST-ARGYLE SERIES A COMMON STOCK
An application has been made for quotation of the Hearst-Argyle Series A
Common Stock on the Nasdaq National Market upon consummation of the Hearst
Transaction under the symbol "HATV." See "The Hearst Transaction Proposal--
Listing of Hearst-Argyle Series A Common Stock."
21
<PAGE>
THE PLAN PROPOSAL
The Plan Proposal relates to the proposed amendment and restatement of
Argyle's Second Amended and Restated 1994 Stock Option Plan effective as of the
Stockholders Meeting (the option plan as amended and restated being referred to
as the "Option Plan"). Following the Effective Time, Hearst-Argyle will
continue in effect the Option Plan.
The amendment amends and restates Argyle's existing option plan to, among
other things, (i) increase the number of shares reserved for issuance under the
plan from 1,022,727 to 3 million; (ii) reduce the antidilution adjustment
provision from 12% to 6.25% of the fully-diluted shares reserved for issuance
under the plan; (iii) provide for the administration of the plan by the board
of directors; (iv) reduce the limit on the maximum number of shares of common
stock for which options may be granted under the Option Plan to any participant
during any year from 1,022,727 to 500,000 shares; (v) permit the board of
directors to approve the termination of a participant's employment or service
and accelerate the exercisability of any then unexercisable options, extend the
exercise period following termination of employment during which any
outstanding options may be exercised (but not beyond the original exercise
period thereof) or modify the vesting terms and extend the exercise period of
the grant; (vi) permit a participant to transfer exercise rights to any
outstanding non-qualified stock options to immediate family members for bona
fide estate planning purposes; (vii) amend the definition of "change of
control" to include any transaction or series of transactions such as a going-
private transaction contemplated by Rule 13e-3 of the Exchange Act; and, (viii)
provide for the annual award of options covering a fixed number of shares to
certain non-employee directors for each year that he or she continues to serve
as a director.
All non-employee directors, executive officers and other key employees of
Hearst-Argyle and its subsidiaries are eligible to participate in the Option
Plan. The Option Plan will permit the issuance of both incentive stock options
and non-qualified stock options. Incentive stock options may be awarded only to
employees.
DIRECTOR ELECTION PROPOSAL
At the Stockholder's Meeting, the Argyle stockholders will elect two Class II
directors. Argyle's Certificate of Incorporation currently provides for
classified directors and staggered director terms. Of Argyle's five current
directors, Ms. Williams and Mr. Pulver have been designated to serve as the
Series A Directors (the "Series A Directors"), and Messrs. Marbut, Byrne and
Morales have been designated to serve as the Series B Directors (the "Series B
Directors"). 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. Mr. Pulver has been nominated for election at
the Stockholders Meeting by the holders of Series A Common Stock voting as a
class to serve as a Class II, Series A Director. Mr. Byrne has been nominated
for election at the Stockholders Meeting by the holders of Series B Common
Stock voting as a class to serve as a Class II, Series B Director. If elected,
the Class II directors shall hold office until the earlier of (i) the annual
meeting of stockholders in 1999, or until their respective successors are
elected and qualified or (ii) if the Merger is consummated, the Effective Time.
Each current director in Class I shall hold office until the earlier of (i) the
annual meeting of stockholders in 1998, or until their respective successors
are elected and qualified or (ii) if the Merger is consummated, the Effective
Time. Notwithstanding the foregoing, pursuant to the Merger Agreement, at the
Effective Time the Board of Directors of Hearst-Argyle will consist of 11
members, divided into two classes of directors with staggered terms. Ms.
Williams and Mr. Pulver have been designated to serve as the two directors of
Hearst-Argyle elected by the holders of Hearst-Argyle Series A Common Stock.
Mr. Marbut has been designated to serve as one of the nine directors that
Hearst, as a result of its ownership of Hearst-Argyle Series B Common Stock,
will have the right to elect. Mr. Byrne has announced his retirement from the
Argyle Board effective as of the Closing. See "Director Election Proposal" and
"Management of Hearst-Argyle After the Merger."
THE COMPANIES
Argyle. Argyle was incorporated in the State of Delaware in 1994, and owns
six network-affiliated television stations. The principal executive offices of
Argyle are located at 200 Concord Plaza, Suite 700, San Antonio, Texas 78216;
its telephone number is (210) 828-1700.
The Hearst Broadcast Group. The Hearst Broadcast Group consists of six
network-affiliated television stations in six major cities in the U.S., as well
as Hearst Broadcasting Productions, which is engaged in the production of
programming. The principal executive offices of the Hearst Broadcast Group are
located at the offices of The Hearst Corporation at 959 Eighth Avenue, New
York, New York 10019; its telephone number is (212) 649-2000.
22
<PAGE>
RISK FACTORS
The following risk factors should be considered by stockholders in
evaluating whether or not to approve and adopt the Hearst Transaction and in
making an election for Merger Consideration. These factors should be
considered in conjunction with the other information included and incorporated
by reference in this Proxy Statement/Prospectus.
RELIANCE ON ABC TELEVISION NETWORK
Upon consummation of the Hearst Transaction, nine of the twelve television
stations owned by Hearst-Argyle will be ABC affiliates. On a pro forma basis,
these nine stations would have accounted for approximately 73% of the combined
revenues and approximately 76% of the combined broadcast cash flow of Argyle
and the Hearst Broadcast Group for 1996. The television viewership levels for
each of the Hearst-Argyle Stations are materially dependent upon network
programming. There can be no assurance that such programming will achieve or
maintain satisfactory viewership levels in the future. Each of the Hearst-
Argyle Stations is a party to a network affiliation agreement giving such
station the right to rebroadcast programs transmitted by the network. Five of
the six television stations to be contributed to Argyle by Hearst are
affiliated with the ABC network. The term of each of the Hearst Broadcast
Group's affiliation agreements with ABC is two years, renewable for successive
two-year periods, and each affiliation agreement is subject to cancellation by
either party upon six months notice to the other party, except with respect to
WTAE. In WTAE's case, the affiliation agreement is not subject to cancellation
on six months notice, and the term of the affiliation agreement will be
successively renewed unless either party gives the other notice of non-renewal
six months prior to the end of the then current term. Regarding WBAL, the NBC
affiliate, the term of the affiliation agreement is a period of seven years
and is subject to successive three-year renewals unless either party gives the
other notice of non-renewal 12 months prior to the end of the then current
term. Each network, including ABC, has the right to terminate its affiliation
agreement in the event of a material breach of such agreement by a station and
in certain other circumstances. In 1994 negotiations commenced to revise
Hearst's ABC affiliation agreements to provide, among other things, for 10-
year terms and increased compensation. Such agreements are still in the
process of negotiation and documentation has not been finalized, although the
Hearst Broadcast Group is receiving its increased compensation. Although
Argyle and the Hearst Broadcast Group expect to continue to be able to renew
their respective network affiliation agreements, no assurance can be given
that such renewals will be obtained on as favorable terms or at all. As a
result, a material decline in ABC's ratings or the termination or non-renewal
of the network affiliation agreements with ABC could have a material adverse
effect on Hearst-Argyle. See "Business of Hearst Broadcast Group--Network
Affiliation Agreements and Relationships," and "The Commercial Television
Broadcast Industry--Industry Background."
DEPENDENCE ON ADVERTISING REVENUES; EFFECT OF ECONOMIC CONDITIONS
Since Argyle and the Hearst Broadcast Group are significantly dependent upon
sales of advertising for their revenues (approximately 92% of Argyle's and
approximately 92% of the Hearst Broadcast Group's revenues during 1996),
operating results of Argyle, the Hearst Broadcast Group and, after the Merger,
Hearst-Argyle are and will be affected by the relative popularity of their
programming, the activities of competitors, the availability of alternative
advertising media and by cyclical changes in the national economy as well as
by regional economic conditions in each of the markets in which their stations
operate, particularly as such conditions may affect advertising expenditures.
In addition, the advertising revenues of the stations generally are highest in
the second and fourth quarter 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. Additionally, advertising
revenues in even-numbered years benefit from advertising placed by candidates
for political offices, and demand for advertising time in Olympic broadcasts.
Proposals have been advanced in Congress to require television broadcast
stations to provide advertising time to political candidates at no charge,
which would eliminate in whole or in part advertising revenues from political
candidates. Such political advertising revenues comprised 5.1% of Hearst-
Argyle's 1996 pro forma total revenues. See "The Commercial Television
Broadcast Industry--Industry Background--Revenues" and "--Industry
Background--Competition."
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CONTROL BY MAJORITY STOCKHOLDER; COMPETITIVE AND OPERATIONS IMPACT; CONFLICTS
OF INTEREST
Upon consummation of the Hearst Transaction, Hearst will own between 82.3%
and 86.5% of the outstanding shares of common stock of Hearst-Argyle and, by
virtue of its ownership of 100% of Hearst-Argyle Series B Common Stock, will
be entitled to elect as a class all but two members of the Board of Directors
of Hearst-Argyle. As a result, Hearst will be able to control substantially
all actions to be taken by the stockholders, and also will be able to maintain
control over the operations and business of Hearst-Argyle. This control, as
well as certain provisions of Hearst-Argyle's Certificate of Incorporation and
Delaware law, may make Hearst-Argyle a less attractive target for a takeover
than it otherwise might be, or render more difficult or discourage a merger
proposal, tender offer or other transaction involving an actual or potential
change of control of Hearst-Argyle. See "Management of Hearst-Argyle After the
Merger," "Description of Hearst-Argyle Capital Stock," "Security Ownership
Before and After the Hearst Transaction" and "Comparison of Stockholders'
Rights."
In addition, the interests of Hearst, which owns or has significant
investments in other businesses, including cable television networks,
newspapers, magazines and electronic media, may from time to time be
competitive with, or otherwise diverge from, the interests of Hearst-Argyle,
particularly with respect to new business opportunities and future
acquisitions. Under the Merger Agreement, Hearst and Argyle have agreed that,
without the prior written consent of the other, neither Argyle (and Hearst-
Argyle following the Merger), on the one hand, nor Hearst, on the other hand,
will make any acquisition or purchase any assets if such an acquisition or
purchase by one party would require the other party to divest or otherwise
dispose of any of its assets because of regulatory or other legal
prohibitions. As a result, under current law and given newspaper properties
Hearst currently owns, Hearst-Argyle would be precluded, without Hearst's
consent (and even with Hearst's consent, only if Hearst were to agree to sell
newspapers in the corresponding markets), from acquiring television broadcast
stations in Albany, NY; Flint--Saginaw--Bay City, MI; Beaumont, TX; Houston,
TX; Laredo, TX; Lubbock, TX; Odessa-Midland, TX; San Antonio, TX; San
Francisco, CA; Seattle, WA; and St. Louis, MO. A proposal to eliminate the
rule banning newspaper-television cross-ownership in the same market has been
introduced in Congress. The FCC separately has been asked to consider altering
the cross-ownership rule. Whether these proposals will be enacted into law is
unknown at this time. Additionally, Hearst is not precluded from purchasing
newspapers or other assets in other markets, the ownership of which assets by
Hearst could preclude, under FCC rules, Hearst-Argyle from owning television
stations in such markets in the future. See "The Merger Agreement--Certain
Covenants--Cross-Ownership," "Business of Hearst Broadcast Group" and "Federal
Regulation of Television Broadcasting."
Hearst and Hearst-Argyle also will have ongoing relationships that may
create situations where the interests of the two parties could conflict. As
conditions under the Merger Agreement, Hearst and Hearst-Argyle will enter
into a series of agreements with each other, including the Management
Agreement (whereby Hearst-Argyle will provide certain management services,
such as sales, news, programming and financial and accounting management
services, with respect to certain Hearst owned or operated television and
radio stations), the Television Station Option Agreement (whereby Hearst will
grant Hearst-Argyle an option to acquire certain Hearst owned or operated
television stations as well as a right of first refusal with respect to
another television station if Hearst proposes to sell such station within 36
months of its acquisition), the Radio Facilities Lease (whereby Hearst will
lease from Hearst-Argyle certain premises for Hearst's radio broadcast
stations), the Tax Sharing Agreement (whereby Hearst and Hearst-Argyle
establish the sharing of federal, state and local taxes after Hearst-Argyle
becomes part of the consolidated tax return of Hearst) and the Name License
Agreement (whereby Hearst permits Hearst-Argyle to use the Hearst name in
connection with the Hearst-Argyle name and operation of its business). In
addition, it is expected that Hearst and Hearst-Argyle will enter into a
Services Agreement (whereby Hearst will provide Hearst-Argyle certain
administrative services such as accounting, financial, legal, tax, insurance,
data processing and employee benefits). The complete terms of certain of these
agreements have not yet been finalized. Argyle and Hearst believe that the
terms of all these agreements, once finalized, will be reasonable to both
sides; there can be no assurance, however, that more favorable terms would not
be available from third parties where applicable. See "The Hearst Transaction
Proposal--Interests of Certain Persons in the Hearst Transaction; Affiliate
Transactions" and "The Merger Agreement--Conditions to the Merger."
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TELEVISION INDUSTRY COMPETITION AND TECHNOLOGY
The television broadcast industry is highly competitive. Some of the
stations that compete with the Hearst-Argyle Stations are owned and operated
by large national or regional companies that have greater resources, including
financial resources, than Argyle or Hearst-Argyle. Technological innovation,
and the resulting proliferation of programming alternatives such as cable,
direct satellite-to-home services and home video rentals have fractionalized
television viewing audiences and subjected television broadcast stations to
new types of competition. Over the past decade, cable television has captured
an increasing market share, while the aggregate viewership of the major
networks has declined. In addition, the expansion of cable television and
other industry changes have increased, and may continue to increase,
competitive demand for programming. Such increased demand, together with
rising production costs, may in the future increase Hearst-Argyle's
programming costs or impair its ability to acquire programming. In addition,
new television networks such as United Paramount Network ("UPN") and the WB
Network have created additional competition. The FCC has adopted rules for
implementing digital (including high-definition) television ("DTV") service in
the United States. Implementation of DTV is expected to improve the technical
quality of television. Under certain circumstances, however, conversion to DTV
operations may reduce a station's geographical coverage area. Implementation
of DTV is expected to impose additional costs that are higher than normal on
television stations providing the new service, due to increased equipment
costs and possible spectrum-related fees. Some leaders in Congress continue to
propose various plans that might require broadcasters to bid at auction for
DTV channels, or that might require that the current conventional channels be
returned to the government on an expedited schedule. While Argyle cannot
predict the implementation costs of DTV, these costs are expected to be
significant. Argyle cannot predict the effect the authorization of DTV service
will have on the business of the combined company. See "Business of Argyle,"
"Business of Hearst Broadcast Group," "The Commercial Television Broadcast
Industry--Competition" and "Federal Regulation of Television Broadcasting."
In addition to competing with other media outlets for audience share, the
Hearst-Argyle Stations also compete for advertising revenues, their primary
source of revenues. The stations compete for such advertising revenues with
other television stations in their respective markets, as well as with other
advertising media, such as newspapers, radio stations, magazines, outdoor
advertising, transit advertising, yellow page directories, direct mail, the
Internet and local cable systems. The Hearst-Argyle Stations are located in
highly competitive markets. Accordingly, Hearst-Argyle's results of operations
will be dependent upon the ability of each of its stations to compete
successfully for advertising revenues in its market and there can be no
assurance that any one of these stations will be able to maintain or increase
its current audience share or revenue share. To the extent that certain of
Hearst-Argyle's competitors have, or may in the future obtain, greater
resources than the combined company, Hearst's-Argyle's ability to compete
successfully in its broadcasting markets after the Merger may be impeded.
REGULATORY MATTERS
FCC Licenses. The television operations of Argyle and the Hearst Broadcast
Group are subject to significant regulation by the FCC under the
Communications Act, most recently amended further by the Telecommunications
Act of 1996 (the "Telecommunications Act"). Approval of the FCC is required
for the issuance, renewal and transfer or assignment of television station
operating licenses, including the transfers, assignments and dispositions
contemplated by the Merger. In particular, Argyle and the Hearst Broadcast
Group are dependent upon their continuing ability to maintain broadcasting
licenses from the FCC. License renewals filed after 1996 customarily will be
granted for terms of eight years. While broadcast licenses are typically
renewed by the FCC, there can be no assurance that the licenses for the
Hearst-Argyle Stations will be renewed at their expiration dates or, if
renewed, that the renewal terms will be for eight-year periods. The non-
renewal or revocation of one or more of the FCC licenses to be held by Hearst-
Argyle could have a material adverse effect on the operations of Hearst-Argyle
following the Merger. Further, the Communications Act and FCC rules will
restrict alien ownership and voting of the capital stock of, and participation
in the affairs of, Hearst-Argyle. See "Federal Regulation of Television
Broadcasting."
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Common Ownership. The rules of the FCC include restrictions on the common
ownership or control of interests in television and radio broadcast stations,
as well as cable television systems and English language daily newspapers. If
an acquisition results in an acquiror having holdings that conflict with the
common ownership rules, divestiture of one of the common interests is
generally required. The FCC may, in certain cases, grant permanent waivers of
such common ownership. The FCC, however, generally only grants temporary
waivers of common ownership in order to afford the acquiror a reasonable
period of time following the consummation of the acquisition to comply with
the applicable law and regulations through disposition of one of the common
interests. The Hearst Transaction will result in the following combinations
prohibited by the FCC's "television duopoly rule" (which generally proscribes
the common ownership of two or more stations with overlapping signal
contours): (i) Argyle's WNAC and Hearst's WCVB and (ii) Argyle's WLWT and
Hearst's WDTN. On July 15, 1997, the FCC approved the Hearst Transaction and
granted a six-month temporary waiver of its television duopoly rule,
permitting Hearst-Argyle during the waiver period to own television stations
with overlapping signals. Under this waiver, Hearst-Argyle is required to file
applications with the FCC for consent to divest WNAC and WDTN within six
months of the consummation of the Hearst Transaction. A letter of intent has
been signed to divest WNAC, and Argyle and Hearst currently are negotiating
with a third party to divest WDTN. There can be no assurance that the WNAC
divestiture will be completed, or that the current WDTN negotiations will
result in an agreement to divest WDTN. If such divestitures do not occur,
subsequently obtaining a buyer for each of the stations to be divested within
the six-month waiver period granted by the FCC could result in the receipt of
a price that is less than could be obtained for such stations if Hearst-Argyle
were not forced to sell the stations within that time frame. See "The Hearst
Transaction Proposal--Regulatory Approvals--Television Duopoly Rule" and
"Federal Regulation of Television Broadcasting."
Restrictions on Broadcast Advertising. Advertising of cigarettes and certain
other tobacco products on broadcast stations has been banned for many years.
Various states restrict the advertising of alcoholic beverages. Congress and
the FCC are currently examining proposals that, if adopted, would eliminate or
severely restrict the advertising of hard-liquor, as well as beer and wine.
The adoption of such proposals could have an adverse impact on the revenues of
Hearst-Argyle. No prediction can be made as to whether any or all of the
present proposals will be enacted into law.
Proposed Regulations. Among the proposed regulations under consideration by
the FCC in determining whether impermissible cross-ownership exists under its
television duopoly rule (described above), is a proposal to deem as
attributable certain television local marketing agreements (the "LMAs") and,
if deemed attributable, the extent to which currently effective agreements of
this type should be exempted from any new FCC rules. Such attribution under
the local television ownership rules that currently prohibit an entity from
having an attributable interest in two stations serving the same market could
have a material adverse effect on the Joint Marketing and Programming
Agreement between Argyle and Clear Channel relating to WNAC and the
Programming Services and Time Brokerage Agreement between Hearst and the
licensee of KCWB. If the FCC's ultimate regulatory decision were to disfavor
the continued validity of such joint operating agreements or LMA's, then these
agreements, in the worst case scenario, might be required to be terminated.
See "Federal Regulation of Television Broadcasting."
The U.S. Congress and the FCC currently have under consideration, and may in
the future adopt, new laws, regulations and policies regarding a wide variety
of matters that could, directly or indirectly, materially adversely affect the
operation and ownership of Hearst-Argyle. The FCC has not yet fully
implemented the Telecommunications Act. Argyle is unable to predict the
outcome of future federal legislation or the impact of any such laws or
regulations on Hearst-Argyle's operations. See "Federal Regulation of
Television Broadcasting."
UNCERTAINTY AS TO MARKET PRICE AND LIQUIDITY OF HEARST-ARGYLE SERIES A COMMON
STOCK
Because the number of shares of Hearst-Argyle Series A Common Stock to be
issued in the Merger is limited and because the market price of Hearst-Argyle
Series A Common Stock is subject to fluctuation, the market value of the
shares of Hearst-Argyle Series A Common Stock that stockholders may receive in
the Merger may increase or decrease prior to and following the Merger. In
addition, the liquidity of the Hearst-Argyle Series
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A Common Stock after the Merger may be limited. The Hearst-Argyle Series A
Common Stock will represent only a small portion of the total equity of
Hearst-Argyle and, as a result of the relatively small public float, the
prices or trading range of the Hearst-Argyle Series A Common Stock may be
adversely affected by its relative lack of liquidity. There can be no
assurance that at or after the Effective Time the shares of Hearst-Argyle
Series A Common Stock will trade at or near the price at which shares of
Argyle's Series A Common Stock have traded in the past. The prices at which
shares of Hearst-Argyle Series A Common Stock trade may be influenced by many
factors, including the liquidity of Hearst-Argyle Series A Common Stock,
investor perceptions of Hearst-Argyle and the television broadcasting
industry, Hearst-Argyle's operating results, possible future changes in
regulation of the television broadcasting industry and general economic and
market conditions. See "The Hearst Transaction Proposal--Fairness Opinion."
RISKS ASSOCIATED WITH EXPANSION, INTEGRATION OF THE COMBINED OPERATIONS;
SIGNIFICANT UNCERTAINTIES
Upon consummation of the Merger, both Argyle and the Hearst Broadcast Group
will experience significant expansion, including expansion into new markets in
which neither presently operates. As a result, Hearst-Argyle's management will
be required to manage a substantially larger number of television stations
than historically has been the case. There can be no assurance that Hearst-
Argyle will be able to implement effectively the organizational and
operational systems necessary for optimal management and integration of its
newly expanded group of television stations or any television stations to be
acquired in the future, or that Hearst-Argyle will be able to manage its
growth successfully. In addition, the managements of Argyle and the Hearst
Broadcast Group are evaluating, and will continue to evaluate, the nature and
scope of their operations and various short-term and long-term strategic
considerations, and will assess to what extent, integration, consolidation or
other modification of the two separate businesses is appropriate following the
Merger. Many operational and strategic decisions with respect to the combined
company have not yet been made. Significant uncertainties and risks relating
to the Merger and the integration of the combined operations may exist and,
therefore, it is difficult to predict or quantify the impact of such decisions
on the results of operations and financial condition of Hearst-Argyle.
UNCERTAINTY OF COMPOSITION OF MERGER CONSIDERATION
Because the aggregate number of shares of Hearst-Argyle Series A Common
Stock to be issued in the Merger and the aggregate amount of cash to be paid
in the Merger are fixed, and the Merger Agreement contains certain limitations
and allocation, prorations to be applied in the event aggregate Cash Elections
or Stock Elections exceed certain limits, Argyle stockholders making Cash
Elections or Stock Elections may not receive all cash or all stock as elected.
See "The Merger Agreement--Merger Consideration and Conversion of Shares--
Limitations and Allocation Prorations."
TAX RISKS
The Merger Agreement requires Hearst-Argyle to report the Merger for federal
income tax purposes as a redemption of shares under the provisions of Section
302 of the Code with respect to those stockholders of Argyle who receive cash
pursuant to the Merger. Such action is not binding on the IRS and accordingly
there can be no assurance that the IRS will not assert that the Merger instead
should be treated as a reorganization. If the IRS were successful in such an
assertion, those shareholders receiving some cash and some Hearst-Argyle
Series A Common Stock pursuant to the Merger generally would recognize more
gain than in the case of a holder who would otherwise recognize gain on the
redemption. In addition, a holder who would otherwise recognize a loss on the
receipt of some cash and some Hearst-Argyle Series A Common Stock would be
precluded from recognizing such loss for federal income tax purposes. No
opinion will be rendered or ruling requested from the IRS that the Merger will
be treated as a redemption instead of as a reorganization. There also can be
no assurance in the case of those shares of Argyle Common Stock currently held
by certain investment partnerships that have adopted plans of liquidation that
the gain or loss attributable to the Merger will be determined at the partner
level instead of at the partnership level. If the IRS were successful in
asserting that gain should be reported at the partnership level, certain
partners could be required to report greater gain than if the transaction were
reported at the partner level and, in some cases, the gain could exceed the
amount of cash received. See "The Hearst Transaction Proposal--Certain Federal
Income Tax Consequences."
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THE ANNUAL MEETING
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies from the holders of Series A Common Stock by the
Argyle Board for use at the Stockholders Meeting.
TIME, DATE AND PLACE; PURPOSES
The Stockholders Meeting will be held at 200 Concord Plaza, San Antonio,
Texas 78216, on Thursday, August 28, 1997, starting at 9:00 a.m., local time.
At the Stockholders Meeting, the stockholders of Argyle will be asked to
consider and vote upon (i) the Hearst Transaction Proposal; (ii) the Plan
Proposal; (iii) the Director Election Proposal; and, (iv) such other matters
as may properly come before the Stockholders Meeting.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE HEARST TRANSACTION
PROPOSAL, THE PLAN PROPOSAL AND THE DIRECTOR ELECTION PROPOSAL, AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" EACH PROPOSAL.
RECORD DATE; QUORUM
The Argyle Board has fixed the close of business on July 14, 1997, as the
Record Date. Only holders of record of shares of Argyle Common Stock on the
Record Date are entitled to notice of and to vote at the Stockholders Meeting
and any adjournments or postponements thereof. As of the Record Date, there
were 11,346,914 shares of Argyle Common Stock (consisting of 11,310,914 shares
of Series A Common Stock and 36,000 shares of Series B Common Stock) issued
and outstanding and entitled to vote at the Stockholders Meeting, which are
held by approximately 158 stockholders of record.
The presence, in person or by proxy, of a majority of the voting power of
the outstanding Series A Common Stock and of a majority of the voting power of
the outstanding Series B Common Stock is necessary to constitute a quorum for
the approval and adoption of the Hearst Transaction Proposal, the Plan
Proposal and the Director Election Proposal. See "Description of Hearst-Argyle
Capital Stock."
VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL
Each holder of record as of the Record Date of Argyle Common Stock is
entitled to vote in accordance with the terms of Argyle's Certificate of
Incorporation, which provides that holders of Series A Common Stock will be
entitled to one vote per share of Series A Common Stock and holders of Series
B Common Stock will be entitled to one vote per share of Series B Common
Stock. Each share of Series A Common Stock is entitled to one vote and to vote
separately as a class in order to approve and adopt the Hearst Transaction
Proposal and elect the Series A Director, and each share of Series B Common
Stock is entitled to one vote and to vote separately as a class in order to
approve and adopt the Hearst Transaction Proposal and elect the Series B
Director. The holders of Series A Common Stock and Series B Common Stock vote
together as a single class on all matters, including the Plan Proposal, except
with respect to (i) the election of directors; (ii) any amendments to Argyle's
Certificate of Incorporation that alter or change the powers, preferences or
special rights of their respective series so as to affect them adversely; and,
(iii) such other matters as require class votes under the DGCL or Argyle's
Certificate of Incorporation. Cumulative voting is not permitted in the
election of directors.
Pursuant to the Merger Agreement and Argyle's Certificate of Incorporation
and bylaws, (i) the affirmative vote of the holders of two-thirds of the
outstanding shares of Series A Common Stock and Series B Common Stock, voting
together as a class; (ii) the affirmative vote of the holders of two-thirds of
the outstanding shares of Series A Common Stock, voting separately as a class;
and, (iii) the affirmative vote of the holders of two-thirds of the
outstanding shares of Series B Common Stock, voting separately as a class, is
required to approve the Hearst Transaction Proposal. Stockholder approval of
the Hearst Transaction also will constitute (i) approval and adoption of the
Merger Agreement, which requires the affirmative vote of a majority of the
holders of shares of Series A Common Stock and Series B Common Stock, voting
together as a class; (ii) approval of the Restated Charter, which requires (x)
the affirmative vote of the holders of two-thirds of the outstanding shares of
Series A Common Stock and Series B Common Stock, voting together as a class;
(y) the affirmative vote of the holders
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of two-thirds of the outstanding shares of Series A Common Stock, voting
separately as a class; and, (z) the affirmative vote of the holders of two-
thirds of the outstanding shares of Series B Common Stock, voting separately
as a class; and, (iii) approval of the issuance of the 38,611,001 shares of
Series B Common Stock, in the aggregate, to Hearst and Cash Sub in exchange
for the Contribution, which by the rules of the Nasdaq National Market
requires the affirmative vote of a majority of the holders of shares of Series
A Common Stock and Series B Common Stock, represented at the Stockholders
Meeting, voting together as a class.
The Plan Proposal requires the affirmative vote of a majority of the shares
of Series A Common Stock and Series B Common Stock, voting together as a
class, represented at the Stockholders Meeting.
With respect to the Director Election Proposal, the affirmative vote of a
plurality of the voting power of the shares of Series A Common Stock
represented at the Stockholders Meeting is required for the election of the
Series A Director. The affirmative vote of a plurality of the voting power of
the shares of Series B Common Stock represented at the Stockholders Meeting is
required for the election of the Series B Director.
As of the Record Date, directors and executive officers of Argyle and their
respective affiliates as a group beneficially owned 7,687,000 shares of Series
A Common Stock, or approximately 65.8% of the issued and outstanding shares of
Series A Common Stock, and 36,000 shares of Series B Common Stock, or 100% of
the issued and outstanding shares of Series B Common Stock, which represented,
in the aggregate, 65.9% of the total voting power of the issued and
outstanding shares of Argyle Common Stock as of the Record Date. See "Security
Ownership Before and After the Hearst Transaction."
Concurrently with the execution and delivery by Argyle and Hearst of the
Merger Agreement, certain stockholders, including limited partnerships and
foundations through which certain officers and directors indirectly own shares
of Series A Common Stock and Series B Common Stock, entered into the Voting
Agreements. Pursuant to such Voting Agreements, these stockholders have agreed
to vote all of their shares of Argyle Common Stock subject to the Voting
Agreements in favor of the Hearst Transaction Proposal. The Voting Agreements
cover approximately 66.6% of the issued and outstanding shares of Series A
Common Stock and 100% of the issued and outstanding shares of Series B Common
Stock (or approximately 66.7% of the total voting power of the issued and
outstanding shares of Argyle Common Stock as of the Record Date). Accordingly,
approval of the Hearst Transaction is virtually assured regardless of the vote
of any other stockholder of Argyle. See "The Hearst Transaction Proposal--
Voting Agreements," "Security Ownership Before and After the Hearst
Transaction" and "The Merger Agreement--Voting Agreements."
PROXIES
All shares of Argyle Common Stock represented by properly executed proxies
received prior to or at the Stockholders Meeting and not revoked will be voted
in accordance with the instructions indicated in such proxies. If no
instructions are indicated on a properly executed and returned proxy, such
proxy will be voted "FOR" the Hearst Transaction Proposal, "FOR" the Plan
Proposal and "FOR" the Director Election Proposal.
Abstentions and broker non-votes are each included in the determination of
the number of shares present at the meeting for purposes of determining a
quorum. Abstentions and broker non-votes have no effect on determinations of
plurality, except to the extent that they affect the total votes received by
any particular candidate. With respect to the approval of the Hearst
Transaction Proposal, abstentions and broker non-votes have the effect of a
vote "AGAINST" the proposal. With respect to the approval of the Plan
Proposal, abstentions have the effect of a vote "AGAINST" the proposal, and
broker non-votes will be treated as shares which have the right to vote but
which have elected not to vote on such matter.
It is not expected that any matter not referred to herein will be presented
for action at the Stockholders Meeting. If any other matters are properly
brought before the Stockholders Meeting and any adjournments or postponements
thereof, the persons named in the proxies will have discretion to vote on such
matters in accordance with their best judgment. The grant of a proxy will also
confer discretionary authority on the persons named in the proxy as proxy
appointees to vote in accordance with their best judgment on matters incident
to
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the conduct of the Stockholders Meeting, including postponement or adjournment
for the purpose of soliciting additional votes.
A stockholder may revoke a proxy at any time prior to its use by delivering
to the Secretary of Argyle a signed notice of revocation or a later dated
signed proxy or by attending the Stockholders Meeting and voting in person.
Attendance at the Stockholders Meeting will not in itself constitute the
revocation of a proxy.
The cost of solicitation of proxies will be paid by Argyle. In addition to
solicitation by mail, proxies may be solicited in person by directors,
officers and employees of Argyle without additional compensation, and by
telephone, telegram, facsimile or similar method. Arrangements will be made
with brokerage houses and other custodians, nominees and fiduciaries to send
proxy material to beneficial owners; and Argyle will, upon request, reimburse
them for their reasonable expenses in so doing.
THE FORM OF ELECTION ACCOMPANYING THIS PROXY STATEMENT/PROSPECTUS SHOULD BE
PROPERLY COMPLETED IN ACCORDANCE WITH ITS INSTRUCTIONS AND RETURNED TO THE
EXCHANGE AGENT PRIOR TO THE ELECTION DEADLINE. UPON REQUEST TO THE EXCHANGE
AGENT, A FORM OF ELECTION WILL BE MAILED TO EACH PERSON WHO BECOMES A HOLDER
OR BENEFICIAL OWNER OF SERIES A COMMON STOCK BETWEEN THE RECORD DATE AND THE
BUSINESS DAY PRIOR TO THE ELECTION DEADLINE. IF A FORM OF ELECTION IS NOT
PROPERLY COMPLETED AND RETURNED TO THE EXCHANGE AGENT PRIOR TO THE ELECTION
DEADLINE, THE FORM OF CONSIDERATION SUCH STOCKHOLDER IS ENTITLED TO RECEIVE
WILL BE DETERMINED PURSUANT TO THE PROVISIONS OF THE MERGER AGREEMENT. SEE
"THE MERGER AGREEMENT--MERGER CONSIDERATION AND CONVERSION OF SHARES."
STOCKHOLDERS SHOULD SEND THEIR CERTIFICATES REPRESENTING ARGYLE COMMON STOCK
WITH THE ENCLOSED FORM OF ELECTION.
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THE HEARST TRANSACTION PROPOSAL
OVERVIEW
General. The Hearst Transaction combines six Hearst television stations and
related Hearst broadcast operations with Argyle through a contribution and
merger transaction, with Argyle as the surviving corporation to be renamed
"Hearst-Argyle Television, Inc." This combination with Argyle's existing six-
station group, along with three additional Hearst television stations to be
managed by Hearst-Argyle, will create a television broadcast company that
initially will own or manage 15 television stations reaching approximately
11.6% of U.S. television households, and will be the third-largest, non-
network owned television group in the U.S. in terms of audience delivered.
Upon consummation of the Hearst Transaction, Hearst will become the majority
stockholder of Hearst-Argyle, owning in excess of 80% of Hearst-Argyle's
outstanding common stock with the remainder of Hearst-Argyle to continue to be
publicly-held by the holders of Series A Common Stock.
In addition to the 12 television stations to be owned by Hearst-Argyle,
Hearst-Argyle also will manage certain television stations and radio stations
that will continue to be owned or operated by Hearst. Hearst-Argyle will have
an option to acquire at a later date certain of the managed television
stations. Under FCC regulations, Hearst-Argyle will be required to divest two
of its television stations. A letter of intent has been signed to divest one
of these stations, and Argyle and Hearst currently are negotiating with a
third party for the divestiture of the other station. See "The Merger
Agreement--Conditions to the Merger--Management Agreement," "--Television
Station Option Agreement," "Business of Hearst Broadcast Group," "Risk
Factors--Regulatory Matters" and "Federal Regulation of Television
Broadcasting."
The Contribution. One of the first steps in the Hearst Transaction is the
contribution by Hearst to Argyle of the assets and properties of Hearst's six
network-affiliated television broadcast stations (WCVB-TV, Boston,
Massachusetts; WTAE-TV, Pittsburgh, Pennsylvania; WBAL-TV, Baltimore,
Maryland; WISN-TV, Milwaukee, Wisconsin; KMBC-TV, Kansas City, Missouri; and,
WDTN-TV, Dayton, Ohio) and Hearst Broadcasting Productions, a unit of WCVB
engaged in the programming production business. The Hearst Broadcast Group
will be subject to approximately $275 million of long-term debt, which Argyle
will assume along with liabilities related to operations of the Hearst
Broadcast Group. In addition, Cash Sub (a wholly-owned subsidiary of Hearst)
will contribute to Argyle approximately $200 million in cash and Argyle will
assume the $200 million of short-term debt incurred by Cash Sub in respect
thereof. In exchange for the Contribution to Argyle, Hearst will receive
38,611,000 shares of Series B Common Stock of Argyle and Cash Sub will receive
one share. Depending on the working capital balance of the Hearst Broadcast
Group, additional shares of Series B Common Stock may be issued to Hearst in
the Hearst Transaction. Additional shares, if any, that may be issued to
Hearst based on the working capital balance of the Hearst Broadcast Group will
be based on such balance at closing. If the Merger had occurred on December
31, 1996, Hearst would have been entitled to receive an additional
approximately 800,000 shares. See "The Merger Agreement--Pre-Merger
Transactions," "--Certain Adjustments" and "Business of Hearst Broadcast
Group."
The Merger. Immediately following the Contribution, Merger Sub (a wholly-
owned subsidiary of Hearst) will merge with and into Argyle, and the holders
of Series A Common Stock will receive in the Merger either cash, stock in
Hearst-Argyle or a combination thereof.
In the Merger, each Argyle stockholder will be entitled to make an election
as to the consideration such stockholder would like to receive in exchange for
each share of Series A Common Stock. The election alternatives available to an
Argyle stockholder in exchange for each share of Series A Common Stock,
subject to the limits described below, are as follows:
. $26.50 in cash, without interest;
. one new share of Hearst-Argyle Series A Common Stock; or,
. a "Mixed Consideration," consisting of a combination of $13.25 in cash,
without interest, and 0.5 share of Hearst-Argyle Series A Common Stock.
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In the Merger, optionholders also will be entitled to convert their options
into Hearst-Argyle options or make certain similar elections with respect to
their options. See "Summary--the Merger Agreement--Merger Consideration and
Conversion of Shares" and "The Merger Agreement--Merger Consideration and
Conversion of Shares."
The aggregate number of shares of Hearst-Argyle Series A Common Stock to be
issued to Argyle stockholders and optionholders in the Merger will be between
6,025,319 and 8,277,054 shares, and the aggregate amount of cash to be
received by Argyle stockholders and optionholders in the Merger will be
between $100 million and approximately $160 million. The specific amounts of
stock and cash that will be received will depend on the individual elections
by the Argyle stockholders and optionholders.
If elections to receive cash or Hearst-Argyle Series A Common Stock exceed
their limits, the amounts that otherwise would have been allocated to
stockholders electing to receive the form of consideration that is
oversubscribed will be reduced. In all cases, however, stockholders making the
Mixed Election will receive the Mixed Consideration. In the event that cash
elections (including the cash portion of all elections) exceed approximately
$160 million, those stockholders making the Cash Election will receive some
shares of Hearst-Argyle Series A Common Stock (but in any event will receive
not less than $13.25 in cash, without interest, or not more than 0.5 share of
Hearst-Argyle Series A Common Stock for each share of Series A Common Stock
they currently hold). In the event that cash elections (including the cash
portion of all elections) are less than $100 million, those stockholders
making the Stock Election will receive some cash (but in any event will
receive not more than $8.30 in cash, without interest, or not less than
approximately 0.69 share of Hearst-Argyle Series A Common Stock for each share
of Series A Common Stock they currently hold). See "The Merger Agreement--
Merger Consideration and Conversion of Shares."
Restated Charter. In order to effect the transactions described above, it
will be necessary for Argyle to amend and restate its existing Certificate of
Incorporation prior to the Contribution and the Merger. This amendment and
restatement, among other things, will (i) increase the number of authorized
shares of Argyle Common Stock from 50 million to 200 million shares; (ii)
reclassify and change Argyle's existing Series B Common Stock and Series C
Common Stock into Series A Common Stock; (iii) authorize a Series B Common
Stock, which will be issued to Hearst and Cash Sub in connection with the
Contribution; and, (iv) provide Argyle's Series A Preferred Stock and Series B
Preferred Stock with voting rights. See "The Merger Agreement--Pre-Merger
Transactions," "Description of Hearst-Argyle Capital Stock" and "Comparison of
Stockholders' Rights."
BACKGROUND
In early 1996, the Telecommunications Act was enacted and significantly
changed the country's telecommunications laws. The Telecommunications Act
included a change in the permitted ownership of television stations, removing
the prior 12-station ownership limitation and increasing the permitted
percentage coverage of U.S. television households by stations owned by any one
entity from 25% to 35%. These changes accelerated a movement toward the
consolidation of the television broadcast industry.
With the growing size of individual group owners, Argyle's management and
Board determined in the spring of 1996 that it would be in the best interests
of Argyle and its stockholders for Argyle to increase in size in order to
remain competitive with other group owners generally, and specifically in
areas such as purchasing programming, establishing good relationships with
networks and national advertising sales representatives, attracting and
retaining talent, and receiving timely delivery of broadcast equipment. Toward
this end, Argyle aggressively pursued several opportunities to acquire
additional television stations during the first half of 1996. In each
instance, a competing bidder completed the acquisition and paid a
significantly greater amount for the acquisition than Argyle's management and
Board believed would be prudent for Argyle to pay from an Argyle stockholder's
perspective.
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Continuing with the goal of increasing Argyle's size for the attendant
competitive benefits, but faced with escalating prices for television
stations, in the late spring and summer of 1996, Argyle's management focused
its efforts on finding a strategic partner to provide the benefits of size
without the potential financially dilutive impact of an acquisition. As part
of this re-focusing of Argyle's efforts, at meetings on July 25, 1996 and July
31, 1996, Argyle's Board considered that discussions with potential strategic
partners could lead to proposals by third parties to acquire Argyle.
During this time frame, Argyle held discussions with several parties,
including Hearst. On August 7, 1996, Bob Marbut, Argyle's Chairman and Chief
Executive Officer, met with Frank A. Bennack, Jr., Hearst's President and
Chief Executive Officer, to discuss possible transactions involving Argyle and
Hearst's television broadcast group. Additional meetings were held on August
8, 1996 and August 9, 1996, involving Mr. Marbut, Mr. Bennack and other
members of Argyle's and Hearst's management. These discussions focused
primarily on potential structures for a combination that would result in the
survival of a public company vehicle in which Hearst would be the majority
stockholder.
Based on the status of various discussions that were being held, and in
advance of Argyle's public release of 1996 second quarter earnings and the
filing of its Form 10-Q for the quarter, Argyle's Board and management
determined it would be appropriate to make a public announcement regarding its
strategic efforts. On August 12, 1996, Argyle issued a press release stating
that in order to achieve the benefits of the consolidation of the television
broadcast industry for Argyle and its station group, it was exploring
strategic alternatives, including a possible sale of Argyle.
Following the August 12, 1996 announcement, Argyle began to receive
inquiries from numerous parties regarding possible transactions. On August 19,
1996, Argyle retained Merrill Lynch to assist in responding to these
inquiries, as well as to assist with other possible alternatives and to
provide a fairness opinion in the event the various discussions resulted in a
transaction proposal that would be submitted to Argyle's stockholders. On
August 20, 1996, Argyle, on behalf of ATILP, Argyle's largest stockholder,
retained Credit Suisse First Boston to provide financial advisory services to
ATILP and its general partner in connection with Argyle's strategic
alternatives exploration. As of the Record Date, Credit Suisse First Boston
and certain of its affiliates and employees held of record 468,813 shares of
Series A Common Stock, or approximately 4.1% of the outstanding shares of
Series A Common Stock.
Argyle, both directly and through Merrill Lynch and Credit Suisse First
Boston, responded to a number of inquiries and initiated contact with various
entities within the television broadcast industry. Contact was made--or
discussions were held--with 30 different entities.
Following the August 12, 1996 announcement, and through October 3, 1996,
discussions continued from time to time with Hearst. Again, the primary focus
of the discussions was on the possible structure of a transaction. On August
22, 1996, Hearst presented a draft proposal to Argyle. This proposal provided
for different amounts and forms of consideration for the holders of each of
the Series A Common Stock, Series B Common Stock and Series C Common Stock of
Argyle, and Argyle management and its advisors estimated the weighted average
per share value of the proposal at less than $22.00 per share. After several
days of discussions relating to this proposal, Hearst and Argyle agreed that
they were at an impasse over the structure and valuation of Argyle contained
in the proposal. However, discussions between Argyle and Hearst regarding
alternative structures and valuation continued. In early October 1996 Mr.
Bennack informed Mr. Marbut that Hearst would like to postpone further
discussions pending Hearst's exploration of another transaction that would
preclude a transaction with Argyle.
In October 1996, Argyle continued contacts and discussions with other
parties regarding possible transactions. At the end of October, discussions
with one party, Gannett, Inc. ("Gannett"), led to discussions of a possible
transaction involving the exchange of two stations owned by Gannett for two
stations owned by
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Argyle, plus an additional $20 million cash consideration (the "Gannett
Swap"). These discussions resulted in a transaction that was announced
November 20, 1996. See "Business of Argyle."
In early November 1996, Mr. Marbut contacted Mr. Bennack to discuss the
potential Gannett Swap. At Mr. Bennack's request, Mr. Marbut also spoke with
other members of Hearst's broadcast management. Mr. Bennack and the other
members of Hearst's management indicated that they viewed the Gannett Swap
favorably.
Discussions with Hearst resumed in earnest in early December, were again put
on hold in mid-December 1996 at Hearst's request, and resumed again in mid-
January 1997.
On January 31, 1997, the Gannett Swap closed.
On February 19, 1997, Argyle's Board met and discussed, among other things,
the status of the discussions with Hearst and other developments.
Representatives of Merrill Lynch were present by telephone for a portion of
this meeting, and the Board addressed questions to them regarding, among other
items, public and private market valuations of television broadcasting
properties. The Board authorized Argyle's management to continue discussions
with Hearst.
During the four-week period after Argyle's February 19 Board meeting,
representatives of Argyle and Hearst continued discussions and conducted due
diligence. During this period, the structure of the Hearst Transaction was
agreed upon and finalized. The parties also continued to discuss the per share
consideration to be received by Argyle's stockholders and the number of shares
to be issued to Hearst in the transaction, but no definitive proposals were
advanced and no agreement had been reached with respect to these valuation
items by the middle of March.
During the week of March 17, 1997, Mr. Marbut and Mr. Bennack agreed that
the terms of the Hearst Transaction were, in principle, acceptable, subject
to, among other things, successful completion of the definitive agreements and
a full presentation to and approval by each company's Board of Directors in
consultation with financial and legal advisors. During this week, Hearst also
presented a proposal as to the per share consideration to be received by
Argyle's stockholders and the number of shares to be received by Hearst in the
transaction.
On March 24, 1997, the Hearst Board met to consider the Hearst Transaction,
and approved the Hearst Transaction and authorized execution of the Merger
Agreement. See "--Hearst's Reasons for the Hearst Transaction."
On March 25, 1997, the Argyle Board held a special meeting to consider the
Hearst Transaction. Argyle management reviewed in detail with the Argyle Board
the status of the Hearst Transaction Proposal, including, among other things,
a review with representatives of Merrill Lynch (Argyle's financial advisor) of
the financial and valuation analyses of the proposal and a review with Locke
Purnell Rain Harrell (A Professional Corporation) (Argyle's legal advisor) of
a summary of the principal terms of the latest drafts of the definitive
agreement. Merrill Lynch delivered its oral opinion (which was subsequently
confirmed in writing on March 26, 1997) to the Argyle Board to the effect
that, as of such date, and based upon the assumptions made, matters considered
and limits of review set forth therein, the Merger Consideration, taken as a
whole, is fair to the holders of Series A Common Stock from a financial point
of view. See "--Fairness Opinion." After discussion, the Argyle Board
adjourned on March 25, 1997.
The Argyle Board reconvened its special meeting on March 26, 1997 and, after
further discussion and consideration, unanimously approved the Hearst
Transaction and the execution of the Merger Agreement and the Voting
Agreements.
The Merger Agreement and the Voting Agreements were signed and announced on
March 26, 1997.
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RECOMMENDATION OF ARGYLE BOARD; ARGYLE'S REASONS FOR THE HEARST TRANSACTION
THE ARGYLE BOARD BELIEVES THAT THE HEARST TRANSACTION IS FAIR TO, AND IN THE
BEST INTERESTS OF, ARGYLE AND ITS STOCKHOLDERS. THE ARGYLE BOARD HAS
UNANIMOUSLY APPROVED THE HEARST TRANSACTION AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE HEARST TRANSACTION.
In reaching its decision to approve the Hearst Transaction and to recommend
approval and adoption of the Hearst Transaction, the Argyle Board consulted
with its legal counsel regarding the legal terms of the Hearst Transaction and
the Board's obligations under the DGCL and otherwise in its consideration of
this transaction. Further, the Argyle Board consulted with its financial
advisor regarding the financial terms and fairness, from a financial point of
view, of the Hearst Transaction to Argyle and its stockholders. Set forth
below are the material factors that the Argyle Board considered and believed
relevant in making its determination:
(i) the Board's familiarity with and review of Argyle's business
operations, financial condition and operating results;
(ii) the Board's familiarity with and review, based in part on the advice
of Merrill Lynch and Argyle management, of Argyle's future prospects, which
indicated to the Board the difficulty for a company the size of Argyle to
remain competitive in a consolidating industry and the desirability of
expanding television operations (see "--Fairness Opinion");
(iii) the substantial benefits to Argyle associated with the resulting
increase in size of its television broadcasting business from the Hearst
Transaction, including improved ability to compete with other group owners
in purchasing programming, establishing good relationships with networks
and national advertising sales representatives, attracting and retaining
talent, and receiving timely delivery of broadcast equipment;
(iv) the Board's review, based in part on the advice of Argyle
management, of the future prospects for Hearst-Argyle;
(v) the current and prospective environment in which Argyle and the
Hearst Broadcast Group operate, including recent regulatory matters
affecting the broadcasting industry, national and local economic
conditions, the competitive environment for media generally and the trend
toward consolidation in the media industry (all of which the Board believes
favor larger corporations with greater financial resources than Argyle);
(vi) the Board's review, based on the report of Argyle management and
Merrill Lynch, of discussions with third parties both before and after
Argyle's August 12, 1996 public announcement that it was exploring
strategic alternatives, including a possible sale of the company, and
prospects for alternative transactions (see "--Background);"
(vii) the Board's review, based in part on the advice of Merrill Lynch
and Argyle management, of other strategic alternatives available to Argyle
(including the possibility of (a) remaining independent (and continuing
with no acquisitions, acquisitions of smaller media properties or a
"merger-of-equals") or (b) selling certain assets), and the Board's
determination that the Hearst Transaction proposal offered greater long-
term value to Argyle's stockholders because of both the valuation implicit
in the Hearst Transaction and the desirability of increasing in size to
remain competitive in the consolidating television broadcast industry (see
"--Background");
(viii) the various financial presentations by Merrill Lynch and the
written opinion of Merrill Lynch dated March 26, 1997 that, as of the date
of such opinion, the Merger Consideration, taken as a whole, is fair to
holders of the Series A Common Stock from a financial point of view (see
"--Fairness Opinion");
(ix) the anticipated operating efficiencies available to the larger
combined company;
(x) the Board's belief that the terms of the Merger Agreement are
attractive in that the agreement allows holders of Argyle Common Stock to
elect the form of consideration to be received in the Merger (subject to
proration--see "--Overview" and "The Merger Agreement--Merger Consideration
and Conversion of Shares"), thereby allowing stockholders desiring
liquidity to receive cash at a fixed price per
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share and allowing stockholders desiring continued ownership in a
television broadcast company to receive stock in the larger combined
company;
(xi) the structure of the Hearst Transaction, under which the Hearst-
Argyle Series A Common Stock will be received by Argyle stockholders in a
tax-advantageous transaction (see "--Certain Federal Income Tax
Consequences"); and,
(xii) the provisions of the Merger Agreement that (a) prohibit Argyle
from soliciting or encouraging alternative Acquisition Proposals or,
subject to the fiduciary duties of the Argyle Board, from negotiating with
any third parties with respect to alternative proposals, which the Board
found reasonable based on the active pursuit of alternative transactions
with third parties prior to authorizing the Merger Agreement, and (b)
permit the Argyle Board, in the exercise of its fiduciary duties, to
terminate under certain circumstances the Merger Agreement upon the payment
to Hearst of a fee of $15,850,000 (approximately 3% of the transaction
value), which the Board found reasonable based on the views of its legal
advisors that such a fee was within the range of fees payable in comparable
transactions and that the fee--at less than $1.35 per share--would not in
and of itself preclude an Acquisition Proposal.
Argyle management also discussed with the Argyle Board, and the Argyle Board
considered in evaluating the Hearst Transaction, the following risks that
Argyle management believed may impact the desirability of the Hearst
Transaction to Argyle and its stockholders: (i) the risk that the combined
company would perform significantly below expectations; (ii) the risk that the
positive market trends, including favorable valuations of television stations,
in the television industry in general would turn adverse; and, (iii) the risk
that the market value of the Hearst-Argyle Series A Common Stock could be
impacted adversely by the relatively limited public float of such stock. The
Argyle Board also considered that the Hearst Transaction, which will result in
a transfer of control of Argyle to Hearst and control by Hearst initially of
over 80% of the outstanding common stock of Hearst-Argyle, will diminish the
likelihood of an unsolicited acquisition in the future, but determined that
the value to be received by the Argyle stockholders in the Hearst Transaction
reflects a control premium.
For the reasons outlined above and taking into account the alternatives
available to Argyle, the Argyle Board concluded that the Hearst Transaction
represents the best alternative to Argyle to enhance stockholder value, and
that the potential benefits of the Hearst Transaction substantially outweigh
the risks associated with this transaction.
The Board was aware that members of Argyle management and the Board may be
deemed to have certain interests in the Hearst Transaction that are in
addition to their interests as stockholders generally, and the Argyle Board
considered these interests in approving the Hearst Transaction. Such interests
did not weigh either in favor of or against approving the Hearst Transaction.
See "--Interests of Certain Persons in the Hearst Transaction; Affiliate
Transactions."
In view of the variety of factors considered in connection with its
evaluation of the Hearst Transaction, the Board did not quantify or otherwise
attempt to assign relative weights to the specific factors considered in
reaching its determination.
FAIRNESS OPINION
Merrill Lynch delivered its written opinion dated March 26, 1997, which was
confirmed in a written opinion dated the date of this Proxy
Statement/Prospectus, to the Board of Directors of Argyle to the effect that,
as of such date, and based upon the assumptions made, matters considered and
limits of review as set forth therein, the Merger Consideration, taken as a
whole, is fair to holders of the Series A Common Stock from a financial point
of view.
A COPY OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW BEING UNDERTAKEN BY
MERRILL LYNCH, IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT/PROSPECTUS.
THE MERRILL LYNCH OPINION IS ADDRESSED SOLELY TO THE FAIRNESS, FROM A
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FINANCIAL POINT OF VIEW, OF THE MERGER CONSIDERATION TAKEN AS A WHOLE AND
MERRILL LYNCH DID NOT EXPRESS ANY OPINION AS TO (I) THE EQUIVALENCY OR
DESIRABILITY OF THE DIFFERENT ELECTIONS THAT HOLDERS OF SERIES A COMMON STOCK
CAN MAKE PURSUANT TO THE MERGER AGREEMENT OR (II) THE PRICE OR TRADING RANGE
AT WHICH SHARES OF HEARST-ARGYLE SERIES A COMMON STOCK WILL TRADE FOLLOWING
THE MERGER. IN ADDITION, MERRILL LYNCH NOTED THAT THE HEARST-ARGYLE SERIES A
COMMON STOCK REPRESENTS ONLY A SMALL PORTION OF THE TOTAL EQUITY OF HEARST-
ARGYLE AND THAT, AS A RESULT OF ITS RELATIVELY SMALL PUBLIC FLOAT, THE PRICES
OR TRADING RANGE OF THE HEARST-ARGYLE SERIES A COMMON STOCK MAY BE ADVERSELY
AFFECTED BY ITS RELATIVE LACK OF LIQUIDITY. THE MERRILL LYNCH OPINION IS FOR
THE INFORMATION OF THE BOARD OF DIRECTORS OF ARGYLE IN CONNECTION WITH ITS
CONSIDERATION OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE PROPOSED MERGER OR
EXERCISE SUCH STOCKHOLDER'S ELECTION RIGHTS IN CONNECTION THEREWITH. THE
MERRILL LYNCH OPINION DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION
BY ARGYLE TO ENGAGE IN THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
THE SUMMARY OF THE MERRILL LYNCH OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE MERRILL LYNCH OPINION ATTACHED AS APPENDIX B HERETO.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other things:
(i) reviewed Argyle's Registration Statement on Form S-1 No. 33-96026; (ii)
reviewed Argyle's Annual Reports, Forms 10-K and related financial information
for the fiscal years ended December 31, 1995 and December 31, 1996 and the
Company's Form 10-Q and the related unaudited financial information for the
quarterly period ended March 31, 1997; (iii) reviewed the consolidated
financial statements for the Hearst Broadcast Group; (iv) reviewed certain
information, including financial forecasts, relating to the business,
earnings, cash flows, assets, liabilities and prospects of Argyle, the Hearst
Broadcast Group and Hearst-Argyle furnished to Merrill Lynch by Argyle and
Hearst; (v) conducted discussions with members of senior management of Argyle
concerning the respective businesses and prospects of Argyle, the Hearst
Broadcast Group and Hearst-Argyle; (vi) conducted discussions with members of
senior management of Argyle and the Hearst Broadcast Group concerning the
respective businesses and prospects of the Hearst Broadcast Group and Hearst-
Argyle; (vii) reviewed the historical market prices and trading activity for
the Series A Common Stock and compared such information with that of certain
publicly traded companies that Merrill Lynch deemed to be reasonably similar
to Argyle; (viii) compared the results of operations of Argyle, the Hearst
Broadcast Group and, on a pro forma basis, Hearst-Argyle with that of certain
companies that Merrill Lynch deemed to be relevant; (ix) compared the proposed
financial terms of the transactions contemplated by the Merger Agreement with
the financial terms of certain other mergers and acquisitions that Merrill
Lynch deemed to be relevant; (x) reviewed the Merger Agreement and the Voting
Agreement; and, (xi) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters
as Merrill Lynch deemed necessary, including Merrill Lynch's assessment of
general economic, market and monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch relied on the accuracy
and the completeness of all information supplied or otherwise made available
to Merrill Lynch by Argyle and Hearst, and Merrill Lynch did not independently
verify such information or undertake an independent appraisal of the assets or
liabilities, contingent or otherwise, of Argyle or the Hearst Broadcast Group.
With respect to the financial forecasts furnished by Argyle, Merrill Lynch
assumed that they have been prepared reasonably and reflect the best currently
available estimates and judgments of Argyle's management as to the expected
future performance of Argyle, the Hearst Broadcast Group and Hearst-Argyle.
Merrill Lynch also assumed, with Argyle's consent, that, for federal income
tax purposes, the contribution by Cash Sub to Argyle of approximately $200
million in cash and the contribution by Hearst to Argyle of certain assets of
the Hearst Broadcast Group and the assumption by Argyle of certain liabilities
of the Hearst Broadcast Group will qualify as a transaction described in
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"), and
that the Merger will qualify as a redemption described in Section 302 of the
Code with respect to those stockholders of Argyle who will receive cash
pursuant to the Merger. The Merrill Lynch Opinion was necessarily based upon
market, economic and other conditions as they existed on, and were evaluated
as of, the date of the opinion.
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The Merrill Lynch Opinion was rendered without regard to the necessity for,
or level of, any restrictions, obligations, undertakings or divestitures that
may be imposed in the course of obtaining regulatory approval for the
transactions contemplated by the Merger Agreement. In rendering the Merrill
Lynch Opinion, Merrill Lynch also assumed, with Argyle's consent, that any
acquisition or disposition of assets by Hearst, Argyle or their respective
subsidiaries, as the case may be, as contemplated by Section 8.15 of the
Merger Agreement will not affect the value of Argyle or the Hearst Broadcast
Group, as the case may be, or otherwise affect the fairness, from a financial
point of view, of the Merger Consideration, taken as a whole.
The following summarizes financial and comparative analyses presented by
Merrill Lynch to the Argyle Board of Directors at its meeting on March 25,
1997, which analyses were also among those considered by Merrill Lynch in
rendering the Merrill Lynch Opinion.
Transaction Value and Multiple Analysis. Merrill Lynch estimated the
transaction value being paid for Argyle at $517.7 million. This amount was
based on the sum of (i) approximately $160 million of cash to be received by
the stockholders of Argyle (assuming a maximum Cash Election); (ii) $186.8
million of net debt to be assumed by Hearst-Argyle (including $150.0 million
of Senior Subordinated Notes plus $37.5 million of bank debt less $0.7 million
of cash); (iii) $21.9 million of preferred stock to be assumed by Hearst-
Argyle; and, (iv) $149.3 million, the assumed aggregate market value of 13.5%
of Hearst-Argyle Series A Common Stock (based on the assumption that following
the Merger the Hearst-Argyle Series A Common Stock would trade in the open
market on a fully-diluted and fully-distributed basis at 11x projected 1997
pro forma combined operating cash flow (defined below) of Hearst-Argyle).
Based on financial projections supplied by Argyle's management (financial
data for 1996 reflected the Gannett Swap as if effected on January 1, 1996),
Merrill Lynch calculated that the transaction value represented a multiple of:
(i) 6.6x Argyle's 1996 net revenues; (ii) 6.2x Argyle's projected 1997 net
revenues; (iii) 13.9x Argyle's 1996 broadcast cash flow ("BCF") (defined as
earnings before interest, tax, depreciation and amortization ("EBITDA") before
corporate overhead expenses and film amortization less film payments); (iv)
12.4x Argyle's projected 1997 BCF; (v) 15.6x Argyle's 1996 operating cash flow
("OCF") (EBITDA before film amortization less film payments); and, (vi) 14.5x
Argyle's projected 1997 OCF.
Merrill Lynch analyzed an assumed enterprise value (market value of equity
plus preferred stock plus total debt less cash and equivalents) range of $1.65
billion to $1.85 billion for Hearst-Argyle in order to compare the resulting
range of per share equity values to be received by Series A Common
stockholders from the Hearst Transaction. Assuming pro forma net debt of
$653.4 million, the assumed enterprise value range resulted in an implied
equity value range for Hearst-Argyle of $996.6 million to $1.2 billion and a
per share equity value range of $24.41 to $26.66 on a fully-diluted and fully-
distributed basis, assuming the maximum Cash Election. Moreover, the assumed
enterprise range implied the following valuation multiples: (i) 10.3x to 11.6x
projected combined Hearst-Argyle 1997 OCF; (ii) 9.6x to 10.7x projected pro
forma combined Hearst-Argyle 1997 OCF (representing projected combined 1998
operating margin on a station-by-station basis applied to projected combined
1997 revenues plus anticipated management fees plus projected 1997 cash flow
of the Hearst Broadcast Group); and, (iii) 8.7x to 9.8x projected 1998
combined Hearst-Argyle OCF.
Selected Company Analysis. Merrill Lynch analyzed and compared certain
projected financial and operating information of Hearst-Argyle with five
broadcast companies that Merrill Lynch considered appropriate for the purpose
of comparison with Hearst-Argyle. The five companies were: LIN Television
Corporation, A.H. Belo Corporation, Young Broadcasting Inc., Sinclair
Broadcasting Group, Inc. and Granite Broadcasting Corporation (collectively
the "Peer Companies"). Merrill Lynch's analysis indicated that: (i) projected
1997 OCF to interest expense ratio for the Peer Companies ranged from 1.5x to
6.1x, compared to 3.4x for Hearst-Argyle; (ii) projected 1997 total debt to
OCF ratio for the Peer Companies ranged from 2.9x to 6.7x, compared to 4.0x
for Hearst-Argyle; (iii) projected 1997 BCF margin for the Peer Companies
ranged from 41.1% to 50.3%, compared to 45.9% for Hearst-Argyle; (iv)
projected 1997 OCF margin for the Peer Companies ranged from 41.1% to 47.7%,
compared to 43.0% for Hearst-Argyle; (v) projected five-year OCF compounded
annual growth rate for the Peer Companies ranged from 5.6% to 12.0%, compared
to 9.0% for Hearst-Argyle; and,
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<PAGE>
(vi) projected 1997 OCF trading multiple for the Peer Companies ranged from
8.8x to 11.7x, compared to 11.0x for Hearst-Argyle. Based on the foregoing
analysis, Merrill Lynch concluded that the Hearst-Argyle Series A Common Stock
would trade in a range of 10.5x to 11.5x projected 1997 OCF on a fully-diluted
and fully-distributed basis (assuming that holders of Series A Common Stock
would make a maximum Cash Election).
Contribution Analysis. Merrill Lynch compared the respective BCF and OCF
contributions of Argyle and Hearst to the combined BCF and OCF of Hearst-
Argyle. The analysis indicated that Argyle would contribute: (i) 24.4%, 24.1%,
23.5%, 24.3%, 24.9% and 25.7%, respectively, to projected 1997, 1998, 1999,
2000, 2001 and 2002 BCF of Hearst-Argyle, and (ii) 22.3%, 22.7%, 22.5%, 23.2%,
23.9% and 24.8%, respectively, to projected 1997, 1998, 1999, 2000, 2001 and
2002 OCF of Hearst-Argyle. Merrill Lynch also calculated that 30% of the total
estimated enterprise value of Hearst-Argyle would be attributable to Argyle.
Analysis of Value to Argyle Stockholders. Because holders of Argyle Series A
Common Stock could elect to receive different forms of consideration in the
transaction and those elections potentially would be subject to proration as
described under "The Merger Agreement--Merger Consideration and Conversion of
Shares," Merrill Lynch computed a hypothetical blended value per share to be
received by holders of Series A Common Stock ranging from $24.75 to $26.55
(the "Blended Value Range"). This analysis assumed that the Hearst-Argyle
Series A Common Stock would trade in a range of 10.5x to 11.5x projected 1997
OCF on a fully-diluted and fully-distributed basis and that holders of Series
A Common Stock would make a maximum Cash Election.
Merrill Lynch compared the Blended Value Range with a range of equity values
for Hearst-Argyle produced by a discounted cash flow analysis of Hearst-
Argyle. The discounted cash flow analysis utilized a discount rate ranging
from 11.0% to 12.0% and year 2002 EBITDA terminal multiples ranging from 10.0x
to 11.0x. The discounted cash flow analysis indicated that the equity value of
Hearst-Argyle exceeded the Blended Value Range by $295.3 million to $360.4
million, 13.5% of which would be attributable to holders of Series A Common
Stock (assuming a maximum Cash Election), amounting to approximately $3.30 to
$4.05 per share of Argyle Series A Common Stock.
Merrill Lynch also analyzed the implied equity value of a share of Series A
Common Stock on a stand-alone basis. In this analysis, Merrill Lynch assumed
that Argyle had net debt of $212.7 million as of January 1, 1997 and that
there were 12.05 million fully-diluted shares of Series A Common Stock
outstanding. Utilizing a multiple of 9.0x to 10.0x projected 1998 OCF derived
from the trading value of the Peer Companies, Merrill Lynch determined that an
implied equity trading value per share of Series A Common Stock would range
from $14.40 to $17.95. Similarly, applying a multiple (which was derived from
a review of certain television broadcast acquisitions since 1993) of 11.0x to
13.0x projected 1997 BCF, Merrill Lynch determined that an implied equity
value per share on a private market basis of Series A Common Stock would range
from $20.40 to $27.35. Finally, using a discounted cash flow analysis
(utilizing discount rates ranging from 11.0% to 12.0% and projected terminal
values for Argyle ranging from 10.0x to 11.0x year 2001 EBITDA), Merrill Lynch
determined that an implied equity value per share of Series A Common Stock
would range from $20.50 per share to $24.75 per share.
Stock Price and Trading History. Merrill Lynch charted the closing price of
Series A Common Stock from October 24, 1995 to March 21, 1997 and compared
such prices with a broadcasting index composed of Granite Broadcasting
Corporation, LIN Television Corporation, Sinclair Broadcast Group, Inc. and
Young Broadcasting Inc. In addition, Merrill Lynch calculated that, for the
period from October 24, 1995 to March 21, 1997, 44.48% of the trading volume
of the Series A Common Stock was between $16 to $18 per share, 1.28% was
between $18 to $20 per share, 6.56% was between $20 to $22 per share, 11.43%
was between $22 to $24 per share, 11.06% was between $24 to $26 per share,
5.76% was between $26 to $28 per share and 19.44% was between $28 to $30 per
share.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Merrill
Lynch believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering the analyses taken as
a whole, would create an incomplete
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or misleading view of the process underlying the analyses set forth in its
opinion. In addition, Merrill Lynch considered the results of all such
analyses and did not assign relative weights to any of the analyses, so that
the ranges of valuations resulting from any particular analysis described
above should not be taken to be Merrill Lynch's view of the actual value of
Argyle.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business, economic and regulatory
conditions and other matters, many of which are beyond the control of Argyle.
The analyses performed by Merrill Lynch are not necessarily indicative of
actual values, trading values or actual future results that might be achieved,
all of which may be significantly more or less favorable than suggested by
such analyses. No public company utilized as a comparison is identical to
Argyle and none of the comparable acquisition transactions or other business
combinations utilized as a comparison is identical to the Hearst Transaction.
Accordingly, an analysis of the Peer Companies and comparable acquisition
transactions is not mathematical; rather it involves complex considerations
and judgments concerning differences in financial and operating
characteristics of the comparable companies or the company or transaction to
which they are being compared. In connection with its analyses, Merrill Lynch
made estimates (based on forecasts provided by the management of Argyle) and
assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
Argyle and Merrill Lynch. Analyses based upon forecasts of future results are
not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of Argyle or Merrill Lynch, neither
Argyle nor Merrill Lynch assume responsibility if future results or actual
values are materially different from these forecasts or assumptions. Such
analyses were prepared solely as part of Merrill Lynch's analyses of the
Merger Consideration and were provided to the Argyle Board of Directors. The
analyses do not purport to be appraisals or to reflect the prices at which
Argyle might be sold. In addition, as described above, the Merrill Lynch
Opinion was one of many factors taken into consideration by the Argyle Board
of Directors in making its determination to approve the Hearst Transaction.
Consequently, the analyses described above should not be viewed as
determinative of the opinion of the Argyle Board of Directors or Argyle
management with respect to the value of Argyle. The Argyle Board of Directors
placed no limits on the scope of the analysis performed, or opinions
expressed, by Merrill Lynch.
The Argyle Board of Directors selected Merrill Lynch to render its fairness
opinion because Merrill Lynch is an internationally recognized investment
banking firm with substantial expertise in transactions similar to the Hearst
Transaction and because it is familiar with Argyle and its business. As part
of its investment banking business, Merrill Lynch is continually engaged in
the valuation of businesses and their securities in connection with mergers
and acquisitions. In the ordinary course of Merrill Lynch's business, Merrill
Lynch may actively trade the securities of Argyle for its own account and for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
Pursuant to an engagement letter dated August 19, 1996, Argyle (i) paid
Merrill Lynch, upon execution of the Merger Agreement, a fee of $250,000 and
(ii) has agreed to pay Merrill Lynch, a fee of $1.9 million upon the
consummation of the Merger (including the $250,000 previously paid). In
addition, Argyle has also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses, including all reasonable fees and disbursements of its
legal counsel, and to indemnify Merrill Lynch and certain related persons
against certain liabilities, including certain liabilities under the federal
securities laws, arising out of its engagement.
HEARST'S REASONS FOR THE HEARST TRANSACTION
The Hearst Transaction is part of Hearst's plan to become a more significant
player in the television broadcast business. As major consolidation becomes
the trend in the television industry, Hearst believes that it is prudent and
advantageous to broaden its options for growth of its television operations.
Although Hearst has been a private company for decades and intends to remain
so, Hearst believes that having a public security through its majority
ownership of Hearst-Argyle will better help it achieve this growth objective.
Hearst also believes that the combination of the Hearst Broadcast Group with
Argyle permits the intrinsic value of the Hearst
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Broadcast Group assets to be recognized while providing the Hearst Broadcast
Group with the flexibility and access to capital markets to support an
expansion strategy for Hearst-Argyle. See "Risk Factors--Control by Majority
Stockholder; Competitive and Operations Impact; Conflicts of Interest" and "--
Risks Associated with Expansion, Integration of the Combined Operations;
Significant Uncertainties."
INTERESTS OF CERTAIN PERSONS IN THE HEARST TRANSACTION; AFFILIATE TRANSACTIONS
In considering the recommendations of the Board with respect to the Hearst
Transaction, stockholders of Argyle should be aware that certain members of
the management of Argyle have certain interests in the Hearst Transaction that
are different from, or in addition to, the interests of stockholders of Argyle
generally.
Directors and Officers of Hearst-Argyle. At the Effective Time, the Board of
Directors of Hearst-Argyle will be increased in size from five to 11 members.
Ms. Williams and Messrs. Marbut and Pulver, each a current director of Argyle,
will be directors of Hearst-Argyle. Initially, Ms. Williams and Mr. Pulver
will be the designated directors for the holders of Series A Common Stock
after the Effective Time and Mr. Marbut will be designated as one of the nine
directors that Hearst, as the holder of newly issued Series B Common Stock,
will be entitled to designate and elect. Mr. Byrne, currently a director of
Argyle, has announced his retirement from the Argyle Board effective as of the
Closing. The Merger Agreement provides that, after the Effective Time, Hearst
will vote its Series B Common Stock and otherwise use its best efforts to
cause Mr. Marbut to continue to be elected as a director of Hearst-Argyle for
so long as Mr. Marbut is employed by Hearst-Argyle or any of its subsidiaries.
See "The Merger Agreement--Certain Covenants," "Management of Hearst-Argyle
After the Merger" and "Director Election Proposal."
Chase is the lead agent bank under Argyle's Existing Credit Facility, and an
affiliate of Chase holds a partnership interest in ATILP and in the general
partner of ATILP, making Chase the beneficial owner of 12.1% of the Series A
Common Stock. Mr. Bennack, Hearst's President and Chief Executive Officer, is
a director of Chase and is expected to be a director of Hearst-Argyle. On June
17, 1997, Chase and Argyle entered into a commitment letter under which Chase
committed to provide a $1 billion credit facility to Hearst-Argyle, a portion
of which will be used in connection with the Hearst Transaction. See "--
Financing the Hearst Transaction," "Security Ownership Before and After the
Hearst Transaction" and "Management of Hearst-Argyle After the Merger."
In addition, certain executive officers of Argyle, including Messrs. Marbut,
Blythe, Hawks and Morales, will remain as executive officers of Hearst-Argyle.
See "Management of Hearst-Argyle After the Merger."
Employee/Non-Employee Director Stock Option Plans. At the Effective Time,
each Argyle Option shall be cancelled by virtue of the Merger and holders of
Argyle Options, whether or not immediately exercisable, shall be entitled to
receive, at their election, either (i) options to purchase shares of Series A
Common Stock of Hearst-Argyle on the same terms and conditions as are then
applicable to their Argyle Options ("Rollover Options") or (ii) the
consideration as more fully described under "The Merger Agreement--Merger
Consideration and Conversion of Shares." To induce Hearst to enter into the
Merger Agreement, Messrs. Marbut, Byrne, Morales and Hawks (the "Electing
Optionholders") have agreed not to elect to receive any Rollover Options. All
other holders of Argyle Options, including Ms. Williams and Mr. Pulver and
other executive officers of Argyle, are entitled to make an election to
receive Rollover Options. In return for their agreement not to receive
Rollover Options, the Electing Optionholders are entitled to make a
supplemental election with respect to the consideration to be received as a
result of the cancellation of their Argyle Options. The supplemental election
by the Electing Optionholders could result in the reallocation of the cash
portion of any prorations between the consideration to be received by these
optionholders with respect to their Argyle Options and the consideration to be
received by these optionholders with respect to their Argyle Series A Common
Stock. This reallocation could result in more cash being received for Series A
Common Stock relating to Argyle Options and less cash being received for
directly held Series A Common Stock. The supplemental election would not,
however, result in the individual receiving any more or less cash in the
aggregate than if the supplemental election were not available. See "The
Merger Agreement--Merger Consideration and Conversion of Shares."
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Pursuant to the terms of Argyle's 1994 Stock Option Plan (the "1994 Plan"),
the Hearst Transaction constitutes a "Change of Control" resulting in all
Argyle Options under the 1994 Plan becoming exercisable in full. As of June
30, 1997, directors and executive officers of Argyle held outstanding options
to purchase 1,123,595 shares of Series A Common Stock under the 1994 Plan at
exercise prices ranging from $10.00 to $28.00 per share. Certain of the Argyle
Options outstanding under the 1994 Plan were fully exercisable prior to the
execution of the Merger Agreement. The following table sets forth information
with respect to the number of vested Argyle Options, and the acceleration of
exercisability of Argyle Options, held by the persons set forth below.
<TABLE>
<CAPTION>
NUMBER OF UNVESTED WEIGHTED NET PROCEEDS
ARGYLE OPTIONS AVERAGE EXERCISE FROM ARGYLE
AT MARCH 25, 1997 PRICE PER SHARE OPTIONS IF
NUMBER OF VESTED TO BECOME OF VESTED AND HOLDER MAKES
ARGYLE OPTIONS EXERCISABLE UPON UNVESTED ARGYLE OPTION CASH
NAME AND TITLE AT MARCH 25, 1997 CHANGE OF CONTROL OPTIONS ELECTION(1)
-------------- ----------------- ------------------ ---------------- ------------
<S> <C> <C> <C> <C>
Bob Marbut.............. 107,750 226,088 $12.57 $4,650,363
Chairman of the Board
and Chief Executive
Officer
Blake Byrne............. 107,750 226,088 $12.57 $4,650,363
President, Chief
Operating Officer
and Director
Ibra Morales............ 107,750 226,088 $12.57 $4,650,363
Executive Vice
President, Chief
Revenue Officer and
Director
Harry Hawks............. 26,938 56,523 $12.57 $1,162,612
Chief Financial Officer
and Treasurer
Dean Blythe............. 9,300 7,800 $11.07 $ 263,925
Vice President--
Corporate Development,
Secretary and General
Counsel
Caroline Williams....... 5,000 10,000 $17.21 $ 139,350
Director
David Pulver............ 5,000 10,000 $17.21 $ 139,350
Director
</TABLE>
- ---------------------
(1) Based upon the Option Cash Election of $26.50 with no proration or
adjustment. As described above, Argyle Options may, as to persons other
than Messrs. Marbut, Byrne, Morales and Hawks, be converted into options
to purchase Hearst-Argyle Series A Common Stock. See "The Merger
Agreement--Merger Consideration and Conversion of Shares."
In addition, all directors and executive officers of Argyle who continue to
serve as a director or executive officer of Hearst-Argyle will be entitled to
participate in benefit plans of Hearst-Argyle applicable to them. If the Plan
Proposal to amend the 1994 Plan is approved by Argyle's stockholders, the
executive officers of Hearst-Argyle (who will include the executive officers
of Argyle) and the outside directors of Hearst-Argyle will receive option
awards under such plan. Executive officers of Hearst who are Hearst-Argyle
Board members and are not otherwise executive officers of Hearst-Argyle will
not receive option awards. See "Plan Proposal" for a discussion of the terms
of the amended and restated stock option plan.
Employment Agreements and Other Benefit Plans. It is anticipated that the
executive officers of Hearst-Argyle (who will include certain of the executive
officers of Argyle) will enter into employment agreements with Hearst-Argyle
upon the closing of the Hearst Transaction, which will supersede their
existing employment agreements. The complete terms of the employment
agreements have not been finalized at this time. See "Management of Hearst-
Argyle After the Merger."
It is currently anticipated that as of the Effective Time, Hearst-Argyle
will establish defined benefit plans substantially similar to The Hearst
Corporation Retirement Plan and The Hearst Corporation Supplemental
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Retirement Plan (collectively, the "Hearst Pension Plan") and the other
defined benefit plans currently in place in which employees of the Hearst
Broadcast Group currently participate. At the Effective Time, all employees of
Hearst-Argyle who previously were employees of the Hearst Broadcast Group and
participating in Hearst's defined benefit plans, including Mr. Barrett, will
participate in these new defined benefit plans. It is also currently
anticipated that effective January 1, 1998, all remaining employees of Hearst-
Argyle (in essence, certain executive officers of Argyle, including Messrs.
Marbut, Morales, Hawks and Blythe, and the other employees of Argyle prior to
the Effective Time) will be eligible to participate in these new defined
benefit plans. Argyle and Hearst currently are discussing the possibility of a
transfer from Hearst to Hearst-Argyle of a certain amount of pension plan
assets in excess of the obligations that will exist at the time of
establishment of the new Hearst-Argyle defined benefit plans. If such a
transaction were agreed upon and completed, Hearst-Argyle would issue Hearst
additional shares of Hearst-Argyle Series B Common Stock, and the transfer of
the surplus pension assets would reduce future expense associated with the new
Hearst-Argyle defined benefit plans. See "Management of Hearst-Argyle After
the Merger."
Indemnification; Directors and Officers Insurance. The Merger Agreement
provides that until the sixth anniversary of the Effective Time, Hearst-Argyle
will maintain in effect provisions in its charter and bylaws regarding
indemnification of officers and directors that are no less favorable than
Argyle's current provisions. The Merger Agreement further provides that
Hearst-Argyle will cause to be maintained for a period of six years following
the Effective Time Argyle's current directors' and officers' liability
insurance (or policies of at least equal coverages and amounts) to the extent
that it provides coverage for events occurring prior to or at the Effective
Time, provided that Hearst-Argyle will not be required to expend more than
200% of the aggregate premiums paid by Argyle and its subsidiaries in 1997 to
procure such insurance. See "The Merger Agreement--Certain Covenants."
Registration Rights Agreement. Upon consummation of the Hearst Transaction,
Hearst-Argyle will enter into a Registration Rights Agreement with the ATI
Holders. The Registration Rights Agreement provides that such ATI Holders will
have the right, subject to certain limitations and conditions, to require
Hearst-Argyle to register for distribution through a firm commitment
underwriting all or any portion of Hearst-Argyle Series A Common Stock issued
to them in the Merger. In addition, the ATI Holders also will have piggyback
registration right with respect to any proposed offering of Hearst-Argyle
Series A Common Stock for cash through a firm commitment underwriting sought
by Hearst-Argyle. See "The Merger Agreement--Registration Rights Agreement."
Hearst Retransmission Consent Agreements. Pursuant to the Cable Television
Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"),
broadcast television stations have the right to elect whether or not to
mandate carriage of their respective signals by local cable television systems
on a "must carry" basis or to authorize the retransmission of their respective
signals on a license or contractual basis. Under the 1992 Cable Act, initial
elections were required to be made by October 1993. In general, the Hearst
Broadcast Group stations elected to authorize carriage of their respective
signals on a "retransmission consent" basis. In 1993, ESPN, Inc., an entity
owned 20% by Hearst and 80% by ABC, was authorized by Hearst to negotiate
retransmission consent agreements for the Hearst Broadcast Group stations with
cable television system operators who had committed to carry the ESPN 2
program service. In general, the term of the retransmission consent agreements
was a period of six years (expiring in 1999). In most instances, the Hearst
Broadcast Group reaffirmed its retransmission consent elections (and these
agreements) in 1996, as it was required to do under the 1992 Cable Act.
Additionally, and in part because of industry concerns with respect to a
possible decision of the Supreme Court on the constitutionality of the 1992
Cable Act's must carry rules, in 1996 the Hearst Broadcast Group also
authorized ESPN, Inc. to negotiate three-year extensions (through 2002) to the
retransmission consent agreements with cable operators in connection with ESPN
2 and a new ESPN News program service. Those extension efforts remain underway
but have not been completed as of the date of this Proxy Statement/Prospectus.
The Hearst Broadcast Group's retransmission consent agreements also contain
provisions that make the agreements applicable to stations acquired by Hearst
subsequent to the effective date of those agreements.
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Therefore, those provisions will make the Hearst Broadcast Group's
retransmission consent agreements applicable to all of Hearst-Argyle's
Stations subsequent to the Merger (subject to any conflicting retransmission
consent agreements or must-carry elections that have been entered into or made
by Argyle in accordance with the 1992 Cable Act with respect to its broadcast
stations).
Related Agreements. As conditions under the Merger Agreement, Hearst and
Hearst-Argyle will enter into a series of agreements with each other,
including the Management Agreement (whereby Hearst-Argyle will provide certain
management services, such as sales, news, programming and financial and
accounting management services, with respect to certain Hearst owned or
operated television and radio stations), the Television Station Option
Agreement (whereby Hearst will grant Hearst-Argyle an option to acquire
certain Hearst owned or operated television stations as well as a right of
first refusal with respect to another television station if Hearst proposes to
sell such station within 36 months of its acquisition), the Radio Facilities
Lease (whereby Hearst will lease from Hearst-Argyle certain premises for
Hearst's radio broadcast stations), the Tax Sharing Agreement (whereby Hearst
and Hearst-Argyle establish the sharing of federal, state and local taxes
after Hearst-Argyle becomes part of the consolidated tax return of Hearst) and
the Name License Agreement (whereby Hearst permits Hearst-Argyle to use the
Hearst name in connection with the Hearst-Argyle name and operation of its
business). In addition, it is expected that Hearst and Hearst-Argyle will
enter into a Services Agreement (whereby Hearst will provide Hearst-Argyle
certain administrative services such as accounting, financial, legal, tax,
insurance, data processing and employee benefits). The complete terms of
certain of these agreements have not yet been finalized. See "Risk Factors--
Control by Majority Stockholder; Competitive and Operations Impact; Conflicts
of Interest," "Hearst Transaction Proposal--Interests of Certain Persons in
the Hearst Transaction: Affiliate Transactions" and "The Merger Agreement--
Conditions to the Merger."
Certain Transactions Between Hearst and The Hearst Broadcast Group. Hearst
currently provides certain management services to the Hearst Broadcast Group,
including data processing, legal, tax, treasury, internal audit, risk
management and other support services. In connection with these services, the
Hearst Broadcast Group is allocated expenses related to these services based
on Hearst's estimate of expenses. Although these allocations are believed by
Hearst to be made on a reasonable basis, such allocations are not necessarily
indicative of the level of expenses that might have been incurred for these
services directly with third parties. In 1996, these allocated expenses
totaled $1,875,073. In addition, approximately $6,203,320 of compensation
costs, although paid by Hearst, were charged to the Hearst Broadcast Group for
1996. Also, Hearst allocated interest expense to the Hearst Broadcast Group in
the amount of $21,234,985 in 1996, which was based on the average balance due
to Hearst and its affiliates' account at an interest rate of 8% per annum.
Following the Merger, it is expected that Hearst will provide Hearst-Argyle
with certain administrative services such as accounting, financial, tax, legal
insurance, data processing and employee benefits pursuant to the Services
Agreement, the terms of which have not yet been finalized. Although Argyle and
Hearst believe that the terms, once finalized, will be reasonable to both
sides, there can be no assurance that more favorable terms would not be
available from third parties as applicable. On a pro forma basis, corporate
general and administrative expenses for Hearst-Argyle would have been $11
million for the year ended December 31, 1996. See "Unaudited Pro Forma
Combined Condensed Financial Statements."
ACCOUNTING TREATMENT
For accounting purposes, the Hearst Transaction is viewed as an acquisition
of Argyle by Hearst with a simultaneous transfer of the Hearst Broadcast Group
to Argyle. Accordingly, for accounting purposes, the net assets of Argyle will
be adjusted to the extent acquired by Hearst to their estimated fair values;
the capital structure of Hearst-Argyle will be adjusted to reflect its
anticipated capital structure; and additional paid-in capital of Hearst-Argyle
will be adjusted for the difference. The net assets of the Hearst Broadcast
Group will be reflected at their historical cost basis.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General. The following discussion summarizes certain federal income tax
consequences of the Hearst Transaction. The discussion herein is based upon
the Code, applicable Treasury Regulations promulgated
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thereunder, reported judicial decisions and IRS rulings and pronouncements,
all as of the date hereof, all of which are subject to change with retroactive
effect. There can be no assurance that the legal authorities on which this
discussion is based will not change, perhaps retroactively, in a manner that
would affect this discussion. Accordingly, there can be no assurance that the
IRS will not challenge the conclusions drawn in this discussion, and no
assurance as to the resolution of any such challenge.
Locke Purnell Rain Harrell (A Professional Corporation), counsel for Argyle,
has delivered an opinion that the description of the federal income tax
consequences of the Hearst Transaction to holders of Argyle Common Stock
contained under this heading "Certain Federal Income Tax Consequences" of this
Proxy Statement/Prospectus correctly sets forth the material federal income
tax consequences of the Hearst Transaction for such holders. This opinion is
based upon, among other things, representation letters provided to counsel
containing customary representations.
No rulings have been or will be requested from the IRS with respect to any
of the matters discussed herein, and the description below and the opinion of
Locke Purnell Rain Harrell (A Professional Corporation) described above is not
binding on the IRS.
It is not possible to discuss all aspects of federal income tax law that may
have relevance with respect to the Hearst Transaction based on the individual
circumstances of the holders of Argyle Common Stock. The following discussion
does not address, and no representations are made as to, foreign, state or
local tax consequences, special classes of taxpayers (including, but not
limited to, S corporations, mutual funds, insurance companies, financial
institutions, small business investment companies, foreign companies,
nonresident alien individuals, regulated investment companies, broker-dealers,
tax-exempt organizations and holders who acquired their Argyle Common Stock
pursuant to the exercise of employee stock options or otherwise as
compensation), or estate and gift tax issues. The following discussion does
not address, and no representations are made or opinions given as to, the
consequences to the holders of the Argyle Options of the Rollover Election,
the Option Cash Election, the Option Stock Election or the Option Mixed
Election (as described in "The Merger Agreement--Merger Consideration and
Conversion of Shares"). THIS FEDERAL INCOME TAX DISCUSSION MAY NOT APPLY TO
ALL HOLDERS OF ARGYLE COMMON STOCK. ACCORDINGLY, THIS DISCUSSION IS NOT
INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING, AND THE HOLDERS OF ARGYLE
COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH SPECIFIC
REFERENCE TO THEIR OWN TAX SITUATION REGARDING THE TAX CONSEQUENCES OF THE
HEARST TRANSACTION, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE,
LOCAL AND OTHER TAX LAWS, AND OF POTENTIAL CHANGES IN THE APPLICABLE TAX LAWS.
Certain Federal Income Tax Consequences to Hearst-Argyle. Hearst-Argyle will
not recognize gain or loss as a result of the Hearst Transaction. The Hearst
Transaction will, however, cause Argyle to experience an "ownership change"
within the meaning of Section 382 of the Code. Accordingly, the ability of
Hearst-Argyle after the Effective Time to offset the net operating loss
carryforwards of Argyle against income generated in the future by Hearst-
Argyle will be subject to limitations described in Section 382 of the Code.
Hearst-Argyle believes that such limitations will not have a material adverse
impact on Hearst-Argyle. Pursuant to the Hearst Transaction, each Argyle
Option will be cancelled and each holder of an Argyle Option (other than
certain management holders) will be entitled to make a Rollover Election, an
Option Cash Election, an Option Stock Election or an Option-Mixed Election.
Hearst-Argyle generally will be entitled to a deduction for federal income tax
purposes with respect to those holders of a compensatory Argyle Option who do
not make a Rollover Election but who instead receive cash or stock for such
compensatory Argyle Option.
The Merger--Argyle Common Stock. The Merger Agreement requires Hearst-Argyle
to report the Merger for federal income tax purposes as a redemption of shares
under the provisions of Section 302 of the Code with respect to those
stockholders of Argyle who receive cash pursuant to the Merger. Such action,
however, is not binding on the IRS or any court and accordingly there can be
no assurance that the IRS will not assert that the Hearst Transaction instead
should be treated as a reorganization for federal income tax purposes. See
"Certain
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Federal Income Tax Consequences--Possible Alternative Treatment" for a summary
of certain tax consequences of treatment of the Hearst Transaction as a
reorganization for federal income tax purposes. The following discussion in
this "Certain Federal Income Tax Consequence--The Merger--Argyle Common Stock"
describes certain tax consequences to those holders of Argyle Common Stock who
receive cash treated as a redemption as a result of the Merger. Locke Purnell
Rain Harrell (A Professional Corporation), counsel to Argyle, is not rendering
an opinion that holders of Argyle Common Stock who receive cash will be
treated as receiving such cash as a redemption instead of as a reorganization
because of the factual nature of the issue.
Stock Election. A holder of Argyle Common Stock who makes the Stock Election
--------------
and receives solely Hearst-Argyle Series A Common Stock as a result of the
Merger will not recognize gain or loss on the transaction. Such holder's tax
basis in the Hearst-Argyle Series A Common Stock will equal such holder's tax
basis in the Argyle Common Stock surrendered. A holder of Argyle Common Stock
who is considering making a Stock Election should note that there can be no
assurance that such holder will receive only Hearst-Argyle Series A Common
Stock because of the possibility of the application of the Limitations and
Allocation Prorations described under "The Merger Agreement--Merger
Consideration and Conversion of Shares." In the event that a holder of Argyle
Common Stock making a Stock Election with respect to all shares of Argyle
Common Stock owned by such holder receives some cash, the receipt of the cash
in exchange for a portion of such holder's shares of Argyle Common Stock
should be treated as a redemption for federal income tax purposes. Under
Section 302 of the Code, if such redemption is (i) "not essentially equivalent
to a dividend" with respect to such holder or (ii) results in a substantially
disproportionate redemption of such holder's equity interest in Hearst-Argyle,
then the cash received by such holder will be treated as having been received
in exchange for a portion of such holder's shares of Argyle Common Stock
redeemed. Such a holder would recognize gain or loss in an amount equal to the
difference between the tax basis of the shares of Argyle Common Stock redeemed
and the amount of cash received therefor. Such gain or loss will constitute
capital gain or loss, provided the shares were held as capital assets. Such
capital gain or loss will constitute long-term capital gain or loss if the
Argyle Common Stock has been held by the holder for more than one year at the
Effective Time. A holder who receives both cash and Hearst-Argyle Series A
Common Stock will have a tax basis in such Hearst-Argyle Series A Common Stock
equal to its tax basis in such holder's Argyle Common Stock reduced by such
holder's tax basis in such holder's Argyle Common Stock redeemed.
In applying these redemption tests to a holder of shares of Argyle Common
Stock who receives a combination of shares of Hearst-Argyle Series A Common
Stock and cash in the Merger, certain constructive ownership rules of the Code
apply to determine stock ownership. The redemption will be "substantially
disproportionate" with respect to a holder if the percentage of outstanding
shares of Hearst-Argyle Series A Common Stock owned by such holder immediately
after the redemption is less than 80% of the percentage of the outstanding
shares of Series A Common Stock owned by such holder immediately before the
redemption. If the redemption from a holder fails to satisfy the
"substantially disproportionate" test, such holder may nonetheless satisfy the
"not essentially equivalent to a dividend" test. A distribution to a holder
will not be "essentially equivalent to a dividend" if it results in a
"meaningful reduction" in such holder's stock interest in Hearst-Argyle. The
IRS has ruled that if a minority stockholder in a publicly held corporation
whose relative stock interest is minimal and who exercises no control over the
corporation's affairs suffers a minimal reduction in the percentage of stock
owned by such stockholder, such stockholder will avoid dividend treatment. For
purposes of determining such percentage, the constructive ownership rules
apply. If a holder of Argyle Common Stock owns (actually or constructively) an
insubstantial percentage of the stock of Argyle, then such stockholder is
likely to qualify for exchange treatment because the redemption would not be
"essentially equivalent to a dividend."
If none of the tests under Section 302 of the Code giving rise to exchange
treatment is satisfied in respect of the redemption with respect to a holder
of Argyle Common Stock, such holder of Argyle Common Stock who receives
Hearst-Argyle Series A Common Stock and cash will be treated with respect to
the receipt of the cash as receiving a distribution, the tax consequences of
which are determined under Section 301(c) of the Code. Section 301(c) provides
that a distribution of cash by a corporation to a shareholder with respect to
its stock shall be treated as (i) a taxable dividend to the extent of the
corporation's current and accumulated earnings and
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<PAGE>
profits; (ii) a return of the shareholder's tax basis in the shares, to the
extent the distribution exceeds Hearst-Argyle's current and accumulated
earnings and profits; and, (iii) capital gain, to the extent of the remainder,
if any, of the distribution.
Mixed Election. A holder of Argyle Common Stock who makes the Mixed Election
--------------
with respect to all shares of Argyle Common Stock owned by such holder is
certain to receive consideration consisting of at least 50% cash in exchange
for its Argyle Common Stock. Consequently, such holder will have the same
federal income tax consequences as described above with respect to a holder
who makes the Stock Election, but receives a combination of Hearst-Argyle
Series A Common Stock and cash due to the Limitations and Allocation
Prorations.
Cash Election. Subject to application of the constructive ownership rules of
-------------
the Code, a holder of Argyle Common Stock who makes the Cash Election with
respect to all shares of Argyle Common Stock owned by such holder and receives
solely cash and a holder who exercises dissenters' rights under Section 262 of
the DGCL will completely terminate such holder's interest in Hearst-Argyle.
Consequently, the redemption will qualify for sale or exchange treatment under
Section 302(b)(3) of the Code, and such holder will recognize gain or loss
equal to the difference between the tax basis of such holder's Argyle Common
Stock and the amount of cash received therefor. Such gain or loss will
constitute capital gain or loss, provided the shares were held as capital
assets. Such capital gain or loss will constitute long-term capital gain or
loss if the Argyle Common Stock has been held by the holders for more than one
year at the Effective Time.
A holder of Argyle Common Stock who is considering making the Cash Election
with respect to all shares of Argyle Common Stock owned by such holder should
note that there can be no assurance that such holder will receive solely cash
because of the possibility of the application of the Limitations and
Allocation Prorations described under "The Merger Agreement--Merger
Consideration and Conversion of Shares." In the event that a holder of Argyle
Common Stock making a Cash Election receives some Hearst-Argyle Series A
Common Stock, then such holder will have the same federal income tax
consequences as described above with respect to a holder who makes the Stock
Election, but receives a combination of Hearst-Argyle Series A Common Stock
and cash due to the Limitations and Allocation Prorations.
Multiple Elections. A holder of Argyle Common Stock who makes different
------------------
elections with respect to different blocks of Argyle Common Stock will receive
some cash and some Hearst-Argyle Series A Common Stock in exchange for its
Argyle Common Stock. Such holder will have the same tax consequences described
above with respect to a holder who makes the Stock Election, but receives a
combination of Hearst-Argyle Series A Common Stock and cash due to the
Limitations and Allocation Prorations.
Cash in Lieu of Fractional Shares. A holder of Argyle Common Stock who
---------------------------------
receives cash in lieu of fractional shares of Hearst-Argyle Series A Common
Stock will be treated as having such fractional shares redeemed for cash by
Argyle. Any gain or loss attributable to fractional shares generally will
constitute capital gain or loss, provided the shares are held as capital
assets. The amount of such gain or loss will be equal to the difference
between the ratable portion of the tax basis of the Argyle Common Stock
surrendered in the Merger that is allocated to such fractional shares and the
cash received in lieu thereof. Any such capital gain or loss will constitute
long-term capital gain or loss if the Argyle Common Stock has been held by the
holder for more than one year at the Effective Time.
Possible Alternative Treatment. There can be no assurance that the IRS will
not assert that the Hearst Transaction should be treated as the holders of
Argyle Common Stock receiving cash and Hearst-Argyle Series A Common Stock
pursuant to a reorganization. If the IRS were successful in such an assertion,
those shareholders receiving some cash and some Hearst-Argyle Series A Common
Stock pursuant to the Merger generally would recognize more gain in the case
of a holder who would otherwise recognize gain on the redemption. In addition,
a holder who would otherwise recognize loss on the receipt of some cash and
some Hearst-Argyle Series A Common Stock would be precluded from recognizing
such loss for federal income tax purposes. The following paragraphs summarize
the federal income tax consequences to a holder of Argyle Common Stock if the
Hearst Transaction was treated as a reorganization.
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<PAGE>
A holder of Argyle Common Stock who receives solely Hearst-Argyle Series A
Common Stock and a holder of Argyle Common Stock who receives solely cash in
exchange for its Argyle Common Stock would have the same tax treatment as
described above in "Certain Federal Income Tax Consequences--The Merger--
Argyle Common Stock." A holder of Argyle Common Stock who receives a
combination of Hearst-Argyle Series A Common Stock and cash in exchange for
the Argyle Common Stock would recognize all or a portion of the gain realized
in the transaction but would not recognize any loss realized in the
transaction. The amount of gain recognized by such a holder would equal the
lesser of (i) the amount of gain realized in respect to such exchange (i.e.,
the excess of (a) the sum of the amount of cash and the fair market value of
Hearst-Argyle Series A Common Stock received by such holder over (b) the tax
basis of such holder in the Argyle Common Stock) and (ii) the amount of cash
received by such holder. Such gain would constitute capital gain, provided
that the shares were held as capital assets and the receipt of such cash is
not "essesntially equivalent to a dividend" as described above. Such capital
gain would constitute long-term capital gain if the Argyle Common Stock has
been held by the holder for more than one year at the Effective Time. A
holder's tax basis in the Hearst-Argyle Series A Common Stock received in
exchange for Argyle Common Stock would equal such holder's tax basis in the
Argyle Common Stock, decreased by the amount of cash received with respect to
such stock and increased by the amount of gain recognized in respect of such
stock.
The discussion above concerning the receipt of cash in lieu of fractional
shares is also applicable to cash received in a reorganization in lieu of
fractional shares. If the transaction is viewed as a reorganization, each
holder of Argyle Common Stock that receives Hearst-Argyle Series A Common
Stock in the Merger would be required to retain records and file a statement
setting forth certain facts relating to the Merger with the holder's federal
income tax return.
Treatment of Partners of Certain Partnerships. Argyle has been advised that
ATILP (on its behalf and on the behalf of Argyle Television Investors
(Foreign), L.P. ("ATI (Foreign)")), Television Investment Partners, L.P.
("TIP"), ATI General Partner, L.P. ("ATIGP") and, Argyle Television Partners,
L.P. ("ATP") (collectively, the "Partnerships") adopted plans of liquidation
on March 25, 1997. Argyle has been advised that the Partnerships will
liquidate as soon as possible and the Argyle Common Stock each Partnership
holds will be distributed to its partners at that time. Each partner will be
entitled to make its own Election with respect to the Argyle Common Stock it
receives pursuant to the liquidation of the Partnerships. The Partnerships
have advised Argyle that they will not make an Election on behalf of their
partners.
The tax consequences of the Merger described above in "Certain Federal
Income Tax Considerations--The Merger--Argyle Common Stock" should be applied
at the partner level as opposed to the level of the Partnerships. There can be
no assurance, however, that the IRS will not assert that the consequences of
the Merger are determined at the level of the Partnerships. If the IRS
successfully asserted this position, certain Partnerships would be treated as
if they received cash and Hearst-Argyle Series A Common Stock based on the
aggregate elections of their partners. The taxable gain at the level of the
Partnerships would be allocated to all partners pursuant to the terms of the
partnership agreements, including those partners who made the Stock Election
and received only stock and no cash. Under this position, certain partners
would be allocated gain in excess of their gain if the tax consequences were
applied at the partner level, while other partners would be allocated less
gain than their gain if the tax consequences were applied at the partner
level. This position may result in certain partners being allocated gain in
excess of the cash received.
Possible Legislation. President Clinton and Congress have announced a
balanced budget plan that includes proposals for certain tax cuts. The plan
lists a reduction in capital gains taxes as one of the tax cuts expected to be
in a final bill. Both the House of Representatives and the Senate have passed
bills that would reduce the maximum tax rate applicable to capital gains
recognized by individuals for transactions occurring on or after May 7, 1997.
REGULATORY APPROVALS
FCC Regulation of Broadcast Stations; FCC Approval Process. Television
broadcast stations are subject to the jurisdiction of the FCC under the
Communications Act. The Communications Act prohibits the operation
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<PAGE>
of television broadcast stations except under licenses issued by the FCC. The
Communications Act further prohibits the assignment of a television broadcast
station license or the transfer of control of a television broadcast station
licensee without the prior approval of the FCC. Hearst holds licenses for,
among other things, the six television broadcast stations included in the
Hearst Broadcast Group, which licenses will be assigned to Argyle as part of
the Contribution. In addition, the Hearst Transaction will result in a
transfer of control of the licenses held by Argyle (through its subsidiaries)
for its television stations. As a result, the prior approval of the FCC is
necessary before the Hearst Transaction may be consummated. On July 15, 1997,
the FCC granted its approval of the Hearst Transaction.
Following the grant of FCC approval with respect to such a transfer, the
transaction may be consummated by the parties. Any "person who is aggrieved or
whose interests are adversely affected" (as such terms are defined in Section
402(b) of the Communications Act) may appeal the FCC's approval of the
transfer to the United States Court of Appeals for the District of Columbia
Circuit. In addition, under certain circumstances, the FCC may reconsider such
approval at the request of a third party or on its own motion. In the event
the parties to the proposed transfer determine to consummate the transaction
prior to the deadline for the filing of an appeal, or for reconsideration by
the FCC on its own motion or prior to the completion of any FCC or judicial
review proceedings, they assume the risk that the FCC's approval could be
reversed or modified by the FCC or a reviewing court.
Television Duopoly Rule. The FCC's rules include "multiple ownership rules"
that impose a variety of restrictions on the common ownership or control of
interests in television and radio broadcast stations, cable television systems
and English language daily newspapers. If an acquisition will result in an
acquiror having television broadcast holdings that conflict with applicable
ownership limits, the FCC may, in certain cases, grant permanent waivers of
the relevant rule or, alternatively, grant temporary waivers in order to
afford the acquiror a reasonable period of time following the consummation of
the acquisition to come into compliance with applicable laws and regulations
through the disposition of properties or otherwise. Because of the broadcast
signal contour overlap of (i) Argyle's WNAC and Hearst's WCVB and (ii)
Argyle's WLWT and Hearst's WDTN, the FCC's "television duopoly rule" (which
generally proscribes the common ownership of two or more television stations
with overlapping signal contours) would prohibit common ownership of these
stations. A six-month temporary waiver of the rule was requested to permit the
orderly divesture of WDTN and WNAC, and the FCC granted a six-month temporary
waiver in connection with its July 15, 1997 approval of the Hearst
Transaction. A letter of intent has been signed for the divestiture of WNAC,
and Argyle and Hearst currently are in negotiations with a third party for the
divestiture of WDTN.
Antitrust. Under the HSR Act and the rules promulgated thereunder by the
FTC, the Hearst Transaction may not be consummated until notifications have
been given and certain information has been furnished to the Antitrust
Division and the FTC and specified waiting period requirements have been
satisfied. Argyle and Hearst each filed with the Antitrust Division and the
FTC a Notification and Report Form with respect to the Hearst Transaction on
April 29, 1997. Early termination of the initial waiting period for each of
these filings was granted on May 9, 1997.
If, based upon the Elections and prorations, an Argyle stockholder receives
more than $15 million of shares of Hearst-Argyle Series A Common Stock in the
Merger, it may be necessary for that Argyle stockholder to file a Notification
and Report Form with the Antitrust Division and the FTC.
LISTING OF HEARST-ARGYLE SERIES A COMMON STOCK
An application has been made for quotation of the Hearst-Argyle Series A
Common Stock on the Nasdaq National Market under the symbol "HATV" upon
consummation of the Hearst Transaction.
CERTAIN FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of Hearst-Argyle Series A Common Stock issued to Argyle
stockholders in the Merger will be freely transferable, except that shares of
Hearst-Argyle Series A Common Stock issued to persons who are
49
<PAGE>
deemed to be "affiliates" (as such term is defined under the Securities Act)
of Argyle at the time of the Stockholders Meeting may be resold by them only
pursuant to an effective registration statement covering such securities, in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144 promulgated under the Securities Act) or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of Argyle generally include individuals or entities that control,
are controlled by, or are under common control with, such person and may
include certain officers and directors of such person as well as principal
stockholders of such person. The Merger Agreement requires Argyle to use
reasonable efforts to deliver or cause to be delivered to Hearst, prior to the
Closing Date, from each person identified by Argyle as an affiliate, a letter
agreement to the effect that such person will not offer or sell or otherwise
dispose of any of the shares of Hearst-Argyle Series A Common Stock issued to
such person in the Merger in violation of the Securities Act or the rules and
regulations promulgated by the Commission thereunder. See "The Merger
Agreement--Certain Covenants" and "The Merger Agreement--Registration Rights
Agreement."
DISSENTERS' RIGHTS
If the Merger is consummated, a holder of record of Argyle Common Stock,
Series A Preferred Stock or Series B Preferred Stock (such Series A Preferred
Stock and Series B Preferred Stock collectively, the "Preferred Stock") on the
date of making a demand for appraisal, as described below, who (i) continues
to hold such shares through the Effective Time; (ii) strictly complies with
the procedures set forth under Section 262 of the DGCL; and, (iii) has not
voted in favor of the Merger, will be entitled to have such shares appraised
by the Delaware Court of Chancery under Section 262 and to receive payment for
the "fair value" of such shares in lieu of the consideration provided for in
the Merger Agreement. This Proxy Statement/Prospectus is being sent to all
holders of record of Argyle Common Stock on the Record Date and constitutes
notice of the appraisal rights available to such holders under Section 262.
THE STATUTORY RIGHT OF APPRAISAL GRANTED BY SECTION 262 REQUIRES STRICT
COMPLIANCE WITH THE PROCEDURES SET FORTH IN SECTION 262. FAILURE TO FOLLOW ANY
OF SUCH PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER OF DISSENTERS' RIGHTS
UNDER SECTION 262. The following is a summary of certain of the provisions of
Section 262 and is qualified in its entirety by reference to the full text of
Section 262, a copy of which is attached to this Proxy Statement/Prospectus as
Appendix D.
A holder of Argyle Common Stock or Preferred Stock electing to exercise
appraisal rights under Section 262 must deliver a written demand for appraisal
of such stockholder's shares to Argyle prior to the vote on the Hearst
Transaction. Such a written demand must identify the stockholder of record and
state such stockholder's intention to demand appraisal of his shares. All such
demands should be delivered to Argyle Television, Inc., Attention: Dean H.
Blythe, Vice President-Corporate Development, Secretary and General Counsel,
200 Concord Plaza, Suite 700, San Antonio, Texas 78216.
Only a holder of shares of Argyle Common Stock or Preferred Stock on the
date of making such written demand for appraisal who continuously holds such
shares through the Effective Time is entitled to seek appraisal. Demand for
appraisal must be executed by or for the holder of record, fully and
correctly, as such holder's name appears on the holder's stock certificates
representing shares of Argyle Common Stock or Preferred Stock. If Argyle
Common Stock or Preferred Stock is owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, the demand should be made in that
capacity, and if Argyle Common Stock or Preferred Stock is owned of record by
more than one person, as in a joint tenancy or tenancy in common, the demand
should be made by or for all owners of record. An authorized agent, including
one or more joint owners, may execute the demand for appraisal for a holder of
record; such agent, however, must identify the record owner or owners and
expressly disclose in such demand that the agent is acting as agent for the
record owner or owners of such shares.
A record holder such as a broker who holds shares of Argyle Common Stock or
Preferred Stock as a nominee for beneficial owners, some of whom desire to
demand appraisal, must exercise appraisal rights on behalf of such beneficial
owners with respect to the shares of Argyle Common Stock or Preferred Stock
held for such beneficial owners. In such case, the written demand for
appraisal should set forth the number of shares of
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Argyle Common Stock or Preferred Stock covered by it. Unless a demand for
appraisal specifies a number of shares, such demand will be presumed to cover
all shares of Argyle Common Stock or Preferred Stock held in the name of such
record owner.
BENEFICIAL OWNERS WHO ARE NOT RECORD OWNERS AND WHO INTEND TO EXERCISE
APPRAISAL RIGHTS SHOULD INSTRUCT THE RECORD OWNER TO COMPLY WITH THE STATUTORY
REQUIREMENTS WITH RESPECT TO THE EXERCISE OF APPRAISAL RIGHTS BEFORE THE DATE
OF THE STOCKHOLDERS MEETING.
Within 10 days after the Effective Time, Argyle is required to send notice
of the effectiveness of the Merger to each stockholder who prior to the
Effective Time complied with the requirements of Section 262.
Within 120 days after the Effective Time, Argyle or any stockholder who has
complied with the requirements of Section 262 may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
shares of Argyle Common Stock or Preferred Stock held by all stockholders
seeking appraisal. A dissenting stockholder must serve a copy of such petition
on Argyle. If no petition is filed by either Argyle or any dissenting
stockholders within such 120-day period, the rights of all dissenting
stockholders to appraisal shall cease. Stockholders seeking to exercise
appraisal rights should not assume that Argyle will file a petition with
respect to the appraisal of the fair value of their shares or that Argyle will
initiate any negotiations with respect to the fair value of such shares.
Argyle is under no obligation to and has no present intention to take any
action in this regard. Accordingly, stockholders who wish to seek appraisal of
their shares should initiate all necessary action with respect to the
perfection of their appraisal rights within the time periods and in the manner
prescribed in Section 262. FAILURE TO FILE THE PETITION ON A TIMELY BASIS WILL
CAUSE THE STOCKHOLDER'S RIGHT TO AN APPRAISAL TO CEASE.
Within 120 days after the Effective Time, any stockholder who has complied
with subsections (a) and (d) of Section 262 is entitled, upon written request,
to receive from Argyle a statement setting forth the aggregate number of
shares of Argyle Common Stock not voted in favor of the Merger with respect to
which demands for appraisal have been received by Argyle and the number of
holders of such shares. Such statement must be mailed within 10 days after the
written request therefor has been received by Argyle or within 10 days after
expiration of the time for delivery of demands for appraisal under subsection
(d) of Section 262, whichever is later.
If a petition for an appraisal is filed in a timely manner, at the hearing
on such petition, the Delaware Court of Chancery will determine which
stockholders are entitled to appraisal rights and will appraise the shares of
Argyle Common Stock or Preferred Stock owned by such stockholders, determining
the fair value of such shares, exclusive of any element of value arising from
the accomplishment or expectation of the Hearst Transaction, together with a
fair rate of interest, to be paid, if any, upon the amount determined to be
the fair value. In determining fair value, the court is to take into account
all relevant factors. The Delaware Supreme Court has stated that "proof of
value by any techniques or methods which are generally considered acceptable
in the financial community and otherwise admissible in court" should be
considered in the appraisal proceedings. The Delaware Supreme Court has stated
that, in making this determination of fair value, the court must consider
market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts that were known or that could be ascertained as
of the date of the merger that throw any light on future prospects of the
merged corporation. The Delaware Supreme Court also held that "elements of
future value, including the nature of the enterprise, which are known or
susceptible of proof as of the date of the merger and not the product of
speculation, may be considered." In addition, Delaware courts have decided
that the statutory appraisal remedy, depending on factual circumstances, may
or may not be a dissenter's exclusive remedy.
Stockholders considering seeking appraisal should consider that the fair
value of their shares determined under Section 262 could be more, the same or
less than the value of the Merger Consideration without the exercise of
appraisal rights, and that investment banking opinions as to fairness from a
financial point of view are not necessarily opinions as to fair value as
determined under Section 262. The cost of the appraisal proceeding may be
determined by the Court of Chancery and assessed against the parties as the
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder, the court may order that all or a portion of the expenses
incurred by any dissenting stockholder in connection with the appraisal
proceeding
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(including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts) be charged pro rata against the value of all shares of
Argyle Common Stock or Preferred Stock entitled to appraisal. In the absence
of such a determination or assessment, each party bears its own expenses.
Any stockholder who has fully demanded appraisal in compliance with Section
262 will not, after the Effective Time, be entitled to receive payment of
dividends or other distributions on the Argyle Common Stock or Preferred
Stock, except for dividends or distributions payable to stockholders of record
at a date prior to the Effective Time. Argyle has no intention of declaring or
paying any dividends on the Argyle Common Stock prior to the consummation of
the Hearst Transaction.
A stockholder may withdraw a demand for appraisal and accept the Merger
Consideration at any time within 60 days after the Effective Time, or
thereafter may withdraw such demand with the written approval of Argyle. In
the event an appraisal proceeding is properly instituted, such proceeding may
not be dismissed as to any stockholder without the approval of the Delaware
Court of Chancery, and any such approval may be conditioned on the terms the
Court of Chancery deems just. If, after the Effective Time, a holder of Argyle
Common Stock or Preferred Stock who had demanded appraisal for such shares
fails to perfect or loses his right to appraisal, such shares will be treated
under the Merger Agreement as if they had been converted as of the Effective
Time into the applicable Merger Consideration. The expiration of the period
for execution and perfection of a stockholder's appraisal rights is a
condition to the closing of the Hearst Transaction. It is a condition to the
closing of the Hearst Transaction that the period for execution and perfection
of stockholders' appraisal rights shall have expired and that such appraisal
rights shall have been exercised and perfected by not more than 5% of the
outstanding shares of Argyle Common Stock (including Argyle's Preferred Stock
on an as converted basis). See "The Merger Agreement--Conditions to the
Merger."
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF DELAWARE LAW, ANY
STOCKHOLDER WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS SHOULD CONSULT A
LEGAL ADVISOR.
FINANCING THE HEARST TRANSACTION
Overview. To complete the Hearst Transaction, Argyle is required to obtain
approximately $704.5 million of financing for the following purposes:
. Approximately $46 million to refinance outstanding balances under
Argyle's Existing Credit Facility with Chase (see "Argyle's Existing
Indebtedness" below);
. $151.5 million to refinance Argyle's Senior Subordinated Notes, at a 1%
premium, in the event that the holders of such notes exercise their
right to put the Senior Subordinated Notes to Argyle under the change of
control provisions of the indenture governing such Senior Subordinated
Notes;
. $200 million to refinance the Bridge Debt to be assumed by Hearst-Argyle
in the Contribution;
. $275 million, plus the make-whole premium, in the event the Private
Placement Debt to be assumed by Hearst-Argyle in the Contribution is
refinanced; and,
. Approximately $16 million to pay estimated fees and expenses associated
with the Hearst Transaction.
Argyle has received a financing commitment from Chase to provide a $1
billion credit facility (the "New Credit Facility") for these purposes, with
the excess available for future acquisitions and general corporate purposes.
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The following table sets forth the available sources and an estimate of the
uses of the financing for the Hearst Transaction as of the closing of the
Hearst Transaction:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------
<S> <C> <C>
Available Sources of Funds:
New Credit Facility.............................. $1,000,000
----------
Estimated Use of Funds:
Refinance Existing Credit Facility............... $ 46,000
Refinance Private Placement Debt................. 275,000
Refinance Bridge Debt............................ 200,000
Transaction Fees, Expenses and Make-Whole
Premium......................................... 32,000
--------
553,000
--------
Additional Potential Use of Funds(1):
Refinance Senior Subordinated Notes.............. 150,000
Senior Subordinated Notes
1% Premium...................................... 1,500
--------
151,500
--------
Total Uses of Funds................................ 704,500
Cash............................................... (40,000)(2)
----------
Total (Less Repayment of Excess Cash)............ 664,500
----------
Remaining Availability for Future Acquisitions and
General Corporate Purposes........................ $ 335,500
==========
</TABLE>
- --------
(1) This table assumes that the holders of Argyle's Senior Subordinated Notes
accept the offer to repurchase the notes comprising this debt, which offer
Argyle will be required to make as a result of the Hearst Transaction. The
Unaudited Pro Forma Combined Condensed Financial Statements and the
Capitalization Table contained elsewhere in this Proxy
Statement/Prospectus do not assume the refinancing of the Senior
Subordinated Notes.
(2) As part of the Contribution, Argyle will receive approximately $200
million in cash from Cash Sub. Assuming the maximum Cash Elections by
Argyle stockholders in the Merger of approximately $160 million, the
remaining cash available to Hearst-Argyle will be approximately $40
million. It currently is anticipated that Hearst-Argyle would reduce
borrowings by any cash remaining following payment of the Cash
Consideration.
Argyle's Existing Indebtedness. Argyle has an Existing Credit Facility with
Chase. As of March 31, 1997, $41.5 million of indebtedness was outstanding
under this credit facility. Argyle estimates that the outstanding balance at
closing will be approximately $46 million. The Existing Credit Facility will
be terminated at the closing of the Hearst Transaction, with the then
outstanding balance to be repaid from borrowings under the New Credit
Facility.
Argyle also currently has outstanding $150 million of Senior Subordinated
Notes. Under the indenture governing the Senior Subordinated Notes, the
closing of the Hearst Transaction will constitute a "change of control" of
Argyle, which will require Argyle to offer to repurchase the Senior
Subordinated Notes for cash at 101% of their principal amount plus accrued and
unpaid interest to the date of repurchase. Argyle must make this offer within
30 days after the closing of the Hearst Transaction. Argyle is unable to
predict whether or not all or any holders of the Senior Subordinated Notes
will accept this repurchase offer.
Bridge Debt. As part of the Contribution, Cash Sub will contribute
approximately $200 million in cash to Argyle, and Argyle will assume the $200
million Bridge Debt incurred by Cash Sub. A condition to the obligations of
Hearst, Merger Sub and Cash Sub under the Merger Agreement is receipt by Cash
Sub of acceptable refinancing of the Bridge Debt and receipt of the proceeds
thereof. The Bridge Debt will be terminated and repaid from (i) cash remaining
from the Contribution after payment of the cash portion of the Merger
Consideration and (ii) borrowings under the New Credit Facility. Assuming
maximum Cash Elections of
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approximately $160 million by Argyle stockholders in the Merger, the cash
remaining from the Contribution that would be used to repay the Bridge Debt
would be approximately $40 million, with the remaining approximately $160
million of the Bridge Debt to be repaid from borrowings under the New Credit
Facility. Assuming minimum Cash Elections of $100 million by Argyle
stockholders in the Merger, the cash remaining from the Contribution that
would be used to repay the Bridge Debt would be $100 million, with the
remaining $100 million of the Bridge Debt to be repaid from borrowings under
the New Credit Facility.
Hearst Private Placement Debt. As part of the Contribution, Argyle is
required to assume $275 million of Hearst Private Placement Debt. Assumption
of the Private Placement Debt is subject to the approval of the holders of
such debt. The holders of the Private Placement Debt are Metropolitan Life
Insurance Company and The Prudential Insurance Company of America. The Private
Placement Debt consists of three series of notes having the following terms:
<TABLE>
<CAPTION>
SERIES AMOUNT INTEREST RATE DUE DATE
------ ------------- ------------- --------
<S> <C> <C> <C>
A....................................... $ 47,500,000 7.87% 12/22/01
B....................................... $ 180,000,000 8.01% 12/22/02
C....................................... $ 47,500,000 8.04% 12/22/03
</TABLE>
At the closing of the Hearst Transaction, Hearst-Argyle would not satisfy
certain of the financial covenants and conditions of the agreements governing
the Private Placement Debt, including the debt to operating cash flow covenant
and the net worth covenant. In addition, Hearst and Argyle have determined
that certain other covenants contained in these agreements would unduly
restrict the future operations of Hearst-Argyle.
Hearst and Argyle are discussing with the holders of the Private Placement
Debt various alternatives, including the terms of an assumption of the Private
Placement Debt by Hearst-Argyle (which assumption would include amending the
covenants and conditions mentioned above) or the repayment of the Private
Placement Debt immediately after the closing of the Hearst Transaction. Under
the terms of the Private Placement Debt, if Hearst-Argyle were to repay this
debt at or after Closing, Hearst-Argyle would also have to pay the holders
thereof a "make-whole" premium. The amount of the make-whole premium is
determined by a formula based on the yield for U.S. Treasury securities having
a maturity equal to the then-remaining maturity of the notes comprising the
Private Placement Debt plus 50 basis points. Generally, the make-whole premium
decreases with the passage of time and an increase in market interest rates,
and increases with a decrease in market interest rates. Based on the yield for
such U.S. Treasury securities as of July 14, 1997, and assuming repayment of
the Private Placement Debt on September 1, 1997, the make-whole premium would
be approximately $16 million.
Neither Hearst nor Argyle is presently able to predict whether or not the
Private Placement Debt will be amended and remain as an outstanding obligation
of Hearst-Argyle (and, if amended, what the terms of the amendment would be)
or whether or not the Private Placement Debt will be repaid at the closing of
the Hearst Transaction. If repaid, funds for repayment of the principal amount
of the Private Placement Debt plus payment of any make-whole premium would be
provided by borrowings under the New Credit Facility.
The Chase Financing Commitment. On June 17, 1997, Argyle and Chase entered
into a commitment letter under which Chase has committed to provide a $1
billion credit facility to Hearst-Argyle. Hearst-Argyle may use proceeds of
borrowings under the New Credit Facility to complete the Hearst Transaction as
described in "--Overview" above, to finance future acquisitions and for
general corporate purposes.
The New Credit Facility will mature on December 31, 2004 (the "Maturity
Date"). On December 31, 1999 (the "Conversion Date"), outstanding principal
indebtedness under the New Credit Facility up to $750 million will be
converted into a five-year term loan (the "Term Loan"). The outstanding
principal balance of the Term Loan on the Conversion Date (the "Initial Term
Loan Balance") is to be repaid in quarterly installments on the following
schedule for the years indicated: 2000--2.5% of the Initial Term Loan Balance
per quarter; 2001--3.75% of the Initial Term Loan Balance per quarter; 2002--
5% of the Initial Term Loan Balance per quarter;
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<PAGE>
2003--6.25% of the Initial Term Loan Balance per quarter; and, 2004--7.5% of
the Initial Term Loan Balance per quarter. On the Conversion Date and through
the Maturity Date, Chase will also provide a $250 million revolving credit
facility (the "Revolving Facility") to Hearst-Argyle.
The New Credit Facility will be unsecured, but Hearst-Argyle will provide a
negative pledge on (or, in other words, will not grant to any third party a
security interest in) its assets and the stock of its subsidiaries. Each of
Hearst-Argyle's subsidiaries will also guarantee Hearst-Argyle's obligations
under the New Credit Facility.
Outstanding principal balances under the New Credit Facility (including,
after the Conversion Date, borrowings under the Term Loan and the Revolving
Facility) will bear interest at the "applicable margin" plus either, at
Hearst-Argyle's option, LIBOR or the "alternate base rate." The "applicable
margin" will vary depending on the ratio of Hearst-Argyle's total debt to
operating cash flow ("leverage ratio"). The "alternate base rate" is the
higher of (i) Chase's prime rate, (ii) 1% plus the secondary market rate for
three month certificates of deposit, or (iii) 0.5% plus the rates on overnight
federal funds transactions with members of the Federal Reserve System. Hearst-
Argyle will also be required to pay an annual commitment fee based on the
unused portion of the New Credit Facility (but after the Conversion Date, only
on the unused portion of the Revolving Facility). These terms are summarized
in the following table:
<TABLE>
<CAPTION>
LEVERAGE RATIO (X) APPLICABLE MARGIN COMMITMENT FEE
------------------ ----------------- --------------
<S> <C> <C>
X (greater than) 5.00x 0.625% 0.1875%
4.50x (less than) X (more than
or less than) 5.00x 0.500% 0.1500%
4.00x (less than) X (more than
or less than) 4.50x 0.400% 0.1250%
X (more than or less than) 4.00x 0.325% 0.1250%
</TABLE>
The New Credit Facility will contain certain financial and other covenants
and restrictions that will, among other things, (i) limit Hearst-Argyle's
ratio of total debt to operating cash flow to not greater than 5.5 through
December 30, 1999; 5.0 from December 31, 1999 through December 30, 2000; 4.5
from December 31, 2000 through December 30, 2001; and 4.0 from December 31,
2001 through the Maturity Date; (ii) require Hearst-Argyle to maintain a ratio
of operating cash flow to interest expense of not less than 2.0 through
December 31, 1999, and not less than 2.5 thereafter; (iii) require Hearst-
Argyle to maintain a ratio of operating cash flow to "fixed charges"
(generally, interest expense, scheduled repayments of principal, taxes and
capital expenditures) of not less than 1.15; (iv) restrict the amount of
operating cash flow from businesses other than the broadcast business to 25%
or less of Hearst-Argyle's total operating cash flow; and, (v) at such times
when the ratio of total debt to operating cash flow is greater than or equal
to 4.0, restrict the payment of dividends and the repurchase of stock to the
sum of (x) $100 million; (y) proceeds from future stock issuances; and, (z)
one-third of cash provided by operations in excess of fixed charges.
The New Credit Facility will also provide that all outstanding balances will
become due and payable at such time as Hearst's (and certain of its
affiliates') equity ownership in Hearst-Argyle becomes less than 35% of the
total equity of Hearst-Argyle and Hearst and such affiliates no longer have
the right to elect a majority of the members of Hearst-Argyle's Board.
Argyle and Chase currently are in the process of negotiating the terms of
the definitive agreements for the New Credit Facility. See "Capitalization."
Proposed Public Offering. After the date of this Proxy Statement/Prospectus,
Argyle intends to register approximately 10,000,000 shares of Hearst-Argyle
Series A Common Stock (without giving effect to any underwriter over-allotment
option) for future public sale under the Securities Act. While there can be no
assurance as to the terms or timing of any future offering or that any
offering will be undertaken or completed, it is currently proposed that
Hearst-Argyle will undertake a public offering of such shares as soon as
practicable after consummation of the Merger, subject to obtaining the
approval of the new Board of Directors of Hearst-Argyle. Any such offering
will be made only by means of a prospectus. Hearst has indicated that if such
an offering is undertaken and completed, Hearst expects to purchase from
Hearst-Argyle (either privately or as part of the offering) additional shares
of Hearst-Argyle Common Stock.
55
<PAGE>
In addition, Argyle intends to register a yet to be determined amount of
debt securities for future public sale under the Securities Act, which
(depending on market conditions, the amount, if any, to be received by Hearst-
Argyle in any future equity offering and other factors) could be sold before
or after consummation of the Merger as part of the financing or to refinance
the financing incurred in connection with the Merger. There can be no
assurance as to the terms or timing of any such debt offering or that any such
debt offering will be undertaken or completed, and is subject to obtaining the
approval of Hearst in the case of a pre-Merger offering and subject to
obtaining the approval of the new Board of Directors of Hearst-Argyle in the
case of a post-Merger offering. Any such offering will be made only by means
of a prospectus.
MANAGEMENT AND DIRECTORS OF HEARST-ARGYLE
See "Management of Hearst-Argyle After the Merger" for information regarding
the management and Board of Directors of Hearst-Argyle after the Merger.
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<PAGE>
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full and complete text of the
Merger Agreement.
PRE-MERGER TRANSACTIONS
Pursuant to the Merger Agreement and subject to the terms and conditions
thereof, the transactions described below will be completed immediately prior
to the consummation of the Merger.
Amendment to Argyle's Certificate of Incorporation. Immediately before the
Merger, the Argyle Certificate of Incorporation will be amended and restated
so that (i) Argyle's authorized common stock will be increased from 50 million
to 200 million shares; (ii) Argyle's existing Series B Common Stock and Series
C Common Stock will be reclassified and changed into Series A Common Stock;
(iii) a Series B Common Stock will be authorized, which will be issued to
Hearst in connection with the Contribution described below: and, (iv) Argyle's
existing Series A Preferred Stock and Series B Preferred Stock will receive
voting rights. The Hearst-Argyle Series B Common Stock authorized by the
Restated Charter will be convertible at any time at the option of the holder
into Hearst-Argyle Series A Common Stock on a share-for-share basis. If
Hearst's ownership of all shares of Hearst-Argyle's Common Stock falls below
20%, all issued shares of Hearst-Argyle Series B Common Stock automatically
will be converted into Hearst-Argyle Series A Common Stock. The Hearst-Argyle
Series A Common Stock will have the right to elect two directors on Hearst-
Argyle's Board of Directors, and the Hearst-Argyle Series B Common Stock will
have the right to elect the remainder of Hearst-Argyle's directors, which will
be not less than a majority. The Merger Agreement provides that the Board of
Directors of Hearst-Argyle initially will consist of 11 directors, nine of
which Hearst as the holder of the Hearst-Argyle Series B Common Stock, will be
entitled to elect. The Merger Agreement provides that the Restated Charter,
which will be in effect immediately prior to the consummation of the Merger,
and as amended to reflect the name change, will become the Certificate of
Incorporation of Hearst-Argyle upon the Merger. The form of the Restated
Charter is attached to the Merger Agreement as Exhibit A. See "Description of
Hearst-Argyle Capital Stock."
The Contribution. Immediately before the Merger, Hearst and Cash Sub will
effect the Contribution in exchange for which Hearst will receive 38,611,000
shares (subject to an increase in such number of shares as described under
"Certain Adjustments" below) of Series B Common Stock authorized under the
Restated Charter described above, and Cash Sub will receive one share of
Series B Common Stock authorized under the Restated Charter described above.
As part of the Contribution,
(i) Cash Sub will contribute, transfer and convey to Argyle approximately
$200 million in cash and Argyle will assume the $200 million Bridge
Debt incurred by Cash Sub in exchange for one share of Series B Common
Stock of Argyle.
(ii) Hearst will contribute, transfer and convey to Argyle (which in turn
will contribute, transfer and convey to certain of its subsidiaries)
all of Hearst's right, title and interest in and to all of the assets,
properties and rights of Hearst owned or used by Hearst solely in the
conduct of the business and operations of six of Hearst's television
broadcast stations (WCVB, WTAE, WBAL, WISN, KMBC and WDTN) and Hearst
Broadcasting Productions, except for certain specifically excluded
assets, and Argyle will assume the $275 million Private Placement Debt
of Hearst as well as other liabilities related to the Hearst Broadcast
Group in exchange for 38,611,000 shares of Series B Common Stock.
Assets excluded from the Contribution that are not part of the Hearst
Broadcast Group and that will not be transferred to Argyle include Hearst's
radio broadcast station assets, cash (except the proceeds of the Bridge Debt
described above), all rights to the Hearst name (subject to a non-exclusive
license to be granted by Hearst to Hearst-Argyle pursuant to the Name License
Agreement), the assets of Hearst's WWWB, Hearst's local marketing agreement
with respect to KCWB (Missouri LMA) and, if acquired by Hearst, the assets of
WPBF, which Hearst is under contract to acquire. See "Business of Hearst
Broadcast Group--The Hearst Stations."
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<PAGE>
Argyle (and its subsidiaries) will assume the Bridge Debt, the Private
Placement Debt and any and all obligations and liabilities of Hearst (whether
fixed, contingent or otherwise), to the extent related to the Hearst Broadcast
Group, except for certain tax liabilities and employee benefit liabilities.
In connection with the Contribution, substantially all employees of the
Hearst Broadcast Group will become employees of Hearst-Argyle or its
subsidiaries.
THE MERGER
Pursuant to the Merger Agreement and subject to the terms and conditions
thereof, Merger Sub will be merged with and into Argyle, with Argyle being the
surviving corporation in the Merger. The Closing of the Merger will take place
on a date specified by Hearst and Argyle, which in no event will be later than
the third business day after the conditions set forth therein have been
satisfied or waived. Argyle will deliver a Certificate of Merger to the
Secretary of State of the State of Delaware for filing on, or as soon as
practicable after, the Closing. The Merger will become effective at the
Effective Time. See "The Merger Agreement--Conditions to the Merger" and
"Description of Hearst-Argyle Capital Stock."
The name of the surviving corporation will be "Hearst-Argyle Television,
Inc.," and the Restated Charter, as amended to reflect the name change, will
be the Certificate of Incorporation of the surviving corporation. The bylaws
of Argyle as in effect immediately prior to the Effective Time will be the
bylaws of Hearst-Argyle, except as amended to provide that the number of
directors of Hearst-Argyle will be 11 effective upon the Merger and thereafter
will be no less than seven and no more than 15. The Merger Agreement provides
that certain persons described in this Proxy Statement/Prospectus under
"Management of Hearst-Argyle After the Merger" will be the directors and
certain executive officers of Hearst-Argyle. See "Management of Hearst-Argyle
After the Merger."
CERTAIN ADJUSTMENTS
The Merger Agreement provides that within 60 days after the Effective Time,
Hearst will prepare and deliver to Hearst-Argyle a balance sheet as of the
Closing Date for the Hearst Broadcast Group accompanied by a statement setting
forth the "Net Assets" of the Hearst Broadcast Group. The term "Net Assets" is
defined in the Merger Agreement as an amount equal to the total current assets
of the Hearst Broadcast Group (to the extent included in the Contribution),
less the total current liabilities of the Hearst Broadcast Group (to the
extent included in the Contribution).
Within 30 days after delivery of the foregoing, as applicable, Hearst will
pay to Hearst-Argyle the amount, if any, by which Net Assets are less than $30
million, or Hearst-Argyle will pay to Hearst the amount, if any, by which Net
Assets exceed $30 million. To the extent payment is owed to Hearst, Hearst may
elect to receive additional shares of Hearst-Argyle Series B Common Stock in
lieu of cash. Such number of additional shares will be determined based on a
price of $26.50 per share for the Hearst-Argyle Series A Common Stock.
Additional shares, if any, that may be issued to Hearst based on the working
capital balance of the Hearst Broadcast Group will be based on such balance at
closing. If the Merger had occurred on December 31, 1996, Hearst would have
been entitled to receive an additional approximately 800,000 shares.
MERGER CONSIDERATION AND CONVERSION OF SHARES
As described under "The Merger Agreement--Pre-Merger Transactions," Argyle's
Certificate of Incorporation will be amended and restated immediately before
the Effective Time. Therefore, the conversions described below give effect to
the Restated Charter. Under the Merger Agreement, the following conversions
will occur at the Effective Time:
Capital Stock of Merger Sub. Merger Sub will have one share of its common
stock outstanding immediately prior to the Merger, which will be converted
into and become one share of Hearst-Argyle Series B Common Stock.
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<PAGE>
Treasury Stock. Each share of Series A Common Stock, Series B Common Stock,
Series A Preferred Stock and Series B Preferred Stock that is owned by Argyle
as treasury stock will be cancelled and retired and will cease to exist and no
stock of Hearst-Argyle or other consideration will be delivered in exchange
therefor.
Series A Common Stock. Each share of Series A Common Stock (other than
treasury shares or Dissenting Shares) will be converted into the right to
receive (subject to the "Limitations and Allocation Prorations" below) one of
the following in the Merger: (i) the Cash Consideration; (ii) the Stock
Consideration; or, (iii) the Mixed Consideration.
Each holder of Series A Common Stock will have the right to choose to make,
subject to the Limitations and Allocation Prorations set forth below, one of
the following Elections in exchange for each share of such holder's Series A
Common Stock in the Merger:
(i) a Cash Election;
(ii) a Stock Election; or,
(iii) a Mixed Election.
If Hearst and Argyle determine for any reason that any Election was not
properly made with respect to shares of Series A Common Stock or an Election
is never made, shares of Series A Common Stock covered by such Election, and
shares with respect to which no Election is made, will be deemed to be Non-
Electing Common Shares and converted pursuant to the provisions set forth in
the Limitations and Allocation Prorations below ("Non-Electing Common
Shares").
Series B Common Stock. Each issued and outstanding share of Series B Common
Stock immediately prior to the Effective Time (other than treasury shares)
will be converted into and become one share of Hearst-Argyle Series B Common
Stock. Since the only shares of Series B Common Stock issued and outstanding
immediately prior to the Effective Time will be the shares of Series B Common
Stock issued to Hearst and Cash Sub in the Contribution, at the Effective Time
all such shares of Hearst-Argyle Series B Common Stock will be owned by
Hearst. See "--Pre-Merger Transactions."
Preferred Stock. Each issued and outstanding share of Series A Preferred
Stock (other than treasury shares and Dissenting Shares) will be converted
into one share of Hearst-Argyle Series A Preferred Stock, and each issued and
outstanding share of Series B Preferred Stock (other than treasury shares and
Dissenting Shares) will be converted into and become one share of Hearst-
Argyle Series B Preferred Stock. Each certificate representing outstanding
shares of Series A Preferred Stock or shares of Series B Preferred Stock prior
to the Merger will represent an equal number of shares of Hearst-Argyle Series
A Preferred Stock or Hearst-Argyle Series B Preferred Stock, as the case may
be, after the Merger.
Argyle Options. Each Argyle Option or similar right to purchase shares of
Series A Common Stock that is outstanding at the Effective Time will be
cancelled, by virtue of the Merger and without further action by Argyle or the
holder of an Argyle Option, without consideration except as provided below.
Each person shown on the books of Argyle to be a holder of an Argyle Option
whether or not immediately exercisable, will be entitled to receive, subject
to the Limitations and Allocation Prorations below, as soon as practicable
after the Effective Time, at such holder's election one of the following
Option Elections:
(i) the Hearst-Argyle Options;
(ii) the Option Stock;
(iii) the Option Cash; or,
(iv) the Option Mixed Consideration.
Each holder of an Argyle Option will have the right to choose to make,
subject to the Limitations and Allocation Prorations set forth below, one of
the following Elections in exchange for cancellation of such holders Argyle
Option in the Merger:
(i) an Option Rollover;
(ii) an Option Stock Election;
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<PAGE>
(iii) an Option Cash Election; or,
(iv) an Option Mixed Election.
To induce Hearst to enter into the Merger Agreement, the Electing
Optionholders have agreed that they will not make a Rollover Election with
respect to their Argyle Options and instead will only make an Option Cash
Election, Option Stock Election or Option Mixed Election. All other holders of
Argyle Options, including Ms. Williams and Mr. Pulver and other executive
officers of Argyle, are entitled to make an election to receive Rollover
Options. In return for their agreement not to receive Rollover Options, the
Electing Optionholders are entitled to make a supplemental election with
respect to the consideration to be received as a result of the cancellation of
their Argyle Options. The supplemental election could result in the
reallocation of the cash portion of any prorations between the consideration
to be received with respect to Argyle Options and the consideration to be
received with respect to Argyle Series A Common Stock. This reallocation could
result in more cash being received for Series A Common Stock relating to
Argyle Options and less cash being received for directly held Series A Common
Stock. The supplemental election would not, however, result in the individual
receiving any more or less cash in the aggregate than if the supplemental
election were not available.
If Hearst and Argyle determine for any reason that any Option Election was
not properly made with respect to Argyle Options, such Option Election will be
deemed not to be in effect and instead a Rollover Election will be deemed to
have been made with respect to such Argyle Option.
Limitations and Allocation Prorations. Although each holder of Series A
Common Stock and Argyle Options will have the right to elect how their shares
and/or options are converted, certain limitations and allocation prorations
apply. Generally, each share of Series A Common Stock covered by a Mixed
Election and each Argyle Option covered by an Option Mixed Election will be
converted into the right to receive the Mixed Consideration and the Option
Mixed Consideration, respectively.
The specific manner in which shares covered by Cash Elections, Option Cash
Elections, Stock Elections and Option Stock Elections will be converted at the
time of the Merger into cash or Hearst-Argyle Series A Common Stock will be
subject to the following limitations and prorations:
Cash Limitations. The number of shares of Series A Common Stock and Argyle
Options to be converted into the right to receive cash in the Merger (the
"Cash Conversion Number") will not exceed the amount that is equal as nearly
as practicable to 6,025,319 shares. If the sum of (i) the aggregate number of
shares of Series A Common Stock that are to be converted solely into cash (the
"Cash Election Shares"); (ii) the aggregate number of such shares covered by
Mixed Elections (the "Mixed Election Shares") that are to be converted into
50% cash in connection with a Mixed Election (the "Mixed Election Cash
Shares"); (iii) the aggregate number of shares of Option Stock relating to
Argyle Options that are to be converted solely into cash (the "Option Cash
Shares"); and, (iv) the aggregate number of shares of Option Stock relating to
Argyle Options that are to be converted into 50% cash in connection with an
Option Mixed Election (the "Mixed Option Cash Shares"), exceeds the Cash
Conversion Number, then (x) each share of Series A Common Stock for which a
Stock Election has been made, each Argyle Option for which an Option Stock
Election has been made and each Non-Electing Common Share will be converted
into a right to receive Hearst-Argyle Series A Common Stock in the Merger; (y)
each share of Series A Common Stock for which a Mixed Election has been made
and each Argyle Option for which an Option Mixed Election has been made will
be converted into the right to receive the Mixed Consideration or the Option
Mixed Consideration, respectively, in the Merger; and, (z) each share of
Series A Common Stock for which a Cash Election has been made and each Argyle
Option for which an Option Cash Election has been made will be converted into
a right to receive cash or Hearst-Argyle Series A Common Stock in the
following manner:
(a) A cash proration factor (the "Cash Proration Factor") will be
determined by dividing (i) the Cash Conversion Number minus the sum of
(A) the number of Mixed Election Cash Shares and (B) the number of
Mixed Option Cash Shares, by (ii) the sum of (A) the total number of
Cash Election Shares and (B) the total number of Option Cash Shares;
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<PAGE>
(b) The number of shares of Series A Common Stock covered by each Cash
Election to be converted into the right to receive cash will be
determined by multiplying the Cash Proration Factor by the total number
of shares of Series A Common Stock covered by such Cash Election,
rounded to the next higher integer;
(c) The number of Argyle Options covered by each Option Cash Election to be
converted into the right to receive cash will be determined by
multiplying the Cash Proration Factor by the total number of Argyle
Options covered by such Option Cash Election, rounded to the next
higher integer; and,
(d) Each share of Series A Common Stock covered by a Cash Election and each
Argyle Option covered by an Option Cash Election that in each case are
not converted into a right to receive cash as set forth above will be
converted into the right to receive shares of Hearst-Argyle Series A
Common Stock in the Merger.
If Cash Elections and Option Cash Elections are received for a number of
shares of Series A Common Stock that is in the aggregate equal to or less than
the Cash Conversion Number, each share of Series A Common Stock covered by a
Cash Election and each Argyle Option covered by an Option Cash Election will
be converted into a right to receive the Cash Consideration and the Option
Cash, respectively.
Stock Limitations. The number of shares of Series A Common Stock and Argyle
-----------------
Options to be converted into Hearst-Argyle Series A Common Stock in the Merger
(the "Stock Conversion Number") will not exceed the amount that is equal as
nearly as practicable to 8,277,054 shares. If the sum of (i) the aggregate
number of shares of Series A Common Stock that are to be converted solely into
stock (the "Stock Election Shares"); (ii) the aggregate number of Mixed
Election Shares that are to be converted into 50% stock in connection with a
Mixed Election (the "Mixed Election Stock Shares"); (iii) the aggregate number
of shares of Option Stock relating to Argyle Options that are to be converted
solely into stock (the "Option Stock Shares"); and, (iv) the aggregate number
of shares of Option Stock relating to Argyle Options that are to be converted
into 50% stock in connection with an Option Mixed Election (the "Mixed Option
Stock Shares"), exceeds the Stock Conversion Number, then (x) each share of
Series A Common Stock for which a Cash Election has been made, each Argyle
Option for which an Option Cash Election has been made and each Non-Electing
Common Share will be converted into the right to receive cash in the Merger;
(y) each share of Series A Common Stock for which a Mixed Election has been
made and each Argyle Option for which an Option Mixed Election has been made
will be converted into the right to receive the Mixed Consideration or the
Option Mixed Consideration, respectively, in the Merger; and, (z) the shares
of Series A Common Stock for which a Stock Election has been made and each
Argyle Option for which an Option Stock Election has been made will be
converted into Hearst-Argyle Series A Common Stock or the right to receive
cash in the following manner:
(a) A stock proration factor (the "Stock Proration Factor") will be
determined by dividing (i) the Stock Conversion Number minus the sum of
(A) the number of Mixed Election Stock Shares and (B) the number of
Mixed Option Stock Shares, by (ii) the sum of (A) the total number of
Stock Election Shares and (B) the total number of Option Stock Shares;
(b) The number of shares of Series A Common Stock covered by each Stock
Election to be converted into Hearst-Argyle Series A Common Stock will
be determined by multiplying the Stock Proration Factor by the total
number of shares of Series A Common Stock covered by such Stock
Election, rounded to the next lower integer;
(c) The number of Argyle Options covered by each Option Stock Election to
be converted into Hearst-Argyle Series A Common Stock will be
determined by multiplying the Stock Proration Factor by the total
number of shares of Series A Common Stock covered by such Option Stock
Election, rounded to the next higher integer; and,
(d) Each share of Series A Common Stock covered by a Stock Election and
each Argyle Option covered by an Option Stock Election that in each
case are not converted into a right to receive Hearst-Argyle Series A
Common Stock as set forth above will be converted into the right to
receive the cash in the Merger.
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If Stock Elections and Option Stock Elections are received for a number of
shares of Series A Common Stock that is in the aggregate equal to or less than
the Stock Conversion Number, each share of Series A Common Stock covered by a
Stock Election and each Argyle Option covered by an Option Stock Election will
be converted into the right to receive the Stock Consideration and the Option
Stock, respectively.
Non-Electing Common Shares. If Non-Electing Common Shares are not converted
--------------------------
under the provisions described above, the Exchange Agent will determine by lot
(or by such other method as is deemed reasonable by Hearst and Argyle) which
of the holders of Non-Electing Common Shares will receive cash for each Non-
Electing Common Share held of record by such holder, provided that such
selection by lot (or by such other method) will cease when the sum of shares
converted in such manner, plus the total number of Cash Election Shares and
Mixed Election Cash Shares of which Cash Election and Mixed Elections have
been received, is as close as practicable to the Cash Conversion Number. Each
Non-Electing Common Share not so converted into the right to receive cash will
be converted into Hearst-Argyle Series A Common Stock in the Merger.
ADDITIONAL ELECTION PROCEDURES
Hearst and Argyle have prepared a Form of Election pursuant to which each
holder of Series A Common Stock may make an Election with respect to each
share of Series A Common Stock. THE FORM OF ELECTION ACCOMPANIES THIS PROXY
STATEMENT/PROSPECTUS AND SHOULD BE PROPERLY COMPLETED IN ACCORDANCE WITH ITS
INSTRUCTIONS AND RETURNED TO THE EXCHANGE AGENT PRIOR TO THE ELECTION
DEADLINE. YOU SHOULD SEND YOUR CERTIFICATES REPRESENTING SERIES A COMMON
STOCK, TOGETHER WITH THE PROPERLY COMPLETED FORM OF ELECTION IN ACCORDANCE
WITH ITS INSTRUCTIONS, TO THE EXCHANGE AGENT. IF A FORM OF ELECTION IS NOT
PROPERLY COMPLETED AND RETURNED TO THE EXCHANGE AGENT PRIOR TO THE ELECTION
DEADLINE, YOUR SHARES WILL BE DEEMED TO BE NON-ELECTING COMMON SHARES, AND THE
FORM OF MERGER CONSIDERATION YOU WILL BE ENTITLED TO RECEIVE WILL BE
DETERMINED BY THE PROVISIONS OF THE MERGER AGREEMENT. HEARST AND ARGYLE WILL
PREPARE A FORM PURSUANT TO WHICH EACH HOLDER OF AN ARGYLE OPTION MAY MAKE AN
OPTION ELECTION, AND WHICH WILL BE PROVIDED TO EACH PERSON SHOWN ON THE BOOKS
OF ARGYLE TO BE A HOLDER OF AN ARGYLE OPTION. HEARST AND ARGYLE HAVE
AUTHORIZED HARRIS TRUST AND SAVINGS BANK TO RECEIVE ELECTIONS AND TO ACT AS
EXCHANGE AGENT.
Argyle has agreed to use its best efforts to make the Form of Election
(accompanied by this Proxy Statement/Prospectus) available to all persons who
become Argyle stockholders of record during the period between the Record Date
and the business day immediately prior to the Election Date (including the
partners of ATILP, TIP and ATIGP). The Merger Agreement provides that the
Election Date will be a date mutually agreed upon by Hearst and Argyle and
announced by Argyle in a news release delivered to the Dow Jones News Service
or otherwise publicly announced, as the last day on which Forms of Election
will be accepted; provided, however, that such day will be a business day no
earlier than 20 business days prior to the Effective Time and no later than
the date of the Stockholders Meeting. Hearst and Argyle have determined that
the Election Deadline is August 28, 1997.
An Election will be deemed to have been properly made only if the Exchange
Agent has received a properly completed and signed Form of Election by the
Election Deadline. Any Election made by a holder properly exercising
"dissenter's rights" under Section 262 of the DGCL (see "The Hearst
Transaction Proposal--Dissenters' Rights") will be deemed to have been
revoked. Holders of record of shares of Series A Common Stock who hold such
shares as nominees, trustees or in other representative capacities (a "Holder
Representative") may submit multiple Forms of Election, provided that such
Holder Representative certifies that each Form of Election covers all the
shares of Series A Common Stock held by such Holder Representative for a
particular beneficial owner. The Partnerships have advised Argyle that they
will not make an Election on behalf of any of their partners.
Any holder of Series A Common Stock at any time prior to the Election
Deadline may revoke or change an Election by written notice received by the
Exchange Agent at or prior to the Election Deadline. To effect a change of
Election, the notice must be accompanied by a properly completed, revised Form
of Election.
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Any shares of Argyle Common Stock (excluding any treasury shares and
Dissenting Shares) with respect to which the holder (or the beneficial owner,
as the case may be) has not submitted to the Exchange Agent an effective
properly completed Form of Election on or before 5:00 p.m. (New York time) on
the Election Deadline will be deemed to be Non-Electing Common Shares and will
be converted in accordance with the provisions of the Merger Agreement.
Argyle and Hearst will have the right to make rules not inconsistent with
the terms of the Merger Agreement governing the validity of the Forms of
Election, the manner and extent to which Elections and Option Elections are to
be taken into account in making the determinations, the issuance and delivery
of certificates for Hearst-Argyle Series A Common Stock into which Series A
Common Stock and Argyle Options are converted in the Merger and the payment
for shares of Series A Common Stock and Argyle Options converted into the
right to receive cash in the Merger. All such rules and determinations
thereunder will be final and binding on all holders of shares of Series A
Common Stock and all holders of Argyle Options.
Dividends. No dividends or other distributions, if any, declared after the
Effective Time on Hearst-Argyle Series A Common Stock will be paid to an
Argyle stockholder entitled to receive certificates representing Hearst-Argyle
Series A Common Stock until such stockholder surrenders the certificate(s)
representing Series A Common Stock for exchange in accordance with the
procedures described above. All such dividends and distributions that are
payable to the holders of certificates that were not surrendered and exchanged
will be paid and delivered to the Exchange Agent in trust for the benefit of
such holders. Any such dividends and distributions held by the Exchange Agent
and unclaimed at the end of one year from the Effective Time, however, will be
returned to Hearst-Argyle and such holders of certificates that have not been
surrendered or exchanged may only look as a general creditor to Hearst-Argyle
for payment therefor.
Fractional Shares. No fractional shares of Hearst-Argyle Series A Common
Stock will be issued in the Merger. Cash in lieu of the issuance of fractional
shares of Hearst-Argyle Series A Common Stock based on the Cash Consideration
will be paid to holders to whom such fractional shares would otherwise be
issuable.
If, based upon the Elections and prorations, an Argyle stockholder receives
more than $15 million of shares of Hearst-Argyle Series A Common Stock in the
Merger, it may be necessary for that Argyle stockholder to file a Notification
and Report Form with the Antitrust Division and the FTC. See "The Hearst
Transaction Proposal--Regulatory Approvals--Antitrust."
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
both Argyle and Hearst as to, among other things, (i) due organization, good
standing and corporate power; (ii) capitalization, and in the case of Argyle,
ownership of significant subsidiaries; (iii) the authorization and
enforceability of the Merger Agreement and the transactions contemplated
thereby, and in the case of Argyle, stockholder vote required; (iv)
noncontravention with organizational documents, applicable law, contracts,
orders and judgments; (v) financial statements and, in the case of Argyle, SEC
reports; (vi) the absence of certain changes or events; (vii) the absence of
undisclosed liabilities; (viii) litigation matters; (ix) compliance with
applicable laws and orders; (x) FCC licenses; (xi) employee benefit plans;
(xii) labor relations; (xiii) environmental matters; (xiv) intellectual
property; (xv) title to and condition of assets; and, (xvi) required consents
and approvals. The Merger Agreement also contains representations and
warranties (i) of Argyle as to certain tax matters and the fairness opinion of
Argyle's financial advisor and (ii) of Hearst as to material contracts and as
to the sufficiency of the contributed assets to operate the business of the
Hearst Broadcast Group.
Certain of the representations and warranties of Argyle are made with
respect to subsidiaries of Argyle, as well as with respect to Argyle. Certain
of the representations and warranties of Hearst are made with respect to
Merger Sub and Cash Sub, as well as with respect to Hearst, or are made solely
with respect to the Hearst Broadcast Group, as applicable. None of the
representations and warranties contained in the Merger Agreement will survive
the Merger, except for Hearst's representations and warranties as to good
title to the assets being
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contributed to Argyle and as to the sufficiency of such assets to operate the
business of the Hearst Broadcast Group, which representations and warranties
will survive for 18 months after the Merger.
CERTAIN COVENANTS
Conduct of Business Pending the Merger. The Merger Agreement provides that
prior to the Effective Time, Argyle, Hearst and their respective subsidiaries
each will conduct their respective businesses (in the case of Hearst and its
subsidiaries, only with respect to the business of the Hearst Broadcast Group)
in the ordinary course consistent with past practice and will use commercially
reasonable efforts to preserve materially intact their present business
organizations, to keep available the services of key officers and employees,
to maintain assets in good working order and condition, to maintain insurance
on such assets, to preserve relationships with customers and suppliers and
others having significant business dealings with them and to comply in all
material respects with all applicable laws and orders of all governmental or
regulatory authorities.
Without limiting the foregoing, the Merger Agreement places restrictions on
the ability of each of Argyle and its subsidiaries and Hearst (but only with
respect to the business of the Hearst Broadcast Group) and Merger Sub, among
other things, to (i) amend their charters or bylaws, in the case of Argyle and
its subsidiaries; (ii) declare or pay any dividends or make distributions, in
the case of Argyle and its subsidiaries; (iii) effect a stock split,
combination or reclassification, liquidation, dissolution, merger or
restructuring, in the case of Argyle and its subsidiaries; (iv) repurchase or
redeem its capital stock or options, in the case of Argyle and its
subsidiaries; (v) issue or sell capital stock or options; (vi) make
acquisitions of other entities or assets in excess of a specified amount;
(vii) make material dispositions of or encumber assets; (viii) incur
indebtedness in excess of specified amounts; (ix) enter into, adopt, amend or
terminate employee benefit plans, or materially increase employee
compensation; (x) enter into or amend any affiliate contracts; (xi) make
capital expenditures in excess of a specified amount; (xii) make material
changes in any accounting or financial reporting practice or policy or any
material pricing, marketing, investment, credit or tax policy or practice or
in any method of calculating bad debt, or settling any material tax liability
or making any material tax election; or, (xiii) make any change in their lines
of business. In the case of Hearst, the foregoing restrictions principally are
placed only on or relate to Merger Sub or the Hearst Broadcast Group.
No Solicitations. The Merger Agreement provides that neither Argyle nor any
of its subsidiaries or their respective officers, directors, employees,
agents, counsel, accountants, financial advisors, investment bankers,
consultants or other representatives (collectively, "Representatives"),
directly or indirectly, will initiate, solicit, encourage, accept or take any
other action knowingly to facilitate any inquiries or the making of, or
participate in any discussions or negotiations, any proposal or offer (an
"Acquisition Proposal") with respect to any direct or indirect (i) acquisition
or purchase of 15% or more of Argyle's outstanding common stock; (ii)
acquisition or purchase of any equity securities of any significant subsidiary
of Argyle; (iii) acquisition or purchase of all or any significant portion of
the assets of Argyle or any material subsidiary; or, (iv) merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Argyle or any of its material
subsidiaries. In response to an unsolicited Acquisition Proposal, (x) Argyle
or its Representatives may furnish information concerning Argyle and its
subsidiaries and their business, properties or assets to a third party; (y)
Argyle or its Representatives may engage in discussions or negotiations with a
third party regarding such Acquisition Proposal; and, (z) Argyle may take and
disclose to its stockholders a position with respect to a tender offer as
required under the Exchange Act or otherwise make public disclosures to its
stockholders that are required by law, but in the cases referred to in the
foregoing clauses (x) and (y), only to the extent that the Board of Directors
of Argyle determines in good faith on the basis of written advice from outside
counsel that such action is necessary in order for the Board of Directors to
act in a manner consistent with its fiduciary obligations to stockholders
under applicable law. Upon receipt of an Acquisition Proposal, Argyle is
required to notify such person of the terms of the Merger Agreement, subject
to the Board's fiduciary duties described above, and to notify Hearst promptly
of the receipt of such Acquisition Proposal.
Governance. The Merger Agreement provides that after the Effective Time (i)
Hearst will vote its shares of Hearst-Argyle Series B Common Stock and use its
best efforts to take such actions to cause Mr. Marbut to
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continue to be elected as a director of the Board of Directors of Hearst-
Argyle for as long as Mr. Marbut is employed by Hearst-Argyle or any of its
subsidiaries and (ii) for as long as Hearst holds any shares of Hearst-Argyle
Series B Common Stock and to the extent that Hearst during such time holds any
shares of Hearst-Argyle Series A Common Stock, Hearst will vote shares of
Hearst-Argyle Series A Common Stock it owns (with respect to the election of
directors only) in the same proportion as the shares of Hearst-Argyle Series A
Common Stock not held by Hearst are so voted.
Directors' and Officers' Indemnification and Insurance;
Indemnification. Until the sixth anniversary of the Effective Time (i) Hearst-
Argyle will maintain in effect provisions in its charter and bylaws regarding
indemnification of officers and directors no less favorable than such
provisions contained in Argyle's charter and bylaws in effect on the date of
the Merger Agreement and (ii) Hearst-Argyle will maintain in effect Argyle's
current policies (or policies of at least equal coverages and amounts) of
directors' and officers' liability insurance with respect to claims arising
from facts or events that occurred on or before the Effective Time; provided,
however, that Hearst-Argyle will not be obligated to spend an amount per year
in excess of 200% of the aggregate premiums to be paid by Argyle and its
subsidiaries in 1997 (approximately $292,200).
The Merger Agreement also provides for indemnification by Hearst and Hearst-
Argyle of each other if the Merger is consummated. Hearst will indemnify
Hearst-Argyle, its subsidiaries and their affiliates and respective directors,
officers and employees from and against all losses that directly or indirectly
arise out of (i) liabilities of the Hearst Broadcast Group that are not being
assumed by Argyle in the Contribution; (ii) certain employee benefit plan
liabilities of Hearst for which Hearst-Argyle would be liable after the Merger
by operation of law; or, (iii) breaches of representations and warranties made
by Hearst with respect to good title to the assets being contributed to Argyle
and the sufficiency of such assets to operate the Hearst Broadcast Group.
Hearst will not be liable for any losses or liabilities recovered pursuant to
any insurance policy. Hearst-Argyle similarly will indemnify Hearst, Hearst's
other subsidiaries and their affiliates and respective directors, officers and
employees from and against all losses that directly or indirectly arise out of
(i) liabilities being assumed by Argyle in the Contribution (including the
Bridge Debt and the Private Placement Debt) and (ii) certain employee benefit
plan liabilities of Argyle for which Hearst-Argyle would be liable after the
Merger by operation of law.
Meeting of Stockholders. Pursuant to the Merger Agreement, Argyle is
required to hold a meeting of its stockholders as soon as practicable after
the date of the Merger Agreement to vote on the Restated Charter and the
Merger. Argyle was not to establish, without Hearst's consent, a record date
for its stockholders meeting prior to the date that ATILP and TIP converted
their shares of Series C Common Stock into Series A Common Stock in order that
ATILP and TIP would be eligible to vote on the Restated Charter and the
Merger. See "The Merger Agreement--Voting Agreements." Such conversion has
occurred prior to the Record Date. Argyle is required under the Merger
Agreement to use its reasonable efforts to secure the vote of its
stockholders, and to take all lawful action to solicit such approvals. The
Argyle Board of Directors was to recommend, and has recommended, such
approval. The Argyle Board, however, may change this recommendation or
withdraw its solicitation after its receipt of an Acquisition Proposal to the
extent that the Board of Directors of Argyle determines in good faith upon
written advice from outside counsel that such action is necessary in order for
the Board to act in a manner which is consistent with its fiduciary
obligations to stockholders under applicable law. See "--Certain Covenants"
and "--No Solicitations."
Cross-Ownership. The Merger Agreement provides that, without the prior
written consent of the other, neither Argyle (and Hearst-Argyle following the
Merger), on the one hand, nor Hearst or any of its other subsidiaries, on the
other hand, will make any acquisitions or purchases of any assets if such an
acquisition or purchase by one party would require the other party to divest
or otherwise dispose of any of its assets pursuant to any law, judgment,
decree, order or regulatory requirements.
Issuance of Additional Shares of Hearst-Argyle Common Stock. From and after
the Effective Time, if at any time Hearst-Argyle desires to issue to Hearst,
or sell to Hearst and Hearst desires to purchase from Hearst-Argyle, any
additional shares of Hearst-Argyle Common Stock, then Hearst shall have the
right to elect, at its sole option, to receive or purchase such shares of
common stock in the form of either Hearst-Argyle Series A Common Stock or
Hearst-Argyle Series B Common Stock.
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Expenses. The Merger Agreement provides that, except as described under
"Termination Fee" below, if the Merger is not consummated, all costs and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such costs, except
that (i) the HSR Act filing fee; (ii) the filing fee in connection with this
Proxy Statement/Prospectus; (iii) FCC filing fees; and, (iv) printing and
mailing costs of this Proxy Statement/Prospectus, will be shared equally by
Hearst and Argyle. If the Merger is consummated, Hearst-Argyle will bear or
reimburse Hearst for all costs and expenses of Hearst incurred in connection
with the Merger Agreement and the transactions contemplated thereby, including
but not limited to transfer taxes, fees and disbursements of Hearst's legal
counsel, fees and disbursements for special accounting services provided by
Hearst's accountants, fees and expenses of Hearst's financial advisor and the
costs and expenses described in clauses (i) through (iv) above.
Certain Other Covenants. The Merger Agreement contains certain other
covenants and agreements, including covenants and agreements relating to (i)
the preparation, filing and distribution of this Proxy Statement/Prospectus;
(ii) tax reporting of the Contribution and the Merger; (iii) preparation and
delivery of audited financial statements; (iv) access to and confidentiality
of information, and notification of certain matters; (v) public announcements
regarding the transactions contemplated by the Merger Agreement; (vi) delivery
to Hearst of an affiliate letter from each Argyle affiliate prior to the
Closing; (vii) filings with, and obtaining consents and approvals of
governmental and regulatory authorities and agencies, including under the HSR
Act and the Communications Act; and, (viii) commercially reasonable efforts to
effect the transactions contemplated by the Merger Agreement.
Also, in connection with the covenants regarding governmental and regulatory
approvals, both Hearst and Argyle acknowledge in the Merger Agreement that,
under applicable rules and regulations of the FCC, certain assets currently
held or attributable to Hearst or Argyle cannot be held or attributed to
Hearst-Argyle or Hearst after the Effective Time without an appropriate waiver
being obtained. In order to obtain the FCC's approval of the transactions
contemplated by the Merger Agreement, Hearst-Argyle will divest of or take
other appropriate action with respect to WNAC and WDTN. See "Risk Factors" and
"The Hearst Transaction Proposal--Regulatory Approvals."
In addition, in connection with the covenants regarding delivery of
affiliate letters, Hearst and Argyle agree in the Merger Agreement to submit
jointly to the SEC a request for a "no-action" letter to the effect that
certain provisions of the Securities Act will not apply immediately after the
Effective Time to those persons who will receive shares of Argyle's Common
Stock pursuant to the liquidation plans of the Partnerships who are not
otherwise Argyle affiliates at the time of the Stockholders Meeting. If the
SEC does not provide a favorable no-action letter, then Hearst-Argyle after
the Effective Time will prepare and file a registration statement covering the
resale of shares received by such persons in the Merger.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligations to Effect the Contribution and the
Merger. The obligations of Argyle and Hearst to effect the Contribution and
the Merger are subject to the fulfillment of each of the following conditions:
(i) receipt of requisite Argyle stockholder approval; (ii) effectiveness of
the Registration Statement and the absence of any stop order or proceeding
suspending effectiveness, and receipt of all necessary approvals under state
securities laws relating to the issuance or trading of Hearst-Argyle Series A
Common Stock; (iii) the expiration or termination of the waiting period under
the HSR Act (which has occurred); (iv) receipt of FCC approval (whether or not
such approval is subject to administrative or judicial review or
reconsideration, except that if any pre-grant objections have been filed with
respect to FCC approval of the Merger, then receipt of final approval) without
the imposition of any conditions or restrictions requiring divestiture of
assets (other than WNAC and WDTN) or having a material adverse effect on
Hearst, the Hearst Broadcast Group, Argyle or Hearst-Argyle; (v) the absence
of any law, order or judgment that has the effect of making illegal or
restricting or prohibiting consummation of the Merger or the other
transactions contemplated by the Merger Agreement; (vi) receipt of all
consents, approvals and actions of, filings with and notices to any
governmental or regulatory authority required to consummate the transactions
contemplated by the Merger Agreement; (vii) receipt of approval for quotation
on the Nasdaq National Market of the Hearst-Argyle Series A Common Stock to be
issued
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in the Merger; (viii) receipt by Argyle of financing necessary to enable
Hearst-Argyle to refinance after the Effective Time the Private Placement
Debt, the Bridge Debt and outstanding balances under Argyle's Existing Credit
Facility, and to redeem the Senior Subordinated Notes, if required; and, (ix)
execution and delivery of the Management Agreement and Television Station
Option Agreement described below.
Conditions to the Obligations of Hearst, Merger Sub and Cash Sub. The
obligations of Hearst, Merger Sub and Cash Sub to effect the Contribution and
the Merger is further subject to the fulfillment or waiver of each of the
following additional conditions: (i) the representations and warranties made
by Argyle being true and correct in all material respects as of the Closing
Date and the receipt of an officer's certificate to such effect; (ii) Argyle's
performance in all material respects of its agreements and obligations
required by the Merger Agreement on or prior to the Closing Date and the
receipt of an officer's certificate to such effect; (iii) the expiration of
the period for perfection of statutory appraisal rights available in
connection with the Merger and the exercise of such rights by no more than 5%
of the outstanding Argyle Common Stock (including Argyle Preferred Stock on an
as converted basis); (iv) receipt by Hearst of certain legal opinions to the
effect that the Contribution will be treated as a transaction governed by
Section 351 of the Code; (v) receipt of third-party consents and approvals to
certain material contracts; (vi) the execution and delivery of all affiliate
letters required by the Merger Agreement, and the execution and delivery of a
transfer restriction agreement by Mr. Marbut regarding restrictions on
transfer of Hearst-Argyle Series A Common Stock; (vii) the execution and
delivery by Argyle of conveyancing documents necessary to effect the
Contribution; (viii) receipt by Cash Sub of acceptable financing for the
Bridge Debt and the receipt of the proceeds thereof; (ix) execution and
delivery of a tax sharing agreement in the form attached to the Merger
Agreement between Hearst-Argyle and Hearst, which, among other things,
establishes the sharing of federal, state and local taxes after Hearst-Argyle
becomes part of the consolidated federal income tax return of Hearst (the "Tax
Sharing Agreement"); (x) the execution and delivery of the Name License
Agreement; and, (xi) execution and delivery of the Radio Facilities Lease
described below.
Conditions to the Obligations of Argyle. The obligation of Argyle to effect
the Merger is further subject to the fulfillment or waiver of each of the
following additional conditions: (i) the representations and warranties made
by Hearst being true and correct in all material respects as of the Closing
Date and the receipt of an officer's certificate to such effect; (ii) the
performance in all material respects by Hearst, Merger Sub and Cash Sub of
their agreements and obligations required by the Merger Agreement on or prior
to the Closing Date and the receipt of an officer's certificate to such
effect; (iii) the execution and delivery by Hearst of conveyancing documents
necessary to effect the Contribution; and, (iv) receipt of third-party
consents and approvals to certain material contracts.
Management Agreement. As a condition to each party's obligation to effect
the Contribution and the Merger, Hearst and Argyle are required to execute the
Management Agreement pursuant to which Hearst-Argyle will provide certain
management services (i.e., sales, news, programming and financial and
accounting management services) with respect to WWWB, Hearst's Baltimore AM/FM
radio stations, the WPBF television station under contract to be acquired by
Hearst from Paxson Communications Corporation, and all other television
stations that may be acquired by Hearst or any of its subsidiaries or
affiliates prior to the Effective Time. In addition, Hearst-Argyle will
provide certain management services to Hearst in order to allow Hearst to
fulfill its obligations under the Missouri LMA with the permittee of KCWB. The
management fee for the services provided to these stations will be an amount
equal to the greater of (i) (x) $50,000 for Hearst's radio stations (counted
as a single property) and $50,000 for KCWB, or (y) for all others, $100,000
per station, and (ii) a specified percentage of the positive broadcast cash
flow from each such property (ranging from 20% for the first year to 50% for
the fourth year and thereafter). Hearst also will reimburse Hearst-Argyle for
Hearst-Argyle's costs and expenses incurred in performing services under the
Management Agreement on an allocated basis to be determined. The term of the
Management Agreement will commence at the Effective Time and will continue for
each station, respectively, until the earlier of (i) Hearst's divestiture of
the station to a third party; (ii) if applicable, the exercise of the option
granted to Hearst-Argyle to acquire the station pursuant to the Option
Agreement described below; or, (iii) five years following the closing of the
Hearst Transaction; provided, however, that Hearst will have the right to
terminate the Management Agreement at any time upon 90 days prior written
notice if the option period or right of first refusal period, as applicable,
has expired without having been exercised.
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Television Station Option Agreement. As a condition to each party's
obligation to effect the Contribution and the Merger, Hearst and Argyle are
required to execute the Option Agreement pursuant to which Hearst will grant
to Hearst-Argyle an option to acquire WWWB and Hearst's interests and option
with respect to KCWB, as well as a right of first refusal for a period of 36
months following the closing of the Hearst Transaction with respect to WPBF
(if such station is acquired by Hearst and thereafter proposed to be sold to a
third party). The option period for each property will be 18 to 36 months
following the Effective Time, and the purchase price will be the fair market
value of such station based upon an independent third-party appraisal, subject
to certain specified parameters. If Hearst elects to sell a station prior to
the commencement of, or during, the option period, Hearst-Argyle will have a
right of first refusal to acquire the station. Hearst may elect to receive the
purchase price in either cash or shares of stock of Hearst-Argyle. The
exercise of the option and the right of first refusal will be by action of the
independent directors of Hearst-Argyle, and any option exercise may be
withdrawn by Hearst-Argyle after receipt of the appraisal described above.
Radio Facilities Lease. As a condition to the obligation of Hearst, Merger
Sub and Cash Sub to effect the Contribution and the Merger, Argyle is required
to execute and deliver the Radio Facilities Lease pursuant to which Hearst
will lease from Hearst-Argyle premises for Hearst's radio broadcast stations.
The term of each lease will commence at the Effective Time and continue for
each radio station, respectively, until the earlier of (i) Hearst's
divestiture of a radio station to a third party, in which case either party
(i.e., Hearst-Argyle or the buyer of the station) will be entitled to
terminate the lease with respect to that station upon certain prior written
notice or (ii) 36 months following the Effective Time. The leased premises
will be the premises occupied by each radio station as of the Effective Time
and all other terms and conditions under which the stations occupy their
respective premises will remain in effect.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated prior to the Effective Time, whether
before or after the approval by the stockholders of Argyle (i) by mutual
written consent of Hearst and Argyle or (ii) by the Board of Directors of
either Hearst or Argyle under the following circumstances: (x) if the Merger
shall not have been consummated by December 31, 1997; (y) the approval of
Argyle's stockholders has not been obtained; or, (z) a governmental or
regulatory authority shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Merger Agreement, which action shall have
become final and non-appealable. Argyle may further terminate the Merger
Agreement by action of its Board of Directors if (i) in the exercise of its
good faith judgment as to fiduciary duties to its stockholders imposed by law,
on the basis of written advice given by outside counsel, the Board of
Directors approves an Acquisition Proposal or recommends an Acquisition
Proposal to Argyle's stockholders; (ii) there has been a breach by Hearst of
any representation or warranty contained in the Merger Agreement that would
have or would be reasonably likely to have a material adverse effect on the
Hearst Broadcast Group; or, (iii) there has been a material breach by Hearst,
Merger Sub or Cash Sub of any of the covenants contained in the Merger
Agreement that is not cured within 30 days after written notice of such
breach. Hearst may further terminate the Merger Agreement prior to the
Effective Time by action of its Board of Directors if (i) the Board of
Directors of Argyle withdraws or modifies in a manner materially adverse to
Hearst its approval or recommendation of the Merger Agreement or the Merger or
approves an Acquisition Proposal or recommends an Acquisition Proposal to
Argyle's stockholders; (ii) there has been a breach by Argyle of any
representation or warranty contained in the Merger Agreement that would have
or would be reasonably likely to have a material adverse effect on Argyle; or,
(iii) there has been a material breach by Argyle of any of the covenants
contained in the Merger Agreement that is not cured within 30 days after
written notice of such breach.
TERMINATION FEE
In the event that an Acquisition Proposal is made and thereafter the Merger
Agreement is terminated (i)(a) by action of Hearst's Board of Directors or by
action of Argyle's Board of Directors if the Argyle Board of Directors has
approved an Acquisition Proposal or has recommended an Acquisition Proposal to
Argyle's stockholders, in the exercise of the Argyle Board's fiduciary duties,
or (b) by action of the Hearst Board of
68
<PAGE>
Directors if the Argyle Board has withdrawn or modified in a manner materially
adverse to Hearst its approval or recommendation of the Merger Agreement or
the Merger, or (ii) (a) because the Merger has not occurred by December 31,
1997 and the proximate cause for such failure is (x) Argyle did not obtain
financing; (y) the Management Agreement, the Option Agreement, the Tax Sharing
Agreement, the Name License Agreement and the Radio Facilities Lease were not
executed and delivered; or, (z) third-party consents to certain of Hearst's
material contracts were not obtained, or (b) because Argyle stockholder
approval was not obtained, or (c) because a governmental or regulatory
authority (other than the FCC, the FTC or the Antitrust Division) issued a
final and non-appealable order restraining or enjoining the Hearst
Transaction, or (d) by action of Hearst's Board of Directors if (y) there has
been a breach by Argyle of any representation or warranty in the Merger
Agreement that would have, or that would reasonably be likely to have, a
material adverse effect on Argyle, or (z) there has been a material breach of
any of the covenants or agreements in the Merger Agreement on the part of
Argyle, which breach is not curable or not cured within 30 days after written
notice of such breach is given by Hearst to Argyle, and in the case of clause
(ii) a definitive agreement with respect to such Acquisition Proposal is
executed, or the transaction contemplated by the Acquisition Proposal is
consummated, within 18 months after such termination, then Argyle is required
to pay Hearst a fee of $15,850,000 by wire transfer in same day funds. If
Argyle fails to pay the termination fee when due, and in order to obtain such
payment, Hearst commences a suit resulting in a judgment against Argyle for
the fee, Argyle is required to pay Hearst its costs and expenses (including
attorneys' fees) in connection with such suit, together with interest on the
fee at the rate of 12% per annum. Moreover, neither party is precluded from
seeking damages for willful breach of the Merger Agreement or pursuing any
other remedy at law or in equity.
VOTING AGREEMENTS
Simultaneously with the execution and delivery of the Merger Agreement,
Hearst entered into Voting Agreements with stockholders, including limited
partnerships and foundations through which certain officers and directors
indirectly own shares of Series A Common Stock and Series B Common Stock, that
own, in the aggregate, over two-thirds of Argyle's outstanding Common Stock.
These stockholders (or their successors) and their respective holdings of
Argyle subject to the Voting Agreements are as follows: (i) ATILP, together
with ATI (Foreign)--6,600,000 shares of Series A Common Stock; (ii) TIP--
700,000 shares of Series A Common Stock; (iii) ATP--36,000 shares of Series B
Common Stock; (iv) Robin (a/k/a Robert) Hernreich ("Hernreich")--65,000 shares
of Series A Common Stock; (v) Argyle Foundation--99,000 shares of Series A
Common Stock; and, (vi) Skylark Foundation--65,000 shares of Series A Common
Stock.
Hearst was unwilling to enter into the Merger Agreement unless each of
ATILP, TIP, ATP, Hernreich, Argyle Foundation and Skylark Foundation entered
into the Voting Agreements concurrently with the execution and delivery of the
Merger Agreement pursuant to which and subject to the terms thereof, (i) each
of ATILP and TIP agreed to convert all of the shares of Series C Common Stock
held by it into shares of Series A Common Stock into which such shares of
Series C Common Stock were convertible (which conversion occurred on July 8
and July 11, 1997) and (ii) each of ATILP, ATI (Foreign) (as successor to
ATILP) and TIP agreed to vote such shares of Series A Common Stock held by it,
ATP agreed to vote all shares of Series B Common Stock held by it, each of
Argyle Foundation and Skylark Foundation agreed to vote all shares of Argyle
Series A Common Stock held by them, and Hernreich agreed to vote all shares of
Series A Common Stock subject to his Voting Agreement, in favor of the
Restated Charter and the Merger and against any Acquisition Proposals, changes
in the majority of Argyle's Board of Directors or certain recapitalizations or
other competing transactions. In addition, each of ATILP, ATI (Foreign), TIP,
ATP, Hernreich, Argyle Foundation and Skylark Foundation have agreed not to
initiate, solicit, encourage, accept or take any action knowingly to
facilitate any inquiries or the making of, or participate in any discussions
or negotiations regarding, any Acquisition Proposal. Except for ATILP's
transfer of shares to ATI (Foreign) and, following Argyle stockholder approval
of the Merger Agreement, certain specified permitted pledges or transfers,
each such stockholder has agreed not to pledge, transfer, grant any proxy or
enter into any voting arrangement with respect to their shares of Argyle
Common Stock. The Voting Agreements terminate upon termination of the Merger
Agreement or consummation of the Merger. The Board of Directors of Argyle has
approved the execution and delivery of these Voting Agreements. See "The
Hearst Transaction Proposal."
69
<PAGE>
REGISTRATION RIGHTS AGREEMENT
Upon consummation of the Merger, Hearst-Argyle intends to enter into a
Registration Rights Agreement with the ATI Holders pursuant to which the ATI
Holders will have the right to require Hearst-Argyle to register all or any
portion of Hearst-Argyle Series A Common Stock issued to such Holders in the
Merger (except shares that were registered and sold pursuant to an effective
registration statement or transferred pursuant to Rule 144 under the
Securities Act) (collectively, the "Registrable Shares") for distribution by
means of a firm commitment underwritten public offering (a "Demand
Registration"). A request for a Demand Registration must be made by ATI
Holders owning in the aggregate at least 330,000 of the Registrable Shares and
may only be made during the period beginning 180 days after the Effective Time
and ending 540 days after the Effective Time. The right of the Holders to
request a Demand Registration, however, terminates in the event that at least
90% of the Registrable Shares requested by Holders to be included in any
Piggyback Registration (as defined below) are sold. The Registration Rights
Agreement provides that Hearst-Argyle will not be required to effect a Demand
Registration unless (i) the gross proceeds from the sale of the Registrable
Shares included in any Demand Registration are expected to be at least $45
million and (ii) the average daily trading volume of Hearst-Argyle Common
Stock for the 60 trading days prior to the date of a demand notice is less
than 150,000 shares.
The ATI Holders as a group will be entitled to only one Demand Registration,
except that they will be entitled to request an additional Demand Registration
under certain circumstances. The Demand Registration is subject to
postponement by Hearst-Argyle for a limited period if Hearst-Argyle determines
that such registration would interfere with any pending material transaction
or other material corporate development involving Hearst-Argyle, and to
constraints of marketability of the proposed offering, as determined by the
managing underwriter or underwriters participating in the offering.
If Hearst-Argyle seeks to register any Hearst-Argyle Series A Common Stock
in a proposed offering for cash through a firm commitment underwriting
beginning at the Effective Time and ending 540 days after the Effective Time,
the ATI Holders have the right to request that Hearst-Argyle include any or
all of their Registrable Shares in the proposed offering (a "Piggyback
Registration"), subject to constraints of marketability of the proposed
offering, as determined by the managing underwriter or underwriters
participating in the offering.
In the event marketing constraints prevent the registration of all
Registrable Shares requested to be registered in either a Demand Registration
or a Piggyback Registration, such Registrable Shares shall be registered, to
the extent marketable, on a pro rata basis relative to the respective ATI
Holder's holding of Registrable Shares. In addition, if Hearst-Argyle files a
registration statement with respect to any Hearst-Argyle Series A Common Stock
(except in connection with an employee stock option plan or pursuant to a Rule
145 transaction) and Hearst-Argyle or the underwriters, if any, determines
that a public sale or distribution of Registrable Shares, at that time, would
materially adversely affect Hearst-Argyle's offering, then each ATI Holder
will refrain from effecting any public sale or distribution of Registrable
Shares during a specified time period. Also, Hearst-Argyle can include in any
Demand Registration any securities that are not Registrable Shares.
Hearst-Argyle has the right to select the institution or institutions that
will manage or lead any offering made pursuant to the Registration Rights
Agreement. Regardless of whether or not a registration statement is filed or
becomes effective, Hearst-Argyle will pay all costs, fees and expenses
incident to its performance of or compliance with the Registration Rights
Agreement (including the fees and disbursements of the counsel selected by a
majority of the Holders). Any discounts, commissions or brokers' fees and any
transfer taxes relating to the disposition of the Registrable Shares by an ATI
Holder will be payable by such ATI Holder.
The Registration Rights Agreement also provides for indemnification, without
limitation as to time, by Hearst-Argyle of each ATI Holder of Registrable
Shares whose Registrable Shares are covered by a registration statement (and
such ATI Holder's officers, directors, employees and controlling persons), on
the one hand, and by each ATI Holder of Hearst-Argyle, (and Hearst-Argyle's
officers, directors, employees and controlling persons), on the other hand,
from liabilities and expenses arising out of material misstatements and
omissions of information made by the other in the registration statement.
Contribution also will be available to any of the above parties in relation to
relative fault to the extent that indemnification from an indemnifying party
to an indemnified party is unavailable.
70
<PAGE>
PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
The Series A Common Stock is currently quoted on the Nasdaq National Market
under the symbol "ARGL." An application has been made for quotation of Hearst-
Argyle Series A Common Stock on the Nasdaq National Market upon consummation
of the Hearst Transaction under the symbol "HATV." Neither the Argyle Series B
Common Stock nor Hearst's common stock is publicly traded. The table below
sets forth, for the calendar quarters indicated, the high and low sales prices
of the Series A Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON
STOCK
-----------------
HIGH LOW
------ -----
<S> <C> <C>
1995
Fourth Quarter (beginning October 24, 1995).................. 18 1/4 15 1/2
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
1997
First Quarter................................................ 29 1/8 23 7/8
Second Quarter............................................... 25 1/2 22 1/2
Third Quarter (through July 25, 1997)........................ 26 5/8 24 7/8
</TABLE>
On August 9, 1996, the last full trading day prior to the public
announcement of Argyle's exploration of strategic alternatives, the closing
price of the Series A Common Stock on the Nasdaq National Market (as reported
in The Wall Street Journal) was $23.00 per share. See "The Hearst Transaction
Proposal--Background." On March 26, 1997, the last full trading day prior to
the public announcement of the Hearst Transaction, the closing price of the
Series A Common Stock on the Nasdaq National Market (as reported in The Wall
Street Journal) was $27.50 per share. On July 25, 1997, the most recent
practicable date prior to the mailing of this Proxy Statement/Prospectus, the
closing price of the Series A Common Stock on the Nasdaq National Market (as
reported in The Wall Street Journal) was $26.25 per share. Holders of Argyle
Common Stock are urged to obtain current market quotations for the Series A
Common Stock prior to making any decision with respect to the Hearst
Transaction.
Argyle 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 immediate
future.
71
<PAGE>
BUSINESS OF HEARST-ARGYLE
Upon consummation of the Merger, Argyle (which will be the surviving
corporation in the Merger) will be renamed "Hearst-Argyle Television, Inc."
and Hearst will own between 82.3% and 86.5% of the outstanding shares of
Hearst-Argyle common stock. As a result of the Contribution, the business of
Hearst-Argyle will consist of the current separate businesses of the Hearst
Broadcast Group and Argyle. The principal executive offices of Argyle will be
relocated from San Antonio, Texas to New York, New York after the Merger. See
"Business of Hearst-Argyle," "Business of Hearst Broadcast Group" and
"Business of Argyle."
The following table sets forth information for each of the Hearst-Argyle
Stations:
<TABLE>
<CAPTION>
MARKET YEAR NETWORK PERCENTAGE OF U.S.
MARKET RANK(1) STATION ACQUIRED AFFILIATION CHANNEL TELEVISION HOUSEHOLDS(2)
------ ------- --------- -------- ----------- ------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Boston, MA.............. 6 WCVB 1986 ABC 5 2.22%
Tampa, FL(3)............ 15 WWWB 1996 WB 32 1.46%
Pittsburgh, PA.......... 19 WTAE 1958 ABC 4 1.19%
Baltimore, MD........... 23 WBAL 1948 NBC 11 1.02%
Cincinnati, OH.......... 30 WLWT 1997 NBC 5 0.83%
Milwaukee, WI........... 31 WISN 1954 ABC 12 0.81%
Kansas City, MO......... 32 KMBC 1982 ABC 9 0.81%
Kansas City, MO(3)(4)... 32 KCWB 1996 WB 29 ***
Oklahoma City, OK....... 43 KOCO 1997 ABC 5 0.61%
West Palm Beach, FL(3).. 44 WPBF 1997 ABC 25 0.61%
Providence, RI(5)(6).... 47 WNAC 1995 FOX 64 0.58%
Dayton, OH(5)........... 53 WDTN 1981 ABC 2 0.52%
Honolulu, HI............ 69 KITV 1995 ABC 4 0.40%
Jackson, MS............. 90 WAPT 1995 ABC 16 0.31%
Fort Smith/Fayetteville,
AR..................... 118 KHBS/KHOG 1996 ABC/ABC 40/29 0.22%
------
Total................. 11.59%
======
</TABLE>
- --------
(1) Market rank is based on the relative size of the DMA among the 211
generally recognized DMAs in the U.S., based on Nielsen estimates for the
1996-97 season.
(2) Based on Nielsen estimates for the 1996-97 season.
(3) WWWB and WPBF (if the pending acquisition by Hearst of WPBF is completed)
will be managed by Hearst-Argyle under the Management Agreement with
Hearst and will continue to be owned by Hearst. In addition, Hearst-Argyle
will provide certain management services to Hearst in order to allow
Hearst to fulfill its obligations under the Missouri LMA with KCWB. For
terms of the Management Agreement and the Option Agreement, see "The
Merger Agreement--Conditions to the Merger--Management Agreement" and "--
Television Station Option Agreement." For a description of WPBF, see
"Business of Hearst Broadcast Group--The Hearst Stations."
(4) Hearst has a Program Services and Time Brokerage Agreement (the Missouri
LMA) with KCWB-TV, Inc., the permittee of KCWB. KCWB holds a construction
permit authorizing it to operate on Channel 32. Due to a lack of available
tower sites within the useable area for Channel 32, however, KCWB is
presently operating on Channel 29 pursuant to a Special Temporary
Authorization ("STA") granted by the FCC. KCWB is awaiting an FCC decision
on its proposal to permanently change the operating channel of the station
from Channel 32 to Channel 29. KCWB has pending an application to
authorize its permanent operation on Channel 29. KCWB's STA expires on
September 29, 1997, and may be renewed at the FCC's discretion for periods
of six months. The STA has already been renewed once. Hearst anticipates
that the FCC will ultimately license KCWB to operate on Channel 29.
However, there can be no assurance that this will occur.
(5) WNAC's (Providence, RI) broadcast signal overlaps with WCVB's (Boston, MA)
broadcast signal, and WDTN's (Dayton, OH) broadcast signal overlaps with
WLWT's (Cincinnati, OH) broadcast signal. Under FCC rules, a single entity
cannot own stations with overlapping signals. Hearst-Argyle will divest
WNAC and WDTN. See "Risk Factors--Regulatory Matters" and "Federal
Regulation of Television Broadcasting."
(6) Subject to a Joint Marketing and Programming Agreement with Clear Channel,
licensee of WPRI, the CBS affiliate in Providence, RI. Argyle has entered
into a letter of intent to divest WNAC. See "Business of Argyle."
72
<PAGE>
BUSINESS OF ARGYLE
Argyle, founded in 1994 and incorporated in the State of Delaware, owns six
network-affiliated television stations. The principal executive offices of
Argyle are located at 200 Concord Plaza, Suite 700, San Antonio, Texas 78216;
its telephone number is (210) 828-1700.
Argyle's television broadcast operations began in January 1995 with the
acquisition of three television stations (the "Northstar Stations"). Argyle
acquired two additional television stations during 1995 and another television
station in 1996. Also in 1996, Argyle entered into a Joint Marketing and
Programming Agreement relating to one of its television stations (WNAC) with
the owner of another television station in the same market (the "Clear Channel
Venture"). Under this agreement, the other party programs certain of the
airtime on WNAC, and Argyle receives certain payments based on the cash flow
from both stations. A letter of intent has been signed to divest WNAC for
$47.5 million. In January 1997, Argyle completed the Gannett Swap, whereby
Argyle exchanged two of its television stations in Buffalo, New York and Grand
Rapids, Michigan and cash for two television stations in Cincinnati, Ohio and
Oklahoma City, Oklahoma owned by Gannett.
The following table sets forth information for each of the Argyle television
stations:
<TABLE>
<CAPTION>
MARKET YEAR NETWORK PERCENTAGE OF U. S.
MARKET RANK(1) STATION ACQUIRED AFFILIATION CHANNEL TELEVISION HOUSEHOLDS(2)
------ ------- --------- -------- ----------- ------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Cincinnati, OH.......... 30 WLWT 1997 NBC 5 0.83%
Oklahoma City, OK....... 43 KOCO 1997 ABC 5 0.61%
Providence, RI (3)...... 47 WNAC 1995 FOX 64 0.58%
Honolulu, HI............ 69 KITV 1995 ABC 4 0.40%
Jackson, MS............. 90 WAPT 1995 ABC 16 0.31%
Fort Smith/Fayetteville,
AK..................... 118 KHBS/KHOG 1996 ABC/ABC 40/29 0.22%
</TABLE>
- --------
(1) Market rank is based on the relative size of the DMA among the 211
generally recognized DMAs in the U.S. , based on Nielsen estimates for the
1996-97 season.
(2) Based on Nielsen estimates for the 1996-97 season.
(3) Subject to a Joint Marketing and Programming Agreement with Clear Channel,
license of WPRI, the CBS affiliate in Providence, RI. Argyle has entered
into a letter of intent to divest WNAC.
Additional information concerning Argyle's business, assets, management,
results of operations and other matters is included in the Argyle Reports
filed under the Exchange Act that are incorporated by reference in this Proxy
Statement/Prospectus, including the Argyle 1996 Form 10-K . See "Incorporation
of Certain Information by Reference." A copy of Argyle's Annual Report to
Stockholders for the fiscal year ended December 31, 1996 (which includes the
Argyle 1996 Form 10-K) accompanies this Proxy Statement/Prospectus.
73
<PAGE>
BUSINESS OF HEARST BROADCAST GROUP
GENERAL
The Hearst Corporation, one of the nation's largest privately-held
companies, is a diversified communications company engaged in a broad range of
publishing, broadcasting, cable networks and other communications activities.
Hearst commenced its television broadcast operations in 1948 when its WBAL
station in Baltimore, Maryland was started as one of the first commercial
television stations in the United States. In connection with the Merger,
Hearst will contribute the Hearst Broadcast Group to Argyle as set forth in
the Merger Agreement. See "The Hearst Transaction Proposal" and "The Merger
Agreement--Pre-Merger Transactions--The Contribution."
The Hearst Broadcast Group to be contributed to Argyle consists of six
network-affiliated television stations in six major cities in the United
States (as more fully described below, the "Hearst Stations"), as well as
Hearst Broadcasting Productions, which is engaged in the production of
programming. Hearst's television group is one of the largest ABC network-
affiliated television broadcast groups in the United States, based on VHF
household coverage, with five of the six stations to be contributed to Argyle
affiliated with the ABC network. Five of the Hearst Stations are in the top 50
markets by DMA market rank. In addition to network programming, station
programming for the Hearst Stations consists primarily of news, talk and
magazine-style programs. Among these programs is the highly successful Oprah
Winfrey Show. Each Hearst Station also produces some programming, consisting
of mainly news and news-related, local programs.
Revenues from operation of the Hearst Stations are substantially derived
from the sale to advertisers of advertising time in programs. The ability to
sell advertising time and the rates received for that time are dependent on
the qualitative and quantitative audiences that are delivered to advertisers,
as well as overall advertiser demand for time in the marketplace and the rates
advertisers are willing to pay.
For a description of the television broadcast industry generally,
competition and federal regulation of television broadcasting, see "The
Commercial Television Broadcast Industry" and "Federal Regulation of
Television Broadcasting." The principal executive offices of the Hearst
Broadcast Group are located at the offices of The Hearst Corporation at 959
Eighth Avenue, New York, New York 10019; its telephone number is (212) 649-
2000.
74
<PAGE>
THE HEARST STATIONS
The Hearst Broadcast Group consists of the following VHF television
stations: WCVB; WTAE; WBAL; WISN; KMBC; and, WDTN. WBAL is an NBC affiliate
and the five other television stations are ABC affiliates. In addition to the
Hearst Stations to be owned by Hearst-Argyle, Hearst-Argyle will provide,
pursuant to the Management Agreement with Hearst, management services to
certain television stations and radio stations that Hearst will continue to
own or with which Hearst will otherwise maintain a contractual relationship.
The stations to be managed are WWWB, Tampa, Florida (which is owned by a
subsidiary of Hearst); KCWB, Kansas City, Missouri (for which Hearst provides
programming, the sale of time and other services pursuant to a Programming
Services and Time Brokerage Agreement with the station's owner KCWB-TV, Inc.
and for which Hearst has an option to acquire); if acquired, WPBF, West Palm
Beach, Florida (which Hearst is under contract to acquire from Paxson
Communications Corporation) (WWWB, KCWB and WPBF being, collectively, the
"Managed Stations"), and WBAL-AM and WIYY-FM, Baltimore, Maryland. Hearst-
Argyle will have an option to acquire WWWB and Hearst's interest and option
with respect to KCWB. Hearst-Argyle will also have a right of first refusal
with respect to WPBF. See "The Hearst Transaction Proposal--Interests of
Certain Persons in the Hearst Transaction; Affiliate Transactions" and
"Business of Hearst-Argyle." The table below sets forth information for each
of the Hearst Stations and the Managed Stations:
<TABLE>
<CAPTION>
MARKET YEAR NETWORK PERCENTAGE OF U.S.
MARKET RANK(1) STATION ACQUIRED AFFILIATION CHANNEL TELEVISION HOUSEHOLDS(2)
------ ------- ------- -------- ----------- ------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Boston, MA.............. 6 WCVB 1986 ABC 5 2.22%
Tampa, FL(3)............ 15 WWWB 1996 WB 32 1.46%
Pittsburgh, PA.......... 19 WTAE 1958 ABC 4 1.19%
Baltimore, MD........... 23 WBAL 1948 NBC 11 1.02%
Milwaukee, WI........... 31 WISN 1954 ABC 12 0.81%
Kansas City, MO......... 32 KMBC 1982 ABC 9 0.81%
Kansas City, MO(3)(4)... 32 KCWB 1996 WB 29 ***
West Palm Beach, FL(3).. 44 WPBF 1997 ABC 25 0.61%
Dayton, OH.............. 53 WDTN 1981 ABC 2 0.52%
</TABLE>
- --------
(1) Market rank is based on the relative size of the DMA among the 211
generally recognized DMAs in the U.S., based on Nielsen estimates for the
1996-97 season.
(2) Based on Nielsen estimates for the 1996-97 season.
(3) WWWB and WPBF (if the pending acquisition by Hearst of WPBF is completed)
will be managed by Hearst-Argyle under the Management Agreement with
Hearst and will continue to be owned by Hearst. In addition, Hearst-Argyle
will provide certain management services to Hearst in order to allow
Hearst to fulfill its obligations under the Missouri LMA with KCWB. For
terms of the Management Agreement and the Option Agreement, see "The
Merger Agreement--Conditions to the Merger--Management Agreement" and "--
Television Station Option Agreement."
(4) Hearst has a Program Services and Time Brokerage Agreement ( the Missouri
LMA) with KCWB-TV, Inc., the permittee of KCWB. KCWB holds a construction
permit authorizing it to operate on Channel 32. Due to a lack of available
tower sites within the useable area for Channel 32, however, KCWB is
presently operating on Channel 29 pursuant to a Special Temporary
Authorization ("STA") granted by the FCC. KCWB is awaiting an FCC decision
on its proposal to permanently change the operating channel of the station
from Channel 32 to Channel 29. KCWB has pending an application to
authorize its permanent operation on Channel 29. KCWB's STA expires on
September 29, 1997 and may be renewed at the FCC's discretion for periods
of six months. The STA has already been renewed once. Hearst anticipates
that the FCC will ultimately license KCWB to operate on Channel 29.
However, there can be no assurance that this will occur.
WCVB-TV--Boston, MA. WCVB operates in the Boston, Massachusetts market, the
sixth largest television market in the U.S., with approximately 2,150,000
television households and a population of approximately 5,824,000. In 1996,
the Boston market totaled approximately $457 million in television advertising
revenues. There are eight licensed commercial television stations and two
public stations in Boston. WCVB is its market leader in news. Its local
magazine show, Chronicle, airs in prime access and recently celebrated its
15th anniversary. The station recently won its ninth Peabody award. WCVB has
been an ABC affiliate since 1972, and the current term of its affiliation
agreement expires in 1998.
WWWB-TV--Tampa-St. Petersburg, FL. WWWB operates in the Tampa-St. Petersburg
market, the 15th largest market in the U.S., with approximately 1,411,000
television households and a population of
75
<PAGE>
approximately 3,422,000. In 1996, the Tampa-St. Petersburg market totaled
approximately $221 million in television advertising revenues. There are seven
licensed commercial television stations and two public stations in Tampa-St.
Petersburg. WWWB is affiliated with the WB network and will air major league
baseball next spring under a new agreement with the Tampa Bay Devil Rays
expansion team. WWWB has been a WB affiliate since 1996, and the current term
of its affiliation agreement expires in 1998. The station will be managed by
Hearst-Argyle under the Management Agreement with Hearst for a period of five
years following the closing of the Hearst Transaction, subject to earlier
termination by Hearst (unless the station is sold to a third party or to
Hearst-Argyle). Hearst-Argyle also will have an option to acquire WWWB for a
period of time following the closing of the Hearst Transaction. See "The
Merger Agreement--Conditions to the Merger."
WTAE-TV--Pittsburgh, PA. WTAE operates in the Pittsburgh, Pennsylvania
market, the 19th largest television market in the U.S., with approximately
1,149,000 television households and a population of approximately 2,931,000.
In 1996, the Pittsburgh market totaled approximately $193 million in
television advertising revenues. There are five licensed commercial television
stations and two public stations in Pittsburgh. WTAE has been a news leader in
the market, ranking first or second demographically over the past two decades.
WTAE has been an ABC affiliate since 1958. The current term of its affiliation
agreement expires in 1997, and its immediately following renewal term will
expire in 1999.
WBAL-TV--Baltimore, MD. WBAL operates in the Baltimore, Maryland market, the
23rd largest television market in the U.S., with approximately 989,000
television households and a population of approximately 2,688,000. In 1996,
the Baltimore market totaled approximately $176 million in television
advertising revenues. There are five licensed commercial television stations
and one public station in Baltimore. WBAL was the first Hearst broadcast
television station and is one of the oldest commercial broadcast stations in
the country. WBAL has been an NBC affiliate since 1995, and the current term
of its affiliation agreement expires in 2001.
WISN-TV--Milwaukee, WI. WISN operates in the Milwaukee, Wisconsin market,
the 31st largest television market in the U.S., with approximately 787,000
television households and a population of approximately 2,133,000. In 1996,
the Milwaukee market totaled approximately $140 million in television
advertising revenues. There are six licensed commercial television stations
and two public stations in Milwaukee. WISN ranks second in local news. It has
recently acquired pre-season football game rights for the Super Bowl Champion
Green Bay Packers. WISN has been an ABC affiliate since 1976, and the current
term of its affiliation agreement expires in 1999.
KMBC-TV--Kansas City, MO. KMBC operates in the Kansas City, Missouri market,
the 32nd largest television market in the U.S., with approximately 787,000
television households and a population of approximately 2,074,000. In 1996,
the Kansas City market totaled approximately $146 million in television
advertising revenues. There are seven licensed commercial television stations
and one public station in Kansas City. KMBC is the leader in news in the
Kansas City market. KMBC has been an ABC affiliate since 1955, and the current
term of its affiliation agreement expires in 1998.
KCWB-TV--Kansas City, MO. Hearst provides programming, the sale of time and
other services to KCWB pursuant to a Programming Services and Time Brokerage
Agreement (the "Missouri LMA"), and has an option to acquire the station. KCWB
currently is operating in the Kansas City market pursuant to a Special
Temporary Authorization granted by the FCC. KCWB went on the air last fall as
an affiliate of the WB network. It began airing Kansas City Royals baseball
games this spring under a new six-year agreement. KCWB has been a WB affiliate
since 1996, and the current term of its affiliation agreement expires in 1998.
Hearst-Argyle will provide certain management services to Hearst in order to
enable it to fulfill its obligation under the KCWB Missouri LMA. The station
will be managed by Hearst-Argyle under the Management Agreement with Hearst.
Hearst-Argyle also will have an option to acquire Hearst's interest in this
station.
WPBF-TV--West Palm Beach, FL. Hearst has entered into a definitive agreement
to acquire WPBF from Paxson Communications Corporation. The purchase of WPBF
is subject to the satisfaction of certain conditions, including receipt of
necessary regulatory approvals. Accordingly, there can be no assurance that
the acquisition of WPBF will be consummated. WPBF operates in the West Palm
Beach-Ft. Pierce, Florida market, the 44th
76
<PAGE>
largest television market in the U.S., with approximately 585,000 households
and a population of approximately 1,434,000. In 1996, the West Palm Beach
market totaled $99 million in television advertising revenues. There are five
licensed commercial stations and one public station in West Palm Beach. WPBF
has been an ABC affiliate since it signed on the air in 1989, and the current
term of its affiliation agreement expires in 2003 and is subject to early
termination by ABC on January 1, 1999 if the station has failed to achieve
certain local news ratings. There can be no assurance that such ratings will
be achieved. If acquired by Hearst, the station will be managed by Hearst-
Argyle under the Management Agreement with Hearst for a period of five years
following the closing of the Hearst Transaction, subject to earlier
termination by Hearst (unless the station is sold to a third party or to
Hearst-Argyle). Hearst-Argyle will also have a right of first refusal for a
period of 36 months following the closing of the Hearst Transaction with
respect to a future disposition of this station by Hearst. See "The Merger
Agreement--Conditions to the Merger."
WDTN-TV--Dayton, OH. WDTN operates in the Dayton, Ohio market, the 53rd
largest television market in the U.S., with approximately 503,000 television
households and a population of approximately 1,343,000. In 1996, the Dayton
market totaled approximately $74 million in television advertising revenues.
There are four licensed commercial television stations and one public station
in Dayton. WDTN ranks second in local news in the Dayton market. WDTN has been
an ABC affiliate since 1980, and the current term of its affiliation agreement
expires in 1998. Hearst has agreed in the Merger Agreement that, if necessary
to obtain FCC approval for the Hearst Transaction, this station will be
divested. Argyle and Hearst currently are in negotiations with a third party
to divest WDTN.
The number of commercial stations listed above as part of each Hearst
Station's market excludes stations not reaching a 2% weekly cumulative
audience, as measured by Nielsen, and national cable channels. The number of
reportable stations may change for each reporting period. All market
information is based on February 1997 Nielsen estimates.
HEARST BROADCAST PRODUCTIONS
Hearst Broadcast Productions is a business unit of WCVB and is engaged in
the production of programming for cable networks and broadcast stations. It
provides original programming to the Hearst Broadcast Group as well as to
outside purchasers. Examples of programs produced by Hearst Broadcasting
Productions are the Popular Mechanics series produced for the Discovery
Channel, and Old Ironsides Returns to Sea, a program produced for the History
Channel. Hearst Broadcasting Productions contributed less than 1% to each of
Hearst-Argyle's 1996 pro forma total revenues and broadcast cash flow.
NETWORK AFFILIATION AGREEMENTS AND RELATIONSHIPS
Each of the Hearst Stations is affiliated with a major network pursuant to a
network affiliation agreement. Each affiliation agreement provides the
affiliated Hearst Station with the right to broadcast all programs transmitted
by the network with which the Hearst Station is affiliated. In return, the
network has the right to sell a substantial majority of the advertising time
during such broadcasts. In exchange for every hour that a Hearst Station
broadcasts network programming, the network pays the Hearst Station a
specified network compensation payment, which varies with the time of day.
Typically, prime-time programming generates the highest hourly network
compensation payments. Five of the Hearst Stations have network affiliation
agreements with ABC, and one of the Hearst Stations, WBAL, has a network
affiliation agreement with NBC. The term of each affiliation agreement with
ABC is two years, renewable for successive two-year periods, and each
affiliation agreement is subject to cancellation by either party upon six
months notice to the other party, except with respect to WTAE. In WTAE's case,
the affiliation agreement is not subject to cancellation on six months notice,
and the term of the affiliation agreement will be successively renewed unless
either party gives the other notice of non-renewal six months prior to the end
of the then current term. Regarding WBAL, the NBC affiliate, the term of the
affiliation agreement is a period of seven years and is subject to successive
three-year renewals unless either party gives the other notice of non-renewal
12 months prior to the end of the then current term. WWWB and KCWB, are both
WB network affiliates. Their respective affiliation agreements are subject to
successive two-year renewal periods based upon renewal notice issued by WB,
and are not subject to early cancellation unless the
77
<PAGE>
network ceases operations or is substantially restructured. Unlike affiliates
of ABC or NBC, WB affiliates may be required to pay the network compensation
based upon ratings generated by the station in return for the broadcast rights
to the network's programming. WPBF is an ABC affiliate. WPBF's affiliation
agreement with ABC is not subject to successive renewal periods. In 1994
negotiations commenced to revise Hearst's ABC affiliation agreements to
provide, among other things, for 10-year terms and increased compensation.
Such agreements are still in the process of negotiation and documentation has
not been finalized, although the Hearst Broadcast Group is receiving its
increased compensation. Although the Hearst Broadcast Group does not expect
that its network affiliation agreements will be terminated and expects to
continue to be able to renew its network affiliation agreements, no assurance
can be given that such agreements will not be terminated or that renewals will
be obtained on as favorable terms or at all. The non-renewal or termination of
one or more of the Hearst network affiliation agreements could have a material
adverse effect on the Hearst Broadcast Group's results of operations. See
"Risk Factors--Reliance on Network Programming; Dependence on Network
Affiliation."
EMPLOYEES
As of March 31, 1997, the Hearst Broadcast Group had 919 full-time employees
and 101 part-time employees. Of the total number of employees, WCVB accounted
for 250 employees; WTAE for 162 employees; WBAL for 177 employees; WISN for
159 employees; KMBC for 138 employees; and, WDTN for 134 employees. A total of
493 employees are represented by four unions (which are the American
Federation of Television and Radio Artists, the International Brotherhood of
Electrical Workers, the International Alliance of Theatrical Stage Employees
and the Directors Guild of America). The Hearst Broadcast Group has not
experienced any significant labor problems, and it believes that its relations
with its employees are satisfactory.
PROPERTIES
The Hearst Broadcast Group'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 Hearst Stations' principal
facilities as of March 31, 1997. In addition to the properties listed below,
the Hearst Stations also lease communications equipment, parking and storage
space.
<TABLE>
<CAPTION>
APPROXIMATE SIZE
STATION/PROPERTY LOCATION USE OWNED OR LEASED (SQ. FT.) EXPIRATION OF LEASE
- ------------------------- ------------------------ --------------- ---------------- -------------------
<S> <C> <C> <C> <C>
WCVB Office and studio Leased 91,602 2003
Office and studio Leased 5,337 1997
Office and studio Leased 8,628 month-to-month
Antenna site tower lease Leased 1999
WTAE Office and studio Owned 68,033
Transmission tower site Owned
WBAL Office and studio Owned 65,000
Transmission tower site Partnership-
owned
WISN Office and studio Owned 88,000
Transmission tower site Owned
KMBC Office and Studio Leased 53,749 2011
Office and Studio Leased 4,765 2009
Transmission tower site Owned
WDTN Office and studio Owned 43,500
Transmission tower site Owned
</TABLE>
LEGAL PROCEEDINGS
From time to time, the Hearst Broadcast Group becomes involved in various
claims and lawsuits that are incidental to the conduct of its business. There
are no legal proceedings pending against the Hearst Broadcast Group that, in
the opinion of the Hearst Broadcast Group's management, are likely to have a
material adverse effect on the Hearst Stations or the Hearst Broadcast Group's
consolidated financial condition or results of operations.
78
<PAGE>
SELECTED FINANCIAL DATA OF ARGYLE
The selected financial data of Argyle should be read in conjunction with
Argyle's historical and pro forma financial statements and notes thereto
included elsewhere in this Proxy Statement/Prospectus. The historical
financial data for the years ended December 31, 1992, 1993 and 1994 have been
derived from the audited combined financial statements of the Northstar
Stations, the accounting predecessor to Argyle. The historical financial data
for the years ended December 31, 1995 and 1996 have been derived from the
audited consolidated financial statements of Argyle. The historical financial
data for the three months ended March 31, 1996 and 1997 have been derived from
the unaudited condensed consolidated financial statements of Argyle. The pro
forma consolidated financial data for the year ended December 31, 1996 and for
the three months ended March 31, 1996 and 1997 have been prepared as if the
acquisition of KHBS and KHOG (the "Arkansas Stations"), acquired 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 periods presented. Such pro forma data
is not necessarily indicative of the actual results that would have occurred
or of results that may occur.
The historical financial data for the three months ended March 31, 1996 and
1997 are unaudited but, in the opinion of Argyle management, have been
prepared on the same basis as the audited consolidated financial statements
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations for those periods. Results for the three months ended March 31,
1997 are not necessarily indicative of the results for a full year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------- ------------------------------------
ARGYLE ARGYLE
PREDECESSOR HISTORICAL ARGYLE HISTORICAL PRO FORMA ARGYLE HISTORICAL PRO FORMA
--------------------------- ------------------- --------- ------------------ ----------------
1992 1993 1994 1995(A) 1996(B) 1996(C) 1996(B) 1997(D) 1996(C) 1997(C)
-------- ------- -------- --------- -------- --------- -------- -------- ------- -------
STATEMENT OF (IN THOUSANDS) (IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATIONS DATA:
----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues..... $ 27,103 $28,440 $ 34,538 $ 46,944 $ 73,294 $ 84,243 $ 15,495 $ 17,879 $18,326 $18,854
Station operating
expenses.......... 13,209 14,295 16,430 23,603 37,639 41,772 8,898 10,781 10,661 11,055
Write-down of
intangible assets
.................. 25,500 -- -- -- -- -- -- -- -- --
Amortization of
program rights.... 4,670 3,876 3,600 3,961 4,725 5,225 1,289 1,057 1,147 1,073
Depreciation and
amortization...... 3,511 2,884 3,126 12,294 23,965 26,075 4,986 6,558 6,267 6,696
-------- ------- -------- --------- -------- -------- -------- -------- ------- -------
Station operating
income (loss)..... (19,787) 7,385 11,382 7,086 6,965 11,171 322 (517) 251 30
Corporate
expenses.......... 786 1,174 1,103 2,324 4,285 4,285 983 1,008 983 1,008
Non-cash
compensation
expense........... -- -- -- 675 675 675 169 260 169 260
-------- ------- -------- --------- -------- -------- -------- -------- ------- -------
Operating income
(loss)............ (20,573) 6,211 10,279 4,087 2,005 6,211 (830) (1,785) (901) (1,238)
Interest expense,
net............... 7,849 5,885 4,745 12,052 16,566 18,119 3,500 4,418 4,179 4,418
-------- ------- -------- --------- -------- -------- -------- -------- ------- -------
Income (loss) from
continuing
operations before
income taxes...... (28,422) 326 5,534 (7,965) (14,561) (11,908) (4,330) (6,203) (5,080) (5,656)
Income taxes....... -- 301 170 -- -- -- -- -- -- --
-------- ------- -------- --------- -------- -------- -------- -------- ------- -------
Income (loss) from
continuing
operations........ (28,422) 25 5,364 (7,965) (14,561) ($11,908) (4,330) (6,203) ($5,080) ($5,656)
Cumulative effect
of a change in
accounting
principle (e)..... -- (213) -- -- -- -- -- -- -- --
Extraordinary
item(f)........... -- -- (774) (7,842) -- -- -- -- -- --
-------- ------- -------- --------- -------- -------- -------- -------- ------- -------
Net income (loss)
.................. $(28,422) $ (188) $ 4,590 $ (15,807) $(14,561) $(11,908) $ (4,330) $ (6,203) $(5,080) $(5,656)
======== ======= ========
Less preferred
stock dividends
(g)............... -- (829) (1,422) -- (356) (356) (356)
--------- -------- -------- -------- -------- ------- -------
Loss applicable to
common stock...... $ (15,807) $(15,390) $(13,330) $ (4,330) $ (6,559) $(5,436) $(6,012)
========= ======== ======== ======== ======== ======= =======
Loss per common
share............. $ (1.25) $ (1.37) $ (1.17) $ (0.39) $ (0.58) $ (0.48) $ (0.53)
Number of shares
used in per share
calculation....... 6,388 11,246 11,347 11,119 11,347 11,347 11,347
OTHER DATA:
Broadcast cash
flow, as
defined(h)........ $ 9,577 $ 9,868 $ 14,223 $ 20,440 $ 31,889 $ 37,800 $ 5,800 $ 5,869 $ 6,616 $ 6,693
Broadcast cash flow
margin(i)......... 35.3% 34.7% 41.2% 43.5% 43.5% 44.8% 37.4% 32.8% 36.1% 35.5%
Operating cash
flow, as
defined(j)........ $ 8,791 $ 8,694 $ 13,120 $ 18,116 $ 27,604 $ 33,515 $ 4,817 $ 4,861 $ 5,633 $ 5,685
Operating cash flow
margin(k)......... 32.4% 30.6% 38.0% 38.6% 37.7% 39.7% 31.1% 27.2% 30.7% 30.2%
Cash flow from
operating
activities........ $ 9,681 $ 9,734 $ 12,774 $ 6,859 $ 6,943 N/A $ 3,640 $ 5,003 N/A N/A
Cash flow used in
investing
activities........ $ (666) $(1,103) $ (668) $(237,501) $(28,745) N/A $ (3,437) $(22,357) N/A N/A
Cash flow from
(used in)
financing
activities........ $ (9,727) $(8,734) $(10,887) $ 232,846 $ 20,545 N/A $ (40) $ 19,644 N/A N/A
Capital
expenditures...... $ 669 $ 1,136 $ 701 $ 3,767 $ 6,633 $ 2,449 $ 1,436
Program payments .. $ 4,317 $ 4,277 $ 3,885 $ 2,901 $ 3,766 $ 4,671 $ 797 $ 1,229 $ 1,049 $ 1,106
BALANCE SHEET DATA
(AT PERIOD END):
Cash and cash
equivalents....... $ 196 $ 93 $ 1,313 $ 2,206 $ 949 $ 736 $ 2,369 $ 3,239
Total assets....... 79,079 76,015 78,575 291,141 328,608 356,974 287,937 360,619
Total debt
(including current
portion).......... 66,635 63,235 42,670 150,000 171,500 191,500 150,000 191,500
Stockholders'
equity
(deficit)(l)...... (3,078) (3,440) 24,513 116,293 129,152 144,082 112,108 139,256
</TABLE>
See notes on the following page.
79
<PAGE>
NOTES TO SELECTED FINANCIAL DATA OF ARGYLE:
(a) Includes the results of operations of Argyle, the results of operations of
the acquired WZZM (Grand Rapids, MI), WAPT (Jackson, MS) and WNAC
(Providence, RI) for the full period, the results of operations of the
acquired KITV (Honolulu, HI) from June 13, 1995 and the results of
operations of the acquired WGRZ (Buffalo, NY) from December 5, 1995.
(b) Includes the results of operations of Argyle, the results of operations of
the acquired Arkansas Stations from June 1, 1996 and the Clear Channel
Venture from July 1, 1996.
(c) As to 1996, gives effect to the acquisition of the Arkansas Stations, the
Clear Channel Venture and the Gannett Swap as if all such transactions had
occurred at the beginning of 1996. As to 1997, gives effect to the Gannett
Swap as if such had occurred at the beginning of 1997. The acquisitions
have been accounted for using the purchase method of accounting.
(d) Includes the results of operations of Argyle and the effect on the Gannett
Swap, which occurred effective January 31, 1997.
(e) Represents the cumulative effect of the adoption of SFAS No. 109,
"Accounting for Income Taxes."
(f) Represents the write-offs of unamortized financing costs due to early
extinguishment of bank debt.
(g) Dividends associated with preferred stock related to the acquisition of
the Arkansas Stations.
(h) 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. This measure may not be comparable to similarly titled
measures used by other companies.
(i) Broadcast cash flow margin is broadcast cash flow divided by total
revenues, expressed as a percentage.
(j) 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. This measure may not be
comparable to similarly titled measures used by other companies.
(k) Operating cash flow margin is operating cash flow divided by total
revenues, expressed as a percentage.
(l) Argyle has not paid any dividends on its common stock since inception.
(See footnote (g) above.)
80
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF THE HEARST BROADCAST GROUP
The selected combined financial data of the Hearst Broadcast Group should be
read in conjunction with the Hearst Broadcast Group's historical financial
statements and notes thereto included elsewhere herein and "Hearst Broadcast
Group's Management's Discussion and Analysis of Financial Condition and
Results of Operations." The historical financial data for the three months
periods ended March 31, 1996 and 1997 and for the years ended December 31,
1992 and 1993 have been derived from the unaudited combined financial
statements of the Hearst Broadcast Group. The historical financial data for
the years ended December 31, 1994, 1995 and 1996 have been derived from the
audited combined financial statements of the Hearst Broadcast Group.
The historical financial data for the years ended December 31, 1992 and 1993
and for the three months ended March 31, 1996 and 1997 are unaudited but, in
the opinion of management of the Hearst Broadcast Group, have been prepared on
the same basis as the audited combined financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for
those periods. Results for the three months ended March 31, 1997 are not
necessarily indicative of the results for a full year.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ ------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $221,159 $224,067 $259,459 $279,340 $283,971 $ 61,945 62,053
Station operating
expenses............... 106,430 103,880 106,281 117,535 121,501 29,908 30,079
Amortization of program
rights................. 36,768 37,087 40,266 38,619 40,297 10,366 9,519
Depreciation and
amortization........... 26,107 26,008 23,071 22,134 16,971 4,292 4,088
-------- -------- -------- -------- -------- -------- --------
Station operating
income................. 51,854 57,092 89,841 101,052 105,202 17,379 18,367
Corporate expenses...... 5,657 5,924 8,007 7,857 7,658 1,914 2,129
-------- -------- -------- -------- -------- -------- --------
Operating income........ 46,197 51,168 81,834 93,195 97,544 15,465 16,238
Interest expense, net... 22,510 22,773 22,678 22,218 21,235 5,335 5,101
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations before
income taxes........... 23,687 28,395 59,156 70,977 76,309 10,130 11,137
Income taxes............ 10,658 17,123 25,265 30,182 31,907 4,349 4,741
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 13,029 $ 11,272 $ 33,891 $ 40,795 $ 44,402 $ 5,781 $ 6,396
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Broadcast cash flow, as
defined(a)............. $ 82,077 $ 82,626 $113,999 $123,038 $117,947 $ 20,381 $ 22,330
Broadcast cash flow
margin(b).............. 37.1% 36.9% 43.9% 44.0% 41.5% 32.9% 36.0%
Operating cash flow, as
defined(c)............. $ 77,891 $ 79,147 $108,749 $117,087 $109,457 $ 15,119 $ 16,007
Operating cash flow
margin(d).............. 35.2% 35.3% 41.9% 41.9% 38.5% 24.4% 25.8%
Cash Flows from
Operating Activities... N/A N/A $ 44,460 $ 61,185 $ 65,802 $ 18,302 $ 14,338
Cash Flows used in
Investing Activities... N/A N/A $ (8,430) $ (8,621) $ (7,764) $ (1,793) $ (1,419)
Cash Flows used in
Financing Activities... N/A N/A $(33,584) $(52,020) $(58,145) $(15,154) $(12,041)
Capital expenditures.... $ 6,398 $ 4,879 $ 8,430 $ 8,621 $ 7,764 $ 1,793 $ 1,419
Program payments ....... $ 32,652 $ 37,561 $ 39,179 $ 38,767 $ 44,523 $ 11,656 $ 9,644
BALANCE SHEET DATA:
Cash and cash
equivalents............ N/A N/A $ 2,446 $ 2,990 $ 2,882 $ 4,345 $ 3,760
Total assets............ N/A N/A $387,984 $385,406 $366,956 $358,389 $345,426
Due to Parent Company
and Affiliates......... N/A N/A $283,988 $272,762 $259,020 $263,391 $253,375
</TABLE>
See notes on the following page.
81
<PAGE>
NOTES TO THE SELECTED HISTORICAL FINANCIAL DATA OF THE HEARST BROADCAST GROUP:
(a) Broadcast cash flow is defined as station operating income, plus
depreciation and amortization, plus amortization of program rights, and
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. This measure may
not be comparable to similarly titled measures used by other companies.
(b) Broadcast cash flow margin is broadcast cash flow divided by total
revenues, expressed as a percentage.
(c) Operating cash flow is defined as operating income, plus depreciation and
amortization, plus amortization of program rights, minus program payments,
and adjusted for 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 principals. This
measure may not be comparable to similarly titled measures used by other
companies.
(d) Operating cash flow margin is operating cash flow divided by total
revenues, expressed as a percentage.
82
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA OF HEARST-ARGYLE
The selected unaudited pro forma financial data of Hearst-Argyle should be
read in conjunction with Hearst-Argyle's unaudited pro forma combined
condensed financial statements and notes thereto included elsewhere in this
Proxy Statement/Prospectus. The pro forma financial data for the year ended
December 31, 1996 have been derived from the unaudited pro forma combined
condensed financial statements of Argyle and the audited historical financial
statements of the Hearst Broadcast Group. The pro forma financial data for the
three months ended March 31, 1996 and 1997 have been derived from the
unaudited pro forma combined condensed financial statements of Argyle and the
unaudited historical financial statements of the Hearst Broadcast Group. The
pro forma combined condensed financial statements have been prepared assuming
the maximum amount of cash consideration, or approximately $160 million
(maximum), and the minimum amount of cash consideration, $100 million
(minimum).
<TABLE>
<CAPTION>
HEARST-ARGYLE PRO FORMA(A)
------------------------------
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------ -----------------
1996(A) 1996(A) 1997(A)
------------ ------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
MAXIMUM:
STATEMENT OF OPERATIONS DATA:
Total revenues................................ $370,249 $80,597 $ 81,321
Station operating expenses.................... 163,273 40,569 41,134
Amortization of program rights................ 45,522 11,513 10,592
Depreciation and amortization................. 32,050 8,062 8,287
-------- ------- --------
Station operating income...................... 129,404 20,453 21,308
Corporate expenses............................ 11,000 2,750 2,750
-------- ------- --------
Operating income.............................. 118,404 17,703 18,558
Interest expense, net......................... 48,062 12,016 12,016
-------- ------- --------
Income from continuing operations before
income taxes................................. 70,342 5,687 6,542
Income taxes.................................. 30,847 2,799 3,130
-------- ------- --------
Income from continuing operations............. 39,495 2,888 3,412
Less preferred stock dividends................ (1,422) (356) (356)
-------- ------- --------
Earnings applicable to common stock........... $ 38,073 $ 2,532 $ 3,056
======== ======= ========
Earnings per common share..................... $ 0.85 $ 0.06 $ 0.07
======== ======= ========
Number of shares used in per share
calculation(b)............................... 44,636 44,636 44,636
OTHER DATA:
Broadcast cash flow, as defined(c)............ $157,782 $27,575 $ 29,437
Broadcast cash flow margin(d)................. 42.6% 34.2% 36.2%
Operating cash flow, as defined(e)............ $146,782 $24,825 $ 26,687
Operating cash flow margin(f)................. 39.6% 30.8% 32.8%
Program payments(g)........................... $ 49,194 $12,453 $ 10,750
BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 6,999
Total assets....................................................... 879,428
Total debt......................................................... 656,500
Stockholders' equity............................................... 81,017
</TABLE>
See notes on the following pages.
83
<PAGE>
<TABLE>
<CAPTION>
HEARST-ARGYLE PRO FORMA(A)
------------------------------
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------ -----------------
1996(A) 1996(A) 1997(A)
------------ ------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
MINIMUM:
STATEMENT OF OPERATIONS DATA:
Total revenues................................ $370,249 $80,597 $ 81,321
Station operating expenses.................... 163,273 40,565 41,134
Amortization of program rights................ 45,522 11,513 10,592
Depreciation and amortization................. 31,848 8,011 7,807
-------- ------- --------
Station operating income...................... 129,606 20,504 21,788
Corporate expenses............................ 11,000 2,750 2,750
-------- ------- --------
Operating income.............................. 118,606 17,754 19,038
Interest expense, net......................... 44,162 11,041 11,041
-------- ------- --------
Income from continuing operations before
income taxes................................. 74,444 6,713 7,997
Income taxes.................................. 32,542 3,199 3,702
-------- ------- --------
Income from continuing operations............. 41,902 3,514 4,295
Less preferred stock dividends................ (1,422) (356) (356)
-------- ------- --------
Earnings applicable to common stock........... $ 40,480 $ 3,158 $ 3,939
======== ======= ========
Earnings per common share..................... $ 0.86 $ 0.07 $ 0.08
======== ======= ========
Number of shares used in per share
calculation(b)............................... 46,888 46,888 46,888
OTHER DATA:
Broadcast cash flow, as defined(c)............ $157,782 $27,575 $ 29,437
Broadcast cash flow margin(d)................. 42.6% 34.2% 36.2%
Operating cash flow, as defined(e)............ $146,782 $24,825 $26,687
Operating cash flow margin(f)................. 39.6% 30.8% 32.8%
Program payment(g)............................ $ 49,194 $12,453 $ 10,750
BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 6,999
Total assets....................................................... 871,342
Total debt......................................................... 596,500
Stockholders' equity............................................... 132,931
</TABLE>
See notes on the following page.
84
<PAGE>
NOTES TO THE SELECTED UNAUDITED PRO FORMA FINANCIAL DATA OF HEARST-ARGYLE:
(a) Includes the unaudited pro forma combined results of operations of Argyle
and the historical results of operations of the Hearst Broadcast Group on
a combined pro forma basis as if the Hearst Transaction had occurred at
the beginning of the periods presented. The data does not include the
required divestiture of WNAC and WDTN. See "Unaudited Pro Forma Combined
Condensed Financial Statements."
(b) Represents shares issued assuming the maximum cash payment or the minimum
cash payment, as the case may be, and excludes any effect of preferred
stock conversion and the effect of any Hearst-Argyle stock options.
(c) Broadcast cash flow is defined as station operating income, plus
depreciation and amortization and write down of intangible assets, plus
amortization of program rights, minus program payments. Pro forma
broadcast cash flow would be $160,330 for the year ended December 31, 1996
and $28,334 for the three months ended March 31, 1996 using normalized
program payments for each respective period. (See note (g) below.)
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. This measure may not be
comparable to similarly titled measures used by other companies.
(d) Broadcast cash flow margin is broadcast cash flow divided by total
revenues, expressed as a percentage.
(e) Operating cash flow is defined as operating income, plus depreciation and
amortization, and amortization of program rights, minus program payments
and adjusted for any non-cash compensation expense. Pro forma operating
cash flow would be $149,330 for the year ended December 31, 1996 and
$25,584 for the three months ended March 31, 1996 using normalized program
payments for each respective period. (See note (g) below.) 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. This
measure may not be comparable to similarly titled measures used by other
companies.
(f) Operating cash flow margin is operating cash flow divided by total
revenues, expressed as a percentage.
(g) Program payments for the year ended December 31, 1996 and the quarter
ended March 31, 1996 include $2.5 million and $0.8 million, respectively,
of the last year of Hearst Broadcast Group scheduled program payments for
a program which was replaced during the end of 1995. Without these
amounts, program payments are normalized period to period.
85
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
(the "Pro Forma Statements") give effect to the Hearst Transaction. Upon
consummation of the Hearst Transaction, at the election of each Argyle
stockholder and subject to the Limitations and Allocation Prorations, Argyle
stockholders will receive (i) the Cash Consideration; (ii) the Stock
Consideration; or, (iii) the Mixed Consideration. The Cash Election and the
Stock Elections are subject to the Limitations and Allocation Prorations. The
following Pro Forma Statements assume that the Argyle stockholders in the
aggregate make elections to receive the maximum amount of cash consideration,
or approximately $160 million (maximum) or the minimum amount of cash
consideration, $100 million (minimum).
For accounting purposes, Hearst has been deemed to be the acquiror of
Argyle. Accordingly, the assets and liabilities of Argyle have been adjusted
to the extent acquired by Hearst to their estimated fair values based upon
preliminary purchase price allocation. The net assets of the Hearst Broadcast
Group have been reflected at their historical cost basis.
The unaudited pro forma combined condensed statements of operations for the
three months ended March 31, 1996 and 1997 and for the year ended December 31,
1996 give effect to the Hearst Transaction as if it had occurred at the
beginning of each period presented on both a maximum and minimum basis. The
unaudited pro forma combined condensed statements of operations were prepared
based upon the historical combined statements of operations of the Hearst
Broadcast Group and the unaudited pro forma combined condensed statements of
operations of Argyle. The unaudited pro forma combined condensed statements of
operations of Argyle for 1996 give effect to the acquisition of the Arkansas
Stations, the Clear Channel Venture and the Gannett Swap as if all such
transactions had occurred at the beginning of 1996; and for 1997 give effect
to the Gannett Swap as if such transaction had occurred at the beginning of
1997.
The unaudited pro forma combined condensed balance sheets at March 31, 1997
give effect to the Hearst Transaction as if it had occurred on March 31, 1997
on both a maximum and minimum basis and is based upon the historical balance
sheets of the Hearst Broadcast Group and Argyle.
The Pro Forma Statements should be read in conjunction with the Hearst
Broadcast Group and Argyle historical and pro forma financial statements
included in this Proxy Statement/Prospectus.
Economies of scale or synergies which may be available to the Hearst-Argyle
stations as a result of the Merger were not considered in the Pro Forma
Statements. The Pro Forma Statements are not necessarily indicative of the
actual results of operations or financial position of Hearst-Argyle that would
have occurred had the Hearst Transaction occurred on the dates indicated nor
are they necessarily indicative of future operating results or financial
position.
86
<PAGE>
HEARST-ARGYLE
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET--MAXIMUM
AS OF MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HEARST HEARST HEARST-
ARGYLE BROADCAST GROUP TRANSACTION ARGYLE DIVESTITURE PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA WNAC/WDTN(C) DIVESTITURE
---------- --------------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 3,239 $ 3,760 $ 40,000 (a) $ 6,999 $ (171) $ 6,828
(40,000)(b)
Accounts receivable,
net................... 14,165 52,913 67,078 (4,187) 62,891
Program rights......... 8,428 16,277 24,705 (2,465) 22,240
Deferred tax asset..... 2,985 5,600 (b) 8,585 8,585
Other.................. 1,832 4,788 6,620 (352) 6,268
-------- -------- --------- -------- -------- --------
Total current assets.... 27,664 80,723 113,987 (7,175) 106,812
Property, plant and
equipment, net......... 50,174 31,723 81,897 (8,048) 73,849
Intangible assets, net.. 236,782 231,112 183,842 (a) 651,736 (40,821) 610,915
Other:
Deferred acquisition
and financing costs,
net................... 5,653 6,000 (a) 6,000 6,000
(5,653)(b)
Program rights,
noncurrent............ 9,202 521 9,723 (1,411) 8,312
Other assets........... 14,738 1,347 16,085 (195) 15,890
-------- -------- --------- -------- -------- --------
Total assets............ $344,213 $345,426 $ 189,789 $879,428 $(57,650) $821,778
======== ======== ========= ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities... $ 11,276 $ 13,308 $ 20,000(a) $ 44,584 $ (1,626) $ 42,958
Program rights
payable............... 8,604 16,406 25,010 (2,011) 22,999
Other current
liabilities........... 233 2,575 2,808 (270) 2,538
-------- -------- --------- -------- -------- --------
Total current
liabilities............ 20,113 32,289 20,000 72,402 (3,907) 68,495
Deferred tax liability.. 54,445 54,445 9,103 63,548
Program rights payable,
noncurrent............. 9,643 1,413 11,056 (1,821) 9,235
Other liabilities....... 104 3,904 4,008 (248) 3,760
Due to parent company... 253,375 (253,375)(a) -- --
New credit facility 506,500 (b) 506,500 (60,777) 445,723
Existing credit
facility............... 41,500 (41,500)(b) -- --
Bridge debt............. 200,000 (a) -- --
(200,000)(b)
Private placement debt.. 275,000 (a) -- --
(275,000)(b)
Senior subordinated
notes.................. 150,000 150,000 150,000 (d)
Stockholders' equity:
Preferred stock........ 2 2 2
Series A common stock.. 39 21 (a) 60 60
Series B common stock.. 1 385 (a) 386 386
Series C common stock.. 73 (73)(a) -- --
Additional paid-in
capital............... 159,358 (61,981)(a) 97,377 97,377
Retained earnings
(deficit)............. (36,620) (5,653)(b) (16,808) (16,808)
(3,500)(a)
(10,400)(b)
39,365 (a)
-------- -------- --------- -------- -------- --------
Total stockholders'
equity................. 122,853 -- (41,836) 81,017 -- 81,017
-------- -------- --------- -------- -------- --------
Total liabilities and
stockholders' equity... $344,213 $345,426 $ 189,789 $879,428 $(57,650) $821,778
======== ======== ========= ======== ======== ========
</TABLE>
See notes on the following pages.
87
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS--MAXIMUM
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HEARST
TRANSACTION PRO FORMA
PRO FORMA HISTORICAL HEARST AND FINANCING HEARST- DIVESTITURE PRO FORMA
ARGYLE BROADCAST GROUP ADJUSTMENTS ARGYLE WNAC/WDTN(F) DIVESTITURE
--------- ----------------- ------------- --------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total revenues.......... $ 84,243 $283,971 $ 2,035 (a) $370,249 $(24,488) $345,761
Station operating
expenses............... 41,772 121,501 163,273 (14,708) 148,565
Amortization of program
rights................. 5,225 40,297 45,522 45,522
Depreciation and
amortization........... 26,075 16,971 (10,996)(b) 32,050 (2,960) 29,090
-------- -------- ------- -------- -------- --------
Station operating
income................. 11,171 105,202 13,031 129,404 (6,820) 122,584
Corporate general and
administrative
expenses............... 4,285 7,658 (943)(c) 11,000 11,000
Non-cash compensation
expense................ 675 (675)(b)
-------- -------- ------- -------- -------- --------
Operating income
(loss)................. 6,211 97,544 14,649 118,404 (6,820) 111,584
Interest expense, net... 18,119 21,235 8,708 (d) 48,062 (3,951) 44,111
-------- -------- ------- -------- -------- --------
Income (loss) before
income taxes........... (11,908) 76,309 5,491 70,342 (2,869) 67,473
Income taxes............ 31,907 (1,060)(e) 30,847 (1,181) 29,666
-------- -------- ------- -------- -------- --------
Income (loss) from
continuing operations.. (11,908) $ 44,402 $ 7,001 39,495 $ (1,688) 37,807
======== ======= ========
Less preferred stock
dividends.............. (1,422) (1,422) (1,422)
-------- -------- --------
Earnings (loss)
applicable to common
stock.................. $(13,330) $ 38,073 $ 36,385
======== ======== ========
Earnings (loss) per
common share........... $ (1.17) $ 0.85 $ 0.82
======== ======== ========
Number of shares used in
per share calculation.. 11,347 44,636 44,636
</TABLE>
See notes on the following pages.
88
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS--MAXIMUM
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
HEARST
TRANSACTION PRO FORMA
PRO FORMA HISTORICAL HEARST AND FINANCING HEARST- DIVESTITURE PRO FORMA
ARGYLE BROADCAST GROUP ADJUSTMENTS ARGYLE WNAC/WDTN(F) DIVESTITURE
--------- ----------------- ------------- --------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total revenues.......... $18,326 $61,945 $ 326 (a) $80,597 $(5,804) $74,793
Station operating
expenses............... 10,661 29,908 40,569 (3,990) 36,579
Amortization of program
rights................. 1,147 10,366 11,513 11,513
Depreciation and
amortization........... 6,267 4,292 (2,497)(b) 8,062 (711) 7,351
------- ------- ------ ------- ------- -------
Station operating
income................. 251 17,379 2,823 20,453 (1,103) 19,350
Corporate general and
administrative
expenses............... 983 1,914 (147)(c) 2,750 2,750
Non-cash compensation
expense................ 169 (169)(b)
------- ------- ------ ------- ------- -------
Operating income
(loss)................. (901) 15,465 3,139 17,703 (1,103) 16,600
Interest expense, net... 4,179 5,335 2,502 (d) 12,016 (988) 11,028
------- ------- ------ ------- ------- -------
Income (loss) before
income taxes........... (5,080) 10,130 637 5,687 (115) 5,572
Income taxes............ -- 4,349 (1,550)(e) 2,799 (47) 2,752
------- ------- ------ ------- ------- -------
Income (loss) from
continuing operations.. (5,080) $ 5,781 $2,187 2,888 $ (68) 2,820
======= ====== =======
Less preferred stock
dividends.............. (356) (356) (356)
------- ------- -------
Earnings (loss)
applicable to common
stock.................. $(5,436) $ 2,532 $ 2,464
======= ======= =======
Earnings (loss) per
common share........... $ (0.48) $ 0.06 $ 0.06
======= ======= =======
Number of shares used in
per share calculation.. 11,347 44,636 44,636
</TABLE>
See notes on the following pages.
89
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS--MAXIMUM
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
HEARST
TRANSACTION PRO FORMA
PRO FORMA HISTORICAL HEARST AND FINANCING HEARST- DIVESTITURE PRO FORMA
ARGYLE BROADCAST GROUP ADJUSTMENTS ARGYLE WNAC/WDTN(F) DIVESTITURE
--------- ----------------- ------------- --------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total revenues.......... $18,854 $62,053 $ 414 (a) $81,321 $(5,164) $76,157
Station operating
expenses............... 11,055 30,079 41,134 (3,734) 37,400
Amortization of program
rights................. 1,073 9,519 10,592 22 10,614
Depreciation and
amortization........... 6,696 4,088 (2,497)(b) 8,287 (714) 7,573
------- ------- ------- ------- ------- -------
Station operating
income................. 30 18,367 2,911 21,308 (738) 20,570
Corporate general and
administrative
expenses............... 1,008 2,129 (387)(c) 2,750 2,750
Non-cash compensation
expense................ 260 (260)(b)
------- ------- ------- ------- ------- -------
Operating income
(loss)................. (1,238) 16,238 3,558 18,558 (738) 17,820
Interest expense, net... 4,418 5,101 2,497 (d) 12,016 (988) 11,028
------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (5,656) 11,137 1,061 6,542 250 6,792
Income taxes............ 4,741 (1,611)(e) 3,130 102 3,232
------- ------- ------- ------- ------- -------
Income (loss) from
continuing operations.. (5,656) $ 6,396 $ 2,672 3,412 $ 148 3,560
======= ======= =======
Less preferred stock
dividends.............. (356) (356) (356)
------- ------- -------
Earnings (loss)
applicable to common
stock.................. $(6,012) $ 3,056 $ 3,204
======= ======= =======
Earnings (loss) per
common share........... $ (0.53) $ 0.07 $ 0.07
======= ======= =======
Number of shares used in
per share calculation.. 11,347 44,636 44,636
</TABLE>
See notes on the following pages.
90
<PAGE>
HEARST-ARGYLE
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET--MINIMUM
AS OF MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HEARST HEARST HEARST
ARGYLE BROADCAST GROUP TRANSACTION ARGYLE DIVESTITURE PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA WNAC/WDTN(C) DIVESTITURE
---------- --------------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash $ 3,239 $ 3,760 $ 40,000 (a) $ 6,999 $ (171) $ 6,828
equivalents........... (40,000)(b)
Accounts receivable,
net................... 14,165 52,913 67,008 (4,187) 62,891
Program rights......... 8,428 16,277 24,705 (2,465) 22,240
Deferred tax asset..... 2,985 5,600 (b) 8,585 8,585
Other.................. 1,832 4,788 6,620 (352) 6,268
-------- -------- --------- -------- -------- --------
Total current assets.... 27,664 80,723 5,600 113,987 (7,175) 106,812
Property, plant and
equipment, net......... 50,174 31,723 81,987 (8,048) 73,849
Intangible assets, net.. 236,782 231,112 175,756 (a) 643,650 (40,821) 602,829
Other:
Deferral acquisition
and financing costs,
net................... 5,653 6,000 (a) 6,000 6,000
(5,653)(b)
Program rights,
noncurrent............ 9,202 521 9,723 (1,411) 8,312
Other assets........... 14,738 1,347 16,085 (195) 15,890
-------- -------- --------- -------- -------- --------
Total assets............ $344,213 $345,426 $ 181,703 $871,342 $(57,650) $813,692
======== ======== ========= ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities... $ 11,276 $ 13,308 $ 20,000 (a) $ 44,584 $ (1,626) $ 42,958
Program rights
payable............... 8,604 16,406 25,010 (2,011) 22,999
Other current
liabilities........... 233 2,575 2,908 (270) 2,538
-------- -------- --------- -------- -------- --------
Total current
liabilities............ 20,113 32,289 20,000 72,402 (3,907) 68,495
Deferred tax liability.. 54,445 54,445 9,103 63,548
Program rights payable,
noncurrent............. 9,643 1,413 11,056 (1,821) 9,235
Other liabilities....... 104 3,904 4,008 (248) 3,760
Due to parent company... 253,375 (253,375)(a) -- --
New credit facility..... 446,500 (b) 446,500 (50,777) 385,723
Existing credit
facility............... 41,500 (41,500)(c) -- --
200,000 (a)
Bridge debt............. (200,000)(b) -- --
275,000 (a)
Private placement debt.. (275,000)(b) -- --
Senior subordinated
notes.................. 130,000 150,000 150,000 (d)
Stockholders' equity:
Preferred stock........ 2 2 2
Series A common stock.. 39 43 (a) 82 82
Series B common stock.. 1 385 (a) 386 386
Series C common stock.. 73 (73)(a) -- --
Additional paid-in 159,358 (8,259)(a) 151,100 151,100
capital...............
Retained earnings (36,620) (5,653)(b) (18,639) 18,639
(deficit).............
(3,500)(a)
(10,400)(b)
37,535 (a)
-------- -------- --------- -------- -------- --------
Total stockholders'
equity................. 122,853 -- 10,078 132,931 -- 132,931
-------- -------- --------- -------- -------- --------
Total liabilities and
stockholders' equity... $344,213 $345,426 $ 181,703 $871,342 $(57,650) $813,692
======== ======== ========= ======== ======== ========
</TABLE>
See notes on the following pages.
91
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS--MINIMUM YEAR
ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HEARST
TRANSACTION PRO FORMA
PRO FORMA HISTORICAL HEARST AND FINANCING HEARST- DIVESTITURE PRO FORMA
ARGYLE BROADCAST GROUP ADJUSTMENTS ARGYLE WNAC/WDTN(F) DIVESTITURE
--------- ----------------- ------------- --------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total revenues.......... $ 84,243 $283,971 $ 2,035 (a) $370,249 $(24,488) $345,761
Station operating
expenses............... 41,772 121,501 -- 163,273 (14,708) 148,565
Amortization of program
rights................. 5,225 40,297 -- 45,522 -- 45,522
Depreciation and
amortization........... 26,075 16,971 (11,198)(b) 31,848 (2,960) 28,888
-------- -------- -------- -------- -------- --------
Station operating
income................. 11,171 105,202 13,233 129,606 (6,820) 122,786
Corporate general and
administrative
expenses............... 4,285 7,658 (943)(e) 11,000 -- 11,000
Non-cash compensation
expense................ 675 -- (675)(b) -- -- --
-------- -------- -------- -------- -------- --------
Operating income
(loss)................. 6,211 97,544 14,851 118,606 (6,820) 111,786
Interest expense, net... 18,119 21,235 4,808 (d) 44,162 (3,951) 40,211
-------- -------- -------- -------- -------- --------
Income (loss) before
income taxes........... (11,908) 76,309 10,043 74,444 (2,869) 71,575
Income taxes............ -- 31,907 635 (e) 32,542 (1,181) 31,361
-------- -------- -------- -------- -------- --------
Income (loss) from
continuing operations.. (11,908) $ 44,402 $ 9,408 41,902 (1,688) 40,214
======== ======== ========
Less preferred stock
dividends.............. (1,422) (1,422) (1,422)
-------- -------- --------
Earnings (loss)
applicable to common
stock.................. $(13,330) $ 40,480 $ 38,792
======== ======== ========
Earnings (loss per
common share........... $ (1.17) $ 0.86 $ 0.83
======== ======== ========
Number of shares used in
per share calculation.. 11,347 46,888 46,888
</TABLE>
See notes on the following pages.
92
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS--MINIMUM
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
HEARST
TRANSACTION PRO FORMA
PRO FORMA HISTORICAL HEARST AND FINANCING HEARST DIVESTITURE PRO FORMA
ARGYLE BROADCAST GROUP ADJUSTMENTS ARGYLE WNAC/WDTN(F) DIVESTITURE
--------- ----------------- ------------- --------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total revenues.......... $18,326 $61,945 $ 326(a) $80,597 $(5,804) $74,793
Station operating
expenses............... 10,661 29,908 40,569 (3,990) 36,579
Amortization of program
rights................. 1,147 10,366 11,513 11,513
Depreciation and
amortization........... 6,267 4,292 (2,548) 8,011 (711) 7,300
------- ------- ------- ------- ------- -------
Station operating
income................. 251 17,379 2,874 20,504 (1,103) 19,401
Corporate general and
administrative
expenses............... 983 1,914 (147)(c) 2,750 2,750
Non-cash compensation
expense................ 169 (169)(b)
------- ------- ------- ------- ------- -------
Operating income
(loss)................. (901) 15,465 3,190 17,754 (1,103) 16,651
Interest expense, net... 4,179 5,335 1,527(d) 11,041 (988) 10,053
------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (5,080) 10,130 1,663 6,713 (115) 6,598
Income taxes............ -- 4,349 (1,150)(c) 3,199 (47) 3,152
------- ------- ------- ------- ------- -------
Income (loss) from
continuing operations.. (5,080) $ 5,781 $ 2,813 3,514 $ (68) 3,446
======= ======= =======
Less preferred stock
dividends.............. (356) (356) (356)
------- ------- -------
Earnings (loss)
applicable to common
stock.................. $(5,436) $ 3,158 $ 3,090
======= ======= =======
Earnings (loss) per
common share........... $ (0.48) $ 0.07 $ 0.07
======= ======= =======
Number of shares used in
per share calculation.. 11,347 46,888 46,888
</TABLE>
See notes on the following pages.
93
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS--MINIMUM
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
HEARST
HISTORICAL TRANSACTION
HEARST AND
PRO FORMA BROADCAST FINANCING PRO FORMA DIVESTITURE PRO FORMA
ARGYLE GROUP ADJUSTMENTS HEARST-ARGYLE WNAC/WDTN(F) DIVESTITURE
--------- ---------- ----------- ------------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total revenues.......... $18,854 $62,053 $ 414 (a) $81,321 $(5,164) $76,157
Station operating
expenses............... 11,055 30,079 41,134 (3,734) 37,400
Amortization of program
rights................. 1,073 9,519 10,592 22 10,614
Depreciation and
amortization........... 6,696 4,088 (2,977)(b) 7,807 (714) 7,093
------- ------- ------- ------- ------- -------
Station operating
income................. 30 18,367 3,391 21,788 (738) 21,050
Corporate general and
administrative
expenses............... 1,008 2,129 (387)(c) 2,750 2,750
Non-cash compensation
expense................ 260 (260)(b)
------- ------- ------- ------- ------- -------
Operating income
(loss)................. (1,238) 16,238 4,038 19,038 (738) 18,300
Interest expense, net... 4,418 5,101 1,522 (d) 11,041 (988) 10,053
------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (5,656) 11,137 2,516 7,997 250 8,247
Income taxes............ 4,741 (1,039)(e) 3,702 102 3,804
------- ------- ------- ------- ------- -------
Income (loss) from
continuing operations.. (5,656) $ 6,396 $ 3,555 4,295 $ 148 4,443
======= ======= =======
Less preferred stock
dividends.............. (356) (356) (356)
------- ------- -------
Earnings (loss)
applicable to common
stock.................. $(6,012) $ 3,939 $ 4,087
======= ======= =======
Earnings (loss) per
common share........... $ (0.53) $ .08 $ .09
======= ======= =======
Number of shares used in
per share calculation.. 11,347 46,888 46,888
</TABLE>
See notes on the following pages.
94
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The pro forma combined condensed financial statements reflect the following:
(i) The issuance of 38,611,002 shares of Series B Common Stock in
exchange for the Contribution and the Merger.
(ii) The exchange of 6,025,319 shares of Hearst-Argyle Series A Common
Stock and approximately $160 million cash (maximum cash payment) or $100
million cash (minimum cash payment) for all of the outstanding Series A
Common Stock and outstanding options. Holders of in excess of 75% of the
outstanding options have agreed to make an Election with respect to such
options other than a Rollover Election, and therefore such options will not
be outstanding after the Merger. The remaining 25% of the outstanding
options have an average exercise price of $16.07 per share, and given that
(i) the Cash Consideration is $26.50; (ii) a majority of these options were
granted more than two years ago; and, (iii) these optionholders have not
previously had an opportunity to access the value of the stock options
because a Form S-8 Registration Statement has not been filed for Argyle's
current option plan, the pro forma combined condensed financial statements
assume that the holders of these options also will make an Election other
than a Rollover Election.
(iii) Refinancing of certain existing indebtedness with borrowings under
the New Credit Facility. The four pieces of existing indebtedness are the
Bridge Debt, the Existing Credit Facility, the Private Placement Debt and
the Senior Subordinated Notes. The New Credit Facility specifically
provides that borrowings under such facility may be used to refinance each
piece of the existing indebtedness. See "The Hearst Transaction Proposal--
Financing the Hearst Transaction--The Chase Financing Commitment." The pro
forma combined condensed financial statements assume that (i) the Bridge
Debt is refinanced with borrowings under the New Credit Facility--this
assumption was made because Chase is the lender under the Bridge Debt, and
such refinancing has been discussed specifically with Chase; (ii) the
Existing Credit Facility is refinanced with borrowings under the New Credit
Facility--this assumption was made because Chase is the agent for the
lenders under the Existing Credit Facility, and such refinancing has been
discussed specifically with Chase and such lenders; (iii) the Private
Placement Debt and applicable make-whole premium is refinanced and paid
with borrowings under the New Credit Facility--this assumption was made
because (x) the assumption of the Private Placement Debt is subject to the
consent of the lenders of such indebtedness, and as of July 31, 1997, such
lenders had not provided this consent, and (y) at the closing of the Hearst
Transaction, Hearst-Argyle would not satisfy certain of the covenants and
conditions of the agreements governing the Private Placement Debt (see "The
Hearst Transaction Proposal--Financing the Hearst Transaction--Hearst
Private Placement Debt."); and, (iv) the Senior Subordinated Notes remain
outstanding and are not refinanced--this assumption was made because the
current trading price of such notes is above the amount that Argyle is
required to offer to repurchase such notes (see "The Hearst Transaction
Proposal--Financing the Hearst Transaction--Argyle's Existing
Indebtedness").
(iv) Argyle's outstanding convertible preferred stock is not converted
into common stock at or before the time of the Merger. Argyle believes that
the preferred stock will not be converted because (i) only one of the two
series of preferred stock outstanding is convertible by its terms at this
time and (ii) the series of preferred stock that is currently convertible
has a conversion price of $35 (or, in other words, can be converted into
one share of Series A Common Stock for each $35 of liquidation preference
carried by the preferred stock), which is significantly less than the
$26.50 Cash Consideration.
(v) The divestiture of WNAC for $47.5 million and WDTN at its net book
value with the proceeds used to retire indebtedness under the New Credit
Facility.
For accounting purposes, the Hearst Transaction is viewed as an acquisition
of Argyle by Hearst with a simultaneous transfer of the Hearst Broadcast Group
to Argyle. Accordingly, for accounting purposes, the net assets of Argyle will
be adjusted to the extent acquired by Hearst to their estimated fair values;
the capital structure of Hearst-Argyle will be adjusted to reflect its
anticipated capital structure; and paid-in capital of Hearst-Argyle will be
adjusted for the difference. The net assets of the Hearst Broadcast Group will
be reflected at their historical cost basis.
95
<PAGE>
For purposes of the Pro Forma Statements, the estimated purchase price of
Argyle was determined as follows assuming the Maximum Cash Payment ($160
million) and the Minimum Cash Payment ($100 million):
<TABLE>
<CAPTION>
MAXIMUM CASH MINIMUM CASH
PAYMENT PAYMENT
------------- ------------
<S> <C> <C>
Series A Common Stock outstanding at March 31,
1997 adjusted to reflect the conversion of
Series B Common Stock and Series C Common Stock
and the effect of all outstanding Argyle
Options......................................... 12,050,639 12,050,639
Value per share.................................. $ 26.50 $ 26.50
------------- ------------
$ 319,342,000 319,342,000
Percentage acquired by Hearst assuming the
maximum cash payment is elected................. 86% 82%
------------- ------------
$ 274,634,000 $261,860,000
Estimated transaction costs...................... 16,000,000 16,000,000
------------- ------------
Total estimated purchase price................... $ 290,634,000 $277,860,000
============= ============
For purposes of these Pro Forma Statements, the total estimated purchase
price is allocated as follows:
Total estimated purchase price................... $290,634,000 $277,860,000
86% (maximum) and 82% (minimum) of Argyle's net
assets at March 31, 1997 adjusted for the
charge-off of $5,653,000 in deferred financing
costs and non-cash compensation expense related
to the settlement of the Argyle Options of
$3,500,000...................................... (100,792,000) (96,104,000)
------------- ------------
Estimated excess purchase price to be allocated.. $ 189,842,000 $181,756,000
============= ============
Allocations:
Intangibles (principally goodwill)............... $ 183,842,000 $175,756,000
Deferred financing costs......................... 6,000,000 6,000,000
------------- ------------
$ 189,842,000 $181,756,000
============= ============
</TABLE>
The estimated purchase price and the resulting allocations are based on
management's preliminary estimations and have been made solely for purposes of
developing the unaudited pro forma combined condensed financial statements.
Any subsequent adjustments and any uncertainties affecting the pro forma
presentation based upon such allocations are not expected to be significant.
The pro forma combined condensed financial statements do not reflect the
impact of the transfer of the surplus pension assets which would be utilized
to reduce future expense associated with the new Hearst-Argyle defined benefit
plans. See "Management of Hearst-Argyle After the Merger-Pension Plan Table."
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS ADJUSTMENTS:
(a) To reflect the Hearst Transaction and the adjustment to the extent
acquired by Hearst of the net assets of Argyle to their estimated fair
values including:
Merger with Cash Sub.
Issuance of 38,611,002 shares of Hearst-Argyle Series B Common Stock to
Hearst and Cash Sub for the net assets of the Hearst Broadcast Group
and in the Merger, substitution of Hearst's $275 million Private
Placement Debt and Net Asset adjustment of approximately $18 million.
Hearst may elect to take the value of the Net Asset adjustment in the
form of Hearst-Argyle Series B Common Stock, which would have equaled,
assuming a March 31, 1997 closing, approximately 680,000 shares.
96
<PAGE>
Conversion of Series B Common Stock and Series C Common Stock into
Series A Common Stock and the effect of the existing Argyle Options.
Redemption of Series A Common Stock for approximately $160 million cash
(maximum cash payment) or $100 million cash (minimum cash payment).
Adjustment of Argyle intangible assets to estimated fair value. Write-
off of deferred stock option compensation expense in connection with
the exercise of all existing Argyle Options.
(b) To reflect the refinancing of the Bridge Debt, Existing Credit Facility
and the Private Placement Debt with borrowings under the New Credit
Facility and available cash and the write-off of unamortized financing
fees related to the Existing Credit Facility and the payment of make-whole
premium related to the Private Placement Debt. The four pieces of existing
indebtedness are the Bridge Debt, the Existing Credit Facility, the
Private Placement Debt and the Senior Subordinated Notes. The New Credit
Facility specifically provides that borrowings under such facility may be
used to refinance each piece of the existing indebtedness. See "The Hearst
Transaction Proposal--Financing the Hearst Transaction--The Chase
Financing Commitment." The pro forma combined condensed financial
statements assume that (i) the Bridge Debt is refinanced with borrowings
under the New Credit Facility--this assumption was made because Chase is
the lender under the Bridge Debt, and such refinancing has been discussed
specifically with Chase; (ii) the Existing Credit Facility is refinanced
with borrowings under the New Credit Facility--this assumption was made
because Chase is the agent for the lenders under the Existing Credit
Facility, and such refinancing has been discussed specifically with Chase
and such lenders; (iii) the Private Placement Debt and applicable make-
whole premium is refinanced and paid with borrowings under the New Credit
Facility--this assumption was made because (x) the assumption of the
Private Placement Debt is subject to the consent of the lenders of such
indebtedness, and as of July 31, 1997, such lenders had not provided this
consent, and (y) at the closing of the Hearst Transaction, Hearst-Argyle
would not satisfy certain of the covenants and conditions of the
agreements governing the Private Placement Debt (see "The Hearst
Transaction Proposal--Financing the Hearst Transaction--Hearst Private
Placement Debt."); and, (iv) the Senior Subordinated Notes remain
outstanding and are not refinanced--this assumption was made because the
current trading price of such notes is above the amount that Argyle is
required to offer to repurchase such notes (see "The Hearst Transaction
Proposal--Financing the Hearst Transaction--Argyle's Existing
Indebtedness").
(c) Upon consummation of the Hearst Transaction, Hearst-Argyle will own
televisions stations in two areas (Boston and Providence, and Dayton and
Cincinnati) with overlapping service contours in violation of the FCC's
local ownership rules. The FCC's rules prohibit the ownership of two
stations in the same geographic area whose service contours overlap.
Accordingly, Hearst-Argyle will be required to divest one station in each
of the aforementioned areas. A letter of intent has been signed to divest
WNAC for $47.5 million, and Argyle and Hearst currently are in
negotiations with a third party to divest WDTN. If either or both of these
stations are sold for cash, the proceeds of such sale will be used to
reduce indebtedness under the New Credit Facility (see "The Hearst
Transaction Proposal--Financing the Hearst Transaction--The Chase
Financing Commitment"), and therefore the pro forma balance sheets reflect
a reduction in the New Credit Facility by an amount equal to the sum of
$47.5 million for WNAC and WDTN's net book value of $13.3 million. While
net book value has been used in the unaudited combined condensed financial
statements for the divestiture of WDTN because no other valuation
currently can be based on an independent, third party offer, divestiture
of WDTN at net book value would be equivalent to selling WDTN at a price
equal to less than three times WDTN's 1996 broadcast cash flow. Given the
valuations of broadcasting properties in recent transactions, including
the valuation of Argyle implicit in the Hearst Transaction (see "The
Hearst Transaction Proposal--Fairness Opinion--Transaction Value and
Multiple Analysis" and "--Analysis of Value to Argyle Stockholders"),
Argyle management believes that the divestiture of WDTN will occur at a
valuation significantly higher than its net book value. See "The Hearst
Transaction Proposal--Regulatory Approvals."
(d) Assumes that upon consummation of the Hearst Transaction, all of the
Senior Subordinated Notes will remain outstanding and will not be
refinanced. If the Senior Subordinated Notes are required to be
refinanced, it is anticipated that Hearst-Argyle will do so with
borrowings under the New Credit Facility. Fees associated with this
possible refinancings would approximate $1.5 million and would be funded
by the New Credit Facility.
97
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS ADJUSTMENTS:
(a) The fees associated with Hearst-Argyle's provision of certain management
services to Hearst with respect to KCWB, WWWB, WPBF and WBAL/WIYY from the
beginning of the periods presented.
(b) The conforming of accounting policies related to stock based compensation
and the amortization of intangible assets resulting from purchase
accounting adjustments, net of amortization already recorded in the
historical financial statements. The estimated useful lives used for these
intangible assets were as follows: Goodwill--40 years; FCC licenses--40
years; network affiliation agreements--40 years and other intangibles
assets--2 to 5 years.
(c) The change in corporate expenses associated with Hearst-Argyle's new
organizational structure, including the Services Agreement (which includes
certain administrative services such as accounting, financial, legal, tax,
insurance, data processing and employee benefits) and other applicable
agreements expected to be entered into upon consummation of the Merger.
(d) Interest expense on the pro forma debt and the amortization of deferred
financing costs over the period of the related financings as follows:
<TABLE>
<CAPTION>
MAXIMUM CASH MINIMUM CASH
PAYMENT PAYMENT
------------------- ----------------
PRO
FORMA
PRO FORMA PRO 3/31/96
PRO FORMA 3/31/96 & FORMA &
12/31/96 3/31/97 12/31/96 3/31/97
--------- --------- -------- -------
<S> <C> <C> <C> <C>
New Credit Facility at an assumed
interest rate of 6.5%, net.............. $32,837 $ 8,210 28,937 7,235
Senior Subordinated Notes at an interest
rate of 9.75%........................... 14,625 3,656 14,625 3,656
Amortization of deferred financing
costs................................... 600 150 600 150
------- ------- ------ ------
$48,062 $12,016 44,162 11,041
======= ======= ====== ======
</TABLE>
The pro forma statements of operations exclude the extraordinary charge
related to the Private Placement Debt make-whole premium of $16 million and
related tax benefit of $5.6 million.
(e) Estimated income tax effect of the above adjustments, after giving
consideration to the tax sharing agreement that is expected to be entered
into upon consummation of the Merger.
(f) Upon completion of the Hearst Transaction, Hearst-Argyle will own
television stations in two areas (Boston and Providence, and Dayton and
Cincinnati) with overlapping service contours in violation of the FCC's
local ownership rules. The FCC's rules prohibit the ownership of two
stations in the same geographic area whose service contours overlap.
Accordingly, Hearst-Argyle will be required to divest one station in each
of the aforementioned areas. A letter of intent has been signed to divest
WNAC for $47.5 million, and Argyle and Hearst currently are in
negotiations with a third party to divest WDTN. If either or both of these
stations are sold for cash, the proceeds of such sale will be used to
reduce indebtedness under the New Credit Facility (see "The Hearst
Transaction Proposal--Financing the Hearst Transaction--The Chase
Financing Commitment"), and therefore the pro forma statements of
operations reflect the effects of a reduction in the New Credit Facility
by an amount equal to the sum of $47.5 million for WNAC and WDTN's net
book value of $13.3 million. While net book value has been used in the
unaudited combined condensed financial statements for the divestiture of
WDTN because no other valuation currently can be based on an independent,
third-party offer, a divestiture of WDTN at net book value would be
equivalent to selling WDTN at a price equal to less than three times
WDTN's 1996 broadcast cash flow. Given the valuations of broadcasting
properties in recent transactions, including the valuation of Argyle
implicit in the Hearst Transaction (see "The Hearst Transaction Proposal--
Fairness Opinion--Transaction Value and Multiple Analysis" and "--Analysis
of Value to Argyle Stockholders"), Argyle management believes that the
divestiture of WDTN will occur at a valuation significantly higher than
its net book value. See "The Hearst Transaction Proposal--Regulatory
Approvals."
98
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS OF ARGYLE TELEVISION,
INC.
The Unaudited Pro Forma Combined Condensed Statements of Operations of
Argyle for the year ended December 31, 1996 and the three months ended March
31, 1996 and 1997 have been prepared as if the acquisition of the Arkansas
Stations and the Clear Channel Venture and the Gannett Swap transactions had
been completed as of the beginning of the periods presented. The acquisitions
of the Arkansas Stations and the Clear Channel Venture and the Gannett Swap
transactions are accounted for using the purchase method of accounting. Any
subsequent adjustments and any uncertainties affecting the pro forma
presentation are not expected to be significant. The pro forma statements of
operations presented herein are not necessarily indicative of Argyle's results
of operations that might have occurred had such transactions been completed at
the beginning of the periods indicated and do not purport to represent
Argyle's consolidated results of operations for any future period.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ARKANSAS CLEAR CHANNEL
HISTORICAL JANUARY 1 TO ACQUISITION VENTURE GANNETT SWAP PRO FORMA
ARGYLE(A) MAY 31, 1996 ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ARGYLE
---------- ------------ ----------- ------------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total revenues.......... $ 73,294 $3,462 $(1,843)(g) $ 8,597 (h) $ 84,243
733 (c)
Station operating
expenses............... 37,639 2,677 (459)(c) (1,973)(c)(g) 5,475 (h) 41,772
(1,587)(c)
Amortization of program
rights................. 4,725 88 412 (h) 5,225
Depreciation and
amortization........... 23,965 1,198 (d)(e) 912 (d)(e) 26,075
-------- ------ ------ ------- ------- --------
Station operating income
(loss)................. 6,965 697 (739) 863 3,385 11,171
Corporate general and
administrative
expenses............... 4,285 4,285
Non-cash compensation
expense................ 675 675
-------- ------ ------ ------- ------- --------
Operating income
(loss)................. 2,005 697 (739) 863 3,385 6,211
Interest expense, net... 16,566 1,553 (f) 18,119
-------- ------ ------ ------- ------- --------
Income (loss) from
continuing operations.. $(14,561) $ 697 $ (739) $ 863 $ 1,832 $(11,908)
======== ====== ====== ======= ======= ========
</TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
ARKANSAS CLEAR CHANNEL
HISTORICAL JANUARY 1 TO VENTURE GANNETT SWAP PRO FORMA
ARGYLE(A) MARCH 31, 1996 ADJUSTMENTS ADJUSTMENTS ARGYLE
---------- -------------- ------------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total revenues.......... $15,495 $1,895 $(914)(g) $1,556 (h) $18,326
294 (c)
Station operating
expenses............... 8,898 1,404 (710)(g)(c) 1,494 (h) 10,661
(82) (343)(c)
Amortization of program
rights................. 1,289 52 (305) 111 (h) 1,147
Depreciation and
amortization........... 4,986 719 562 (d)(e) 6,267
------- ------ ----- ------ -------
Station operating income
(loss)................. 322 (198) 395 (268) 251
Corporate general and
administrative
expenses............... 983 983
Non-cash compensation
expense................ 169 169
------- ------ ----- ------ -------
Operating income
(loss)................. (830) (198) 395 (268) (901)
Interest expense, net... 3,500 287 (f) 392 (f) 4,179
------- ------ ----- ------ -------
Income (loss) from
continuing operations.. $(4,330) $ (198) $ 108 $ (660) $(5,080)
======= ====== ===== ====== =======
</TABLE>
See notes on the following pages.
99
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
HISTORICAL GANNETT SWAP PRO FORMA
ARGYLE(B) ADJUSTMENTS ARGYLE
---------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Total revenues.......................... $17,879 $ 975 (h) $18,854
Station operating expenses.............. 10,781 779 (h) 11,055
(505)(c)
Amortization of program rights.......... 1,057 16 (h) 1,073
Depreciation and amortization........... 6,558 138 (d)(e) 6,696
------- ----- -------
Station operating income (loss)......... (517) 547 30
Corporate general and administrative
expenses............................... 1,008 1,008
Non-cash compensation expense........... 260 260
------- ----- -------
Operating income (loss)................. (1,785) 547 (1,238)
Interest expense, net................... 4,418 4,418
------- ----- -------
Income (loss) from continuing
operations............................. $(6,203) $ 547 $(5,656)
======= ===== =======
</TABLE>
See notes on the following pages.
100
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS ADJUSTMENTS:
(a) Includes the results of operations of Argyle, the results of WZZM, WAPT,
KITV, WGRZ; the Arkansas Stations from June 1, 1996; WNAC from January 1,
to June 30, 1996; and Argyle's share of broadcast cash flows from the
Clear Channel Venture from July 1, 1996.
(b) Includes the results of operations of Argyle, the results of WAPT, KITV,
the Arkansas Stations, Argyle's share of broadcast cash flows from the
Clear Channel Venture; WZZM and WGRZ for January only; and WLWT and KOCO
for February and March.
(c) Reflects the elimination of certain expenses relating to employees who
have either been terminated or will be terminated and not replaced and
certain other expenses which would have been eliminated under Argyle's
management and transition plan.
(d) Reflects change in depreciation expense due to purchase accounting
adjustments to equipment and buildings, net of depreciation already
recorded in the historical financial statements. The estimated useful
lives used for equipment range from 5 to 25 years and the estimated useful
life used for buildings range from 25 to 39 years.
(e) Reflects amortization of intangible assets resulting from purchase
accounting adjustments, net of amortization already recorded in the
historical financial statements. The estimated useful lives used for these
intangible assets were as follows: FCC licenses and network affiliation
agreements--15 years; other intangibles--2 to 5 years.
(f) Reflects interest expense recorded in conjunction with FASB Statement No.
119 relating to interest rate protection agreements, interest expense on
the pro forma debt and the amortization of deferred financing costs over
the period of the related financings.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
YEAR ENDED --------------
1996 1996 1997
---------- ------ ------
<S> <C> <C> <C>
The Notes at an interest rate of 9.75%....... $14,625 $3,656 $3,656
Fair value adjustments of interest rate
protection agreements--non-cash............. (1,151) (580) (328)
Amortization of deferred financing costs..... 988 148 155
Bank Credit Agreement at an assumed interest
rate of 8.5%, net of interest income........ 3,657 955 935
------- ------ ------
$18,119 $4,179 $4,418
======= ====== ======
</TABLE>
(g) Reflects the inclusion of Argyle's share of WNAC/WPRI broadcast cash flow
in miscellaneous revenues.
(h) Reflects the inclusion of WLWT and KOCO and the exclusion of WZZM and WGRZ
results of operations from the beginning of the period.
101
<PAGE>
HEARST BROADCAST GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial results discussed below pertain only to the six television
stations and Hearst Broadcasting Productions that are being contributed by
Hearst to Argyle as part of the Contribution. Financial results from WWWB in
Tampa-St. Petersburg, Florida, KCWB in Kansas City, Missouri and Hearst's
radio stations are not included. These results also do not include financial
results from WPBF in West Palm Beach-Ft. Pierce, Florida, which is in the
process of being acquired by Hearst. These three television stations and two
radio stations will be managed by Hearst-Argyle under the Management
Agreement.
QUARTER ENDED MARCH 31, 1997 COMPARED WITH QUARTER ENDED MARCH 31, 1996
Total Revenues. Total revenues for the quarter ended March 31, 1997 totaled
$62.1 million, which was virtually flat with the first quarter of 1996 when
revenues totaled $61.9 million. Advertising revenues in January and February
were below last year's level due to decreased demand for advertising time, but
improved in March (+3.7%).
Station Operating Expenses. Station operating expenses totaled $30.1 million
for the quarter ended March 31, 1997, up marginally from the first quarter of
1996 when station operating expenses totaled $29.9 million, an increase of
$0.2 million or 0.7%.
Amortization of Program Rights. Amortization of program rights in the
quarter ended March 31, 1997 were $9.5 million compared to $10.4 million in
the first quarter of 1996. This is due, in part, to the expiration of the Phil
Donahue Show in Boston, Kansas City and Baltimore in 1996. This show was
replaced by less expensive syndicated programming and network programming.
Also, several sitcoms, which are written off on an accelerated basis, neared
the end of their cycles or became fully amortized. Some of these shows were
also replaced by less expensive syndicated shows or with network programming.
Depreciation and Amortization. Depreciation and amortization of intangible
assets totaled $4.1 million in the period ending March 31, 1997, compared to
$4.3 million in the first quarter of 1996, a decrease of $0.2 million or 4.7%.
This decrease is primarily a result of certain intangible assets becoming
fully amortized at WCVB in the year ended December 31, 1996.
Station Operating Income. Station operating income for the period ending
March 31, 1997 was $18.4 million, compared to $17.4 million in the first
quarter of 1996, an increase of $1.0 million or 5.8% for the reasons cited
above.
Corporate and General Administrative Expenses. Corporate and general
administrative expenses were $2.1 million for the quarter ended March 31,
1997, compared to $1.9 million in the first quarter of 1996.
Net Income. Net income totaled $6.4 million for the period ending March 31,
1997, compared to $5.8 million in the first quarter of 1996, an improvement of
$0.6 million or 10.3% for the reasons discussed above.
Broadcast Cash Flow. Broadcast cash flow totaled $22.3 million in the period
ending March 31, 1997 compared to $20.4 million in the quarter ending March
31, 1996, an increase of $1.9 million or 9.3%. This increase in broadcast cash
flow resulted principally from a reduction in film payments from period to
period, which payments in the 1996 period included payments for programming
that had been written down in 1994. Film payment obligations for this
programming ended in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Total Revenues. Total revenues for the year ended December 31, 1996 were
$284.0 million, an increase of $4.7 million or 1.7% over total revenues for
the year ended December 31, 1995. WTAE, WBAL, KMBC and
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WISN all enjoyed record revenue years in 1996. Their performance was offset by
WCVB and WDTN. Both stations experienced difficult market conditions and some
loss of market revenue share. WTAE and WBAL were both boosted by their first
full year of the Oprah Winfrey Show. WBAL in Baltimore also benefitted from
NBC's prime time performance and the Summer Olympics on NBC. All stations also
benefitted from advertising revenues from candidates for office in the various
federal, state and local elections that occurred in 1996. Revenues
attributable to political advertising in 1996 were $13.8 million, compared to
$2.2 million in 1995.
Station Operating Expenses. Station operating expenses in the year ended
December 31, 1996 were $121.5 million, up $4.0 million or 3.4% over station
operating expenses in the year ending December 31, 1995. The increase in other
operating expenses was offset by a $1.9 million decrease in expenses at Hearst
Broadcasting Productions due in large part to the completion of the Popular
Mechanics production for The Discovery Channel in 1995. News expenses at the
stations were up in part due to convention and election coverage in the
presidential election year.
Amortization of Program Rights. Amortization of program rights in the year
ended December 31, 1996 was $40.3 million, as compared to $38.6 million in the
year ended December 31, 1995, an increase of $1.7 million or 4.3%. The
increase is due primarily to the acquisition of the Oprah Winfrey Show in
Baltimore and Pittsburgh. This show began airing on WBAL and WTAE in the fall
of 1995. The full impact of amortization of program rights for these shows did
not occur until the 1996 calendar year.
Depreciation and Amortization. Depreciation and amortization of intangible
assets was $17.0 million in the year ended December 31, 1996, as compared to
$22.1 million in the year ended December 31, 1995, a decrease of approximately
$5.2 million or 23.3%. This is due to a portion of the intangible assets
becoming fully amortized at WCVB in the year ended December 31, 1995.
Station Operating Income. Station operating income in the year ended
December 31, 1996 was $105.2 million, compared to $101.1 million in the same
period in 1995, an increase of $4.1 million or 4.1% for the reasons discussed
above.
Corporate General and Administrative Expense. Corporate and general
administrative expenses were $7.7 million in the year ended December 31, 1996,
compared to $7.9 million in the year ended December 31, 1995, a decrease of
$.2 million or 2.5%.
Net Income. Net income totaled $44.4 million in the year ending December 31,
1996, compared to $40.8 million in the year ended December 31, 1995, an
increase of $3.6 million or 8.8% due to the reasons discussed above.
Broadcast Cash Flow. Broadcast cash flow totalled $117.9 million in the year
ended December 31, 1996 compared to $123.0 million in the year ended December
31, 1995. While total revenues in 1996 increased over 1995 by $0.7 million
more than station operating expenses in 1996 increased over 1995, broadcast
cash flow in 1996 declined from 1995 principally as the result of a higher
level of film payments. This higher level of film payments was caused by the
acquisition of programming at higher rates and primarily by the making of
certain film payments in 1996 relating to programming that was written down in
1994.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Total Revenues. Total revenues for the year ended December 31, 1995 were
$279.3 million, an increase of $19.9 million or 7.7% over total revenues for
the year ended December 31, 1994. WBAL switched from CBS to NBC in January
1995 and received an increase in network compensation. In addition, the ABC
affiliates received a significant increase in compensation effective with the
beginning of the 1994/95 broadcast season. WTAE and WBAL also benefitted from
the acquisition of the Oprah Winfrey Show in the fall of 1995. WBAL also
benefitted from the switch to NBC and its prime time performance.
Station Operating Expenses. Station operating expenses for the year ended
December 31, 1995 were $117.5 million, up $11.2 million or 10.5% from the year
ended December 31, 1994. This was, in part, caused by an increase in music
license fees of $4.5 million due to a non-recurring credit received in 1994.
The group also experienced an increase in expense at Hearst Broadcasting
Productions due to increased activity levels and the production of the Popular
Mechanics series for The Discovery Channel.
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<PAGE>
Amortization of Program Rights. Amortization of program rights in the year
ended December 31, 1995 totaled approximately $38.6 million, a decrease of
$1.6 million or 4.1% from the year ended December 31, 1994. This was in large
part due to a one time write off of the Phil Donahue Show in Boston and Kansas
City and sitcoms in Pittsburgh and Baltimore in 1994. These shows were moved
to lower revenue generating time periods.
Depreciation and Amortization. Depreciation and amortization of intangible
assets totaled $22.1 million for the year ended December 31, 1995, compared to
$23.1 million for the year ended December 31, 1994. This decrease was due to a
portion of the intangible assets becoming fully amortized by WCVB in the year
ended December 31, 1994.
Station Operating Income. Station operating income in the year ended
December 31, 1995 was $101.1 million, compared to $89.8 million for the year
ended December 31, 1994, an increase of $11.3 million or 12.6% for the reasons
discussed above.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses were virtually flat at approximately $7.9 million for
the year ended December 31, 1995, compared to $8.0 million for the year ended
December 31, 1994.
Net Income. Net income totaled $40.8 million for the year ended December 31,
1995, compared to $33.9 million for the year ended December 31, 1994, an
increase of $6.9 million or 20.4% for the reasons discussed above.
Broadcast Cash Flow. Broadcast cash flow was $123.0 million in the year
ended December 31, 1995, compared to $114.0 million in the year ended December
31, 1994, an increase of $9.0 million or 7.9%.
LIQUIDITY AND CAPITAL RESOURCES
The Hearst Broadcast Group's primary source of liquidity is cash provided by
operations. Cash requirements have been funded by the Hearst Broadcast Group's
operating activities and historically, as needed, through intercompany
advances from Hearst. Hearst continues to perform day-to-day cash management
services for the Hearst Broadcast Group.
Future cash requirements for investing activities are expected to include
expenditures for plant and equipment (including DTV expenditures) and program
rights. Because of capital expenditures associated with the implementation of
DTV, Hearst Broadcast Group's management anticipates that expenditures for
plant and equipment beginning in 1998 through the implementation period for
DTV will be at significantly higher levels than both historical expenditures
for plant and equipment, and what such future expenditures would be in the
absence of DTV implementation. The specific amounts required for DTV
implementation, and the specific timing of such expenditures, cannot be
determined at this time. See "The Commercial Television Broadcast Industry--
Technology." The Hearst Broadcast Group expects to generate sufficient funds
through operations to fund these activities.
Net cash provided by operating activities for the quarter ended March 31,
1997 was $14.3 million, compared to $18.3 million in the first quarter of
1996. Net cash provided by operating activities for the year ended December
31, 1996 was $65.8 million, compared to $61.2 million for the year ended
December 31, 1995.
Net cash provided by operating activities for the year ended December 31,
1995 totaled $61.2 million compared to $44.5 million for the year ended
December 31, 1994, an increase of $16.7 million or 37.5%. The improvement was,
in part, due to the improvement in net income, a retroactive payment of
approximately $2.0 million received in 1995 from the ABC network, which was
attributable to a compensation rate increase in the fall of 1994, and a less
dramatic increase in the year-end accounts receivable balance.
The investing activities of the Hearst Broadcast Group represent purchases
of plant and equipment and has remained fairly consistent for the periods
presented. Net cash used in financing activities represent intercompany
transactions with Hearst.
IMPACT OF INFLATION
The impact of inflation on the Hearst Broadcast Group's operations has not
been significant to date. There can be no assurance, however, that a high rate
of inflation in the future would not have an adverse impact on the Hearst
Broadcast Group's operating results.
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CAPITALIZATION
The following table sets forth the capitalization of Argyle as of March 31,
1997, and the pro forma capitalization of Hearst-Argyle after giving effect to
the Hearst Transaction. The table presents a comparison of the pro forma
capitalization of Hearst-Argyle after giving effect to the Hearst Transaction
applying the minimum and maximum cash payments to Argyle stockholders in
accordance with the Limitations and Allocation Prorations contained in the
Merger Agreement. The pro forma capitalization presented is based on the
assumption that the applicable number of shares of Series A Common Stock and
Argyle Options are acquired for the Cash Consideration and the Option Cash,
respectively. Such pro forma capitalization reflects certain expenses relating
to the Hearst Transaction. See "The Hearst Transaction Proposal--Interests of
Certain Persons in the Hearst Transaction; Affiliate Transactions" and "The
Merger Agreement--Merger Consideration and Conversion of Shares." The pro
forma capitalization does not give effect to any future offering of shares of
Hearst-Argyle Series A Common Stock or debt securities. See "The Hearst
Transaction Proposal--Financing the Hearst Transaction." This table should be
read in conjunction with the "Unaudited Pro Forma Combined Condensed Financial
Statements" included elsewhere in this Proxy Statement/Prospectus and the
Argyle and the Hearst Broadcast Group historical consolidated financial
statements, including the notes thereto, which are included elsewhere in the
Proxy Statement/Prospectus. See "Index to Historical Financial Statements."
<TABLE>
<CAPTION>
ELIMINATION OF NET
HEARST-ARGYLE BOOK VALUE OF WDTN AND PRO FORMA
MINIMUM(A) ARGYLE PRO FORMA SALES PRICE OF WNAC(B) DIVESTITURE
- ---------- -------- ------------- ---------------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Borrowings:
Existing credit
facility.............. $ 41,500 $ -- $ -- $ --
New credit facility.... -- 446,500 (60,777) 385,723
Senior subordinated
notes(c).............. 150,000 150,000 -- 150,000
-------- -------- -------- --------
Total................. 191,500 596,500 (60,777) 535,723
Stockholders' Equity:
Preferred stock........ 2 2 -- 2
Series A Common Stock.. 112 82 -- 82
Series B Common Stock.. 1 386 -- 386
Additional paid-in
capital............... 159,358 151,100 -- 151,100
Retained deficit....... (36,620) (18,639) -- (18,639)
-------- -------- -------- --------
Total................. 122,853 132,931 -- 132,931
-------- -------- -------- --------
Total Capitalization.. $314,353 $729,431 $(60,777) $668,654
======== ======== ======== ========
<CAPTION>
ELIMINATION OF NET
HEARST-ARGYLE BOOK VALUE OF WDTN AND PRO FORMA
MAXIMUM(A) ARGYLE PRO FORMA SALES PRICE OF WNAC(B) DIVESTITURE
- ---------- -------- ------------- ---------------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Borrowings:
Existing credit
facility.............. $ 41,500 $ -- $ -- $ --
New credit facility.... -- 506,500 (60,777) 445,723
Senior subordinated
notes(c).............. 150,000 150,000 -- 150,000
-------- -------- -------- --------
Total................. 191,500 656,500 (60,777) 595,723
Stockholders' Equity:
Preferred stock........ 2 2 -- 2
Series A common stock.. 112 60 -- 60
Series B common stock.. 1 386 -- 386
Additional paid-in
capital............... 159,358 97,377 -- 97,377
Retained deficit....... (36,620) (16,808) -- (16,808)
-------- -------- -------- --------
Total................. 122,853 81,017 -- 81,017
-------- -------- -------- --------
Total Capitalization.. $314,353 $737,517 $(60,777) $676,740
======== ======== ======== ========
</TABLE>
- --------
See notes on the following page.
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<PAGE>
NOTES TO CAPITALIZATION:
(a) Assumes the issuance of 8,277,054 shares of Hearst-Argyle Series A Common
Stock at an assumed price of $26.50 per share and payment of $100
million--"Minimum," or the issuance of 6,025,319 shares of Hearst-Argyle
Series A Common Stock at an assumed price of $26.50 per share and payment
of approximately $160.0 million--"Maximum," in cash to (i) acquire all of
the issued and outstanding shares of Argyle Common Stock; (ii) retire all
outstanding Argyle Options; and, (iii) satisfy miscellaneous expenses in
connection with the Hearst Transaction. See "The Hearst Transaction
Proposal--Interests of Certain Persons in the Hearst Transaction;
Affiliate Transactions," "--Financing the Hearst Transaction" and "The
Merger Agreement--Merger Consideration and Conversion of Shares."
(b) Upon consummation of the Hearst Transaction, Hearst-Argyle will own
televisions stations in two areas (Boston and Providence, and Dayton and
Cincinnati) with overlapping service contours in violation of the FCC's
local ownership rules. The FCC's rules prohibit the ownership of two
stations in the same geographic area whose service contours overlap.
Accordingly, Hearst-Argyle will be required to divest one station in each
of the aforementioned areas. A letter of intent has been signed to divest
WNAC for $47.5 million, and Argyle and Hearst currently are in
negotiations with a third party to divest WDTN. If either or both of these
stations are sold for cash, the proceeds of such sale will be used to
reduce indebtedness under the New Credit Facility (see "The Hearst
Transaction Proposal -- Financing the Hearst Transaction -- The Chase
Financing Commitment"), and therefore pro forma capitalization reflects a
reduction in the New Credit Facility by an amount equal to the sum of
$47.5 million for WNAC and WDTN's net book value of $13.3 million. While
net book value has been used in the capitalization table for the
divestiture of WDTN because no other valuation currently can be based on
an independent, third-party offer, divestiture of WDTN at net book value
would be equivalent to selling WDTN at a price equal to less than three
times WDTN's 1996 broadcast cash flow. Given the valuations of
broadcasting properties in recent transactions, including the valuation of
Argyle implicit in the Hearst Transaction (see "The Hearst Transaction
Proposal--Fairness Opinion--Transaction Value and Multiple Analysis" and
"--Analysis of Value to Argyle Stockholders"), Argyle management believes
that the divestiture of WDTN will occur at a valuation significantly
higher than its net book value. See "The Hearst Transaction Proposal--
Regulatory Approvals."
(c) Assumes that upon consummation of the Hearst Transaction, all of the
Senior Subordinated Notes will remain outstanding and will not be
refinanced. If the Senior Subordinated Notes are required to be
refinanced, Hearst-Argyle will do so with borrowings under the New Credit
Facility. Fees associated with this possible refinancing would approximate
$1.5 million and would be funded by the New Credit Facility. See "The
Hearst Transaction Proposal--Financing the Hearst Transaction."
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<PAGE>
MANAGEMENT OF HEARST-ARGYLE AFTER THE MERGER
BOARD OF DIRECTORS
Pursuant to the Merger Agreement, at the Effective Time the Board of
Directors of Hearst-Argyle will consist of 11 members, divided into two
classes of directors with staggered terms. The Class I directors will hold
office until the 1998 annual meeting of stockholders, and the Class II
directors will hold office until the 1999 annual meeting of stockholders. Ms.
Caroline Williams and Mr. David Pulver, current outside directors of Argyle,
have been designated to serve as the two directors of Hearst-Argyle elected by
the holders of Hearst-Argyle Series A Common Stock. Mr. Marbut, a current
Argyle management director, has been designated to serve as one of the nine
directors that Hearst, as the holder of Hearst-Argyle Series B Common Stock,
will be entitled to elect under the Restated Charter. See "The Merger
Agreement" and "The Hearst Transaction Proposal--Interests of Certain Persons
in the Hearst Transaction; Affiliate Transactions." With respect to each
person who will become a director of Hearst-Argyle at the Effective Time, the
following table lists his or her name, age and director class designation:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE CLASS DESIGNATION
---- --- -----------------
<S> <C> <C>
David J. Barrett...................................... 49 II
Frank A. Bennack, Jr. ................................ 64 I
John G. Conomikes..................................... 65 I
Victor F. Ganzi....................................... 50 II
George R. Hearst, Jr. ................................ 70 I
William R. Hearst III................................. 48 II
Bob Marbut............................................ 62 I
Gilbert C. Maurer..................................... 69 I
David Pulver.......................................... 55 II
Virginia H. Randt..................................... 47 II
Caroline Williams..................................... 51 I
</TABLE>
DAVID J. BARRETT has served in the broadcasting industry for 27 years and
has served as a Vice President of Hearst and Deputy General Manager of
Hearst's broadcast group since January 1991. Mr. Barrett served as General
Manager of WBAL in Baltimore, Maryland from November 1989 to January 1991. He
joined Hearst in 1984 as General Manager of Hearst's radio properties and
continued in that position until 1989. Prior to joining Hearst, Mr. Barrett
was Executive Vice President of Doubleday Broadcasting, based in Washington,
D.C. Mr. Barrett is a member of Hearst's Board of Directors.
FRANK A. BENNACK, JR. has served in the communications industry for over 40
years and has served as the President and Chief Executive Officer of Hearst
since January 1979. From September 1974 to January 1979, Mr. Bennack served in
a number of executive positions at Hearst, including Executive Vice President,
Chief Operating Officer, and as Vice President and General Manager of The
Hearst Newspaper Group. He also served as Publisher of Hearst's San Antonio
Light newspaper from December 1967 to September 1974. Mr. Bennack first joined
the San Antonio Light in 1950 and after exploring other career options outside
of Hearst, returned in 1961 and has since been employed continuously by
Hearst. Mr. Bennack is a member of Hearst's Board of Directors, a Trustee of
the Trusts established under the Will of William Randolph Hearst and a
Director of both The William Randolph Hearst Foundation of California and The
Hearst Foundation of New York. Mr. Bennack is also a director of The Chase
Manhattan Corporation, The Chase Manhattan Bank and American Home Products
Corporation.
JOHN G. CONOMIKES has served in the broadcasting industry for 38 years and
has served as a Vice President of Hearst and the General Manager of Hearst's
broadcast group since March 1983. From January 1981 to March 1983, Mr.
Conomikes served as Hearst's General Manager of Television and from February
1970 to January 1981, served as Vice President and General Manager of WTAE in
Pittsburgh, Pennsylvania. Mr. Conomikes joined Hearst in 1959 at WTAE where he
served in various positions before assuming the Vice President and
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General Manager positions at the station. Mr. Conomikes is also a member of
Hearst's Board of Directors, a Trustee of the Trusts established under the
Will of William Randolph Hearst and a Director of both The William Randolph
Hearst Foundation of California and The Hearst Foundation of New York.
VICTOR F. GANZI has been Executive Vice President, Chief Financial and Legal
Officer of Hearst since March 1997. Prior to that time, Mr. Ganzi was Senior
Vice President, Chief Financial and Legal Officer of Hearst since December
1992. In March 1995 he added and still has the duties of Group Head of
Hearst's Books/Business Publishing Group. Mr. Ganzi joined Hearst in May 1990
as General Counsel and Vice President. Prior to joining Hearst, Mr. Ganzi was
the Supervising Partner at Rogers & Wells, a New York based international law
firm and a Partner in its Tax Department. Before joining Rogers & Wells in
1973, Mr. Ganzi practiced as a Certified Public Accountant in taxation at the
accounting firm of Touche Ross & Co. in Denver, Colorado. He is also a member
of Hearst's Board of Directors, a Trustee of the Trusts established under the
Will of William Randolph Hearst and a Director of both The William Randolph
Hearst Foundation of California and The Hearst Foundation of New York.
GEORGE R. HEARST, JR. has served as the Chairman of the Board of Directors
of Hearst since March 1996. From April 1977 to March 1996, Mr. Hearst served
as a Vice President of Hearst and headed its real estate activities. He served
as Publisher of Hearst's Los Angeles Herald-Examiner newspaper from January
1962 to April 1977, and as Publisher of Hearst's Los Angeles Evening Herald
Express newspaper from May 1957 to January 1962. He is also a Trustee of the
Trusts established under the Will of William Randolph Hearst, a Director of
The William Randolph Hearst Foundation of California and the President and a
Director of The Hearst Foundation of New York. Mr. Hearst is a cousin of
William Randolph Hearst III and Virginia Hearst Randt.
WILLIAM RANDOLPH HEARST III is a partner at the Menlo Park, California
venture capital firm of Kleiner, Perkins, Caufield and Byers which he joined
in January 1995. From October 1984 to December 1995, Mr. Hearst served as
Publisher of Hearst's San Francisco Examiner newspaper. He held positions at
Hearst's cable operations in California and at Hearst's Los Angeles Herald-
Examiner newspaper, from June 1978 to October 1984. Mr. Hearst is a member of
Hearst's Board of Directors, a Trustee of the Trusts established under the
Will of William Randolph Hearst and a Director of both The William Randolph
Hearst Foundation of California and The Hearst Foundation of New York. Mr.
Hearst is a cousin of George R. Hearst, Jr. and Virginia Hearst Randt.
BOB 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 Argyle since August 1994. He has served in the same positions with
each of Argyle's subsidiaries since such subsidiary's inception or acquisition
by Argyle. From March 1993 to April 1995, Mr. Marbut served as Chief Executive
Officer and a Director of Argyle Television Holding, Inc. ("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 also a Director
of Tupperware Corporation, Ultramar Diamond Shamrock Corporation, Tracor, Inc.
and Katz Media Group, Inc.
GILBERT C. MAURER has served in the communications industry for 45 years and
has served as Chief Operating Officer of Hearst since March 1990 and as
Executive Vice President of Hearst since June 1985. Mr. Maurer served as
President of Hearst Magazines' Division from December 1976 to March 1990.
Prior to that he served as Executive Vice President of Hearst Magazines'
Division from September 1974 to December 1976. Mr. Maurer joined Hearst in
March 1973 as Vice President of Hearst Magazines' Division. Prior to joining
Hearst, Mr. Maurer spent 19 years with Cowles Communications, Inc., where he
held various positions. Mr. Maurer is a member of Hearst's Board of Directors,
a Trustee of the Trusts established under the Will of William Randolph Hearst
and a Director of both The William Randolph Hearst Foundation of California
and The Hearst Foundation of New York.
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DAVID PULVER has been a Director of Argyle since December 1994. He also has
served as a Director of each of Argyle's subsidiaries since such subsidiary's
inception or acquisition by Argyle. From June 1993 to April 1995, he served as
a Director of 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, County Seat Stores, Inc.
and J. Baker, Inc. Mr. Pulver is also a trustee of Colby College.
VIRGINIA H. RANDT was elected a Director of The Hearst Corporation in
September 1990 and has served on the Audit Committee of the Hearst Board of
Directors since March 1991. Ms. Randt worked on the advertising staff of
Hearst's Country Living magazine from January 1982 to October 1983 and on the
editorial staff of Hearst's House Beautiful magazine from October 1980 to
November 1981. Prior to that she worked at Hearst's Los Angeles Herald-
Examiner newspaper from January 1978 to September 1980. From 1976 to 1977, Ms.
Randt worked at The National Magazine Company Limited of Great Britain, a
wholly-owned subsidiary of Hearst. She is a cousin of George R. Hearst, Jr.
and William Randolph Hearst III.
CAROLINE WILLIAMS has been a Director of Argyle since December 1994. She
also has served in the same position with each of Argyle's subsidiaries since
such subsidiary's inception or acquisition by Argyle. 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.
EXECUTIVE OFFICERS
The following table sets forth the names of the individuals who will become
the principal executive officers of Hearst-Argyle at the Effective Time:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bob Marbut........................... 62 Chairman of the Board of Directors,
Co-Chief Executive Officer and
Director
John G. Conomikes.................... 65 President, Co-Chief Executive Officer
and Director
David J. Barrett..................... 49 Executive Vice President, Chief
Operating Officer and Director
Anthony J. Vinciquerra............... 43 Executive Vice President
Dean H. Blythe....................... 39 Senior Vice President--Corporate
Development, Secretary and General
Counsel
Harry T. Hawks....................... 44 Senior Vice President and Chief
Financial Officer
Ibra Morales......................... 51 Senior Vice President--Sales
</TABLE>
DEAN H. BLYTHE has served as Vice President-Corporate Development, Secretary
and General Counsel of Argyle since October 1994. He has served in the same
positions with each of Argyle's subsidiaries since such subsidiary's inception
or acquisition by Argyle. 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
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<PAGE>
served at A. H. Belo Corporation, 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.
HARRY T. HAWKS has served as Chief Financial Officer, Assistant Secretary
and Treasurer of Argyle since August 1994. He has served in the same positions
with each of Argyle's subsidiaries since each subsidiary's inception or
acquisition by Argyle. 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
each subsidiary's inception to April 1995. Prior to joining Argyle, Mr. Hawks
co-founded Cumberland Capital Corporation, a merchant banking firm, where he
served as President and a Director from 1989 until 1992.
IBRA MORALES has served in the broadcasting industry for 26 years and has
served as Executive Vice President, Chief Revenue Officer and a Director of
Argyle since August 1994. He has served in the same positions with each of
Argyle's subsidiaries since such subsidiary's inception or acquisition by
Argyle. Mr. Morales also has 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.
ANTHONY J. VINCIQUERRA has served in the broadcasting industry for 21 years
and joined Hearst as Group Executive of Hearst's broadcast group in June 1997.
Prior to his appointment at Hearst, Mr. Vinciquerra served as Executive Vice
President of the television station group of CBS from November 1995 to June
1997. From January 1993 to November 1995, he served as Vice President and
General Manager of KYW-TV in Philadelphia, Pennsylvania and from July 1986 to
January 1993 he served as General Sales Manager and, subsequently, Vice
President and Station Manager of WBZ-TV in Boston, Massachusetts. Earlier in
his career, Mr. Vinciquerra worked at Hearst's Times Union newspaper and as a
Sales Manager at WTAE.
See "Management of Hearst-Argyle After the Merger--Board of Directors" for
descriptions of the other individuals who will become executive officers of
Hearst-Argyle.
110
<PAGE>
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation for the fiscal year ended
December 31, 1996 for (i) the Chief Executive Officer and the other four most
highly compensated executive officers of Argyle and (ii) the persons expected
to become executive officers of Hearst-Argyle following the consummation of
the Hearst Transaction. The table reflects each named officer's current
position at Argyle or Hearst, as applicable, and the compensation received
from the respective entities.
<TABLE>
<CAPTION>
LONG TERM
1996 ANNUAL COMPENSATION COMPENSATION
------------------------------ ---------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL ANNUAL ANNUAL COMPENSATION OPTIONS LTIP COMPENSATION
POSITION(1) SALARY BONUS (2)(3) GRANTED PAYOUTS (4)
------------------ -------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Bob Marbut.............. $200,000 $225,680 $45,756 6,671 $2,375
Chairman of the Board
of Directors of
Argyle, Chief
Executive Officer of
Argyle
John G. Conomikes(5).... $485,445 $213,750 $32,801 $1,018,267 $3,375
General Manager of
Hearst Broadcast
Group, Vice President
of Hearst
David J. Barrett........ $423,356 $175,000 $35,811 $ 767,390 $4,500
Deputy General Manager
of Hearst Broadcast
Group, Vice President
of Hearst
Blake Byrne............. $200,000 $218,900 $48,285 6,671 $2,375
President, Chief
Operating Officer of
Argyle
Ibra Morales............ $200,000 $217,273 $30,271 6,671 $2,375
Executive Vice
President, Chief
Revenue Officer of
Argyle
Dean H. Blythe.......... $150,000 $ 69,230 $ 6,000 $2,112
Vice President-
Corporate
Development,
Secretary and General
Counsel of Argyle
Harry T. Hawks.......... $135,000 $ 17,208 $10,672 1,668 $2,025
Chief Financial
Officer, Assistant
Secretary and
Treasurer of Argyle
</TABLE>
- --------
(1) Anthony J. Vinciquerra joined the Hearst Broadcast Group in June 1997 and
therefore received no compensation from Hearst for 1996.
(2) Amounts in this column for the 1996 fiscal year consist of the following
dollar values of premiums for life insurance reimbursed by Argyle to the
following individuals, their automobile allowances and tax preparation
expenses reimbursement:
<TABLE>
<CAPTION>
LIFE TAX
INSURANCE AUTO PREPARATION
PREMIUMS ALLOWANCE FEES
--------- --------- -----------
<S> <C> <C> <C>
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
</TABLE>
(Notes continued on next page)
111
<PAGE>
(3) Amounts in this column for Messrs. Conomikes and Barrett consist of the
following dollar values of (i) premiums for excess life insurance
reimbursed by Hearst, (ii) amounts reimbursed by Hearst for the payment of
taxes on certain perquisites received by such individuals, and (iii)
perquisites for club membership dues and automobile allowance,
respectively: $7,638, $13,479 and $11,684 for Mr. Conomikes; $1,569,
$15,558 and $18,684 for Mr. Barrett.
(4) Amounts in this column (except for Messrs. Conomikes and Barrett)
represent the amounts contributed by Argyle to Argyle's 401(k) Savings
Plan (a non-discriminatory retirement plan established pursuant to Section
401(k) of the Internal Revenue Code). Amounts for Messrs. Conomikes and
Barrett represent the amounts contributed by Hearst to Hearst's 401(K)
Savings Plan.
(5) All amounts shown for Mr. Conomikes were in respect of services provided
to the Hearst Broadcast Group. Mr. Conomikes also received compensation
from Hearst for services in other capacities.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
The table below sets forth information with respect to The Hearst
Corporation Long Term Incentive Compensation Plan (the "Hearst LTIP"). Messrs.
Conomikes and Barrett are participants in the Hearst LTIP.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER
NUMBER OF PERFORMANCE NON-STOCK PRICE-BASED
SHARES, OR OTHER PLANS(1)
UNITS OR PERIOD -----------------------------
OTHER UNTIL
RIGHTS MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT ($ OR #) ($ OR #) ($ OR #)
---- --------- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
John G. Conomikes(2)........ 17,250 3 years -0- $508,875 $1,725,000
David J. Barrett............ 13,000 3 years -0- $383,500 $1,300,000
</TABLE>
- --------
(1) The Hearst LTIP is designed to award cash compensation to participants for
group and corporate performance (based on cash flow) over a three-year
period (the "Award Period"). Awards are determined by an independent
compensation consultant on a competitive basis with reference to
comparable media companies. Payouts of awards are based on an increase in
three-year average cash flow of the Award Period over the three-year
average cash flow of the base period (the three years preceding the Award
Period). Targeted awards are paid when the increase equals 129.5%, and
each 1% increase equals $1.00 per share payout. Maximum awards are equal
to $100 per share. Payouts are made in the first quarter following the
close of the performance cycle.
(2) All amounts shown for Mr. Conomikes were in respect of services provided
to the Hearst Broadcast Group. Mr. Conomikes also received awards under
the Hearst LTIP for services in other capacities.
112
<PAGE>
PENSION PLAN TABLE
The table below sets forth information with respect to the Hearst Pension
Plan. The Hearst Pension Plan covers Messrs. Conomikes and Barrett and is
designed to provide a benefit of 1 1/2% for each year of credited service
(which excludes the first year of employment) multiplied by the average annual
salary (as defined in the Hearst Pension Plan) for the participant's five
highest consecutive full calendar years, and has a 40 year maximum.
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------
REMUNERATION 15 20 25 30 35 40
------------ ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
500,000..................... 112,500 150,000 187,500 225,000 262,500 300,000
600,000..................... 135,000 180,000 225,000 270,000 315,000 360,000
700,000..................... 157,500 210,000 262,500 315,000 367,500 420,000
800,000..................... 180,000 240,000 300,000 360,000 420,000 480,000
900,000..................... 202,500 270,000 337,500 405,000 472,500 540,000
1,100,000................... 247,500 330,000 412,500 495,000 577,500 660,000
1,200,000................... 270,000 360,000 450,000 540,000 630,000 720,000
1,300,000................... 292,500 390,000 487,500 585,000 682,500 780,000
1,400,000................... 315,000 420,000 525,000 630,000 735,000 840,000
1,500,000................... 337,500 450,000 562,500 675,000 787,500 900,000
1,600,000................... 360,000 480,000 600,000 720,000 840,000 960,000
1,700,000................... 382,500 510,000 637,500 765,000 892,500 1,020,000
1,800,000................... 405,000 540,000 675,000 810,000 945,000 1,080,000
1,900,000................... 427,500 570,000 712,500 855,000 997,500 1,140,000
2,000,000................... 450,000 600,000 750,000 900,000 1,050,000 1,200,000
</TABLE>
At December 31, 1996, Mr. Conomikes had 36 years and six months of credited
service, and Mr. Barrett had 11 years and eight months of credited service,
under the Hearst Pension Plan. The Hearst Pension Plan covers salary and bonus
for Messrs. Conomikes and Barrett, and benefits under the plan are computed on
the basis of straight-line annuity amounts. The benefits described above are
not subject to any deduction for Social Security or other offset amounts, and
reflect service to Hearst in all capacities.
It is currently anticipated that as of the Effective Time, Hearst-Argyle
will establish defined benefit plans substantially similar to the Hearst
Pension Plan and the other defined benefit plans currently in place in which
employees of the Hearst Broadcast Group currently participate. At the
Effective Time, all employees of Hearst-Argyle who previously were employees
of the Hearst Broadcast Group and participating in Hearst's defined benefit
plans, including Mr. Barrett, will participate in these new defined benefit
plans. It is also currently anticipated that effective January 1, 1998, all
remaining employees of Hearst-Argyle (in essence, certain executive officers
of Argyle, including Messrs. Marbut, Morales, Hawks and Blythe, and the other
employees of Argyle prior to the Effective Time) will be eligible to
participate in these new defined benefit plans. The incremental cost of
participation in the new defined benefit plans by the employees of Argyle
prior to the Effective Time is estimated to be approximately $800,000. Argyle
and Hearst currently are discussing the possibility of a transfer from Hearst
to Hearst-Argyle of a certain amount of pension plan assets in excess of the
obligations that will exist at the time of establishment of the new Hearst-
Argyle defined benefit plans. While no definitive agreement has been reached,
the proposal under consideration contemplates the transfer by Hearst of
approximately $36 million of surplus pension assets to Hearst-Argyle in
exchange for the issuance to Hearst of one million shares of Hearst-Argyle
Series B Common Stock. Such a transfer would result in an approximately $3.8
million per year reduction in future expense associated with the new Hearst-
Argyle defined benefit plans. Other benefit plan changes may be made in the
future, some of which changes may have the impact of reducing the cost of
certain health and welfare benefits from their historical levels.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following two tables provide information relating to stock options
granted to those persons named in the Summary Compensation Table who are
executive officers of Argyle under Argyle's Option Plan.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS OPTION TERMS (2)
OPTIONS GRANTED TO EXERCISE OR ----------------
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) (1) FISCAL YEAR ($/SH) (1) DATE 5% 10%
---- ---------- ------------ ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
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 $40,859
Dean H.
Blythe........ -- -- -- -- -- --
</TABLE>
- --------
* Less than 0.1%
(1) Stock options to purchase shares of Series C Common Stock representing a
total of 8.5% of fully-diluted Argyle Common Stock have been granted under
the Option Plan to these executive officers (other than for Mr. Blythe)
with 5% being granted in the form of performance-vesting options and 3.5%
being granted in the form of time-vesting options. Since these stock
options are for a percentage of Argyle's fully-diluted shares and not for
a specific number of shares, these stock options result in automatic anti-
dilution "grants" upon Argyle's issuance of additional shares or the
vesting of other options so that the options maintain the same percentage
of fully-diluted shares as they represented prior to such issuance or
vesting. All grants in 1996 to these individuals were anti-dilution
"grants." The exercise prices for the anti-dilution "grants" were, with
respect to anti-dilution grants resulting from the issuance of additional
shares, the per share issuance price, and with respect to anti-dilution
grants resulting from the vesting of other options, the exercise price of
the options that vested.
(2) Calculated based on the fair market value of shares of Series C Common
Stock on the date of grant. The amounts represent only certain assumed
rates of appreciation. Actual gains, if any, on stock option exercises and
Argyle Common Stock holdings cannot be predicted, and there can be no
assurance that the gains set forth in the table will be achieved.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT FY- OPTIONS
SHARES ACQUIRED VALUE END AT FY-END
ON EXERCISE REALIZED (#) ($) (1)
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Bob Marbut.............. 0 0 107,750/220,002 $1,429,888/$2,518,828
Blake Byrne............. 0 0 107,750/220,002 $1,429,888/$2,518,828
Ibra Morales............ 0 0 107,750/220,002 $1,429,888/$2,518,828
Harry T. Hawks.......... 0 0 26,938/55,001 $357,488/$629,701
Dean H. Blythe.......... 0 0 9,300/7,800(2) $132,825/$96,900
</TABLE>
- --------
(1) Based on the closing price of $24.50 per share of the Series A Common
Stock on the Nasdaq National Market 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, Argyle 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 Argyle's 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 Argyle, any of its direct and indirect subsidiaries and any
other businesses that may or may not be affiliated with Argyle. If an
executive officer serves as an employee of any such entity other than Argyle,
such executive officer's base salary will be allocated between Argyle and such
other entity based upon the relative amounts of time devoted by the executive
officer to performing his duties to Argyle and such other entity.
The employment agreements terminate upon the death of the executive officer
and may be terminated by Argyle 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 Argyle without cause (including upon a
change of control), then the executive officer will be entitled to his base
salary (and, in the case of Mr. Hawks, under certain circumstances, a cash
bonus based on performance) with respect to the 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 Argyle is sold without providing certain of
the stockholders of Argyle with a minimum return on investment. Upon Mr.
Byrne's retirement, he will be entitled under his employment agreement to a
lump sum payment of $500,000.
Under the employment agreements, the Management Stockholders must bring to
an independent committee of Argyle'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 Argyle only if the independent committee of the
Board of Directors decides that Argyle will not pursue such opportunity.
115
<PAGE>
In July 1996, Argyle 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
Argyle, 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.
Messrs. Conomikes and Barrett (collectively the "Hearst Broadcast Group
Officers") are parties to employment agreements with Hearst. Mr. Conomikes'
employment agreement has a one year term and Mr. Barrett's employment has a
two year term. Pursuant to the employment agreements, Mr. Conomikes has agreed
to render services to Hearst's broadcast group in his capacity as General
Manager, and Mr. Barrett has agreed to render services to Hearst's broadcast
group as Deputy General Manager. In addition, the employment agreements allow
Hearst to transfer the employment agreements and the Officers' services
related thereto, to any property owned or controlled, directly or indirectly,
by Hearst, or to any division of Hearst or to any successor, subsidiary or
affiliate (should such property or division be operated by a successor to, or
a subsidiary or an affiliate of Hearst). The employment agreements and the
Hearst Broadcast Group Officers' employment and compensation thereunder
terminate upon the death of the Hearst Broadcast Group Officer, and may be
terminated by Hearst for cause under certain circumstances. The employment
agreements further provide for the specified terms to continue on a month to
month basis after the expiration of the original period of employment, at the
specified salary, until notice is given by either party.
It is anticipated that the executive officers of Hearst-Argyle (other than
Mr. Conomikes) will enter into employment agreements with Hearst-Argyle upon
the closing of the Hearst Transaction, which will supersede their existing
employment agreements. Mr. Conomikes will remain as an employee of Hearst and
will provide services to Hearst-Argyle as contemplated by the Services
Agreement. The complete terms of the new employment agreements have not been
determined at this time. It is anticipated that each of the agreements will be
for a term of two years (with the exception of the agreement for Mr. Marbut,
which will be for a term of three years), and that the annual compensation for
the first year and the target bonus as a percentage of annual salary will be
as follows: Mr. Marbut--$650,000, 40%; Mr. Conomikes--$650,000, 40% (such
amounts to be charged to Hearst-Argyle by Hearst pursuant to the Services
Agreement); Mr. Barrett--$550,000, 40%; Mr. Vinciquerra--$450,000, 40%; Mr.
Blythe--$260,000, 40%; Mr. Hawks--$260,000, 40%; and, Mr. Morales--$260,000,
40%. See "The Hearst Transaction Proposal--Interests of Certain Persons in the
Hearst Transaction; Affiliate Transactions."
ADDITIONAL INFORMATION
Additional information regarding the current executive officers of Argyle,
including executive compensation and certain relationships and related
transactions, is incorporated by reference to items 10, 11, 12 and 13 of the
Argyle 1996 Form 10-K. See "Incorporation of Certain Information by
Reference." A copy of the Argyle 1996 Form 10-K is included in Argyle's Annual
Report accompanying this Proxy Statement/Prospectus.
116
<PAGE>
PLAN PROPOSAL
Since January 1995, Argyle has provided incentive compensation to executives
and key employees. Argyle believes that such incentives permit it to attract
and retain high quality talent and to motivate directors, executives and key
employees to achieve business and financial goals that create value for
stockholders.
Subject to the approval and adoption of the Hearst Transaction Proposal, the
Argyle Board of Directors approved the amendment and restatement of Argyle's
Second Amended and Restated 1994 Stock Option Plan and adopt such amendment
and restatement as the resulting 1997 Stock Option Plan effective as of the
Stockholders Meeting. Following the Effective Time, Hearst-Argyle will
continue in effect the Option Plan.
The amendment amends and restates Argyle's existing option plan to, among
other things, (i) increase the number of shares reserved for issuance under
the plan from 1,022,727 to 3 million; (ii) reduce the antidilution adjustment
provision from 12% to 6.25% of the fully-diluted shares reserved for issuance
under the plan; (iii) provide for the administration of the plan by the board
of directors; (iv) reduce the limit on the maximum number of shares of common
stock for which options may be granted under the Option Plan to any
participant during any year from 1,022,727 to 500,000 shares; (v) permit the
board of directors to approve the termination of a participant's employment or
service and accelerate the exercisability of any then unexercisable options,
extend the exercise period following termination of employment during which
any outstanding options may be exercised (but not beyond the original exercise
period thereof) or modify the vesting terms and extend the exercise period of
the grant; (vi) permit a participant to transfer exercise rights to any
outstanding non-qualified stock options to immediate family members for bona
fide estate planning purposes; (vii) amend the definition of "change of
control" to include any transaction or series of transactions such as a going-
private transaction contemplated by Rule 13e-3 of the Exchange Act; and,
(viii) provide for the annual award of options covering a fixed number of
shares to each non-employee director for each year that he or she continues to
serve as a director.
The following summary of certain material features of the Option Plan is
qualified in its entirety by reference to the full text of the Option Plan,
which is set forth in the attached Appendix E.
GENERAL
The purposes of the Option Plan are (i) to attract and retain the best
available talent for Hearst-Argyle and (ii) by providing appropriate
incentives, to encourage the directors and executives to put forth their
maximum efforts for the success of Hearst-Argyle's business, thereby serving
the best interests of Hearst-Argyle and its stockholders.
All non-employee directors, executive officers and other key employees of
Hearst-Argyle and its subsidiaries (collectively, the "Participants") are
eligible to participate in the Option Plan. To date, options have been awarded
under the Option Plan to 87 employees of Argyle in addition to the five named
executive officers of Argyle. Both of Argyle's current non-employee directors
also are eligible to receive non-qualified stock options under the Option
Plan.
The Option Plan will permit the issuance of both "incentive stock options"
(as defined in Section 422(b) of the Code) and non-qualified stock options
(collectively, "Stock Options"). Incentive stock options may be awarded only
to employees.
The Option Plan provides for the grant of a maximum of 3 million shares,
subject to increase from time to time (except with respect to "incentive stock
options") to make available for awards under the Option Plan of 6.25% of the
fully-diluted Hearst-Argyle Series A Common Stock. If additional shares of
Hearst-Argyle Series A Common Stock are issued in the future, the Option Plan
provides that additional shares up to the 6.25% limit would be available for
the issuance of non-qualified stock options thereunder.
Upon the termination or forfeiture of any Stock Option granted under the
Option Plan, any shares of Common Stock covered by such Stock Option shall be
available for grant as further Stock Options under the
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<PAGE>
Option Plan. In the event of a stock dividend, stock split, recapitalization,
merger, reorganization or similar event, the Hearst-Argyle Board of Directors
may equitably adjust the aggregate number of shares subject to the Option Plan
and the number, class and price of shares subject to awards outstanding.
ADMINISTRATION OF THE OPTION PLAN
The Option Plan will be administered by the Hearst-Argyle Board of
Directors. The Hearst-Argyle Board of Directors may delegate any or all of its
authority under the Option Plan to a Compensation Committee appointed by the
Board. The Compensation Committee, if appointed for the purpose of
administering the Option Plan, will at all times consist solely of "non-
employee directors" within the meaning of Rule 16b-3 of the Exchange Act. As
to any award under the Option Plan intended to qualify as "performance based
compensation" for purposes of Section 162(m) of the Code, such award will be
administered by persons who qualify as "outside directors" within the meaning
of Section 162(m) of the Code. Except as described herein, the Hearst-Argyle
Board of Directors has the full authority and discretion to administer the
Option Plan and to take any action that is necessary or advisable in
connection with the administration of the Option Plan, including without
limitation, the authority and discretion to interpret and construe any
provision of the Option Plan or of any agreement, notification or document
evidencing the grant of an award, and the actions of the Hearst-Argyle Board
of Directors (or, as applicable, the Compensation Committee) regarding these
matters shall be afforded the maximum deference permitted by law.
Under the Option Plan, unless the Hearst-Argyle Board of Directors provides
otherwise in any Stock Option agreement, the Participant's Stock Options shall
be subject to the following termination provisions upon the termination of a
Participant's employment or service as a non-employee director by Hearst-
Argyle and each of its subsidiaries (the "Participant's Employment or
Service"). If the Participant's Employment or Service was terminated by
Hearst-Argyle for Cause (as defined in the Option Plan) or was voluntary by
the Participant (other than voluntary termination in connection with
retirement upon or after reaching age 65), any Stock Option of the Participant
will automatically be forfeited and unexercisable. If the Participant's
Employment or Service was terminated because of his death, disability or
retirement upon or after reaching age 65, or the Participant is terminated by
Hearst-Argyle without Cause, the Participant or his representative, devisees
or heirs, as applicable, may exercise a Stock Option that is exercisable on
the date the Participant's Employment or Service so terminates at any time
prior to one year from the date of such termination.
If a Participant's Employment or Service is terminated with the approval of
the Hearst-Argyle Board of Directors, the Board may, in its discretion,
accelerate or otherwise modify the vesting conditions applicable to any
options that are not exercisable on the date the Participant's Employment or
Service terminates, extend the period following termination of employment
during which any outstanding options may be exercised (but in no event beyond
the original exercise term of the grant) or modify the vesting terms and
extend the exercise term of the grant.
Notwithstanding the foregoing, no incentive stock option may be exercisable
after a Participant's employment terminates for a period of more than three
months (except in the event of a Participant's death or disability).
Notwithstanding the foregoing, if the Participant's Employment or Service is
terminated because the Participant has become an employee of another company
that is affiliated with Hearst-Argyle, through common ownership, common
management or otherwise, then the Stock Options granted to such Participant
under the Option Plan will not be terminated, but rather will continue in full
force and effect as if the Participant's Employment or Service had not been
terminated.
Notwithstanding the foregoing provisions, the Hearst-Argyle Board of
Directors has the full authority and discretion to administer the provisions
of the Option Plan relating to stock options for non-employee directors and to
take any action that is necessary or advisable in connection with the
administration of those provisions, provided any such action taken by the
Hearst-Argyle Board of Directors will not cause the provisions thereof to fail
to satisfy the requirements of Rule 16b-3 of the Exchange Act.
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AWARDS UNDER THE OPTION PLAN
The Hearst-Argyle Board of Directors in its discretion shall determine the
number of shares of Hearst-Argyle Common Stock subject to Stock Options to be
granted to each Participant. The Hearst-Argyle Board of Directors may grant
non-qualified stock options, incentive stock options or a combination thereof
to executive officers and key employees, and may grant non-qualified stock
options to non-employee directors. Stock Options granted under the Option Plan
will provide generally for the purchase of Hearst-Argyle Series A Common Stock
at prices not less than 100% of the fair market value thereof on the date the
Stock Option is granted. Each option is exercisable after the period or
periods specified in the applicable option agreement, but no option can be
exercised after the expiration of 10 years from the date of grant.
Stock Options granted under the Option Plan shall be exercisable at such
times and subject to such restrictions and conditions as the Hearst-Argyle
Board of Directors shall approve. Each grant shall specify that the exercise
price is payable (i) in cash or (ii) shares of Hearst-Argyle Series A Common
Stock.
Each grant shall also specify the required periods of continuous service by
the Participant with Hearst-Argyle or any subsidiary and/or the performance
criteria to be achieved before the Stock Options or installments thereof will
become exercisable, and any grant may provide for the earlier exercise of the
Stock Option in the event of a Change of Control or other similar transaction
or event. "Change of Control" includes (i) certain mergers or consolidations
in which Hearst-Argyle is a constituent corporation; (ii) a sale or transfer
by Hearst-Argyle or any of its subsidiaries, of all or substantially all of
Hearst-Argyle's consolidated assets to an entity that is not a subsidiary of
Hearst-Argyle; (iii) any "Person" (as such term is used in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act), other than The Hearst Corporation, any
"permitted transferee" as defined in Article Four of the Hearst-Argyle
Restated Charter, and a trustee or other fiduciary holding securities under
any employee benefit plan of Hearst-Argyle (collectively, the "Excluded
Persons"), is or becomes the beneficial owner of securities of Hearst-Argyle
representing more than 50% of the combined voting power of Hearst-Argyle; (iv)
any Person other than an Excluded Person, is or becomes the beneficial owner,
directly or indirectly, of securities of Hearst-Argyle representing more than
50% of the then outstanding Hearst-Argyle Common Stock; (v) certain changes in
the composition of Hearst-Argyle's Board of Directors; (vi) the dissolution or
liquidation of Hearst-Argyle; or, (vii) any transaction or series of
transactions such as a going-private transaction contemplated by Rule 13e-3 of
the Exchange Act.
The Option Plan provides for the annual award of options covering a fixed
number of shares of Hearst-Argyle Series A Common Stock to each non-employee
director of Hearst-Argyle for each year that he or she continues to serve as a
director. The number of options comprising the annual award is 4,000 for board
membership, and an additional 1,000 if the non-employee director serves as a
chairperson of a board committee. Options granted to non-employee directors
will provide for the purchase of Hearst-Argyle Series A Common Stock at prices
equal to the fair market value thereof on the date the option is granted. Such
grant will specify that the option may not be exercised until the second
anniversary of the date of grant and will be fully exercisable thereafter
subject to the conditions described above relating to termination of a
Participant's Employment or Service.
LIMITATION ON AWARDS
Awards under the Option Plan will be subject to the following limitations:
(a) No more than 6.25% of Hearst-Argyle's fully-diluted shares reserved for
issuance under the Option Plan will be issued under non-qualified stock
options;
(b) No more than 3 million shares will be issued under "incentive stock
options" as defined in Section 422(b) of the Code; and
(c) The maximum aggregate number of shares that may be subject to Stock
Options granted to a Participant during any calendar year will not exceed
500,000 shares.
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TRANSFERABILITY; AMENDMENTS; TERMINATION
No Stock Option will be transferable by the Participant other than by will
or the laws of descent and distribution. No stock option granted to a
Participant will be exercisable during the Participant's lifetime by any
person other than the Participant or the Participant's guardian or legal
representative. Notwithstanding the foregoing, the Hearst-Argyle Board of
Directors may permit a Participant to transfer the exercise rights to any
outstanding non-qualified stock options, provided such transfers are made to
permitted transferees, without consideration, for bona fide estate planning
purposes. Permitted transferees are a member of a Participant's immediate
family, trusts for the benefit of such immediate family members and
partnerships in which the Participant and/or such immediate family members are
the only partners.
Hearst-Argyle's Board of Directors has the authority to amend or terminate
the Option Plan at any time, provided that no such action may adversely affect
the rights of the holder of any outstanding option without the written consent
of such holder and provided further, that an amendment shall be subject to
stockholder approval if such approval is required by Rule 16b-3, the Code or
the rules of any securities exchange or market system on which securities of
Hearst-Argyle are listed or admitted to trading at the time such amendment is
adopted. The Option Plan is intended to qualify under Rule 16b-3 promulgated
pursuant to the Exchange Act. Thus, notwithstanding the foregoing, the Option
Plan may from time to time be amended to satisfy or otherwise conform to the
conditions, requirements and provisions set forth in Rule 16b-3 or in any
successor rule. Unless earlier terminated, the Option Plan will automatically
terminate on the date that is 10 years following the date the Option Plan was
adopted by the Hearst-Argyle Board of Directors.
OUTSTANDING GRANTS
The following table provides information as of June 30, 1997 regarding stock
option grants under the Option Plan to (i) the chief executive officer and the
other four most highly compensated executive officers of Argyle; (ii) all
current Argyle executive officers, as a group; (iii) all current Argyle
directors who are not executive officers, as a group; (iv) all persons
expected to become directors of Hearst-Argyle; and, (v) all Argyle employees,
including officers who are not executive officers, as a group:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE MARKET VALUE OF
SHARES OF UNDERLYING SECURITIES
UNDERLYING OUTSTANDING EXERCISE (B)
STOCK STOCK PRICE EXPIRATION -------------------------
NAME AND POSITION OPTIONS OPTIONS ($/SHARE) DATE EXERCISABLE UNEXERCISABLE
----------------- ---------- ----------- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bob Marbut (a)
Chairman of the Board
and
Chief Executive
Officer................. 327,752 23.3% $10.00-$21.96 1/3/05 $1,537,638 $2,738,830
Blake Byrne (a)
President and Chief
Operating
Officer................. 327,752 23.3% $10.00-$21.96 1/03/05 $1,537,638 $2,738,830
Ibra Morales
Executive Vice President
and
Chief Revenue Officer... 327,752 23.3% $10.00-$21.96 1/03/05 $1,537,638 $2,738,830
Harry T. Hawks
Chief Financial Officer,
Assistant Secretary and
Treasurer............... 81,939 5.8% $10.00-$21.96 1/03/05 $ 384,426 $ 684,702
Dean H. Blythe
Vice President-Corporate
Development, Secretary
and
General Counsel......... 17,100 1.2% $10.00-$16.75 6/6/05-12/12/05 $ 142,125 $ 104,700
All executive officers
as a
group (6 persons)....... 1,093,595 77.9% $10.00-$21.96 1/3/05-12/12/05 $5,241,090 $9,073,342
All directors who are
not
executive officers as a
group
(2 persons)............. 30,000 2.1% $10.00-$24.00 1/3/05-1/3/07 $ 155,000 $ 93,700
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE MARKET VALUE OF
SHARES OF UNDERLYING SECURITIES
UNDERLYING OUTSTANDING EXERCISE (B)
STOCK STOCK PRICE EXPIRATION -------------------------
NAME AND POSITION OPTIONS OPTIONS ($/SHARE) DATE EXERCISABLE UNEXERCISABLE
----------------- ---------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David J. Barrett (a).... -- -- -- -- -- --
Frank A. Bennack, Jr.
(a)..................... -- -- -- -- -- --
John G. Conomikes (a)... -- -- -- -- -- --
Victor F. Ganzi (a)..... -- -- -- -- -- --
George R. Hearst, Jr.
(a)..................... -- -- -- -- -- --
William R. Hearst III
(a)..................... -- -- -- -- -- --
Gilbert C. Maurer (a)... -- -- -- -- -- --
David Pulver (a)........ 15,000 1.1% $10.00-$24.00 1/3/05-1/3/07 $ 77,500 $ 46,850
Virginia H. Randt (a)... -- -- -- -- -- --
Caroline Williams (a)... 15,000 1.1% $10.00-$24.00 1/3/05-1/3/07 $ 77,500 $ 46,850
All employees, including
officers who are not
executive
officers, as a group (86
persons)................ 280,925 20.0% $10.00-$28.00 6/6/05-6/4/07 $1,396,738 $1,173,333
</TABLE>
- --------
*Less than 1%.
(a) Indicates that such person is expected to become a director of Hearst-
Argyle at the Effective Time. Except for those persons who are currently
directors of Argyle, none of such persons is a Participant in the Option
Plan.
(b) Based on the closing price of $25.50 per share of the Series A Common
Stock on the Nasdaq National Market on June 30, 1997.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the federal income tax consequences of the Option
Plan is not comprehensive and is based on current income tax laws, regulations
and rulings.
Incentive Stock Options. Subject to the effect of the alternative minimum
tax, discussed below, an optionee does not recognize income on the grant of an
incentive stock option. If an optionee exercises an incentive stock option in
accordance with the terms of the option and does not dispose of the shares
acquired within two years from the date of the grant of the option nor within
one year from the date of exercise, the optionee will not realize any income
by reason of the exercise and Hearst-Argyle will be allowed no deduction by
reason of the grant or exercise. The optionee's basis in the shares acquired
upon exercise will be the amount paid upon exercise. Provided the optionee
holds the shares as a capital asset at the time of sale or other disposition
of the shares, his gain or loss, if any, recognized on the sale or other
disposition will be capital gain or loss. The amount of his gain or loss will
be the difference between the amount realized on the disposition of the shares
and his basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise (an "Early
Disposition"), the optionee will realize ordinary income at the time of such
Early Disposition which will equal the excess, if any, of the lesser of (i)
the amount realized on the Early Disposition or (ii) the fair market value of
the shares on the date of exercise, over the optionee's basis in the shares.
Hearst-Argyle will be entitled to a deduction in an amount equal to such
income. The excess, if any, of the amount realized on the Early Disposition of
such shares over the fair market value of the shares on the date of exercise
will be long-term or short-term capital gain, depending upon the holding
period of the shares, provided the optionee holds the shares as a capital
asset at the time of Early Disposition. If an optionee disposes of such shares
for less than his basis in the shares, the difference between the amount
realized and his basis will be a long-term or short-term capital loss,
depending upon the holding period of the shares, provided the optionee holds
the shares as a capital asset at the time of disposition.
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The excess of the fair market value of the shares at the time the incentive
stock option is exercised over the exercise price for the shares is included
in the optionee's alternative minimum taxable income for purposes of
determining alternative minimum tax.
Non-Qualified Stock Options. Non-qualified stock options do not qualify for
the special tax treatment accorded to incentive stock options under the Code.
Although an optionee does not recognize income at the time of the grant of the
option, he recognizes ordinary income upon the exercise of a non-qualified
option in an
amount equal to the difference between the fair market value of the stock on
the date of exercise of the option and the amount of cash paid for the stock.
As a result of the optionee's exercise of a non-qualified stock option,
Hearst-Argyle generally will be entitled to deduct as compensation an amount
equal to the amount included in the optionee's gross income. Hearst-Argyle's
deduction will be taken in Hearst-Argyle's taxable year in which the option is
exercised.
All stock options granted under the Option Plan to date are non-qualified
stock options.
Change of Control. If there is an acceleration of the vesting of benefits
and/or an acceleration of the exercisability of stock options upon a Change of
Control, all or a portion of the accelerated benefits may constitute "Excess
Parachute Payments" under Section 280G of the Code. The employee receiving an
Excess Parachute Payment incurs an excise tax of 20% of the amount of the
payment in excess of the employee's average annual compensation over the five
calendar years preceding the year of the Change of Control, and Hearst-Argyle
is not entitled to a deduction for such payment.
Limitation on Deduction. Section 162(m) of the Code provides that no
deduction will be allowed for certain remuneration with respect to a covered
employee to the extent such remuneration exceeds $1 million. Under regulations
issued by the IRS, an employee is a covered employee if his compensation is
required to be reported under the Commission's disclosure rules and he is
employed as of the last day of the taxable year. Compensation arising from
stock options awarded by a committee comprised of non-employee directors is
considered "qualified performance-based compensation" and exempt from the $1
million limit if the option exercise price is no less than the fair market
value on the date of grant, and the stockholders approve the terms of a stock
option plan specifying the maximum number of shares that may be awarded to any
Participant over a specific time period. The $1 million limitation is reduced
by any remuneration subject to such limitation for which a deduction is
disallowed under the "Change of Control" provisions set forth above.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE PLAN PROPOSAL.
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DESCRIPTION OF HEARST-ARGYLE CAPITAL STOCK
In connection with the Hearst Transaction, Argyle's Certificate of
Incorporation will be amended and restated prior to the Effective Time,
pursuant to which, among other things, (i) Argyle's authorized common stock
will be increased from 50 million to 200 million shares; (ii) Argyle's
existing Series B Common Stock and Series C Common Stock will be reclassified
as and changed into an equal number of shares of Series A Common Stock; (iii)
a Series B Common Stock will be authorized and thereafter issued to Hearst in
connection with the Contribution; and, (iv) Argyle's existing Series A
Preferred Stock and Series B Preferred Stock will receive voting rights. Upon
consummation of the Merger, the Restated Charter, as amended to reflect the
name change to "Hearst-Argyle Television, Inc.," will become the Certificate
of Incorporation of Hearst-Argyle. Set forth below is a description of the
capital stock of Hearst-Argyle after the Merger pursuant to the Hearst-Argyle
Certificate of Incorporation. See "Comparison of Stockholders' Rights."
Common Stock. Hearst-Argyle will have 200 million shares of authorized
common stock, par value $.01 per share, with 100 million shares designated as
Hearst-Argyle Series A Common Stock and 100 million shares designated as
Hearst-Argyle Series B Common Stock. Except as otherwise described below, the
issued and outstanding shares of Hearst-Argyle Series A Common Stock and
Hearst-Argyle Series B Common Stock will vote together as a single class on
all matters submitted to a vote of stockholders, with each issued and
outstanding share of Hearst-Argyle Series A Common Stock and Hearst-Argyle
Series B Common Stock entitling the holder thereof to one vote on all such
matters. With respect to any election of directors, (i) the holders of the
shares of Hearst-Argyle Series A Common Stock will be entitled to vote
separately as a class to elect two members of Hearst-Argyle's Board of
Directors (the Series A Directors) and (ii) the holders of the shares of
Hearst-Argyle Series B Common Stock will be entitled to vote separately as a
class to elect the balance of Hearst-Argyle's Board of Directors (the Series B
Directors); provided, however, that the number of Series B Directors shall not
constitute less than a majority of Hearst-Argyle's Board of Directors. Any
director may resign at any time upon giving written notice to Hearst-Argyle.
The directors may only be removed for cause by a vote of the holders of a
majority of Hearst-Argyle Common Stock voting together as a class. Any Series
A Director who resigns or is removed may be replaced only by the remaining
Series A Director or, if there are no remaining Series A Directors, by a vote
of the holders of a majority of the Hearst-Argyle Series A Common Stock voting
separately as a class. Similarly, any Series B Director who resigns or is
removed may be replaced only by the remaining Series B Directors or, if there
are no remaining Hearst-Argyle Series B Directors, by a vote of the holders of
a majority of the Hearst-Argyle Series B Common Stock voting separately as a
class. If no shares of Hearst-Argyle Series A Common Stock are issued and
outstanding at any given time, then the holders of shares of Hearst-Argyle
Series B Common Stock will elect all of Hearst-Argyle's directors. Conversely,
if no shares of Hearst-Argyle Series B Common Stock are issued and
outstanding, then the holders of the shares of Hearst-Argyle Series A Common
Stock will elect all of Hearst-Argyle's directors.
All of the outstanding shares of Hearst-Argyle Series B Common Stock will
initially be held by Hearst or a Permitted Transferee (as defined below). No
holder of shares of Hearst-Argyle Series B Common Stock may transfer any such
shares to any person other than to (i) Hearst; (ii) any corporation into which
Hearst is merged or consolidated or to which all or substantially all of
Hearst's assets are transferred; or, (iii) any entity controlled by Hearst
(each a "Permitted Transferee"). Hearst-Argyle Series B Common Stock, however,
may be converted at any time into Hearst-Argyle Series A Common Stock and
freely transferred, subject to the terms and conditions of Hearst-Argyle's
Certificate of Incorporation and to applicable securities laws limitations. If
at any time the Permitted Transferees first hold in the aggregate less than
20% of all shares of Hearst-Argyle Common Stock that are then issued and
outstanding, then each issued and outstanding share of Hearst-Argyle Series B
Common Stock automatically will be converted into one fully-paid and
nonassessable share of Hearst-Argyle Series A Common Stock, and Hearst-Argyle
will not be entitled to issue any additional shares of Series B Common Stock.
Notwithstanding any other provision to the contrary, no holder of Hearst-
Argyle Series B Common Stock shall (i) transfer any shares of Hearst-Argyle
Series B Common Stock; (ii) convert Hearst-Argyle Series B Common Stock; or,
(iii) be entitled to receive any cash, stock, other securities or other
property with respect to or in exchange for any shares of Hearst-Argyle Series
B Common Stock in connection with any merger
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or consolidation of Hearst-Argyle or sale or conveyance of all or
substantially all of the property or business of Hearst-Argyle as an entity,
unless all necessary approvals of the FCC as required by the Communications
Act and the rules and regulations thereunder have been obtained or waived.
Preferred Stock. Hearst-Argyle will have one million shares of authorized
preferred stock, par value $.01 per share. Under the Hearst-Argyle Certificate
of Incorporation, Hearst-Argyle will have two issued and outstanding series of
preferred stock, Hearst-Argyle Series A Preferred Stock and Hearst-Argyle
Series B Preferred Stock (collectively, the "Hearst-Argyle Preferred Stock")
upon consummation of the Merger. Each series of Hearst-Argyle Preferred Stock
will have 10,938 shares issued and outstanding at the Effective Time. The
Hearst-Argyle Preferred Stock will have a cash dividend feature whereby each
share will accrue $65 per share annually, to be paid quarterly. The Hearst-
Argyle Series A Preferred Stock will be convertible at the option of the
holders, at any time, into Hearst-Argyle Series A Common Stock at a conversion
price of (i) on or before December 31, 2000, $35; (ii) during the calendar
year December 31, 2001, the product of 1.1 times $35; and, (iii) during each
calendar year after December 31, 2001, the product of 1.1 times the preceding
year's conversion price. Hearst-Argyle will have the option to redeem all or a
portion of the Hearst-Argyle Series A Preferred Stock at any time after June
11, 2001 at a price equal to $1,000 per share plus any accrued and unpaid
dividends.
The holders of Hearst-Argyle Series B Preferred Stock will have the option
to convert such Hearst-Argyle Series B Preferred Stock into shares of Hearst-
Argyle Series A Common Stock at any time after June 11, 2001 at the average of
the closing prices for the Hearst-Argyle Series A Common Stock for each of the
10 trading days prior to such conversion date. Hearst-Argyle will have the
option to redeem all or a portion of the Hearst-Argyle Series B Preferred
Stock at any time on or after June 11, 2001, at a price equal to $1,000 per
share plus any accrued and unpaid dividends.
The issued and outstanding shares of Hearst-Argyle Series A Preferred Stock
and Hearst-Argyle Series B Preferred Stock will be entitled to vote on all
matters submitted to a vote of holders of Hearst-Argyle Series A Common Stock,
with such shares of Hearst-Argyle Series A Preferred Stock and Hearst-Argyle
Series B Preferred Stock voting together as a single class with the shares of
Hearst-Argyle Series A Common Stock. Each share of Hearst-Argyle Series A
Preferred Stock is entitled to the number of votes (rounded up to the next
whole number) equal to the number of shares of Hearst-Argyle Series A Common
Stock into which such share is convertible. Each share of Hearst-Argyle Series
B Preferred Stock is entitled to (i) 29 votes, if the record date for the
stockholder meeting at which such votes are to be cast is before July 11, 2001
or (ii) thereafter, the number of votes (rounded up to the next whole number)
equal to the number of shares of Hearst-Argyle Series A Common Stock into
which such share is convertible. Except with respect to any proposal to amend
Hearst-Argyle's Certificate of Incorporation that may adversely affect the
rights of the respective series of Hearst-Argyle Preferred Stock, neither the
Hearst-Argyle Series A Preferred Stock nor the Hearst-Argyle Series B
Preferred Stock is entitled to vote separately as a class.
FOREIGN OWNERSHIP
Pursuant to the Hearst-Argyle Certificate of Incorporation and in order to
comply with FCC rules and regulations, Hearst-Argyle will not be permitted to
issue to (i) a person who is a citizen of a country other than the U.S.; (ii)
any entity organized under the laws of a government other than the government
of the U.S. or any state, territory or possession of the U.S.; (iii) a
government other than the government of the U.S. or of any state, territory or
possession of the U.S. ; (iv) a representative of, or an individual or entity
controlled by, any of the foregoing; or, (v) any other person or entity whose
alien status would be cognizable under the Communications Act (individually,
an "Alien;" collectively, "Aliens"), any shares of capital stock of Hearst-
Argyle if such issuance would result in the total number of shares of such
capital stock held or voted by Aliens exceeding 25% of (x) the capital stock
outstanding at any time and from time to time or (y) the total voting power of
all shares of such capital stock outstanding and entitled to vote at any time
and from time to time. In addition, Hearst-Argyle will not be permitted to
transfer on the books of Hearst-Argyle any capital stock to any Alien that
would result in the total number of shares of such capital stock held or voted
by Aliens exceeding such 25% limits. The Hearst-Argyle Certificate of
Incorporation also will provide that no Alien or Aliens,
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individually or collectively, will be entitled to vote or direct or control
the vote of more than 25% of (i) the total number of all shares of capital
stock of Hearst-Argyle outstanding at any time and from time to time or (ii)
the total voting power of all shares of capital stock of Hearst-Argyle
outstanding and entitled to vote at any time and from time to time (or such
limits greater or lesser than 25% as may be subsequently imposed by statute or
regulation). Hearst-Argyle's Board of Directors will have the right to redeem
any shares determined to be owned by an Alien or Aliens, at the fair market
value of the shares to be redeemed, if the Board of Directors determines such
redemption is necessary to comply with these Alien ownership restrictions of
the Communications Act and rules of the FCC. See "Federal Regulation of
Television Broadcasting."
CERTAIN ANTI-TAKEOVER MATTERS
General. Certain provisions of the Hearst-Argyle Certificate of
Incorporation and the DGCL may have the effect of impeding the acquisition of
control of Hearst-Argyle by means of a tender offer, a proxy fight, open
market purchases or otherwise in a transaction not approved by the Hearst-
Argyle Board of Directors.
The provisions of the Hearst-Argyle Certificate of Incorporation and the
DGCL described below are designed to reduce, or have the effect of reducing,
the vulnerability of Hearst-Argyle to an unsolicited proposal for the
restructuring or sale of all or substantially all of the assets of Hearst-
Argyle or an unsolicited takeover attempt that is unfair to Hearst-Argyle
stockholders. The summary of such provisions set forth below does not purport
to be complete and is subject to and qualified in its entirety by reference to
the Hearst-Argyle Certificate of Incorporation, the Hearst-Argyle bylaws and
the DGCL. See "The Merger Agreement" and "Security Ownership Before and After
the Hearst Transaction."
The Hearst-Argyle Board of Directors has no present intention to introduce
additional measures that might have an anti-takeover effect. The Hearst-Argyle
Board of Directors, however, expressly reserves the right to introduce such
measures in the future.
Classified Board; Removal of Directors. The Hearst-Argyle Certificate of
Incorporation provides that the Hearst-Argyle Board of Directors shall consist
of not less than seven directors, with the exact number of directors to be
determined from time to time by the Hearst-Argyle Board of Directors and
designated in the bylaws. At the Effective Time of the Merger, the Hearst-
Argyle bylaws will be amended to provide that at the Effective Time the number
of directors will be 11 and thereafter the minimum number of directors will be
seven and the maximum number of directors will be 15. The Hearst-Argyle
Certificate of Incorporation further provides that the Hearst-Argyle Board of
Directors be divided into two classes, as long as there are no more than two
Series A Directors, and that, after an initial term, each director will be
elected for a two-year term. The Hearst-Argyle Certificate of Incorporation
also provides that, in the event there are three or more Series A directors,
the Hearst-Argyle Board of Directors will be divided into three classes, and
that, after an initial term, each director will be elected for a three-year
term. Whether there are two or three classes of directors, the Series A
Directors are to be divided among the classes as equally as possible. A
classified Hearst-Argyle Board of Directors is intended to assure the
continuity and stability of the Hearst-Argyle Board of Directors and Hearst-
Argyle's business strategies and policies. The classified board provision
could increase the likelihood that, in the event of a takeover of Hearst-
Argyle, incumbent directors will retain their positions. In addition, the
classified board provision helps ensure that the Hearst-Argyle Board of
Directors, if confronted with an unsolicited proposal from a third party that
has acquired a block of the voting stock of Hearst-Argyle, will have
sufficient time to review the proposal and appropriate alternatives and to
seek the best available result for all stockholders. The directors may only be
removed for cause by a vote of the holders of a majority of Hearst-Argyle
Common Stock voting together as a class. For further information regarding the
voting rights of Hearst-Argyle Common Stock and the removal of directors, see
"Management of Hearst-Argyle After the Merger."
Business Combinations. Hearst-Argyle, as a Delaware corporation, will be
subject to Section 203 ("Section 203") of the DGCL. In general, subject to
certain exceptions, Section 203 prohibits a Delaware corporation from engaging
in a "business combination" with an "interested stockholder" for a period of
three years following the date that such stockholder became an interested
stockholder, unless (i) prior to such date the
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Board approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding for purposes of determining the number of shares
outstanding those shares owned by (x) persons who are directors and also
officers and (y) employee stock plans in which employee participants do not
have the right to determine confidentially whether or not shares held subject
to the plan will be tendered in a tender or exchange offer); or, (iii) at or
subsequent to such time, the business combination is approved by the Board and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder. Section 203 defines a
"business combination" to include certain mergers, consolidations, asset sales
and stock issuances and certain other transactions resulting in a financial
benefit to an "interested stockholder." In addition, Section 203 defines an
"interested stockholder" to include any entity or person beneficially owning
15% or more of the outstanding voting stock of the corporation and any entity
or person affiliated with such an entity or person.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Hearst-Argyle Series A Common Stock
will be Harris Trust and Savings Bank.
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SECURITY OWNERSHIP BEFORE AND AFTER THE HEARST TRANSACTION
The following table sets forth, based on information as of July 14, 1997,
the beneficial ownership of Argyle Common Stock and the anticipated beneficial
ownership, after giving effect to the Hearst Transaction, of Hearst-Argyle
Common Stock, as to (i) each Argyle director and each person expected to be a
Hearst-Argyle director or executive officer upon consummation of the Merger;
(ii) all current Argyle directors and executive officers, as a group, and all
persons expected to be Hearst-Argyle directors and executive officers, as a
group; and, (iii) each person known to Argyle to be the beneficial owner of 5%
or more of any class or series of Argyle's voting securities and each person
expected to be the beneficial owner of 5% or more of any class or series of
Hearst-Argyle's voting securities. The table below assumes that all shares of
Series A Common Stock held by certain Argyle investment partnerships had been
fully distributed to their respective partners as of July 14, 1997 at an
assumed price of $26.50 per share. The number of shares of Hearst-Argyle
Common Stock and the percentage beneficially owned (after giving effect to the
Hearst Transaction) are based on the following assumptions: (i) the persons
named below (the "Named Stockholders") elect to make the Mixed Election in
respect of each of their shares of Series A Common Stock and receive the Mixed
Consideration consisting of a combination of $13.25 in cash, without interest,
and 0.5 share of Hearst-Argyle Series A Common Stock for each share of Series
A Common Stock held; (ii) the maximum amount of Cash Consideration
(approximately $160 million) will be paid in the Merger; and, (iii) each Named
Stockholder elects to receive, and does receive, all cash for their options.
See footnotes (c) and (d) below for information about beneficial ownership
after the Hearst Transaction based on alternative assumptions. The information
presented in the table does not give effect to any future offering of shares
of Hearst-Argyle Series A Common Stock or debt securities. See "The Hearst
Transaction Proposal--Financing the Hearst Transaction."
<TABLE>
<CAPTION>
BEFORE THE HEARST TRANSACTION AFTER THE HEARST TRANSACTION
---------------------------------------------- ----------------------------------------
SERIES A COMMON SERIES B COMMON SERIES A COMMON SERIES B COMMON
STOCK BENEFICIALLY STOCK BENEFICIALLY STOCK BENEFICIALLY STOCK BENEFICIALLY
OWNED(A) OWNED(B) OWNED(A),(C),(D) OWNED(B)
---------------------- ----------------------- ------------------- --------------------
PERCENT PERCENT PERCENT PERCENT
NAME SHARES OF SERIES SHARES OF SERIES SHARES OF SERIES SHARES OF SERIES
---- --------- --------- --------- ---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bob Marbut(b)........... 7,511,750(b) 65.8% 36,000(b) 100% 624,376 10.4% -- --
Blake Byrne(f).......... 878,375(e) 7.7% 789 2.2% 385,708 6.4% -- --
Ibra Morales............ 293,676(e) 2.6% 15,789 43.9% 100,858 1.7% -- --
Harry T. Hawks.......... 144,152(e) 1.3% 10,526 29.2% 63,870 1.1% -- --
Dean H. Blythe.......... 11,698(g) * -- -- 1,199 * -- --
David Pulver............ 106,155(h) * -- -- 50,578 * -- --
Caroline L. Williams.... 50,376(h) * -- -- 22,688 * -- --
John G. Conomikes....... 25 * -- -- 12 * -- --
Anthony J. Vinciquerra.. 13,431(i) * -- -- 6,715 * -- --
David J. Barrett........ -- -- -- -- -- -- -- --
George R. Hearst, Jr.... -- -- -- -- -- -- -- --
Frank A. Bennack, Jr.... -- -- -- -- -- -- -- --
Gilbert C. Maurer....... -- -- -- -- -- -- -- --
Victor F. Ganzi......... -- -- -- -- -- -- -- --
William R. Hearst III... -- -- -- -- -- -- -- --
Virginia H. Randt....... -- -- -- -- -- -- -- --
All current Argyle
directors and executive
officers as a group
(8 persons)(b) ........ 2,841,750 24.4% 33,367 92.7% 1,249,517 20.7% -- --
All Hearst-Argyle
directors and executive
officers as a group
(15 persons)(b)........ 2,855,206 24.4% 33,367 92.7% 870,296 14.4% -- --
Argyle Television
Partners, L.P.(b),
(n).................... 7,300,000(j) 64.5% 36,000 100.0% -- -- -- --
Argyle Television
Investors, L.P.(b),
(n).................... 4,853,718 42.9% -- -- -- -- -- --
Argyle Television
Investors (Foreign),
L.P.(b), (n)........... 1,746,282 15.4% -- -- -- -- -- --
Television Investment
Partners, L.P.(b),
(n).................... 700,000 6.2% -- -- -- -- -- --
Chase Manhattan
Investment Holdings,
L.P. .................. 1,363,391(k) 12.1% -- -- 681,695 11.3% -- --
Textron Collective
Investment Trust Fund
B...................... 829,757(l) 7.3% -- -- 414,878 6.9% -- --
The Hearst
Corporation(m)......... 7,529,000 66.6% 36,000 100% -- -- 38,611,001 100%
</TABLE>
- -------
* Represents beneficial ownership of less than 1% of the applicable series of
issued and outstanding Argyle Common Stock or Hearst-Argyle Common Stock,
as the case may be.
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(a) Each person has sole voting and investment power, except as otherwise
noted.
(b) ATP currently holds 100% of the Series B Common Stock. The information in
the table with respect to the individual partners of ATP assumes ATP has
fully distributed all of the Series B Common Stock to such partners. ATP's
general partner is Argyle Communications, Inc. ("ACI"), a corporation
owned principally by certain members of management of Argyle and
controlled by Mr. Marbut. Under applicable SEC regulations, Mr. Marbut may
be considered the beneficial owner of all shares held by ATP, ATILP, ATI
(Foreign) and TIP, or a total of 7,300,000 shares of Series A Common Stock
and 36,000 shares of Series B Common Stock. Mr. Marbut disclaims
beneficial ownership of these shares held by ATP, ATILP, ATI (Foreign) and
TIP. Mr. Marbut's ownership and percentage of Series A Common Stock would
be 1,350,237 and 11.8%, and of Series B Common Stock would be 6,263 and
17.4% based on (i) shares held directly; (ii) his pro rata interest in
shares held indirectly by ATP through ATP's interest in ATILP, ATILP
(Foreign) and TIP; (iii) his interest in shares held by TIP; (iv) 99,000
shares held by Argyle Foundation, a charitable foundation established by
Mr. Marbut; and, (v) shares subject to options exercisable within 60 days.
The number of shares and percentages for all current Argyle directors and
executive officers as a group, and all Hearst-Argyle directors and
executive officers as a group, do not include shares in respect of which
Mr. Marbut disclaims beneficial ownership as described above. The address
for Mr. Marbut, ATP, ATILP, ATI (Foreign) and TIP is 200 Concord Plaza,
Suite 700, San Antonio, Texas 78216.
(c) The percentage of Hearst-Argyle Series A Common Stock beneficially owned
by such persons after giving effect to the Hearst Transaction, based on
the following assumptions: (i) the Named Stockholders make the Mixed
Election and receive the Mixed Consideration consisting of a combination
of $13.25 in cash, without interest, and 0.5 share of Hearst-Argyle Series
A Common Stock; (ii) the minimum amount of Cash Consideration ($100
million) will be paid in the Merger; and, (iii) each Named Stockholder
elects to receive, and does receive, all cash for their options, is as
follows: Bob Marbut, 7.5%; Blake Byrne, 4.7%; Ibra Morales, 1.2%; all
current Argyle directors and executive officers as a group, 15.1%; Chase
Venture Partners, 8.2%; and, Textron Collective Investment Trust Fund B,
5.0%. Under the foregoing assumptions, all other persons identified in the
table would hold less than 1% of the issued and outstanding shares of
Hearst-Argyle Series A Common Stock after giving effect to the Hearst
Transaction under the assumptions contained in this footnote.
(d) The number of shares of Hearst-Argyle Series A Common Stock owned by such
persons after giving effect to the Hearst Transaction, based on the
following assumptions: (i) the Named Stockholders elect to make the Stock
Election and receive solely Hearst-Argyle Series A Common Stock; (ii)
either the maximum amount of Cash Consideration (approximately $160
million) or the minimum amount of Cash Consideration ($100 million) will
be paid in the Merger; and, (iii) each Named Stockholder elects to
receive, and does receive, all cash for their options, is as follows: Bob
Marbut, 1,248,751; Blake Byrne, 771,415; Ibra Morales, 201,716; Harry T.
Hawks, 127,740; Dean H. Blythe, 2,398; David Pulver, 101,155; Caroline
Williams, 45,376; all current Argyle directors and executive officers as a
group, 2,499,032; Chase Venture Partners, 1,363,391; and, Textron
Collective Investment Trust Fund B, 829,757. Under the foregoing
assumptions, the percentage of Hearst-Argyle Series A Common Stock
beneficially owned by such persons after giving effect to the Hearst
Transaction and assuming either the maximum amount of Cash Consideration
(approximately $160 million) or the minimum amount of Cash Consideration
($100 million) will be paid in the Merger; respectively, is as follows:
Bob Marbut, 20.7% and 15.1%; Blake Byrne, 12.8% and 9.3%; Ibra Morales,
3.3% and 2.4%; Harry Hawks, 2.1% and 1.5%; David Pulver, 1.7% and 1.2%;
all current Argyle directors and executive officers as a group, 41.5% and
30.2%; Chase Venture Partners, 22.6% and 16.5%; and, Textron Collective
Investment Trust Fund B, 13.8% and 10.0%. All other persons identified in
the table would hold less than 1% of the issued and outstanding shares of
Hearst-Argyle Series A Common Stock after giving effect to the Hearst
Transaction under the assumptions contained in this footnote.
(e) 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, ATI (Foreign) and TIP; (iii) for Mr. Byrne, such
individual's interest in shares held by TIP, and for Mr. Morales, such
individual's interest in shares held by ATILP; (iv) for Mr. Byrne, 65,000
shares held by Skylark Foundation, a charitable foundation established by
Mr. Byrne; and, (v) shares subject to options exercisable within 60 days.
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(f) The address for Mr. Byrne is 9220 Sunset Boulevard, Suite 210, Los
Angeles, California 90069.
(g) Represents Mr. Blythe's interest in shares held by TIP and shares subject
to options exercisable within 60 days.
(h) Represents (i) the individual's interest in shares held by ATILP and TIP
and (ii) shares subject to options exercisable within 60 days.
(i) Represents Mr. Vinciquerra's interest in shares held by TIP.
(j) As the general partner of the general partner of ATILP and ATI (Foreign),
and as the general partner of TIP, ATP may be considered the beneficial
owner of all shares held by ATILP, ATI (Foreign) and TIP, and therefore
ATP is shown for purposes of this chart as owning these shares.
(k) Represents such entity's interest in shares held by ATILP and ATI
(Foreign). The address of Chase Manhattan Investment Holdings, L.P. is 380
Madison Avenue, New York, New York 10017.
(l) 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.
(m) The Hearst Corporation beneficially owns (shared voting and dispositive
power) such shares pursuant to the Voting Agreements. See "The Merger
Agreement--Voting Agreements." As of July 14, 1997, The Hearst Family
Trust is the sole common stockholder of Hearst. The address of The Hearst
Family Trust is 888 Seventh Avenue, New York, New York 10106. The address
of Hearst is 959 Eighth Avenue, New York, New York 10019.
(n) Shares held are subject to terms of a Voting Agreement. See "The Merger
Agreement--Voting Agreements." Argyle has been advised that each of ATP,
ATILP, ATI (Foreign) and TIP have adopted plans of liquidation which
contemplate that each partner thereof will be responsible for making an
election with respect to the Merger Consideration to be received for the
Argyle shares beneficially owned and that all Argyle shares held by these
partnerships will be distributed by such partnerships to their respective
partners prior to the Effective Time of the Merger. See "The Hearst
Transaction Proposal--Background."
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COMPARISON OF STOCKHOLDERS' RIGHTS
At the Effective Time, the stockholders of Argyle will become stockholders
of Hearst-Argyle. As stockholders of Hearst-Argyle, their rights will be
governed by the DGCL and Hearst-Argyle's Certificate of Incorporation and
bylaws. Because Argyle will be the surviving corporation in the Merger, the
rights of holders of Argyle capital stock and Hearst-Argyle capital stock will
arise solely from differences in the respective Certificates of Incorporation
and bylaws of Argyle and Hearst-Argyle prior to and after the Effective Time.
As part of the Hearst Transaction, Argyle's Certificate of Incorporation will
be further amended and restated prior to the Effective Time, pursuant to
which, among other things, (i) Argyle's authorized common stock will be
increased from 50 million to 200 million shares; (ii) Argyle's existing Series
B Common Stock and Series C Common Stock will be reclassified as and changed
into an equal number of shares of Series A Common Stock; (iii) a Series B
Common Stock will be authorized and thereafter issued to Hearst in connection
with the Contribution; and, (iv) the terms of Argyle's Series A Preferred
Stock and Series B Preferred Stock will be amended to receive certain voting
rights. Upon consummation of the Merger, the Restated Charter, as amended to
reflect the name change of Argyle to "Hearst-Argyle Television, Inc.," will
become the Hearst-Argyle Certificate of Incorporation. A copy of the Restated
Charter is attached as Appendix C to this Proxy Statement/Prospectus. The
following is a summary of the principal differences between the rights of the
holders of Argyle capital stock (prior to the Restated Charter) and holders of
the Hearst-Argyle capital stock. See "Description of Hearst-Argyle Capital
Stock."
Bylaws. The bylaws of Argyle in effect immediately prior to the Effective
Time will be the bylaws of Hearst-Argyle, except as amended pursuant to the
Merger Agreement to provide that the number of directors of Hearst-Argyle will
be 11 effective upon the Merger and thereafter will be no less than seven and
no more than 15. Except for such amendment, the bylaws of Argyle will remain
in their present form until subsequently amended.
Authorized Capital Stock. The Argyle Certificate of Incorporation provides
for 51 million authorized shares of capital stock, consisting of 50 million
shares of common stock, par value $.01 per share, and 1 million shares of
preferred stock, par value $.01 per share ("Argyle Preferred Stock"). The
Hearst-Argyle Certificate of Incorporation will provide for 201 million
authorized shares of capital stock, consisting of 200 million shares of common
stock, par value $.01 per share ("Hearst-Argyle Common Stock"), and 1 million
shares of Hearst-Argyle Preferred Stock.
Common Stock. Under the Argyle Certificate of Incorporation, 35 million
shares of the authorized Argyle Common Stock are designated as Series A Common
Stock, 200,000 shares are designated as Series B Common Stock and 14.8 million
shares are designated as Series C Common Stock. Under the Hearst-Argyle
Certificate of Incorporation, 100 million shares of the authorized Hearst-
Argyle Common Stock will be designated as Series A Common Stock and 100
million shares will be designated as Series B Common Stock. All of Argyle's
Series B Common Stock currently is held by a partnership affiliated with
Messrs. Marbut, Byrne, Morales and Hawks, while all of Hearst-Argyle's Series
B Common Stock initially will be held by Hearst or a Permitted Transferee. The
Hearst-Argyle Certificate of Incorporation will provide that if at any time
Hearst first owns less than 20% of all shares of Hearst-Argyle Common Stock
then issued and outstanding, the issued and outstanding shares of Hearst-
Argyle Series B Common Stock automatically will be converted into shares of
Hearst-Argyle Series A Common Stock and Hearst-Argyle will not be entitled to
issue any additional shares of Hearst-Argyle Series B Common Stock.
Preferred Stock. Under the Argyle Certificate of Incorporation, 12,500
shares of the authorized Argyle Preferred Stock are designated as Series A
Preferred Stock and 12,500 shares are designated as Series B Preferred Stock.
Under the Hearst-Argyle Certificate of Incorporation, 12,500 shares of the
authorized Hearst-Argyle Preferred Stock will be designated as Hearst-Argyle
Series A Preferred Stock and 12,500 shares will be designated as Hearst-Argyle
Series B Preferred Stock. Unlike the Argyle Preferred Stock, the Hearst-Argyle
Preferred Stock will have certain voting rights as described below.
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Voting. Under Argyle's Certificate of Incorporation, holders of Series A
Common Stock or Series B Common Stock are entitled to vote on all matters
submitted to a vote of stockholders. Argyle's Series C Common Stock is
entitled to vote only with respect to (i) amendments to the Argyle Certificate
of Incorporation that alter or change the powers, preferences or special
rights of their respective series so as to affect them adversely, and (ii)
such other matters as require class votes under the DGCL and Argyle's
Certificate of Incorporation. Likewise, holders of Argyle Preferred Stock are
entitled to vote only with respect to amendments to the Argyle Certificate of
Incorporation that adversely alter or change the rights, preferences,
privileges or powers of their respective preferred series. Under the Hearst-
Argyle Certificate of Incorporation, holders of Hearst-Argyle Common Stock
will be entitled to vote on all matters submitted to a vote of the
stockholders and holders of Hearst-Argyle Preferred Stock are entitled to vote
on all matters on which the holders of Series A Common Stock are entitled to
vote.
With respect to any election of directors by the Argyle stockholders, the
holders of Series B Common Stock are entitled to elect a majority of the
Argyle Board and the holders of Series A Common Stock are entitled to elect
the balance of the Argyle Board. Under the Hearst-Argyle Certificate of
Incorporation, however, the holders of Hearst-Argyle Series A Common Stock
will elect only two directors of the Hearst-Argyle Board and the holders of
Hearst-Argyle Series B Common Stock will elect the balance of the Hearst-
Argyle Board. Under the Argyle Certificate of Incorporation, only the holders
of Series A Common Stock can remove a Series A Director for cause and only the
holders of Series B Common Stock can remove a Series B Director for cause.
Under the Hearst-Argyle Certificate of Incorporation, a Series A Director and
a Series B Director can only be removed for cause by the vote of a majority of
the holders of Hearst-Argyle Common Stock voting together as a class.
Controlling Stockholder. At the Effective Time, Hearst will own 100% of the
issued and outstanding shares of Hearst-Argyle Series B Common Stock,
constituting between 82.3% and 86.5% of the outstanding shares of Common Stock
of Hearst-Argyle. As a result, Hearst will be able to control substantially
all actions to be taken by the Hearst-Argyle stockholders. See "Risk Factors--
Control by Majority Stockholder; Competitive and Operations Impact; Conflicts
of Interest."
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THE COMMERCIAL TELEVISION BROADCAST INDUSTRY
INDUSTRY BACKGROUND
General. Commercial television broadcasting began in the United States on a
regular basis in the 1940s. Currently, a limited number of channels are
available for broadcasting in any one geographic area, and a license to
operate a television station must be 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 VHF-only receivers and the expansion of cable television
systems, however, have reduced to some extent the VHF signal advantage.
All television stations in the country are grouped by Nielsen, a national
audience measuring service, into 211 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. These specific
geographic markets are referred to by Nielsen as "designated market areas"
(DMAs). Nielsen 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.
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.
Networks; Programming. Historically, three major broadcast networks--ABC,
NBC and CBS--dominated broadcast television. In recent years, however, Fox
effectively has evolved into the fourth major network, even though it produces
seven hours less of prime time programming than the other major networks. In
addition, UPN and WB Network have been launched as television networks.
Stations that operate without network affiliations are referred to as
"independent" stations. All of the Hearst-Argyle Stations are network-
affiliated stations.
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 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 otherwise would have 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.
A fully independent station, unlike a network-affiliated 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.
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Revenues. 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. Additionally,
advertising revenues in even-numbered years benefit from advertising placed by
candidates for political offices, and demand for advertising time in Olympic
broadcasts. Proposals have been advanced in Congress to require television
broadcast stations to provide advertising time to political candidates at no
charge, which would eliminate in whole or in part advertising revenues from
political candidates. See "Risk Factors--Television Industry Competition and
Technology."
Cable. 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
equivalent to any of the major broadcast networks and, collectively, the
broadcast originated signals still constitute the majority of viewing in most
cable homes. 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.
Argyle 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.
COMPETITION
Competition in the television industry takes place on several levels:
competition for audience, competition for programming (including news) and
competition for advertisers. Additional factors material to a television
station's competitive position include signal coverage and assigned frequency.
Further advances in technology may increase competition for household
audiences and advertisers. Video compression techniques, now in use with
direct broadcast satellites and in development for cable and wireless cable,
are expected to permit greater numbers of channels to be carried within
existing bandwidth. These compression techniques, as well as other
technological developments, are applicable to all video delivery systems,
including over-the air broadcasting, and have the potential to provide vastly
expanded programming to highly targeted audiences. Reduction in the cost of
creating additional channel capacity could lower entry barriers
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for new channels and encourage the development of increasingly specialized
niche programming. This ability to reach very narrowly defined audiences is
expected to alter the competitive dynamics for advertising expenditures.
Argyle is unable to predict the effect that technological changes will have on
the broadcast television industry or the future results of the Hearst-Argyle
Stations.
The television broadcasting industry continually is faced with such
technological change and innovation, the possible rise in popularity of
competing entertainment and communications media and governmental restrictions
or actions of federal regulatory bodies, including the FCC and the FTC, any of
which could have a material effect on the Hearst-Argyle Stations.
Audience. The Hearst-Argyle Stations compete for audience on the basis of
program popularity, which has a direct effect on advertising rates. A majority
of the daily programming on the Hearst-Argyle Stations is supplied by the
network with which each such station is affiliated. In time periods in which
the network provides programming, the Hearst-Argyle Stations are totally
dependent upon the performance of the network programs in attracting viewers.
Each Hearst-Argyle Station competes in non-network time periods based on the
performance of its programming during such time periods, using a combination
of self-produced news, public affairs and other entertainment programming,
including news and syndicated programs, that such station believes will be
attractive to viewers.
The Hearst-Argyle Stations compete for television viewership share against
local network-affiliated and independent stations, as well as against cable
and alternate methods of television transmission. These other transmission
methods can increase competition for a station by bringing into its market
distant broadcasting signals not otherwise available to the station's audience
and also by serving as a distribution system for non-broadcast programming
originated on the cable system. Historically, cable operators have not sought
to compete with broadcast stations for a share of the local news audience. To
the extent cable operators elect to do so, the increased competition for local
news audiences could have an adverse effect on Hearst-Argyle's advertising
revenues.
Other sources of competition for the Hearst-Argyle Stations include home
entertainment systems (including video cassette recorder and playback systems,
videodiscs and television game devices), the Internet, multipoint distribution
systems, multichannel multipoint distribution systems, wireless cable,
satellite master antenna television systems and some low power, in-home
satellite services. The Hearst-Argyle Stations also face competition from
high-powered direct broadcast satellite services, such as PrimeStar and
DIRECTV, which transmit programming directly to homes equipped with special
receiving antennas. The Hearst-Argyle Stations compete with these services
both on the basis of service and product performance (quality of reception and
number of channels that may be offered) and price (the relative cost to
utilize these systems compared to television viewing).
Programming. Programming is a significant factor in determining the overall
profitability of any television broadcast station. Competition for non-network
programming involves negotiating with national program distributors or
syndicators that sell first-run and off-network packages of programming. The
Hearst-Argyle Stations compete against in-market broadcast stations for
exclusive access to off-network reruns (such as Home Improvement) and first-
run product (such as the Oprah Winfrey Show) for exclusive access to those
programs. Cable systems generally do not compete with local stations for
programming, although various national cable networks from time to time have
acquired programs that otherwise would have been offered to local television
stations.
Advertising. Advertising rates are based upon the size of the market in
which a station operates, a program's popularity among the viewers an
advertiser wishes to attract, the number of advertisers competing for the
available time, the demographic makeup of the market served by the station,
the availability of alternative advertising media in the market area, the
aggressiveness and knowledgeablility of sales forces and the development of
projects, features and programs that tie advertiser messages to programming.
Advertising rates also are determined by a station's overall ability to
attract viewers in its market, as well as the station's ability to
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attract viewers among particular demographic groups that an advertiser may be
targeting. 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. 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.
TECHNOLOGY
On April 3, 1997, the FCC announced that it had adopted rules that will
allow television broadcasters to provide DTV to consumers. The FCC also
adopted a table of allotments for DTV, which will provide eligible existing
broadcasters with a second channel on which to provide DTV service. The
allotment plan is based on the use of channels 2-51, although the "core" DTV
spectrum will be between channels 2-46 or 7-51. Ultimately, the FCC plans to
recover the channels currently used for analog broadcasting and will decide at
a later date the use of the spectrum recovered outside of the core DTV
spectrum. Broadcasters that obtain a DTV channel outside of the core spectrum
may ultimately be required to move to a new channel at the time the analog
channels are recovered. Television broadcasters will be allowed to use their
DTV channels according to their best business judgment. Such uses can include
multiple standard definition program channels, data transfer, subscription
video, interactive materials and audio signals, although broadcasters will be
required to provide a free digital video programming service that is at least
comparable to today's analog service. Broadcasters will not be required to air
"high definition" programming or, initially, to simulcast their analog
programming on the digital channel. Affiliates of ABC, CBS, NBC and FOX in the
top 10 television markets will be required to be on the air with a digital
signal by May 1, 1999. Affiliates of those networks in markets 11-30 will be
required to be on the air with a digital signal by November 1, 1999, and
remaining commercial broadcasters within five years. The FCC stated that
broadcasters will remain public trustees and that it will issue a notice to
determine the extent of broadcasters' future public interest obligations. On
July 10, 1997, the FCC released a Notice of Proposed Rulemaking proposing to
reallocate channels 60-69. The FCC proposes to reallocate four channels to the
fixed and mobile services for public safety use, and the remaining six
channels to the fixed, mobile and broadcasting services. Licenses are proposed
to be assigned through competitive bidding. Existing analog and DTV broadcast
operations on channels 60-69, such as WNAC, would be fully protected during a
transistion period, which is targeted for completion in the year 2006. Hearst-
Argyle will incur significant costs in the conversion to DTV. Argyle is unable
to predict the extent or timing of consumer demand for any such DTV services.
See "Risk Factors" and "Hearst Broadcast Group's Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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DIGITAL CONVERSION TIMETABLE FOR HEARST-ARGYLE STATIONS
<TABLE>
<CAPTION>
FCC MANDATED
TIMETABLE FOR
MARKET ANALOG DTV CONSTRUCTION OF
STATION (AFFILIATION) RANK(1) CHANNEL CHANNEL DTV FACILITIES
--------------------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C>
WCVB, Boston, MA (ABC) 6 5 20 May 1, 1999*
WWWB, Tampa, FL (WB)(2) 15 32 19 May 1, 2002
WTAE, Pittsburgh, PA (ABC) 19 4 51 November 1, 1999
WBAL, Baltimore, MD (NBC) 23 11 59 November 1, 1999
WLWT, Cincinnati, OH (NBC) 30 5 35 November 1, 1999
WISN, Milwaukee, WI (ABC) 31 12 34 May 1, 2002
KMBC, Kansas City, MO (ABC) 32 9 14 May 1, 2002
KCWB, Kansas City, MO (WB)(2)(3) 32 29 31 May 1, 2002
KOCO, Oklahoma City, OK (ABC) 43 5 16 May 1, 2002
WPBF, West Palm Beach, FL (ABC)(2) 44 25 16 May 1, 2002
WNAC, Providence, RI (Fox)(4)(5) 47 64 54 May 1, 2002
WDTN, Dayton, OH (ABC)(4) 53 2 46 May 1, 2002
KITV, Honolulu, HI (ABC) 69 4 40 May 1, 2002
WAPT, Jackson, MS (ABC) 90 16 21 May 1, 2002
KHBS, Fort Smith, AR (ABC) 118 40 21 May 1, 2002
KHOG, Fayetteville, AR (ABC) 118 29 15 May 1, 2002
</TABLE>
- --------
* Station has voluntarily committed to an 18-month construction schedule.
(1) Market rank is based on the relative size of the DMA among the 211
generally recognized DMAs in the U.S., based on Nielsen estimates for the
1996-97 season.
(2) WWWB and WPBF (if the pending acquisition by Hearst of WPBF is completed)
will be managed by Hearst-Argyle under the Management Agreement with
Hearst and will continue to be owned by Hearst. In addition, Hearst-Argyle
will provide certain management services to Hearst in order to allow
Hearst to fulfill its obligations under the Missouri LMA with KCWB. For
terms of the Management Agreement and the Option Agreement, see "The
Merger Agreement--Conditions to the Merger--Management Agreement" and "--
Television Station Option Agreement." For a description of WPBF, see
"Business of Hearst Broadcast Group--The Hearst Stations."
(3) Hearst has a Program Services and Time Brokerage Agreement (the Missouri
LMA) with KCWB-TV, Inc., the permittee of KCWB. KCWB holds a construction
permit authorizing it to operate on Channel 32. Due to a lack of available
tower sites within the useable area for Channel 32, however, KCWB is
presently operating on Channel 29 pursuant to a Special Temporary
Authorization ("STA") granted by the FCC. KCWB is awaiting an FCC decision
on its proposal to permanently change the operating channel of the station
from Channel 32 to Channel 29. KCWB has pending an application to
authorize its permanent operation on Channel 29. KCWB's STA expires on
September 29, 1997 and may be renewed at the FCC's discretion for periods
of six months. The STA has already been renewed once. Hearst anticipates
that the FCC will ultimately license KCWB to operate on Channel 29.
However, there can be no assurance that this will occur.
(4) WNAC's (Providence RI) broadcast signal overlaps with WCVB's (Boston, MA)
broadcast signal, and WDTN's (Dayton, OH) broadcast signal overlaps with
WLWT's (Cincinnati, OH) broadcast signal. Under FCC rules, a single entity
cannot own stations with overlapping signals. Hearst-Argyle will divest
WNAC and WDTN. See "Risk Factors--Regulatory Matters" and "Federal
Regulation of Television Broadcasting."
(5) Subject to a Joint Marketing and Programming Agreement with Clear Channel,
licensee of WPRI, the CBS affiliate in Providence, RI. Argyle has entered
into a letter of intent to divest WNAC. See "Business of Argyle."
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FEDERAL REGULATION OF TELEVISION BROADCASTING
Television broadcasting is subject to the jurisdiction of the FCC under 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.
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. Prior to the passage of the Telecommunications 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
Telecommunicatons 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 Telecommunications 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 Telecommunications 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, KITV (including its satellite
stations KMAU and KHVO), WAPT and KHBS (including its satellite station KHOG)
will expire on October 1, 1997, June 1, 1998, April 1, 1999, February 1, 1999,
June 1, 2005 and June 1, 2005, respectively. The main station licenses of
WCVB, WWWB, WTAE, WBAL, WISN, KMBC, WDTN, and WPBF will expire on April 1,
1999, February 1, 2005, August 1, 1999, October 1, 2004, December 1, 1997,
February 1, 1998, October 1, 1997, and February 1, 2005, respectively. KCWB
operates pursuant to a Special Temporary Authorization ("STA"), which expires
on September 28, 1997 and may, in the discretion of the FCC, be renewed at six
months intervals. An application for renewal of the license for WDTN is
pending at the FCC. Petitions to deny the WDTN renewal application will be due
on or before September 2, 1997. An application for the renewal of the license
of WLWT is pending at the FCC. Petitions to deny the WLWT renewal application
will be due on or before September 2, 1997. Neither Argyle nor Hearst is aware
of any facts or circumstances that would prevent the renewal of the licenses
or authorizations for the stations at the end of their respective terms or the
renewal of KCWB's STA.
The Communications Act, FCC rules and regulations and the Telecommunications
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. See "Risk Factors--Control by Majority
Stockholder; Competition and Operations Impact; Conflicts of Interest." 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
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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 Argyle and Clear Channel relating to WNAC, and the
Programming Services and Time Brokerage Agreement between Hearst and the
licensee of KCWB. If the FCC's ultimate regulatory decision were to disfavor
the continued validity of such joint operating agreements or LMAs, then these
agreements, in the worst case scenario, might be required to be terminated. In
addition, pursuant to the Telecommunications Act, the FCC has eliminated the
12-station national limit for TV station ownership and increased the national
audience reach limitation from 25% to 35%. Further, legislation recently
introduced in Congress could, if enacted, repeal or modify the
newspaper/television cross-ownership rule provision and a petition recently
has been filed requesting that the FCC initiate a rulemaking proceeding to
determine whether the FCC's newspaper/television cross-ownership rule should
be eliminated. Elimination of the rule could enable Hearst-Argyle to acquire
television stations in markets in which Hearst owns daily newspapers. There
can be no assurances, however, that the legislation will be enacted or that
the FCC will initiate the rulemaking proceeding or, if initiated, that the
outcome will result in elimination of the rule.
The Communications Act restricts the ability of foreign entities or
individuals to own or hold certain interests in broadcast licenses. The
Telecommunications Act, however, eliminated the restrictions on aliens serving
as directors or officers of broadcast licensees or as directors or officers 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 Telecommunications 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 effectively requiring television
stations to broadcast an average of three hours per week of children's
educational programming commencing in September 1997.
The FCC also has adopted regulations to implement certain provisions of 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 are the subject of pending judicial review
proceedings. The Telecommunications Act modified the 1992 Cable Act in several
important respects. In addition to matters relating to broadcast ownership,
the Telecommunications Act, among other things, repealed the cross-ownership
ban between cable and telephone entities and the FCC's video dialtone rules.
The Telecommunications Act also repealed the limitations on cross-ownership of
broadcast network and cable entities and the statutory prohibition of TV/cable
cross-ownership. These provisions, among others, allow for significant
involvement in the future by telephone companies in providing video services.
On March 31, 1997, the United States Supreme Court, in a 5-4 decision,
upheld the constitutionality of the must-carry provisions of the 1992 Cable
Act. As a result, the regulations promulgated by the FCC to implement the
must-carry provisions will remain in effect. Under those rules, cable
operators generally are required to devote up to one-third of their activated
channel capacity to the carriage of local commercial television stations.
The foregoing does not purport to be a complete summary of all of the
provisions of the Communications Act, the Telecommunications 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 Argyle cannot predict the outcome of any such
litigation or the impact on its business or the business of Hearst-Argyle.
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DIRECTOR ELECTION PROPOSAL
At the Stockholders Meeting, the Argyle stockholders will elect two
directors to hold office until the earlier of (i) the 1999 annual meeting of
stockholders of Argyle or (ii) if the Merger is consummated, until the
Effective Time.
Argyle's Certificate of Incorporation currently provides for classified
directors and staggered director terms. Of Argyle's five current directors,
Ms. Williams and Mr. Pulver are designated and serve as the Series A
Directors, and Messrs. Marbut, Byrne and Morales are designated and serve as
the Series B Directors. For as long as there are no more than two Series A
directors, the Board shall also be divided into two classes, Class I and Class
II, with the directors of each class generally having two-year terms. Ms.
Williams and Messrs. Marbut and Morales currently serve as Class I directors
and Messrs. Pulver and Byrne currently serve as Class II directors. Mr. Pulver
has been nominated for election at the Stockholders Meeting by the holders of
Series A Common Stock voting as a class to serve as a Class II, Series A
Director. Mr. Byrne has been nominated for election at the Stockholders
Meeting by the holders of Series B Common Stock voting as a class to serve as
a Class II, Series B Director. If elected, the Class II directors shall hold
office until the earlier of (i) the annual meeting of stockholders in 1999, or
until their respective successors are elected and qualified or (ii) if the
Merger is consummated, the Effective Time. Each current director in Class I
shall hold office until the earlier of (i) the annual meeting of stockholders
in 1998, or until their respective successors are elected and qualified or
(ii) if the Merger is consummated, the Effective Time.
In the event that either Class II nominee is unable to serve or for good
cause will not serve, the proxies will be voted at the meeting for such other
person or persons as the Board may recommend. Mr. Byrne has announced his
retirement from the Argyle Board as of the Closing. Mr. Byrne's biographical
information appears below. See "Management of Hearst-Argyle After the Merger"
for biographical information concerning Mr. Pulver, the other director
nominee, and the directors continuing in office.
BLAKE BYRNE has served in the broadcasting industry for 35 years and has
served as President, Chief Operating Officer and a Director of Argyle since
August 1994. He has served in the same positions with each of Argyle's
subsidiaries since such subsidiary's inception or acquisition by Argyle. 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 each 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.
Notwithstanding the foregoing, pursuant to the Merger Agreement, at the
Effective Time the Board of Directors of Hearst-Argyle will consist of 11
members, divided into two classes of directors with staggered terms. Ms.
Williams and Mr. Pulver have been designated to serve as the two directors of
Hearst-Argyle elected by the holders of Hearst-Argyle Series A Common Stock.
Mr. Marbut has been designated to serve as one of the nine directors that
Hearst, as a result of its ownership of Hearst-Argyle Series B Common Stock,
will have the right to elect. See "Management of Hearst-Argyle After the
Merger," "The Merger Agreement" and "The Hearst Transaction Proposal--
Interests of Certain Persons in the Hearst Transaction; Affiliate
Transactions."
THE ARGYLE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" EACH OF
THE CLASS II NOMINEES FOR DIRECTOR.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Argyle Board held a total of 11 meetings in 1996. Each director attended
at least 75% of the aggregate of the total number of meetings held by the
Board and the total number of meetings held by all committees of the Board on
which he or she served. The Argyle Board has an Audit Committee and a
Compensation Committee, all of the members of both of which are non-employee
directors. The Argyle Board does not have a standing nominating committee.
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Audit Committee. The Audit Committee currently consists of David Pulver and
Caroline Williams. Mr. Pulver serves as Chair of the Audit Committee. The
Audit Committee consults with Argyle's independent auditors and with personnel
from the internal financial staff with respect to corporate accounting,
reporting and internal control practices. The Audit Committee met two times
during 1996.
Compensation Committee. The Compensation Committee consists of David Pulver
and Caroline Williams. Ms. Williams serves as Chair of the Compensation
Committee. The Compensation Committee reviews and approves salary and bonus
levels for executive officers and total compensation for senior executive
officers, and administers the 1994 Plan. The Compensation Committee met three
times during 1996.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report on executive compensation describes compensation decisions made
by the Compensation Committee during 1996 with respect to the executive
officers of Argyle.
The Compensation Committee. The Compensation Committee is composed entirely
of independent outside directors. Under the Charter of the Compensation
Committee adopted by the Board, the Compensation Committee reviews and
approves executive compensation packages for the Chief Executive Officer, all
other officers of Argyle and the general managers of television stations owned
by subsidiaries of Argyle (collectively, "Management"). Additionally, the
Charter provides that the Compensation Committee shall make determinations
with respect to the establishment, modification and administration of
management incentive plans and arrangements, and shall direct the
administration of all compensation packages, stock option plans, bonus plans
and benefit plans.
Compensation Philosophy. The goal of Argyle's compensation arrangements is
to attract, retain, motivate and reward personnel critical to the long-term
success of Argyle. As described below, the various components of Argyle's
compensation arrangements for Management are tied to the performance of
Argyle, which in turn unites the interests of Management with the interests of
Argyle's stockholders.
Components of Compensation. The components of executive compensation in 1996
were (i) a base salary and (ii) a bonus opportunity. Additionally, certain
members of management received grants of stock options in 1996 arising from
the anti-dilution provisions of their option agreements.
Base Salary. The base salary of the Chief Executive Officer and three of the
-----------
other executive officers of Argyle (Messrs. Byrne, Morales and Hawks) were
established in employment agreements with each individual entered into by
Argyle during 1995. Under the terms of the employment agreements, each such
officer is entitled to a base salary based on the level of "broadcast cash
flow" of Argyle for the prior year. The base salary changes annually with
changes in broadcast cash flow. As broadcast cash flow increases, which
reflects either or both of an increase in the size of Argyle's revenue base or
the profitability of Argyle's operations, the base salary increases.
The salary "grid" for the employment agreements was determined by the
Compensation Committee based on their subjective evaluation of the performance
and ability of each respective individual, and a review of executive
compensation arrangements of other companies. In establishing the salary grid,
the Compensation Committee did not establish a formula targeting compensation
at any particular level for any particular group of companies, but did attempt
to set the lower levels of the salary grid (in other words, the salaries at
the lower end of the broadcast cash flow range) at levels less than salaries
for comparable positions within the broadcast industry.
For base salaries established by the Compensation Committee for other
members of Management, the Compensation Committee set such salaries based on
their subjective evaluation of the performance and ability of such members of
Management, and a review of compensation arrangements of other companies in
the broadcast industry.
Bonus Opportunity. In 1996, each member of Management had an annual bonus
-----------------
opportunity, expressed as a percentage of base salary. The bonus percentage is
established in the employment agreements for the Chief Executive Officer and
Messrs. Byrne, Morales and Hawks, with the percentage constituting the bonus
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opportunity increasing as broadcast cash flow increases. The percentage "grid"
was established in a manner similar to the establishment of the salary grid in
such employment agreements. The Compensation Committee also has the discretion
to declare bonuses based on other factors, such as external factors impacting
Argyle and the historical compensation of employees versus industry standards.
The Compensation Committee did declare bonuses in 1996 based on these other
factors.
The percentage of base salary constituting the bonus opportunity for other
members of Management was established by the Compensation Committee in a
similar manner to the establishment of salaries for such individuals.
Payment of the bonus is subject to the attainment of certain Argyle and
individual goals. For calendar year 1995 bonuses (which were paid in 1996),
50% of the bonus was based on Argyle achieving a certain level of broadcast
cash flow established by the Compensation Committee at the beginning of the
year, and 50% of the bonus was based on an individual achieving certain goals
established by the Compensation Committee at the beginning of the year (for
calendar year 1996, 65% of the bonus was based on broadcast cash flow, and 35%
on individual goals). The individual goals vary and are based on the
individual's job responsibilities and focus on matters where the individual is
able to influence results.
Stock Option Grants. The Compensation Committee believes that a significant
-------------------
portion of executive compensation should be dependent on value created for the
stockholders. The 1994 Plan, through which stock options are granted to
members of Management, aligns the interests of Management with the interests
of stockholders in working to increase the value of Argyle's Common Stock.
The number of stock options to be granted to each executive officer with an
employment agreement is established in the employment agreement. The number of
options granted to such executive officers, which is expressed as a percentage
of the outstanding shares of Argyle, was determined by a subjective evaluation
by the Compensation Committee based on the executive officer's position and
the value of the stock at the time of grant. The majority of these options
(59%) are "performance vesting," and will vest from 0% to 100% based on
Argyle's stock price at the various measurement dates.
Option grants for other members of Management were determined by the
Compensation Committee based on the individual's position, the value of the
stock at the time of the grant and the amount of options granted to the
individual previously. Half of these options are "performance vesting," and
will vest only to the extent Argyle achieves certain broadcast cash flow
targets set annually by the Compensation Committee. By tying vesting to
financial performance, the interests of Management are further aligned with
the interests of stockholders.
CEO Compensation. Mr. Marbut's compensation is established in his employment
agreement with Argyle. The Compensation Committee established the levels of
the various components of compensation under this agreement (base salary,
annual bonus and stock options) in the manner described under "Compensation
Committee Report on Executive Compensation--Components of Compensation" above,
which was the same manner used for establishing levels of compensation for all
executive officers with employment agreements.
$1 Million Limit on Deductibility of Executive Compensation. Section 162(m)
of the Code generally limits the corporate tax deduction for compensation paid
to executive officers to $1 million, unless certain requirements are met. No
executive received compensation in excess of this level in 1996.
The Option Plan establishes a limit on the maximum number of shares of
Argyle Common Stock for which options may be granted. This provision was
approved by shareholders at the 1996 Annual Meeting, and therefore
compensation attributable to options granted under the Option Plan is not
subject to the Section 162(m) limitation on deductibility.
Submitted by the Compensation
Committee:
Caroline L. Williams, Chair
David Pulver
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STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on an
investment of $100 in the Series A Common Stock on October 23, 1995 (the date
of Argyle's initial public offering of its Series A Common Stock), through
December 31, 1996, based on the market price of the Series A Common Stock and
assuming reinvestment of dividends, with the cumulative total return of a
similar investment in companies on the Standard & Poor's 500 Stock Index and
in a group of peer companies selected by Argyle on a line-of-business basis
and weighted for market capitalization, for the period from October 23, 1995
(the date of Argyle's initial public offering of its Series A Common Stock),
through December 31, 1996. Peer companies included are Granite Broadcasting
Corporation, Lin Television Corporation, Renaissance Communications
Corporation, Sinclair Broadcasting Group, Inc. and Young Broadcasting Inc.
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
10/23/95 12/29/95 12/31/96
-------- -------- --------
<S> <C> <C> <C>
Argyle $100.00 $102.94 $144.12
Peer $100.00 $ 88.50 $128.87
S&P $100.00 $105.28 $126.61
</TABLE>
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LEGAL MATTERS
The validity of Hearst-Argyle Series A Common Stock to be issued in the
Merger will be passed upon by Locke Purnell Rain Harrell (A Professional
Corporation), Dallas, Texas.
Locke Purnell Rain Harrell (A Professional Corporation), counsel for Argyle,
will deliver an opinion that the description of the federal income tax
consequences of the Hearst Transaction to holders of Argyle Common Stock
contained under the heading "The Hearst Transaction Proposal--Certain Federal
Income Tax Consequences" correctly sets forth the material federal income tax
consequences of the Hearst Transaction for such holders.
EXPERTS
The consolidated financial statements of Argyle at December 31, 1995 and
1996 and for the period from inception through December 31, 1994, and for each
of the two years in the period ended December 31, 1996, and the financial
statement schedule appearing in this Proxy Statement/Prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting
and auditing.
The combined financial statements 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, appearing in this Proxy
Statement/Prospectus have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The combined financial statements of the Selected Gannett Television
Stations and the financial statements of Multimedia Entertainment, Inc.,
d.b.a. WLWT-TV (a subsidiary of Multimedia, Inc.) included in this Proxy
Statement/Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants given on the authority of said firm as
experts in auditing and accounting.
The combined financial statements as of December 31, 1995 and 1996 and for
each of the three years in the period ended December 31, 1996 of the Hearst
Broadcast Group of The Hearst Corporation appearing in this Proxy
Statement/Prospectus and the related financial statement schedule included
elsewhere herein have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing elsewhere herein and are
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
It is expected that representatives of Ernst & Young LLP, Argyle's
independent auditors, will be present at the Stockholders Meeting where they
will have an opportunity to respond to appropriate questions from stockholders
and to make a statement if they so desire.
An independent accounting firm has not been selected at present to audit
and report on the financial statements of Hearst-Argyle for the current fiscal
year.
FUTURE STOCKHOLDER PROPOSALS
If any stockholder intends to present a proposal at the next annual meeting
of Argyle, such holder must submit the proposal to the Secretary of Argyle in
writing so as to be received at the executive offices of Argyle by April 3,
1998. Such proposals must also meet the other requirements of the rules of the
SEC relating to stockholders' proposals.
143
<PAGE>
INDEX TO SELECTED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1992 Cable Act.................................................. 43
1994 Plan....................................................... 42
ACI............................................................. 128
ATI (Foreign)................................................... 48
ATI Holders..................................................... 16
ATIGP........................................................... 48
ATILP........................................................... 16
ATP............................................................. 48
Acquisition Proposal............................................ 12
Alien........................................................... 124
Antitrust Division.............................................. 13
Argyle 1996 Form 10-K........................................... 1
Argyle.......................................................... Cover Page
Argyle's Certificate of Incorporation........................... 6
Argyle Common Stock............................................. 8
Argyle I........................................................ 108
Argyle Option................................................... 10
Argyle Preferred Stock.......................................... 130
Argyle Reports.................................................. 1
Arkansas Stations............................................... 79
Award Period.................................................... 112
BCF............................................................. 38
Blended Value Range............................................. 39
Bridge Debt..................................................... 12
Cash Consideration.............................................. 9
Cash Conversion Number.......................................... 60
Cash Election................................................... 4
Cash Election Shares............................................ 60
Cash Proration Factor........................................... 60
Cash Sub........................................................ Cover Page
Chase........................................................... 15
Clear Channel................................................... 7
Clear Channel Venture........................................... 73
Closing......................................................... 9
Closing Date.................................................... 9
Code............................................................ 37
Commission...................................................... 1
Communications Act.............................................. 15
Contribution.................................................... Cover Page
Conversion Date................................................. 54
DGCL............................................................ 17
DMA............................................................. 7
DTV............................................................. 25
Demand Registration............................................. 70
Director Election Proposal...................................... Cover Page
Dissenting Shares............................................... 9
EBITDA.......................................................... 38
Effective Time.................................................. 9
Electing Optionholders.......................................... 41
Election........................................................ 9
<CAPTION>
PAGE
----
<S> <C>
Election Deadline............................................... 11
Exchange Act.................................................... 1
Exchange Agent.................................................. 11
Excluded Persons 119
Existing Credit Facility........................................ 12
FCC............................................................. 3
FTC............................................................. 13
Form of Election................................................ Cover Page
Gannett......................................................... 33
Gannett Swap.................................................... 34
HSR Act......................................................... 15
Hearst.......................................................... Cover Page
Hearst-Argyle................................................... Cover Page
Hearst-Argyle Options........................................... 10
Hearst-Argyle Common Stock...................................... 130
Hearst-Argyle Preferred Stock................................... 124
Hearst-Argyle Series A Common Stock............................. Cover Page
Hearst-Argyle Series B Common Stock............................. 10
Hearst-Argyle Series A Preferred Stock.......................... 10
Hearst-Argyle Series B Preferred Stock.......................... 10
Hearst-Argyle Stations.......................................... 7
Hearst Broadcast Group.......................................... 3
Hearst Broadcast Group-Officers................................. 116
Hearst LTIP..................................................... 112
Hearst Pension Plan............................................. 43
Hearst Stations................................................. 74
Hearst Transaction.............................................. Cover Page
Hearst Transaction Proposal..................................... Cover Page
Hernreich....................................................... 69
Holder Representative........................................... 62
Initial Term Loan Balance....................................... 54
IRS............................................................. 14
Limitations and Allocation Prorations........................... 9
Managed Stations................................................ 75
Management...................................................... 140
Management Agreement............................................ 12
Management Stockholders......................................... 115
Maturity Date................................................... 54
Merger.......................................................... Cover Page
Merger Agreement................................................ Cover Page
Merger Consideration............................................ 9
Merger Sub...................................................... Cover Page
Merrill Lynch................................................... 14
Merrill Lynch Opinion........................................... 14
Missouri LMA.................................................... 7
Mixed Consideration............................................. 9
Mixed Election.................................................. 4
Mixed Election Cash Shares...................................... 60
Mixed Election Shares........................................... 60
Mixed Election Stock Shares..................................... 61
</TABLE>
144
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Mixed Option Cash Shares........................................ 60
Mixed Option Stock Shares....................................... 61
Name License Agreement.......................................... 13
Named Stockholders.............................................. 127
Net Assets...................................................... 58
Network Compensation............................................ 132
New Credit Facility............................................. 52
Nielsen......................................................... 7
Non-Electing Common Shares...................................... 59
Northstar Stations.............................................. 73
Notification and Report Form.................................... 15
OCF............................................................. 38
Option Agreement................................................ 12
Option Cash..................................................... 10
Option Cash Election............................................ 10
Option Cash Shares.............................................. 60
Option Election................................................. 10
Option Mixed Consideration...................................... 10
Option Mixed Election........................................... 10
Option Plan..................................................... 22
Option Stock.................................................... 10
Option Stock Election........................................... 10
Option Stock Shares............................................. 61
Partnerships.................................................... 48
Participants.................................................... 117
Participant's Employment or Service............................. 118
Peer Companies.................................................. 38
Permitted Transferee............................................ 123
Piggyback Registration.......................................... 70
Plan Proposal................................................... Cover Page
Preferred Stock................................................. 50
Private Placement Debt.......................................... 12
Pro Forma Statements............................................ 86
Radio Facilities Lease.......................................... 13
Record Date..................................................... Cover Page
<CAPTION>
PAGE
----
<S> <C>
Registrable Shares.............................................. 70
Registration Rights Agreement................................... 16
Registration Statement.......................................... 1
Representatives................................................. 64
Restated Charter................................................ Cover Page
Revolving Facility.............................................. 55
Rollover Election............................................... 10
Rollover Options................................................ 41
Section 203..................................................... 125
Section 262..................................................... 17
Securities Act.................................................. 1
Senior Subordinated Notes....................................... 12
Series A Common Stock........................................... Cover Page
Series B Common Stock........................................... Cover Page
Series C Common Stock........................................... Cover Page
Series A Directors.............................................. 22
Series B Directors.............................................. 22
Series A Preferred Stock........................................ 10
Series B Preferred Stock........................................ 10
Services Agreement.............................................. 17
STA............................................................. 7
Stock Consideration............................................. 9
Stock Conversion Number......................................... 61
Stock Election.................................................. 4
Stock Election Shares........................................... 60
Stock Options................................................... 117
Stockholders Meeting............................................ Cover Page
Stock Proration Factor.......................................... 61
Tax Sharing Agreement........................................... 13
Telecommunications Act.......................................... 25
Term Loan....................................................... 54
TIP............................................................. 48
UPN............................................................. 25
Voting Agreements............................................... Cover Page
</TABLE>
145
<PAGE>
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARGYLE TELEVISION, INC.
Annual Financial Statements
Report of Independent Auditors.......................................... F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996............ F-4
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............................................. F-6
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....................................... F-7
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............................................. F-8
Notes to Consolidated Financial Statements.............................. F-9
Interim Financial Statements
Condensed Consolidated Balance Sheet as of March 31, 1997 (Unaudited)... F-21
Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 1996 and 1997 (Unaudited).............................. F-23
Condensed Consolidated Statement of Stockholders' Equity for the Three
Months Ended March 31, 1997 (Unaudited)................................ F-24
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1996 and 1997 (Unaudited).............................. F-25
Notes to Condensed Consolidated Financial Statements (Unaudited)........ F-26
NORTHSTAR STATIONS (PREDECESSOR)
Annual Financial Statements
Report of Independent Auditors.......................................... F-29
Combined Statement of Operations for the Year Ended December 31, 1994... F-30
Combined Statement of Changes in Stockholder's Equity for the Year Ended
December 31, 1994...................................................... F-31
Combined Statement of Cash Flows for the Year Ended December 31, 1994... F-32
Notes to Combined Financial Statements.................................. F-33
MULTIMEDIA ENTERTAINMENT, INC., D.B.A. WLWT-TV (A SUBSIDIARY OF
MULTIMEDIA, INC.) (AN ACQUIRED BUSINESS OF ARGYLE TELEVISION, INC.)
Annual Financial Statements
Report of Independent Accountants....................................... F-37
Balance Sheets as of December 31, 1994 and December 3, 1995............. F-38
Statements of Operations for the year ended December 31, 1994 and for
the period from January 1, 1995 through December 3, 1995............... F-39
Statements of Cash Flows for the year ended December 31, 1994 and for
the period from January 1, 1995 through December 3, 1995............... F-40
Notes to Financial Statements........................................... F-41
SELECTED GANNETT TELEVISION STATIONS (AN ACQUIRED BUSINESS OF ARGYLE
TELEVISION, INC.)
Annual Financial Statements
Report of Independent Accountants....................................... F-45
Combined Balance Sheets as of December 31, 1995 and December 29, 1996... F-46
Combined Statements of Operations for the Years Ended December 25, 1994,
December 31, 1995 and December 29, 1996................................ F-47
Combined Statements of Cash Flows for the Years Ended December 25, 1994,
December 31, 1995 and December 29, 1996................................ F-48
Notes to Combined Financial Statements.................................. F-49
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HEARST BROADCAST GROUP
Annual Financial Statements
Independent Auditors' Report............................................ F-54
Combined Balance Sheets as of December 31, 1995 and 1996................ F-55
Combined Statements of Operations for the Three Years Ended December 31,
1994, 1995 and 1996.................................................... F-56
Combined Statements of Cash Flows for the Three Years Ended December 31,
1994, 1995 and 1996.................................................... F-57
Notes to Combined Financial Statements.................................. F-58
Interim Financial Statements
Condensed Combined Balance Sheet as of March 31, 1997 (Unaudited)....... F-64
Condensed Combined Statements of Operations for the Three Months Ended
March 31, 1996 and 1997 (Unaudited).................................... F-65
Condensed Combined Statements of Cash Flows for the Three Months Ended
March 31, 1996 and 1997 (Unaudited).................................... F-66
Notes to Condensed Combined Financial Statements (Unaudited)............ F-67
</TABLE>
F-2
<PAGE>
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. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 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.
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
F-3
<PAGE>
ARGYLE TELEVISION, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1995 1996
------ ------------ ------------
<S> <C> <C>
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, respectively..................... 11,362,007 14,936,522
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
============ ============
</TABLE>
F-4
<PAGE>
ARGYLE TELEVISION, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
------------------------------------ ------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
ARGYLE TELEVISION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 5, 1994) YEAR ENDED YEAR ENDED
THROUGH DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1994 1995 1996
----------------- ------------ ------------
<S> <C> <C> <C>
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.......................... $(15,807,263) $(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
============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
ARGYLE TELEVISION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PREFERRED PAID-IN EARNINGS
STOCK STOCK CAPITAL (DEFICIT) TOTAL
-------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
======== ==== ============ ============ ============
</TABLE>
- --------
* Converted into Series B Common Stock during 1995
See accompanying notes.
F-7
<PAGE>
ARGYLE TELEVISION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 5, 1994) YEAR ENDED DECEMBER 31
THROUGH --------------------------
DECEMBER 31, 1994 1995 1996
----------------- ------------ ------------
<S> <C> <C> <C>
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 operating
activities...................... 650 6,859,079 6,943,040
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
======== ============ ============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Capital contribution of
equipment....................... $ -- $ 157,998 $ --
Businesses acquired in purchase
transaction:
Fair market value of assets
acquired...................... -- 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
======== ============ ============
</TABLE>
See accompanying notes.
F-8
<PAGE>
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 on
an undiscounted basis when the license period begins and the programs are
available for use. Costs are amortized using the straight-line method based on
the number of showings, which approximates an accelerated method of
amortization. Program rights and the corresponding contractual obligations are
classified as current or long-term based on estimated usage and payment terms,
respectively.
Program rights are reviewed periodically for impairment and, if necessary,
adjusted to estimated net realizable value. No significant adjustments have
been recorded in the accompanying consolidated statements of operations.
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.
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.
F-9
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
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.
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
F-10
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
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.
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.
F-11
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
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.
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Total revenues.................................... $ 72,315,000 $ 75,646,000
Loss from continuing operations applicable to com-
mon stock........................................ $(14,587,000) $(15,163,000)
Loss from continuing operations per share applica-
ble to common stock.............................. $ (1.29) $ (1.34)
Pro forma weighted average number of shares used
in calculations.................................. 11,346,914 11,346,914
</TABLE>
F-12
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Total revenues.................................... $ 79,683,000 $ 84,243,000
Loss from continuing operations applicable to com-
mon stock........................................ $(19,346,000) $(13,330,000)
Loss from continuing operations per share applica-
ble to common stock.............................. $ (1.70) $ (1.17)
Pro forma weighted average number of shares used
in calculations.................................. 11,346,914 11,346,914
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
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.
F-13
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
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.
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:
<TABLE>
<CAPTION>
ESTIMATED
NOTIONAL AVERAGE AVERAGE FAIR
AMOUNT RECEIVE RATE PAY RATE VALUE
----------- ------------ -------- ---------
<S> <C> <C> <C> <C>
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)
</TABLE>
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.
F-14
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
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:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
F-15
<PAGE>
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:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
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.................. $ -- $ --
=========== ===========
</TABLE>
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.
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
F-16
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
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.
A summary of the Company's stock option plan and changes during the years
ended December 31, 1995 and 1996 follows:
<TABLE>
<CAPTION>
TIME PERFORMANCE
VESTING VESTING
------- -----------
<S> <C> <C>
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
======= =======
</TABLE>
F-17
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
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.
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:
<TABLE>
<S> <C>
1997........................................................... $4,566,421
1998........................................................... 2,845,209
1999........................................................... 1,227,172
2000........................................................... 191,286
----------
$8,830,088
==========
</TABLE>
F-18
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
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:
<TABLE>
<CAPTION>
EMPLOYMENT
OPERATING PROGRAM AND TALENT
LEASES RIGHTS CONTRACTS
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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.
F-19
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1996
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.
F-20
<PAGE>
ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 949 $ 3,239
Accounts receivable, net............................. 14,936 14,165
Barter program rights................................ 5,912 4,736
Program rights....................................... 3,934 3,692
Other................................................ 1,895 1,832
-------- --------
Total current assets................................... 27,626 27,664
Property, plant and equipment, net..................... 39,213 50,174
Intangible assets:
FCC licenses......................................... 126,009 198,910
Network affiliation agreements....................... 121,272 43,961
Other................................................ 12,764 8,221
-------- --------
260,045 251,092
Less accumulated amortization........................ (28,190) (14,310)
-------- --------
231,855 236,782
Other assets:
Deferred acquisition and financing costs, net........ 5,788 5,653
Barter program rights, noncurrent.................... 5,334 2,759
Program rights, noncurrent........................... 3,580 6,443
Other................................................ 15,212 14,738
-------- --------
Total assets........................................... $328,608 $344,213
======== ========
</TABLE>
F-21
<PAGE>
ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 1,001 $ 1,761
Accrued liabilities................................. 5,612 9,515
Barter program rights payable....................... 6,776 4,215
Program rights payable.............................. 4,251 4,389
Other............................................... 868 233
-------- --------
Total current liabilities............................. 18,508 20,113
Barter program rights payable......................... 5,333 2,759
Program rights payable................................ 3,610 6,884
Long-term debt........................................ 171,500 191,500
Other liabilities..................................... 505 104
Stockholders' equity:
Series A preferred stock, 10,938 shares issued and
outstanding........................................ 1 1
Series B preferred stock, 10,938 shares issued and
outstanding........................................ 1 1
Series A common stock, par value $.01 per share,
35,000,000 shares authorized and 3,846,914 and
4,010,914 shares issued and outstanding in 1996 and
1997, respectively................................. 38 39
Series B common stock, par value $.01 per share,
200,000 shares authorized, 200,000 and 36,000
shares issued and outstanding in 1996 and 1997,
respectively....................................... 2 1
Series C common stock, par value $.01 per share,
14,800,000 shares authorized, 7,300,000 shares
issued and outstanding............................. 73 73
Additional paid-in capital.......................... 159,454 159,358
Retained deficit.................................... (30,417) (36,620)
-------- --------
Total stockholders' equity............................ 129,152 122,853
-------- --------
Total liabilities and stockholders' equity............ $328,608 $344,213
======== ========
</TABLE>
See accompanying notes.
F-22
<PAGE>
ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31
----------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Total revenues............................................... $15,495 $17,879
Station operating expenses................................... 8,898 10,781
Amortization of program rights............................... 1,289 1,057
Depreciation and amortization................................ 4,986 6,558
------- -------
Station operating income (loss).............................. 322 (517)
Corporate general and administrative expenses................ 983 1,008
Non-cash compensation expense................................ 169 260
------- -------
Operating loss............................................... (830) (1,785)
Interest expense, net........................................ 3,500 4,418
------- -------
Net loss..................................................... (4,330) (6,203)
Less preferred stock dividends............................... -- (356)
------- -------
Loss applicable to common stock.............................. $(4,330) $(6,559)
======= =======
Loss per common share........................................ $ (.39) $ (.58)
======= =======
Weighted average number of common shares outstanding......... 11,119 11,347
======= =======
</TABLE>
See accompanying notes.
F-23
<PAGE>
ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED
AND PREFERRED PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------------- ---------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balances at December 31, 1996... $115 $159,454 $(30,417) $129,152
Compensation element of stock
options........................ -- 260 -- 260
Dividends paid on preferred
stock.......................... -- (356) -- (356)
Net loss........................ -- -- (6,203) (6,203)
---- -------- -------- --------
Balances at March 31, 1997...... $115 $159,358 $(36,620) $122,853
==== ======== ======== ========
</TABLE>
See accompanying notes.
F-24
<PAGE>
ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31
-----------------
1996 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Operating Activities
Net loss................................................... $(4,330) $ (6,203)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation............................................. 1,020 1,353
Amortization of intangible assets........................ 3,966 5,204
Amortization of deferred financing costs................. 177 162
Amortization of program rights........................... 1,289 1,057
Program payments......................................... (797) (1,229)
Compensation element of stock options.................... 169 260
Fair value adjustments of interest rate protection
agreements.............................................. (580) (328)
Changes in operating assets and liabilities, net......... 2,726 4,727
------- --------
Net cash provided by operating activities.................. 3,640 5,003
Investing Activities
Acquisition of stations.................................... (61) (20,921)
Purchases of property, plant, and equipment................ (2,449) (1,436)
Partial payment on relocation of studio.................... (927) --
------- --------
Net cash used in investing activities...................... (3,437) (22,357)
Financing Activities
Financing costs............................................ (40) --
Dividends paid on preferred stock.......................... -- (356)
Proceeds from issuance of long-term debt................... 1,000 22,000
Payment of long-term debt.................................. (1,000) (2,000)
------- --------
Net cash provided by (used in) financing activities........ (40) 19,644
------- --------
Increase in cash and cash equivalents...................... 163 2,290
Cash and cash equivalents at beginning of period........... 2,206 949
------- --------
Cash and cash equivalents at end of period................. $ 2,369 $ 3,239
======= ========
Businesses acquired in purchase transaction:
Fair market value of assets acquired..................... $ -- $$20,935
Liabilities assumed...................................... -- 14
------- --------
Net cash paid for acquisitions............................. $ -- $ 20,921
======= ========
Supplemental Cash Flow Information:
Purchase price valuation adjustment affecting equipment and
FCC licenses.............................................. $ 1,277 $ --
</TABLE>
See accompanying notes
F-25
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. SUMMARY OF ACCOUNTING POLICIES
The condensed consolidated financial statements include the accounts of
Argyle Television, Inc. (the "Company") and its wholly owned subsidiaries. All
significant intercompany accounts have been eliminated in consolidation.
References herein to the Company include its subsidiaries, unless the context
requires otherwise.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997.
2. ACQUISITIONS
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.
This acquisition was accounted for as a purchase 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 the liabilities assumed was allocated to identifiable
intangible assets including FCC licenses and network affiliation agreements.
The condensed consolidated financial statements include the results of
operations of the acquired stations since the date of the acquisition.
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 (Six Stations) (See Item
2. Management's Discussion and Analysis, Results of Operations) as if all
acquisitions occurred at the beginning of the respective periods, are as
follows:
<TABLE>
<CAPTION>
SIX STATIONS
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Total revenues................................ $18,326 $18,854
Loss from continuing operations attributable
to common stock.............................. $(5,436) $(6,012)
Loss from continuing operations per share at-
tributable to common stock................... $ (.48) $ (.53)
Pro Forma weighted average number of shares
used in calculations......................... 11,347 11,347
</TABLE>
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.
F-26
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
On March 26, 1997, the Company entered into an agreement with The Hearst
Corporation (Hearst) to combine the television broadcast group 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. Argyle Television Investors, L.P.;
Television Investment Partners, L.P.; Argyle Television Partners, L.P. and
certain other shareholders, which collectively own approximately two-thirds of
the Common Stock outstanding of the Company, have agreed to vote the shares
they hold in favor or the merger to effect this combination.
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1996 1997
----------------- ------------
<S> <C> <C>
Bank Credit Agreement dated October 27, 1995:
Revolving credit facility.................... $ 21,500,000 $ 41,500,000
Senior Subordinated Notes...................... 150,000,000 150,000,000
Less current maturities........................ -- --
------------ ------------
$171,500,000 $191,500,000
============ ============
</TABLE>
Under the terms of the Company's Bank Credit Agreement, 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.
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 March 31, 1997 follows:
<TABLE>
<CAPTION>
NOTIONAL AVERAGE AVERAGE ESTIMATED
AMOUNT RECEIVE RATE PAY RATE FAIR VALUE
----------- ------------ -------- ----------
<S> <C> <C> <C> <C>
Interest rate swap agreements:
Fixed rate agreement $20,000,000 LIBOR 7.01% $ 220,716
Fixed rate agreement $15,000,000 LIBOR 6.98% $(165,706)
</TABLE>
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.
4. INCOME TAXES
As a result of the losses incurred by the Company for the periods through
March 31, 1997, no federal income tax expense has been recorded.
At March 31, 1997, the Company has available net operating loss
carryforwards for federal income tax purposes of approximately $13.35 million,
$16.55 million, and $5.85 million, which will expire in 2010, 2011, and 2012,
respectively.
F-27
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
5. 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 three
months ended March 31, 1996 and 1997, the Company recognized total
reimbursements of $175,000 and $196,407, respectively, under these agreements.
Such reimbursements are offset against corporate general and administrative
expenses in the accompanying statements of operations.
F-28
<PAGE>
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
F-29
<PAGE>
NORTHSTAR TELEVISION OF GRAND RAPIDS, INC.,
NORTHSTAR TELEVISION OF JACKSON, INC. AND
NORTHSTAR TELEVISION OF PROVIDENCE, INC.
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
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
===========
</TABLE>
See accompanying notes.
F-30
<PAGE>
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
<TABLE>
<CAPTION>
COMMON STOCK
------------ ADDITIONAL
PAR PREDECESSOR PAID-IN ACCUMULATED
SHARES VALUE BASIS CAPITAL DEFICIT TOTAL
------ ----- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
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
==== ==== =========== =========== ============ ===========
</TABLE>
See accompanying notes.
F-31
<PAGE>
NORTHSTAR TELEVISION OF GRAND RAPIDS, INC,
NORTHSTAR TELEVISION OF JACKSON, INC. AND
NORTHSTAR TELEVISION OF PROVIDENCE, INC.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
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
</TABLE>
See accompanying notes.
F-32
<PAGE>
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:
<TABLE>
<S> <C>
Buildings...................................................... 25 years
Broadcasting equipment......................................... 5-20 years
Furniture and Fixtures......................................... 5-10 years
Transportation equipment....................................... 3-5 years
</TABLE>
F-33
<PAGE>
NORTHSTAR TELEVISION OF GRAND RAPIDS, INC.,
NORTHSTAR TELEVISION OF JACKSON, INC. AND
NORTHSTAR TELEVISION OF PROVIDENCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
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.
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.
F-34
<PAGE>
NORTHSTAR TELEVISION OF GRAND RAPIDS, INC.,
NORTHSTAR TELEVISION OF JACKSON, INC. AND
NORTHSTAR TELEVISION OF PROVIDENCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
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.
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.
F-35
<PAGE>
NORTHSTAR TELEVISION OF GRAND RAPIDS, INC.,
NORTHSTAR TELEVISION OF JACKSON, INC. AND
NORTHSTAR TELEVISION OF PROVIDENCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
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:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- ---------
<S> <C> <C>
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
</TABLE>
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.
F-36
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Gannett Co., Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations and of cash flows present fairly, in all material respects, the
financial position of Multimedia Entertainment, Inc. (d.b.a. WLWT-TV), a
subsidiary of Multimedia, Inc., at December 31, 1994 and December 3, 1995, and
the results of its operations and its cash flows for the year ended
December 31, 1994 and the period from January 1, 1995 through December 3, 1995,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
On December 4, 1995 Multimedia Entertainment, Inc. (d.b.a. WLWT-TV) and its
parent company were acquired by Gannett Co., Inc.
PRICE WATERHOUSE LLP
Washington, D.C.
February 7, 1997
F-37
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(A SUBSIDIARY OF MULTIMEDIA, INC.)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 3,
1994 1995
------------ -----------
ASSETS
------
<S> <C> <C>
Current assets
Cash................................................ $ 14 $ 14
Accounts receivable, net of allowance for doubtful
accounts of $300 and $350.......................... 5,159 6,904
Program rights...................................... 1,125 1,272
Prepaid expenses and other current assets........... 256 24
------- -------
Total current assets.............................. 6,554 8,214
Intercompany receivable from Parent................. 19,533 19,741
Property and equipment, net......................... 6,654 6,158
Goodwill............................................ 2,614 2,614
Less accumulated amortization....................... (1,227) (1,287)
------- -------
1,387 1,327
------- -------
$34,128 $35,440
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Current liabilities
Accounts payable.................................... $ 265 $ 543
Accrued expenses.................................... 1,071 1,533
Program rights payable.............................. 1,206 1,381
Income tax payable to Parent........................ 1,627 852
------- -------
Total current liabilities......................... 4,169 4,309
Deferred tax liability to Parent...................... 238 238
Commitments and contingencies
Shareholder's equity
Common stock, $1,000 par value, 1 share authorized,
issued and outstanding............................. 1 1
Retained earnings................................... 29,720 30,892
------- -------
Total shareholder's equity........................ 29,721 30,893
------- -------
$34,128 $35,440
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(A SUBSIDIARY OF MULTIMEDIA, INC.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1,
FOR THE YEAR 1995
ENDED THROUGH
DECEMBER 31, DECEMBER 3,
1994 1995
------------ -----------
<S> <C> <C>
Revenues, net.......................................... $24,360 $25,546
Expenses
Station operating expenses........................... 15,997 16,800
Amortization of program rights....................... 1,536 1,428
Depreciation and amortization........................ 1,135 1,037
------- -------
18,668 19,265
Station operating income............................... 5,692 6,281
Corporate general and administrative expenses........ 1,858 4,222
------- -------
Operating income....................................... 3,834 2,059
Other income (expense), net 15 (35)
------- -------
Income before taxes.................................... 3,849 2,024
Provision for income taxes 1,627 852
------- -------
Net income............................................. 2,222 1,172
Retained earnings at beginning of period............... 27,498 29,720
------- -------
Retained earnings at end of period..................... $29,720 $30,892
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(A SUBSIDIARY OF MULTIMEDIA, INC.)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1,
FOR THE YEAR 1995
ENDED THROUGH
DECEMBER 31, DECEMBER 3,
1994 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net income.......................................... $2,222 $1,172
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation...................................... 1,070 977
Amortization of intangibles....................... 65 60
Amortization of program rights.................... 1,536 1,428
Payments on program rights payable................ (1,616) (1,403)
Provision for bad debts........................... 105 152
Loss on disposition of property and equipment..... 15 35
Changes in operating assets and liabilities
(Increase) in accounts receivable............... (834) (1,897)
(Increase) decrease in other assets............. (382) 235
Increase in accounts payable.................... 58 278
Increase (decrease) in accrued expenses......... (148) 462
(Decrease) in income tax payable to Parent...... -- (775)
------ ------
Net cash provided by operating activities......... 2,091 724
Cash flows used in investing activities
Purchases of property and equipment, net............ (950) (516)
Cash flows used in financing activities
Net funds remitted to Parent........................ (1,149) (208)
------ ------
Net decrease in cash................................ (8) --
Cash at beginning of period........................... 22 14
------ ------
Cash at end of period................................. $ 14 $ 14
====== ======
Supplemental cash flow information
Program rights acquired through the assumption of
program rights payable............................. $1,514 $1,522
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(A SUBSIDIARY OF MULTIMEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Multimedia Entertainment, Inc., a wholly-owned subsidiary of Multimedia,
Inc. (Multimedia or the Parent), is the licensee of and owns and operates the
NBC affiliate television broadcast station WLWT-TV in Cincinnati, Ohio (WLWT
or the Station). The Station's principal business is the airing of network
programming and the production of local news and entertainment programming,
and the sale of advertising time during such programming to local, regional
and national advertisers.
Effective December 4, 1995, the Station and its Parent were acquired by
Gannett Co., Inc. (Gannett). As a result, the accompanying financial
statements have been prepared through the date of the acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue recognition
Advertising revenues, net of agency and national representatives'
commissions, are recognized in the period during which the time spots are
aired.
Concentration of credit risk
A significant portion of the Station's accounts receivable is due from
local, regional and national advertising agencies.
Program rights and program rights payable
Program rights, primarily in the form of syndicated programs, represent
amounts paid or payable to program suppliers for the limited right to
broadcast the suppliers' programming and are recorded when available for use.
Program rights are amortized over the lives of the underlying contracts using
either the straight-line or per-play method, whichever is greater. Program
rights expected to be amortized within one year are classified as current.
Program rights payable represent the gross amounts to be paid to program
suppliers over the life of the contracts. Program rights payable at December
31, 1994 and December 3, 1995 are carried at amounts which approximate fair
value based on the short-term maturities. The portion of program rights
payable within one year is classified as current.
Program barter transactions
The Station barters advertising time for certain program rights. These
transactions are recorded at the estimated fair value of the program rights
received or the advertising time rendered, whichever is more readily
available. Revenue is recognized when advertisements are aired; expenses are
recognized when the program rights are broadcast.
F-41
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(A SUBSIDIARY OF MULTIMEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Property and equipment
Property and equipment is stated on the basis of cost or estimated fair
value at the date of acquisition. Depreciation is computed on the straight-
line basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Building and improvements........................... 25-30 years
Leasehold improvements.............................. Remaining life of the lease
Broadcast equipment................................. 5 years
Furniture and fixtures.............................. 7 years
</TABLE>
Goodwill
Goodwill represents the excess purchase price over the net assets acquired
and is being amortized on a straight-line basis over forty years.
Income taxes
The Station's operating results are included in the consolidated tax returns
of the Parent. Income tax expense has been allocated by the Parent by applying
the statutory rates to the Station's pre-tax income. Deferred tax assets and
liabilities are allocated by the Parent based on the estimated future tax
effects of differences between financial reporting and tax bases of the
Station's assets and liabilities in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 3,
1994 1995
------------ -----------
<S> <C> <C>
Land and improvements.................................. $ 429 $ 429
Building and leasehold improvements.................... 3,753 3,760
Broadcast equipment.................................... 13,863 13,590
Furniture and fixtures................................. 3,217 3,178
-------- --------
21,262 2 0,957
Less accumulated depreciation.......................... (14,761) (14,882)
-------- --------
6,501 6,075
Construction in progress............................... 153 83
-------- --------
$ 6,654 $ 6,158
======== ========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 3,
1994 1995
------------ -----------
<S> <C> <C>
Vacation............................................... $ 369 $ 366
Music license fees..................................... 204 199
Salaries and employee benefits......................... 333 624
Other.................................................. 165 344
------ ------
$1,071 $1,533
====== ======
</TABLE>
F-42
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(A SUBSIDIARY OF MULTIMEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. EMPLOYEE BENEFIT PLANS
Pension plans
The Parent has a noncontributory pension plan which covers substantially all
non-union employees of the Station who meet age and service requirements. The
pension plan provides defined benefits that are based on years of credited
service, average compensation and the primary social security benefits.
Expenses of this plan related to WLWT have been allocated by the Parent to the
Station through the intercompany account and were insignificant for 1994 and
1995.
The Pension Plan for Hourly-Rated Employees of Multimedia Entertainment,
Inc. is a defined benefit plan which provides benefits to eligible union
employees of WLWT. As of the latest actuarial valuation date (January 1, 1995)
the accumulated benefit obligation exceeded the fair value of plan assets by
$248,478. The pension obligation has been reflected in the accompanying
financial statements in accrued expenses. The following table sets forth the
amounts recognized as pension expense in the Station's financial statements
for the year ended December 31, 1994, and for the period from January 1, 1995
through December 3, 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Service cost.................................................. $ 14 $ 16
Interest cost................................................. 57 67
Actual return on plan assets.................................. 26 (58)
Other components.............................................. (74) 9
---- ----
Net pension expense........................................... $ 23 $ 34
==== ====
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 8% in 1994 and 1995. The
expected long-term rate of return on assets was 8% in 1994 and 1995.
Thrift plan
The Parent has a salary deferral thrift plan for all eligible employees. The
Parent and the Station match contributions by employees up to 2% of their
salaries. Expenses allocated by the Parent were approximately $37,000 and
$39,000, respectively, for the year ended December 31, 1994 and the period
from January 1, 1995 through December 3, 1995.
6. RELATED PARTY TRANSACTIONS
Corporate general and administrative expenses are allocated through the
intercompany account to the Station by the Parent. Such costs consist of
corporate management and administrative salaries, interest, and other costs
related to corporate overhead. These costs are allocated to the Station each
year based on the relative revenue at the Station compared to the Parent's
consolidated revenues, which management believes is a reasonable method of
allocation. Amounts allocated are not necessarily indicative of the costs
which would be required to operate the Station on a stand-alone basis.
Excess cash on hand at the Station is transferred through the intercompany
account to the Parent on a daily basis. The Station does not record interest
income on these amounts.
During the year ended December 31, 1994 and the period from January 1, 1995
through December 3, 1995, the Station paid approximately $775,000 and
$500,000, respectively, for program rights purchased from the Parent.
F-43
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(A SUBSIDIARY OF MULTIMEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
The Station leases the building used in its operations. Future minimum
annual payments due under this noncancellable operating lease as of December
3, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
1996.................................................................. $19
1997.................................................................. 19
1998.................................................................. 13
</TABLE>
Total rent expense, including the noncancellable operating leases, was
$19,260 and $17,655 for the year ended December 31, 1994 and for the period
from January 1, 1995 through December 3, 1995, respectively.
The Station has several employment contracts with certain talent of the
Station which expire in twelve to eighteen months. The Station has committed
to pay approximately $1.3 million in 1996 on these contracts.
At December 3, 1995, the Station has executed contracts for film broadcast
rights totaling approximately $1.3 million. As the broadcast license period
has not yet begun, the asset and related liability are not recorded as of
December 3, 1995.
The Station is party to various legal proceedings. In the opinion of
management, all such matters are adequately covered by insurance or if not so
covered involve amounts that would not have a significant effect on the
financial position or results of operations of the Station if disposed of
unfavorably.
8. SUBSEQUENT EVENTS
On December 4, 1995, the Station and its Parent were acquired by Gannett
Co., Inc.
On November 20, 1996, Argyle Television, Inc. (Argyle) entered into an asset
exchange agreement with Gannett to exchange WLWT and KOCO-TV, Gannett's ABC
affiliate in Oklahoma City, Oklahoma, for Argyle's WZZM-TV, the ABC affiliate
television station in Grand Rapids, Michigan, and WGRZ-TV, the NBC affiliate
television station in Buffalo, New York, and certain other consideration. This
transaction became effective on January 31, 1997.
F-44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Gannett Co., Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and of cash flows present fairly, in all
material respects, the financial position of the Selected Gannett Television
Stations (as defined in Note 1) at December 31, 1995 and December 29, 1996 and
the results of their operations and their cash flows for each of the three
years in the period ended December 29, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Washington, D.C.
February 7, 1997
F-45
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
ASSETS 1995 1996
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash.................................................... $ 292 $ 113
Accounts receivable, net of allowance for doubtful
accounts of $439 and $415.............................. 10,100 10,457
Program rights.......................................... 2,543 2,356
Prepaid expenses and other current assets............... 74 122
-------- --------
Total current assets................................ 13,009 13,048
Intercompany receivable from Parent....................... 855 19,194
Program rights, net of current portion.................... 170 140
Property and equipment, net............................... 28,082 26,535
Intangible assets, net.................................... 102,684 100,264
-------- --------
$144,800 $159,181
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Cash overdraft.......................................... $ 207 $ 355
Accounts payable........................................ 671 603
Accrued expenses........................................ 1,670 1,948
Income tax payable to Parent............................ 1,760 7,499
Program rights payable.................................. 2,694 2,502
-------- --------
Total current liabilities........................... 7,002 12,907
Deferred tax liability to Parent.......................... 7,643 7,553
Commitments and contingencies.............................
SHAREHOLDER'S EQUITY:
Common stock of KOCO-TV, $10 par value, 50,000 shares
authorized, issued and outstanding..................... 500 500
Common stock of WLWT-TV, $1,000 par value, 1 share
authorized, issued and outstanding..................... 1 1
Additional paid-in capital.............................. 122,360 122,360
Retained earnings....................................... 7,294 15,860
-------- --------
Total shareholder's equity.......................... 130,155 138,721
-------- --------
$144,800 $159,181
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-46
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues, net........................... $18,572 $20,397 $50,088
Expenses:
Station operating expenses............ 10,143 11,330 24,933
Amortization of program rights........ 3,464 2,160 3,396
Depreciation and amortization......... 823 1,247 4,701
------- ------- -------
14,430 14,737 33,030
Station operating income................ 4,142 5,660 17,058
Corporate general and administrative
expenses............................. 363 2,463 1,083
------- ------- -------
Operating income before taxes........... 3,779 3,197 15,975
Provision for income taxes............ 1,530 1,819 7,409
------- ------- -------
Net income.............................. 2,249 1,378 8,566
Retained earnings at beginning of
period................................. 3,667 5,916 7,294
------- ------- -------
Retained earnings at end of period...... $ 5,916 $ 7,294 $15,860
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-47
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $2,249 $1,378 $ 8,566
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................ 823 1,040 2,281
Amortization of intangible assets... -- 207 2,420
Amortization of program rights...... 3,464 2,160 3,396
Payments on program rights payable.. (2,496) (2,292) (3,369)
Provision for bad debts............. -- -- 78
Deferred income tax expense
(benefit).......................... -- 59 (90)
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable......................... (140) 400 (435)
(Increase) in other assets.......... -- (47) (50)
Increase (decrease) in accounts
payable and cash overdraft......... 436 (607) 80
Increase (decrease) in accrued
expenses........................... (266) (394) 278
Increase in income tax payable to
Parent............................. 444 230 5,739
------ ------ -------
Net cash provided by operating
activities....................... 4,514 2,134 18,894
Cash flows used in investing activities:
Purchases of property and equipment... (1,543) (992) (734)
Cash flows used in financing activities:
Net funds remitted to Parent.......... (2,815) (1,020) (18,339)
------ ------ -------
Increase (decrease) in cash............. 156 122 (179)
Cash at beginning of period............. -- 170 292
------ ------ -------
Cash at end of period................... $ 156 $ 292 $ 113
------ ------ -------
Supplemental cash flow information:
Program rights acquired through
assumption of program rights
payable.............................. $2,324 $1,588 $ 3,228
====== ====== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-48
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The combined financial statements include the operations of two of Gannett
Co., Inc.'s (Gannett or the Parent) wholly-owned television stations,
Multimedia Entertainment, Inc., d.b.a. WLWT-TV, an NBC affiliate in
Cincinnati, Ohio and Combined Communications Corporation of Oklahoma, Inc.,
d.b.a. KOCO-TV, an ABC affiliate in Oklahoma City, Oklahoma (the Selected
Gannett Television Stations or the Stations). WLWT-TV was acquired by Gannett
on December 4, 1995 as part of the acquisition of Multimedia, Inc. The
acquisition has been accounted for as a purchase combination in accordance
with Accounting Principles Board Opinion No. 16, "Business Combinations",
whereby approximately $120 million of the total $2.3 billion cost to acquire
Multimedia, Inc. was allocated to WLWT-TV based on relative fair value. As a
result, the accompanying combined financial statements include the operations
of WLWT-TV from the date of acquisition (December 4, 1995) through December
29, 1996. KOCO-TV was acquired by Gannett as part of the merger with Combined
Communications Corporation in a pooling of interests transaction in 1979. The
Stations' principal business is the airing of network programming and the
production of local news and entertainment programming, and the sale of
advertising time during such programming to local, regional and national
advertisers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fiscal Year
The Stations' fiscal year is the same as Gannett, which ends on the last
Sunday of each calendar year. The Stations' 1994, 1995 and 1996 fiscal years
ended on December 25, December 31, and December 29, respectively, and
encompassed 52, 53 and 52 weeks, respectively.
Revenue Recognition
Advertising revenues, net of agency and national representatives'
commissions, are recognized in the period during which the time spots are
aired.
Concentration of credit risk
A significant portion of the Stations' accounts receivable is due from
local, regional and national advertising agencies.
Program rights and program rights payable
Program rights, primarily in the form of syndicated programs, represent
amounts paid or payable to program suppliers for the limited right to
broadcast the suppliers' programming and are recorded when available for use.
Program rights are amortized over the lives of the underlying contracts using
either the straight-line or per-play method, whichever is greater. Program
rights expected to be amortized within one year are classified as current.
Program rights payable represent the gross amounts to be paid to program
suppliers over the life of the contracts. Program rights payable at December
31, 1995 and December 29, 1996 are carried at amounts which approximate fair
value based on the short term maturities. The portion of program rights
payable within one year is classified as current.
F-49
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Program barter transactions
The Stations barter advertising time for certain program rights. These
transactions are recorded at the estimated fair value of the program rights
received or the advertising time rendered, whichever is more readily
available. Revenue is recognized when advertisements are aired; expenses are
recognized when the program rights are broadcast.
Property and equipment
Property and equipment is stated on the basis of cost or estimated fair
value at the date of acquisition. Depreciation is computed on the straight-
line basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements.................... 10-40 years
Leasehold improvements........................ Remaining life of the lease
Broadcast equipment........................... 4-6 years
Furniture and fixtures........................ 5-7 years
</TABLE>
Intangible assets
Intangible assets consist principally of FCC license, network affiliation
and the excess purchase price over the fair value of net assets acquired at
acquisition date. Intangible assets acquired after October 31, 1970 are being
amortized on a straight-line basis over forty years. Goodwill in the amount of
$6,090,784 at KOCO-TV was acquired prior to October 31, 1970 and is not being
amortized.
The Stations periodically evaluate the realizability of intangible assets.
The Stations believe that no impairment exists at December 29, 1996.
Income taxes
The Stations' operating results are included in the consolidated tax returns
of the Parent. Income tax expense has been allocated by the Parent by applying
the statutory rates to the Stations' pre-tax income. Deferred tax assets and
liabilities are allocated by the Parent based on the estimated future tax
effects of differences between financial reporting and tax bases of the
Stations' assets and liabilities in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Land and improvements........................... $ 754 $ 754
Buildings and improvements...................... 9,150 9,255
Broadcast equipment............................. 27,574 27,029
Furniture and fixtures.......................... 1,146 1,161
------- -------
38,624 38,199
Less accumulated depreciation................... (10,855) (11,725)
------- -------
27,769 26,474
Construction in progress........................ 313 61
------- -------
$28,082 $26,535
======= =======
</TABLE>
F-50
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
WLWT-TV......................................... $ 96,800 $ 96,800
KOCO-TV......................................... 6,091 6,091
-------- --------
102,891 102,891
Less accumulated amortization................... (207) (2,627)
-------- --------
$102,684 $100,264
======== ========
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29,
1995 1996
------------ ------------
<S> <C> <C>
Salaries and employee benefits.................. $ 619 $ 894
Vacation........................................ 364 364
Music license fees.............................. 199 199
Legal........................................... 128 175
Other........................................... 360 316
------ ------
$1,670 $1,948
====== ======
</TABLE>
6. EMPLOYEE BENEFIT PLANS
Pension Plans
Employees of WLWT-TV are eligible for a noncontributory pension plan which
covers substantially all non-union employees of the Station who meet age and
service requirements. The pension plan provides defined benefits that are
based on years of credited service, average compensation and the primary
social security benefit. Expenses of this plan related to WLWT-TV are
allocated to the Station and are recorded through the intercompany account.
Expenses recorded in fiscal year 1996 were approximately $469,000.
The Pension Plan for Hourly-Rated Employees of Multimedia Entertainment,
Inc. is a defined benefit plan which provides benefits to eligible union
employees of WLWT-TV. As of the latest actuarial valuation date (January 1,
1996) the accumulated benefit obligation exceeded the fair value of plan
assets by $173,109. The pension obligation has been reflected in the
accompanying financial statements in accrued expenses.
The following table sets forth the amounts recognized as pension expense in
the Station's financial statements for fiscal years 1995 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Service cost.................................................. $ 16 $ 25
Interest cost................................................. 67 69
Actual return on plan assets.................................. (58) (84)
Other components.............................................. 9 15
---- ----
Net pension expense........................................... $ 34 $ 25
==== ====
</TABLE>
F-51
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 8% in 1995 and 7.125% in 1996.
The expected long-term rate of return on assets was 8% in 1995 and 10% in
1996.
Employees of KOCO-TV are eligible for various retirement and profit sharing
plans, provided by Gannett, under which substantially all full-time employees
are covered. Benefits under the Gannett Retirement Plan, a defined benefit
pension plan, are based on years of service and final average pay. KOCO-TV's
pension expense was approximately $241,600, $251,300 and $261,400 in fiscal
years 1994, 1995, and 1996, respectively.
Thrift Plans
Eligible employees of WLWT-TV may participate in a salary deferral thrift
plan. The Parent matches contributions by employees up to 2% of their
salaries. Expenses allocated by the Parent to WLWT-TV were approximately
$4,000 and $52,000, respectively, in the period from December 4, 1995 through
December 31, 1995, and for fiscal year 1996.
Employees (other than those covered by a collective bargaining agreement) of
KOCO-TV who are scheduled to work at least 1,000 hours during each year of
employment may participate in Gannett's 401(k) Savings Plan. Most employees
are eligible to participate in the Plan. Expenses allocated by the Parent were
approximately $31,000, $27,000 and $28,000 in fiscal years 1994, 1995 and
1996, respectively.
7. RELATED PARTY TRANSACTIONS
Corporate general and administrative expenses are allocated through the
intercompany accounts to the Stations by the Parent. Such costs consist of
administrative salaries, interest and other costs related to corporate
overhead. These costs are allocated to the Stations each year based on the
relative revenue at the Stations compared to the Parent's consolidated
revenues, which management believes is a reasonable method of allocation.
Amounts allocated are not necessarily indicative of the costs which would be
required to operate the Stations on a stand-alone basis.
Excess cash on hand at the Stations is transferred through the intercompany
accounts to the Parent on a daily basis. No interest income on these amounts
has been recorded in the accompanying financial statements.
During fiscal year 1996, the Stations made payments of approximately
$475,000 for program rights purchased from a subsidiary of the Parent.
8. COMMITMENTS AND CONTINGENCIES
The Stations have operating lease agreements which expire on various dates
through 2000. Future minimum annual payments due under the noncancellable
operating leases as of December 29, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 31
1998................................................................ 24
1999................................................................ 12
2000................................................................ 8
----
75
Less sublease income................................................ (52)
----
$ 23
====
</TABLE>
Total rent expense, including cancellable and noncancellable operating
leases, was $100,043, $87,805 and $111,896 for fiscal years 1994, 1995 and
1996, respectively.
F-52
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Stations have employment contracts with certain talent at the Stations
which expire in twelve to eighteen months. The Stations have committed to pay
approximately $1.7 million in 1997 on these contracts.
At December 29, 1996, the Stations have executed contracts for program
rights totaling approximately $6.5 million. As the broadcast license period
has not yet begun, the asset and related liability are not recorded at
December 29, 1996.
The Stations are party to various legal proceedings. In the opinion of
management, all such matters are adequately covered by insurance or if not so
covered would not have a significant effect on the financial position or
results of operations of the Stations if disposed of unfavorably.
9. SUBSEQUENT EVENT
On November 20, 1996, Argyle Television, Inc. (Argyle) entered into an asset
exchange agreement with Gannett to exchange Argyle's WZZM-TV, the ABC
affiliate television station in Grand Rapids, Michigan, and WGRZ-TV, the NBC
affiliate television station in Buffalo, New York, plus certain other
consideration, for WLWT-TV and KOCO-TV. This transaction became effective on
January 31, 1997.
F-53
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
The Hearst Corporation
We have audited the accompanying combined balance sheets of the Hearst
Broadcast Group of The Hearst Corporation (referred to as the "Group") as of
December 31, 1995 and 1996, and the related combined statements of operations
and cash flows for each of the three years in the period ended December 31,
1996. These combined financial statements are the responsibility of the
Group's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of the Group at December
31, 1995 and 1996, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
May 1, 1997
F-54
<PAGE>
THE HEARST BROADCAST GROUP OF THE HEARST CORPORATION
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
ASSETS 1995 1996
------ ------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................... $ 2,989,553 $ 2,881,884
Accounts receivable, net of allowance for
doubtful accounts of $1,626,120 and $1,693,744
in 1995 and 1996, respectively................ 70,126,126 64,216,484
Program rights................................. 28,043,437 25,611,365
Deferred income tax benefits................... 3,475,311 3,012,810
Other.......................................... 3,544,844 3,824,436
------------- -------------
Total current assets....................... 108,179,271 99,546,979
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements............... 16,278,849 17,301,354
Broadcasting equipment......................... 106,511,154 108,250,614
Office furniture, equipment and other.......... 11,265,008 12,298,439
Construction in progress....................... 1,177,629 768,552
Less accumulated depreciation and
amortization.................................. (104,216,576) (106,515,373)
------------- -------------
31,016,064 32,103,586
------------- -------------
GOODWILL AND OTHER INTANGIBLES, Net.............. 243,704,325 233,410,571
------------- -------------
OTHER ASSETS:
Program rights................................. 738,368 483,173
Other.......................................... 1,767,826 1,411,353
------------- -------------
2,506,194 1,894,526
------------- -------------
TOTAL...................................... $ 385,405,854 $ 366,955,662
============= =============
<CAPTION>
LIABILITIES
-----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable............................... $ 3,775,278 $ 4,096,996
Accrued liabilities............................ 14,290,552 17,165,646
Program rights................................. 32,449,075 25,718,650
Other.......................................... 852,336 1,414,814
------------- -------------
Total current liabilities.................. 51,367,241 48,396,106
DEFERRED INCOME TAXES............................ 55,082,097 54,991,592
PROGRAM RIGHTS................................... 1,360,051 1,507,840
OTHER LIABILITIES................................ 4,834,242 3,040,386
COMMITMENTS AND CONTINGENCIES....................
DUE TO PARENT COMPANY AND AFFILIATES............. 272,762,223 259,019,738
------------- -------------
TOTAL...................................... $ 385,405,854 $ 366,955,662
============= =============
</TABLE>
See notes to combined financial statements.
F-55
<PAGE>
THE HEARST BROADCAST GROUP OF THE HEARST CORPORATION
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
TOTAL REVENUES......................... $259,459,248 $279,340,044 $283,970,855
STATION OPERATING EXPENSES............. 106,281,026 117,534,578 121,500,863
AMORTIZATION OF PROGRAM RIGHTS......... 40,266,120 38,619,342 40,296,566
DEPRECIATION AND AMORTIZATION.......... 23,071,349 22,134,202 16,970,594
------------ ------------ ------------
STATION OPERATING INCOME............... 89,840,753 101,051,922 105,202,832
CORPORATE GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 8,006,766 7,857,597 7,658,427
INTEREST EXPENSE, NET.................. 22,677,737 22,217,475 21,234,985
------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME
TAXES................................. 59,156,250 70,976,850 76,309,420
PROVISION FOR INCOME TAXES............. 25,265,470 30,182,357 31,906,940
------------ ------------ ------------
NET INCOME............................. $ 33,890,780 $ 40,794,493 $ 44,402,480
============ ============ ============
</TABLE>
See notes to combined financial statements.
F-56
<PAGE>
THE HEARST BROADCAST GROUP OF THE HEARST CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.......................... $ 33,890,780 $ 40,794,493 $ 44,402,480
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization of
property, plant and equipment.... 6,291,259 6,271,016 6,676,840
Amortization of intangible
assets........................... 16,780,090 15,863,186 10,293,754
Amortization of program rights.... 40,266,120 38,619,342 40,296,566
Program rights payments........... (39,179,171) (38,766,873) (44,522,933)
Other............................. 71,535 372,613 330,998
Provision for doubtful accounts... 793,707 1,130,264 989,298
Deferred income taxes............. (1,586,544) (111,451) 371,995
Changes in operating assets and
liabilities:
Accounts receivable............. (14,595,435) (4,485,003) 4,920,344
Other assets.................... 897,602 (418,054) 76,882
Accounts payable and accrued
liabilities.................... (636,900) 1,985,128 3,196,812
Other liabilities............... 1,466,766 (69,867) (1,231,378)
------------ ------------ ------------
Net cash provided by operating
activities................... 44,459,809 61,184,794 65,801,658
INVESTING ACTIVITIES--Purchases of
property, plant and equipment,
net................................ (8,429,697) (8,621,082) (7,764,362)
FINANCING ACTIVITIES--Due to parent
company and affiliates............. (33,584,343) (52,019,928) (58,144,965)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................ 2,445,769 543,784 (107,669)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR............................ -- 2,445,769 2,989,553
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF
YEAR............................... $ 2,445,769 $ 2,989,553 $ 2,881,884
============ ============ ============
</TABLE>
See notes to combined financial statements.
F-57
<PAGE>
THE HEARST BROADCAST GROUP OF THE HEARST CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
1. ORGANIZATION AND NATURE OF OPERATIONS
The accompanying combined financial statements of the Hearst Broadcast Group
(the "Group") of The Hearst Corporation (the "Corporation") include the
combined operating results of the WCVB-TV Division (including Hearst
Broadcasting Productions), WTAE-TV Division, WBAL-TV Division, KMBC-TV
Division, WISN-TV Division and the WDTN-TV Division of the Corporation.
The Group owns and operates six network-affiliated television stations in
geographically diverse markets in the United States. Five of the stations are
affiliates of the American Broadcasting Companies ("ABC") and one station is
an affiliate of the National Broadcasting Company, Inc. ("NBC"). The Group
operates in one business segment, commercial television broadcasting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES
Basis of Presentation--All significant interdivisional accounts and
transactions have been eliminated in the combination.
Cash Equivalents--All highly liquid investments with original 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. Program rights are carried at the lower of unamortized cost or estimated
net realizable value on a program by program basis and such amounts are not
discounted. Any reduction in unamortized costs to net realizable value is
included in amortization of program rights in the accompanying combined
statements of operations. Such reductions in unamortized costs for the years
ended 1994, 1995 and 1996 were not material except for a writedown of
$3,600,000 in 1994. Costs of off network syndicated product, first run
programming, features films and cartoons are amortized on the future number of
showings on an accelerated basis contemplating the estimated revenue to be
earned per showing, but generally not exceeding five years. 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 were approximately, $2,054,000, $3,871,000 and $4,185,000 for the
years ended December 31, 1994, 1995 and 1996, respectively. Barter and trade
expenses were approximately $1,948,000, $3,852,000 and $4,143,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.
Property, Plant and Equipment--Property, plant and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation and
amortization are generally calculated on the straight-line method over the
estimated useful lives (or lease terms, if shorter) of the assets ranging from
3 to 40 years. Improvements are capitalized, while maintenance and repairs are
charged to expense as incurred.
Goodwill and Other Intangibles--Goodwill and other intangibles are recorded
at cost. In management's opinion, none of the goodwill acquired prior to
November 1, 1970 (the date after which goodwill resulting from subsequent
acquisitions required amortization) has declined in value. Accordingly, such
assets are not being
F-58
<PAGE>
THE HEARST BROADCAST GROUP OF THE HEARST CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
amortized. Goodwill and other intangible assets acquired subsequent to October
31, 1970 are being amortized on the straight-line method over varying lives
not exceeding forty years (Note 3).
Income Taxes--The Group is included in the Corporation's consolidated
Federal, state and local income tax returns. The Group's pro rata share of the
Corporation's consolidated income tax liabilities is allocated to the Group on
a separate return basis. In accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," deferred income tax assets
and liabilities are measured based upon the difference between the financial
accounting and tax bases of assets and liabilities.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Significant accounting estimates used in the preparation of
the Group's combined financial statements include estimates of the allowance
for uncollectible accounts and realizability of program rights. In
management's opinion, actual results are not expected to vary materially from
the estimates and assumptions used in preparing these combined financial
statements.
3. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangible assets at December 31, 1995 and 1996 consist
of the following:
<TABLE>
<CAPTION>
RANGE
OF
LIVES
(YEARS) 1995 1996
------- ------------ ------------
<S> <C> <C> <C>
Goodwill.................................... 40 $149,211,887 $149,211,887
Advertiser client base asset................ 35 122,828,300 122,828,300
Favorable studio and office space lease..... 40 23,637,936 23,637,936
Accelerated market growth asset............. 17-24 20,186,300 20,186,300
Underdeveloped market competition asset..... 5-7 28,430,600 28,430,600
Premium for early delivery of physical
plant...................................... 10 63,588,300 63,588,300
ABC network affiliation agreement........... 40 18,154,333 18,154,333
Management employment contracts............. 3 26,765,600 26,765,600
Other....................................... various 43,926,306 43,926,306
------------ ------------
496,729,562 496,729,562
Accumulated amortization.................... 253,025,237 263,318,991
------------ ------------
$243,704,325 $233,410,571
============ ============
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Payroll and related costs......................... $ 9,385,112 $11,305,557
Other............................................. 4,905,440 5,860,089
----------- -----------
$14,290,552 $17,165,646
=========== ===========
</TABLE>
F-59
<PAGE>
THE HEARST BROADCAST GROUP OF THE HEARST CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
5. INCOME TAXES
The provision for income taxes for the years ended December 31, 1994, 1995,
and 1996 consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current:
State and local................... $ 4,956,786 $ 5,592,128 $ 5,821,238
Federal........................... 21,895,228 24,701,680 25,713,707
----------- ----------- -----------
26,852,014 30,293,808 31,534,945
----------- ----------- -----------
Deferred:
State and local................... (292,871) (20,573) 68,669
Federal........................... (1,293,673) (90,878) 303,326
----------- ----------- -----------
(1,586,544) (111,451) 371,995
----------- ----------- -----------
Provision for income taxes.......... $25,265,470 $30,182,357 $31,906,940
=========== =========== ===========
</TABLE>
The effective income tax rate for the years ended December 31, 1994, 1995
and 1996 varies from the statutory U.S. Federal income tax rate due to the
following:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. Federal income tax rate................... 35.0% 35.0% 35.0%
State income taxes, net of Federal tax benefit........... 5.1 5.1 5.0
Other non-deductible business expenses................... 2.6 2.4 1.8
---- ---- ----
Effective income tax rate................................ 42.7% 42.5% 41.8%
==== ==== ====
</TABLE>
Deferred income tax liabilities and assets at December 31, 1995 and 1996
consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred income tax liabilities:
Accelerated depreciation.............................. $ 5,299,504 $ 5,150,583
Amortization of intangibles........................... 50,063,903 49,982,237
----------- -----------
Total deferred income tax liabilities................... 55,363,407 55,132,820
----------- -----------
Deferred income tax assets:
Allowance for doubtful accounts and others............ 3,475,311 3,012,810
Other................................................. 281,310 141,228
----------- -----------
Total deferred income tax assets........................ 3,756,621 3,154,038
----------- -----------
Net deferred income tax assets/liabilities.............. $51,606,786 $51,978,782
=========== ===========
</TABLE>
6. RELATED PARTY TRANSACTIONS
Certain management services are provided to the Group by the Corporation.
Such services include data processing, legal, tax, treasury, internal audit,
risk management, and other support services. The Group was allocated expenses
for the years ended December 31, 1994, 1995 and 1996 of $1,644,012, $1,614,464
and $1,875,073, respectively, related to these services. In addition, the
Corporation allocated interest expense to the Group which was based on the
average balance of the Due to Parent Company and Affiliates account at an
interest rate of 8% per annum. Allocated expenses are based on the
Corporation's estimate of expenses related to
F-60
<PAGE>
THE HEARST BROADCAST GROUP OF THE HEARST CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
the services provided to the Group in relation to those provided to other
divisions or subsidiaries of the Corporation. Management believes that these
allocations were made on a reasonable basis. However, the allocations are not
necessarily indicative of the level of expenses that might have been incurred
had the Group contracted directly with third parties. The fees and expenses to
be paid by the Group to the Corporation are subject to change. In addition,
certain costs (principally salaries, fringe benefits and incentive
compensation) were incurred by the Group, paid by the Corporation and charged
to the Group for the years ended December 31, 1994, 1995 and 1996 in the
amounts of $6,885,629, $6,710,447 and $6,203,320, respectively (also see Note
9).
Payment of trade payables and other disbursements are processed through a
cash concentration account maintained by the Corporation. Subsequent to the
collection of trade receivables by the Group, all cash is transferred to the
Corporation.
The activity in the Due to Parent Company and Affiliates account for the
years ended December 31, 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year.......... $283,681,221 $283,987,658 $272,762,223
Net income.......................... 33,890,780 40,794,493 44,402,480
Transfers to the Corporation and
affiliated companies, net.......... (33,584,343) (52,019,928) (58,144,965)
------------ ------------ ------------
Balance, end of year................ $283,987,658 $272,762,223 $259,019,738
============ ============ ============
</TABLE>
In accordance with the requirements of SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments," the Group believes that it is not practicable
to estimate the current fair value of the amounts due to the Corporation
because of the related party nature of the transactions.
7.COMMITMENTS
The Group 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:
<TABLE>
<S> <C>
1997.......................................................... $25,718,650
1998.......................................................... 555,880
1999.......................................................... 451,960
2000.......................................................... 300,000
2001.......................................................... 200,000
-----------
$27,226,490
===========
</TABLE>
F-61
<PAGE>
THE HEARST BROADCAST GROUP OF THE HEARST CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
The Group has various agreements relating to noncancelable 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 with key employees. Future minimum payments
under terms of these agreements at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
EMPLOYMENT
OPERATING PROGRAM AND TALENT
LEASES RIGHTS CONTRACTS
---------- ----------- -----------
<S> <C> <C> <C>
1997.................................... $1,216,944 $11,990,403 $16,140,697
1998.................................... 1,111,741 34,092,390 10,445,656
1999.................................... 949,463 24,000,384 4,433,464
2000.................................... 923,628 15,707,734 1,750,189
2001 and thereafter..................... 4,501,521 310,390 563,705
---------- ----------- -----------
$8,703,297 $86,101,301 $33,333,711
========== =========== ===========
</TABLE>
Rent expense for operating leases was $2,285,925, $2,755,425 and $2,975,308
for the years ended December 31, 1994, 1995 and 1996, respectively.
In the normal course of business, the Group is subject to various claims and
lawsuits. In the opinion of the Group's management, liabilities, if any,
arising from these matters will not have a significant effect on the Group's
financial statements.
8.INCENTIVE COMPENSATION PLANS
The Corporation has a long-term incentive compensation plan that covers 13
employees of the Group who are considered by management to be making
substantial contributions to the growth and profitability of the Group and the
Corporation. Grants awarded under this plan cover three-year operating cycles,
with cash payouts made after the close of each three-year cycle based upon
growth in operating performance. The annual amount charged to expense, which
amounted to $3,414,538 in 1994, $3,732,016 in 1995 and $2,965,311 in 1996, is
determined by estimating the aggregate expense for each open three-year cycle;
actual cash payouts related to the 1992--1994 cycle (paid in 1995), to the
1993--1995 cycle (paid in 1996) and to the 1994--1996 cycle (paid in 1997)
resulted in disbursements (pretax) of $1,825,579, $3,796,530 and $4,621,437
respectively.
The Corporation also has a short-term incentive compensation plan that
covers the most senior key executives of the Group who have the most impact on
overall corporate policy, and are therefore those executives largely
responsible for the growth and profitability of the Group and the Corporation.
Payouts under this plan are made annually, and are based upon the Group and
the Corporation's achieving specified financial performance objectives. Annual
expense for the Group amounted to $389,000 in 1994, 1995 and 1996.
F-62
<PAGE>
THE HEARST BROADCAST GROUP OF THE HEARST CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
9.PENSIONS AND EMPLOYEE SAVINGS PLANS
The Group contributes to a multiemployer union pension plan, for which no
benefit information for each contributing employer is available. The cost for
the plan was approximately $477,954 in 1994, $441,309 in 1995, and $648,759 in
1996.
In addition, the Group has certain non-union employees that are eligible for
participation in the Corporation's noncontributory defined benefit plan, and
the Corporation's nonqualified retirement plan. The Corporation also has a
defined benefit plan for eligible employees covered by collective bargaining
agreements; costs of these plans generally are accrued and paid in accordance
with the related agreements. The Group's pension costs for these plans are
allocated to the Group through the Due to Parent Company and Affiliates
account on the accompanying combined balance sheets. The cost for such plans
was approximately $1,616,938 in 1994, $1,237,888 in 1995, and $1,830,413 in
1996.
Substantially all of the Group's employees are eligible to participate in
defined contribution plans. The Group's expense recognized for all of these
plans was $623,977 in 1994, $635,906 in 1995 and $647,953 in 1996.
10.SUBSEQUENT EVENTS
On March 26, 1997, the Corporation announced that it had entered into an
agreement to combine the Group with the six television stations of Argyle
Television, Inc. ("Argyle"), and to rename the new venture Hearst-Argyle
Television, Inc. ("Hearst-Argyle"). Argyle shareholders will receive a choice
of either $26.50 per share in cash, one share of Series A common stock of
Hearst-Argyle, or a mixed consideration of $13.25 in cash and one-half share
of the Series A common stock of Hearst-Argyle. Assuming a full cash election
by existing Argyle shareholders, up to $160 million of the aggregate purchase
price of approximately $320 million would be paid in cash.
After the combination, the Corporation will hold approximately 86% of the
common shares of Hearst-Argyle. The total capitalization of the new company
will exceed $1.8 billion and will have approximately $640 million of debt
outstanding. For the year ended December 31, 1996, the unaudited pro forma
combined revenues were $370 million ($284 million from the Group) and pro
forma broadcast cash flow was $158 million ($118 million from the Group). The
proposed combination has been approved by the Boards of Directors of both
companies, and is subject to further approval by Argyle shareholders and the
usual regulatory authorities.
******
F-63
<PAGE>
THE HEARST BROADCAST GROUP OF THE HEARST CORPORATION
CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
------ (IN THOUSANDS)
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 3,760
Accounts receivable, net....................................... 52,913
Program rights................................................. 16,277
Deferred income tax benefits................................... 2,985
Other.......................................................... 4,788
--------
Total current assets......................................... 80,723
--------
PROPERTY, PLANT AND EQUIPMENT, Net............................... 31,723
--------
GOODWILL AND OTHER INTANGIBLES, Net.............................. 231,112
--------
OTHER ASSETS:
Program rights................................................. 521
Other.......................................................... 1,347
--------
1,868
--------
TOTAL........................................................ $345,426
========
<CAPTION>
LIABILITIES
-----------
<S> <C>
CURRENT LIABILITES:
Accounts payable............................................... $ 3,522
Accrued liabilities............................................ 9,786
Program rights................................................. 16,406
Other.......................................................... 2,575
--------
Total current liabilities.................................... 32,289
DEFERRED INCOME TAXES............................................ 54,445
PROGRAM RIGHTS................................................... 1,413
OTHER LIABILITIES................................................ 3,904
DUE TO PARENT COMPANY AND AFFILIATES............................. 253,375
--------
TOTAL........................................................ $345,426
========
</TABLE>
See notes to condensed combined financial statements.
F-64
<PAGE>
THE HEARST BROADCAST GROUP OF THE HEARST CORPORATION
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
TOTAL REVENUES................................................. $61,945 $62,053
STATION OPERATING EXPENSES..................................... 29,908 30,079
AMORTIZATION OF PROGRAM RIGHTS................................. 10,366 9,519
DEPRECIATION AND AMORTIZATION.................................. 4,292 4,088
------- -------
STATION OPERATING INCOME....................................... 17,379 18,367
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES.................. 1,914 2,129
INTEREST EXPENSE, NET.......................................... 5,335 5,101
------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES....................... 10,130 11,137
PROVISION FOR INCOME TAXES..................................... 4,349 4,741
------- -------
NET INCOME..................................................... $ 5,781 $ 6,396
======= =======
</TABLE>
See notes to condensed combined financial statements.
F-65
<PAGE>
THE HEARST BROADCAST GROUP OF THE HEARST CORPORATION
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................... $ 5,781 $ 6,396
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property, plant and
equipment............................................. 1,719 1,800
Amortization of intangible assets...................... 2,573 2,288
Amortization of program rights......................... 10,366 9,519
Program rights payments................................ (11,656) (9,644)
Other.................................................. (1,201) 24
Provision for doubtful accounts........................ 225 244
Deferred income taxes.................................. 609 (518)
Changes in operating assets and liabilities, net....... 9,886 4,229
-------- --------
Net cash provided by operating activities............ 18,302 14,338
INVESTING ACTIVITIES--Purchases of property, plant and
equipment, net............................................ (1,793) (1,419)
FINANCING ACTIVITIES--Due to parent company and
affiliates................................................ (15,154) (12,041)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS...................... 1,355 878
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 2,990 2,882
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 4,345 $ 3,760
======== ========
</TABLE>
See notes to condensed combined financial statements.
F-66
<PAGE>
THE HEARST BROADCAST GROUP OF THE HEARST CORPORATION
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed combined financial statements include the accounts of the
Hearst Broadcast Group (the "Group") of The Hearst Corporation (the
"Corporation").
The accompanying unaudited condensed combined financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. All
significant interdivisional transactions have been eliminated in the
combination. The operating results for the three-month periods ended March 31
are not necessarily indicative of the results that may be expected for a full
year.
2.SALE OF GROUP
On March 26, 1997, the Corporation announced that it had entered into an
agreement to combine the Group with the six television stations of Argyle
Television, Inc. ("Argyle"), and to rename the new venture Hearst-Argyle
Television, Inc. ("Hearst-Argyle"). Argyle shareholders will receive a choice
of either $26.50 per share in cash, one share of Series A common stock of
Hearst-Argyle, or a mixed consideration of $13.25 in cash and one-half share
of the Series A common stock of Hearst-Argyle. Assuming a full cash election
by existing Argyle shareholders, up to $160 million of the aggregate purchase
price of approximately $320 million would be paid in cash.
After the combination, the Corporation will hold approximately 86% of the
common shares of Hearst-Argyle. The total capitalization of the new company
will exceed $1.8 billion and will have approximately $640 million of debt
outstanding. For the year ended December 31, 1996, the pro forma combined
revenues were $370 million ($284 million for the Group) and pro forma
broadcast cash flow was $158 million ($118 million from the Group). The
proposed combination has been approved by the Boards of Directors of both
companies, and is subject to further approval by Argyle shareholders and the
usual regulatory authorities.
* * * * *
F-67
<PAGE>
APPENDIX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 26, 1997
BY AND AMONG
THE HEARST CORPORATION,
HAT MERGER SUB, INC.,
HAT CONTRIBUTION SUB, INC.
AND
ARGYLE TELEVISION, INC.
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
ARTICLE I.
THE MERGER
<C> <S> <C>
1.01 The Merger...................................................... 8
1.02 Effective Time.................................................. 8
1.03 Closing......................................................... 8
Certificate of Incorporation and Bylaws of the Surviving
1.04 Corporation..................................................... 8
1.05 Directors and Officers of the Surviving Corporation............. 8
1.06 Effects of the Merger........................................... 8
1.07 Further Assurances.............................................. 8
ARTICLE II.
CERTAIN PRE-MERGER TRANSACTIONS
2.01 Restated Charter................................................ 9
2.02 Contribution of Contributed Cash and Parent Station Assets;
Assumption of Bridge Debt, Private Placement Debt and Parent... 9
2.03 Issuance of Company Series B Common Stock....................... 12
ARTICLE III.
CONVERSION OF SHARES
3.01 Conversion of Capital Stock..................................... 12
3.02 Election Procedures............................................. 14
3.03 Selection of Company Common Stock and Company Options........... 16
3.04 The Company To Make Cash and Certificates Available............. 18
3.05 Dividends....................................................... 19
3.06 Dissenting Shares............................................... 20
3.07 Electing Optionholders Supplemental Election.................... 20
ARTICLE IV.
CERTAIN ADJUSTMENTS
4.01 Parent Station Business Adjustment.............................. 20
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
5.01 Organization and Qualification.................................. 21
5.02 Capital Stock................................................... 21
5.03 Authority Relative to this Agreement; Restated Charter.......... 22
5.04 Non-Contravention; Approvals and Consents....................... 23
5.05 SEC Reports and Financial Statements............................ 24
5.06 Absence of Certain Changes or Events............................ 24
5.07 Absence of Undisclosed Liabilities.............................. 25
5.08 Legal Proceedings............................................... 25
5.09 Compliance with Laws and Orders................................. 25
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<C> <S> <C>
5.10 Taxes......................................................... 25
5.11 Employee Benefit Plans; ERISA................................. 26
5.12 Labor Matters................................................. 27
5.13 Environmental Matters......................................... 27
5.14 Intangible Property........................................... 27
5.15 Title; Condition.............................................. 27
5.16 Opinion of Financial Advisor.................................. 28
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF PARENT
6.01 Organization and Qualification................................ 28
6.02 Capital Stock................................................. 28
6.03 Authority Relative to this Agreement ......................... 28
6.04 Non-Contravention; Approvals and Consents..................... 29
6.05 Financial Statements.......................................... 29
6.06 Absence of Certain Changes or Events.......................... 30
6.07 Absence of Undisclosed Liabilities............................ 30
6.08 Legal Proceedings............................................. 30
6.09 Compliance with Laws and Orders............................... 30
6.10 Material Contracts............................................ 31
6.11 Employee Benefit Plans........................................ 31
6.12 Labor Matters................................................. 32
6.13 Title to Parent Station Assets; Entire Business............... 32
6.14 Condition of Parent Station Assets............................ 32
6.15 Environmental Matters......................................... 32
6.16 Intangible Property........................................... 33
ARTICLE VII.
COVENANTS RELATING TO CONDUCT OF BUSINESS
7.01 Conduct of Business by Company................................ 33
7.02 Conduct of Parent Station Business by Parent.................. 34
ARTICLE VIII.
ADDITIONAL AGREEMENTS
8.01 No Solicitations.............................................. 36
8.02 Advice of Changes ............................................ 37
8.03 Access to Information; Audited Financial Statements;
Confidentiality.............................................. 37
8.04 Registration Statement........................................ 38
8.05 Approval of Stockholders and Board Recommendation............. 39
8.06 Regulatory and Other Approvals................................ 39
8.07 Tax Matters................................................... 40
8.08 Affiliate Letters; Resales.................................... 40
8.09 Governance.................................................... 41
8.10 Directors' and Officers' Indemnification and Insurance........ 41
8.11 Expenses...................................................... 41
8.12 Brokers or Finders............................................ 42
8.13 Fulfillment of Conditions..................................... 42
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<C> <S> <C>
8.14 Indemnification.............................................. 42
8.15 Cross-Ownership.............................................. 42
8.16 Purchase of Common Stock..................................... 43
ARTICLE IX.
CONDITIONS
9.01 Conditions to Each Party's Obligation to Effect the
Contribution and the Merger................................. 43
9.02 Conditions to Obligation of Parent, Merger Sub and Cash Sub
to Effect the Contribution and the Merger................... 44
9.03 Conditions to Obligation of the Company to Effect the
Merger...................................................... 45
ARTICLE X.
TERMINATION, AMENDMENT AND WAIVER
10.01 Termination.................................................. 46
10.02 Effect of Termination and Abandonment........................ 47
10.03 Amendment.................................................... 47
10.04 Waiver....................................................... 47
ARTICLE XI.
GENERAL PROVISIONS
11.01 Non-Survival of Representations, Warranties, Covenants and
Agreements.................................................. 47
11.02 Certain Definitions.......................................... 48
11.03 Notices...................................................... 55
11.04 Entire Agreement............................................. 56
11.05 Public Announcements......................................... 56
11.06 No Third Party Beneficiary................................... 56
11.07 No Assignment; Binding Effect................................ 56
11.08 Headings..................................................... 56
11.09 Invalid Provisions........................................... 56
11.10 Governing Law................................................ 56
11.11 Counterparts................................................. 56
</TABLE>
A-4
<PAGE>
EXHIBITS
<TABLE>
<C> <S>
Exhibit A Form of Restated Charter
Exhibit B Form of Registration Rights Agreement
Exhibit 1.05 Directors and Officers of the Surviving Corporation
Exhibit 8.08 Form of Affiliate Letter
Exhibit 9.01(i) Terms of Management Contract, TV Option Contract, and
Radio Facilities Lease
Exhibit 9.02(f) Form of Tax Sharing Agreement
Exhibit 9.02(g) Form of License Agreement
List of Persons Delivering Management Transfer
Exhibit 9.02(h)(A) Restriction Agreements
Exhibit 9.02(h)(B) Form of Management Transfer Restriction Agreement
</TABLE>
A-5
<PAGE>
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of March 26,
1997, is made and entered into by and among The Hearst Corporation, a Delaware
corporation ("Parent"), HAT Merger Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), HAT Contribution Sub, Inc.,
a Delaware corporation and a wholly-owned subsidiary of Parent ("Cash Sub"),
and Argyle Television, Inc., a Delaware corporation (the "Company").
WHEREAS, Parent is engaged in the business of owning and operating the
following television broadcast stations: KMBC-TV in Kansas City, Missouri,
WBAL-TV in Baltimore, Maryland, WCVB-TV in Boston, Massachusetts, WDTN-TV in
Dayton, Ohio, WISN-TV in Milwaukee, Wisconsin, and WTAE-TV in Pittsburgh,
Pennsylvania (collectively, the "Parent Stations");
WHEREAS, the Company is engaged in the business of owning and operating the
following television broadcast stations: WLWT-TV in Cincinnati, Ohio, KOCO-TV
in Oklahoma City, Oklahoma, WNAC-TV in Providence, Rhode Island, KITV-TV in
Honolulu, Hawaii, WAPT-TV in Jackson, Mississippi, KHBS-TV in Ft. Smith,
Arkansas, and KHOG-TV in Fayetteville, Arkansas (collectively, the "Company
Stations");
WHEREAS, the Board of Directors of the Company has approved and determined
it advisable that the Company adopt certain amendments to the Company's
Certificate of Incorporation and a restatement of such Certificate of
Incorporation reflecting such amendments, in the form attached hereto as
Exhibit A (the "Restated Charter"), which Restated Charter shall be in effect
immediately prior to the consummation of the Merger described below;
WHEREAS, the Boards of Directors of Parent, Cash Sub, Merger Sub and the
Company each have approved the execution and delivery of this Agreement and
have determined, as applicable, that it is advisable and in the best interests
of their respective stockholders for (i) Parent to contribute, or cause to be
contributed, to the Company certain of the assets and liabilities of the
Parent Stations in exchange for shares of Company Series B Common Stock (as
hereinafter defined), (ii) Cash Sub to contribute to the Company the
Contributed Cash and the Bridge Debt (each as hereinafter defined) in exchange
for one (1) share of Company Series B Common Stock, (iii) the Company to
contribute the assets and liabilities of the Parent Stations to one or more
direct or indirect wholly-owned subsidiaries of the Company (collectively, the
"Broadcast Subsidiaries"), and (iv) Merger Sub to merge with and into the
Company, as a result of which the Company shall be the surviving corporation
(the "Merger");
WHEREAS, for federal income tax purposes, it is intended that the
Contribution (as hereinafter defined) will qualify as a tax-free exchange
under the provisions of Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code");
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a redemption under the provisions of Section 302 of the Code
with respect to those stockholders of the Company who receive cash pursuant to
the Merger;
WHEREAS, Argyle Television Investors, L.P. (together with any successor
partnership, "ATILP") is the holder of 6,600,000 shares of the Series C Common
Stock of the Company, par value $.01 per share ("Existing Series C Common
Stock"); Television Investment Partners L.P. ("TIP") is the holder of 700,000
shares of Existing Series C Common Stock; Argyle Television Partners, L.P.
("ATP") is the holder of 36,000 shares of the Series B Common Stock of the
Company, par value $.01 per share ("Existing Series B Common Stock"); and
Robin (a/k/a Robert) Hernreich ("Hernreich") is the holder of 159,358 shares
of the Series A Common Stock of the Company, par value $.01 per share (the
"Existing Series A Common Stock"); Argyle Foundation is the holder of 99,000
shares of Existing Series A Common Stock; and Skylark Foundation is the holder
of 65,000 shares of Existing Series A Common Stock;
WHEREAS, ATILP (and its general partner) has adopted a plan of liquidation
of ATILP (the "ATILP Liquidation Plan") providing for the distribution of
shares of Existing Series A Common Stock (into which
A-6
<PAGE>
shares of Existing Series C Common Stock held by ATILP will be converted
pursuant to the Voting Agreements described below) to the partners of ATILP in
accordance with the terms of the Amended and Restated Agreement of Limited
Partnership of ATILP;
WHEREAS, TIP (and its general partner) has adopted a plan of liquidation of
TIP (the "TIP Liquidation Plan") providing for the distribution of shares of
Existing Series A Common Stock (into which shares of Existing Series C Common
Stock will be converted pursuant to the Voting Agreements described below) to
the partners of TIP in accordance with the terms of the Amended and Restated
Agreement of Limited Partnership of TIP;
WHEREAS, ATP (and its general partner) has adopted a plan of liquidation of
ATP (the "ATP Liquidation Plan") providing for the distribution to the
partners of ATP in accordance with the terms of the Agreement of Limited
Partnership of ATP, as amended, of (i) 36,000 shares of Existing Series B
Common Stock and (ii) Existing Series A Common Stock which will be received by
ATP upon its receipt of liquidating distributions from ATILP, TIP and ATI
General Partner, L.P. ("ATIGP");
WHEREAS, ATIGP (and its general partner) has adopted a plan of liquidation
of ATIGP (the "ATIGP Liquidation Plan") providing for the distribution to the
partners of ATIGP in accordance with the terms of the ATIGP partnership
agreement of Existing Series A Common Stock which will be received by ATIGP
upon its receipt of a liquidating distribution from ATILP;
WHEREAS, although ATILP, TIP, ATP and ATIGP respectively, desire to
effectuate the ATILP Liquidation Plan, the TIP Liquidation Plan, the ATP
Liquidation Plan and the ATIGP Liquidation Plan as soon as practicable,
Parent, Merger Sub and Cash Sub are unwilling to enter into this Agreement
unless each of ATILP, TIP, ATP, Hernreich, Argyle Foundation and Skylark
Foundation concurrently with the execution and delivery of this Agreement,
enter into agreements (the "Voting Agreements") pursuant to which, subject to
the terms thereof, (i) each of ATILP and TIP agrees to convert all of the
shares of Existing Series C Common Stock held by it into shares of the
Existing Series A Common Stock into which such shares of Existing Series C
Common Stock are convertible, and (ii) each of ATILP and TIP agreesto vote
such shares of Existing Series A Common Stock held by it, ATP agrees to vote
all shares of Existing Series B Common Stock held by it, and each of
Hernreich, Argyle Foundation and Skylark Foundation agrees to vote all shares
of Existing Series A Common Stock held by each of them, in favor of the
Restated Charter and the Merger; and the Board of Directors of the Company has
approved the execution and delivery of the Voting Agreements;
WHEREAS, on behalf of the partners of ATILP, TIP, and ATP, each of ATILP,
TIP and ATP have agreed pursuant to the Voting Agreements that they will not
effectuate the ATILP Liquidation Plan, the TIP Liquidation Plan or the ATP
Liquidation Plan until the day immediately following stockholder approval;
WHEREAS, upon consummation of the Merger, the Company intends to enter into
a Registration Rights Agreement with certain holders described therein in
substantially the form attached hereto as Exhibit B (the "Registration Rights
Agreement");
WHEREAS, certain capitalized terms used herein have the meanings ascribed to
such terms in Section 11.02; and
WHEREAS, the parties hereto have determined to amend certain provisions of
this Agreement and to amend and restate this Agreement in accordance herewith.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
A-7
<PAGE>
ARTICLE I.
THE MERGER
1.01 The Merger. At the Effective Time (as defined in Section 1.02), upon
the terms and subject to the conditions of this Agreement, Merger Sub shall be
merged with and into the Company in accordance with the General Corporation
Law of the State of Delaware (the "DGCL"). The Company shall be the surviving
corporation in the Merger (the "Surviving Corporation"). Merger Sub and the
Company are sometimes referred to herein as the "Constituent Corporations". As
a result of the Merger, the outstanding shares of capital stock of the
Constituent Corporations shall be converted or cancelled in the manner
provided in Article III.
1.02 Effective Time. At the Closing (as defined in Section 1.03), a
certificate of merger (the "Certificate of Merger") shall be duly prepared and
executed by the Surviving Corporation and thereafter delivered to the
Secretary of State of the State of Delaware (the "Secretary of State") for
filing, as provided in Section 251 of the DGCL, on, or as soon as practicable
after, the Closing Date (as defined in Section 1.03). The Merger shall become
effective at the time of the filing of the Certificate of Merger with the
Secretary of State or, if the Certificate of Merger specifies a subsequent
time for effectiveness, then at such specified time (the date and time of such
filing or as specified in the Certificate of Merger being referred to herein
as the "Effective Time").
1.03 Closing. The closing of the Merger (the "Closing") will take place at
the offices of Rogers & Wells, 200 Park Avenue, New York, New York 10166, or
at such other place as the parties hereto mutually agree, on a date and at a
time to be specified by the parties, which shall in no event be later than
10:00 a.m., local time, on the third Business Day after the conditions set
forth in Article IX have been satisfied or, if permissible, waived in
accordance with this Agreement, or on such other date as the parties hereto
mutually agree (the "Closing Date"). At the Closing there shall be delivered
to Parent and the Company the certificates and other documents and instruments
required to be delivered under Article IX or under other provisions of this
Agreement.
1.04 Certificate of Incorporation and Bylaws of the Surviving
Corporation. At the Effective Time, (i) the Certificate of Incorporation of
the Company as in effect immediately prior to the Effective Time (as amended
and restated, as provided in Section 2.01) shall be the Certificate of
Incorporation of the Surviving Corporation, except that Article "One" of the
Certificate of Incorporation of the Surviving Corporation shall be amended to
read as follows: "The name of the Corporation is Hearst-Argyle Television,
Inc.," and (ii) the Bylaws of the Company as in effect immediately prior to
the Effective Time shall be the Bylaws of the Surviving Corporation, except
that the Bylaws shall be amended such that Section 2 of Article III thereof
shall be amended and restated in its entirety to read as follows until
thereafter amended as provided by law:
Section 2. Number of Directors. Effective upon the merger of HAT Merger
Sub, Inc. with and into the corporation, the number of directors shall be
eleven (11); thereafter, the number of directors shall consist of no fewer
than seven (7) members and no more than fifteen (15) members as determined
from time to time in accordance with these Bylaws by resolution of the
Board of Directors, but no decrease in the number of directors shall have
the effect of shortening the term of any incumbent director.
1.05 Directors and Officers of the Surviving Corporation. From and after the
Effective Time, the directors and officers of the Surviving Corporation shall
be the persons set forth on Exhibit 1.05 hereto, until their successors shall
have been duly elected or appointed and qualified or until their earlier
death, resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
1.06 Effects of the Merger. Subject to the provisions of this Agreement, the
effects of the Merger shall be as provided in the applicable provisions of the
DGCL.
1.07 Further Assurances. Each party hereto will execute such further
documents and instruments and take such further actions as may reasonably be
requested by one or more of the others to consummate the Merger, to vest the
Surviving Corporation with full title to all assets, properties, rights,
approvals, immunities and
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franchises of either of the Constituent Corporations or to effect the other
transactions and purposes of this Agreement.
ARTICLE II.
CERTAIN PRE-MERGER TRANSACTIONS
2.01 Restated Charter. At the Closing but prior to the Effective Time, the
Company shall duly execute and file the Restated Charter with the Secretary of
State, as provided in Section 245 of the DGCL, so that the Restated Charter
shall be in effect and operative as the Certificate of Incorporation of the
Company at the Effective Time (the date and time of such Restated Charter
filing being referred to herein as the "Amendment Time").
2.02 Contribution of Contributed Cash and Parent Station Assets; Assumption
of Bridge Debt, Private Placement Debt and Parent Station Liabilities.
(a) Contribution of Contributed Cash and Parent Station Assets. Upon the
terms and subject to the conditions of this Agreement (and except as
contemplated by Section 8.15), at the Closing and immediately prior to the
Merger but after the Amendment Time, (x) Cash Sub shall contribute, transfer,
assign, convey and deliver to the Company, and the Company shall receive,
acquire and accept from Cash Sub, cash in the amount of Two Hundred Million
and Twenty-Six Dollars and Fifty Cents ($200,000,026.50) (the "Contributed
Cash") and (y) Parent shall contribute, transfer, assign, convey and deliver
to the Company and immediately following such transactions the Company shall
contribute, transfer, assign, convey and deliver to the Broadcast
Subsidiaries, and the Company shall receive, acquire and accept from Parent,
and thereupon the Company shall cause the Broadcast Subsidiaries to receive,
acquire and accept from the Company, all of Parent's right, title and interest
in and to all of the assets, properties and rights of Parent owned or used by
Parent solely in the conduct of the business and operations of the Parent
Stations and of Hearst Broadcasting Productions (collectively, the "Parent
Station Business"), of every type and description, real, personal and mixed,
tangible and intangible, wherever located, as and to the extent existing at
the time of the Contribution, other than those assets, properties and rights
which are specifically excluded pursuant to Section 2.02(b) (the assets,
properties and rights described in this clause (y) are hereinafter
collectively referred to as the "Parent Station Assets"). The contribution by
Cash Sub to the Company of the Contributed Cash and the contribution by Parent
to the Company of the Parent Station Assets is hereinafter referred to
collectively as the "Contribution.") Without limitation of the foregoing, but
except as specifically excluded pursuant to Section 2.02(b), the Parent
Station Assets shall include the following as and to the extent existing at
the time of the Contribution:
(i) Tangible Personal Property. All equipment, machinery, vehicles,
furniture, fixtures, transmitters, transmitting towers, antennae,
computer hardware and software, office materials and supplies, spare
parts and other tangible personal property of every kind and
description, owned, leased, used or held for use by Parent and which
relate solely to the conduct of the Parent Station Business, and any
additions, improvements, replacements and alterations thereto ("Parent
Station Tangible Property");
(ii) Owned Real Property. All real property described in Section
2.02(a)(ii) of the Parent Disclosure Letter (as hereinafter defined),
together with all easements, licenses and other interests and rights
arising out of the ownership thereof or appurtenant thereto, and all
buildings, transmitters, towers and antennae, fixtures and
improvements thereon;
(iii) Real Property Leases. The leases or subleases of real property,
buildings, transmitters, tower and antennae as to which Parent is the
lessor/sublessor or lessee/sublessee set forth in Section
2.02(a)(iii) of the Parent Disclosure Letter, together with any
options to purchase the underlying property and leasehold
improvements thereon, to which Parent is a party or by which the
Parent Station Business is bound, and which relate solely to the
conduct of the Parent Station Business (the "Parent Station Leases");
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(iv) Contracts. All contracts and other agreements (other than the Parent
Station Leases), to which Parent is a party or by which the Parent
Station Business is bound, and which relate solely to the conduct of
the Parent Station Business, including, but not limited to, all orders
and agreements for the sale of advertising, program agreements,
network affiliation agreements and employment contracts with
television talent, all leases of Parent Station Tangible Property as
to which Parent is the lessor/sublessor or lessee/sublessee together
with any options to purchase the underlying property (the "Parent
Station Contracts");
(v) Permits. To the extent transferable under applicable law, all
franchises, approvals, permits, licenses, orders, registrations,
certificates, variances and similar rights and applications for any of
the foregoing and which relate solely to the conduct of the Parent
Station Business, including but not limited to FCC Licenses ("Parent
Station Permits");
(vi) Accounts Receivable. All trade accounts receivable and all notes,
bonds and other evidences of indebtedness of and rights to receive
payments arising out of sales occurring in the conduct of the Parent
Station Business and the security agreements related thereto,
including any rights of Parent with respect to any third party
collection procedures which have been commenced in connection
therewith, to the extent related solely to the conduct of the Parent
Station Business;
(vii) Prepaid Expenses. All prepaid expenses relating solely to the conduct
of the Parent Station Business;
(viii) Security Deposits. All security deposits deposited or made by Parent
and which relate solely to the Parent Station Assets (including but
not limited to those made as lessee or sublessee under any of the
Parent Station Leases and Parent Station Contracts);
(ix) Intangible Property. All patents and applications therefor, copyrights
and applications therefor (including rights to renew), trademarks and
applications therefor, trade names and applications therefor, service
marks and applications therefor, computer software and television
station call letters ("Intangible Property") which relate solely to
the Parent Station Business;
(x) Books and Records. All general, financial and personnel records,
correspondence and other files and records, including all FCC logs and
other records, of Parent pertaining solely to the conduct of the Parent
Station Business; and
(xi) Goodwill. All of Parent's goodwill in the Parent Station Business;
(b) Excluded Assets. Any provision of this Agreement to the contrary
notwithstanding, the Company shall not acquire from Parent and there shall be
excluded from the Parent Station Assets the following (the "Parent Station
Excluded Assets"):
(i) Cash. All cash, marketable securities, commercial paper, certificates
of deposit and other bank deposits, treasury bills and other cash
equivalents (the "Excluded Cash");
(ii) Bank Accounts. All rights with respect to bank accounts;
(iii) Radio Assets. All assets, properties and rights of Parent owned, used
or held for the use by Parent in the ownership or operation of radio
broadcast stations (the "Radio Assets");
(iv) Tax Refunds. All rights of Parent with respect to any federal, state,
local or foreign income, franchise, excise, stamp, real property,
personal property, sales, use, customs, transfer, gains or value added
tax, tariff, import, fee, duty, levy or other governmental charge
(collectively, "Taxes") incurred by Parent in the conduct of the
Parent Station Business or with respect to the Parent Station Assets
before the Contribution (collectively, "Tax Refunds"), other than any
Tax Refunds attributable to Taxes accrued for on the Parent Station
Balance Sheet;
(v) Florida Station. All assets, properties and rights of Parent owned,
used or held for use by Parent and/or WWWB-TV Company solely in the
ownership or operation of the WWWB-TV (Tampa, Florida) television
broadcast station (the "Florida Station Assets");
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(vi) Missouri LMA. The local marketing agreement of Parent with respect to
the operations of KCWB-TV (Kansas City, Missouri), including all
assets, properties and rights of Parent with respect thereto (the
"Missouri LMA");
(vii) Intercompany Accounts. All rights with respect to any obligations of
Parent, any Affiliate of Parent or any director or officer of Parent
or of any Affiliate of Parent;
(viii)Certain Names. All rights to use the corporate names, logos,
trademarks or tradenames set forth in Section 2.02(b) of the Parent
Disclosure Letter or any derivatives or variances thereof, including
but not limited to the name "Hearst,", "The Hearst Corporation," or
any derivatives or variances thereof;
(ix) Insurance. All insurance policies and all rights of every nature and
description under or arising out of such policies, except as provided
in Section 2.02(g) of this Agreement;
(x) Certain Programs. All rights to the television program "Rebecca's
Garden"; and
(xi) Other Matters. All rights of Parent under this Agreement and the
agreements and instruments delivered to Parent by the Company or the
Broadcast Subsidiaries pursuant to this Agreement and all other
assets, properties and rights of Parent which are not owned or used by
Parent solely in the conduct of the Parent Station Business.
(c) Assumption of Bridge Debt, Private Placement Debt and Parent Station
Liabilities. Subject to the terms set forth in this Agreement and except as
provided in Section 2.02(d), in consideration for the Contribution and
simultaneously therewith, (x) the Company shall assume and thereafter pay,
perform and discharge when due: (i) the Bridge Debt, (ii) the Private
Placement Debt and (iii) any and all obligations and liabilities of Parent to
the extent related to the Parent Station Business, whether fixed, contingent,
choate, inchoate or otherwise, as and to the extent existing at the time of
the Contribution other than the Parent Station Excluded Liabilities (as
defined below) (the "Parent Station Assumed Liabilities"), and (y) immediately
following such transactions the Company shall cause the Broadcast Subsidiaries
to assume and thereafter pay, perform and discharge when due the Private
Placement Debt and the Parent Station Assumed Liabilities. Without limitation
of the foregoing, but except as provided in Section 2.02(d) and Section
2.02(f), the Parent Station Assumed Liabilities shall include the following as
and to the extent existing at the time of the Contribution:
(i) Balance Sheet Liabilities. All liabilities set forth on the balance
sheet of the Parent Station Business as of December 31, 1996 referred
to in Section 6.05;
(ii) Obligations Under Leases, Contracts and Permits. All liabilities and
obligations of Parent under any Parent Station Leases, Parent Station
Contracts and Parent Station Permits;
(iii) Employees. All liabilities and obligations of Parent relating to the
Parent Station Employees (as defined below);
(d) Liabilities Not Assumed. Anything contained in this Agreement to the
contrary notwithstanding, the Company shall not assume and there shall be
excluded from the Parent Station Assumed Liabilities the following obligations
and liabilities of Parent (collectively, the "Parent Station Excluded
Liabilities"):
(i) Non-Trade Indebtedness. All liabilities under any bonds, notes,
debentures or similar instruments, any indebtedness for borrowed money
or any guarantees thereof other than the Private Placement Debt;
(ii) Tax Liabilities. Any liabilities for Taxes incurred by Parent in the
conduct of the Parent Station Business or with respect to the Parent
Station Assets before the Contribution, except to the extent accrued
for on the Parent Station Balance Sheet or as provided in Section 8.11;
(iii) Parent Station Employee Benefit Plans. All liabilities and
obligations (x) of Parent under the Parent Station Employee Benefit
Plans, other than collective bargaining agreements and employment
agreements with respect to Parent Station Employees, (y) to employees
of Parent who are not Parent Station Employees (as hereinafter
defined), and (z) under the employment agreements set forth in
Section 2.02(d)(iii) of the Parent Disclosure Letter;
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(iv) Intercompany Accounts. All liabilities to Parent or any affiliate of
Parent (other than amounts owed to Parent Station Employees);
(v) Excluded Assets. All liabilities or obligations to the extent relating
to the acquisition, ownership, operations or use of any of the Parent
Station Excluded Assets.
Parent shall pay, perform and discharge in a timely manner or shall make
adequate provision for all of the Parent Station Excluded Liabilities;
provided, however, that Parent may contest, in good faith, any claim of
liability asserted by a third party in respect thereof.
(e) Nonassignable Parent Station Contracts and Parent Station Permits. To
the extent that transfer and assignment hereunder by Parent to the Company or
by the Company to the Broadcast Subsidiaries of any Parent Station Lease,
Parent Station Contract or Parent Station Permit is not permitted or is not
permitted without the consent of any third party, this Agreement shall not be
deemed to constitute an undertaking to assign the same if such consent is not
given or if such an undertaking otherwise would constitute a breach thereof or
cause a loss of benefits thereunder. Parent will use commercially reasonable
efforts to obtain any and all such third party consents; provided, however,
that except as otherwise provided in Section 8.06, Parent shall not be
required to pay or incur any cost or expense to obtain any third party consent
which Parent is not otherwise required to pay or incur in accordance with the
terms of the applicable Parent Station Lease, Parent Station Contract or
Parent Station Permit. If any such third party consent is not obtained before
the transfer of the Parent Station Business contemplated by this Section 2.02,
Parent will cooperate with the Company, at its expense, in any reasonable
arrangement designed to thereafter provide to the Broadcast Subsidiaries the
benefits under the applicable Parent Station Lease, Parent Station Contract or
Parent Station Permit.
(f) Parent Station Employees. Effective upon the Contribution, all employees
of Parent employed in the Parent Station Business, except those employees
identified in Section 2.02(f) of the Parent Disclosure Letter, shall become
employees (the "Parent Station Employees") of the Company or one or more of
the Broadcast Subsidiaries at the Closing and simultaneous with the
Contribution.
(g) Risk of Loss. The risk of loss or damage to any of the Parent Station
Assets to be contributed by Parent to the Company and by the Company to the
Broadcast Subsidiaries shall be on Parent prior to the Closing and thereafter
shall be on the Company. If any of the Parent Station Assets shall suffer any
material damage, destruction or loss after the date of this Agreement but
before the Closing Date, and such Parent Station Asset and the related
casualty are covered by any insurance policy maintained by Parent or the
Parent Station Business with a third party insurer: Parent shall pay the
Company at the Closing or as soon as practicable after receipt by Parent, if
later than the Closing, in cash, the amount by which the proceeds from such
policy in respect of such damage, destruction or loss exceed the sum of (i)
any amount accrued for on the Parent Station Balance Sheet as a current
liability with respect to repair, restoration or replacement related to such
damage, destruction or loss and (ii) the amount by which the current assets
included in the Parent Station Balance Sheet shall have been reduced by reason
of any current asset so damaged, destroyed or lost.
2.03 Issuance of Company Series B Common Stock. In exchange for the transfer
of the Contributed Cash and the Parent Station Assets to the Company pursuant
to Section 2.02 above, and simultaneously therewith but after the Restated
Charter has been duly filed and is in effect as provided in Section 2.01, (i)
the Company shall issue to Parent 38,611,000 shares of the Company Series B
Common Stock and (ii) the Company shall issue to Cash Sub one share of the
Company Series B Common Stock.
ARTICLE III.
CONVERSION OF SHARES
3.01 Conversion of Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of any share of
capital stock of Merger Sub or the Company:
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(a) Capital Stock of Merger Sub. Each issued and outstanding share of the
common stock, par value $.01 per share, of Merger Sub ("Merger Sub Common
Stock") shall be converted into and become one fully paid and nonassessable
share of Series B Voting Common Stock, par value $.01 per share, of the
Surviving Corporation ("Surviving Corporation Series B Common Stock"). Each
certificate representing outstanding shares of Merger Sub Common Stock
shall at the Effective Time represent an equal number of shares of
Surviving Corporation Series B Common Stock.
(b) Cancellation of Treasury Stock. Each share of Company Series A Common
Stock and Company Series B Common Stock, and each share of the Company
Series A Preferred Stock and Company Series B Preferred Stock that is owned
by the Company as treasury stock shall be cancelled and retired and shall
cease to exist and no stock of the Company or other consideration shall be
delivered in exchange therefor.
(c) Conversion of Company Common Stock. Each issued and outstanding share
of Company Series B Common Stock shall be converted into and become one
fully paid and nonassessable share of Surviving Corporation Series B Common
Stock. Each certificate representing outstanding shares of Company Series B
Common Stock shall at the Effective Time represent an equal number of
shares of Surviving Corporation Series B Common Stock. Except as otherwise
provided in Section 3.06 and subject to Section 3.01(b), at the Effective
Time each issued and outstanding share of Company Series A Common Stock
shall be converted into one of the following:
(i) Each share of Company Series A Common Stock which under the terms
of Section 3.03 is to be converted into the right to receive solely
shares of Series A Voting Common Stock, par value $.01 per share,
of the Surviving Corporation ("Surviving Corporation Series A
Common Stock") shall be converted into the right to receive one
share of Surviving Corporation Series A Common Stock (the "Stock
Consideration");
(ii) Each share of Company Series A Common Stock which under the terms
of Section 3.03 is to be converted into the right to receive
solely cash shall be converted into the right to receive cash,
without interest, in an amount equal to $26.50 (the "Cash
Consideration"); and
(iii) Each share of Company Series A Common Stock which under the terms
of Section 3.03 is to be converted into the right to receive a
combination of shares of Surviving Corporation Series A Common
Stock and cash, shall be converted into the right to receive 0.50
shares of Surviving Corporation Series A Common Stock and $13.25
in cash, without interest (the "Mixed Consideration").
(d) Conversion of Company Preferred Stock. Except as otherwise provided
in Section 3.06 and subject to Section 3.01(b), at the Effective Time each
issued and outstanding share of Company Series A Preferred Stock shall be
converted into one share of the Surviving Corporation's Series A Voting
Preferred Stock, par value $.01 per share (the "Surviving Corporation
Series A Preferred Stock"), and each issued and outstanding share of
Company Series B Preferred Stock shall be converted into one share of the
Surviving Corporation's Series B Voting Preferred Stock, par value $.01 per
share (the "Surviving Corporation Series B Preferred Stock"). Each
certificate representing outstanding shares of Company Series A Preferred
Stock or shares of Company Series B Preferred Stock shall at the Effective
Time represent an equal number of shares of Surviving Corporation Series A
Preferred Stock or Surviving Corporation Series B Preferred Stock, as the
case may be.
(e) Company Options. Each option or similar right to purchase shares of
Company Series A Common Stock which is outstanding at the Effective Time
(each such option, as it relates to each such share, being referred to
herein as a "Company Option") shall be cancelled, by virtue of the Merger
and without further action by the Company or the holder of a Company
Option, without consideration except as provided in this Section 3.01(e).
Each person shown on the books of the Company to be a holder of a Company
Option, whether or not immediately exercisable, shall be entitled to
receive subject to and in accordance with the terms of Section 3.03, as
soon as practicable after the Effective Time, at such holder's election,
one of the following:
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(i) an option to purchase shares of Surviving Corporation Series A
Common Stock ("Surviving Corporation Options"), into which the
Company Options shall be converted and assumed by the Surviving
Corporation. Each Surviving Corporation Option shall be fully
vested and shall otherwise be exercisable upon the same terms and
conditions as set forth in the option agreement respecting the
Company Option converted into such Surviving Corporation Option (an
"Option Rollover"); or
(ii) a number of shares of Surviving Corporation Series A Common Stock
("Option Stock") equal to (x) the number of shares of Company
Series A Common Stock underlying such Company Option multiplied by
(y) a fraction, of which the numerator is the amount by which the
Cash Consideration exceeds the per share exercise or purchase
price provided under such Company Option and the denominator is an
amount equal to the Cash Consideration; or
(iii) cash ("Option Cash") in an amount equal to (x) the Cash
Consideration multiplied by (y) the number of shares of Option
Stock which such holder would be entitled to receive pursuant to
paragraph (ii) above; or
(iv) the sum of (A) a number of shares of Surviving Corporation Series
A Common Stock equal to (x) the number of shares of Option Stock
which such holder would be entitled to receive pursuant to
paragraph (ii) above multiplied by (y) 50%, plus (B) cash in an
amount equal to (x) the Cash Consideration multiplied by (y) the
number of shares by which the Option Stock which such holder would
be entitled to receive pursuant to paragraph (ii) above exceeds
the number of shares of Surviving Corporation Series A Common
Stock which such holder is entitled to receive pursuant to this
paragraph (iv) (the "Option Mixed Consideration").
Except as permitted by the terms of this Agreement or as otherwise agreed to
by the parties, the Company shall use reasonable efforts to ensure that no
person shall have any right under any stock option plan (or any option granted
thereunder) or other plan, program or arrangement with respect to, including
any right to acquire, equity securities of the Surviving Corporation following
the Effective Time.
(f) Per Share Amount. The applicable consideration into which each share of
any class or series of the capital stock of the Company shall be converted
pursuant to Section 3.01(c) or 3.01(d) above shall be hereinafter referred to,
collectively and individually, as the "Per Share Amount".
3.02 Election Procedures.
(a) Company Common Stock. Each holder of Company Series A Common Stock
(other than holders of Company Series A Common Stock to be cancelled as set
forth in Section 3.01(b)) shall have the right to choose to receive (subject
to the allocation and proration procedures set forth below) one of the
following in exchange for each share of such holder's Company Series A Common
Stock in the Merger:
(i) only cash (a "Cash Election");
(ii) only shares of Surviving Corporation Series A Common Stock (a "Stock
Election"); or
(iii) the Mixed Consideration (a "Mixed Election").
As used herein, the term "Election" shall refer to either a Cash Election, a
Stock Election or a Mixed Election.
(b) Company Options. Each holder of a Company Option shall have the right to
choose to receive (subject to the allocation and proration procedures set
forth below) one of the following in exchange for cancellation of such
holder's Company Option in the Merger:
(i) an Option Rollover (a "Rollover Election");
(ii) only Option Cash (an "Option Cash Election");
(iii) only Option Stock (an "Option Stock Election"); or
(iv) the Option Mixed Consideration (an "Option Mixed Election").
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As used herein, the term "Option Election" shall refer to either a Rollover
Election, an Option Cash Election, an Option Stock Election or an Option Mixed
Election.
(c) Parent and the Company shall authorize one or more persons to receive
Elections and to act as Exchange Agent hereunder (the "Exchange Agent")
pursuant to an agreement or agreements satisfactory to Parent and the Company.
(d) Parent and the Company shall prepare a form (the "Form of Election")
(i)pursuant to which each holder of record (other than Parent and Cash Sub) of
Company Series A Common Stock may make an Election with respect to each share
of Company Series A Common Stock and (ii)which will include as part of such
form a letter of transmittal for surrender of certificates therewith
representing shares of such holder's Series A Common Stock (which shall
specify that delivery shall be effective, and risk of loss and title to such
certificates shall pass, only upon delivery of such certificates to the
Exchange Agent), and instructions for use in effecting the surrender of such
certificates. The Form of Election shall be mailed to stockholders of record
of the Company as of the record date for the Company Stockholders' Meeting
contemplated by Section 8.05 (and shall accompany the Proxy
Statement/Prospectus referred to in Section 8.04). Parent and the Company also
shall prepare a form pursuant to which each holder of a Company Option may
make an Option Election and which shall be provided to each person shown on
the books of the Company to be a holder of a Company Option (the "Option
Election Form").
(e) The Company will use its best efforts to make the Form of Election
(accompanied by the Proxy Statement/Prospectus) available to all persons who
become Company stockholders of record during the period between such record
date and the Business Day immediately prior to the Election Date (including
those partners of ATILP, TIP, and ATP and ATIGP to whom shares of Existing
Series A Common Stock or Existing Series B Common Stock have been distributed
pursuant to the Liquidation Plans). As used herein, "Election Date" means a
date mutually agreed upon by Parent and the Company and announced by the
Company, in a news release delivered to the Dow Jones News Service or
otherwise publicly announced by the Company, as the last day on which Forms of
Election will be accepted, provided, however, that such day shall be a
Business Day no earlier than 20 Business Days prior to the Effective Time and
no later than the date of the Company Stockholders' Meeting (as defined in
Section 8.05).
(f) Any Election shall have been properly made only if the Exchange Agent at
its office designated in the Form of Election shall have received in the city
in which, for purposes of this Agreement, such Exchange Agent is located, by
5:00 p.m. local time on the Election Date (the "Election Deadline"), a Form of
Election properly completed and signed. Any Election relating to shares of
Company Series A Common Stock with respect to which the holder thereof has
filed and not withdrawn as of the Effective Time a written demand for payment
of the fair value of Company Series A Common Stock in accordance with the
provisions of Section 3.06 hereof shall be deemed to have been automatically
revoked as of the Election Date.
(g) Holders of record of shares of Company Series A Common Stock who hold
such shares as nominees, trustees or in other representative capacities (a
"Holder Representative") may submit multiple Forms of Election, provided that
such Holder Representative certifies that each such Form of Election covers
all the shares of Company Series A Common Stock held by each Holder
Representative for a particular beneficial owner.
(h) Any holder of Company Series A Common Stock at any time prior to the
Election Deadline may change his Election by written notice received by the
Exchange Agent at or prior to the Election Deadline accompanied by a properly
completed, revised Form of Election.
(i) Any holder of Company Series A Common Stock at any time prior to the
Election Deadline may revoke his Election by written notice received by the
Exchange Agent at or prior to the Election Deadline.
(j) The Company and Parent shall have the right to make rules not
inconsistent with the terms of this Agreement governing the validity of the
Forms of Election and the Option Election Forms, the manner and extent to
which Elections and Option Elections are to be taken into account in making
the determinations prescribed by
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this Article III, the issuance and delivery of certificates for Surviving
Corporation Series A Common Stock into which Company Series A Common Stock and
Company Options are converted in the Merger and the payment for shares of
Company Series A Common Stock and Company Options converted into the right to
receive cash in the Merger. All such rules and determinations thereunder shall
be final and binding on all holders of shares of Company Series A Common Stock
and all holders of Company Options.
3.03 Selection of Company Common Stock and Company Options. The manner in
which each share of Company Series A Common Stock (other than shares of
Company Series A Common Stock to be cancelled as set forth in Section 3.01(b))
and each Company Option shall be converted at the Effective Time into cash or
Surviving Corporation Series A Common Stock shall be as set forth below in
this Section 3.03:
(a) As is more fully set forth below, the number of shares of Company
Series A Common Stock and Company Options to be converted into the right to
receive cash in the Merger pursuant to this Agreement (the "Cash Conversion
Number") shall not exceed the amount which is equal as nearly as
practicable to 6,025,319 shares. The number of shares of Company Series A
Common Stock and Company Options to be converted into Surviving Corporation
Series A Common Stock in the Merger pursuant to this Agreement (the "Stock
Conversion Number") shall not exceed the amount which is equal as nearly as
practicable to 8,277,054 shares.
(b) If the sum of (i) the aggregate number of shares of Company Series A
Common Stock covered by effective Cash Elections (the "Cash Election
Shares"), (ii) the aggregate number of such shares covered by Mixed
Elections (the "Mixed Election Shares") to be acquired for cash (determined
by multiplying the number of Mixed Election Shares by 50%) (such number of
shares referred to as the "Mixed Election Cash Shares"), (iii) the
aggregate number of shares of Company Series A Common Stock calculated
pursuant to Section 3.01(e)(iii) with respect to Company Options covered by
Option Cash Elections (the "Option Cash Shares") and (iv) the aggregate
number of shares of Company Series A Common Stock calculated pursuant to
Section 3.01(e)(iv) with respect to Company Options covered by Option Mixed
Elections to be cancelled for cash (the "Mixed Option Cash Shares") exceeds
the Cash Conversion Number, then (i) each share of Company Series A Common
Stock for which a Stock Election has been made, each Company Option for
which an Option Stock Election has been made, and each Non-Electing Company
Common Share (as defined in Section 3.03(h)), shall be converted into a
right to receive Surviving Corporation Series A Common Stock in the Merger,
(ii) each share of Company Series A Common Stock for which a Mixed Election
has been made and each Common Option for which an Option Mixed Election has
been made shall be converted into the right to receive the Mixed
Consideration or the Option Mixed Consideration, respectively, in the
Merger, and (iii) each share of Company Series A Common Stock for which a
Cash Election has been made and each Company Option for which an Option
Cash Election has been made shall be converted into a right to receive cash
or Surviving Corporation Series A Common Stock in the following manner:
(i) A cash proration factor (the "Cash Proration Factor") shall be
determined by dividing (i) the Cash Conversion Number minus the sum
of (A) the number of Mixed Election Cash Shares and (B) the number
of Mixed Option Cash Shares, by (ii) the sum of (A) the total
number of Cash Election Shares and (B) the total number of Option
Cash Shares;
(ii) The number of shares of Company Series A Common Stock covered by
each Cash Election to be converted into the right to receive cash
shall be determined by multiplying the Cash Proration Factor by
the total number of shares of Company Series A Common Stock
covered by such Cash Election, rounded to the next higher integer;
(iii) The number of Company Options covered by each Option Cash
Election to be converted into the right to receive cash shall be
determined by multiplying the Cash Proration Factor by the total
number of Company Options covered by such Option Cash Election,
rounded to the next higher integer; and
(iv) Each share of Company Series A Common Stock covered by a Cash
Election and each Company Option covered by an Option Cash
Election which in each case are not converted into a right to
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receive cash as set forth above shall be converted into the right to
receive shares of Surviving Corporation Series A Common Stock in the
Merger.
(c) If the sum of (i) the aggregate number of shares of Company Series A
Common Stock covered by effective Stock Elections (the "Stock Election
Shares"), (ii) the aggregate number of Mixed Election Shares to be acquired
for stock (determined by multiplying the number of Mixed Election Shares by
50%) (such number of shares referred to as the "Mixed Election Stock
Shares"), (iii) the aggregate number of shares of Company Series A Common
Stock calculated pursuant to Section 3.01(e)(ii) with respect to Company
Options covered by Option Stock Elections (the "Option Stock Shares") and
(iv) the aggregate number of shares of Company Series A Common Stock
calculated pursuant to Section 3.01(e)(iv) with respect Company Options
covered by Option Mixed Elections to be cancelled for stock (the "Mixed
Option Stock Shares") exceeds the Stock Conversion Number, then (i) each
share of Company Series A Common Stock for which a Cash Election has been
made, each Company Option for which an Option Cash Election has been made,
and each Non-Electing Company Common Share shall be converted into the
right to receive cash in the Merger, (ii) each share of Company Series A
Common Stock for which a Mixed Election has been made and each Company
Option for which an Option Mixed Election has been made shall be converted
into the right to receive the Mixed Consideration or the Option Mixed
Consideration, respectively, in the Merger, and (iii) the shares of Company
Series A Common Stock for which a Stock Election has been made and each
Company Option for which an Option Stock Election has been made shall be
converted into Surviving Corporation Series A Common Stock or the right to
receive cash in the following manner:
(i) A stock proration factor (the "Stock Proration Factor") shall be
determined by dividing (i) the Stock Conversion Number minus the sum
of (A) the number of Mixed Election Stock Shares and (B) the number
of Mixed Option Stock Shares, by (ii) the sum of (A) the total
number of Stock Election Shares and (B) the total number of Option
Stock Shares;
(ii) The number of shares of Company Series A Common Stock covered by
each Stock Election to be converted into Surviving Corporation
Series A Common Stock shall be determined by multiplying the Stock
Proration Factor by the total number of shares of Company Series A
Common Stock covered by such Stock Election, rounded to the next
lower integer;
(iii) The number of Company Options covered by each Option Stock
Election to be converted into Surviving Corporation Series A
Common Stock shall be determined by multiplying the Stock
Proration Factor by the total number of shares of Company Series A
Common Stock covered by such Option Stock Election, rounded to the
next higher integer; and
(iv) Each share of Company Series A Common Stock covered by a Stock
Election and each Company Option covered by an Option Stock
Election which in each case are not converted into a right to
receive Surviving Corporation Series A Common Stock as set forth
above shall be converted into the right to receive the cash in the
Merger.
(d) If Cash Elections and Option Cash Elections are received for a number
of shares of Company Series A Common Stock which is in the aggregate equal
to or less than the Cash Conversion Number, each share of Company Series A
Common Stock covered by a Cash Election and each Company Option covered by
an Option Cash Election shall be converted into a right to receive the Cash
Consideration and the Option Cash, respectively.
(e) If Stock Elections and Option Stock Elections are received for a
number of shares of Company Series A Common Stock which is in the aggregate
equal to or less than the Stock Conversion Number, each share of Company
Series A Common Stock covered by a Stock Election and each Company Option
covered by an Option Stock Election shall be converted into the right to
receive the Stock Consideration and the Option Stock, respectively.
(f) Each share of Company Series A Common Stock covered by a Mixed
Election and each Company Option covered by an Option Mixed Election shall
be converted into the right to receive the Mixed Consideration and the
Option Mixed Consideration, respectively.
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(g) If Non-Electing Company Common Shares are not converted under either
Section 3.03(b) or Section 3.03(c), the Exchange Agent shall determine by
lot (or by such other method as is deemed reasonable by Parent and the
Company) which of the holders of Non-Electing Company Common Shares shall
receive in the Merger the right to receive cash for each Non-Electing
Company Common Share held of record by such holder, provided that such
selection by lot (or by such other method) will cease when the sum of
shares converted in such manner, plus the total number of Cash Election
Shares and Mixed Election Cash Shares for which Cash Elections and Mixed
Elections have been received, is as close as is practicable to the Cash
Conversion Number. Each Non-Electing Company Common Share not so converted
into the right to receive cash shall be converted into Surviving
Corporation Series A Common Stock in the Merger.
(h) For the purposes of this Section 3.03, outstanding shares of Company
Series A Common Stock as to which an Election is not in effect as of the
Election Deadline shall be called "Non-Electing Company Common Shares."
Notwithstanding anything to the contrary contained in this Agreement, an
Election shall be deemed not to be in effect if a holder has not
surrendered to the Exchange Agent certificates representing such holder's
shares of Series A Common Stock pursuant to, and in accordance with, the
Form of Election. If Parent and the Company shall determine for any reason
that any Election was not properly made with respect to shares of Company
Series A Common Stock, such Election shall be deemed to be not in effect
and shares of Company Series A Common Stock covered by such Election shall
for purposes hereof be deemed to be Non-Electing Company Common Shares.
(i) If Parent and the Company shall determine for any reason that any
Option Election was not properly made with respect to Company Options, such
Option Election shall be deemed not to be in effect and instead a Rollover
Election shall be deemed to have been made with respect to such Company
Option.
3.04 The Company To Make Cash and Certificates Available.
(a) The Company shall make available to the Exchange Agent at the Effective
Time, an amount in cash equal to at least One Hundred Million Dollars
($100,000,000) and such additional amount of cash to the extent necessary
under this Article III to pay cash consideration to holders of the Company
Series A Common Stock and Company Options. As soon as practicable after the
Effective Time, the Exchange Agent shall distribute to holders of shares of
Company Series A Common Stock converted into the right to receive cash
pursuant to Article III, upon surrender to the Exchange Agent of one or more
Certificates for cancellation, a check for an amount equal to the Cash
Consideration for each share of Company Series A Common Stock so converted. In
no event shall the holder of any such surrendered Certificates be entitled to
receive interest on any of the funds to be received in the Merger. If such
check is to be sent to a person other than the person in whose name the
Certificates surrendered for exchange are registered, it shall be a condition
of the exchange that the person requesting such exchange shall pay to the
Exchange Agent any transfer or other taxes required by reason of the delivery
of such check to a person other than the registered holder of the certificate
surrendered, or shall establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not applicable. Notwithstanding the foregoing,
neither the Exchange Agent nor any party hereto shall be liable to a holder of
shares of Company Series A Common Stock for any amount paid to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
(b) As soon as practicable after the Effective Time, each holder of shares
of Company Series A Common Stock converted into shares of Surviving
Corporation Series A Common Stock pursuant to Article III upon surrender to
the Exchange Agent (to the extent not previously surrendered with a Form of
Election) of one or more Certificates of such shares of Company Series A
Common Stock for cancellation, will be entitled to receive certificates
representing the number of shares of Surviving Corporation Series A Common
Stock to be issued in respect of the aggregate number of such shares of
Company Series A Common Stock previously represented by the Certificates
surrendered. Notwithstanding any other provision hereof, no fractional shares
of Surviving Corporation Series A Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued, and no right
to receive cash in lieu thereof shall entitle the holder thereof to any voting
or other rights of a holder of shares or fractional share interests. All
fractional shares of Surviving Corporation Series A
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Common Stock to which a holder of Company Series A Common Stock immediately
prior to the Effective Time would otherwise be entitled, at the Effective
Time, shall be aggregated. If a fractional share results from such
aggregation, such stockholder shall be entitled after the later of the
Effective Time and the surrender of such stockholder's Certificate or
Certificates which represent such shares of Company Series A Common Stock, to
receive from the Surviving Corporation an amount in cash in lieu of such
fractional share, based on the Cash Consideration. The Surviving Corporation
will make available to the Exchange Agent, as required, without regard to any
other cash being provided to the Exchange Agent, cash necessary for this
purpose. Notwithstanding the foregoing, neither Parent, the Surviving
Corporation, the Exchange Agent nor any party hereto shall be liable to a
holder of shares of Company Series A Common Stock for any Surviving
Corporation Series A Common Stock or dividends thereon delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
(c) As soon as practicable after the Effective Time, the Exchange Agent
shall mail upon request the Form of Election to each holder of record (other
than Parent and Cash Sub) of a certificate or certificates that immediately
prior to the Effective Time represented outstanding shares of Company Series A
Common Stock (the "Certificates").
(d) The cash paid and shares of Surviving Corporation Series A Common Stock
issued, upon the surrender of Certificates in accordance with the terms
hereof, shall be deemed to have been paid and issued in full satisfaction of
all rights pertaining to such shares of Company Series A Common Stock, as the
case may be.
3.05 Dividends. No dividends or other distributions, if any, that are
declared after the Effective Time with respect to Surviving Corporation Series
A Common Stock payable to holders of record thereof after the Effective Time
shall be paid to the Company's stockholders entitled to receive certificates
representing Surviving Corporation Series A Common Stock until such
stockholders surrender their Certificates. Upon such surrender, there shall be
paid to the stockholder in whose name the certificates representing such
Surviving Corporation Series A Common Stock shall be issued any dividends
which shall have become payable with respect to such Surviving Corporation
Series A Common Stock between the Effective Time and the time of such
surrender, without interest. After such surrender, there shall also be paid to
the stockholder in whose name the certificates representing such Surviving
Corporation Series A Common Stock shall be issued any dividend on such
Surviving Corporation Series A Common Stock that shall have a record date
subsequent to the Effective Time and prior to such surrender and a payment
date after such surrender and such payment shall be made on such payment date.
In no event shall the stockholders entitled to receive such dividends be
entitled to receive interest on such dividends. All dividends or other
distributions declared after the Effective Time with respect to Surviving
Corporation Series A Common Stock and payable to the holders of record thereof
after the Effective Time that are payable to the holders of Certificates not
theretofore surrendered and exchanged for certificates representing shares of
Surviving Corporation Series A Common Stock pursuant to this Section 3.05
shall be paid or delivered by the Surviving Corporation to the Exchange Agent,
in trust, for the benefit of such holders. All such dividends or other
distributions held by the Exchange Agent for payment or delivery to the
holders of unsurrendered Certificates and unclaimed at the end of one year
from the Effective Time shall be repaid or redelivered by the Exchange Agent
to the Surviving Corporation, after which time any holder of Certificates who
has not theretofore surrendered such Certificates to the Exchange Agent,
subject to applicable law, shall look as a general creditor only to the
Surviving Corporation for payment or delivery of such dividends or
distributions, as the case may be. Any Surviving Corporation Series A Common
Stock delivered or made available to the Exchange Agent pursuant to Section
3.04 hereof and not exchanged for Certificates within one year after the
Effective Time pursuant to this Section 3.05 shall be returned by the Exchange
Agent to the Surviving Corporation which shall thereafter act as Exchange
Agent subject to the rights of holders of unsurrendered Certificates under
this Article III. Notwithstanding the foregoing, neither Parent, the Surviving
Corporation, the Exchange Agent nor any other party hereto shall be liable to
a holder of Company Common Stock for any Surviving Corporation Series A Common
Stock, or dividends or distributions thereon, delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
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3.06 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, each
outstanding share of Company Common Stock or Company Preferred Stock, the
holder of which has not voted in favor of the Merger, has perfected such
holder's right to an appraisal of such holder's shares in accordance with the
applicable provisions of the DGCL and has not effectively withdrawn or lost
such right to appraisal (a "Dissenting Share"), shall not be converted into or
represent a right to receive the applicable Per Share Amount, but the holder
thereof shall be entitled only to such rights as are granted by the applicable
provisions of the DGCL; provided, however, that any Dissenting Share held by a
person at the Effective Time who shall, after the Effective Time, withdraw the
demand for appraisal or lose the right of appraisal, in either case pursuant
to the DGCL, shall be deemed to be converted into, as of the Effective Time,
the right to receive the applicable Per Share Amount.
(b) The Company (or the Surviving Corporation, as the case may be) shall
give Parent (x) prompt notice of any written demands for appraisal,
withdrawals of demands for appraisal and any other instruments served pursuant
to the applicable provisions of the DGCL relating to the appraisal process
received by the Company (or the Surviving Corporation, as the case may be) and
(y) the opportunity to participate in all negotiations and proceedings with
respect to demands for appraisal under the DGCL. Prior to the Effective Time,
the Company will not voluntarily make any payment with respect to any demands
for appraisal and will not, except with the prior written consent of Parent,
settle or offer to settle any such demands.
3.07 Electing Optionholders Supplemental Election. Notwithstanding any other
provision of this Article III, an Electing Optionholder may make a
supplemental election for the Option Cash Election of Section 3.01(e)(iii) not
to be subject to any pro ration under Section 3.03 provided that (i) the
aggregate amount of cash to be received pursuant to Section 3.03 under any
Section 3.01(c) election made by such Electing Optionholder shall be reduced
by the difference between (x) the Option Cash to be received by such Electing
Optionholder making this supplemental election less (y) the Option Cash that
would have been received by such Electing Optionholder were such Option Cash
election subject to any pro ration under Section 3.03 (with the difference of
(x) minus (y) being the "Option Cash Difference"); and (ii) the number of
shares of stock to be received pursuant to Section 3.03 under any Section
3.01(c) election made by such Electing Optionholder shall be increased by a
number equal to the Option Cash Difference divided by $26.50. An Electing
Optionholder may only make the supplemental election provided by this Section
3.07 in the event that the aggregate amount of cash that would be received
pursuant to any Section 3.01(c) election by such Electing Optionholder absent
a supplemental election under this Section 3.07 equals or exceeds the Option
Cash Difference.
ARTICLE IV.
CERTAIN ADJUSTMENTS
4.01 Parent Station Business Adjustment.
(a) As promptly as practicable, but in any event not later than sixty (60)
days after the Closing Date, Parent shall cause to be prepared and delivered
to the Surviving Corporation a balance sheet for the Parent Station Business
as of the Closing Date (the "Parent Station Balance Sheet"), prepared in
accordance with generally accepted accounting principles consistently applied
("GAAP") and in substantially the manner used to prepare the Parent Station
Financial Statements (as hereinafter defined). The Parent Station Balance
Sheet shall be accompanied by a statement (the "Parent Station Statement of
Net Assets") setting forth the Parent Station Net Assets, which shall be
calculated by reference to the Parent Station Balance Sheet.
(b) Within thirty (30) days after delivery of the Parent Station Balance
Sheet and the Parent Station Statement of Net Assets pursuant to Section
4.01(a) above, (i) Parent shall pay to the Surviving Corporation the amount,
if any, by which the amount of the Parent Station Net Assets is less than
Thirty Million Dollars ($30,000,000) or (ii) the Surviving Corporation shall
pay to Parent the amount (the "Parent Adjustment
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Amount"), if any, by which the amount of the Parent Station Net Assets exceeds
Thirty Million Dollars ($30,000,000); provided, however, that Parent at its
option may elect to receive in lieu of such payment from the Surviving
Corporation additional shares of Surviving Corporation Series B Common Stock
or any combination thereof. The number of shares of Surviving Corporation
Series B Common Stock which Parent shall be entitled to receive shall be
determined by dividing the Parent Adjustment Amount by $26.50. Payments, if
any, by the Surviving Corporation or Parent pursuant to this subsection (b)
shall be made by wire transfer of immediately available funds. It is
understood and agreed that to the extent any payments are made by the Company
to Parent pursuant to this subsection (b), such payments shall be deemed for
tax purposes to effectively reduce the amount contributed by Parent to the
Company of the Parent Station Assets.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company SEC Reports filed by the Company prior to
the execution and delivery of this Agreement or in the disclosure letter
delivered to Parent by the Company at or prior to the execution and delivery
of this Agreement (the "Company Disclosure Letter"), the Company represents
and warrants to Parent as follows:
5.01 Organization and Qualification. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has full
corporate power and authority to conduct its business as and to the extent now
conducted and to own, use and lease its assets and properties, except (in the
case of any Subsidiary) for such failures to be so organized, existing and in
good standing or to have such power and authority which, individually or in
the aggregate, are not having and could not be reasonably expected to have a
Company Material Adverse Effect (as defined below). Each of the Company and
its Subsidiaries is duly qualified, licensed or admitted to do business and is
in good standing in each jurisdiction in which the ownership, use or leasing
of its assets and properties, or the conduct or nature of its business, makes
such qualification, licensing or admission necessary, except for such failures
to be so qualified, licensed or admitted and in good standing which,
individually or in the aggregate, (i) are not having and could not be
reasonably expected to have a Company Material Adverse Effect, or (ii) could
not be reasonably expected to adversely affect in any material respect the
ability of the Company to perform its obligations hereunder. For purposes of
this Agreement, "Company Material Adverse Effect" means a material adverse
effect on the business, results of operations or financial condition of the
Company and its Subsidiaries, taken as a whole. Section 5.01 of the Company
Disclosure Letter sets forth the name and jurisdiction of incorporation of
each Subsidiary of the Company. The Company does not directly or indirectly
own any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity. For purposes of this Agreement, "Subsidiary" means, with respect to
any party, any corporation or other organization whether incorporated or
unincorporated, of which more than fifty percent (50%) of either the equity
interests in, or voting control of, such corporation or other organization is,
directly or indirectly through Subsidiaries or otherwise, beneficially owned
by such party.
5.02 Capital Stock.
(a) The authorized capital stock of the Company consists solely of (i)
50,000,000 shares of common stock, of which 35,000,000 shares are designated
as Existing Series A Common Stock, 200,000 shares are designated as Existing
Series B Common Stock, and 14,800,000 shares are designated as Existing Series
C Common Stock and (ii) 2,000,000 shares of preferred stock, of which 12,500
shares are designated as Existing Series A Preferred Stock, and 12,500 shares
are designated as Existing Series B Preferred Stock. Each share of Existing
Series B Common Stock and Existing Series C Common Stock is convertible into
one share of Existing Series A Common Stock. As of the date of this Agreement,
(i) 4,010,914 shares of Existing Series A Common Stock are issued and
outstanding, (ii) 36,000 shares of Existing Series B Common Stock are issued
and outstanding, all or which are
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held by ATP, (iii) 7,300,000 shares of Existing Series C Common Stock are
issued and outstanding, of which 6,600,000 shares are held the ATILP and
700,000 shares are held by TIP, (iv) 10,938 shares of Existing Series A
Preferred Stock are issued and outstanding; (v) 10,938 shares of Existing
Series B Preferred Stock are issued and outstanding; (vi) no shares of
Existing Common Stock and no shares of Existing Preferred Stock are held in
the treasury of the Company; (vii) 15,312,515 shares of Existing Series A
Common Stock are reserved for issuance upon conversion of the Existing Series
B Common Stock, the Existing Series C Common Stock, the Existing Series A
Preferred Stock and the Existing Series B Preferred Stock, and (viii)
6,000,000 shares of Existing Series A Common Stock are reserved for issuance
under the Company's stock option plans (such plans having been amended prior
to the Company's execution and delivery of this Agreement so that such options
are not with respect to Existing Series C Common Stock). Other than as
described above, there are no other shares or series of Existing Common Stock
or Existing Preferred Stock issued and outstanding, held in treasury or
reserved for issuance. All of the issued and outstanding shares of each series
of Existing Common Stock and Existing Preferred Stock are, and all shares
reserved for issuance will be, upon issuance in accordance with the terms
specified in the instruments or agreements pursuant to which they are
issuable, duly authorized, validly issued, fully paid and nonassessable. All
of the shares of Company Series B Common Stock to be issued to Parent and Cash
Sub pursuant to Section 2.03, when so issued, will be duly authorized, validly
issued, fully paid and non-assessable. Except pursuant to this Agreement and
the Voting Agreements, there are no outstanding subscriptions, options,
warrants, rights (including "phantom" stock rights), preemptive rights or
other contracts, commitments, understandings or arrangements, including any
right of conversion or exchange under any outstanding security, instrument or
agreement (together, "Options"), obligating the Company or any of its
Subsidiaries to issue or sell any shares of capital stock of the Company or to
grant, extend or enter into any Option with respect thereto.
(b) All of the outstanding shares of capital stock of each Subsidiary of the
Company are duly authorized, validly issued, fully paid and nonassessable and
are owned, beneficially and of record, by the Company or a Subsidiary wholly
owned, directly or indirectly, by the Company, free and clear of any liens,
claims, mortgages, encumbrances, pledges, security interests, equities and
charges of any kind (each a "Lien"). There are no (i) outstanding Options
obligating the Company or any of its Subsidiaries to issue or sell any shares
of capital stock of any Subsidiary of the Company or to grant, extend or enter
into any such Option or (ii) voting trusts, proxies or other commitments,
understandings, restrictions or arrangements in favor of any person other than
the Company or a Subsidiary wholly owned, directly or indirectly, by the
Company with respect to the voting of or the right to participate in dividends
or other earnings on any capital stock of any Subsidiary of the Company.
(c) There are no outstanding contractual obligations of the Company or any
Subsidiary of the Company to repurchase, redeem or otherwise acquire any
shares of any series of Company Common Stock or any capital stock of any
Subsidiary of the Company or to provide funds to, or make any investment (in
the form of a loan, capital contribution or otherwise) in, any Subsidiary of
the Company or any other person.
5.03 Authority Relative to this Agreement; Restated Charter. The Company has
full corporate power and authority to enter into this Agreement and, subject
only to obtaining (i) with respect to the adoption of this Agreement, and the
issuance of shares of Company Series B Common Stock to Parent and Cash Sub
pursuant to Section 2.03, the affirmative vote of a majority of the holders of
record of the Existing Series A Common Stock and Existing Series B Common
Stock, voting together as one class, and (ii) with respect to the approval of
the Restated Charter (and assuming the conversion by ATI and TIP of all shares
of Existing Series C Common Stock held by them into shares of Existing Series
A Common Stock pursuant to the Voting Agreements), (A) the affirmative vote of
two-thirds of the holders of record of the Existing Series A Common Stock and
Existing Series B Common Stock, voting together as one class, (B) the
affirmative vote of two-thirds of the holders of record of the Existing Series
A Common Stock outstanding, voting as one class, and (C) the affirmative vote
of two-thirds of the holders of record of the Existing Series B Common Stock
outstanding, voting as one class (collectively, the "Company Stockholder
Approval"), to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The transactions contemplated by the Voting
Agreements have been duly and validly approved by the Board of Directors of
the Company prior to the execution and delivery of such
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Voting Agreements in accordance with Section 203 of the DGCL. The execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby including but not
limited to the adoption of the Restated Charter (including the amendments to
the Company's Certificate of Incorporation reflected therein) have been duly
and validly approved by the Board of Directors of the Company, the Board of
Directors of the Company has declared the advisability of the Restated Charter
and recommended adoption of the Restated Charter and this Agreement by the
stockholders of the Company and directed that the Restated Charter and this
Agreement be submitted to the stockholders of the Company for their
consideration, and no other corporate proceedings on the part of the Company
or its stockholders are necessary to authorize the execution, delivery and
performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby, other than obtaining the
Company Stockholder Approval. This Agreement has been duly and validly
executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
5.04 Non-Contravention; Approvals and Consents.
(a) The execution and delivery of this Agreement by the Company do not, and
the performance by the Company of its obligations hereunder and the
consummation of the transactions contemplated hereby will not, conflict with,
result in a violation or breach of, constitute (with or without notice or
lapse of time or both) a default under, result in or give to any person any
right of payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien upon any
of the assets or properties of the Company or any of its Subsidiaries under,
any of the terms, conditions or provisions of (i) the certificates or articles
of incorporation or bylaws (or other comparable charter documents) of the
Company or any of its Subsidiaries, or (ii) subject to the taking of the
actions and obtaining the approvals described in paragraph (b) of this
Section, (x) any statute, law, rule, regulation or ordinance (together,
"Laws"), or any judgment, decree, order, writ, permit or license (together,
"Orders"), of any court, tribunal, arbitrator, authority, agency, commission,
official or other instrumentality of the United States or any domestic, state,
county, city or other political subdivision (a "Governmental or Regulatory
Authority"), applicable to the Company or any of its Subsidiaries or any of
their respective assets or properties, or (y) any note, bond, mortgage,
security agreement, indenture, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind
(together, "Contracts") to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any of their
respective assets or properties is bound, excluding from the foregoing clauses
(x) and (y) conflicts, violations, breaches, defaults, reimbursements,
terminations, cancellations, modifications, accelerations and creations and
impositions of Liens which, individually or in the aggregate, could not be
reasonably expected to have a Company Material Adverse Effect or adversely
affect in any material respect the ability of the Company to consummate the
transactions contemplated by this Agreement.
(b) Except (i) for the filing of a premerger notification report by the
Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"), (ii) for
the filing of the Proxy Statement/Prospectus (as defined in Section 8.04) with
the Securities and Exchange Commission (the "SEC") pursuant to the Securities
Act of 1933, as amended, and the rules and regulations thereunder (the
"Securities Act") and the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (the "Exchange Act"), and filings on
Schedules 13G or 13D by certain affiliates of the Company pursuant to the
Exchange Act, and filings required to be made with the National Association of
Securities Dealers, Inc., (iii) for the filing of the Restated Charter, the
Certificate of Merger and other appropriate merger documents required by the
DGCL with the Secretary of State and appropriate documents with the relevant
authorities of other states in which the Constituent Corporations are
qualified to do business, and (iv) filings with, and approvals or orders of
the FCC as may be required under the Communications Act of 1934, as amended
(the "Communications Act") and the FCC's rules and regulations ("FCC
Regulations") in connection with the execution and delivery of this Agreement
and the consummation of the transactions
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contemplated hereby (collectively, "FCC Approval"), no consent, approval or
action of, filing with or notice to any Governmental or Regulatory Authority
is necessary or required for the execution and delivery of this Agreement by
the Company, the performance by the Company of its obligations hereunder or
the consummation of the transactions contemplated hereby, other than such
consents, approvals, actions, filings and notices which the failure to make or
obtain, as the case may be, individually or in the aggregate, could not be
reasonably expected to have a Company Material Adverse Effect or adversely
affect in any material respect the ability of the Company to consummate the
transactions contemplated by this Agreement.
5.05 SEC Reports and Financial Statements.
(a) The Company has filed all forms, reports, schedules, registration
statements, and other documents required to be filed by it with the SEC since
the date of the Company's formation (as such documents have since the time of
their filing been amended or supplemented, the "Company SEC Reports"). As of
their respective dates, the Company SEC Reports (i) complied as to form in all
material respects with the requirements of the Securities Act, or the Exchange
Act, as the case may be, and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company has
delivered to Parent (and Section 5.05 of the Company Disclosure Letter
includes) true, correct and complete copies of the unaudited consolidated
balance sheet of the Company as of December 31, 1996 and the related unaudited
statements of operations, stockholder's equity and cash flows for the year
then ended (the "Unaudited 1996 Financial Statements"). The Unaudited 1996
Financial Statements and the audited consolidated financial statements and
audited interim consolidated financial statements (including, in each case,
the notes, if any, thereto) included in the Company SEC Reports (together with
the Unaudited 1996 Financial Statements, the "Company Financial Statements")
(A) complied as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, (B) were prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Forms 10-Q and 8-K of the SEC) and (C)
fairly present in all material respects (subject, in the case of the unaudited
interim financial statements, to normal, recurring year-end audit adjustments
which are not expected to be, individually or in the aggregate, materially
adverse to the Company and its Subsidiaries taken as a whole) the consolidated
financial position of the Company and its consolidated subsidiaries as at the
respective dates thereof and the consolidated results of their operations and
cash flows for the respective periods then ended. Each Subsidiary of the
Company is treated as a consolidated subsidiary of the Company in the Company
Financial Statements for all periods covered thereby.
(b) The Company has delivered to Parent (and Section 5.05 of the Company
Disclosure Letter includes) true, correct and complete copies of the unaudited
pro forma consolidated balance sheets of the Company as of December 31, 1995
and December 31, 1996 and the related unaudited pro forma statements of
operations, stockholder's equity and cash flows for each of the years then
ended, giving effect to the Gannett Exchange Transactions (the "Pro Forma
Financial Statements"). The Pro Forma Financial Statements comply as to form
in all material respects with the published rules and regulations of the SEC
with respect thereto, were prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated
therein or in the notes thereto and except as permitted by Form 8-K of the
SEC) and fairly present in all material respects the pro forma consolidated
financial position of the Company and its consolidated subsidiaries as at the
dates thereof and the pro forma consolidated results of their operations and
cash flows for the periods then ended.
5.06 Absence of Certain Changes or Events. Since December 31, 1996 there has
not been any change, event or development having, or that could be reasonably
expected to have, individually or in the aggregate, a Company Material Adverse
Effect. Between December 31, 1996 and the date hereof (i) the Company and its
Subsidiaries have conducted their respective businesses only in the ordinary
course consistent with past practice and (ii) neither the Company nor any of
its Subsidiaries has taken any action which, if taken after the date hereof,
would constitute a breach of any provision of clause (ii) of Section 7.01(b).
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5.07 Absence of Undisclosed Liabilities. Except for matters reflected or
reserved against in the consolidated balance sheet of the Company as of
December 31, 1996 (or the footnotes thereto) included in the Company Financial
Statements or in the Pro Forma Financial Statements, neither the Company nor
any of its Subsidiaries had at such date, or has incurred since that date, any
liabilities or obligations (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due) of any nature that would be
required by GAAP to be reflected on a consolidated balance sheet of the
Company and its Subsidiaries (including the notes thereto), except liabilities
or obligations (i) which were incurred in the ordinary course of business
consistent with past practice since such date, and (ii) which have not had,
and could not be reasonably expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
5.08 Legal Proceedings. There are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of the Company and its Subsidiaries,
threatened against, relating to or affecting, nor to the knowledge of the
Company and its Subsidiaries are there any Governmental or Regulatory
Authority investigations or audits pending or threatened against, relating to
or affecting, the Company or any of its Subsidiaries or any of their
respective assets and properties which, if determined adversely to the Company
or any of its Subsidiaries, individually or in the aggregate, could be
reasonably expected to have a Company Material Adverse Effect or adversely
affect in any material respect the ability of the Company to consummate the
transactions contemplated by this Agreement. Neither the Company nor any of
its Subsidiaries is subject to any Order of any Governmental or Regulatory
Authority which, individually or in the aggregate, is having or could be
reasonably expected to have a Company Material Adverse Effect or adversely
affect in any material respect the ability of the Company to consummate the
transactions contemplated by this Agreement.
5.09 Compliance with Laws and Orders.
(a) The Company and its Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals (other than FCC Licenses) of all Governmental
and Regulatory Authorities necessary for the lawful conduct of their
respective businesses (the "Company Permits"), except for failures to hold
such permits, licenses, variances, exemptions, orders and approvals which,
individually or in the aggregate, are not having and could not be reasonably
expected to have a Company Material Adverse Effect. The Company and its
Subsidiaries are in compliance with the terms of the Company Permits, except
failures so to comply which, individually or in the aggregate, are not having
and could not be reasonably expected to have a Company Material Adverse
Effect. The Company and its Subsidiaries are not in violation of any Law or
Order of any Governmental or Regulatory Authority, except for violations
which, individually or in the aggregate, are not having and could not be
reasonably expected to have a Company Material Adverse Effect.
(b) Except as does not materially jeopardize the operation by the Company or
applicable Subsidiary of the Company of any of the Company Stations to which
FCC Licenses apply: (i) the Company and those of its Subsidiaries that are
required to hold FCC Licenses, or that control FCC Licenses, to the knowledge
of the Company, are qualified to hold such FCC Licenses or to control such FCC
Licenses, as the case may be; (ii) the Company and those of its Subsidiaries
that are required to hold FCC Licenses hold such FCC Licenses; (iii) except as
provided in Section 8.06 with respect to the divestiture of certain assets
described therein, the Company is not aware of any facts or circumstances
relating to the Company or any of its Subsidiaries that would prevent the
granting of FCC Approval; (iv) each Company Station is in material compliance
with all FCC Licenses held by it; and (v) there is not pending or, to the
knowledge of the Company, threatened any application, petition, objection or
other pleading with the FCC or other Governmental or Regulatory Authority
which challenges the validity of, or any rights of the holder under, any FCC
License held by the Company or one of its Subsidiaries, except for rule making
or similar proceedings of general applicability to persons engaged in
substantially the same business conducted by the Company Stations.
5.10 Taxes.
(a) Each of the Company and its Subsidiaries has filed all material tax
returns and reports required to be filed by it, or requests for extensions to
file such returns or reports have been timely filed and granted and have
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not expired, and all such tax returns and reports are complete and accurate in
all respects, except to the extent that such failures to file, or to have
extensions granted that remain in effect, as applicable, individually or in
the aggregate, would not have a Company Material Adverse Effect. The Company
and each of its Subsidiaries has paid (or the Company has paid on its behalf)
all Taxes shown as due on such tax returns and reports. The most recent
financial statements contained in the Company SEC Reports reflect an adequate
reserve for all taxes payable by the Company and its Subsidiaries for all
taxable periods and portions thereof accrued through the date of such
financial statements, and no deficiencies for any taxes have been proposed,
asserted or assessed against the Company or any of its Subsidiaries that are
not adequately reserved for, except for inadequately reserved taxes and
inadequately reserved deficiencies that would not, individually or in the
aggregate, have a Company Material Adverse Effect. No requests for waivers of
the time to assess any taxes against the Company or any of its Subsidiaries
have been granted or are pending, except for requests with respect to such
taxes that have been adequately reserved for in the most recent financial
statements contained in the Company SEC Reports, or, to the extent not
adequately reserved, the assessment of which would not, individually or in the
aggregate, have a Company Material Adverse Effect. Section 5.10(a) of the
Company Disclosure Letter provides a list of all elections with respect to
Taxes which have been made by the Company and any of its Subsidiaries. Section
5.10(a) of the Company Disclosure Letter also provides a description of any
tax audit, inquiry or controversy potentially involving Taxes in excess of
$50,000 of the Company or any Subsidiary.
(b) As a result of compliance with this Agreement and the matters referred
to herein, neither the Company nor any of its Subsidiaries will be obligated
to make a payment to an individual that would be a "parachute payment" to a
"disqualified individual" as those terms are defined in Section 280G of the
Code, without regard to whether such payment is to be performed in the future.
5.11 Employee Benefit Plans; ERISA.
(a) None of the Company or any Company ERISA Affiliate sponsors, maintains,
has any obligation to contribute to, has liability under or is otherwise a
party to, any Company Employee Benefit Plan.
(b) To the knowledge of the Company, no prohibited transaction within the
meaning of Section 406 or 407 of ERISA, or Section 4975 of the Code with
respect to any Company Employee Benefit Plan has occurred which, individually
or in the aggregate, is having or could be reasonably expected to have a
Company Material Adverse Effect;
(c) There is no outstanding liability (except for premiums due) under Title
IV of ERISA with respect to any Company Employee Benefit Plan which,
individually or in the aggregate, is having or could be reasonably expected to
have a Company Material Adverse Effect; and, without limiting the foregoing,
full payment has been made of all amounts which the Company was required to
have paid as a contribution to each Company Employee Benefit Plan as of the
last day of the most recent fiscal year of each of the Company Employee
Benefit Plans ended prior to the date of this Agreement, respectively, and no
Company Employee Benefit Plan has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recent fiscal year of
such Company Employee Benefit Plan ended prior to the date of this Agreement
which, individually or in the aggregate, is having or could be reasonably
expected to have a Company Material Adverse Effect;
(d) None of the Company or any Company ERISA Affiliate has at any time (i)
had any obligation to contribute to any "multiemployer plan" (as defined in
Section 3(37) of ERISA), or (ii) withdrawn in any complete or partial
withdrawal from any "multiemployer plan" (as defined in Section 3(37) of
ERISA), with respect to which there exists any unsatisfied obligations;
(e) The value of accrued benefits under each of the Company Employee Benefit
Plans which is subject to Title IV of ERISA, based upon the actuarial
assumptions used for funding purposes in the most recent actuarial report
prepared by such Company Employee Benefit Plan's actuary with respect to each
such Company Employee Benefit Plan, did not, as of its latest valuation date,
exceed the then current value of the assets of such Company Employee Benefit
Plan;
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(f) Each of the Company Employee Benefit Plans which is intended to be
"qualified" within the meaning of Section 401(a) of the Code has been
determined by the IRS to be so qualified and such determination has not been
modified, revoked or limited;
(g) Each of the Company Employee Benefit Plans is, and its administration is
and has been in all material respects in compliance with all applicable laws
and orders and prohibited transaction exemptions, including, without
limitation, the requirements of ERISA;
(h) None of the Company or any Company ERISA Affiliate maintains or is
obligated to provide benefits under any life, medical or health plan which
provides benefits to retirees or other terminated employees other than benefit
continuation rights under the Consolidated Omnibus Reconciliation Act of 1985,
as amended; and there has been no violation of Section 4980B of the Code or
Sections 601 through 608 of ERISA with respect to any Company Employee Benefit
Plan that individually or in the aggregate, is having or could be reasonably
expected to have a Company Material Adverse Effect; and
(i) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby constitutes or will
constitute an event in respect of which a change in, or acceleration of,
benefits under any Company Employee Benefit Plan will or may occur.
5.12 Labor Matters. There is no material labor strike, slowdown, work
stoppage, lockout or other labor dispute in effect, or to the knowledge of the
Company, threatened, against or otherwise affecting the Company or any of its
Subsidiaries. To the knowledge of the Company, there are no union
organizational efforts presently being made involving any of the unorganized
employees of the Company or any of its Subsidiaries which in any such case or
all such cases together would have a Company Material Adverse Effect.
5.13 Environmental Matters. Except as for such matters that individually or
in the aggregate would not have a Company Material Adverse Effect, to the
knowledge of the Company: (i) the Company and its Subsidiaries have complied
with all applicable Environmental Laws; (ii) the properties currently owned or
operated by the Company and its Subsidiaries (including soils, groundwater,
surface water, buildings or other structures) are not contaminated with any
Hazardous Substances; (iii) the properties formerly owned or operated by the
Company or its Subsidiaries were not contaminated with Hazardous Substances
during the period of ownership or operation by the Company or any of its
Subsidiaries; (iv) neither the Company nor any of its Subsidiaries is subject
to liability for any Hazardous Substance disposal or contamination on any
third party property; (v) neither the Company nor any of its Subsidiaries has
received any written notice, demand, letter, claim or request for information
alleging that the Company or any of its Subsidiaries may be in violation of or
liable under any Environmental Law; (vi) neither the Company nor any of its
Subsidiaries is subject to any orders, decrees, injunctions or other
arrangements with any Governmental or Regulatory Authority or is subject to
any indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances; (vii) none of
the properties of the Company or its Subsidiaries contains any underground
storage tanks, asbestos-containing material, lead-based products, or
polychlorinated biphenyls; and (viii) neither the Company nor any of its
Subsidiaries has engaged in any activities involving the generation, use,
handling or disposal of any Hazardous Substances.
5.14 Intangible Property. The Company and its Subsidiaries own or have
rights to use all material items of Intangible Property used by the Company or
any such Subsidiary. To the knowledge of the Company, such use does not
conflict with any rights of others with respect thereto, except for such
conflicts that have not had and would not have a Company Material Adverse
Effect.
5.15 Title; Condition. The Company and its Subsidiaries have good title to
all assets, properties and rights owned, used or held for use by them in the
conduct of their respective businesses (except for leasehold and licensed
interests) free and clear of any Liens, except for Permitted Liens. All
material items of equipment, machinery, vehicles, furniture, fixtures,
transmitters, transmitting towers, antennae and other tangible personal
property of every kind and description included in such assets and properties
are in good operating condition, normal wear and tear excepted.
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5.16 Opinion of Financial Advisor. The Company has received the opinion of
Merrill Lynch & Co., dated the date hereof, to the effect that, as of the date
hereof, the consideration to be received in the Merger by the stockholders of
the Company is fair from a financial point of view to the stockholders of the
Company, and a true and complete copy of such opinion has been delivered to
Parent prior to the execution of this Agreement.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the disclosure letter delivered to the Company by
Parent at or prior to execution and delivery of this Agreement (the "Parent
Disclosure Letter"), Parent represents and warrants to the Company as follows:
6.01 Organization and Qualification. Each of Parent, Merger Sub and Cash Sub
is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation and Parent has full corporate
power and authority to conduct the Parent Station Business as and to the
extent now conducted and to own, use and lease the Parent Station Assets,
except for such failures to be so organized, existing and in good standing or
to have such power and authority which, individually or in the aggregate, are
not having and could not be reasonably expected to have a Parent Material
Adverse Effect (as defined below). Merger Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement and has
engaged in no other business activities and has conducted its operations only
as contemplated hereby. Each of Parent and Merger Sub is duly qualified,
licensed or admitted to do business and in good standing in each jurisdiction
in which the ownership, use or leasing of the Parent Station Assets, or the
conduct or nature of the Parent Station Business, makes such qualification,
licensing or admission necessary, except for such failures to be so qualified,
licensed or admitted and in good standing which, individually or in the
aggregate, (i) are not having and could not be reasonably expected to have a
Parent Material Adverse Effect, or (ii) could not be reasonably expected to
adversely affect in any material respect the ability of Parent or Merger Sub
to perform its obligations hereunder. For purposes of this Agreement, "Parent
Material Adverse Effect" means a material adverse effect on the business,
results of operations or financial condition of the Parent Station Business,
taken as a whole.
6.02 Capital Stock. At the Closing, all of the outstanding shares of capital
stock of Merger Sub will be duly authorized, validly issued, fully paid and
nonassessable and owned, beneficially and of record by Parent, free and clear
of any Liens other than Liens securing the Bridge Debt or the Private
Placement Debt. At the Closing, the authorized capital stock of Merger Sub
will consist solely of 1,000 shares of Merger Sub Common Stock, of which one
share will have been issued to Parent for cash consideration equal to $26.50
per share. At the Closing, except as contemplated by this Agreement, there
will be no (i) outstanding Options obligating Parent or Merger Sub to issue or
sell any shares of capital stock of Merger Sub and to grant, extend or enter
into any such Option or (ii) voting trusts, proxies or other commitments,
understandings, restrictions or arrangements in favor of any person with
respect to the voting of or the right to participate in dividends or other
earnings on any capital stock of Merger Sub.
6.03 Authority Relative to this Agreement. Each of Parent, Merger Sub and
Cash Sub has full corporate power and authority to enter into this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by each of Parent, Merger Sub and Cash Sub and the consummation by each of
Parent, Merger Sub and Cash Sub of the transactions contemplated hereby have
been duly and validly approved by its Board of Directors and stockholder(s)
and no other corporate proceedings on the part of Parent, Merger Sub, Cash Sub
or their stockholders are necessary to authorize the execution, delivery and
performance of this Agreement by Parent, Merger Sub and Cash Sub and the
consummation by Parent, Merger Sub and Cash Sub of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Parent, Merger Sub and Cash Sub and constitutes a legal, valid
and binding obligation of each of Parent, Merger Sub and Cash Sub enforceable
against Parent, Merger Sub and Cash Sub in accordance with its terms, except
as enforceability may
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be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
6.04 Non-Contravention; Approvals and Consents.
(a) The execution and delivery of this Agreement by Parent, Merger Sub and
Cash Sub do not, and the performance by Parent, Merger Sub and Cash Sub of
their obligations hereunder and the consummation of the transactions
contemplated hereby will not, conflict with, result in a violation or breach
of, constitute (with or without notice or lapse of time or both) a default
under, result in or give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien upon any of the Parent Station Assets
under, any of the terms, conditions or provisions of (i) the certificates or
articles of incorporation or bylaws (or other comparable charter documents) of
Parent, Merger Sub or Cash Sub, or (ii) subject to the taking of the actions
and obtaining the approvals described in paragraph (b) of this Section, (x)
any Law or Order of any Governmental or Regulatory Authority applicable to
Parent, Merger Sub, Cash Sub or any Parent Station Assets, or (y) any Contract
to which Parent, Merger Sub or Cash Sub is a party or by which Parent, Merger
Sub, Cash Sub or any Parent Station Assets are bound, excluding from the
foregoing clauses (x) and (y) conflicts, violations, breaches, defaults,
reimbursements, terminations, cancellations, modifications, accelerations and
creations and impositions of Liens which, individually or in the aggregate,
could not be reasonably expected to have a Parent Material Adverse Effect or
adversely affect in any material respect the ability of Parent, Merger Sub and
Cash Sub to consummate the transactions contemplated by this Agreement.
(b) Except (i) for the filing of a premerger notification report by Parent
under the HSR Act, (ii) for the filing of the Certificate of Merger and other
appropriate merger documents pursuant to the DGCL with the Secretary of State
and appropriate documents with the relevant authorities of other states in
which the Constituent Corporations are qualified to do business, (iii) for the
FCC Approval, and (iv) such reports under Section 13(d) of the Exchange Act as
may be required in connection with this Agreement and the Voting Agreements
and the transactions contemplated hereby and thereby, no consent, approval or
action of, filing with or notice to any Governmental or Regulatory Authority
for the execution and delivery of this Agreement by Parent, Merger Sub and
Cash Sub, the performance by Parent, Merger Sub and Cash Sub of their
respective obligations hereunder or the consummation of the transactions
contemplated hereby, other than such consents, approvals, actions, filings and
notices which the failure to make or obtain, as the case may be, individually
or in the aggregate, could not be reasonably expected to have a Parent
Material Adverse Effect or adversely affect in any material respect the
ability of Parent, Merger Sub and Cash Sub to consummate the transactions
contemplated by this Agreement.
6.05 Financial Statements. Parent has delivered to the Company (and Section
6.05 of the Parent Disclosure Letter includes) true, correct and complete
copies of the unaudited balance sheet of the Parent Station Business as of
December 31, 1996 and the related unaudited statements of income for each of
the fiscal years ended December 31, 1994, December 31, 1995 and December 31,
1996 (such financial statements are hereinafter collectively referred to as
the "Parent Station Financial Statements"). The Parent Station Financial
Statements for the fiscal years ended December 31, 1994 and December 31, 1995
set forth information which was contained in Parent's audited consolidated
financial statements for such fiscal years. Except for the absence of (x)
information that would ordinarily be contained in the footnotes to audited
financial statements of the Parent Station Business and (y) information and/or
adjustments that would ordinarily be contained in audited financial statements
of the Parent Station Business but would not be reflected or adjusted in the
consolidating statements in which the Parent Station Business is not a
significant business in the consolidated group, the Parent Station Financial
Statements (A) were prepared from the books and records of Parent in
accordance with GAAP applied on a consistent basis during the periods involved
and (B) fairly present in all material respects the financial condition and
results of operations of the Parent Station Business, as of the respective
dates thereof and for the respective periods covered thereby.
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6.06 Absence of Certain Changes or Events. Since December 31, 1996, there
has not been any adverse change, or any event or development having, or that
could be reasonably expected to have, individually or in the aggregate, a
Parent Material Adverse Effect. Between December 31, 1996 and the date hereof
Parent has conducted the Parent Station Business only in the ordinary course
consistent with past practice and (ii) neither Parent nor any of its
Subsidiaries has taken any action which, if taken after the date hereof, would
constitute a breach of any provision of clause (ii) of Section 7.02(b).
6.07 Absence of Undisclosed Liabilities. Except for matters reflected or
reserved against in the balance sheet for the period ended December 31, 1996
included in the Parent Station Financial Statements (or the footnotes
thereto), the Parent Station Business did not have at such date and has not
incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent, fixed or otherwise, or whether due or to become due) of
any nature that are of a type that would be required by GAAP to be reflected
on a balance sheet of the Parent Station Business, except liabilities or
obligations (i) which were incurred in the ordinary course of business
consistent with past practice, and (ii) which have not had, and could not be
reasonably expected to have, individually or in the aggregate, a Parent
Material Adverse Effect.
6.08 Legal Proceedings. There are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of Parent, threatened against,
relating to or affecting, nor to the knowledge of Parent are there any
Governmental or Regulatory Authority investigations or audits pending or
threatened against, relating to or affecting, Parent, any of Parent's
Subsidiaries or any Parent Station Assets which, if determined adversely to
Parent or such Subsidiaries, individually or in the aggregate, could be
reasonably expected to have a Parent Material Adverse Effect or adversely
affect in any material respect the ability of Parent and Merger Sub to
consummate the transactions contemplated by this Agreement. Neither Parent nor
any of its Subsidiaries is subject to any Order of any Governmental or
Regulatory Authority which relates to the Parent Station Business and which,
individually or in the aggregate, could be reasonably expected to have a
Parent Material Adverse Effect or adversely affect in any material respect the
ability of Parent, Merger Sub and Cash Sub to consummate the transactions
contemplated by this Agreement.
6.09 Compliance with Laws and Orders.
(a) Parent and its Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals (other than FCC Licenses) of all Governmental
and Regulatory Authorities necessary for the lawful conduct of the Parent
Station Business (the "Parent Permits"), except for failures to hold such
permits, licenses, variances, exemptions, orders and approvals which,
individually or in the aggregate, are not having and could not be reasonably
expected to have a Parent Material Adverse Effect. Parent and its Subsidiaries
are in compliance with the terms of the Parent Permits, except failures so to
comply which, individually or in the aggregate, are not having and could not
be reasonably expected to have a Parent Material Adverse Effect. Parent and
its Subsidiaries are not in violation of any Law or Order of any Governmental
or Regulatory Authority which relates to the Parent Station Business, except
for violations which, individually or in the aggregate, are not having and
could not be reasonably expected to have a Parent Material Adverse Effect.
(b) Except as does not materially jeopardize the operation by Parent of any
of the Parent Stations to which FCC Licenses apply: (i) to the knowledge of
Parent, Parent is qualified to hold such FCC Licenses or to control such FCC
Licenses, as the case may be; (ii) Parent holds such FCC Licenses; (iii)
except as provided in Section 8.06 with respect to the divestiture of certain
assets described therein, Parent is not aware of any facts or circumstances
relating to Parent that would prevent the granting of FCC Approval; (iv) each
Parent Station is in material compliance with all FCC Licenses held by it; and
(v) there is not pending or, to the knowledge of Parent, threatened any
application, petition, objection or other pleading with the FCC or other
Governmental or Regulatory Authority which challenges the validity of, or any
rights of the holder under, any FCC License held by the Parent Stations,
except for rule making or similar proceedings of general applicability to
persons engaged in substantially the same business conducted by the Parent
Stations.
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6.10 Material Contracts. Section 6.10 of the Parent Disclosure Letter sets
forth a true, correct and complete list, as of the date of this Agreement, of
each Contract to which Parent or one of its Subsidiaries is a party and which
relate solely to the conduct of the Parent Station Business (other than
Contracts which (i) are not included in the Parent Station Assumed Liabilities
or (ii) are not included in the Parent Station Assets), but only to the extent
such contracts and agreements would be required to be disclosed in an Annual
Report on Form 10-K of the Parent Station Business if the Parent Station
Business was subject to the rules and regulations of the Exchange Act
(collectively, the "Material Parent Station Contracts"). Each of the Material
Parent Station Contracts is a binding agreement, enforceable in accordance
with its terms, of Parent or one of its Subsidiaries and, to the knowledge of
Parent, of each other party thereto; subject to the qualifications that
enforcement of the rights and remedies created thereby is subject to: (A)
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and (B) general
principles of equity (regardless of whether such enforcement is considered in
a proceeding in equity or at law), and none of Parent or any of its
Subsidiaries is in default in any material respect under any of such Material
Parent Station Contracts, nor does any condition exist that with notice or
lapse of time or both would constitute such a default. To the knowledge of
Parent, no other party to any such Material Parent Station Contract is in
default in any material respect thereunder, nor does any condition exist that
with notice or lapse of time or both would constitute such a default.
6.11 Employee Benefit Plans.
(a) None of Parent or any Parent ERISA Affiliate sponsors, maintains, has
any obligation to contribute to, has liability under or is otherwise a party
to, any Parent Station Employee Benefit Plan, provided, however, that any
employment contract that is not a Parent Station Assumed Liability shall not
be required to be set forth on the Parent Disclosure Letter.
(b) To the knowledge of Parent, no prohibited transaction within the meaning
of Section 406 or 407 of ERISA, or Section 4975 of the Code with respect to
any Parent Station Employee Benefit Plan has occurred which, individually or
in the aggregate, is having or could be reasonably expected to have a Parent
Material Adverse Effect;
(c) There is no outstanding liability (except for premiums due) under Title
IV of ERISA with respect to any Parent Station Employee Benefit Plan which,
individually or in the aggregate, is having or could be reasonably expected to
have a Parent Material Adverse Effect; and, without limiting the foregoing,
full payment has been made of all amounts which Parent was required to have
paid as a contribution to each Parent Station Employee Benefit Plan as of the
last day of the most recent fiscal year of each of the Parent Station Employee
Benefit Plans ended prior to the date of this Agreement, respectively, and no
Parent Station Employee Benefit Plan has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recent fiscal year of
such Parent Station Employee Benefit Plan ended prior to the date of this
Agreement which, individually or in the aggregate, is having or could be
reasonably expected to have a Parent Material Adverse Effect;
(d) With respect to employees of the Parent Station Business, none of Parent
or any Parent ERISA Affiliate has at any time (i) had any obligation to
contribute to any "multiemployer plan" (as defined in Section 3(37) of ERISA),
or (ii) withdrawn in any complete or partial withdrawal from any
"multiemployer plan" (as defined in Section 3(37) of ERISA), with respect to
which there exists any unsatisfied obligations;
(e) The value of accrued benefits under each of the Parent Station Employee
Benefit Plans which is subject to Title IV of ERISA, based upon the actuarial
assumptions used for funding purposes in the most recent actuarial report
prepared by such Parent Station Employee Benefit Plan's actuary with respect
to each such Parent Station Employee Benefit Plan, did not, as of its latest
valuation date, exceed the then current value of the assets of such Parent
Station Employee Benefit Plan;
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(f) Each of the Parent Station Employee Benefit Plans which is intended to
be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the IRS to be so qualified and such determination has not been
modified, revoked or limited;
(g) Each of the Parent Station Employee Benefit Plans is, and its
administration is and has been in all material respects in compliance with all
applicable laws and orders and prohibited transaction exemptions, including,
without limitation, the requirements of ERISA;
(h) With respect to employees and former employees of the Parent Station
Business, none of Parent or any Parent ERISA Affiliate maintains or is
obligated to provide benefits under any life, medical or health plan which
provides benefits to retirees or other terminated employees other than benefit
continuation rights under the Consolidated Omnibus Reconciliation Act of 1985,
as amended; and there has been no violation of Section 4980B of the Code or
Sections 601 through 608 of ERISA with respect to any Parent Station Employee
Benefit Plan that individually or in the aggregate, is having or could be
reasonably expected to have a Parent Material Adverse Effect; and
(i) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby constitutes or will
constitute an event in respect of which a change in, or acceleration of,
benefits under any Parent Station Employee Benefit Plan will or may occur.
6.12 Labor Matters. There is no material labor strike, slowdown, work
stoppage, lockout or other labor dispute in effect, or to the knowledge of
Parent threatened against or otherwise affecting the Parent Station Business.
To the knowledge of Parent, there are no union organizational efforts
presently being made involving any of the unorganized Parent Station Employees
which in any such case or all such cases together would have a Parent Material
Adverse Effect.
6.13 Title to Parent Station Assets; Entire Business. Pursuant to the
Contribution, Parent will convey to the Company (or a Broadcast Subsidiary)
good title to all of the Parent Station Assets (except for leasehold and
licensed interests and except as contemplated by Section 8.15), free and clear
of any Liens, except for assets and properties disposed of in the ordinary
course of business without violation of this Agreement and Permitted Liens.
Except as contemplated by Section 8.15, the Parent Station Assets constitute
all assets, properties and rights necessary to operate the Parent Station
Business in substantially the manner in which it is currently being operated,
except for the Excluded Cash, the Florida Station Assets, the Missouri LMA,
assets and properties disposed of in the ordinary course of business without
violation of this Agreement and except for the services to be provided by
Parent pursuant to the services agreement referred to in Section 9.03(d).
6.14 Condition of Parent Station Assets. All material items of Parent
Station Tangible Property included in the Parent Station Assets are in good
operating condition, normal wear and tear excepted.
6.15 Environmental Matters. Except for such matters that individually or in
the aggregate would not have a Parent Material Adverse Effect, and excluding
all matters which are not related to the Parent Station Business or the Parent
Station Assets, to the knowledge of Parent: (i) Parent and its Subsidiaries
have complied with all applicable Environmental Laws; (ii) the properties
currently owned or operated by Parent and its Subsidiaries (including soils,
groundwater, surface water, buildings or other structures) are not
contaminated with any Hazardous Substances; (iii) the properties formerly
owned or operated by Parent or its Subsidiaries were not contaminated with
Hazardous Substances during the period of ownership or operation by Parent or
any of its Subsidiaries; (iv) neither Parent nor any of its Subsidiaries is
subject to liability for any Hazardous Substance disposal or contamination on
any third party property; (v) neither Parent nor any of its Subsidiaries has
received any written notice, demand, letter, claim or request for information
alleging that Parent or any of its Subsidiaries may be in violation of or
liable under any Environmental Law; (vi) neither Parent nor any of its
Subsidiaries is subject to any orders, decrees, injunctions or other
arrangements with any Governmental or Regulatory Authority or is subject to
any indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances; (vii) none of
the properties of Parent or its Subsidiaries
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contains any underground storage tanks, asbestos-containing material, lead-
based products, or polychlorinated biphenyls; and (viii) neither Parent nor
any of its Subsidiaries has engaged in any activities involving the
generation, use, handling or disposal of any Hazardous Substances.
6.16 Intangible Property. Parent and its Subsidiaries own or have rights to
use all material items of Intangible Property used by Parent or any such
Subsidiary solely in the conduct of the Parent Station Business. To the
knowledge of Parent, such use does not conflict with any rights of others with
respect thereto, except for such conflicts that have not had and would not
have a Parent Material Adverse Effect.
ARTICLE VII.
COVENANTS RELATING TO CONDUCT OF BUSINESS
7.01 Conduct of Business by Company. At all times from and after the date
hereof until the Effective Time, the Company covenants and agrees as to itself
and its Subsidiaries that (except as expressly contemplated or permitted by
this Agreement or to the extent that Parent shall otherwise consent in
writing, which consent shall not be unreasonably withheld):
(a) The Company and its Subsidiaries shall conduct their respective
businesses only in, and the Company and such Subsidiaries shall not take
any action except in, the ordinary course consistent with past practice.
(b) Without limiting the generality of paragraph (a) of this Section, (i)
the Company and its Subsidiaries shall use all commercially reasonable
efforts to preserve intact in all material respects their present business
organizations and reputation, to keep available the services of their key
officers and employees, to maintain their assets and properties in good
working order and condition, ordinary wear and tear excepted, to maintain
insurance on their tangible assets and businesses in such amounts and
against such risks and losses as are currently in effect, to preserve their
relationships with customers and suppliers and others having significant
business dealings with them and to comply in all material respects with all
Laws and Orders of all Governmental or Regulatory Authorities applicable to
them, and (ii) neither the Company nor any of its Subsidiaries shall:
(1) amend or propose to amend its certificate or articles of
incorporation or bylaws (or other comparable corporate charter
documents), except as contemplated by the Restated Charter;
(2) (w) declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock, except for the
declaration and payment of dividends by a wholly-owned Subsidiary
solely to its parent corporation and except for the declaration and
payment of regular cash dividends on the Existing Preferred Stock which
are required to be declared and paid pursuant to the Company's
Certificate of Incorporation as in effect on the date of this
Agreement, (x) split, combine, reclassify or take similar action with
respect to any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, except for the issuance
by the Company of shares of Existing Series A Common Stock upon the
conversion of the Existing Series B Common Stock or Existing Series C
Common Stock pursuant to the Company's Certificate of Incorporation as
in effect on the date of this Agreement, (y) adopt a plan of complete
or partial liquidation or resolutions providing for or authorizing such
liquidation or a dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or (z) directly or indirectly
redeem, repurchase or otherwise acquire any shares of its capital stock
or any Option with respect thereto;
(3) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any Option with
respect thereto other than the issuance by a wholly-owned Subsidiary of
its capital stock to its parent corporation, or modify or amend any
right of any holder of outstanding shares of capital stock or Options
with respect thereto;
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(4) acquire (by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets
of, or by any other manner) any business or any corporation,
partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets other than
in the ordinary course of its business consistent with past practice
which in each case involve an amount not exceeding $1,000,000;
(5) other than dispositions in the ordinary course of its business
consistent with past practice of assets which are not, individually or
in the aggregate, material to the Company and its Subsidiaries taken as
a whole, sell, lease, grant any security interest in or otherwise
dispose of or encumber any of its assets or properties;
(6) except to the extent required by applicable law and except to the
extent necessary to cause the properties covered by the Gannett
Exchange Transactions to comply with the policies and practices of the
Company, (x) permit any material change in (A) any accounting or
financial reporting practice or policy or any material pricing,
marketing, purchasing, investment, inventory, credit, allowance or tax
practice or policy or (B) any method of calculating any bad debt,
contingency or other reserve for accounting, financial reporting or tax
purposes or (y) make any material tax election or settle or compromise
any material income tax liability with any Governmental or Regulatory
Authority;
(7) (x) incur any indebtedness for borrowed money or guarantee any
such indebtedness other than borrowings in an aggregate principal
amount (net of repayments) not exceeding $10,000,000 (and an additional
$8,000,000 to the extent necessary in respect of the Company's
obligation to develop a new facility for its KITV television station in
Honolulu, Hawaii) pursuant to the Company's existing revolving credit
facility, issue or sell any debt securities or warrants or other rights
to acquire any debt securities of the Company or any of its
Subsidiaries, or guarantee any debt securities of another person or
enter into any arrangement having the economic effect of any of the
foregoing, or (y) voluntarily purchase, cancel, prepay or otherwise
provide for a complete or partial discharge in advance of a scheduled
repayment date with respect to, or waive any right under, any
indebtedness for borrowed money other than repayments pursuant to the
Company's existing revolving credit facility;
(8) (x) enter into, adopt, amend in any material respect (except as
may be required by applicable law) or terminate any Company Employee
Benefit Plan or other agreement, arrangement, plan or policy between
the Company or one of its Subsidiaries and one or more of its
directors, officers or employees, (y) except for normal increases in
the ordinary course of business consistent with past practice that, in
the aggregate, do not result in a material increase in benefits or
compensation expense to the Company and its Subsidiaries taken as a
whole, increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by
any plan or arrangement in effect as of the date hereof, or (z)
establish, adopt, enter into or amend in any material respect or take
action to accelerate any rights or benefits under any collective
bargaining agreement or any stock option, employee benefit plan,
agreement or policy except as contemplated by this Agreement;
(9) enter into any contract or amend or modify any existing contract,
or engage in any new transaction with any affiliate of the Company or
any of its Subsidiaries;
(10) make any capital expenditures or commitments for additions to
plant, property or equipment constituting capital assets (other than
any capital expenditures pursuant to commitments made prior to the date
of this Agreement) in an aggregate amount exceeding $4,000,000;
(11) make any change in the lines of business in which it
participates or is engaged; or
(12) enter into any contract, agreement, commitment or arrangement to
do or engage in any of the foregoing.
7.02 Conduct of Parent Station Business by Parent. At all times from and
after the date hereof until the Effective Time, Parent covenants and agrees as
to itself and its Subsidiaries that (except as expressly
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contemplated or permitted by this Agreement or to the extent that the Company
shall otherwise consent in writing, which consent shall not be unreasonably
withheld):
(a) Parent shall conduct the Parent Station Business only in, and shall
not take any action with respect to the Parent Station Business except in,
the ordinary course consistent with past practice.
(b) Without limiting the generality of paragraph (a) of this Section, and
except as contemplated by Section 8.15, (i) Parent and its Subsidiaries
shall use all commercially reasonable efforts to preserve intact in all
material respects the Parent Station Business' present business
organizations and reputation, to keep available the services of the Parent
Station Business' key officers and employees, to maintain the Parent
Station Assets in good working order and condition, ordinary wear and tear
excepted, to maintain insurance on the Parent Station Business in such
amounts and against such risks and losses as are currently in effect, to
preserve the Parent Station Business' relationships with customers and
suppliers and others having significant business dealings with the Parent
Station Business and to comply in all material respects with all Laws and
Orders of all Governmental or Regulatory Authorities applicable to the
Parent Station Business and (ii) Parent (but only insofar as it relates to
Parent's conduct of the Parent Station Business) and Merger Sub shall not:
(1) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of capital stock of Merger Sub (except
as contemplated herein) or any Option with respect thereto or modify or
amend any right of any holder of outstanding shares of capital stock or
Options with respect thereto;
(2) cause the Parent Station Business to acquire (by merging or
consolidating with, or by purchasing a substantial equity interest in
or a substantial portion of the assets of, or by any other manner) any
business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to
acquire any assets other than in the ordinary course of the Parent
Station Business consistent with past practice which in each case
involve an amount not exceeding $1,000,000;
(3) other than dispositions in the ordinary course of its business
consistent with past practice of assets which are not, individually or
in the aggregate, material to the Parent Station Business, sell, lease,
grant any security interest in or otherwise dispose of or encumber any
of the Parent Station Assets, except in connection with the Bridge
Debt, the Private Placement Debt or the Refinancing (as hereinafter
defined);
(4) except to the extent required by applicable law, (x) permit any
material change in (A) any accounting or financial reporting practice
or policy or any material pricing, marketing, purchasing, investment,
inventory, credit, allowance or tax practice or policy (excluding from
the foregoing the tax policies of Parent) or (B) any method of
calculating any bad debt, contingency or other reserve for accounting,
financial reporting or tax purposes (excluding from the foregoing the
taxes of Parent) or (y) make any material tax election or settle or
compromise any material income tax liability with any Governmental or
Regulatory Authority (excluding from the foregoing the taxes of
Parent);
(5) cause Merger Sub to (x) incur any indebtedness for borrowed money
or guarantee any such indebtedness, issue or sell any debt securities
or warrants or other rights to acquire any debt securities, guarantee
any debt securities of another person or enter into any arrangement
having the economic effect of any of the foregoing; or (y) voluntarily
purchase, cancel, prepay or otherwise provide for a complete or partial
discharge in advance of a scheduled repayment date with respect to, or
waive any right under, any indebtedness for borrowed money; except, in
the case of clauses (x) and (y), in connection with the Bridge Debt,
the Private Placement Debt or the Refinancing;
(6) (x) with respect to Merger Sub, enter into, adopt, amend in any
material respect (except as may be required by applicable law) or
terminate any Parent Station Employee Benefit Plan or other agreement,
arrangement, plan or policy between such entities and one or more of
its directors, officers or employees, or (y) except for normal
increases in the ordinary course of business consistent with
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past practice that, in the aggregate, do not result in a material
increase in benefits or compensation expense to the Parent Station
Business, increase in any manner the compensation or fringe benefits of
any director, officer or employee of the Parent Station Business or pay
any benefit to such persons not required by any plan or arrangement in
effect as of the date hereof;
(7) with respect to the Parent Station Business, enter into any
contract or amend or modify any existing contract, or engage in a new
transaction with any other business unit or division of Parent, any
affiliate of Parent or any of its Subsidiaries;
(8) make any capital expenditures or commitments for additions to
plant, property or equipment constituting capital assets with respect
to the Parent Station Business in an aggregate amount exceeding
$10,000,000;
(9) make any change in the lines of business in which the Parent
Station Business participates or is engaged; or
(10) enter into any contract, agreement, commitment or arrangement to
do or engage in any of the foregoing (except as contemplated herein).
ARTICLE VIII.
ADDITIONAL AGREEMENTS
8.01 No Solicitations. Prior to the Effective Time, the Company agrees that
neither it nor any of its Subsidiaries or their respective officers,
directors, employees, agents, counsel, accountants, financial advisors,
investment bankers, consultants and other representatives (collectively,
"Representatives"), directly or indirectly, shall initiate, solicit,
encourage, accept or take any other action knowingly to facilitate, any
inquiries or the making of, or participate in any discussions or negotiations
regarding, any proposal or offer with respect to any direct or indirect (i)
acquisition or purchase of fifteen per cent (15%) or more of any Existing
Common Stock outstanding, (ii) acquisition or purchase of any equity
securities of any Material Subsidiary of the Company, (iii) acquisition or
purchase of all or any significant portion of the assets of the Company or any
Material Subsidiary or (iv) any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
the Company or any of its Material Subsidiaries (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal"); provided,
however, that in response to an unsolicited Acquisition Proposal (x) the
Company or its Representatives may furnish or cause to be furnished
information concerning the Company and its Subsidiaries and their business,
properties or assets to a third party, (y) the Company or its Representatives
may engage in discussions or negotiations with a third party regarding such
Acquisition Proposal, and (z) the Company may take and disclose to its
stockholders a position contemplated by Rule 14e-2 under the Exchange Act or
otherwise make public disclosures to its stockholders that are required by
law, but in each case referred to in the foregoing clauses (x) and (y), only
to the extent that the Board of Directors of the Company shall determine in
good faith on the basis of written advice from outside counsel (who may be the
Company's regularly retained outside counsel) that such action is necessary in
order for the Board of Directors to act in a manner consistent with its
fiduciary obligations to stockholders under applicable law. In the event that
the Company or any of its Subsidiaries or its or their Representatives receive
from any Person an Acquisition Proposal, the Company shall promptly advise,
orally and in writing, such Person of the terms of this Section 8.01, and
(except to the extent that the Board of Directors shall determine in good
faith on basis of written advice from such outside counsel that to do
otherwise is necessary in order for the Board of Directors to act in a manner
consistent with its fiduciary obligations to stockholders under applicable
law) shall promptly advise Parent of such Acquisition Proposal and thereafter
keep Parent reasonably and promptly informed of all material facts and
circumstances relating to said Acquisition Proposal and the Company's actions
relating thereto.
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8.02 Advice of Changes.
(a) The Company shall confer on a regular and frequent basis with Parent
with respect to its business and operations and other matters relevant to the
Merger and the other transactions contemplated hereby, and shall promptly
advise Parent, orally and in writing, of any change or event, including,
without limitation, any complaint, investigation or hearing by any
Governmental or Regulatory Authority (or communication indicating the same may
be contemplated) or the institution or threat of litigation, having, or which,
insofar as can be reasonably foreseen, could have, a Company Material Adverse
Effect or a material adverse effect on the ability of the Company to
consummate the transactions contemplated hereby.
(b) Parent shall confer on a regular and frequent basis with the Company
with respect to the Parent Station Business and other matters relevant to the
Merger and the other transactions contemplated hereby, and shall promptly
advise the Company, orally and in writing, of any change or event, including,
without limitation, any complaint, investigation or hearing by any
Governmental or Regulatory Authority (or communication indicating the same may
be contemplated) or the institution or threat of litigation, having, or which,
insofar as can be reasonably foreseen, could have, a Parent Material Adverse
Effect or a material adverse effect on the ability of Parent, Merger Sub and
Cash Sub to consummate the transactions contemplated hereby.
8.03 Access to Information; Audited Financial Statements; Confidentiality.
(a) Each of the Company and Parent shall, and shall cause each of its
respective Subsidiaries to, throughout the period from the date hereof to the
Effective Time, (i) provide the other party and its Representatives with full
access, upon reasonable prior notice and during normal business hours, to all
officers, employees, agents and accountants of the Company or Parent, as the
case may be, and its respective Subsidiaries and their respective assets,
properties, books and records (but in the case of Parent and its Subsidiaries,
limited to the Parent Station Business only), but only to the extent that such
access does not unreasonably interfere with the business and operations of the
Company or Parent, as the case may be, and its respective Subsidiaries, and
(ii) furnish promptly to such persons (x) a copy of each report, statement,
schedule and other document filed or received by the Company or Parent, as the
case may be, or any of its respective Subsidiaries pursuant to the
requirements of federal or state securities laws or filed with any other
Governmental or Regulatory Authority (but in the case of Parent, only to the
extent related to the Parent Station Business), (y) a copy of any monthly
financial reports and any "pacing" reports prepared by the Company or Parent,
as the case may be (but in the case of Parent, only to the extent related to
the Parent Station Business), and (z) all other information and data
(including, without limitation, copies of Contracts, Company Employee Benefit
Plans, as the case may be, and other books and records) concerning the
business and operations of the Company or Parent, as the case may be, and its
respective Subsidiaries (but in the case of Parent and its Subsidiaries,
limited to the Parent Station Business only), as the other party or any of
such other persons reasonably may request. No investigation pursuant to this
paragraph or otherwise shall affect any representation or warranty contained
in this Agreement or any condition to the obligations of the parties hereto.
(b) On or prior to May 1, 1997 or as soon thereafter as is reasonably
practicable, (i)the Company shall deliver to Parent true, correct and complete
copies of the audited consolidated balance sheet of the Company as of December
31, 1996 and the related audited consolidated statements of operations,
stockholder's equity and cash flows for the year then ended, which shall be
prepared in accordance with GAAP applied on a basis consistent with the
Company Financial Statements and pursuant to Regulation S-X under the
Securities Act and (ii) Parent shall deliver to the Company true, correct and
complete copies of the audited balance sheets of the Parent Station Business
as of December 31, 1995 and December 31, 1996 and the related audited
statements of operations, stockholder's equity and cash flows of the Parent
Station Business for the three years ended December 31, 1996, which shall be
prepared in accordance with GAAP applied on a basis consistent with the Parent
Station Financial Statements and pursuant to Regulation S-X under the
Securities Act.
(c) Each party and its respective Subsidiaries will hold, and will use its
best efforts to cause its and its Subsidiaries' Representatives to hold, in
strict confidence, unless compelled to disclose by judicial or
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administrative process or by other requirements of applicable Laws of
Governmental or Regulatory Authorities (including, without limitation, in
connection with obtaining the necessary approvals of this Agreement or the
transactions contemplated hereby of Governmental or Regulatory Authorities),
all documents and information concerning the other party and its Subsidiaries
furnished to it by such other party or its Representatives in connection with
this Agreement or the transactions contemplated hereby, except to the extent
that such documents or information can be shown to have been (x) previously
known by the Company or Parent, as the case may be, or its respective
Subsidiaries or its or their Representatives, on a non-confidential basis, or
(y) in the public domain (either prior to or after the furnishing of such
documents or information hereunder) through no fault of the Company or Parent,
as the case may be, its respective Subsidiaries or its or their
Representatives. In the event that this Agreement is terminated without the
transactions contemplated hereby having been consummated, upon the request of
the Company or Parent, as the case may be, the other party will, and will
cause its respective Subsidiaries or its or their Representatives to, promptly
(and in no event later than five (5) business days after such request)
redeliver or cause to be redelivered all copies of documents and information
furnished by the Company or Parent, as the case may be, its respective
Subsidiaries or its or their Representatives to such party and its
Representatives in connection with this Agreement or the transactions
contemplated hereby and destroy or cause to be destroyed all notes, memoranda,
summaries, analyses, compilations and other writings related thereto or based
thereon prepared by the Company or Parent, as the case may be, its respective
Subsidiaries or its or their Representatives.
8.04 Registration Statement. The Company shall promptly prepare (and Parent
shall cooperate in the preparation of) and file with the SEC on or prior to
the forty-fifth day after the date of this Agreement or as soon thereafter as
is reasonably practicable a Registration Statement on Form S-4 (the "Form S-
4") under the Securities Act, with respect to the Surviving Corporation Series
A Common Stock issuable in the Merger, a portion of which Registration
Statement shall also serve as the proxy statement with respect to the meeting
of the stockholders of the Company in connection with the Merger (as amended
or supplemented from time to time, the "Proxy Statement/Prospectus"). The
Company will cause the Proxy Statement/Prospectus and the Form S-4 to comply
as to form in all material respects with the applicable provisions of the
Securities Act, the Exchange Act and the rules and regulations thereunder. The
Company shall use commercially reasonable efforts, and Parent will cooperate
with the Company, to have the Form S-4 declared effective by the SEC as
promptly as practicable and to keep the Form S-4 effective as long as
necessary to consummate the Merger. The Company shall, as promptly as
practicable, provide copies of any written comments received from the SEC with
respect to the Form S-4 to Parent and advise Parent of any verbal comments
with respect to the Form S-4 received from the SEC. The Company shall use its
best efforts to obtain, prior to the effective date of the Form S-4, all
necessary state securities law or "Blue Sky" permits or approvals required to
carry out the transactions contemplated by this Agreement. Each of Parent and
the Company shall use all reasonable efforts to obtain "cold comfort" letters
from their respective independent certified public accountants, dated a date
within two Business Days before the date on which the Form S-4 shall become
effective, in form reasonably acceptable to the other party and customary in
form and substance for letters delivered by independent certified public
accountants in connection with registration statements similar to the Form S-
4. The Company agrees that the Proxy Statement/Prospectus and each amendment
or supplement thereto at the time of mailing thereof and at the time of the
meeting of stockholders of the Company, or, in the case of the Form S-4 and
each amendment or supplement thereto, at the time it is filed or becomes
effective, will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing shall not apply to the
extent that any such untrue statement of a material fact or omission to state
a material fact was made by the Company in reliance upon and in conformity
with written information concerning Parent or any of its Subsidiaries
furnished to the Company by Parent specifically for use in the Proxy
Statement/Prospectus. Parent agrees that the written information concerning
Parent and its Subsidiaries provided by it for inclusion in the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the meetings of stockholders of the
Company, or, in the case of written information concerning Parent and its
Subsidiaries provided by Parent for inclusion in the Form S-4 or any amendment
or supplement thereto, at the time it is filed or becomes effective, will not
include an untrue statement of a material fact or omit
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to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. No amendment or supplement to the Proxy
Statement/Prospectus will be made by the Company without the approval of
Parent. The Company will advise Parent, promptly after receipt of notice
thereof, of the time when the Form S-4 has become effective or any supplement
or amendment has been filed, the issuance of any stop order, the suspension of
the qualification of the Surviving Corporation Series A Common Stock issuable
in connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Proxy Statement/Prospectus or the Form
S-4 or comments thereon and responses thereto or requests by the SEC for
additional information.
8.05 Approval of Stockholders and Board Recommendation. The Company shall,
through its Board of Directors, duly call, give notice of, convene and hold a
meeting of its stockholders (the "Company Stockholders' Meeting") for the
purpose of voting on the adoption of the Restated Charter and the adoption of
this Agreement and the transactions contemplated hereby as soon as reasonably
practicable after the date hereof, subject to the requirements of Section 8.04
and applicable laws. The Company shall use its reasonable efforts to solicit
from its stockholders proxies, and, except as provided in the last sentence of
this Section 8.05, shall take all other action necessary and advisable, to
secure the vote of stockholders required by applicable law to obtain the
approval for this Agreement. Notwithstanding anything to the contrary
contained in this Agreement, the Company shall not, without the prior written
consent of Parent, establish or cause to be established a record date for the
Company's Stockholders' Meeting with respect to the Company Stockholder
Approval that is prior to the date that ATILP and TIP have converted all
shares of Existing Series C Common Stock held by them into shares of Existing
Series A Common Stock in order that ATILP and TIP may be eligible to vote for
the purposes of determining the Company Stockholder Approval, as contemplated
by the Voting Agreements. The Board of Directors of the Company shall
recommend to its stockholders the adoption of the Restated Charter and the
adoption of this Agreement; provided, however, that such recommendation may
not be made or may be withdrawn, modified, or amended after the receipt by the
Company of an Acquisition Proposal to the extent the Board of Directors of the
Company shall determine, in good faith, upon written advice of outside counsel
(who may be the Company's regularly retained outside counsel), that such
action is necessary in order for the Board of Directors of the Company to act
in a manner which is consistent with its fiduciary obligations to stockholders
under applicable law.
8.06 Regulatory and Other Approvals. Subject to the terms and conditions of
this Agreement and without limiting the provisions of Sections 8.04 and 8.05,
each of the Company and Parent will proceed diligently and in good faith and
will use all commercially reasonable efforts to do, or cause to be done, all
things necessary, proper or advisable to, as promptly as practicable, (a)
obtain all consents, approvals or actions of, make all filings with and give
all notices to Governmental or Regulatory Authorities or any other public or
private third parties required of Parent, the Company or any of their
Subsidiaries to consummate the Contribution and the Merger and the other
transactions contemplated hereby, and (b) provide such other information and
communications to such Governmental or Regulatory Authorities or other public
or private third parties as the other party or such Governmental or Regulatory
Authorities or other public or private third parties may reasonably request.
In addition to and not in limitation of the foregoing, (i) each of the parties
will (w) take promptly all actions necessary to make the filings required of
Parent, the Company and their affiliates under the Communications Act and the
FCC Regulations and to receive FCC Approval, (x) take promptly all actions
necessary to make the filings required of Parent and the Company or their
affiliates under the HSR Act in respect of the Contribution, the Merger and
the transactions contemplated by the Voting Agreements, (y) comply at the
earliest practicable date with any request for additional information received
by such party or its affiliates from the FCC pursuant to the Communications
Act or the FCC Regulations, or from the Federal Trade Commission (the "FTC")
or the Antitrust Division of the Department of Justice (the "Antitrust
Division") pursuant to the HSR Act, and (z) cooperate with the other party (or
ATILP and TIP, as the case may be) in connection with such party's filings
under the Communications Act and the HSR Act and in connection with resolving
any investigation or other inquiry in respect of the Merger and the
transactions contemplated by the Voting Agreements and this Agreement
commenced by either the FTC or the Antitrust Division or state attorneys
general. The parties hereto recognize and acknowledge that under applicable
rules and regulations of the FCC, certain assets currently held by, or
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attributable to, Parent, the Company or their respective Subsidiaries cannot
be held by, or be attributable to, the Company (or the Surviving Corporation,
as the case may be) or its Subsidiaries after the Effective Time, unless
appropriate waivers of such rules and regulations are obtained. Subject to the
next sentence, the parties agree to seek temporary waivers consistent with
existing precedent (including commitments of the Company (or the Surviving
Corporation, as the case may be) and its Subsidiaries to divest such assets or
take such other actions as may be required) in order to obtain the FCC
Approval and to allow the consummation of the Merger. If necessary in order to
obtain the FCC's approval of the transactions contemplated hereby, the parties
agree that the Company (or the Surviving Corporation, as the case may be) and
its Subsidiaries will agree to divest of the following assets or take other
appropriate action with respect to such assets after the Effective Time: WNAC-
TV (Providence, Rhode Island) and WDTN-TV (Dayton, Ohio); provided, however,
that the agreement to divest of any other assets or at any other time will
require the prior approval of Parent and the Company (or the Surviving
Corporation, as the case may be). Anything contained herein to the contrary
notwithstanding, in no event shall Parent or any of its Subsidiaries be
required to divest or take any other action with respect to any assets,
properties or businesses which are not included in the Parent Station Assets
or the Parent Station Business in order to obtain the approvals of any
Governmental or Regulatory Authorities or any other public or private third
parties for the Contribution, the Merger or the other transactions
contemplated thereby. The parties also recognize that applications for renewal
of one or more of the FCC Licenses have been filed and may need to be filed
prior to the Closing Date. Accordingly, each party hereby agrees that it shall
abide by the procedures established in Stockholders of CBS, Inc., FCC 95-469
(rel. Nov. 22, 1995) (P)(P) 31-35 (or such other procedures established by the
FCC), for processing applications for transfer of control of a licensee during
the pendency of an application for renewal of a station license. The parties
further agree that the pendency of any such renewal application or
applications, or the fact that the FCC grant of any renewal application shall
not have become final (i.e., no longer subject to administrative or judicial
review or reconsideration (a "Final Order")), shall not be a cause for
delaying the Closing except as provided in Section 9.01(d). Without limiting
the generality of the foregoing, the parties agree to use their respective
commercially reasonable efforts to prosecute any such application for renewal
of a FCC License, and Parent and the Company agree that any interest that may
be acquired in such license at Closing is subject to whatever action the FCC
may ultimately take with respect to the renewal application. Notwithstanding
anything in this Agreement to the contrary, this Section 8.06 shall survive
the Closing until any order issued by the FCC with respect to a renewal
application pending, or granted but not yet final, as of the Closing becomes a
Final Order.
8.07 Tax Matters. Each of the parties hereto shall report the Contribution
as a transaction satisfying the requirements of Section 351 of the Code and
shall comply with the tax reporting and record keeping requirements of
Section1.351-3 of the Treasury Regulations promulgated under the Code with
respect to such transaction. None of the parties hereto shall take any action
that would result in the Contribution failing to satisfy the requirements of
Section 351 of the Code. The Company (or the Surviving Corporation, as the
case may be) shall report the Merger as a redemption under the provisions of
Section 302 of the Code with respect to those stockholders of the Company who
receive cash pursuant to the Merger. None of the parties hereto shall take any
action or position inconsistent with such treatment as a redemption.
8.08 Affiliate Letters; Resales. At least 30 days prior to the Closing Date,
the Company shall deliver to Parent a list of names and addresses of those
persons who were, in the Company's reasonable judgment, at the record date for
the Company Stockholders' Meeting, "affiliates" (each such person, an
"Affiliate") of the Company within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act. The Company shall use all
reasonable efforts to deliver or cause to be delivered to Parent prior to the
Closing Date, from each of the Affiliates of the Company identified in the
foregoing list, an Affiliate Letter in the form attached hereto as Exhibit
8.08. The Surviving Corporation shall be entitled to place legends as
specified in such Affiliate Letters on the certificates evidencing any
Surviving Corporation Series A Common Stock to be received by such Affiliates
pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for the Surviving Corporation
Series A Stock, consistent with the terms of such Affiliate Letters.
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As soon as practicable after the date of this Agreement, the Company and
Parent jointly shall prepare and submit to the SEC a request for a "no-action
letter" to the effect that the provisions of Rule 145(d) under the Securities
Act will not be applicable immediately after the Effective Time to those
persons who will receive shares of Existing Series A Common Stock and Existing
Series B Common Stock pursuant to the Liquidation Plans and who are not
otherwise Affiliates of the Company at the time of the Company Stockholders'
Meeting (the "Distributees"). In the event that a favorable no-action letter
is not given by the SEC, then as soon as practicable after the Effective Time,
the Surviving Corporation shall prepare and file with the SEC and use its best
efforts to keep effective a registration statement on Form S-3 covering the
resale of any shares of Surviving Corporation Series A Common Stock received
by the Distributees in the Merger until the earlier of the first anniversary
of the Effective Time or until all such shares have been resold pursuant
thereto.
8.09 Governance. After the Effective Time, (i) Parent shall vote its shares
of Surviving Corporation Series B Common Stock and use its best efforts to
take such actions to cause Bob Marbut to continue to be elected as a director
of the Board of Directors of the Surviving Corporation for so long as Mr.
Marbut is employed by the Surviving Corporation or any of the Surviving
Corporation's Subsidiaries, and (ii) for as long as Parent holds any shares of
Surviving Corporation Series B Common Stock and to the extent that Parent
during such time also holds any shares of Surviving Corporation Series A
Common Stock, Parent shall vote its shares of Surviving Corporation Series A
Common Stock with respect to the election of directors only in the same
proportion as the shares of Surviving Corporation Series A Common Stock not
held by Parent are so voted.
8.10 Directors' and Officers' Indemnification and Insurance.
(a) Except to the extent required by law, until the sixth anniversary of the
Effective Time, the Surviving Corporation will keep in effect provisions in
its Certificate of Incorporation and By-Laws providing for exculpation of
director and officer liability and its indemnification of directors, officers,
employees or agents of the Company or any of its Subsidiaries (the
"Indemnitees") which are no less favorable than such provisions as in effect
in the Company's Certificate of Incorporation and By-Laws on the date hereof.
(b) The Surviving Corporation shall, until the sixth anniversary of the
Effective Time, cause to be maintained in effect, to the extent available, the
policies of directors' and officers' liability insurance maintained by the
Company and its Subsidiaries as of the date hereof (or policies of at least
the same coverage and amounts containing terms that are no less advantageous
to the insured parties) with respect to claims arising from facts or events
that occurred on or prior to the Effective Time; provided, however, that in no
event shall the Surviving Corporation be obligated to expend in order to
maintain or procure insurance coverage pursuant to this paragraph any amount
per annum in excess of 200% of the aggregate premiums currently paid by the
Company and its Subsidiaries in 1997 (on an annualized basis) for such purpose
(the "Cap") (which 1997 annual premium the Company represents and warrants to
be approximately $292,200); and provided further, that if equivalent coverage
cannot be obtained, or can be obtained only by paying an annual premium in
excess of the Cap, the Surviving Corporation shall only be required to obtain
as much coverage as can be obtained by paying an annual premium equal to the
Cap.
(c) The provisions of this Section 8.10 are intended to be for the benefit
of, and shall be enforceable by, each Indemnitee.
8.11 Expenses. Except as set forth in Section 10.02, in the event that the
Merger is not consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such cost or expense except as expressly provided herein and
except that (a) the filing fee in connection with the HSR Act filing, (b) the
filing fee in connection with the filing of the Form S-4 or Proxy
Statement/Prospectus with the SEC, (c) the filing fees in connection with
necessary applications to the FCC and (d) the expenses incurred in connection
with printing and mailing the Form S-4 and the Proxy Statement/Prospectus,
shall be shared equally by the Company and Parent. In the event that the
Merger is consummated, the Surviving Corporation shall bear or reimburse
Parent for all of the costs and expenses of
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Parent incurred in connection with this Agreement and the transactions
contemplated hereby, including but not limited to Transfer Taxes, the fees and
disbursements of counsel for Parent, fees and disbursements for special
accounting services provided by Parent's independent outside accountants, fees
and expenses of J.P. Morgan & Co., Parent's financial advisor, and the costs
and expenses set forth in clauses (a) through (d) of the preceding sentence.
8.12 Brokers or Finders. Each of Parent and the Company represents, as to
itself and its affiliates, that no agent, broker, investment banker, financial
advisor or other firm or person is or will be entitled to any broker's or
finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement except Merrill Lynch & Co.,
and Credit Suisse First Boston whose fees and expenses will be paid by the
Company and J.P. Morgan & Co., whose fees and expenses, except to the extent
otherwise provided in Section 8.11 above, will be paid by Parent and each of
Parent and the Company shall indemnify and hold the other harmless from and
against any and all claims, liabilities or obligations with respect to any
other such fee or commission or expenses related thereto asserted by any
person on the basis of any act or statement alleged to have been made by such
party or its affiliate.
8.13 Fulfillment of Conditions. Subject to the terms and conditions of this
Agreement, each of Parent and the Company will use all commercially reasonable
efforts to take or cause to be taken all steps necessary or desirable and
proceed diligently and in good faith to satisfy each condition to the other's
obligations contained in this Agreement and to consummate and make effective
the transactions contemplated by this Agreement, and neither Parent nor the
Company will, nor will it permit any of its Subsidiaries to, take or fail to
take any action that could be reasonably expected to result in the
nonfulfillment of any such condition.
8.14 Indemnification. If the Merger shall be consummated:
(a) Parent will indemnify, defend and hold harmless the Surviving
Corporation, its Subsidiaries and their affiliates and their respective
directors, officers and employees from and against all losses, liabilities
(including punitive or exemplary damages, fines or penalties and any
interest thereon), expenses (including fees and disbursements of counsel
and expenses of investigation and defense), claims or other obligations of
any nature whatsoever (collectively, "Losses") which directly or indirectly
arise (i) out of any Parent Station Excluded Liabilities, (ii) with respect
to or otherwise in connection with any pension, welfare or other benefit
plan maintained or contributed to by Parent or any of its Subsidiaries
(other than the Company or any of its Subsidiaries) which arise under ERISA
or the Code, by virtue of the Company and its Subsidiaries being aggregated
with Parent or any of its other Subsidiaries for purposes of ERISA or the
Code (including, without limitation, under Section 414(b), (c), (m) or (o)
of the Code or Section 4001 of ERISA) at any relevant time, or (iii) which
result from any breach of, or inaccuracy in, the representations and
warranties contained in Section 6.13 (but only to the extent such
representations and warranties survive the Merger pursuant to Section
11.01). Notwithstanding the preceding sentence, Parent shall not be liable
pursuant to this Section 8.14 for any Losses which are recovered pursuant
to any insurance policy.
(b) The Surviving Corporation will, and will cause each of its
Subsidiaries to, indemnify, defend and hold harmless Parent, its
Subsidiaries (other than the Surviving Corporation and its Subsidiaries)
and their affiliates and their respective directors, officers and employees
from and against all Losses which directly or indirectly arise (i) out of
any Parent Station Assumed Liabilities, the Bridge Debt or the Private
Placement Debt, or (ii) with respect to or otherwise in connection with any
pension, welfare or other benefit plan maintained or contributed to by the
Company or any of its Subsidiaries which arise under ERISA or the Code, by
virtue of Parent and its other Subsidiaries being aggregated with the
Company and its Subsidiaries for purposes of ERISA or the Code (including,
without limitation, under Section 414(b), (c), (m) or (o) of the Code or
Section 4001 of ERISA) at any relevant time.
8.15 Cross-Ownership. From and after the date hereof, if (i) Parent or any
of its respective Subsidiaries (other than the Company or any of its
Subsidiaries), on the one hand, or the Company or any of its Subsidiaries, on
the other hand (in each case a "Purchasing Party"), desires to acquire or
purchase (including any acquisition
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or purchase by way of merger or consolidation) any television or radio
broadcast stations, newspapers or any other asset of any kind or nature and
(ii) pursuant to any Law or Order, (x) the party or any of such party's
Subsidiaries not making such acquisition or purchase (a "Non-Purchasing
Party") would be required to divest or otherwise dispose of any television or
radio broadcast stations, newspapers or any other assets of any kind or
nature, or (y) divestiture of any of the Parent Stations or Company Stations
would be required prior to the Effective Time, then the Purchasing Party shall
not make such acquisition or purchase without the prior written consent of the
Non-Purchasing Party.
8.16 Issuance of Additional Shares of Surviving Corporation Common
Stock. From and after the Effective Time, if at any time the Surviving
Corporation desires to issue to Hearst, or Hearst desires to purchase from the
Surviving Corporation and the Surviving Corporation desires to issue and sell
to Hearst, any additional shares of common stock of the Surviving Corporation,
then Hearst shall have the right to elect at its sole option to receive or
purchase such shares of common stock in the form of either Surviving
Corporation Series A Common Stock or Surviving Corporation Series B Common
Stock.
ARTICLE IX.
CONDITIONS
9.01 Conditions to Each Party's Obligation to Effect the Contribution and
the Merger. The respective obligation of each party to effect the Contribution
and the Merger is subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) Stockholder Approval. The Restated Charter, this Agreement and
transactions contemplated hereby shall have been approved and adopted by
the requisite vote of the stockholders of the Company under the DGCL, the
Company's Certificate of Incorporation and any other governing instruments.
(b) Form S-4. The Form S-4 shall have become effective and shall be
effective at the Effective Time, and no stop order suspending effectiveness
of the Form S-4 shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have
been initiated and be continuing, or, to the knowledge of Parent or the
Company, threatened, and all necessary approvals under state securities
laws relating to the issuance or trading of the Surviving Corporation
Series A Common Stock to be issued in connection with the Merger shall have
been received.
(c) HSR Act. Any waiting period (and any extension thereof) applicable to
the consummation of the Merger under the HSR Act shall have expired or been
terminated.
(d) FCC Approval. FCC Approval shall have been obtained, notwithstanding
that any such order or orders may not have yet become a Final Order, except
that if one or more pre-grant objections shall have been filed with respect
to the filings or applications required by Section 8.06 hereof, the FCC
Approval shall have become a Final Order. In either case the FCC Approval
shall have been obtained without the imposition of any condition or
restriction that (i) would require the divestiture of any Parent Stations
or Company Stations other than those expressly contemplated by Section 8.06
or (ii) would reasonably be expected to have a Parent Material Adverse
Effect, a material adverse effect on Parent and its Subsidiaries, taken as
a whole (it being understood and agreed that the divestiture of any assets
of Parent or any of its Subsidiaries other than those expressly
contemplated by Section 8.06 shall be deemed to be such a material adverse
effect), a Company Material Adverse Effect, or a material adverse effect on
the Surviving Corporation and its Subsidiaries, taken as a whole, following
the Effective Time.
(e) No Injunctions or Restraints. No court of competent jurisdiction or
other competent Governmental or Regulatory Authority shall have enacted,
issued, promulgated, enforced or entered any Law or Order (whether
temporary, preliminary or permanent) which is then in effect and has the
effect of making illegal or otherwise restricting, preventing or
prohibiting consummation of the Merger or the other transactions
contemplated by this Agreement.
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(f) Additional Governmental and Regulatory Consents and Approvals. Other
than FCC Approval and the filing of the Restated Charter and the
Certificate of Merger, all consents, approvals and actions of, filings with
and notices to any Governmental or Regulatory Authority of Parent, the
Company or any of their respective Subsidiaries to consummate the
Contribution, the Merger and the other transactions contemplated hereby,
the failure of which to be obtained or taken could be reasonably expected
to have a material adverse effect on Parent and its Subsidiaries, taken as
a whole, or on the Company and its Subsidiaries, taken as a whole, or on
the Surviving Corporation and its Subsidiaries, taken as a whole, following
the Effective Time or on the ability of Parent, Merger Sub, Cash Sub or the
Company to consummate the transactions contemplated hereby, shall have been
obtained.
(g) NASDAQ Listing. The Surviving Corporation Series A Common Stock to be
issued in connection with the Merger shall have been approved for quotation
in the NASDAQ National Market System.
(h) Financing. The Company shall have obtained financing (the
"Refinancing") on terms reasonably satisfactory to each of Parent and the
Company in an amount sufficient for the following purposes: (i) to enable
the Company to refinance immediately after the Effective Time the Private
Placement Debt (to the extent such refinancing is required by the holders
thereof); (ii) to provide the Company with the funds required to refinance
immediately after the Effective Time the Bridge Debt (to the extent such
refinancing is required by the holders thereof); (iii) to enable the
Company to redeem its 9 3/4% Senior Subordinated Notes immediately after
the Effective Time if required by the holders thereof; and (iv) to enable
the Company to refinance its $65,000,000 revolving credit facility under
that certain Credit Agreement dated January 31, 1997 between the Company
and the lenders named therein.
(i) Management and TV Option Contracts. Parent and the Company shall have
executed and delivered a management contract and a television station
option contract substantially on the terms attached hereto as Exhibit
9.01(i).
9.02 Conditions to Obligation of Parent, Merger Sub and Cash Sub to Effect
the Contribution and the Merger. The obligation of Parent, Merger Sub and Cash
Sub to effect the Contribution and the Merger is further subject to the
fulfillment, at or prior to the Closing, of each of the following additional
conditions (all or any of which may be waived in whole or in part by Parent,
Merger Sub and Cash Sub in their sole discretion):
(a) Representations and Warranties. Each of the representations and
warranties made by the Company in this Agreement shall be true and correct
in all material respects as of the Closing Date as though made on and as of
the Closing Date or, in the case of representations and warranties made as
of a specified date earlier than the Closing Date, on and as of such
earlier date, and the Company shall have delivered to Parent a certificate,
dated the Closing Date and executed on behalf of the Company by its
Chairman of the Board, President or any Vice President, to such effect.
(b) Performance of Obligations. The Company shall have performed and
complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with
by the Company at or prior to the Closing, and the Company shall have
delivered to Parent a certificate, dated the Closing Date and executed on
behalf of the Company by its Chairman of the Board, President or any Vice
President, to such effect.
(c) Dissenters' Rights. The period for execution and perfection of
statutory appraisal rights available in connection with the Merger
described in Section 3.06 shall have expired and such appraisal rights
shall have been exercised and perfected by the holders of shares of capital
stock of any class or series of the Company holding not more than 5% of the
outstanding common stock of any class or series of the Company (treating,
for this purpose, each share of the Company's Series A Preferred Stock,
$.01 par value, and Series B Preferred Stock, $.01 par value, as having
been converted into a number of shares of the Company's common stock equal
to $1,000 divided by (x) the Cash Consideration (in the case of the Series
A Preferred Stock) or (y) $35 (in the case of the Series B Preferred
Stock).
(d) Opinions of Counsel. Parent shall have received the opinion of Rogers
& Wells, counsel to Parent, and the opinion of Locke Purnell Rain Harrell,
counsel to the Company, dated the date of the Proxy
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Statement/Prospectus and the Closing Date, to the effect that the
Contribution will be treated as a transaction governed by Section 351 of
the Code.
(e) Material Third Party Consents. All consents and approvals from third
parties to the contracts and agreements set forth in Section 9.02(e) of the
Company Disclosure Letter and Section 9.03(e) of the Parent Disclosure
Letter to consummate the Contribution, the Merger and the other
transactions contemplated hereby shall have been obtained.
(f) Tax Sharing Agreement. Parent and the Company shall have executed and
delivered a Tax Sharing Agreement substantially in the form attached hereto
as Exhibit 9.02(f).
(g) License Agreement. Parent and the Company shall have executed and
delivered a License Agreement substantially in the form attached hereto as
Exhibit 9.02(g).
(h) Affiliate Letters and Management Transfer Restriction
Agreements. Each of the Affiliates referred to in Section 8.08 shall have
executed and delivered to the Company an Affiliate Letter referred to
therein, and each of the persons listed on Exhibit 9.02(h)(A) shall have
executed and delivered a transfer restriction agreement substantially in
the form attached hereto as Exhibit 9.02(h)(B).
(i) Radio Facilities Lease. The Company or certain Broadcast
Subsidiaries, as the case may be, shall have executed and delivered to
Parent, on the terms attached hereto as Exhibit 9.01(i) leases in respect
of real property owned by the Surviving Corporation or certain Broadcast
Subsidiaries, as the case may be, pursuant to which Parent shall lease
premises for Parent's radio broadcast stations.
(j) Conveyancing Documents. The Company shall have executed and delivered
to Parent the Assignment and Assumption Agreement referred to in Section
9.03(c) below.
(k) Financing. Cash Sub shall have obtained financing on terms reasonably
satisfactory to Parent for the Bridge Debt and shall have received the
proceeds thereof.
9.03 Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger is further subject to the
fulfillment, at or prior to the Closing, of each of the following additional
conditions (all or any of which may be waived in whole or in part by the
Company in its sole discretion):
(a) Representations and Warranties. Each of the representations and
warranties made by Parent in this Agreement shall be true and correct in
all material respects as of the Closing Date as though made on and as of
the Closing Date or, in the case of representations and warranties made as
of a specified date earlier than the Closing Date, on and as of such
earlier date, and Parent shall have delivered to the Company a certificate,
dated the Closing Date and executed on its behalf by its Chairman of the
Board, President or any Vice President to such effect.
(b) Performance of Obligations. Parent, Merger Sub and Cash Sub shall
have performed and complied with, in all material respects, each agreement,
covenant and obligation required by this Agreement to be so performed or
complied with by Parent, Merger Sub and Cash Sub at or prior to the
Closing, and Parent, Merger Sub and Cash Sub shall each have delivered to
the Company a certificate, dated the Closing Date and executed on its
behalf by its Chairman of the Board, President or any Vice President to
such effect.
(c) Conveyancing Documents. Parent shall have executed and delivered to
the Company an Assignment and Assumption Agreement and a Bill of Sale
effecting the transfer to the Company of the Parent Station Assets and the
assumption by the Company of the Parent Station Assumed Liabilities in form
reasonably satisfactory to the Company, and such further instruments of
transfer in forms customary for such transactions in the jurisdictions in
which such properties are located as may be reasonably requested by the
Company in order to complete the transfer of the Parent Station Assets to
the Company.
(d) Material Third Party Consents. All consents and approvals from third
parties to the Material Parent Station Contracts set forth in Section
9.03(e) of the Parent Disclosure Letter to consummate the Contribution, the
Merger and the other transactions contemplated hereby shall have been
obtained.
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ARTICLE X.
TERMINATION, AMENDMENT AND WAIVER
10.01 Termination.
(a) This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time, before or after the adoption and approval of
this Agreement by the stockholders of the Company referred to in Section
9.01(a), by the mutual consent of Parent and the Company.
(b) This Agreement may be terminated and the Merger may be abandoned by
action of the Board of Directors of either Parent or the Company if (i) the
Merger shall not have been consummated by December 31, 1997, or (ii) the
approval of the Company's stockholders required by Section 9.01(a) shall not
have been obtained at a meeting duly convened therefor or at any adjournment
thereof, or (iii) a Governmental or Regulatory Authority of competent
jurisdiction shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable; provided, however,
that the party seeking to terminate this Agreement pursuant to this clause
(iii) shall have used all reasonable efforts to remove such order, decree or
ruling; and provided further, in the case of a termination pursuant to clause
(i) above, that the terminating party shall not have breached in any material
respect its obligations under this Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger by December
31, 1997. Notwithstanding the foregoing, the Company's ability to terminate
this Agreement pursuant to this Section 10.01(b) is conditioned upon the prior
payment by the Company of any amounts owed by it pursuant to Section 10.02.
(c) This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time before or after the adoption and approval by
the stockholders of the Company referred to in Section 9.01(a), by action of
the Board of Directors of the Company, if (i) in the exercise of its good
faith judgment as to fiduciary duties to its stockholders imposed by law, on
the basis of written advice given by outside counsel (who may be the Company's
regularly retained outside counsel), the Board of Directors of the Company
shall have approved an Acquisition Proposal or shall have recommended an
Acquisition Proposal to the Company's stockholders; provided, however, that
the Company shall notify Parent promptly of its intention to terminate this
Agreement or enter into a definitive agreement with respect to any Acquisition
Proposal, but in no event shall such notice be given less than 48 hours prior
to the public announcement of the Company's termination of this Agreement; or
(ii) there has been a breach by Parent of any representation or warranty
contained in this Agreement which would have or would be reasonably likely to
have a Parent Material Adverse Effect; or (iii) there has been a material
breach of any of the covenants or agreements set forth in this Agreement on
the part of Parent, Merger Sub or Cash Sub which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by the Company to Parent. Notwithstanding the foregoing, the Company's
ability to terminate this Agreement pursuant to this Section 10.01(c) is
conditioned upon the prior payment by the Company of any amounts owed by it
pursuant to Section 10.02.
(d) This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time, by action of the Board of Directors of
Parent, if (i) the Board of Directors of the Company shall have withdrawn or
modified in a manner materially adverse to Parent its approval or
recommendation of this Agreement or the Merger or shall have approved an
Acquisition Proposal or shall have recommended an Acquisition Proposal to the
Company's stockholders, or (ii) there has been a breach by the Company of any
representation or warranty contained in this Agreement which would have or
would be reasonably likely to have a Company Material Adverse Effect, or (iii)
there has been a material breach of any of the covenants or agreements set
forth in this Agreement on the part of the Company, which breach is not
curable, or, if curable, is not cured within 30 days after written notice of
such breach is given by Parent to the Company.
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10.02 Effect of Termination and Abandonment.
(a) In the event that any person shall have made an Acquisition Proposal and
thereafter (i) this Agreement is terminated pursuant to Section 10.01(c)(i) or
Section 10.01(d)(i) or (ii) this Agreement is terminated pursuant to Sections
10.01(b)(i) (but in case of a termination pursuant to Section10.01(b)(i), only
if any of the conditions set forth in Sections 9.01(h), 9.01(i), 9.02(f),
9.02(g), 9.02(i) and 9.03(d) shall have failed to be satisfied and such
failure shall have proximately contributed to the failure to consummate the
Merger by December 31, 1997), 10.01(b)(ii), 10.01(b)(iii) (except if the
Governmental or Regulatory Authority referred to in Section 10.01(b)(iii)
shall be the FCC, the FTC or the Antitrust Division), 10.01(d)(ii) or
10.01(d)(iii) and, in the case of this clause (ii) only, a definitive
agreement with respect to such Acquisition Proposal is executed, or the
transaction contemplated by such Acquisition Proposal is consummated, within
eighteen (18) months after such termination, then the Company shall pay Parent
a fee of Fifteen Million Eight Hundred Fifty Thousand Dollars ($15,850,000),
which amount shall be payable by wire transfer of same day funds either on the
date contemplated in the last sentence of Section 10.01(b) or (c) if
applicable or, otherwise, within two business days after such amount becomes
due. The Company acknowledges that the agreements contained in this Section
10.02 are an integral part of the transactions contemplated in this Agreement,
and that, without these agreements, Parent would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the amount due
pursuant to this Section 10.02, and, in order to obtain such payment, Parent
commences a suit which results in a judgment against the Company for the fee
set forth in this Section 10.02, the Company shall pay Parent its costs and
expenses (including attorneys' fees) in connection with such suit, together
with interest on the amount of the fee at the rate of 12% per annum.
(b) In the event of termination of this Agreement and the abandonment of the
Merger pursuant to Section 10.01, all obligations of the parties hereto shall
terminate, except the obligations of the parties pursuant to this Section
10.02 and Sections 8.03(c) and 8.11 which shall survive such termination and
remain in effect. Moreover, in the event of termination of this Agreement
pursuant to Section 10.01, nothing herein shall prejudice the ability of the
non-breaching party from seeking damages from any other party for any willful
breach of this Agreement, including without limitation, attorneys' fees and
the right to pursue any remedy at law or in equity.
10.03 Amendment. This Agreement may be amended, supplemented or modified at
any time prior to the Effective Time, whether prior to or after adoption of
this Agreement at the Company Stockholders' Meeting, but after such adoption
only to the extent permitted by applicable law. No such amendment, supplement
or modification shall be effective unless set forth in a written instrument
duly executed by or on behalf of each party hereto.
10.04 Waiver. At any time prior to the Effective Time any party hereto may
to the extent permitted by applicable law (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of
the other parties hereto contained herein or in any document delivered
pursuant hereto or (iii) waive compliance with any of the covenants,
agreements or conditions of the other parties hereto contained herein. No such
extension or waiver shall be effective unless set forth in a written
instrument duly executed by or on behalf of the party extending the time of
performance or waiving any such inaccuracy or non-compliance. No waiver by any
party of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion.
ARTICLE XI.
GENERAL PROVISIONS
11.01 Non-Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements
contained in this Agreement or in any instrument delivered pursuant to this
Agreement shall not survive the Merger but shall terminate at the Effective
Time, except for (i) the covenants
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and agreements contained in Articles II, III and IV and in Sections 8.06 (to
the extent expressly set forth in Section 8.06), 8.07, 8.09, 8.10, 8.11, 8.12,
8.14, 8.15 and 8.16 which shall survive the Merger, and (ii) the
representations and warranties contained in Section 6.13 which shall survive
for a period of eighteen (18) months after the Merger.
11.02 Certain Definitions. As used in this Agreement, the following terms
have the following meanings unless the context otherwise requires:
"Acquisition Proposal" has the meaning ascribed to it in Section 8.01.
"Affiliate" has the meaning ascribed to it in Section 8.08.
"Amendment Time" has the meaning ascribed to it in Section 2.01.
"Antitrust Division" has the meaning ascribed to it in Section 8.06.
"Appraiser" means an independent nationally recognized investment banking
firm or a firm having experience or specializing in valuations of television
broadcast businesses.
"ATILP" has the meaning ascribed to it in the recitals to this Agreement.
"ATILP Liquidation Plan" has the meaning ascribed to it in the recitals to
this Agreement.
"ATP" has the meaning ascribed to it in the recitals to this Agreement.
"Bridge Debt" means indebtedness of Cash Sub in the aggregate principal
amount of $200 million for the purposes of consummating the transactions
contemplated by this Agreement.
"Broadcast Subsidiaries" has the meaning ascribed to it in the recitals to
this Agreement.
"Business Day" means a day other than Saturday, Sunday or any day on which
banks located in the State of New York are authorized or obligated to close.
"Cap" has the meaning ascribed to it in Section 8.10(b).
"Cash Consideration" has the meaning ascribed to it in Section 3.01(c)(ii).
"Cash Conversion Number" has the meaning ascribed to it in Section 3.03(a).
"Cash Election" has the meaning ascribed to it in Section 3.02(a)(i).
"Cash Election Shares" has the meaning ascribed to it in Section 3.03(b).
"Cash Proration Factor" has the meaning ascribed to it in Section
3.03(b)(i).
"Certificates" has the meaning ascribed to it in Section 3.04(c).
"Certificate of Merger" has the meaning ascribed to it in Section 1.02.
"Closing" has the meaning ascribed to it in Section 1.03.
"Closing Date" has the meaning ascribed to it in Section 1.03.
"Code" has the meaning ascribed to it in the recitals to this Agreement.
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"Communications Act" has the meaning ascribed to it in Section 5.04(b).
"Company Disclosure Letter" has the meaning ascribed to it in Article V.
"Company Employee Benefit Plan" means any Plan entered into, established,
maintained, contributed to or required to be contributed to by the Company or
any Company ERISA Affiliate providing benefits to employees, former employees,
independent contractors, former independent contractors of the Company or any
Company ERISA Affiliate, or their dependents or beneficiaries.
"Company ERISA Affiliate" means an entity required (at any relevant time) to
be aggregated with the Company under Sections 414(b), (c), (m) or (o) of the
Code or Section 4001 of ERISA.
"Company Financial Statements" has the meaning ascribed to it in Section
5.05(a).
"Company Material Adverse Effect" has the meaning ascribed to it in Section
5.01.
"Company Option" has the meaning ascribed to it in Section 3.01(e).
"Company Permits" has the meaning ascribed to it in Section 5.09(a).
"Company Preferred Stock" means the Series A Preferred Stock and the Series
B Preferred Stock.
"Company SEC Reports" has the meaning ascribed to it in Section 5.05(a).
"Company Series A Common Stock" means the Series A Common Stock, $.01 par
value, of the Company authorized pursuant to the Restated Charter.
"Company Series B Common Stock" means the Series B Common Stock, $.01 par
value, of the Company authorized pursuant to the Restated Charter.
"Company Series A Preferred Stock" means the Series A Preferred Stock, $.01
par value, of the Company authorized pursuant to the Restated Charter.
"Company Series B Preferred Stock" means the Series B Preferred Stock, $.01
par value, of the Company authorized pursuant to the Restated Charter.
"Company Stockholder Approval" has the meaning ascribed to it in Section
5.03.
"Company Stockholders' Meeting" has the meaning ascribed to it in Section
8.05.
"Constituent Corporations" has the meaning ascribed to it in Section 1.01.
"Contracts" has the meaning ascribed to it in Section 5.04(a).
"Contributed Cash" has the meaning ascribed to it in Section 2.02(a).
"Contribution" has the meaning ascribed to it in Section 2.02(a).
"DGCL" has the meaning ascribed to it in Section 1.01.
"Dissenting Share" has the meaning ascribed to it in Section 3.06(i).
"Effective Time" has the meaning ascribed to it in Section 1.02.
"Electing Optionholders" means Bob Marbut, Blake Byrne, Ibra Morales and
Harry Hawks.
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"Election" has the meaning ascribed to it in Section 3.02(a).
"Election Date" has the meaning ascribed to it in Section 3.02(e).
"Election Deadline" has the meaning ascribed to it in Section 3.02(f).
"Environmental Law" means any federal, state, local or foreign law,
regulation, treaty, order, decree, permit, authorization, policy, opinion,
common law or agency requirement relating to: (A) the protection,
investigation or restoration of the environment, health and safety, or natural
resources; (B) the handling, use, presence, disposal, release or threatened
release of any chemical substance or waste; or (C) noise, odor, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" has the meaning ascribed to it in Section 5.04(b).
"Exchange Agent" has the meaning ascribed to it in Section 3.02(c).
"Excluded Cash" has the meaning ascribed to it in Section 2.02(b)(i).
"Existing Common Stock" means the Existing Series A Common Stock, the
Existing Series B Common Stock and the Existing Series C Common Stock.
"Existing Preferred Stock" means the Existing Series A Preferred Stock and
the Existing Series B Preferred Stock.
"Existing Series A Common Stock" has the meaning ascribed to it in the
recitals to this Agreement.
"Existing Series B Common Stock" has the meaning ascribed to it in the
recitals to this Agreement.
"Existing Series C Common Stock" has the meaning ascribed to it in the
recitals to this Agreement.
"Existing Series A Preferred Stock" means the Series A Preferred Stock, par
value $.01 per share, of the Company as of the date of this Agreement.
"Existing Series B Preferred Stock" has the meaning ascribed to it in the
recitals to this Agreement.
"FCC" means the Federal Communications Commission.
"FCC Approval" has the meaning ascribed to it in Section 5.04(b).
"FCC Licenses" means, with respect to any person, all licenses, permits and
other authorizations of the FCC that such person is required to hold in
connection with the operation of its business.
"FCC Regulations" has the meaning ascribed to it in Section 5.04(b).
"Final Order" has the meaning ascribed to it in Section 8.06.
"Florida Station Assets" has the meaning ascribed to it in Section
2.02(b)(v).
"Form of Election" has the meaning ascribed to it in Section 3.02(d).
"Form S-4" has the meaning ascribed to it in Section 8.04.
"FTC" has the meaning ascribed to it in Section 8.06.
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"GAAP" has the meaning ascribed to it in Section 4.01(a).
"Gannett Exchange Transactions" means the transactions set forth in that
certain Asset Exchange Agreement dated November 20, 1996 among certain
Subsidiaries of Gannett Co., Inc. and certain Subsidiaries of the Company, as
such agreement is in effect on the date hereof.
"Governmental or Regulatory Authority" has the meaning ascribed to it in
Section 5.04(a).
"Hazardous Substance" means any substance that is: (A) listed, classified or
regulated in any concentration pursuant to any Environmental Law; (B) any
petroleum product or by-product, asbestos-containing material, lead-containing
paint or plumbing, polychlorinated biphenyls, radioactive materials or radon;
or (C) any other substance which may be the subject of regulatory action by
any Governmental or Regulatory Authority pursuant to any Environmental Law.
"Hearst Broadcasting Productions" means a unit of Parent's WCVB division
engaged in the production of programming for cable networks and broadcast
stations.
"Holder Representatives" has the meaning ascribed to it in Section 3.02(g).
"HSR Act" has the meaning ascribed to it in Section 5.04(b).
"Indemnities" has the meaning ascribed to it in Section 8.11(a).
"Intangible Property" has the meaning ascribed to it in Section 2.02(a)(ix).
"IRS" means the United States Internal Revenue Service.
"knowledge" means, with respect to the Company or Parent (or any of their
respective Subsidiaries), to the knowledge of the executive officers and
directors of the Company or Parent, as the case may be.
"Laws" has the meaning ascribed to it in Section 5.04(a).
"Lien" has the meaning ascribed to it in Section 5.02(b).
"Liquidation Plans" means, collectively, the ATILP Liquidation Plan, the TIP
Liquidation Plan, the ATP Liquidation Plan and the ATIGP Liquidation Plan.
"Losses" has the meaning ascribed to it in Section 8.14.
"Material Parent Station Contracts" has the meaning ascribed to it in
Section 6.10.
"Material Subsidiary" means any direct or indirect "Significant Subsidiary"
of the Company as that term is defined in Rule 405 of the rules and
regulations promulgated under the Securities Act, or any Subsidiary of the
Company that either owns or operates a Company Station or holds an FCC
License.
"Merger" has the meaning ascribed to it in the recitals to this Agreement.
"Merger Sub Common Stock" has the meaning ascribed to it in Section 3.01(a).
"Missouri LMA" has the meaning ascribed to it in Section 2.02(b)(vi).
"Mixed Consideration" has the meaning ascribed to it in Section
3.01(c)(iii).
"Mixed Election" has the meaning ascribed to it in Section 3.02(a)(iii).
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"Mixed Election Cash Shares" has the meaning ascribed to it in Section
3.03(b).
"Mixed Election Shares" has the meaning ascribed to it in Section 3.03(b).
"Mixed Election Stock Shares" has the meaning ascribed to it in Section
3.03(c).
"Mixed Option Cash Shares" has the meaning ascribed to it in Section 3.03(b).
"Mixed Option Stock Shares" has the meaning ascribed to it in Section
3.03(c).
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"Non-Electing Company Common Shares" has the meaning ascribed to it in
Section 3.03(h).
"Non-Purchasing Party" has the meaning ascribed to it in Section 8.15.
"Option Cash" has the meaning ascribed to it in Section 3.01(e)(iii).
"Option Cash Difference" has the meaning ascribed to it in Section 3.07.
"Option Cash Election" has the meaning ascribed to it in Section 3.02(b)(ii).
"Option Cash Shares" has the meaning ascribed to it in Section 3.03(b).
"Option Election" has the meaning ascribed to it in Section 3.02(b).
"Option Election Form" has the meaning ascribed to it in Section 3.02(d).
"Option Mixed Consideration" has the meaning ascribed to it in Section
3.01(e)(iv).
"Option Mixed Election" has the meaning ascribed to it in Section
3.02(b)(iv).
"Option Rollover" has the meaning ascribed to it in Section 3.01(e)(i).
"Option Stock" has the meaning ascribed to it in Section 3.01(e)(ii).
"Option Stock Shares" has the meaning ascribed to it in Section 3.03(c).
"Options" has the meaning ascribed to it in Section 5.02(a).
"Orders" has the meaning ascribed to it in Section 5.04(a).
"Parent Adjustment Amount" has the meaning ascribed to it in Section 4.01(b).
"Parent Disclosure Letter" has the meaning ascribed to it in Article VI.
"Parent ERISA Affiliate" means an entity required to be aggregated (at any
relevant time) with Parent under Sections 414(b), (c), (m) or (o) of the Code
or Section 4001 of ERISA.
"Parent Material Adverse Effect" has the meaning ascribed to it in Section
6.01.
"Parent Permits" has the meaning ascribed to it in Section 6.09(a).
"Parent Station Assets" has the meaning ascribed to it in Section 2.02(a).
"Parent Station Assumed Liabilities" has the meaning ascribed to it in
Section 2.02(c).
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"Parent Station Balance Sheet" has the meaning ascribed to it in Section
4.01(a).
"Parent Station Business" has the meaning ascribed to it in Section 2.02(a).
"Parent Station Contracts" has the meaning ascribed to it in Section
2.02(a)(iv).
"Parent Station Employees" has the meaning ascribed to it in Section
2.02(f).
"Parent Station Employee Benefit Plan" means any Plan entered into,
established, maintained, contributed to or required to be contributed to by
Parent or any Parent ERISA Affiliate providing benefits to employees, former
employees, independent contractors, former independent contractors of the
Parent Station Business or their dependents or beneficiaries.
"Parent Station Excluded Assets" has the meaning ascribed to it in Section
2.02(b).
"Parent Station Excluded Liabilities" has the meaning ascribed to it in
Section 2.02(d).
"Parent Station Financial Statements" has the meaning ascribed to it in
Section 6.05.
"Parent Station Leases" has the meaning ascribed to it in Section
2.02(a)(iii).
"Parent Station Net Assets" means an amount equal to (i) the total current
assets of the Parent Station Business, but only to the extent included in the
Parent Station Assets, less (ii) the total current liabilities of the Parent
Station Business, but only to the extent included in the Parent Station
Assumed Liabilities.
"Parent Station Permits" has the meaning ascribed to it in Section
2.02(a)(v).
"Parent Station Statement of Net Assets" has the meaning ascribed to it in
Section 4.01(a).
"Parent Station Tangible Property" has the meaning ascribed to it in Section
2.02(a)(i).
"Per Share Amount" has the meaning ascribed to it in Section 3.01(f).
"Permitted Liens" means, with respect to any asset or property, (i)
statutory liens for current taxes or assessments (A) not yet due and payable
or delinquent or (B) being contested in good faith and, in respect of which
adequate reserves have been established in accordance with GAAP; (ii)
mechanics', carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary course of business relating to obligations not yet
due and payable; (iii) exceptions that would be shown by surveys or personal
inspection of such property that do not individually or in the aggregate
materially adversely affect the ability to use the particular property
involved as currently used; (iv) terms and conditions of any leases with
respect to such asset or property; (v) such easements, restrictions,
encumbrances or other matters which are due to zoning and subdivision laws and
regulations that do not individually or in the aggregate materially adversely
affect the ability to use the particular property as currently used; (vi) such
defects in title, easements, restrictions, encumbrances or other matters which
do not have a Company Material Adverse Effect or a Parent Material Adverse
Effect, as the case may be.
"Plan" means any employment, bonus, incentive compensation, collective
bargaining, deferred compensation, pension, profit sharing, retirement, stock
purchase, stock option, stock ownership, stock appreciation rights, phantom
stock, leave of absence, layoff, vacation, day or dependent care, legal
services, cafeteria, life, health, medical, accident, disability, workmen's
compensation or other insurance, severance, separation, termination, change of
control or other benefit plan, agreement, practice, policy or arrangement of
any kind, whether written or oral, including, but not limited to any "employee
benefit plan" within the meaning of Section 3(3) of ERISA.
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"Private Placement Debt" means the indebtedness of Parent under Parent's
7.87% Series A Senior Notes due 2001, 8.01% Series B Senior Notes due 2002,
and Series C Senior Notes due 2003, which indebtedness shall not exceed in the
aggregate Two Hundred Seventy-Five Million Dollars ($275,000,000).
"Pro Forma Financial Statements" has the meaning ascribed to it in Section
5.05(b).
"Proxy Statement/Prospectus" has the meaning ascribed to it in Section 8.04.
"Purchasing Party" has the meaning ascribed to it in Section 8.15.
"Radio Assets" has the meaning ascribed to it in Section 2.02(b)(iii).
"Refinancing" has the meaning ascribed to it in Section 9.01(h).
"Registration Rights Agreement" has the meaning ascribed to it in the
recitals to this Agreement.
"Representatives" has the meaning ascribed to it in Section 8.01.
"Restated Charter" has the meaning ascribed to it in the recitals to this
Agreement.
"SEC" has the meaning ascribed to it in Section 5.04(b).
"Secretary of State" has the meaning ascribed to it in Section 1.02.
"Securities Act" has the meaning ascribed to it in Section 5.04(b).
"Series A Common Stock" has the meaning ascribed to it in the recitals to
this Agreement.
"Series A Preferred Stock" means the Series A Preferred Stock, par value
$.01 per share, of the Company.
"Series B Common Stock" means the Series B Common Stock, par value $.01 per
share, of the Company.
"Series B Preferred Stock" means the Series B Preferred Stock, par value
$.01 per share, of the Company.
"Series C Common Stock" has the meaning ascribed to it in the recitals to
this Agreement.
"Stock Conversion Number" has the meaning ascribed to it in Section 3.03(a).
"Stock Contribution" has the meaning ascribed to it in Section 3.01(c)(i).
"Stock Election" has the meaning ascribed to it in Section 3.02(a)(ii).
"Stock Election Shares" has the meaning ascribed to it in Section 3.03(c).
"Stock Proration Factor" has the meaning ascribed to it in Section
3.03(c)(i).
"Subsidiary" has the meaning ascribed to it in Section 5.01.
"Surviving Corporation" has the meaning ascribed to it in Section 1.01.
"Surviving Corporation Options" has the meaning ascribed to it in Section
3.01(e)(i).
"Surviving Corporation Series A Common Stock" has the meaning ascribed to it
in Section 3.01(c)(i).
"Surviving Corporation Series A Preferred Stock" has the meaning ascribed to
it in Section 3.01(d).
"Surviving Corporation Series B Common Stock" has the meaning ascribed to it
in Section 3.01(a).
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"Surviving Corporation Series B Preferred Stock" has the meaning ascribed to
it in Section 3.01(d).
"Taxes" has the meaning ascribed to it in Section 2.02(b)(iv).
"Tax Refund" has the meaning ascribed to it in Section 2.02(b)(iv).
"TIP" has the meaning ascribed to it in the recitals to this Agreement.
"TIP Liquidation Plan" has the meaning ascribed to it in the recitals to
this Agreement.
"Transfer Taxes" means all sales, use, transfer, real property transfer,
recording, gains and other similar taxes and fees arising out of or in
connection with the transactions effected pursuant to this Agreement.
"Unaudited 1996 Financial Statements" has the meaning ascribed to it in
Section 5.05(a).
"Voting Agreements" has the meaning ascribed to it in the recitals to this
Agreement.
11.03 Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to Parent or Merger Sub, to:
The Hearst Corporation
959 Eighth Avenue
New York, New York 10010
Telephone No.: (212) 649-2000
Facsimile No.: (212) 649-2035
Attn: Victor F. Ganzi
with a copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Telephone No.: (212) 878-8000
Facsimile No.: (212) 878-8375
Attn: Steven A. Hobbs, Esq.
If to the Company, to:
Argyle Television, Inc.
200 Concord Plaza, Suite 700
San Antonio, Texas 78216
Telephone No.: (210) 828-1700
Facsimile No.: (210) 828-7300
Attn: Dean H. Blythe
with a copy to:
Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Telephone No.: (214) 740-8000
Facsimile No.: (214) 740-8800
Attn: Guy Kerr, Esq.
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All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number
as provided in this Section, be deemed given upon receipt, and (iii) if
delivered by mail in the manner described above to the address as provided in
this Section, be deemed given upon receipt (in each case regardless of whether
such notice, request or other communication is received by any other person to
whom a copy of such notice is to be delivered pursuant to this Section). Any
party from time to time may change its address, facsimile number or other
information for the purpose of notices to that party by giving notice
specifying such change to the other parties hereto.
11.04 Entire Agreement. This Agreement, including the exhibits, schedules
and any other documents referenced herein, supersedes all prior discussions
and agreements among the parties hereto with respect to the subject matter
hereof and, together with the Parent Disclosure Letter and the Company
Disclosure Letter, contains the sole and entire agreement among the parties
hereto with respect to the subject matter hereof.
11.05 Public Announcements. Except as otherwise required by law or the rules
of any applicable securities exchange or national market system, so long as
this Agreement is in effect, Parent and the Company will not, and will not
permit any of their respective Subsidiaries and their Representatives to,
issue or cause the publication of any press release or make any other public
announcement with respect to the transactions contemplated by this Agreement
without the consent of the other party, which consent shall not be
unreasonably withheld. Parent and the Company will cooperate with each other
in the development and distribution of all press releases and other public
announcements with respect to this Agreement and the transactions contemplated
hereby, and will furnish the other with drafts of any such releases and
announcements as far in advance as practicable.
11.06 No Third Party Beneficiary. The terms and provisions of this Agreement
are intended solely for the benefit of each party hereto and their respective
successors or permitted assigns, and except as provided in Section 8.09, 8.10
and 8.14 (which are intended to be for the benefit of the persons entitled to
therein, and may be enforced by any of such persons), it is not the intention
of the parties to confer third-party beneficiary rights upon any other person.
11.07 No Assignment; Binding Effect. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned by any party hereto without
the prior written consent of the other parties hereto and any attempt to do so
will be void.
11.08 Headings. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions
hereof.
11.09 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the legal, invalid or unenforceable
provision or by its severance herefrom and (iv) in lieu of such illegal,
invalid or unenforceable provision, there will be added automatically as a
part of this Agreement a legal, valid and enforceable provision as similar in
terms to such illegal, invalid or unenforceable provision as may be possible.
11.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to a contract
executed and performed in such State without giving effect to the conflicts of
laws principles thereof.
11.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
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IN WITNESS WHEREOF, each party hereto has caused this Agreement to be signed
by its officer thereunto duly authorized as of the date first above written.
The Hearst Corporation
/s/ Victor F. Ganzi
By:__________________________________
Name: Victor F. Ganzi
Title: Executive Vice President
Hat Merger Sub, Inc.
/s/ Jonathan E. Thackeray
By:__________________________________
Name: Jonathan E. Thackeray
Title: President
Hat Contribution Sub, Inc.
/s/ Jonathan E. Thackeray
By:__________________________________
Name: Jonathan E. Thackeray
Title: President
Argyle Television, Inc.
/s/ Bob Marbut
By:__________________________________
Name: Bob Marbut
Title: Chairman and Chief
Executive Officer
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EXHIBIT A
TO MERGER AGREEMENT
FORM OF RESTATED CHARTER
See Appendix C to the Proxy Statement/Prospectus
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EXHIBIT B
TO MERGER AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of , 1997, among Hearst/Argyle
Television, Inc., a Delaware corporation (the "Company"), and the Holders (as
defined below).
WHEREAS, in connection with the Amended and Restated Agreement and Plan of
Merger, dated as of March 26, 1997 (the "Merger Agreement"), among The Hearst
Corporation, a Delaware corporation, the Company, HAT Merger Sub, Inc., a
Delaware corporation, HAT Contribution Sub, Inc., a Delaware corporation and
Argyle Television, Inc., a Delaware corporation, each initial Holder may
receive shares of Common Stock (as defined below); and
WHEREAS, the Company has agreed to provide each Holder with the registration
rights set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
Section 1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have the meaning set forth in Section 5 hereof.
"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control" when used with respect to any specified person means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day that is not a Saturday, a Sunday or a legal
holiday on which banking institutions in the State of New York are not
required to be open.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of
corporate stock issued by such person, including each class of common stock
and preferred stock of such person.
"Common Stock" means the Series A Common Stock, par value $.01 per share, of
the Company or any other shares of capital stock or other securities of the
Company into which such shares of Common Stock shall be reclassified or
changed, including, by reason of a merger, consolidation, reorganization or
recapitalization. If the Common Stock has been so reclassified or changed, or
if the Company pays a dividend or makes a distribution on the Common Stock in
shares of capital stock, or subdivides (or combines) its outstanding shares of
Common Stock into a greater (or smaller) number of shares of Common Stock, a
share of Common Stock shall be deemed to be such number of shares of stock and
amount of other securities to which a holder of a share of Common Stock
outstanding immediately prior to such change, reclassification, exchange,
dividend, distribution, subdivision or combination would be entitled.
"Company" shall have the meaning set forth in the introductory clauses
hereof.
"Company Common Stock" shall have the meaning specified in the Merger
Agreement.
"Delay Period" shall have the meaning set forth in Section 2(e) hereof.
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"Demand Notice" shall have the meaning set forth in Section 2(a) hereof.
"Demand Registration" shall have the meaning set forth in Section 2(b)
hereof.
"Effectiveness Period" shall have the meaning set forth in Section 2(e)
hereof.
"Effective Time" shall have the meaning specified in the Merger Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Hold Back Period" shall have the meaning set forth in Section 4 hereof.
"Holder" means a person who owns Registrable Shares and is named on the
signature pages hereof as a Holder.
"Interruption Period" shall have the meaning set forth in Section 5 hereof.
"Merger Agreement" shall have the meaning set forth in the introductory
clauses hereof.
"NASD" means the National Association of Securities Dealers, Inc.
"person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Piggyback Registration" shall have the meaning set forth in Section 3
hereof.
"Prospectus" means the prospectus included in any Registration Statement
(including a prospectus that discloses information previously omitted from a
prospectus filed as part of an effective registration statement in reliance
upon Rule 430A), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable Shares
covered by such Registration Statement and all other amendments and
supplements to such prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference
in such prospectus.
"Registrable Shares" means the shares of Common Stock issued to each Holder
in the Merger, other than shares of Common Stock issued in respect of shares
of Company Common Stock that prior to the Merger (i) were registered under
Section 5 of the Securities Act and disposed of pursuant to an effective
Registration Statement or (ii) were transferred pursuant to Rule 144 under the
Securities Act .
"Registration" means registration under the Securities Act of an offering of
Registrable Shares pursuant to a Demand Registration or a Piggyback
Registration.
"Registration Period" shall have the meaning set forth in Section 2(a)
hereof.
"Registration Statement" means any registration statement under the
Securities Act of the Company that covers any of the Registrable Shares
pursuant to the provisions of this Agreement, including the related
Prospectus, all amendments and supplements to such registration statement,
including pre- and post-effective amendments, all exhibits thereto and all
material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the SEC promulgated thereunder.
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"underwritten registration or underwritten offering" means a registration
under the Securities Act in which securities of the Company are sold to an
underwriter for reoffering to the public.
Section 2. DEMAND REGISTRATION. (a) The Holders of at least 330,000 of the
Registrable Shares held by all Holders shall have the right, during the period
(the "Registration Period") commencing on the date which is one hundred and
eighty (180) days after the Effective Time and ending on the date which is
five hundred and forty (540) days after the Effective Time (except as provided
in the last sentence of this Section 2), by written notice (the "Demand
Notice") given to the Company, to request the Company to register under and in
accordance with the provisions of the Securities Act for distribution by means
of a firm commitment underwritten public offering all or any portion of the
Registrable Shares designated by such Holders; provided, however, that the
right of the Holders hereunder to request a registration pursuant to this
Section 2 shall terminate and be of no further force and effect in the event
that at least 90% of the Registrable Shares requested by Holders to be
included in a Piggyback Registration pursuant to Section 3 are sold. Upon
receipt of any such Demand Notice, the Company shall promptly notify all other
Holders of the receipt of such Demand Notice and allow them the opportunity to
include Registrable Shares held by them in the proposed registration by
submitting their own Demand Notice. In connection with any Demand Registration
in which more than one Holder participates, in the event that the managing
underwriter or underwriters participating in such offering advise in writing
the Holders of Registrable Shares to be included in such offering that the
total number of Registrable Shares to be included in such offering exceeds the
amount that can be sold in (or during the time of) such offering without
delaying or jeopardizing the success of such offering (including the price per
share of the Registrable Shares to be sold), then the amount of Registrable
Shares to be offered for the account of such Holders shall be reduced pro rata
on the basis of the number of Registrable Shares to be registered by each such
Holder. The Holders as a group shall be entitled to one Demand Registration
pursuant to this Section 2 unless any Demand Registration does not become
effective or is not maintained for a period (whether or not continuous) of at
least one hundred and twenty (120) days (or such shorter period as shall
terminate when all the Registrable Shares covered by such Demand Registration
have been sold pursuant thereto), in which case the Holders will be entitled
within thirty (30) days thereafter to request an additional Demand
Registration pursuant hereto.
(b) The Company, within ninety (90) days of the date on which the Company
receives a Demand Notice given by Holders in accordance with Section 2(a)
hereof, shall file with the SEC, and the Company shall thereafter use its best
efforts to cause to be declared effective, a Registration Statement on the
appropriate form for the registration and sale, in accordance with the
intended method or methods of distribution, of the total number of Registrable
Shares specified by the Holders in such Demand Notice (a "Demand
Registration").
(c) Notwithstanding the foregoing, the Company shall not have any obligation
to effect a Demand Registration pursuant to this Section 2 unless (i) the
gross proceeds from the sale of the Registrable Shares included in the Demand
Registration are expected to be at least $45 million, and (ii) at the date of
the Demand Notice, the average daily trading volume of the Common Stock for
the prior sixty (60) trading days as reported by the national securities
exchange or automated interdealer quotation system on which the Common Stock
is so listed or quoted is less than 150,000 shares.
(d) The Company shall use commercially reasonable efforts to keep each
Registration Statement filed pursuant to this Section 2 continuously effective
and usable for the resale of the Registrable Shares covered thereby until the
earlier of (i) one hundred and twenty (120) days from the date on which the
SEC declares such Registration Statement effective and (ii) until all the
Registrable Shares covered by such Registration Statement have been sold
pursuant to such Registration Statement.
(e) The Company shall be entitled to postpone the filing of any Registration
Statement otherwise required to be prepared and filed by the Company pursuant
to this Section 2, or suspend the use of any effective Registration Statement
under this Section 2, for a reasonable period of time, but not in excess of
ninety (90) days (a "Delay Period"), if the Board of the Company determines
that in its reasonable judgment and good faith the registration and
distribution of the Registrable Shares covered or to be covered by such
Registration
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Statement would materially impede, delay or interfere with any pending
material financing, acquisition or corporate reorganization or other material
corporate development involving the Company or any of its subsidiaries or
would require premature disclosure thereof and promptly gives the Holders
written notice of such determination, containing a general statement of the
reasons for such postponement and an approximation of the period of the
anticipated delay; provided, however, that (i) the aggregate number of days
included in all Delay Periods during any consecutive 12 months shall not
exceed the aggregate of (x) one hundred and eighty (180) days minus (y) the
number of days occurring during all Hold Back Periods and Interruption Periods
during such consecutive 12 months and (ii) a period of at least sixty (60)
days shall elapse between the termination of any Delay Period, Hold Back
Period or Interruption Period and the commencement of the immediately
succeeding Delay Period. If the Company shall so postpone the filing of a
Registration Statement, the Holders of Registrable Shares to be registered
shall have the right to withdraw the request for registration by giving
written notice from the Holders of a majority of the Registrable Shares that
were to be registered to the Company within forty-five (45) days after receipt
of the notice of postponement or, if earlier, the termination of such Delay
Period (and, in the event of such withdrawal, such request shall not be
counted for purposes of determining the number of requests for registration to
which the Holders of Registrable Shares are entitled pursuant to this Section
2). The time period for which the Company is required to maintain the
effectiveness of any Registration Statement shall be extended by the aggregate
number of days of all Delay Periods, all Hold Back Periods and all
Interruption Periods occurring during such Registration and such period and
any extension thereof is hereinafter referred to as the "Effectiveness
Period." The Company shall not be entitled to initiate a Delay Period unless
it shall (A) to the extent permitted by agreements with other security holders
of the Company, concurrently prohibit sales by such other security holders
under registration statements covering securities held by such other security
holders and (B) in accordance with the Company's policies from time to time in
effect, forbid purchases and sales in the open market by senior executives of
the Company.
(f) The Company shall have the right in its sole discretion to include any
securities that are not Registrable Shares ("Non-Registrable Securities") in
any Registration Statement filed pursuant to this Section 2; provided,
however, that in the event the managing underwriter or underwriters
participating in such offering advises the Company in writing that the total
number of Non-Registrable Securities to be included in such offering exceeds
the amount that can be sold in (or during the time of) such offering without
delaying or jeopardizing the success of such offering (including the price per
share of the Registrable Shares to be sold), then the amount of Non-
Registrable Securities to be offered for the account of the Company shall be
reduced to an amount that the managing underwriter or underwriters
participating in the offering reasonably determine can be sold in such
offering without materially delaying or jeopardizing the success of such
offering.
(g) Holders of a majority in number of the Registrable Shares to be included
in a Registration Statement pursuant to this Section 2 may, at any time prior
to the effective date of the Registration Statement relating to such
Registration, revoke such request by providing a written notice to the Company
revoking such request. The Holders of Registrable Shares who revoke such
request shall reimburse the Company for all of its out-of-pocket expenses
incurred in the preparation, filing and processing of the Registration
Statement; provided, however, that, if such revocation was based on the
Company's failure to comply in any material respect with its obligations
hereunder, such reimbursement shall not be required.
Section 3. PIGGYBACK REGISTRATION. (a) Right to Piggyback. If at any time
during the period commencing on the date of this Agreement and ending on the
date which is five hundred and forty (540) days after the Effective Time the
Company proposes to file a registration statement under the Securities Act
with respect to a public offering of securities of the same type as the
Registrable Shares pursuant to a firm commitment underwritten public offering
solely for cash for its own account (other than a registration statement (i)
on Form S-8 or any successor forms thereto, or (ii) filed solely in connection
with a dividend reinvestment plan or employee benefit plan covering officers
or directors of the Company or its Affiliates) or for the account of any
holder of securities of the same type as the Registrable Shares (to the extent
that the Company has the right to include Registrable Shares in any
registration statement to be filed by the Company on behalf of such holder but
excluding a Demand Registration), then the Company shall give written notice
of such proposed filing
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to the Holders at least fifteen (15) days before the anticipated filing date.
Such notice shall offer the Holders the opportunity to register such amount of
Registrable Shares as they may request (a "Piggyback Registration"). Subject
to Section 3(b) hereof, the Company shall include in each such Piggyback
Registration all Registrable Shares with respect to which the Company has
received written requests for inclusion therein within ten (10) days after
notice has been given to the Holders. Each Holder shall be permitted to
withdraw all or any portion of the Registrable Shares of such Holder from a
Piggyback Registration at any time prior to the effective date of such
Piggyback Registration; provided, however, that if such withdrawal occurs
after the filing of the Registration Statement with respect to such Piggyback
Registration, the withdrawing Holders shall reimburse the Company for the
portion of the registration expenses payable with respect to the Registrable
Shares so withdrawn.
(b) Priority on Piggyback Registrations. The Company shall use commercially
reasonable efforts to cause the managing underwriter of an underwritten public
offering to permit the Holders to include all such Registrable Shares on the
same terms and conditions as any similar securities, if any, of the Company
included therein. Notwithstanding the foregoing, if the Company or the
managing underwriter or underwriters participating in such offering advise the
Holders in writing that the total amount of securities requested to be
included in such Piggyback Registration exceeds the amount which can be sold
in (or during the time of) such offering without delaying, jeopardizing or
otherwise adversely affecting the success of the offering (including the price
per share of the securities to be sold), then the amount of securities to be
offered for the account of the Holders and other holders of securities who
have piggyback registration rights with respect thereto shall be reduced (to
zero if necessary) pro rata on the basis of the number of common stock
equivalents requested to be registered by each such Holder or holder
participating in such offering.
(c) Right To Abandon. Nothing in this Section 3 shall create any liability
on the part of the Company to the Holders if the Company in its sole
discretion should decide not to file a registration statement proposed to be
filed pursuant to Section 3(a) hereof or to withdraw such registration
statement subsequent to its filing, regardless of any action whatsoever that a
Holder may have taken, whether as a result of the issuance by the Company of
any notice hereunder or otherwise.
Section 4. HOLDBACK AGREEMENT. If (i) the Company shall file a registration
statement (other than in connection with the registration of securities
issuable pursuant to an employee stock option, stock purchase or similar plan
or pursuant to a merger, exchange offer or a transaction of the type specified
in Rule 145(a) under the Securities Act) with respect to the Common Stock or
similar securities or securities convertible into, or exchangeable or
exercisable for, such securities and (ii) with reasonable prior notice, the
Company (in the case of a nonunderwritten public offering by the Company
pursuant to such registration statement) advises the Holders in writing that a
public sale or distribution of such Registrable Shares would materially
adversely affect such offering or the managing underwriter or underwriters (in
the case of an underwritten public offering by the Company pursuant to such
registration statement) advises the Company in writing (in which case the
Company shall notify the Holders) that a public sale or distribution of
Registrable Shares would materially adversely impact such offering, then each
Holder shall, to the extent not inconsistent with applicable law, refrain from
effecting any public sale or distribution of Registrable Shares during the ten
days prior to the effective date of such registration statement and until the
earliest of (A) the abandonment of such offering, (B) one hundred and twenty
(120) days from the effective date of such registration statement and (C) if
such offering is an underwritten offering, the termination in whole or in part
of any "hold back" period obtained by the underwriter or underwriters in such
offering from the Company in connection therewith (each such period, a "Hold
Back Period").
Section 5. REGISTRATION PROCEDURES. In connection with the registration
obligations of the Company pursuant to and in accordance with Sections 2 and 3
hereof (and subject to Sections 2 and 3 hereof), the Company shall use
commercially reasonable efforts to effect such registration to permit the sale
of such Registrable Shares in accordance with the intended method or methods
of disposition thereof, and pursuant thereto the Company shall as
expeditiously as practicable (but subject to Sections 2 and 3 hereof):
(a) prepare and file with the SEC a Registration Statement for the sale
of the Registrable Shares on any form for which the Company then qualifies
or which counsel for the Company shall deem appropriate
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in accordance with such Holders' intended method or methods of distribution
thereof, subject to Section 2(b) hereof, and, subject to the Company's
right to terminate or abandon a registration pursuant to Section 3(c)
hereof, use commercially reasonable efforts to cause such Registration
Statement to become effective and remain effective as provided herein;
(b) prepare and file with the SEC such amendments (including post-
effective amendments) to such Registration Statement, and such supplements
to the related Prospectus, as may be required by the rules, regulations or
instructions applicable to the Securities Act during the applicable period
in accordance with the intended methods of disposition specified by the
Holders of the Registrable Shares covered by such Registration Statement,
make generally available earnings statements satisfying the provisions of
Section 11(a) of the Securities Act (provided that the Company shall be
deemed to have complied with this clause if it has complied with Rule 158
under the Securities Act), and cause the related Prospectus as so
supplemented to be filed pursuant to Rule 424 under the Securities Act;
provided, however, that before filing a Registration Statement or
Prospectus, or any amendments or supplements thereto (other than reports
required to be filed by it under the Exchange Act), the Company shall
furnish to the Holders of Registrable Shares covered by such Registration
Statement and their counsel for review and comment, copies of all documents
required to be filed;
(c) notify the Holders of any Registrable Shares covered by such
Registration Statement promptly and (if requested) confirm such notice in
writing, (i) when a Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to such Registration
Statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the SEC for amendments or supplements to
such Registration Statement or the related Prospectus or for additional
information regarding such Holders, (iii) of the issuance by the SEC of any
stop order suspending the effectiveness of such Registration Statement or
the initiation of any proceedings for that purpose, (iv) of the receipt by
the Company of any notifications with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, and (v) of the happening of any event that
requires the making of any changes in such Registration Statement,
Prospectus or documents incorporated or deemed to be incorporated therein
by reference so that they will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(d) use commercially reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of such Registration Statement, or the
lifting of any suspension of the qualification or exemption from
qualification of any Registrable Shares for sale in any jurisdiction in the
United States;
(e) furnish to the Holder of any Registrable Shares covered by such
Registration Statement, each counsel for such Holders and each managing
underwriter, if any, without charge, one conformed copy of such
Registration Statement, as declared effective by the SEC, and of each post-
effective amendment thereto, in each case including financial statements
and schedules and all exhibits and reports incorporated or deemed to be
incorporated therein by reference; and deliver, without charge, such number
of copies of the preliminary prospectus, any amended preliminary
prospectus, each final Prospectus and any post-effective amendment or
supplement thereto, as such Holder may reasonably request in order to
facilitate the disposition of the Registrable Shares of such Holder covered
by such Registration Statement in conformity with the requirements of the
Securities Act;
(f) prior to any public offering of Registrable Shares covered by such
Registration Statement, use commercially reasonable efforts to register or
qualify such Registrable Shares for offer and sale under the securities or
blue sky laws of such jurisdictions as the Holders of such Registrable
Shares shall reasonably request in writing; provided, however, that the
Company shall in no event be required to qualify generally to do business
as a foreign corporation or as a dealer in any jurisdiction where it is not
at the time so qualified or to execute or file a general consent to service
of process in any such jurisdiction where it has not theretofore done so or
to take any action that would subject it to general service of process or
taxation in any such jurisdiction where it is not then subject;
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(g) upon the occurrence of any event contemplated by paragraph 5(c)(v)
above, prepare a supplement or post-effective amendment to such
Registration Statement or the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference and file any
other required document so that, as thereafter delivered to the purchasers
of the Registrable Shares being sold thereunder (including upon the
termination of any Delay Period), such Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(h) use commercially reasonable efforts to cause all Registrable Shares
covered by such Registration Statement to be listed on each securities
exchange or automated interdealer quotation system, if any, on which
similar securities issued by the Company are then listed or quoted;
(i) on or before the effective date of such Registration Statement,
provide the transfer agent of the Company for the Registrable Shares with
printed certificates for the Registrable Shares covered by such
Registration Statement, which are in a form eligible for deposit with The
Depository Trust Company;
(j) make available for inspection by any Holder of Registrable Shares
included in such Registration Statement, any underwriter participating in
any offering pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by any such Holder or underwriter
(collectively, the "Inspectors"), all financial and other records and other
information, pertinent corporate documents and properties of any of the
Company and its subsidiaries and affiliates (collectively, the "Records"),
as shall be reasonably necessary to enable them to exercise their due
diligence responsibilities; provided, however, that the Records that the
Company determines, in good faith, to be confidential and which it notifies
the Inspectors in writing are confidential shall not be disclosed to any
Inspector unless such Inspector signs a confidentiality agreement
reasonably satisfactory to the Company but in any event permitting
disclosure by an Inspector if either (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such
Registration Statement or (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction; provided further, however, that (A) any decision regarding
the disclosure of information pursuant to subclause (i) shall be made only
after consultation with counsel for the applicable Inspectors and the
Company and (B) with respect to any release of Records pursuant to
subclause (ii), each Holder of Registrable Shares agrees that it shall,
promptly after learning that disclosure of such Records is sought in a
court having jurisdiction, give notice to the Company so that the Company,
at the Company's expense, may undertake appropriate action to prevent
disclosure of such Records; and
(k) enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in underwritten offerings) and
take all such other appropriate and reasonable actions requested by the
Holders of a majority of the Registrable Shares being sold in connection
therewith (including those reasonably requested by the managing
underwriters) in order to expedite or facilitate the disposition of such
Registrable Shares, and in such connection (i) use commercially reasonable
efforts to obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters and counsel to the
Holders of the Registrable Shares being sold), addressed to each selling
Holder of Registrable Shares covered by such Registration Statement and
each of the underwriters as to the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be
reasonably requested by such counsel and underwriters, (ii) use
commercially reasonable efforts to obtain "cold comfort" letters and
updates thereof from the independent certified public accountants of the
Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by
the Company for which financial statements and financial data are, or are
required to be, included in the Registration Statement), addressed to each
selling Holder of Registrable Shares covered by the Registration Statement
(unless such accountants shall be prohibited from so addressing such
letters by applicable standards of the accounting profession) and each of
the underwriters, such letters to be in customary form and covering matters
of the type customarily covered in "cold comfort" letters in connection
with underwritten offerings, (iii) if requested and if an underwriting
agreement is entered into, provide indemnification provisions and
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procedures substantially to the effect set forth in Section 8 hereof with
respect to all parties to be indemnified pursuant to said Section. The
above shall be done at each closing under such underwriting or similar
agreement, or as and to the extent required thereunder.
The Company may require each Holder of Registrable Shares covered by a
Registration Statement to furnish such information regarding such Holder and
such Holder's intended method of disposition of such Registrable Shares as it
may from time to time reasonably request in writing. If any such information
is not furnished within a reasonable period of time after receipt of such
request, the Company may exclude such Holder's Registrable Shares from such
Registration Statement.
Each Holder of Registrable Shares covered by a Registration Statement agrees
that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(iv) or
5(c)(v) hereof, that such Holder shall forthwith discontinue disposition of
any Registrable Shares covered by such Registration Statement or the related
Prospectus until receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 5(g) hereof, or until such Holder is
advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amended
or supplemented Prospectus or any additional or supplemental filings which are
incorporated, or deemed to be incorporated, by reference in such Prospectus
(such period during which disposition is discontinued being an "Interruption
Period") and, if requested by the Company, the Holder shall deliver to the
Company (at the expense of the Company) all copies then in its possession,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Registrable Shares at the time of receipt of such
request.
Each Holder of Registrable Shares covered by a Registration Statement
further agrees not to utilize any material other than the applicable current
preliminary prospectus or Prospectus in connection with the offering of such
Registrable Shares.
Section 6. REGISTRATION EXPENSES. Whether or not any Registration Statement
is filed or becomes effective, the Company shall pay all costs, fees and
expenses incident to the Company's performance of or compliance with this
Agreement, including (i) all registration and filing fees, including NASD
filing fees, (ii) all fees and expenses of compliance with securities or blue
sky laws, including reasonable fees and disbursements of counsel in connection
therewith, (iii) printing expenses (including expenses of printing
certificates for Registrable Shares and of printing prospectuses if the
printing of prospectuses is requested by the Holders or the managing
underwriter, if any), (iv) messenger, telephone and delivery expenses, (v)
fees and disbursements of counsel for the Company, (vi) fees and disbursements
of all independent certified public accountants of the Company (including
expenses of any "cold comfort" letters required in connection with this
Agreement) and all other persons retained by the Company in connection with
such Registration Statement, (vii) reasonable fees and disbursements of one
counsel, other than the Company's counsel, selected by Holders of a majority
of the Registrable Shares being registered, to represent all such Holders,
(viii) fees and disbursements of underwriters customarily paid by the issuers
or sellers of securities and (ix) all other costs, fees and expenses incident
to the Company's performance or compliance with this Agreement.
Notwithstanding the foregoing, the fees and expenses of any persons retained
by any Holder, other than one counsel for all such Holders, and any discounts,
commissions or brokers' fees or fees of similar securities industry
professionals and any transfer taxes relating to the disposition of the
Registrable Shares by a Holder, will be payable by such Holder and the Company
will have no obligation to pay any such amounts.
Section 7. UNDERWRITING REQUIREMENTS. In the case of any underwritten
offering pursuant to either a Demand Registration or a Piggyback Registration,
the Company shall select the institution or institutions that shall manage or
lead such offering. No Holder shall be entitled to participate in an
underwritten offering unless and until such Holder has entered into an
underwriting or other agreement with such institution or institutions for such
offering in such form as the Company and such institution or institutions
shall determine and has completed and executed all questionnaires, powers of
attorney, indemnities and other documents reasonably required under the terms
of such underwriting arrangements.
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Section 8. INDEMNIFICATION. Indemnification by the Company. The Company
shall, without limitation as to time, indemnify and hold harmless, to the full
extent permitted by law, each Holder of Registrable Shares whose Registrable
Shares are covered by a Registration Statement or Prospectus, the officers,
directors and agents and employees of each of them, each Person who controls
each such Holder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling person, to the fullest extent lawful, from
and against any and all losses, claims, damages, liabilities, judgment, costs
(including, without limitation, costs of preparation and reasonable attorneys'
fees) and expenses (collectively, "Losses"), as incurred, arising out of or
based upon any untrue or alleged untrue statement of a material fact contained
in such Registration Statement or Prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based upon any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
the same are based upon information furnished in writing to the Company by or
on behalf of such Holder expressly for use therein; provided, however, that
the Company shall not be liable to any such Holder to the extent that any such
Losses arise out of or are based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any preliminary prospectus
if (i) having previously been furnished by or on behalf of the Company with
copies of the Prospectus, such Holder failed to send or deliver a copy of the
Prospectus with or prior to the delivery of written confirmation of the sale
of Registrable Shares by such Holder to the person asserting the claim from
which such Losses arise and (ii) the Prospectus would have corrected in all
material respects such untrue statement or alleged untrue statement or such
omission or alleged omission; and provided further, however, that the Company
shall not be liable in any such case to the extent that any such Losses arise
out of or are based upon an untrue statement or alleged untrue statement or
omission or alleged omission in the Prospectus, if (x) such untrue statement
or alleged untrue statement, omission or alleged omission is corrected in all
material respects in an amendment or supplement to the Prospectus and (y)
having previously been furnished by or on behalf of the Company with copies of
the Prospectus as so amended or supplemented, such Holder thereafter fails to
deliver such Prospectus as so amended or supplemented, prior to or
concurrently with the sale of Registrable Shares.
(b) Indemnification by Holder of Registrable Shares. In connection with any
Registration Statement in which a Holder is participating, such Holder shall
furnish to the Company in writing such information as the Company reasonably
requests for use in connection with such Registration Statement or the related
Prospectus and agrees to indemnify, to the full extent permitted by law, the
Company, its directors, officers, agents or employees, each Person who
controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act) and the directors, officers, agents or
employees of such controlling Persons, from and against all Losses arising out
of or based upon any untrue or alleged untrue statement of a material fact
contained in such Registration Statement or the related Prospectus or any
amendment or supplement thereto, or any preliminary prospectus, or arising out
of or based upon any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue or alleged
untrue statement or omission or alleged omission is based upon any information
so furnished in writing by or on behalf of such Holder to the Company
expressly for use in such Registration Statement or Prospectus.
(c) Conduct of Indemnification Proceedings. If any Person shall be entitled
to indemnity hereunder (an "indemnified party"), such indemnified party shall
give prompt notice to the party from which such indemnify is sought (the
"indemnifying party") of any claim or of the commencement of any proceeding
with respect to which such indemnified party seeks indemnification or
contribution pursuant hereto; provided, however, that the delay or failure to
so notify the indemnifying party shall not relieve the indemnifying party from
any obligation or liability except to the extent that the indemnifying party
has been prejudiced by such delay or failure. The indemnifying party shall
have the right, exercisable by giving written notice to an indemnified party
promptly after the receipt of written notice from such indemnified party of
such claim or proceeding, to assume, at the indemnifying party's expense, the
defense of any such claim or proceeding, with counsel reasonably satisfactory
to such indemnified party; provided, however, that (i) an indemnified party
shall have the right to employ separate counsel in any such claim or
proceeding and to participate in the defense thereof, but the fees and
expenses of
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such counsel shall be at the expense of such indemnified party unless: (1) the
indemnifying party agrees to pay such fees and expenses; (2) the indemnifying
party fails promptly to assume the defense of such claim or proceeding or
fails to employ counsel reasonably satisfactory to such indemnified party; or
(3) the named parties to any proceeding (including impleaded parties) include
both such indemnified party and the indemnifying party, and such indemnified
party shall have been advised by counsel that there may be one or more legal
defenses available to it that are inconsistent with those available to the
indemnifying party or that a conflict of interest is likely to exist among
such indemnified party and any other indemnified parties (in which case the
indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party); and (ii) subject to clause (3)
above, the indemnifying party shall not, in connection with any one such claim
or proceeding or separate but substantially similar or related claims or
proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one firm of attorneys (together with appropriate local counsel) at any time
for all of the indemnified parties, or for fees and expenses that are not
reasonable. Whether or not such defense is assumed by the indemnifying party,
such indemnified party shall not be subject to any liability for any
settlement made without its consent. The indemnifying party shall not consent
to entry of any judgment or enter into any settlement that does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release, in form and substance reasonably satisfactory
to the indemnified party, from all liability in respect of such claim or
litigation for which such indemnified party would be entitled to
indemnification hereunder.
(d) Contribution. If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any Losses (other than in
accordance with its terms), then each applicable indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party, on the one hand, and such indemnified party, on the other hand, in
connection with the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. The relative
fault of such indemnifying party, on the one hand, and indemnified party, on
the other hand, shall be determined by reference to, among other things,
whether any action in question, including any untrue statement of a material
fact or omission or alleged omission to state a material fact, has been taken
by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent any such action, statement
or omission. The amount paid or payable by a party as a result of any Losses
shall be deemed to include any legal or other fees or expenses incurred by
such party in connection with any investigation or proceeding. The parties
hereto agree that it would not be just and equitable if contribution pursuant
to this Section 8(d) were determined by pro rata allocation or by any other
method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Section 8(d), an indemnifying party that
is a Holder shall not be required to contribute any amount which is in excess
of the amount by which the total proceeds received by such Holder from the
sale of the Registrable Shares sold by such Holder (net of all underwriting
discounts and commissions) exceeds the amount of any damages that such
indemnifying party has otherwise been required by pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
Section 9. REPORTS UNDER THE EXCHANGE ACT. The Company agrees to:
(a) file with the SEC in a timely manner all reports and other documents
required to be filed by the Company under the Exchange Act; and
(b) furnish to any Holder, during the term of this Agreement, as promptly
as practicable upon request (i) a written statement by the Company that it
has complied with the current public information and reporting requirements
of Rule 144 under the Securities Act and the Exchange Act and (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company with the SEC.
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<PAGE>
Section 10. MISCELLANEOUS. (a) Termination. This Agreement and the
obligations of the Company and the Holders hereunder (other than Sections 6
and 8 hereof) shall terminate on the first date on which no Registrable Shares
remain outstanding.
(b) Notices. All notices or communications hereunder shall be in writing
(including telecopy or similar writing), addressed as follows:
To the Company:
Hearst/Argyle Television, Inc.
[Address]
Attention: Dean H. Blythe
Telephone:
Telecopier:
With copies to:
The Hearst Corporation
959 Eighth Avenue
New York, New York 10009
Telephone: (212) 649-2000
Telecopier: (212) 649-2035
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attention: Steven A. Hobbs, Esq.
Telephone: (212) 878-8005
Telecopier: (212) 878-8375
To a Holder of Registrable Shares, at the address of such Holder below such
Holder's name on the signature pages hereof or, if not a party hereto or on
the date hereof, such other address as such Holder may designate to the
Company in writing.
Any such notice or communication shall be deemed given (i) when made, if
made by hand delivery, (ii) upon transmission, if sent by confirmed
telecopier, (iii) one business day after being deposited with a next-day
courier, postage prepaid, or (iv) three business days after being sent
certified or registered mail, return receipt requested, postage prepaid, in
each case addressed as above (or to such other address or to such other
telecopier number as such party may designate in writing from time to time).
(c) Separability. If any provision of this Agreement shall be declared to be
invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
(d) Assignment. No Holder may assign its rights or obligations hereunder
without the prior written consent of the Company and any purported assignment
in violation hereof shall be null and void. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
heirs, devisees, legatees, legal representatives, successors and permitted
assigns.
(e) Entire Agreement. This Agreement represents the entire agreement of the
parties and shall supersede any and all previous contracts, arrangements or
understandings between the parties hereto with respect to the subject matter
hereof.
(f) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof
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<PAGE>
may not be given, unless the Company has obtained the written consent of
Holders of at least a majority in number of the Registrable Shares then
outstanding.
(g) Publicity. No public release or announcement concerning the transactions
contemplated hereby shall be issued by any party without the prior consent of
the other parties, except to the extent that such party is advised by counsel
that such release or announcement is necessary or advisable under applicable
law or the rules or regulations of any securities exchange or similar
authority, in which case the party required to make the release or
announcement shall to the extent practicable provide the other party with an
opportunity to review and comment on such release or announcement in advance
of its issuance.
(h) Expenses. Whether or not the transactions contemplated hereby are
consummated, except as otherwise provided herein, all costs and expenses
incurred in connection with the execution of this Agreement shall be paid by
the party incurring such costs or expenses, except as otherwise set forth
herein.
(i) Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be one and the same agreement, and shall
become effective when counterparts have been signed by each of the parties and
delivered to each other party.
(k) Governing Law. This Agreement shall be construed, interpreted, and
governed in accordance with the internal laws of Delaware.
(l) Calculation of Time Periods. Except as otherwise indicated, all periods
of time referred to herein shall include all Saturdays, Sundays and holidays;
provided, however, that if the date to perform the act or give any notice with
respect to this Agreement shall fall on a day other than a Business Day, such
act or notice may be timely performed or given if performed or given on the
next succeeding Business Day.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written above.
Hearst/Argyle Television, Inc.
By __________________________________
Name:
Title:
HOLDERS:
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<PAGE>
EXHIBIT 1.05
TO MERGER AGREEMENT
DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
DIRECTORS
<TABLE>
<CAPTION>
ELECTED BY
NAME CLASS HOLDERS OF:
---- ----- -----------
<S> <C> <C>
David J. Barrett................................ II Series B Common Stock
Frank A. Bennack, Jr. .......................... I Series B Common Stock
John G. Conomikes............................... I Series B Common Stock
Victor F. Ganzi................................. II Series B Common Stock
George R. Hearst, Jr. .......................... I Series B Common Stock
William R. Hearst III........................... II Series B Common Stock
Bob Marbut...................................... I Series B Common Stock
Gilbert C. Maurer............................... I Series B Common Stock
David Pulver.................................... II Series A Common Stock
Virginia H. Randt............................... II Series B Common Stock
Caroline Williams............................... I Series A Common Stock
</TABLE>
OFFICERS
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Bob Marbut.............. Chairman and Co-Chief Executive Officer
John G. Conomikes....... President and Co-Chief Executive Officer
David Barrett........... Executive Vice President and Chief Operating Officer
Anthony J. Vinciquerra.. Executive Vice President
Harry T. Hawks.......... Senior Vice President and Chief Financial Officer
Dean H. Blythe.......... Senior Vice President--Corporate Development, Secretary
and General Counsel
Ibra Morales............ Senior Vice President--Sales
</TABLE>
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<PAGE>
EXHIBIT 8.08
TO MERGER AGREEMENT
FORM OF AFFILIATE LETTER
Argyle Television, Inc.
200 Concord Plaza, Suite 700
San Antonio, Texas 78216
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of Argyle Television, Inc., a Delaware corporation (the
"Company"), as the term "affiliate" is (i) defined for purposes of paragraphs
(c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), or (ii) used in and
for purposes of Accounting Series, Releases 130 and 135, as amended, of the
Commission. Pursuant to the terms of the Amended and Restated Agreement and
Plan of Merger dated as of March 26, 1997 (the "Agreement"), by and among the
Company, The Hearst Corporation ("Parent"), HAT Contribution Sub, Inc. and HAT
Merger Sub, Inc. ("Merger Sub"), Merger Sub will be merged with and into the
Company, as a result of which the Company will be the surviving corporation
(the "Merger").
As a result of the Merger, I may receive shares of Surviving Corporation
Series A Common Stock (as defined in the Agreement) in exchange for shares
owned by me of Company Series A Common Stock (as defined in the Agreement).
I represent, warrant and covenant to Parent that in the event I receive any
Surviving Corporation Series A Common Stock as a result of the Merger:
(m) I shall not make any sale, transfer or other disposition of the
Surviving Corporation Series A Common Stock in violation of the Act or the
Rules and Regulations.
(n) I have carefully read this letter and the Agreement and discussed the
requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of the Surviving Corporation
Series A Common Stock to the extent I felt necessary, with my counsel or
counsel for the Company.
(o) I have been advised that the issuance of Surviving Corporation Series
A Common Stock to me pursuant to the Merger has been registered with the
Commission under the Act on a Registration Statement on Form S-4. However,
I have also been advised that, since at the time the Merger was submitted
for a vote of the stockholders of the Company, I may be deemed to have been
an affiliate of the Company and the distribution by me of the Surviving
Corporation Series A Common Stock has not been registered under the Act, I
may not sell, transfer or otherwise dispose of the Surviving Corporation
Series A Common Stock issued to me in the Merger unless (i) such sale,
transfer or other disposition has been registered under the Act, (ii) such
sale, transfer or other disposition is made in conformity with Rule 145
promulgated by the Commission under the Act, or (iii) in the opinion of
counsel reasonably acceptable to the Surviving Corporation (as defined in
the Merger Agreement), or pursuant to a "no action" letter obtained by the
undersigned from the staff of the Commission, such sale, transfer or other
disposition is otherwise exempt from registration under the Act.
(p) I understand that, except as may be provided in any registration
rights agreement entered into by the Surviving Corporation and the
undersigned, the Surviving Corporation is under no obligation to register
the sale, transfer or other disposition of the Surviving Corporation Series
A Common Stock by me or on my behalf under the Act or to take any other
action necessary in order to make compliance with an exemption from such
registration available.
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<PAGE>
(q) I also understand that stop transfer instructions will be given to
the Surviving Corporation's transfer agents with respect to the Surviving
Corporation Series A Common Stock and that there will be placed on the
certificates for the Surviving Corporation Series A Common Stock issued to
me, or any substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED ,
BETWEEN THE REGISTERED HOLDER HEREOF AND , A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF ."
(r) I also understand that unless the transfer by me of my Surviving
Corporation Series A Common Stock has been registered under the Act or is a
sale made in conformity with the provisions of Rule 145, the Surviving
Corporation reserves the right to put the following legend on the
certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF
1933."
It is understood and agreed that the legends set forth in paragraphs E and F
above shall be removed by delivery of substitute certificates without such
legend if such legend is not required for purposes of the Act or this
Agreement. It is understood and agreed that such legends and the stop orders
referred to above will be removed if (i) one year shall have elapsed from the
date the undersigned acquired the Surviving Corporation Series A Common Stock
received in the Merger and the provisions of Rule 145(d)(2) are then available
to the undersigned, (ii) two years shall have elapsed from the date the
undersigned acquired the Surviving Corporation Series A Common Stock received
in the Merger and the provisions of Rule 145(d)(3) are then available to the
undersigned, or (iii) the Surviving Corporation has received either an opinion
of counsel, which opinion and counsel shall be reasonably satisfactory to the
Surviving Corporation, or a "no action" letter obtained by the undersigned
from the staff of the Commission, to the effect that the restrictions imposed
by Rule 145 under the Act no longer apply to the undersigned.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of the Company as described in the first paragraph of
this letter or as a waiver of any rights I may have to object to any claim
that I am such an affiliate on or after the date of this letter.
Very truly yours,
_____________________________________
Name:
Accepted this day of , 1997 by
ARGYLE TELEVISION, INC.
By:__________________________________
Name:
Title
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<PAGE>
EXHIBIT 9.01(I)
TO MERGER AGREEMENT
TERMS OF MANAGEMENT AGREEMENT
1. Scope: The Management Agreement would cover WWWB-TV 32, Tampa, FL and
Parent's Missouri LMA television stations, Parent's Baltimore AM/FM radio
stations and all other television stations which may be acquired by Parent or
any subsidiary or Affiliate thereof subsequent to the execution and prior to
the Effective Time of the Merger Agreement (including WPBF-TV, West Palm
Beach, if acquired). However, the management agreement would be subject to any
contractual consents which may be required with respect to the Missouri LMA.
2. Term: The term of the Management Agreement would commence at the
Effective Time and would continue for each station respectively until the
earlier of: (i) Parent's divestiture of the station to a third party; (ii)if
applicable, the exercise of the option granted to the Surviving Corporation
following the Merger (referred to herein as the "Company") to acquire the
station, or (iii) five (5) years following the closing of the Merger
Agreement, provided that, Parent would have the right to terminate the
Management Agreement at any time upon 90 days prior written notice if the
option period or right of first refusal period, as applicable, has expired
without having been exercised.
3. Services: Subject to applicable laws, rules and regulations (including
those of the FCC), the management services provided would be substantially
similar to those management services Parent's Broadcasting Division management
has provided the Parent Stations, and would include, without limitation,
management services with respect to: sales; news; programming (subject to the
rights of each station's licensee to retain sole responsibility for and
control of the station's programming, including the right to pre-empt
programming provided for under the management agreement); compliance with FCC
and EEO laws, rules and regulations; preparation of operating and capital
budgets and financial statements in accordance with GAAP; engineering;
promotion; and accounting services.
4. Management Fee: The management fee with respect to the managed stations
would be the reimbursement of the Company's costs and expenses with respect to
the managed television stations on an allocated basis to be determined in the
formal Management Agreement, plus an amount equal to the greater of (i)(x)
$50,000 for Parent's radio stations (counted as a single property) and $50,000
for the Missouri LMA, or (y) for all others, $100,000 per station, and (ii) a
percentage of the positive broadcast cash flow from each such property listed
below:
. Year 1--20%
. Year 2--30%
. Year 3--40%
. Year 4 and thereafter--50%
5. Other Terms. The Management Agreement also will contain such other terms
and provisions that are customary for such management agreements, including
provisions with respect to the Communications Act and the rules and
regulations of the FCC.
TERMS OF TV OPTION AGREEMENT
1. Applicability--Acquisition options would be granted to the Company
following the Merger and would apply to WWWB-32, Tampa, FL and the Missouri
LMA. Parent would also grant a right of first refusal to the Company for a
period of 36 months following the closing of the Merger Agreement with respect
to WPBF-TV,
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West Palm Beach, FL, if such station is acquired by Parent or a subsidiary or
Affiliate of Parent and such station is proposed to be sold to a third party.
Exercise of the right of first refusal would be by the Company's independent
directors.
2. Option Terms--For each applicable property, the option period would be 18
to 36 months following the Effective Time. The purchase price would be the
fair market value of the respective station based upon an appraised value
(provided that, in the case of the Missouri LMA, in no event would the
purchase price be less than the Accumulated Costs as defined in the Option
Agreement, plus interest thereon). If Parent elects to sell a station before
the commencement of, or during, the option period, the Company would be
granted a right of first refusal to acquire the station. Exercise of the right
of first refusal would be by the Company's independent directors. Parent would
be entitled to elect to receive the purchase price in either cash or Company
stock. With respect to the Missouri LMA, if the option were exercised Parent
would assign to the Company its rights and obligations under the applicable
LMA documents and agreements (including the Option Agreement and the
Programming Services and Time Brokerage Agreement) and the assignment would be
subject to contractual consents.
The exercise of the option for the applicable property would be triggered by
action of the independent directors of the Company, and may be withdrawn by
the Company after receipt of the appraisal, as described below. The appraiser
shall be independent and selected by mutual agreement of the Company and
Parent. If the Company and Parent cannot agree as to the selection of the
appraiser, then each of them would select an appraiser and the two appraisers
would select a third appraiser. The appraisal would take into account both the
structure of the proposed transaction and the tax basis of the assets to be
acquired by the Company. If three appraisers are used, the appraised value
would be the average of the three appraisals. If the option is exercised and
not withdrawn, the fees for the appraisal shall be paid as follows: (i) if a
single appraiser is used, equally by the Company and Parent; and (ii) if three
appraisers are used, each party pays the fees of its appraiser and the Company
and Parent shall pay the fees of the third appraiser equally. If the option is
exercised and withdrawn, then the Company shall pay the fees of all
appraisers. If the option is not exercised the first refusal right would
terminate.
3. Other Terms. The Option Agreement also will contain such other terms and
provisions that are customary for such option agreements, including provisions
with respect to the Communications Act and the rules and regulations of the
FCC.
TERMS OF RADIO FACILITIES LEASE
1. Term: The term of the lease would commence at the Effective Time and
continue for each radio station respectively until the earlier of: (i)
Parent's divestiture of a radio station to a third party, in which case either
party (i.e., the Company or the buyer of the station), would be entitled to
terminate the lease with respect to that station upon 90 days prior written
notice, or (ii) 36 months following the Effective Time.
2. Other Terms and Conditions: The leased premises would be the premises
occupied by each radio station as of the Effective Time and all other terms
and conditions under which the stations occupy their respective premises would
remain in effect (including allocations and adjustments to allocations as
consistent with past practice on a historical basis). The lease also will
contain such other terms and provisions that are customary for such leases,
including provisions with respect to the Communications Act and the rules and
regulations of the FCC.
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EXHIBIT 9.02(F)
TO MERGER AGREEMENT
TAX SHARING AGREEMENT
Agreement made this day of , 1997, by The Hearst Corporation
("Hearst"), and Argyle Television, Inc. ("Argyle TV"), both of which are
Delaware corporations, to establish the sharing of the federal, state and
local income and franchise taxes after Argyle TV Group (as hereinafter
defined) becomes a member of Group (as hereinafter defined).
1. Definitions
(a) Group--Parent, Argyle TV Group and all other corporations (whether now
existing or hereinafter formed or acquired) that at the relevant time would be
entitled or required to join with Parent (or any successor common parent
corporation) in filing a consolidated federal income tax return.
(b) Parent--Hearst, or any successor common parent corporation of the Group.
(c) Argyle TV Group--Argyle TV and any other corporation which would be
included in the affiliated group of corporations as defined in Section 1504(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), of which Argyle
TV would be the common parent, but for the inclusion of Argyle TV in another
affiliated group.
(d) Argyle TV Group Tax Liability--
(1) The hypothetical consolidated federal income tax liability for the
Argyle TV Group for a taxable year determined as if the Argyle TV Group had
filed its own consolidated federal income tax return for such taxable year
and all prior taxable years ending after the date hereof. Such hypothetical
consolidated federal income tax liability shall be determined at the end of
the taxable year and shall reflect any tax elections, conventions,
treatments, or methods which (i) are actually utilized by the Group in
filing its federal consolidated tax return, and (ii) are applied on a
consistent basis from year to year (as so far is consistent with clause
(i)). The hypothetical tax liability of the Argyle TV Group shall be
computed by taking into account net operating loss, capital loss and
investment tax credit carryforwards of the Argyle TV Group generated in
taxable years during which Argyle TV Group was a member of the Group, and
carryforwards from prior separate return years to the extent they are
actually utilized by the Argyle Group.
(2) For the years in which Argyle TV Group joins or leaves the Group, an
election under Treasury Regulation Section 1.1502-76(b)(2)(ii) to ratably
allocate Argyle TV Group's items of income, gain, deductions, losses and
credits will be made by the required parties.
(3) The Argyle TV Group Tax Liability shall be determined each year by
Parent and shall be reviewed by Deloitte and Touche or such other
nationally recognized firm of independent public accountants as may be
regularly employed by the Group at the time of the determination.
(e) Argyle TV Group Estimated Tax Liability--The hypothetical estimated
consolidated federal income tax liability for the Argyle TV Group determined
in accordance with the definition in Section 1, paragraph (d) as of the end of
each quarter of the taxable year.
2. Allocations of Consolidated Federal Income Tax Liability
(a) Filing of Consolidated Returns
So long as Parent and the Argyle TV Group are members of the Group,
Parent shall file consolidated federal income tax returns for each taxable
year ending after the date hereof, which shall include Argyle TV Group as a
member of the Group.
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(b) Payment of Tax Liability
For each taxable year (or portion thereof) during which the Argyle TV
Group is included in a consolidated Federal income tax return with Parent,
Argyle TV shall pay to Parent an amount equal to the Argyle TV Group Tax
Liability. To the extent that the obligation to pay such amount has not
been fully satisfied pursuant to paragraph 2(c), Argyle TV shall pay any
such remaining amount to Parent by the date on which Parent is required to
make its final payment of federal income taxes for the taxable year without
the occurrence of penalties or additions to tax.
(c) Estimated Quarterly Payments
At the end of each quarter of each taxable year (or portion thereof)
during which the Argyle TV Group is included in a consolidated Federal
income tax return with Parent, Argyle TV shall make estimated payments to
Parent, within five (5) days of receiving a request therefore, in an amount
equal to the Argyle TV Group Estimated Tax Liability for the quarter. If
the total of such estimated quarterly payments made by Argyle TV to Parent
with respect to a given taxable year are in excess of the liability of
Argyle TV to Parent pursuant to paragraph 2(b) for such taxable year,
Parent shall pay the amount of such excess to Argyle TV no later than the
date on which Parent files the consolidated federal income tax return for
the Group.
(d) Changes in Tax Liability
(i) If the Argyle TV Group Tax Liability is changed as the result of any
administrative settlement or final determination which is not litigated by
Group or in a final judicial determination, then the amount of payment
required from Argyle TV to Parent pursuant to paragraph 2(a) shall be
recomputed by substituting the amount of the Argyle TV Group Tax Liability
after the adjustments described above in place of the Argyle TV Group Tax
Liability as previously computed. Not later than ten days after such final
determination, Argyle TV shall pay to Parent or Parent shall pay to Argyle
TV, as the case may be, the difference between the new Argyle TV Group Tax
Liability, including any interest or penalties imposed in respect of the
new Argyle TV Group tax liabilities and the amounts previously paid. The
parties recognize that such new liability is not necessarily Argyle TV's
final liability for that year and may be recomputed more than once.
(f) Indemnity
Parent agrees to indemnify, defend, and hold harmless Argyle TV and each
member of the Argyle TV Group from and against any and all liabilities to
the Internal Revenue Service for Federal income tax (including interest and
penalties thereon) with respect to any taxable year to which this Agreement
applies, including, without limitation, any such liabilities of Argyle TV
and each member of the Argyle TV Group pursuant to Treasury Regulation
Section 1.1502-6.
(g) State and Local Taxes
In the event Parent actually files consolidated, combined or unitary
income or franchise tax returns or reports in any state or local
jurisdiction on behalf of and pays such taxes owed by all or part of the
Group, the principles and procedures stated in this Agreement shall apply
for purposes of allocating such state or local tax liability, including
interest or penalties thereon, among the Parent and the Argyle TV Group.
(h) Effects of Agreement
As between Parent and the Argyle TV Group, the provisions of this
Agreement shall fix the liability of each to the other as to the matters
covered hereunder, even if such provisions are not controlling for tax or
other purposes (including, but not limited to, the computation of
deductions or earnings and profits for federal tax purposes), and even if
Hearst and other corporations which now are, or which from time to time may
become, members of the Group enter into other arrangements for the
allocation of the portion of the total tax liability of the Group which is
allocable to them.
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3. Miscellaneous Provisions
(a) Scope of the Agreement
This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein. No alteration,
amendment or modification of any of the terms of this Agreement shall be
valid unless made by an instrument signed in writing by an authorized
officer of each party.
(b) Choice of Law
This Agreement has been made in and shall be construed and enforced in
accordance with the laws of the State of New York.
(c) Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of each
party hereto and its respective successors and assigns.
(d) Termination
This Agreement shall terminate if (i) the parties agree in writing to
such a termination, (ii) the Argyle TV Group ceases to be a member of the
Group, including, without limitation, upon the effective date, if ever, of
Parent's S election, or (iii) Parent fails to file a consolidated return in
any taxable year. The terms of the Agreement will remain in effect for any
taxable year or part of a taxable year for which the income of Argyle TV or
any member of Argyle TV Group must be included in Parent's consolidated
return.
(e) Information
Parent, Argyle TV and all members of the Argyle TV Group agree to
cooperate in supplying information reasonably requested by the other party
in order to make any computations required under this Agreement and for the
purpose of defending tax examinations, including appeals and litigation.
(f) Effective Date
This Agreement shall be effective the date upon which Argyle TV Group
becomes a member of the Group.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
The Hearst Corporation
By: _________________________________
Argyle Television, Inc.
By: _________________________________
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EXHIBIT 9.02(G)
TO MERGER AGREEMENT
LICENSE AGREEMENT (the "Agreement") dated as of , 1997, is by and
between The Hearst Corporation, a Delaware corporation ("THC"), and
Hearst/Argyle Television, Inc., a Delaware corporation (the "Company").
WHEREAS, Hearst is the sole and exclusive owner of all right, title and
interest in and to and has the right to grant the license pursuant to the
terms set forth herein with respect to the company and trade name "Hearst";
WHEREAS, this Agreement is being executed and delivered simultaneously with
the closing of the transactions contemplated by the Amended and Restated
Agreement and Plan of Merger dated as of March 26, 1997 among THC, the
Company, Hearst Merger Sub, Inc. and Hearst Contribution Sub, Inc. pursuant to
which THC will become a controlling shareholder of the Company;
WHEREAS, the Company desires to enter into this Agreement for the right and
license to use the Hearst name in connection with the operation of its
business; and
WHEREAS, THC is willing to formally grant a license to the Company to use
the Hearst Name in connection with the operation of the Company's business;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
herein, the parties hereto agree as follows:
1. Definitions.
The following terms, as used herein, shall have the following meanings:
1.1 "Hearst Name" shall mean that portion of any company and trade name
consisting of "Hearst". Expressly excluded from the Hearst Name are the
words "Hearst Corporation" or any company name substantially identical
thereto and any corporate logos used by THC.
1.2 "License Term" shall mean the term commencing as of the date hereof
and continuing until the License granted pursuant to Section 2.1 shall be
terminated by THC as provided in Section 6.
1.3 "Permitted Manner of Use" shall mean use of the Hearst Name in
accordance with all legal requirements and also with THC's policy and style
standards as currently existing and as may be reasonably amended from time
to time by THC (including such other requirements or conditions with regard
to the use of the Hearst Name as may be established by THC in accordance
with good trademark practice.)
2. Grant of License to Use the Hearst Name.
2.1 License. THC hereby grants to the Company, during the License Term, a
personal, royalty-free, non-exclusive, non-transferrable, non-assignable,
license to use in the United States only, without the right to grant
sublicenses, the Hearst Name solely in the Company's name as follows:
"Hearst/Argyle Television, Inc."; provided that such use shall be in
accordance with the Permitted Manner of Use.
2.2 Inspections. The form of using the Hearst Name in the name of the
Company shall be subject to THC's approval, which approval shall not be
unreasonably withheld. In the event that THC objects to any such form of using
the Hearst Name, it shall give written notice of its objections to and consult
with the Company in a good faith effort to resolve any such objections.
2.3 Absence of Interest in Hearst Name. Nothing herein shall give the
Company any right, title or interest in the Hearst Name apart from the rights
to use specified in Section 2.1, all such right, title and interest, including
but not limited to rights of registration, maintenance and enforcement, being
solely with THC. The Hearst Name
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is the sole property of THC and any and all uses by the Company shall inure to
the sole benefit of THC, including goodwill in respect thereof. To the extent
that any jurisdiction shall find for any reason as a matter of law or
otherwise that such use has vested in the Company any right, title or interest
in or to the Hearst Name, the Company, upon the request of THC, shall execute
and deliver to THC, without charge, appropriate assignments to vest such
rights, title and interest in THC. At THC's request and expense, the Company
agrees to assist THC in the procurement or maintenance of any filings or
registrations for the Hearst Name in any jurisdiction by providing any
information available from the Company and executing any documents necessary
therefor.
2.4 Filing, Registration or Use of Hearst Name. The Company and its
subsidiaries will not:
(i) raise or cause to be raised any questions concerning or objections to
the validity of the Hearst Name in any jurisdiction, or to any
registrations thereof or applications therefor, or to the sole proprietary
rights of THC thereto, on any grounds whatsoever;
(ii) alter or amend in any way the Hearst Name and will not, during the
term of this Agreement or thereafter adopt or use any name that is
confusingly similar thereto;
(iii) file, apply to register or register the Hearst Name, alone or in
combination with any other word or device or symbol or any name, mark,
term, script or device colorably similar thereto, except if, as, when, and
to the extent as may be expressly consented to in writing in advance by THC
in specific instances; or
(iv) use the Hearst Name in conjunction or in combination with any other
name, mark, term, script or device whatsoever, except as provided in
Section 2.1 or to the extent approved otherwise in writing in advance by
THC.
3. Indemnification by the Company. The Company hereby agrees to indemnify,
defend and hold harmless, THC, its subsidiaries (other than the Company and
its subsidiaries) and their affiliates and their respective employees,
officers, directors, and agents and shall hold each of them harmless from and
against any and all claims, demands, suits, actions, damages, and judgments
brought or obtained by a third party ("Claims"), of whatever type or kind
arising out of (i) any use of the Hearst Name by the Company, including,
without limitation, product liability or personal injury Claims; or (ii) any
breach by the Company of any of the terms and conditions of this Agreement.
4. Defense of Infringement Claims. THC agrees to indemnify and defend the
Company, its Affiliates and their employees, officers, directors and agents
and shall hold each of them harmless to the extent that any Claims arise out
of an assertion or claim that the use of the Hearst Name by the Company
pursuant to the terms of this Agreement infringes the trade names, trademarks
or service marks of a third party.
5. Infringement by Third Parties. Upon discovery by the Company, it shall
notify THC of any adverse uses confusingly similar or otherwise damaging to
the Hearst Name, but shall take no other action of any kind with respect
thereto except by the express prior written authorization of THC. The
determination of whether or not legal action shall be taken in any case shall
lie exclusively with and at the sole discretion of THC. In the event that THC
institutes legal action pursuant to this section, the costs of any such legal
action shall be borne by THC. THC may bring suit in its own name with choice
of counsel and control of the legal action by THC. The Company shall cooperate
with and assist THC in any such suit by promptly providing any reasonably
requested documents in the Company's possession, custody or control, and by
making its personnel familiar with the facts available to THC and otherwise,
without charge. In the event that threatened or actual legal action by THC
results in a settlement or resolution that provides damages or other monies to
THC, such monies shall be retained by THC.
6. Termination. THC may terminate the license granted pursuant to Section
2.1, at any time, for any reason, on written notice given to the Company at
least six (6) months prior to the proposed termination date. Upon the
termination of such license, the Company shall terminate forthwith all uses of
the Hearst Name and, to the extent necessary, shall take all steps necessary
to amend the Company's certificate of incorporation to eliminate the Hearst
Name from the Company's name as soon as practicable.
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7. Representations and Warranties. THC makes no representations or
warranties with respect to the validity, status, enforceability or coverage of
the Hearst Name.
8. Assignability. This Agreement shall not be assignable, in whole or part,
directly or indirectly, by the Company without notice to and the prior written
consent of THC, and any attempt to assign any rights or obligations arising
under this Agreement without such consent in violation hereof shall be null
and void.
9. General Provisions.
9.1 Notices. All notices and other communications required or permitted
hereunder shall be in writing (including telefax or similar writing) and shall
be given:
(i) If to THC, to:
The Hearst Corporation
959 Eighth Avenue
New York, New York 10019
Attention: Victor F. Ganzi
Telefax No.: (212) 649-2035
(ii) If to the Company to:
Hearst/Argyle Television, Inc.
[ADDRESS]
Attention:
Telefax:
or (iii) in either case, to such other person or to such other address or
telefax number as the party to whom notice is to be given may have furnished
the other parties in writing by like notice. If mailed, any such communication
shall be deemed to have been given on the third business day following the day
on which the communication is posted by registered or certified mail (return
receipt requested). If given by any other means it shall be deemed to have
been given when delivered to the address specified in this Section 9.1.
9.2 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
9.3 Miscellaneous. This Agreement constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and shall
be governed in all respects by the laws of the State of New York without
regard to its laws or regulations relating to choice of law.
9.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 Specific Performance. The Company agrees that money damages would not be
a sufficient remedy for any breach of any provision of this Agreement by the
Company, and that in addition to all other remedies which THC may have, THC
will be entitled to specific performance and injunctive or other equitable
relief as a remedy for any such breach. No failure or delay by THC in
exercising any right, power or privilege hereunder will operate as a waiver
thereof, nor will any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege
hereunder.
9.6 Survival. The following provision shall survive any termination of the
license granted pursuant to this Agreement: Sections 2.3, 2.4, 3, 4, 5 and
9.5.
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed by their duly authorized officers.
The Hearst Corporation
By: _________________________________
Name:
Title:
Hearst/Argyle Television, Inc.
By: _________________________________
Name:
Title:
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EXHIBIT 9.02(H)(A)
TO MERGER AGREEMENT
LIST OF PERSONS DELIVERING
MANAGEMENT TRANSFER RESTRICTION AGREEMENTS
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Bob Marbut Chairman and Chief Executive Officer
</TABLE>
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EXHIBIT 9.02(H)(B)
TO MERGER AGREEMENT
FORM OF MANAGEMENT
TRANSFER RESTRICTION AGREEMENT
Argyle Television, Inc.
200 Concord Plaza, Suite 700
San Antonio, Texas 78216
Ladies and Gentlemen:
Reference is made to the Amended and Restated Agreement and Plan of Merger
dated as of March 26, 1997 (the "Agreement"), by and among Argyle Television,
Inc., a Delaware corporation (the "Company"), The Hearst Corporation
("Parent"), Hearst Contribution Sub, Inc. and Hearst Merger Sub, Inc. ("Merger
Sub"), pursuant to which Merger Sub will be merged with and into the Company,
as a result of which the Company will be the surviving corporation (the
"Merger"). As a result of the Merger, the undersigned may receive shares of
Surviving Corporation Series A Common Stock (as defined in the Agreement) in
exchange for shares owned by the undersigned of Existing Series A Common Stock
(as defined in the Agreement). The execution and delivery by the undersigned
of this agreement is a condition precedent to your obligations to effect the
Merger.
For and in consideration of your entering into the Merger Agreement and the
performance of your obligations thereunder, the undersigned agrees that, until
the earlier of the third anniversary of the date the undersigned acquired the
Surviving Corporation Series A Common Stock received in the Merger or, the
date the undersigned is no longer employed by the Company, the undersigned
will not, without the prior written consent of the Surviving Corporation (as
defined in the Agreement), directly or indirectly, sell, offer, contract to
sell, grant any option for the sale of, or otherwise dispose of any amount of
the Surviving Corporation Series A Common Stock or any securities convertible
into, exchangeable for, or exercisable for Surviving Corporation Series A
Common Stock, or any rights to purchase or acquire Surviving Corporation
Series A Common Stock, owned either of record or beneficially by the
undersigned such that, after such transfer, the undersigned and the
undersigned's permitted transferees would own less than 574,870 shares of the
Surviving Corporation Series A Common Stock; provided, however, that gifts or
transfers for estate planning purposes shall not be prohibited by this
agreement if the donee or transferee agrees to be bound by the foregoing in
the same manner as it applies to the undersigned.
This agreement shall become effective as of the time the Merger Agreement is
executed, and shall be governed by and construed in accordance with the laws
of the State of Delaware.
Very truly yours,
_____________________________________
Name: Bob Marbut
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APPENDIX B
[ART]
July 31, 1997
Board of Directors of Argyle Television, Inc.
Argyle Television, Inc.
200 Concord Plaza
Suite 700
San Antonio, Texas 78216
Ladies and Gentlemen:
Argyle Television, Inc. (the "Company"), The Hearst Corporation (the
"Parent"), Hearst Merger Sub, Inc. (the "Merger Sub"), a wholly owned
subsidiary of the Parent, and Hearst Contribution Sub, Inc., a wholly owned
subsidiary of the Parent (the "Cash Sub"), entered into an Amended and
Restated Agreement and Plan of Merger (the "Merger Agreement"), pursuant to
which, among other things: (i) the Parent will contribute to the Company
certain of the assets relating to Parent's broadcasting business (the "Parent
Station Assets") and the Company will assume certain related liabilities
(including approximately $275 million of indebtedness for money borrowed) (the
"Parent Station Liabilities", together with the Parent Station Assets, the
"Parent Station Business") in exchange for shares of the Company's Series B
Common stock, par value $.01 per share (the "Series B Common Stock"), and,
immediately thereafter, the Company will contribute the Parent Station
Business to one or more direct or indirect wholly-owned subsidiaries; (ii) the
Cash Sub will contribute to the Company approximately $200 million in cash
(the "Contributed Cash") in exchange for the Company's assumption of Cash
Sub's indebtedness in the principal amount of $200,000,000 and one share of
the Series B Common Stock; (iii) the Merger sub will merge with and into the
Company, as a result of which the Company will be the surviving corporation
(the "Surviving Corporation"); (iv) the Certificate of Incorporation of the
Company will be amended and restated prior to the effective time of the Merger
so that each share of the Company's Series B Common stock and Series C Common
Stock will be reclassified as and changed into an equal number of shares of
the Company's Series A Common Stock, par value $.01 per share ("Series A
Common Stock"); and (v) at the effective time of the Merger, each share of the
Series A Common Stock will be converted into the right to receive at the
election of the holders thereof (collectively the "Elections") either (X) one
share of the Surviving Corporation's Series A Common Stock ("New Series A
Common Stock"); (Y) $26.50 in cash or (Z) 0.5 of a share of the New Series A
Common Stock and $13.25 in cash, such Elections to be subject to proration as
further set forth in the Merger Agreement so that the total amount of cash
consideration to be received by holders of Series A Common Stock will not
exceed $159,670,953 and the total number of shares of New Series A Common
Stock to be received by holders of Series A Common Stock will not exceed
8,277,054 (the aggregate amount of cash consideration and New Series A Common
Stock to be received by holders of the Series A Common Stock in the Merger,
the "Merger Consideration").
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You have asked us whether, in our opinion, the Merger Consideration, taken as
a whole, is fair to holders of the Series A Common Stock from a financial point
of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Registration Statement on Form S-1 No. 33-
96026;
(2) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the fiscal years ended December 31, 1995 and
December 31, 1996 and the Company's Form 10-Q and the related
unaudited financial information for the quarterly period ended March
31, 1997;
(3) Reviewed the consolidated financial statements for the Parent Station
Business;
(4) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flows, assets, liabilities and
prospects of the Company, the Parent Station Business and the
Surviving Corporation furnished to us by the Company and Parent;
(5) Conducted discussion with members of senior management of the Company
concerning the respective businesses and prospects of the Company, the
Parent Station Business and the Surviving Corporation;
(6) Conducted discussions with members of senior management of the Parent
and the Parent Station Business concerning the respective businesses
and prospects of the Parent Station Business and the Surviving
Corporation;
(7) Reviewed the historical market prices and trading activity for the
Series A Common Stock and compared them with that of certain publicly
traded companies which we deemed to be reasonably similar to the
Company;
(8) Compared the results of operations of the Company, the Parent Station
Business and, on a pro forma basis, the Surviving Corporation with
that of certain companies which we deemed to be relevant;
(9) Compared the proposed financial terms of the transactions contemplated
by the Merger Agreement with the financial terms of certain other
mergers and acquisitions which we deemed to be relevant;
(10) Reviewed the Merger Agreement and the Voting Agreement dated March 26,
1997 among the Parent, Argyle Television Investors, L.P. and ATI
General Partner, L.P.; and
(11) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and the completeness
of all information supplied or otherwise made available to us by the Company
and the Parent and we have not independently verified such information or
undertaken an independent appraisal of the assets or liabilities, contingent or
otherwise, of the Company or the Parent Station Business. With respect to the
financial forecasts furnished by the Company, we have assumed that they have
been reasonably prepared to reflect the best currently available estimates and
judgments of the Company's management as to the expected future performance of
the Company, the Parent Station Business and the Surviving Corporation. We have
also assumed with your consent, that, for federal income tax purposes, the
contribution by the Cash Sub to the Company of the Contributed Cash and the
contribution by Parent to the Company of the Parent Station Assets and the
assumption by the Company of the Parent Station Liabilities will qualify as a
transaction described in Section 351 of the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereby, and that the Merger
will qualify as a redemption described in Section 302 of the Code with respect
to those shareholders of the Company who will receive cash pursuant to the
Merger. Our opinion is necessarily based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
Our opinion has been rendered without regard to the necessity for, or level
of, any restrictions, obligations, undertakings or divestitures which may be
imposed in the course of obtaining regulatory approval for the transactions
contemplated by the Merger Agreement. In rendering our opinion, we have also
assumed with your consent that any acquisition or disposition of assets by the
Parent, the Company or their respective subsidiaries,
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as the case may be, as contemplated by Section 8.15 of the Merger Agreement
will not affect the value of the Company or the Parent Station Business, as the
case may be, or otherwise affect the fairness from a financial point of view of
the Merger Consideration taken as a whole.
Our opinion is addressed solely to the fairness, from a financial point of
view, of the Merger Consideration taken as a whole and we do not express any
opinion as to: (i) the equivalency or desirability of the different Elections
that holders of Series A Common Stock can make pursuant to the Merger
Agreement; or (ii) the price or trading range at which shares of New Series A
Common Stock will trade following the Merger. In addition, we note that the New
Series A Common Stock represents only a small portion of the total equity of
the Surviving Corporation and that, as a result of its relatively small public
float, the prices or trading range of the New Series A Common Stock may be
adversely affected by its relative lack of liquidity.
We have been retained by the Board of Directors of the Company as an
independent contractor to act as financial advisor to the Company with respect
to the Merger and will receive a fee for our services, a significant portion of
which is contingent upon the consummation of the transactions contemplated by
the Merger Agreement. In addition, the Company has agreed to indemnify us for
certain liabilities arising out of our engagement. In the ordinary course of
our business, we may trade in the debt and equity securities of the Company for
our own account and for the accounts of our customers and, accordingly, may at
any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the Merger and
does not constitute a recommendation to any shareholder as to how such
shareholder should vote on the proposed Merger or exercise such shareholder's
Election rights in connection therewith. Our opinion does not address the
merits of the underlying decision by the Company to engage in the transactions
contemplated by the Merger Agreement.
On the basis of, and subject to the foregoing, we are of the opinion, that
the Merger Consideration, taken as a whole, is fair to holders of the Series A
Common Stock from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
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APPENDIX C
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ARGYLE TELEVISION, INC.
UNDER SECTIONS 242 AND 245
OF THE
DELAWARE GENERAL CORPORATION LAW
Argyle Television, Inc., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
FIRST: The name of the Corporation is Argyle Television, Inc.
SECOND: The Corporation was originally incorporated under the name of
Argyle Television Holding II, Inc., and its original Certificate of
Incorporation was filed with the Secretary of State of Delaware on the
fifth day of August, 1994.
THIRD: Pursuant to Sections 242 and 245 of the Delaware General
Corporation Law, this Amended and Restated Certificate of Incorporation
restates, integrates, and further amends the provisions of the current
Amended and Restated Certificate of Incorporation of the Corporation.
FOURTH: The further amendment and restatement of the Amended and Restated
Certificate of Incorporation have been approved by the Corporation's Board
of Directors and have been duly adopted by its stockholders in accordance
with the provisions of Sections 242 and 245 of the Delaware General
Corporation Law.
FIFTH: The text of the Amended and Restated Certificate of Incorporation
of the Corporation is further amended and restated to read in its entirety
as follows:
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AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ARGYLE TELEVISION, INC.
ARTICLE ONE
NAME
The name of the Corporation is Argyle Television, Inc.
ARTICLE TWO
REGISTERED AGENT
The address of the Corporation's registered office in Delaware is 1209
Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The
name of the Corporation's registered agent at such address is The Corporation
Trust Company.
ARTICLE THREE
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
ARTICLE FOUR
CAPITAL STOCK
The aggregate number of shares of stock that the Corporation shall have
authority to issue is 201 million. Two hundred million of such shares shall be
of the par value of $.01 per share, shall be of the same class and shall be
designated as "Common Stock," and one million of such shares shall be of the
par value of $.01 per share, shall be of the same class and shall be
designated as "Preferred Stock."
SECTION 1. Common Stock
A. Authorized Shares
1. Of the 200 million authorized shares of Common Stock, 100 million shares
shall be designated as Series A Common Stock (the "Series A Common Stock") and
100 million shares shall be designated as Series B Common Stock (the "Series B
Common Stock").
2. At the time at which this Amended and Restated Certificate of
Incorporation shall become effective, all shares of Common Stock previously
designated as "Series B Common Stock" or "Series C Common Stock" which are
then issued or outstanding automatically shall be reclassified as and changed
into an equal number of shares of Series A Common Stock without any action by
the holders thereof. Any such holder of a certificate representing shares of
Series B Common Stock or Series C Common Stock which are so changed and
reclassified may surrender such certificate to the Corporation and receive in
exchange therefor a new certificate representing an equal number of shares of
Series A Common Stock. Any such certificates that formerly represented shares
of Series B Common Stock or Series C Common Stock and that have not been so
exchanged shall be deemed to represent the same number of shares of Series A
Common Stock.
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B. Voting Rights
1. Each share of the Series A Common Stock and the Series B Common Stock
issued and outstanding shall entitle the holder thereof to one vote on all
matters submitted to a vote of stockholders.
2. Except as otherwise provided below, the issued and outstanding shares of
Series A Common Stock and Series B Common Stock shall vote together as a
single class on all matters submitted to a vote of stockholders, with each
such 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. With
respect to any election of directors by the stockholders, subject to the
provisions of ARTICLE FIVE below, (i) the holders of the shares of Series A
Common Stock shall be entitled to vote separately as a class in order to elect
two directors (the "Series A Directors") and (ii) the holders of the shares of
Series B Common Stock shall be entitled to vote separately as a class in order
to elect the number of directors that represents the balance of the Board of
Directors; provided, however, that such number shall not be less than the
number of directors that will constitute a majority of the Board of Directors
(the "Series B Directors"). For example, if the Board of Directors consists of
seven members, then the holders of the shares of Series B Common Stock shall
be entitled to vote separately as a class in order to elect five directors,
and the holders of the shares of Series A Common Stock shall be entitled to
vote separately as a class in order to elect the remaining two directors. The
designation of directors as the initial Series A Directors and Series B
Directors, respectively, as of the time this Amended and Restated Certificate
of Incorporation shall become effective shall be as set forth in that certain
Amended and Restated Agreement and Plan of Merger dated March 26, 1997 (the
"Merger Agreement"), among The Hearst Corporation, HAT Merger Sub, Inc., HAT
Contribution Sub, Inc. and the Corporation. The directors may only be removed
for cause by the holders of all Common Stock voting together as a class. If no
shares of Series A Common Stock are issued and outstanding at any given time,
then, upon any election of directors by the stockholders, the holders of
shares of Series B Common Stock shall elect all of the Corporation's
directors. Conversely, if no shares of Series B Common Stock are issued and
outstanding at any given time, then, assuming the FCC Approvals required under
Subsection I below have been obtained, upon any election of directors by the
stockholders, the holders of shares of Series A Common Stock will elect all of
the Corporation's directors.
3. Except as provided in Subsection B.2 above, each series of Common Stock
issued and outstanding shall entitle the holders thereof to vote separately as
a class only with respect to (i) amendments to this Amended and Restated
Certificate of Incorporation that alter or change the powers, preferences, or
special rights of their respective series so as to affect them adversely, and
(ii) such other matters as require class votes under the Delaware General
Corporation Law.
C. Dividends
1. If and when dividends on the Series A or Series B Common Stock are
declared and payable from time to time by the Board of Directors, whether
payable in cash, in property, or in shares of stock of the Corporation, the
holders of Series A or Series B Common Stock shall be entitled to share
equally, on a per share basis, in such dividends, subject to the limitations
described in this Subsection C.1 below. If dividends are declared that are
payable in shares of Series A or Series B Common Stock, such dividends shall
be payable at the same rate on all series of Common Stock and (i) the
dividends payable on shares of Series A Common Stock shall be payable only in
Series A Common Stock; and (ii) the dividends payable on shares of Series B
Common Stock shall be payable only in Series B Common Stock. If the
Corporation shall in any manner split, divide, or combine the outstanding
shares of Series A or Series B Common Stock, the outstanding shares of the
other such series of Common Stock shall be proportionally split, divided, or
combined in the same manner and on the same basis as the outstanding shares of
Series A or Series B Common Stock, as the case may be, that have been split,
divided, or combined.
2. Subject to provisions of law and the preferences of any Preferred Stock
and of any other stock ranking prior to the Series A or Series B Common Stock
as to dividends, the holders of shares of the Series A or Series B Common
Stock shall be entitled to receive dividends at such times and in such amounts
as may be determined
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by the Board of Directors and declared out of any funds lawfully available
therefor, and shares of Preferred Stock of any class or series shall not be
entitled to share therein except as otherwise expressly provided in the
resolution or resolutions of the Board of Directors providing for the issuance
of such class or series.
D. Conversion of the Series B Common Stock
1. Each holder of shares of the Series B Common Stock shall have the right,
at any time, to convert all or a portion of such shares into fully paid and
nonassessable shares of the Series A Common Stock, on a share-for-share basis,
subject to the terms and conditions hereinafter set forth.
2. In order to obtain a certificate representing shares of Series A Common
Stock, the holder of any shares of Series B Common Stock shall present and
surrender the certificate or certificates representing such shares during
usual business hours at any office or agency of the Corporation maintained for
the transfer of Series B Common Stock and shall deliver a written notice of
the election of the holder to convert the shares represented by such
certificate or any portion thereof specified in such notice. Such notice shall
state the names and addresses in which the certificate or certificates for
shares of Series A Common Stock issuable on such conversion shall be
registered. If required by the Corporation, any certificate for shares
surrendered for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder of such
shares or its duly authorized representative. Each conversion of shares of
Series B Common Stock shall be deemed to have been effected on the date (the
"Conversion Date") on which the certificate or certificates representing such
shares shall have been surrendered and such notice and any required
instruments of transfer shall have been received as aforesaid, and the persons
in whose names any certificates for shares of Series A Common Stock shall be
issuable on such conversion shall be, for the purpose of receiving dividends
and for all other corporate purposes whatsoever, deemed to have become the
holder or holders of record of the shares of Series A Common Stock represented
thereby on such Conversion Date.
3. As promptly as practicable after the presentation and surrender for
conversion, as herein provided, of any certificate for shares of Series B
Common Stock, the Corporation shall issue and deliver at such office or
agency, to or upon the written order of the holder thereof, certificates for
the number of shares of Series A Common Stock issuable upon such conversion.
The issuance of certificates for shares of Series A Common Stock issuable upon
the conversion of shares of Series B Common Stock by the registered holder
thereof shall be made without charge to the converting holder except for any
tax that may be payable with respect to any transfer involved in the issue and
delivery of any certificate in a name other than that of the registered holder
of the shares being converted, and the Corporation shall not be required to
issue or deliver any such certificate unless and until the person requesting
the issue thereof shall have paid to the Corporation the amount of such tax or
has established to the satisfaction of the Corporation that such tax has been
paid.
4. Upon any conversion of shares of Series B Common Stock into shares of
Series A Common Stock pursuant to this Subsection D, no adjustment with
respect to dividends shall be made; only those dividends as have been declared
and are payable to holders of record of shares of Series B Common Stock on a
date prior to the Conversion Date shall be payable on the shares so converted;
and only those dividends as have been declared and are payable to holders of
record of shares of Series A Common Stock on or after such Conversion Date
shall be payable on shares of Series A Common Stock issued upon such
conversion.
5. Shares of the Series B Common Stock converted into Series A Common Stock
shall be retired and shall resume the status of authorized but unissued shares
of Series B Common Stock.
6. Such number of shares of Series A Common Stock as may from time to time
be required for such purpose shall be reserved for issuance upon conversion of
(i) outstanding shares of Series B Common Stock and (ii) shares of Series B
Common Stock issuable upon exercise of outstanding options.
7. Notwithstanding any of the foregoing, subject to obtaining any FCC
Approvals required under Subsection I below, at the time at which all
Permitted Transferees (as defined in Subsection E.1 below) first hold less
than
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20% of all shares of Common Stock which are then issued and outstanding, all
shares of Series B Common Stock which are issued and outstanding shall
automatically be converted into fully paid and nonassessable shares of the
Series A Common Stock, on a share-for-share basis, and the Corporation shall
not be authorized to issue any additional shares of Series B Common Stock. Any
holder of a certificate representing shares of Series B Common Stock which are
so converted may surrender such certificate to the Corporation and receive in
exchange therefor a new certificate representing an equal number of shares of
Series A Common Stock. Any such certificates that formerly represented shares
of Series B Common Stock and that have not been so exchanged shall be deemed
to represent the same number of shares of Series A Common Stock.
E. Limitations on Transfer of Series B Common Stock
1. No holder of shares of Series B Common Stock may transfer, and the
Corporation shall not register the transfer of, such shares of Series B Common
Stock, whether by sale, assignment, gift, bequest, appointment, or otherwise,
unless (a) all FCC Approvals required under Subsection I below have been
obtained and (b) the transfer is to a "Permitted Transferee" as provided
herein. Permitted Transferees shall include the following:
(i) The Hearst Corporation, which is a Delaware corporation, or any other
corporation into which The Hearst Corporation shall be merged or
consolidated or to which all or substantially all of the assets of The
Hearst Corporation shall be transferred (collectively, "Hearst"); and
(ii) any corporation, partnership, trust, limited liability company or
other entity a majority of the equity securities of which are owned or
controlled, directly or indirectly, by Hearst.
2. Any purported transfer of shares of Series B Common Stock not permitted
hereunder shall result in the conversion of the transferee's shares of Series
B Common Stock into shares of Series A Common Stock, effective on the date on
which certificates representing such shares are presented for transfer on the
stock transfer record books of the Corporation; provided, however, that if the
Corporation determines that such shares were not so presented for transfer
within 20 days after the date of such sale, transfer, assignment, or other
disposition, the transfer date shall be the actual date of such sale,
transfer, assignment, or other disposition as determined in good faith by the
Board of Directors or its appointed agent. The Corporation may, as a condition
to the transfer or the registration of transfer of shares of Series B Common
Stock to a purported Permitted Transferee, require the furnishing of such
affidavits or other proof as it deems necessary to establish that such
transferee is a Permitted Transferee. If no indication to the contrary is
supplied at or within 10 days of the date shares of Series B Common Stock are
presented for transfer, the transfer shall be presumed by the Corporation to
be a transfer to a person other than a Permitted Transferee.
3. If shares of Series B Common Stock are transferred to a party who was a
Permitted Transferee at the time of such transfer but subsequent thereto no
longer qualifies as a Permitted Transferee, then such transferee's shares of
Series B Common Stock shall be automatically converted into Series A Common
Stock, effective on the date that such transferee first failed to qualify as a
Permitted Transferee.
F. Priority of Preferred Stock
All of the Common Stock is subject to all the powers, rights, privileges,
preferences, and priorities of the Preferred Stock as stated herein and as may
be stated and expressed in any resolution or resolutions adopted by the Board
of Directors providing for the issuance of any additional class or series of
Preferred Stock, pursuant to authority expressly granted to and vested in it
by the provisions of this ARTICLE FOUR.
G. Liquidation, Dissolution or Winding Up
In the event of any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary (sometimes referred to as
"Liquidation"), after payment or provision for payment of the debts and other
liabilities of the Corporation and the preferential amounts to which the
holders of any stock ranking prior to the Common Stock in the distribution of
assets shall be entitled upon Liquidation, the holders of the issued and
outstanding Common Stock and the holders of any other stock issued and
outstanding that ranks on a parity
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with the Common Stock shall be entitled to share pro rata in the remaining
assets of the Corporation according to their respective interests.
H. Merger or Consolidation
In case of any consolidation or merger of the Corporation as a result of
which the holders of Common Stock shall be entitled to receive cash, stock,
other securities, or other property with respect to or in exchange for shares
of Common Stock or in case of any sale or conveyance of all or substantially
all of the property or business of the Corporation as an entirety, each holder
of a share of any series of Common Stock shall have the right to convert such
share into the same kind and amount of cash, shares or stock, and other
securities and properties receivable upon such consolidation, merger, sale, or
conveyance as any other holder of one share of Common Stock (regardless of
series) and shall have no other conversion rights with regard to such share.
Notwithstanding the foregoing, any holder of one share of Common Stock that
does not elect to exercise its right to receive such consideration (the
"elective consideration") for such share shall only be entitled to such other
consideration therefor (if any) that any other holder of one share of Common
Stock would be entitled to receive if such holder did not elect to receive the
elective consideration. The provisions of this Subsection H shall similarly
apply to successive consolidations, mergers, sales, or conveyances.
I. FCC Approvals for Certain Actions by Holders of Series B Common Stock
Notwithstanding any provision of this Amended and Restated Certificate of
Incorporation to the contrary, no holder of Series B Common Stock shall (i)
transfer any shares of Series B Common Stock; (ii) convert any shares of
Series B Common Stock; or, (iii) be entitled to receive any cash, stock, other
securities, or other property with respect to or in exchange for any shares of
Series B Common Stock in connection with any merger or consolidation of the
Corporation or sale or conveyance of all or substantially all of the property
or business of the Corporation as an entirety, unless all necessary approvals
("FCC Approvals") of the Federal Communications Commission (the "FCC") as
required by the Communications Act of 1934, as amended from time to time and
the rules, regulations and policies promulgated thereunder, as amended from
time to time (collectively, the "Communications Act") shall have been obtained
or waived.
SECTION 2. Power to Designate Preferred Stock
The Board of Directors is hereby empowered to authorize, from time to time
by resolution or resolutions, the issuance of one or more classes or series of
Preferred Stock and to fix the designations, powers, preferences and relative,
participating, optional, voting or other rights, if any, and the
qualifications, limitations, or restrictions thereof, if any, with respect to
each such class or series of Preferred Stock and the number of shares
constituting each such class or series, and to increase or decrease the number
of shares of any such class or series to the extent permitted by the Delaware
General Corporation Law, as amended from time to time. Any classes or series
so designated shall be in addition to the Series A Preferred Stock and Series
B Preferred Stock designated in Sections 3 and 4 below.
SECTION 3. Series A Preferred Stock
A. Designation.
12,500 shares of the preferred stock, par value $.01 per share, of the
Corporation are hereby constituted as a series of the preferred stock
designated as "Series A Preferred Stock" (the "Series A Preferred Stock").
B. Dividends.
1. Dividends on Series A Preferred Stock. An annual, cumulative cash
dividend of $65 accruing from and after June 1, 1996 shall be declared and
paid on each share of the Series A Preferred Stock, payable at the end of each
calendar quarter in equal quarterly amounts, provided that at such times (i)
there are assets of the Corporation legally available for the payment of such
dividends and (ii) the payment of such dividends is
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permitted under the terms of the governing documents for the Corporation's
then existing borrowing arrangements with third-party lenders. Any such
dividend that cannot be paid when due shall be paid to the extent permissible
at the time that the payment of such dividend becomes permissible.
2. Limitation on Dividends, Repurchases and Redemptions. So long as any
shares of Series A Preferred Stock shall be outstanding, the Corporation shall
not declare or pay or set apart for payment any dividends or make any other
distributions on any Junior Securities (as defined below), whether in cash,
property or otherwise (other than dividends or distributions payable in shares
of the class or series upon which such dividends or distributions are declared
or paid), nor shall the Corporation or any of its subsidiaries purchase,
redeem or otherwise acquire for any consideration or make payment on account
of the purchase, redemption, or other retirement of any Parity Securities (as
defined below) or Junior Securities, nor shall any monies be paid or made
available for a sinking fund for the purchase or redemption of any Parity
Securities or Junior Securities, unless with respect to all of the foregoing
all dividends or other distributions to which the holders of Series A
Preferred Stock shall have been entitled, pursuant to Subsection B.1 above,
shall have been paid or declared and a sum of money has been set apart for the
full payment thereof.
3. Pro Rata Payments. In the event that full dividends are not paid or made
available to the holders of all outstanding shares of Series A Preferred Stock
and of any Parity Securities and funds available for a payment of dividends
shall be insufficient to permit payment in full to holders of all such stock
of the full preferential amounts to which they are then entitled, then the
entire amount available for payment of dividends shall be distributed ratably
among all such holders of Series A Preferred Stock and of any Parity
Securities in proportion to the full amount to which they would otherwise be
respectively entitled.
C. Preference on Liquidation.
1. Liquidation Preference for Series A Preferred Stock. In the event that
the Corporation shall commence a voluntary case under the federal bankruptcy
laws or any other applicable federal or state bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under such law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or other similar official of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the
premises in an involuntary case under the federal bankruptcy laws or any other
applicable federal or state bankruptcy, insolvency or similar law, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
or other similar official of the Corporation or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and on
account of any such event the Corporation shall liquidate, dissolve or wind
up, or if the Corporation shall otherwise liquidate, dissolve or wind up, no
distribution of the assets of the Corporation shall be made to the holders of
shares of Common Stock or other Junior Securities (and no monies shall be set
apart for such purpose) unless prior thereto, the holders of shares of Series
A Preferred Stock shall have received from the assets of the Corporation an
amount per share equal to the sum of (x) $1,000, plus (y) all accrued but
unpaid dividends thereon through the date of distribution, whether or not
earned or declared (collectively, the "Series A Liquidation Preference").
2. Pro Rata Payments. If, upon any such liquidation, dissolution or other
winding up of the affairs of the Corporation, the assets of the Corporation
shall be insufficient to permit the payment in full of the Series A
Liquidation Preference for each share of Series A Preferred Stock then
outstanding and the full liquidating payments on all Parity Securities, then
the assets of the Corporation remaining after the distribution to holders of
any Senior Securities (as defined below) of the full amounts to which they may
be entitled shall be ratably distributed among the holders of Series A
Preferred Stock and of any Parity Securities in proportion to the full amounts
to which they would otherwise be respectively entitled if all amounts thereon
were paid in full. The Corporation shall not issue any Senior Securities
without the written consent of the holders of a majority of the Series A
Preferred Stock issued and outstanding.
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3. Sale Not a Liquidation. Neither the voluntary sale, conveyance, exchange
or transfer (for cash, shares of stock, securities or other consideration) of
all or substantially all the property or assets of the Corporation nor the
consolidation, merger or other business combination of the Corporation with or
into one or more corporations shall be deemed to be a liquidation, dissolution
or winding-up, voluntary or involuntary, of the Corporation.
4. Notice of Liquidation. Written notice of any liquidation, dissolution or
winding up of the Corporation, stating the payment date or dates when and the
place or places where amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage prepaid, not less than 30
days prior to any payment date specified therein, to the holders of record of
the Series A Preferred Stock at their respective addresses as shall appear on
the records of the Corporation.
D. Voting.
1. General. Notwithstanding any provision of this Amended Restated
Certificate of Incorporation to the contrary, each issued and outstanding
share of Series A Preferred Stock shall entitle the holder thereof to the
number of votes determined under the following sentence on all matters
submitted to a vote of holders of the Series A Common Stock, with such shares
of Series A Preferred Stock voting together as a single class with such shares
of Series A Common Stock. Each share of Series A Preferred Stock shall entitle
the holder thereof to the number of votes (rounded up to the next whole
number) equal to the number of shares of Series A Common Stock into which one
share of Series A Preferred Stock would be convertible under Subsection F
below as of the record date for the stockholder meeting at which such votes
are to be cast. Except as set forth in Subsection D.2 below or as otherwise
provided by applicable law, the shares of Series A Preferred Stock shall not
entitle the holders thereof to vote separately as a class.
2. Class Vote. At any time when shares of Series A Preferred Stock are
outstanding, without the approval of the holders representing at least a
majority of the shares of Series A Preferred Stock then outstanding, given in
writing or by vote at a meeting, consenting or voting (as the case may be)
separately as a class, the Corporation shall not amend or repeal any provision
of, or add any provision to, this Amended and Restated Certificate of
Incorporation if such action would alter, change or affect adversely the
rights, preferences, privileges or powers of, or the restrictions provided for
the benefit of, the Series A Preferred Stock.
E. Redemption.
1. Redemption Price. Any redemption of the Series A Preferred Stock pursuant
to this Subsection E shall be at a price equal to $1,000 per share, plus in
each case an amount equal to accrued and unpaid dividends, if any, to (and
including) the redemption date, whether or not earned or declared (the "Series
A Redemption Price").
2. Redemption at Corporation's Option. At any time after June 11, 2001 (the
"First Redemption Date"), the Corporation may, at its option (subject to the
other provisions of this Subsection E), redeem all, or any portion of the
outstanding shares of Series A Preferred Stock.
3. Procedures for Redemption. In the event the Corporation shall elect to
redeem shares of Series A Preferred Stock pursuant to Subsection E.2 above,
the Corporation shall give written notice of such redemption by facsimile,
hand delivery, overnight courier, or first class mail, postage prepaid, mailed
or transmitted not less than 30 nor more than 90 days prior to the redemption
date, to each holder of record of the shares to be redeemed, at such holder's
address as the same appears on the stock records of the Corporation. Each such
notice shall state: (i) the redemption date; (ii) the number of shares of
Series A Preferred Stock to be redeemed and, if less than all the shares held
by such holder are to be redeemed, the number of such shares to be redeemed
from such holder; (iii) the Series A Redemption Price; (iv) the place or
places where certificates for such shares are to be surrendered for payment of
the Series A Redemption Price; (v) that payment will be made upon presentation
and surrender of such Series A Preferred Stock; (vi) that dividends on the
shares to be redeemed shall cease to accrue following such redemption date;
(vii) that such redemption is mandatory; and, (viii) that dividends accrued to
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and including the date fixed for redemption will be paid as specified in such
notice. Notice having been mailed as aforesaid, from and after the redemption
date, unless the Corporation shall be in default in the payment of the Series
A Redemption Price (including any accrued and unpaid dividends to (and
including) the date fixed for redemption, (A) dividends on the shares of the
Series A Preferred Stock so called for redemption shall cease to accrue; (B)
such shares shall be deemed no longer outstanding; and, (C) all rights of the
holders thereof as stockholders of the Corporation (except the right to
receive from the Corporation any moneys payable upon redemption without
interest thereon) shall cease. Notwithstanding the foregoing, if the average
of the closing price for the Corporation's Series A Common Stock as reported
by NASDAQ (or such other principal exchange on which the Series A Common Stock
is then listed) for the 10 trading days prior to the date of the redemption
notice equals or exceeds the Series A Conversion Price (defined in Subsection
F.1 below) on such date, any holder that has received such a redemption notice
shall have the right to convert the shares of Series A Preferred Stock subject
to redemption by complying with the conversion procedures set forth in
Subsection F below at any time prior to 20 days after the date of receipt of
such redemption notice.
Notwithstanding the foregoing, any holder that has received such a
redemption notice shall have the right by providing written notification to
the Corporation not less than 20 days after receipt of the redemption notice
from the Corporation, to specify up to three redemption dates, the latest of
which shall be January 1 of the second year following the date the Corporation
specified for redemption, on which the redemption shall occur. Such notice
shall specify the date or dates on which the redemption shall occur, and, if
more than one redemption date is specified, the number of shares to be
redeemed on each such date; provided, however, that the total of the number of
shares specified by such holder to be redeemed must equal the number of shares
originally specified by the Corporation for redemption. In the event the
holder exercises the right outlined above to specify a different date or dates
for redemption than stated in the redemption notice from the Corporation,
dividends shall continue to accrue and be paid as provided herein until such
time as the shares are redeemed.
Upon surrender in accordance with such notice of the certificates for any
such shares so redeemed (properly endorsed or assigned for transfer, if the
Board of Directors shall so require and the notice shall so state), such
shares shall be redeemed by the Corporation at the applicable Series A
Redemption Price. If fewer than all the outstanding shares of Series A
Preferred Stock are to be redeemed, shares to be redeemed shall be selected by
the Corporation from holders of outstanding shares of Series A Preferred Stock
not previously called for redemption in proportion to the respective number of
shares held by each holder. If fewer than all the shares represented by a
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof.
4. Repurchases of Series A Preferred Stock by the Corporation. Neither the
Corporation nor any of its subsidiaries shall repurchase any outstanding
shares of Series A Preferred Stock unless the Corporation on the same terms
either (i) offers to purchase all of the then outstanding shares of Series A
Preferred Stock or (ii) offers to purchase shares of Series A Preferred Stock
from the holders in proportion to the respective number of shares of Series A
Preferred Stock held by each holder. In any such repurchase by the
Corporation, if all shares of Series A Preferred Stock are not being
repurchased, then the number of shares of Series A Preferred Stock to be
repurchased shall be allocated among all shares of Series A Preferred Stock
held by holders that accept the Corporation's repurchase offer so that the
shares of Series A Preferred Stock are repurchased from such holders in
proportion to the respective number of shares of Series A Preferred Stock held
by each such holder that accepts the Corporation's offer (or in such other
proportion as agreed by all such holders who accept the Corporation's offer).
Nothing in this Subsection E.4 shall (i) obligate a holder of shares of Series
A Preferred Stock to accept the Corporation's repurchase offer or (ii) prevent
the Corporation from redeeming shares of Series A Preferred Stock in
accordance with the terms of Subsections E.1 through E.3 above.
F. Conversion.
1. Right to Convert. The holder of each share of Series A Preferred Stock
shall have the right at any time, or from time to time, at such holder's
option, to convert such share into a number of shares of fully paid and
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nonassessable shares of Series A Common Stock equal to a quotient determined
by dividing $1,000 by the "Series A Conversion Price" (defined below), on and
subject to the terms and conditions hereinafter set forth.
The "Series A Conversion Price" shall be (i) on or before December 31, 2000,
$35; and (ii) during each calendar year after December 31, 2000, the product
of 1.1 times the Series A Conversion Price for the immediately preceding
calendar year. (For example, during 2001, the Series A Conversion Price shall
be $38.50; during 2002 the Series A Conversion Price shall be $42.35; etc.)
Notwithstanding the foregoing, if after the First Redemption Date a holder
elects to exercise its conversion right under this Subsection F.1, and, (i)
the Corporation has not given written notice of redemption and (ii) the
average of the closing price for the Corporation's Series A Common Stock as
reported by NASDAQ (or such other principal exchange on which the Series A
Common Stock is then listed) for the 10 trading days prior to the Series A
Conversion Date (defined in Subsection F.2 below) (the "10 Day Average Price")
is less than the Series A Conversion Price on the Series A Conversion Date,
then the Series A Conversion Price shall be equal to the 10 Day Average Price.
a. If the Series A Common Stock issuable upon the conversion of the
Series A Preferred Stock shall be changed into the same or a different
number of shares of any class or classes of stock, whether by capital
reorganization, reclassification or otherwise, then and in each such event
the holder of each share of Series A Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number
of shares of Series A Common Stock into which such shares of Series A
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change.
b. If at any time or from time to time there shall be a merger or
consolidation of the Corporation with or into another corporation, or the
sale of substantially all of the Corporation's properties and assets to any
other person, then, as a part of such merger, consolidation or sale,
provision shall be made so that the holders of the Series A Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series A
Preferred Stock, the number of shares of stock or other securities or
properties of the Corporation, or of the successor corporation resulting
from such merger, consolidation or sale, to which such holder would have
been entitled if such holder had converted its shares of Series A Preferred
Stock immediately prior to such capital reorganization, merger,
consolidation or sale. In any such case, appropriate adjustment shall be
made in the application of the provisions of this Subsection F with respect
to the rights of the holders of the Series A Preferred Stock after the
merger, consolidation or sale to the end that the provisions of this
Subsection F shall be applicable after that event in as nearly equivalent a
manner as may be practicable.
2. Method of Conversion. In order to exercise the conversion privilege, the
holder of any shares of Series A Preferred Stock to be converted shall present
and surrender the certificate or certificates representing such shares during
usual business hours at any office or agency of the Corporation maintained for
the transfer of Series A Preferred Stock and shall deliver a written notice of
the election of the holder to convert the shares represented by such
certificate or any portion thereof specified in such notice. Such notice shall
also state the name or names (with address) in which the certificate or
certificates for shares of Series A Common Stock issuable on such conversion
shall be registered. If required by the Corporation, any certificate for
shares surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the holder
of such shares or its duly authorized representative. Each conversion of
shares of Series A Preferred Stock shall be deemed to have been effected on
the date (the "Series A Conversion Date") on which the certificate or
certificates representing such shares shall have been surrendered and such
notice and any required instruments of transfer shall have been received as
aforesaid, and the person or persons in whose name or names any certificate or
certificates for shares of Series A Common Stock shall be issuable on such
conversion shall be, for the purpose of receiving dividends and for all other
corporate purposes whatsoever, deemed to have become the holder or holders of
record of the shares of Series A Common Stock represented thereby on the
Series A Conversion Date.
3. Issuance of Certificates Upon Conversion. As promptly as practicable
after the presentation and surrender for conversion, as herein provided, of
any certificate for shares of Series A Preferred Stock, the Corporation shall
issue and deliver at such office or agency, to or upon the written order of
the holder thereof,
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certificates for the number of whole shares of Series A Common Stock issuable
upon such conversion and cash for any fractional shares. In case any
certificate for shares of Series A Preferred Stock shall be surrendered for
conversion of only a part of the shares represented thereby, the Corporation
shall deliver at such office or agency, to or upon the written order of the
holder thereof, a certificate or certificates for the number of shares of
Series A Preferred Stock represented by such surrendered certificate that are
not being converted. The issuance of certificates for shares of Series A
Common Stock issuable upon the conversion of shares of Series A Preferred
Stock by the registered holder thereof shall be made without charge to the
converting holder for any tax imposed on the Corporation in respect of the
issue thereof. The Corporation shall not, however, be required to pay any tax
that may be payable with respect to any transfer involved in the issue and
delivery of any certificate in a name other than that of the registered holder
of the shares being converted, and the Corporation shall not be required to
issue or deliver any such certificate unless and until the person requesting
the issue thereof shall have paid to the Corporation the amount of such tax or
has established to the satisfaction of the Corporation that such tax has been
paid.
4. Payment of Dividends on Converted Shares. Upon any conversion of shares
of Series A Preferred Stock into shares of Series A Common Stock pursuant
hereto, no adjustment with respect to dividends shall be made; only those
dividends shall be payable on the shares so converted as have been declared
and are payable to holders of record of shares of Series A Preferred Stock on
a date prior to the Series A Conversion Date with respect to the shares so
converted; and only those dividends shall be payable on shares of Series A
Common Stock issued upon such conversion as have been declared and are payable
to holders of record of shares of Series A Common Stock on or after such
Series A Conversion Date.
5. Reservation of Shares. Such number of shares of Series A Common Stock as
may from time to time be required for such purpose shall be reserved for
issuance upon conversion of outstanding shares of Series A Preferred Stock.
G. Shares to be Retired.
Any share of Series A Preferred Stock redeemed, repurchased, converted or
otherwise acquired by the Corporation shall be retired and canceled and shall
upon cancellation be restored to the status of authorized but unissued shares
of Preferred Stock, subject to reissuance by the Board of Directors as shares
of Preferred Stock of one or more other series but not as shares of Series A
Preferred Stock.
H. Definitions.
As used in this Section 3 (and with respect to the definitions of "Business
Day," "Common Stock" and "Person," as also used in Section 4 below), the
following terms shall have the respective meanings set forth below:
"Business Day" means any day that is not a Saturday, a Sunday or a day on
which banks are required or permitted to be closed in the State of
Delaware, the State of Texas or the State of New York.
"Common Stock" means the Series A Common Stock, $.01 par value per share,
of the Corporation.
"Junior Securities" means the Common Stock and any other class of capital
stock or series of preferred stock created by the Corporation that does not
expressly provide that it ranks senior to or pari passu with the Series A
Preferred Stock as to dividends, other distributions, liquidation
preference or otherwise.
"Parity Securities" means the Corporation's Series B Preferred Stock,
$.01 par value per share, and any other class of capital stock or series or
preferred stock created by the Corporation which expressly provides that it
ranks pari passu with the Series A Preferred Stock as to dividends, other
distributions, liquidation preference or otherwise.
"Person" or "person" shall mean an individual, partnership, corporation,
trust, unincorporated organization, joint venture or any other entity of
any kind.
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"Senior Securities" means any class or series of capital stock of the
Corporation other than Parity Securities or Junior Securities.
I. Notices.
Except as may otherwise be provided for in this Amended and Restated
Certificate of Incorporation, all notices referred to in this Section 3 shall
be in writing, and all notices hereunder shall be deemed to have been given
upon the earlier of (i) receipt of such notice; (ii) three Business Days after
the mailing of such notice; or, (iii) the Business Day following sending of
such notice by overnight courier, in any case with postage or delivery charges
prepaid, addressed: if to the Corporation, to its offices at 200 Concord
Plaza, Suite 700, San Antonio, Texas 78216, Attention: Secretary, or to an
agent of the Corporation designated as permitted by this Amended and Restated
Certificate of Incorporation, or, if to any holder of the Series A Preferred
Stock, to such holder at the address of such holder of the Series A Preferred
Stock as listed in the stock record books of the Corporation; or to such other
address as the Corporation or holder, as the case may be, shall have
designated by notice similarly given.
SECTION 4. Series B Preferred Stock
A. Designation.
12,500 shares of the preferred stock, par value $.01 per share, of the
Corporation are hereby constituted as a series of the preferred stock
designated as "Series B Preferred Stock" (the "Series B Preferred Stock").
B. Dividends.
1. Dividends on Series B Preferred Stock. An annual, cumulative cash
dividend of $65 accruing and after from June 1, 1996 shall be declared and
paid on each share of the Series B Preferred Stock, payable at the end of each
calendar quarter in equal quarterly amounts, provided that at such times (i)
there are assets of the Corporation legally available for the payment of such
dividends and (ii) the payment of such dividends is permitted under the terms
of the governing documents for the Corporation's then existing borrowing
arrangements with third-party lenders. Any such dividend that cannot be paid
when due shall be paid to the extent permissible at the time that the payment
of such dividend becomes permissible.
2. Limitation on Dividends, Repurchases and Redemptions. So long as any
shares of Series B Preferred Stock shall be outstanding, the Corporation shall
not declare or pay or set apart for payment any dividends or make any other
distributions on any Junior Securities (as defined below), whether in cash,
property or otherwise (other than dividends or distributions payable in shares
of the class or series upon which such dividends or distributions are declared
or paid), nor shall the Corporation or any of its subsidiaries purchase,
redeem or otherwise acquire for any consideration or make payment on account
of the purchase, redemption, or other retirement of any Parity Securities or
Junior Securities, nor shall any monies be paid or made available for a
sinking fund for the purchase or redemption of any Parity Securities (as
defined above) or Junior Securities, unless with respect to all of the
foregoing all dividends or other distributions to which the holders of Series
B Preferred Stock shall have been entitled, pursuant to Subsection B.1 above,
shall have been paid or declared and a sum of money has been set apart for the
full payment thereof.
3. Pro Rata Payments. In the event that full dividends are not paid or made
available to the holders of all outstanding shares of Series B Preferred Stock
and of any Parity Securities and funds available for a payment of dividends
shall be insufficient to permit payment in full to holders of all such stock
of the full preferential amounts to which they are then entitled, then the
entire amount available for payment of dividends shall be distributed ratably
among all such holders of Series B Preferred Stock and of any Parity
Securities in proportion to the full amount to which they would otherwise be
respectively entitled.
C. Preference on Liquidation.
1. Liquidation Preference for Series B Preferred Stock. In the event that
the Corporation shall commence a voluntary case under the federal bankruptcy
laws or any other applicable federal or state bankruptcy, insolvency
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or similar law, or consent to the entry of an order for relief in an
involuntary case under such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or other similar
official of the Corporation or of any substantial part of its property, or
make an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or
order for relief in respect of the Corporation shall be entered by a court
having jurisdiction in the premises in an involuntary case under the federal
bankruptcy laws or any other applicable federal or state bankruptcy,
insolvency or similar law, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or other similar official of the Corporation
or of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and on account of any such event the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, no distribution of the assets of the
Corporation shall be made to the holders of shares of Common Stock or other
Junior Securities (and no monies shall be set apart for such purpose) unless
prior thereto, the holders of shares of Series B Preferred Stock shall have
received from the assets of the Corporation an amount per share equal to the
sum of (x) $1,000, plus (y) all accrued but unpaid dividends thereon through
the date of distribution, whether or not earned or declared (collectively, the
"Series B Liquidation Preference").
2. Pro Rata Payments. If, upon any such liquidation, dissolution or other
winding up of the affairs of the Corporation, the assets of the Corporation
shall be insufficient to permit the payment in full of the Series B
Liquidation Preference for each share of Series B Preferred Stock then
outstanding and the full liquidating payments on all Parity Securities, then
the assets of the Corporation remaining after the distribution to holders of
any Senior Securities (as defined below) of the full amounts to which they may
be entitled shall be ratably distributed among the holders of Series B
Preferred Stock and of any Parity Securities in proportion to the full amounts
to which they would otherwise be respectively entitled if all amounts thereon
were paid in full. The Corporation shall not issue any Senior Securities
without the written consent of the holders of a majority of the Series A
Preferred Stock issued and outstanding.
3. Sale Not a Liquidation. Neither the voluntary sale, conveyance, exchange
or transfer (for cash, shares of stock, securities or other consideration) of
all or substantially all the property or assets of the Corporation nor the
consolidation, merger or other business combination of the Corporation with or
into one or more corporations shall be deemed to be a liquidation, dissolution
or winding-up, voluntary or involuntary, of the Corporation.
4. Notice of Liquidation. Written notice of any liquidation, dissolution or
winding up of the Corporation, stating the payment date or dates when and the
place or places where amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage prepaid, not less than 30
days prior to any payment date specified therein, to the holders of record of
the Series B Preferred Stock at their respective addresses as shall appear on
the records of the Corporation.
D. Voting.
1. General. Notwithstanding any provision of this Amended and Restated
Certificate of Incorporation to the contrary, each issued and outstanding
share of Series B Preferred Stock shall entitle the holder thereof to the
number of votes determined under the following sentence on all matters
submitted to a vote of holders of the Series A Common Stock, with such shares
of Series B Preferred Stock voting together as a single class with such shares
of Series A Common Stock. Each share of Series B Preferred Stock shall entitle
the holder thereof to (i) 29 votes, if the record date for the stockholder
meeting at which such votes are to be cast is before July 11, 2001 and (ii) to
the number of votes (rounded up to the next whole number) equal to the number
of shares of Series A Common Stock into which one share of Series B Preferred
Stock would be convertible under Subsection F below as of the last day of the
month immediately preceding the record date for the stockholder meeting at
which such votes are to be cast (i.e., using such last day of the month as the
"Conversion Date" when applying the method of conversion described in
Subsection F.1 below), if such record date is on or after July 11, 2001.
Except as set forth in Subsection D.2 below or as otherwise provided by law,
the shares of Series B Preferred Stock shall not entitle the holders thereof
to vote separately as a class.
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2. Class Vote. At any time when shares of Series B Preferred Stock are
outstanding, without the approval of the holders representing at least a
majority of the shares of Series B Preferred Stock then outstanding, given in
writing or by vote at a meeting, consenting or voting (as the case may be)
separately as a class, the Corporation shall not amend or repeal any provision
of, or add any provision to, this Amended and Restated Certificate of
Incorporation if such action would alter, change or affect adversely the
rights, preferences, privileges or powers of, or the restrictions provided for
the benefit of, the Series B Preferred Stock.
E. Redemption
1. Redemption Price. Any redemption of the Series B Preferred Stock pursuant
to this Subsection E shall be at a price equal to $1,000 per share, plus in
each case an amount equal to accrued and unpaid dividends, if any, to (and
including) the redemption date, whether or not earned or declared (the "Series
B Redemption Price").
2. Redemption at Corporation's Option. At any time after June 11, 2001, the
Corporation may, at its option (subject to the other provisions of this
Subsection E), redeem all, or any portion of the outstanding shares of Series
B Preferred Stock.
3. Procedures for Redemption. In the event the Corporation shall elect to
redeem shares of Series B Preferred Stock pursuant to Subsection E.2 above,
the Corporation shall give written notice of such redemption by facsimile,
hand delivery, overnight courier, or first class mail, postage prepaid, mailed
or transmitted not less than 30 nor more than 90 days prior to the redemption
date, to each holder of record of the shares to be redeemed, at such holder's
address as the same appears on the stock records of the Corporation. Each such
notice shall state: (i) the redemption date; (ii) the number of shares of
Series B Preferred Stock to be redeemed and, if less than all the shares held
by such holder are to be redeemed, the number of such shares to be redeemed
from such holder; (iii) the Series B Redemption Price; (iv) the place or
places where certificates for such shares are to be surrendered for payment of
the Series B Redemption Price; (v) that payment will be made upon presentation
and surrender of such Series B Preferred Stock; (vi) that dividends on the
shares to be redeemed shall cease to accrue following such redemption date;
(vii) that such redemption is mandatory; and, (viii) that dividends accrued to
and including the date fixed for redemption will be paid as specified in such
notice. Notice having been mailed as aforesaid, from and after the redemption
date, unless the Corporation shall be in default in the payment of the Series
B Redemption Price (including any accrued and unpaid dividends to (and
including) the date fixed for redemption, (A) dividends on the shares of the
Series B Preferred Stock so called for redemption shall cease to accrue; (B)
such shares shall be deemed no longer outstanding; and, (C) all rights of the
holders thereof as stockholders of the Corporation (except the right to
receive from the Corporation any moneys payable upon redemption without
interest thereon) shall cease. Notwithstanding the foregoing, any holder that
has received such a redemption notice shall have the right by providing
written notification to the Corporation not less than 20 days after receipt of
the redemption notice from the Corporation, to specify up to three redemption
dates, the latest of which shall be January 1 of the second year following the
date the Corporation specified for redemption, on which the redemption shall
occur. Such notice shall specify the date or dates on which the redemption
shall occur, and, if more than one redemption date is specified, the number of
shares to be redeemed on each such date; provided, however, that the total of
the number of shares specified by such holder to be redeemed must equal the
number of shares originally specified by the Corporation for redemption. In
the event the holder exercises the right outlined above to specify a different
date or dates for redemption than stated in the redemption notice from the
Corporation, dividends shall continue to accrue and be paid as provided herein
until such time as the shares are redeemed.
Upon surrender in accordance with such notice of the certificates for any
such shares so redeemed (properly endorsed or assigned for transfer, if the
Board of Directors shall so require and the notice shall so state), such
shares shall be redeemed by the Corporation at the applicable Series B
Redemption Price. If fewer than all the outstanding shares of Series B
Preferred Stock are to be redeemed, shares to be redeemed shall be selected by
the Corporation from holders of outstanding shares of Series B Preferred Stock
not previously called for redemption in proportion to the respective number of
shares held by each holder. If fewer than all the shares
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represented by a certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
4. Repurchases of Series B Preferred Stock by the Corporation. Neither the
Corporation nor any of its subsidiaries shall repurchase any outstanding
shares of Series B Preferred Stock unless the Corporation on the same terms
either (i) offers to purchase all of the then outstanding shares of Series B
Preferred Stock or (ii) offers to purchase shares of Series B Preferred Stock
from the holders in proportion to the respective number of shares of Series B
Preferred Stock held by each holder. In any such repurchase by the
Corporation, if all shares of Series B Preferred Stock are not being
repurchased, then the number of shares of Series B Preferred Stock to be
repurchased shall be allocated among all shares of Series B Preferred Stock
held by holders that accept the Corporation's repurchase offer so that the
shares of Series B Preferred Stock are repurchased from such holders in
proportion to the respective number of shares of Series B Preferred Stock held
by each such holder that accepts the Corporation's offer (or in such other
proportion as agreed by all such holders who accept the Corporation's offer).
Nothing in this Subsection E.4 shall (i) obligate a holder of shares of Series
B Preferred Stock to accept the Corporation's repurchase offer or (ii) prevent
the Corporation from redeeming shares of Series B Preferred Stock in
accordance with the terms of Subsections E.1 through E.3 above.
F. Conversion.
1. Right to Convert. At any time on or after July 11, 2001, the holder of
each share of Series B Preferred Stock shall have the right at any time, or
from time to time, at such holder's option, to convert such share into the
number of fully paid and nonassessable shares of Series A Common Stock equal
to a quotient determined by dividing (i) $1,000 by (ii) the average of the
closing prices for the Series A Common Stock as reported by the NASDAQ
National Market System (or such other principal exchange on which the Series A
Common Stock is then listed or traded) for each of the 10 trading days prior
to the Conversion Date, on and subject to the terms and conditions hereinafter
set forth.
a. If the Series A Common Stock issuable upon the conversion of the
Series B Preferred Stock shall be changed into the same or a different
number of shares of any class or classes of stock, whether by capital
reorganization, reclassification or otherwise, then and in each such event
the holder of each share of Series B Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number
of shares of Series A Common Stock into which such shares of Series B
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change.
b. If at any time or from time to time there shall be a merger or
consolidation of the Corporation with or into another corporation, or the
sale of substantially all of the Corporation's properties and assets to any
other person, then, as a part of such merger, consolidation or sale,
provision shall be made so that the holders of the Series B Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series B
Preferred Stock, the number of shares of stock or other securities or
properties of the Corporation, or of the successor corporation resulting
from such merger, consolidation or sale, to which such holder would have
been entitled if such holder had converted its shares of Series B Preferred
Stock immediately prior to such capital reorganization, merger,
consolidation or sale. In any such case, appropriate adjustment shall be
made in the application of the provisions of this Subsection F with respect
to the rights of the holders of the Series B Preferred Stock after the
merger, consolidation or sale to the end that the provisions of this
Subsection F shall be applicable after that event in as nearly equivalent a
manner as may be practicable.
2. Method of Conversion. In order to exercise the conversion privilege, the
holder of any shares of Series B Preferred Stock to be converted shall present
and surrender the certificate or certificates representing such shares during
usual business hours at any office or agency of the Corporation maintained for
the transfer of Series B Preferred Stock and shall deliver a written notice of
the election of the holder to convert the shares represented by such
certificate or any portion thereof specified in such notice. Such notice shall
also state the name or names (with address) in which the certificate or
certificates for shares of Series A Common Stock issuable on such conversion
shall be registered. If required by the Corporation, any certificate for
shares surrendered for
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conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder of such shares or
its duly authorized representative. Each conversion of shares of Series B
Preferred Stock shall be deemed to have been effected on the date (the "Series
B Conversion Date") on which the certificate or certificates representing such
shares shall have been surrendered and such notice and any required
instruments of transfer shall have been received as aforesaid, and the person
or persons in whose name or names any certificate or certificates for shares
of Series A Common Stock shall be issuable on such conversion shall be, for
the purpose of receiving dividends and for all other corporate purposes
whatsoever, deemed to have become the holder or holders of record of the
shares of Series A Common Stock represented thereby on the Series B Conversion
Date.
3. Issuance of Certificates Upon Conversion. As promptly as practicable
after the presentation and surrender for conversion, as herein provided, of
any certificate for shares of Series B Preferred Stock, the Corporation shall
issue and deliver at such office or agency, to or upon the written order of
the holder thereof, certificates for the number of whole shares of Series A
Common Stock issuable upon such conversion and cash for any fractional shares.
In case any certificate for shares of Series B Preferred Stock shall be
surrendered for conversion of only a part of the shares represented thereby,
the Corporation shall deliver at such office or agency, to or upon the written
order of the holder thereof, a certificate or certificates for the number of
shares of Series B Preferred Stock represented by such surrendered certificate
that are not being converted. The issuance of certificates for shares of
Series A Common Stock issuable upon the conversion of shares of Series B
Preferred Stock by the registered holder thereof shall be made without charge
to the converting holder for any tax imposed on the Corporation in respect of
the issue thereof. The Corporation shall not, however, be required to pay any
tax that may be payable with respect to any transfer involved in the issue and
delivery of any certificate in a name other than that of the registered holder
of the shares being converted, and the Corporation shall not be required to
issue or deliver any such certificate unless and until the person requesting
the issue thereof shall have paid to the Corporation the amount of such tax or
has established to the satisfaction of the Corporation that such tax has been
paid.
4. Payment of Dividends on Converted Shares. Upon any conversion of shares
of Series B Preferred Stock into shares of Series A Common Stock pursuant
hereto, no adjustment with respect to dividends shall be made; only those
dividends shall be payable on the shares so converted as have been declared
and are payable to holders of record of shares of Series B Preferred Stock on
a date prior to the Series B Conversion Date with respect to the shares so
converted; and only those dividends shall be payable on shares of Series A
Common Stock issued upon such conversion as have been declared and are payable
to holders of record of shares of Series A Common Stock on or after such
Series B Conversion Date.
5. Reservation of Shares. Such number of shares of Series A Common Stock as
may from time to time be required for such purpose shall be reserved for
issuance upon conversion of outstanding shares of Series B Preferred Stock.
G. Shares to be Retired. Any share of Series B Preferred Stock redeemed,
repurchased, converted or otherwise acquired by the Corporation shall be
retired and canceled and shall upon cancellation be restored to the status of
authorized but unissued shares of Preferred Stock, subject to reissuance by
the Board of Directors as shares of Preferred Stock of one or more other
series but not as shares of Series B Preferred Stock.
H. Definitions. As used in this Section 4, the following terms shall have the
respective meanings set forth below:
"Junior Securities" means the Common Stock and any other class of capital
stock or series of preferred stock created by the Corporation that does not
expressly provide that it ranks senior to or pari passu with the Series B
Preferred Stock as to dividends, other distributions, liquidation
preference or otherwise.
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"Parity Securities" means the Corporation's Series A Preferred Stock,
$.01 par value per share, and any other class of capital stock or series or
preferred stock created by the Corporation which expressly provides that it
ranks pari passu with the Series B Preferred Stock as to dividends, other
distributions, liquidation preference or otherwise.
"Senior Securities" means any class or series of capital stock of the
Corporation other than Parity Securities or Junior Securities.
I. Notices.
Except as may otherwise be provided for in this Amended and Restated
Certificate of Incorporation, all notices referred to herein shall be in
writing, and all notices hereunder shall be deemed to have been given upon the
earlier of (i) receipt of such notice; (ii) three Business Days after the
mailing of such notice; or, (iii) the Business Day following sending of such
notice by overnight courier, in any case with postage or delivery charges
prepaid, addressed: if to the Corporation, to its offices at 200 Concord
Plaza, Suite 700, San Antonio, Texas 78216, Attention: Secretary, or to an
agent of the Corporation designated as permitted by this Amended and Restated
Certificate of Incorporation, or, if to any holder of the Series B Preferred
Stock, to such holder at the address of such holder of the Series B Preferred
Stock as listed in the stock record books of the Corporation; or to such other
address as the Corporation or holder, as the case may be, shall have
designated by notice similarly given.
ARTICLE FIVE
DIRECTORS
The number of directors of the Corporation shall be no fewer than seven and
shall be fixed and may be altered from time to time as may be provided in the
bylaws now or hereafter in effect. The Board of Directors shall be classified
as follows:
(a) For as long as there are no more than two Series A Directors, the
Board of Directors shall be divided into two classes, Class I and Class II.
The Series A Directors and shall be divided between Class I and Class II as
equally as possible and the Series B Directors shall be divided between
Class I and Class II as equally as possible. Each director shall serve for
a term ending on the second annual meeting date following the annual
meeting at which such director was elected; provided however that each
director initially in Class I shall hold office until the annual meeting of
stockholders in 1998 and each director initially in Class II shall hold
office until the annual meeting of stockholders in 1999.
(b) For as long as there are three or more Series A Directors, the Board
of Directors shall be divided into three classes, Class I, Class II and
Class III. The Series A Directors shall be divided among the three classes
as equally as possible and the Series B Directors likewise shall be divided
among the three classes as equally as possible. Each director shall serve
for a three-year term, provided that for the two years following the first
designation of Class III directors, the Class I and Class II directors
shall continue to be elected at the same annual meetings at which such
directors would have been elected if the size of the Board of Directors had
not been increased so as to require the designation of the Class III
directors. Notwithstanding the preceding sentence, if necessary in order to
ensure that the Series B Directors are divided among the classes as equally
as possible, a Class II Series B Director shall be redesignated as a Class
III director upon the first designation of Class III directors. The first
election of the Class III directors following the initial designation of
the Class III directors shall take place at the third annual meeting of
stockholders following such designation.
(c) Upon each increase or decrease in the authorized number of directors,
(i) each director then serving as such shall continue as a director in the
class of which he or she is a member until the expiration of his or her
current term or until such director's earlier death, resignation or removal
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among
the classes as equally as possible.
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(d) The designation of directors as Class I directors and Class II
directors, respectively, as of the time this Amended and Restated
Certificate of Incorporation shall become effective and shall be as set
forth in the Merger Agreement. Thereafter, the Board of Directors shall be
authorized to determine how the directors shall be divided among Class I,
Class II and, if applicable, Class III, consistent with the terms of this
ARTICLE FIVE.
(e) Notwithstanding any of the foregoing provisions of this ARTICLE FIVE,
each director shall serve until his or her successor is elected and
qualified or until his or her earlier death, resignation or removal. Should
a vacancy occur or be created with respect to a Series A Director's
directorship, whether arising through death, resignation or removal of a
Series A Director or through an increase in the number of Series A
Directors, such vacancy shall be filled by the affirmative vote of a
majority of the Series A Directors then in office or by the sole remaining
Series A Director. If there are no remaining Series A Directors then in
office, then the vacancy or vacancies shall be filled by the holders of
Series A Common Stock as described in ARTICLE FOUR. Similarly, should a
vacancy occur or be created with respect to a Series B Director's
directorship, whether arising through death, resignation or removal of a
Series B Director or through an increase in the number of Series B
Directors, such vacancy shall be filled by the affirmative vote of a
majority of the Series B Directors then in office or by the sole remaining
Series B Director. If there are no remaining Series B Directors then in
office, then the vacancy or vacancies shall be filled by the holders of
Series B Common Stock as described in ARTICLE FOUR. A director so elected
to fill a vacancy shall serve for the remainder of the then present term of
office for the class to which such director was elected.
ARTICLE SIX
BYLAWS
The initial bylaws of the Corporation shall be adopted by the Board of
Directors. The power to alter, amend or repeal the bylaws or adopt new bylaws,
subject to the right of the stockholders to adopt, amend or repeal the bylaws,
is vested in the Board of Directors.
ARTICLE SEVEN
INDEMNIFICATION
To the fullest extent permitted by the Delaware General Corporation Law, as
amended from time to time, the Corporation shall indemnify any and all of its
directors and officers, or former directors and officers, or any person who
may have served at the Corporation's request as a director or officer of
another corporation, partnership, limited liability company, joint venture,
trust, or other entity or enterprise.
ARTICLE EIGHT
DIRECTOR LIABILITY
To the fullest extent permitted by the Delaware General Corporation Law, as
amended from time to time, a director or former director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. No repeal,
amendment, or modification of this ARTICLE EIGHT, whether direct or indirect,
shall eliminate or reduce its effect with respect to any act or omission of a
director or former director of the Corporation prior to such repeal,
amendment, or modification.
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ARTICLE NINE
AMENDMENTS
The Corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
In addition to any other stockholder approvals that may be required under
this Amended and Restated Certificate of Incorporation or the Delaware General
Corporation Law, an amendment, alteration or repeal of any provision of
Subsections B and E of Section 1. of ARTICLE FOUR or of ARTICLE FIVE shall
require the approval of the holders of the shares representing at least two-
thirds of the shares then entitled to vote.
ARTICLE TEN
PARTICIPATION OF NON-CITIZENS
The following provisions are included for the purpose of ensuring that
control and management of the Corporation remains with citizens of the United
States or entities formed under the laws of the United States or any of the
states of the United States, as required by the Communications Act:
(a) The Corporation shall not issue to: (i) a person who is a citizen of
a country other than the United States; (ii) any entity organized under the
laws of a government other than the government of the United States or any
state, territory, or possession of the United States; (iii) a government
other than the government of the United States or of any state, territory,
or possession of the United States; (iv) a representative of, or an
individual or entity controlled by, any of the foregoing; or (v) any other
person or entity whose alien status would be cognizable under the
Communications Act (individually, an "Alien"; collectively, "Aliens") any
shares of capital stock of the Corporation if such issuance would result in
the total number of shares of such capital stock held or voted by Aliens
exceeding 25% of (i) the capital stock outstanding at any time and from
time to time, or (ii) the total voting power of all shares of such capital
stock outstanding and entitled to vote at any time and from time to time,
and shall not permit the transfer on the books of the Corporation of any
capital stock to any Alien that would result in the total number of shares
of such capital stock held or voted by Aliens exceeding such 25% limits as
such limits greater or lesser than 25% may subsequently be imposed by
statute or regulation.
(b) No Alien or Aliens, individually or collectively, shall be entitled
to vote or direct or control the vote of more than 25% of (i) the total
number of all shares of capital stock of the Corporation outstanding at any
time and from time to time, or (ii) the total voting power of all shares of
capital stock of the Corporation outstanding and entitled to vote at any
time and from time to time as such limits greater or lesser than 25% may
subsequently be imposed by statute or regulation.
(c) No Alien shall be qualified to act as an officer of the Corporation
and no more than one-fourth of the total number of directors of the
Corporation at any time may be Aliens except as may be permitted by law or
regulation.
(d) The Board of Directors shall have all powers necessary to implement
the provisions of this ARTICLE TEN and to ensure compliance with the alien
ownership restrictions (the "Alien Ownership Restrictions") of the
Communications Act, including, without limitation, the power to prohibit
the transfer of any shares of capital stock of the Corporation to any Alien
and to take or cause to be taken such action as it deems appropriate to
implement such prohibition.
(e) Without limiting the generality of the foregoing and notwithstanding
any other provision of this Amended and Restated Certificate of
Incorporation to the contrary, any shares of capital stock of the
Corporation determined by the Board of Directors to be owned beneficially
by an Alien or Aliens shall always be subject to redemption by the
Corporation by action of the Board of Directors, pursuant to the
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Delaware General Corporation Law, or any other applicable provision of law,
to the extent necessary in the judgment of the Board of Directors to comply
with the Alien Ownership Restrictions. The terms and conditions of such
redemption shall be as follows:
(i) the redemption price of the shares to be redeemed pursuant to this
ARTICLE TEN shall be equal to the fair market value of the shares to
be redeemed, as determined by reference to the closing price of such
shares on the last business day before the date of redemption if the
shares are traded on a national securities market, or as determined by
the Board of Directors in good faith if the shares are not then being
traded on a national securities market;
(ii) the redemption price of such shares may be paid in cash, securities or
any combination thereof;
(iii) if fewer than all of the shares held by Aliens are to be redeemed, the
shares to be redeemed shall be selected in any manner determined by
the Board of Directors to be fair and equitable;
(iv) at least 10 days (or such shorter period as may be required by any
applicable regulatory authority) written notice of the redemption date
shall be given to the record holders of the shares selected to be
redeemed (unless waived in writing by any such holder), provided that
the redemption date may be the date on which written notice shall be
given to record holders if the cash or securities necessary to effect
the redemption shall have been deposited in trust for the benefit of
such record holders and subject to immediate withdrawal by them upon
surrender of the stock certificates for their shares to be redeemed;
(v) from and after the redemption date, the shares to be redeemed shall
cease to be regarded as outstanding, and any and all rights of the
holders with respect to the shares to be redeemed or attaching to such
shares of whatever nature (including, without limitation, any rights
to vote or participate in dividends declared on stock of the same
class or series as such shares) shall cease and terminate, and the
holders thereof thenceforth shall be entitled only to receive the cash
or securities payable upon redemption; and
(vi) such other terms and conditions as the Board of Directors shall
determine.
For purposes of this ARTICLE TEN, the determination of beneficial ownership
of shares of capital stock of the Corporation shall be made pursuant to Rule
13d-3, 17 C.F.R. (S) 240.13d-3, as amended from time to time, promulgated
under the Securities Exchange Act of 1934, as amended, unless the
Communications Act shall provide for a different method of determination, in
which case such determination shall be made in accordance with the
Communications Act.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed and attested by its duly authorized
officers this day of , 1997.
Argyle Television, Inc.
By:
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Name:
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Title:
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Attest:
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By:
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Name:
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Title:
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APPENDIX D
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholders' shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or
more shares, or fractions thereof, solely of stock of a corporation, which
stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
(S)251(g) of this title), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) at the effective date of the merger or consolidation
will be either listed on a national securities exchange or designated
as a national market system security on an interdealer quotation system
by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
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(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitle
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation
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of the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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APPENDIX E
HEARST-ARGYLE TELEVISION, INC.
1997 STOCK OPTION PLAN
WHEREAS, Argyle Television, Inc. adopted the Amended and Restated 1994 Stock
Option Plan, and the Second Amended and Restated 1994 Option Plan effective as
of October 22, 1995; and
WHEREAS, on April 30, 1996, the stockholders of Argyle Television, Inc.
approved the limitation on the maximum number of shares which may be granted
under the Second Amended and Restated 1994 Option Plan, in order to qualify
awards thereunder under Section 162(m) of the Internal Revenue Code, and
thereby allow a deduction for federal income tax purposes of compensation paid
to certain executives; and
WHEREAS, a subsidiary of The Hearst Corporation ("Hearst") proposes to merge
into Argyle Television, Inc. (the "Merger") and in connection therewith the
name of Argyle Television, Inc. shall be changed to Hearst-Argyle Television,
Inc.; and
WHEREAS, Hearst-Argyle Television, Inc. desires to continue the 1994 Option
Plan, as amended and restated herein upon and subject to consummation of the
proposed Merger;
1. Plan Name and Purpose. Following the Merger, the 1994 Option Plan, as
amended and restated herein, shall be known as the Hearst-Argyle Television,
Inc. 1997 Stock Option Plan, hereinafter referred to as the "Plan." The
purposes of the Plan are (i) to provide incentives for key employees and Non-
Employee Directors (as hereinafter defined) of Hearst-Argyle Television, Inc.
(the "Company"), and its subsidiary corporations (within the meaning of
Section 424(f) of the Internal Revenue Code of 1986, as amended, (the "Code")
and referred to herein as "Subsidiaries") by encouraging their ownership of
Series A common stock, $0.01 par value, of the Company (the "Stock") and (ii)
to aid the Company in retaining such key employees and Non-Employee Directors,
upon whose efforts the Company's success and future growth depends, and
attracting other such employees and Non-Employee Directors.
2. Administration. This Plan shall be administered by the Company's Board of
Directors. Subject to the terms of this Plan, the Board shall have plenary
authority to determine the persons to whom options are to be granted, the
number of shares to be subject to each such option, to determine the terms and
provisions of any option agreements made pursuant to the Plan, to modify such
agreements, and to make all other determinations that may be necessary or
advisable for the administration of the Plan. For purposes of administration,
the Board, subject to the terms of this Plan, shall have plenary authority to
establish such rules and regulations, make such determinations and
interpretations, and take such other administrative actions as it deems
necessary or advisable. All determinations and interpretations made by the
Board shall be final, conclusive and binding on all persons, including the
holders of options granted under this Plan ("Optionees") and their legal
representatives and beneficiaries.
The Board, in its discretion, may delegate any or all of its authority,
powers and discretion under this Plan to the Compensation Committee (the
"Committee"), and the Board in its discretion may revest any or all such
authority, powers and discretion in itself at any time. The Committee shall be
appointed from time to time by the Board of Directors. The Board of Directors
shall designate one of the members of the Committee as its Chairman. The
Committee shall hold its meetings at such times and places as it may
determine. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members.
Any decision or determination reduced to writing and signed by all members of
the Committee shall be as effective as if it had been made by a majority vote
at a Committee meeting duly called and held. The Committee may appoint a
secretary (who need not be a member of the Committee). No member of the
Committee shall be liable for any act or omission with respect to his or her
service on the Committee, if he or she acts in good faith and in a manner he
or she reasonably believes to be in or not opposed to the best interests of
the Company.
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<PAGE>
With respect to persons subject to Section 16 of the Securities Exchange Act
of 1934, as amended, or any successor statute (the "1934 Act"), transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the 1934 Act ("Rule 16b-3"). To the extent any
provision of the Plan or action by the Board of Directors or the Committee
fails to so comply, it shall be deemed null and void, to the extent permitted
by law.
3. Shares of Stock Available for Options. The aggregate number of shares of
Stock that may be issued under this Plan shall equal 3,000,000 shares;
provided, however, that such number of shares of Stock shall be increased from
time to time as necessary so that there shall be available for options under
this Plan (other than "incentive stock options," within the meaning of Section
422(b) of the Code), as of any date, a total of 6.25% of Fully Diluted Shares,
subject to any adjustments that may be made pursuant to Section 5(g) hereof.
Shares of Stock used for purposes of this Plan may be either authorized or
unissued shares, or previously issued shares, held in the treasury of the
Company, or both. Immediately upon the termination or forfeiture of any option
granted under this Plan (other than by reason of exercise or other
cancellation for consideration), any shares of Stock covered by such option
shall be available for grant as further options hereunder.
Unless specifically defined otherwise, "Fully Diluted Shares" means, as of
any date, the sum of (i) the number of shares of Stock then outstanding (not
including any shares held in treasury) and (ii) without duplication, the
number of shares of Stock issuable upon conversion, exchange or exercise of
all outstanding securities, other obligations, options or warrants,
convertible into, exchangeable for or otherwise providing the right to acquire
such shares.
4. Eligibility. Options under this Plan may be granted to key employees and
Non-Employee Directors of the Company or any Subsidiary. In selecting persons
to be granted options, the Board may take into consideration any factors it
may deem relevant, including its estimate of the person's present and
potential contributions to the success of the Company and its Subsidiaries.
The maximum number of shares of Stock with respect to which stock options may
be granted in any one year to any employee shall not exceed 500,000.
5. Terms and Conditions of Options. The Board shall, in its discretion,
prescribe the terms and conditions of the options to be granted hereunder,
which terms and conditions need not be the same in each case, subject to the
following:
(a) Option Agreement. Each option granted under this Plan shall be
evidenced by a written option agreement, which shall be executed by the
Optionee and an authorized officer of the Company and which shall contain such
terms and conditions as the Board shall deem appropriate, consistent with the
terms of this Plan.
(b) Option Price. The price at which each share of Stock covered by an
option granted under this Plan may be purchased shall be determined by the
Board and shall not be less than the fair market value per share of Stock at
the time of grant, subject to the incentive stock option provisions set forth
in Section 6. The date of the grant of an option shall be the date specified
by the Board in its grant of the option.
(c) Option Period. The period for exercise of an option shall not exceed
ten (10) years plus one day from the date of grant, subject to the provisions
of Sections 5(e), 5(h), 6, and the provisions of any option agreement.
(d) Exercise of Options. In order to exercise all or any portion of an
option granted under this Plan, the Optionee, or his or her representative,
devisees or heirs, as applicable, shall deliver to the Company written notice
specifying the number of shares of Stock to be purchased, together with cash
or a certified or bank cashier's check payable to the order of the Company or
shares of Company Stock having a fair market value equal to the purchase price
therefor. An Optionee shall have none of the rights of a stockholder until the
shares of Stock are issued to him or her. An option may not be exercised for
less than one hundred (100) shares of Stock, or the number of shares of Stock
remaining subject to such option, whichever is less.
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<PAGE>
(e) Effect of Termination of Employment or Service as a Non-Employee
Director. Except as may be set forth in any option agreement, the following
provisions of this Section 5(e) shall govern the treatment of options upon the
termination of an Optionee's employment or service as a non-employee director
by the Company and each of the Subsidiaries (hereinafter, the "Optionee's
Employment or Service"):
(i) An option will automatically be forfeited and unexercisable upon the
termination of an Optionee's Employment or Service if such termination was for
Cause (as defined below) or was voluntary by the Optionee (other than
voluntary termination in connection with the Optionee's retirement upon or
after such Optionee reaches age 65 ("Retirement Age")). Unless otherwise
specifically defined in an Option Agreement, a termination shall be for
"Cause" if the Company (or a Subsidiary) terminates the Optionee's Employment
or Service because (A) the Optionee is convicted of a crime that is a felony
(other than a traffic or moving violation); (B) the Optionee has willfully and
materially breached, habitually neglected or failed to perform satisfactorily
his or her duties as an employee, consultant or non-employee director; or, (C)
the Optionee commits any material act or fraud or dishonesty during the course
of the Optionee's Employment or Service.
(ii) If an Optionee's Employment or Service is terminated because of (A)
the death of the Optionee or (B) the Disability (as defined in subsection (v)
below) of the Optionee, the Optionee, or his or her representative, devisees
or heirs, as applicable, may exercise any options granted under this Plan that
are exercisable on the date the Optionee's Employment or Service so terminates
at any time prior to one year from the date of such termination.
(iii) If an Optionee's Employment or Service is terminated because of the
retirement of the Optionee at or after the Optionee reaches Retirement Age,
then the Optionee may exercise any options granted under this Plan that are
exercisable on the date the Optionee's Employment or Service so terminates at
any time prior to one year from the date of such termination, subject to the
incentive stock option provisions set forth in Section 6.
(iv) If the Company terminates the Optionee's Employment or Service for
any reason other than for Cause, then the Optionee, or his or her
representative, devisees or heirs, as applicable, may exercise any options
granted under this Plan that are exercisable on the date the Optionee's
Employment or Service so terminates at any time prior to one year from the
date of such termination, subject to the incentive stock option provisions set
forth in Section 6. Notwithstanding the foregoing, if the Optionee's
Employment or Service is terminated because the Optionee has become an
employee of another company that is affiliated with the Company, through
common ownership, common management or otherwise, then the options granted to
such Optionee under this Plan shall not be deemed to be terminated, but rather
shall continue in full force and effect as if the Optionee's Employment or
Service had not been terminated.
(v) Unless otherwise specifically defined in an Option Agreement,
"Disability," as such term is used herein, shall refer to the Optionee
becoming physically or mentally disabled (as determined in good faith by the
Board) so that Optionee is unable to perform Optionee's duties which Optionee
is required to perform for a period of more than one hundred twenty (120)
consecutive days or more than one hundred eighty (180) days in the aggregate
during any calendar year.
(vi) If an Optionee's Employment or Service is terminated with the
approval of the Board, the Board may, at its discretion, accelerate or
otherwise modify the vesting conditions applicable to any options which are
not exercisable on the date the Optionee's Employment or Service terminates,
extend the period following termination of employment during which any
outstanding options may be exercised (but in no event beyond the original
exercise term of the grant), or modify the vesting terms and extend the
exercise term of the grant.
(vii) Nothing in this Plan or in any option granted pursuant to this Plan
(in the absence of an express provision to the contrary) shall confer on any
individual any right to continue in the employ of the Company or any
Subsidiary, to continue to serve as a member of the Board, or to interfere in
any way with the right of the Company to terminate his or her Employment or
Service at any time.
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<PAGE>
(f) Transferability of Options. During the lifetime of an Optionee, options
held by such Optionee shall be exercisable only by the Optionee or his or her
personal representative in the event of the Optionee's Disability. In the
event of Optionee's death, options that remain exercisable under the terms of
this Plan and the applicable Option Agreements may be exercised by the
Optionee's representative, devisees or heirs, as applicable. Options shall be
transferable by will or the laws of descent and distribution. Notwithstanding
the foregoing, the Board may permit an Optionee to transfer exercise rights to
any outstanding non-qualified stock options, provided such transfers are made
to Permitted Transferees, as defined herein, and are made without
consideration, for bona fide estate planning purposes. The Board shall
establish whatever administrative criteria it deems appropriate in reviewing
and approving such transfer requests. For purposes of this Section 5(f),
"Permitted Transferees" shall mean a member of an Optionee's immediate family,
trusts for the benefit of such immediate family members, and partnerships in
which the Optionee and/or such immediate family members are the only partners.
Immediate family members shall include an Optionee's spouse, descendants
(children, grandchildren and more remote descendants), and shall include step-
children and relationships arising from legal adoption.
(g) Adjustments for Change in Stock Subject to Plan and Other
Events. Subject to any more particular rights that the Board may grant to an
Optionee under an Option Agreement, in the event of a reorganization,
recapitalization, reclassification, stock split, stock dividend, combination
of shares, merger, consolidation, rights offering, or any other change in or
event affecting the corporate structure or Stock of the Company, the Board may
make such adjustments, if any, in the number of shares subject to this Plan
and in the number of shares covered by outstanding options and/or in the
option price per share as it deems appropriate and necessary to preserve the
value of the benefits provided hereunder.
(h) Acceleration of Exercisability of Options Upon Occurrence of Certain
Events. The Board may provide, in an Option Agreement relating to any option
granted hereunder, that in connection with any Change of Control (as
hereinafter defined) of the Company, effective as of such date as the Board
shall determine, the exercisability of such option shall be accelerated and
the option may be immediately exercised to purchase all or any portion of the
shares of Stock subject to such option, or all or a portion of such option may
be terminated, as determined by the Board.
"Change of Control" shall mean (i) a merger or consolidation in which the
Company is a constituent corporation following which securities of the
surviving or resulting corporation possessing less than 50% of the combined
voting power of such corporation's outstanding voting securities (computed on
either an actual or fully diluted basis) with respect to matters submitted to
a vote of the stockholders generally shall then be owned in the aggregate by
persons who prior thereto were stockholders of the Company; (ii) a sale or
transfer by the Company or any of its Subsidiaries of all or substantially all
of the consolidated assets of the Company and its Subsidiaries to an entity
that is not a Subsidiary of the Company; (iii) any "person" (as such term is
used in Sections 3(a)(9) or 13(d)(3) of the 1934 Act), other than Excluded
Persons, is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing more than 50% of the combined voting
power of the Company's then outstanding voting securities with respect to
matters submitted to a vote of the stockholders generally; (iv) any "person"
other than Excluded Persons is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing more than 50% of the
then outstanding Stock; (v) at such time as any shares of Series B common
stock, $0.01 par value, of the Company are no longer outstanding, 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; (vi) the Company adopts a plan of dissolution or liquidation or
liquidates or dissolves; or (vii) any transaction or series of transactions
which has a reasonable likelihood or a purpose of producing, directly or
indirectly, any of the effects described in paragraph (a)(3)(ii) of Rule 13e-3
of the 1934 Act. The term "Excluded Persons" means each of (i) The Hearst
Corporation or any other "Permitted Transferee" (as defined in Article Four of
the Company's Amended and Restated Certificate of Incorporation) and (ii) a
trustee or other fiduciary holding securities under an employee benefit plan
of the Company.
Notwithstanding the foregoing, in no event shall any option be exercisable
after the date of termination of the exercise period of such option specified
in Section 5(c).
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<PAGE>
(i) Stock Legends. Certificates evidencing shares of Stock issued under the
Plan shall have conspicuously noted thereon such restrictions on
transferability as the Company may require in order to ensure compliance with
applicable federal and state securities laws and regulations.
(j) Options for Non-Employee Directors. Notwithstanding any provision
herein to the contrary, each Non-Employee Director of the Company shall be
awarded options to purchase 4,000 shares of Stock each year that such person
continues to serve as a director of the Company, and an additional 1,000
shares of Stock each year that such person serves as a chairperson of a
committee of the Board. The initial grant to each Non-Employee Director shall
be made as of the adoption of this Plan (or as soon thereafter as is
reasonably practicable) and each subsequent annual grant shall be made on each
anniversary of the date of the initial grant for as long as such Non-Employee
Director continues to serve as a director of the Company or any of its
Subsidiaries. All such options granted to the Non-Employee Directors shall
have an exercise price equal to the fair market value of the Stock as of the
date of grant (as determined by the Board of Directors), shall become fully
exercisable two (2) years from the date of grant and shall expire ten (10)
years from the date of grant.
"Non-Employee Director", as defined by Rule 16b-3 shall mean a director of
the Company who (i) is not currently an officer of the Company or a parent or
subsidiary of the Company, or otherwise currently employed by the Company or a
parent or subsidiary of the Company; (ii) does not receive compensation,
either directly or indirectly, from the Company or a parent or subsidiary of
the Company, for services rendered as a consultant or in any capacity other
than as a director, except for an amount that does not exceed the dollar
amount for which disclosure would be required pursuant to Item 404(a) of
Regulation S-K; (iii) does not possess an interest in any other transaction
for which disclosure would be required pursuant to Item 404(a) of Regulation
S-K; and (iv) is not engaged in a business relationship for which disclosure
would be required pursuant to Item 404(b) of Regulation S-K.
(k) Other Terms and Conditions. The Board may impose such other terms and
conditions, not inconsistent with the terms hereof, on the grant or exercise
of options, as it deems advisable.
6. Provisions Applicable to Incentive Stock Options. The Committee may, in
its discretion, grant options under this Plan to eligible employees which
constitute "incentive stock options" (within the meaning of Section 422(b) of
the Code), provided, however, that the following provisions shall be
-------- -------
applicable to such options ("Incentive Stock Options"):
(a) No Incentive Stock Option shall be exercisable more than ten (10) years
from the date of grant thereof.
(b) To the extent that the aggregate fair market value (determined at the
time the respective Incentive Stock Option is granted) of Stock with respect
to which Incentive Stock Options are exercisable for the first time by an
individual during any calendar year under all incentive stock option plans for
the Company and its Subsidiaries exceeds $100,000, such excess Incentive Stock
Options shall be treated as options which do not constitute Incentive Stock
Options.
(c) No Incentive Stock Option shall be granted to an individual if, at the
time the option is granted, such individual owns stock possessing more than
10% of the total combined voting power of all classes of stock of the Company
or of its Subsidiaries, unless (i) at the time such option is granted the
option price is at least 110% of the fair market value of the Stock subject to
the option, and (ii) such option by its terms is not exercisable after the
expiration of five (5) years from the date of grant.
(d) The purchase price of a share of Stock under an Incentive Stock Option
shall be no less than 100% of the fair market value of a share of Stock as of
the date such option is granted.
(e) An Incentive Stock Option shall be exercisable only while the Optionee
is an employee of the Company or a Subsidiary, or within three (3) months
after the date that the Optionee's employment with the Company is terminated
for reasons other than death or Disability, for Cause, or voluntary
termination by the Optionee.
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<PAGE>
7. Amendment and Termination. Unless this Plan previously shall have been
terminated as hereinafter provided, this Plan shall terminate on, and no
option shall be granted hereunder, ten (10) years from (i) the date this Plan
is adopted by the Board or (ii) the date this Plan is approved by the
Company's stockholders, whichever is earlier; provided, however, that the
Board may at any time prior to that date terminate this Plan. The Board may at
any time amend this Plan; provided, however, that an amendment shall be
-------- -------
subject to stockholder approval if such approval is required for favorable
treatment under Rule 16b-3 or the Code or is required by the rules of any
securities exchange or market system on which securities of the Company are
listed, reported or admitted to trading at the time such amendment is adopted.
No termination or amendment of this Plan may, without the consent of an
Optionee, adversely affect the rights of such Optionee under any option held
by such Optionee. Notwithstanding anything in this Section 7 to the contrary,
this Plan may from time to time be amended to satisfy or otherwise conform to
the conditions and requirements and provisions set forth in Rule 16b-3 or in
any successor rule.
8. Withholding. It shall be a condition to the obligation of the Company to
issue shares of Stock upon exercise of an option, that the Optionee (or any
beneficiary or other person entitled to act under the terms hereof) pay to the
Company, upon its demand, such amount as may be requested by the Company for
the purpose of satisfying any liability to withhold federal, state or local
income or other taxes. Without limiting the generality of the foregoing,
Optionees may be given the opportunity to elect to have shares of Stock
acquired through exercise of the option withheld to satisfy withholding tax
obligations.
E-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the Delaware General Corporation Law (the
"DGCL") empowers a corporation to indemnify any director or officer, or former
director or officer, who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or
in the right of the corporation), against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding provided that such
director or officer acted in good faith and in a manner reasonably believed to
be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, provided that such director or
officer had no cause to believe his or her conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of
the capacities set forth above, against expenses actually and reasonably
incurred in connection with the defense or settlement of such action or suit
provided that such director or officer acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any
claim, issue or matter as to which such director or officer shall have been
adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action was brought shall
determine that despite the adjudication of liability such director or officer
is fairly and reasonably entitled to indemnity for such expenses as the court
shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action,
suit or proceeding referred to in subsections (a) and (b) or in the defense of
any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
or her in connection therewith; that indemnification provided for in Section
145 shall not be deemed exclusive of any other rights to which the indemnified
party may be entitled; and that the corporation shall have power to purchase
and maintain insurance on behalf of a director or officer of the corporation
against any liability asserted against him or her or incurred by him or her in
any such capacity or arising out of his or her status as such whether or not
the corporation would have the power to indemnify him or her against such
liabilities under Section 145.
Article Seven of the Argyle's Certificate of Incorporation, as amended,
provides that Argyle shall indemnify any and all of its directors and
officers, or former directors and officers, or any person who may have served
at Argyle's request as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise.
Article Eight of Argyle's Certificate of Incorporation, as amended, provides
that no director or former director of Argyle shall be liable to Argyle or its
stockholders for monetary damages for breach of fiduciary duty as a director
to the fullest extent permitted by Delaware Law.
Argyle maintains liability insurance insuring its officers and directors
against liabilities that they may incur in such capacities, including
liabilities arising under the Federal securities laws other than liabilities
arising out of the filing of a registration statement with the Securities and
Exchange Commission.
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<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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<C> <S>
2.1 --Amended and Restated Agreement and Plan of Merger, dated as of
March 26, 1997, among The Hearst Corporation, HAT Merger Sub,
Inc., HAT Contribution Sub, Inc. and Argyle (included herewith as
Appendix A to the Proxy Statement/Prospectus).
3.1 --Amended and Restated Certificate of Incorporation of Argyle
(incorporated by reference to Exhibit 3.1 of Argyle's
Registration Statement on Form S-1 (File No. 33-96029)).
3.2 --Bylaws of Argyle (incorporated by reference to Exhibit 3.2 of
Argyle's Registration Statement on Form S-1 (File No. 33-96029)).
4.1 --Certificate of Designation of Argyle's Series A Preferred Stock
(incorporated by reference to Argyle's Current Report on Form 8-K
dated June 11, 1996).
4.2 --Certificate of Designation of Argyle's Series B Preferred Stock
(incorporated by reference to Argyle's Current Report on Form 8-K
dated June 11, 1996).
4.3 --Form of Indenture relating to the Senior Subordinated Notes due
2005 (including form of security) (incorporated by reference to
Exhibit 4.1 of Argyle's Form 10-K for the fiscal year ending
December 31, 1996).
4.4 --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 Argyle's Current Report on Form 8-K dated June 11,
1996).
4.5 --Form of Note (included in Exhibit 4.1).
4.6 --Specimen of the stock certificate for Argyle's Series A Common
Stock, $.01 par value per share (incorporated by reference to
Exhibit 4.5 of Argyle's Form 10-K for the fiscal year ending
December 31, 1996).
5.1 --Opinion of Locke Purnell Rain Harrell (A Professional
Corporation) regarding legality of securities to be issued.
8.1 --Opinion of Locke Purnell Rain Harrell (A Professional
Corporation) regarding federal income tax matters.
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 (incorporated by reference to Exhibit 10.2 of
Argyle's Registration Statement on Form S-1 (File No. 33-96029)).
10.2 --Amended and Restated Employment Agreement of Bob Marbut
(incorporated by reference to Exhibit 10.3(a) of Argyle's
Registration Statement on Form S-1 (File No. 33-96029)).
10.3 --Amended and Restated Employment Agreement of E. Blake Byrne
(incorporated by reference to Exhibit 10.3(b) of Argyle's
Registration Statement on Form S-1 (File No. 33-96029)).
10.4 --Amended and Restated Employment Agreement of Ibra Morales
(incorporated by reference to Exhibit 10.3(c) of Argyle's
Registration Statement on Form S-1 (File No. 33-96029)).
10.5 --Amended and Restated Employment Agreement of Harry T. Hawks
(incorporated by reference to Exhibit 10.3(d) of Argyle's
Registration Statement on Form S-1 (File No. 33-96029)).
10.6 --Amended and Restated 1994 Stock Option Plan (incorporated by
reference to Exhibit 10.6 of Argyle's Form 10-K for the fiscal
year ending December 31, 1995).
10.7 --Option Agreement between Argyle and Bob Marbut dated January 4,
1995, as amended (incorporated by reference to Exhibit 10.4(b) of
Argyle's Registration Statement on Form S-1 (File No. 33-96029)).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.8 --Option Agreements between Argyle and E. Blake Byrne dated
January 4, 1995, as amended (incorporated by reference to Exhibit
10.4(c) of Argyle's Registration Statement on Form S-1 (File No.
33-96029)).
10.9 --Option Agreements between Argyle and Ibra Morales dated
January 4, 1995, as amended (incorporated by reference to
Exhibit 10.4(d) of Argyle's Registration Statement on Form S-1
(File No. 33-96029)).
10.10 --Option Agreements between Argyle and Harry T. Hawks dated
January 4, 1995, as amended (incorporated by reference to
Exhibit 10.4(e) of Argyle's Registration Statement on Form S-1
(File No. 33-96029)).
10.11 --Affiliation Agreement among Multimedia, Inc., Multimedia
Entertainment, Inc. (re: WLWT) and NBC (incorporated by reference
to Exhibit 10.8(a) of Argyle's Form 10-K for the fiscal year
ending December 31, 1996).
10.12 --Affiliation Agreement between combined Communications
Corporation of Oklahoma, Inc. (re: KOCO) and ABC (incorporated by
reference to Exhibit 10.8b of Argyle's Form 10-K for the fiscal
year ending December 31, 1996).
10.13 --Affiliation Agreement between Providence Argyle Television, Inc.
(re: WNAC) and Fox Broadcasting Company, dated December 9, 1994,
as amended, and Amendment/NFL Package Agreement (incorporated by
reference to Exhibit 10.5(c) of Argyle's Registration Statement
on Form S-1 (File No. 33-96029)).
10.14 --Affiliation Agreement between Tak Communications, Inc. (re:
KITV) and ABC, dated November 4, 1994 and Satellite Television
Affiliation Agreements, dated November 9, 1994 (incorporated by
reference to Exhibit 10.5(d) of Argyle's (Registration Statement
on Form S-1 (File No. 33-96029)).
10.15 --Form of Affiliation Agreement between Jackson Argyle Television,
Inc. (re: WAPT) and ABC (incorporated by reference to Exhibit
10.5(e) of Argyle's Registration Statement on Form S-1 (File No.
33-96029)).
10.16 --Affiliation Agreements between Sigma Broadcasting, Inc. (re:
KHBS and KHOG) and ABC (incorporated by reference to Argyle's
Current Report on Form 8-K dated June 11, 1996).
10.17 --Overhead Services Agreement between Argyle and Argyle Television
Investors, L.P. and ATI General Partner, L.P., dated as of
January 4, 1995 (incorporated by reference to Exhibit of Argyle's
Registration Statement on Form S-1 (File No. 33-96029)).
10.18 --Form of Amended and Restated Tax Sharing Agreement (incorporated
by reference to Exhibit of Argyle's Form 10-K for the fiscal year
ending December 31, 1996).
10.19 --Amended and Restated Bank Credit Agreement, dated June 13, 1995,
as amended by Amendment No. 2 to Bank Credit Agreement
(incorporated by reference to Exhibit 10.9 of Argyle's
Registration Statement on Form S-1 (File No. 33-96029)).
10.20 --Form of Amendment No. 3 to Amended and Restated Credit Agreement
dated as of June 7, 1996 (incorporated by reference to Argyle's
Current Report on Form 8-K dated June 11, 1996).
10.21 --Amendment No. 4 to Amended and Restated Credit Agreement
(incorporated by reference to Exhibit 10.11b of Argyle's Form
10-K for the fiscal year ending December 31, 1996).
10.22 --Change of Control Agreement between Argyle and Dean H. Blythe
(incorporated by reference to Exhibit 10.12 of Argyle's Form 10-K
for the fiscal year ending December 31, 1996).
10.23 --Amendment No. 1 to Amended and Restated Employment of Bob Marbut
dated July 31, 1996.
10.24 --Amendment No. 1 to Amended and Restated Employment of E. Blake
Byrne dated July 31, 1996.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.25 --Amendment No. 1 to Amended and Restated Employment of Ibra
Morales dated July 31, 1996.
10.26 --Commitment Letter dated June 17, 1997 issued by The Chase
Manhattan Bank.
21 --List of Subsidiaries of Argyle (incorporated by reference to
Exhibit 21.1 of Argyle's Form 10-K for the fiscal year ending
December 31, 1996.)
23.1 --Consent of Locke Purnell Rain Harrell (A Professional
Corporation) (contained in Exhibit 5.1 and Exhibit 8.1).
23.2 --Consent of Ernst & Young LLP.
23.3 --Consent of Deloitte & Touche LLP.
23.4 --Consent of Price Waterhouse LLP.
23.5 --Consent of Merrill Lynch & Co.
23.6 --Consent of David J. Barrett
23.7 --Consent of Frank A. Bennack, Jr.
23.8 --Consent of John G. Conomikes
23.9 --Consent of Victor F. Ganzi
23.10 --Consent of George R. Hearst, Jr.
23.11 --Consent of William R. Hearst, III
23.12 --Consent of Gilbert G. Maurer
23.13 --Consent of Virginia H. Randt
24.1 --Powers of Attorney (contained on signature page hereto).
99.1 --Form of Argyle's Proxy Card.
99.2 --Form of Election and Letter of Transmittal.
</TABLE>
- --------
(b) Financial Statement Schedules:
Independent Auditors' Report on Schedule
Schedule II--Valuation and Qualifying Accounts for fiscal years 1994, 1995
and 1996 of the Hearst Broadcast Group.
Independent Auditors Report on Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts for fiscal years 1995 and
1996 of Argyle Television, Inc. and Subsidiaries.
(c) Reports, Opinions and Appraisals:
Fairness Opinion of Merrill Lynch & Co. (attached as Appendix B to the Proxy
Statement/Prospectus forming a part of this Registration Statement and
therefore not filed as an exhibit to this Registration Statement).
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
II-4
<PAGE>
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(d) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purpose of determining any
liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 20 hereof, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless, in the opinion of its counsel, the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to this request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
ARGYLE TELEVISION, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF SAN ANTONIO, STATE OF TEXAS, ON JULY 29, 1997.
Argyle Television, Inc.
By: /s/ Bob Marbut
---------------------------------
BOB MARBUT
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Bob Marbut, Harry T. Hawks and
Dean H. Blythe, and each of them, such individual's true and lawful attorneys-
in-fact and agents, with full power of substitution and resubstitution, for
such individual and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement on Form S-4 and any and all
applications and other documents in connection therewith, with the Securities
and Exchange Commission and any state or other securities authority, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises as fully and to intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Bob Marbut Chairman of the July 29, 1997
- ------------------------------------- Board and Chief
BOB MARBUT Executive Officer
(Principal
Executive Officer)
/s/ Blake Byrne President, Chief July 29, 1997
- ------------------------------------- Operating Officer
BLAKE BYRNE and Director
/s/ Ibra Morales Executive Vice July 29, 1997
- ------------------------------------- President, Chief
IBRA MORALES Revenue Officer and
Director
/s/ Harry T. Hawks Chief Financial July 29, 1997
- ------------------------------------- Officer, Assistant
HARRY T. HAWKS Secretary and
Treasurer
(Principal
Financial Officer)
</TABLE>
II-6
<PAGE>
/s/ Teresa Lopez Controller and July 29, 1997
- ------------------------------------- Assistant Secretary
TERESA LOPEZ (Principal
Accounting Officer)
/s/ Caroline L. Williams Director July 29, 1997
- -------------------------------------
CAROLINE L. WILLIAMS
/s/ David Pulver Director July 29, 1997
- -------------------------------------
DAVID PULVER
II-7
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
The Hearst Corporation
We have audited the accompanying combined balance sheets of the Hearst
Broadcast Group of The Hearst Corporation (referred to as the "Group") as of
December 31, 1995 and 1996, and the related combined statements of operations
and cash flows for each of the three years in the period ended December 31,
1996, and have issued our report thereon dated May 1, 1997; such report is
included elsewhere in this Registration Statement. Our audits also included
the financial statement schedule of the Hearst Broadcast Group of The Hearst
Corporation, listed in Item 21(b). This financial statement schedule is the
responsibility of the Group's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such 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.
DELOITTE & TOUCHE LLP
New York, New York
May 1, 1997
<PAGE>
THE HEARST BROADCAST GROUP OF THE HEARST CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1994
Allowance for
uncollectible
accounts.............. $1,081,825 $ 793,707 $-- $(401,448) $1,474,084
Year Ended December 31,
1995
Allowance for
uncollectible
accounts.............. 1,474,084 1,130,264 -- (978,228) 1,626,120
Year Ended December 31,
1996
Allowance for
uncollectible
accounts.............. 1,626,120 989,298 -- (921,674) 1,693,744
</TABLE>
<PAGE>
INDEPENDENT AUDITORS REPORT ON
FINANCIAL STATEMENT SCHEDULE
Board of Directors
Argyle Television, Inc.
We have audited the 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, and have issued our report thereon dated
February 12, 1997, except for the second paragraph of Note 11, as to which the
date is March 26, 1997; such report is included elsewhere in this Registration
Statement. Our audits were conducted for the purpose of forming an opinion on
the financial statements taken as a whole. The financial statement schedule,
listed in Item 21 b., is presented for purposes of additional analysis and is
not a required part of the financial statements. Such information has been
subjected to the auditing procedures applied in our audits of the financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the financial statements as a whole.
San Antonio, Texas
February 12, 1997 ERNST & YOUNG LLP
<PAGE>
ARGYLE TELEVISION, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
----------------------------
BALANCE CHARGED CHARGED BALANCE
AT TO TO OTHER AT END
BEGINNING COSTS AND ACCOUNTS DEDUCTIONS OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- --------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1995
Allowance for
uncollectible
accounts............. $ -- $ 69,914 $63,288(1) $ -- $133,202
Year Ended December 31,
1996
Allowance for
uncollectible
accounts............. $133,202 $234,963 $ -- $(198,863)(2) $169,302
</TABLE>
- --------
(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.
<PAGE>
EXHIBIT 5.1
[Letterhead of Locke Purnell Rain Harrell Appears Here]
July 29, 1997
Argyle Television, Inc.
200 Concord Plaza
Suite 700
San Antonio, TX 78216
Ladies/Gentlemen:
We have acted as counsel for Argyle Television, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission of a Registration Statement on Form S-4
under the Securities Act of 1933, as amended (the "Registration Statement"),
relating to 8,277,054 shares of the Company's Series A Common
Stock, par value $.01 per share (the "Shares"), that may be issued by the
Company to the stockholders and optionholders of the Company in connection with
the merger (the "Merger") of HAT Merger Sub, Inc., a Delaware corporation
("Merger Sub"), with and into the Company pursuant to the Amended and Restated
Agreement and Plan of Merger, dated as of March 26, 1997 (the "Merger
Agreement") among The Hearst Corporation, a Delaware corporation, Merger Sub,
HAT Contribution Sub, Inc., a Delaware corporation, and the Company.
In this connection, we have examined such documents and instruments and
matters of law as we have deemed necessary to the expression of the opinions
contained herein.
Based upon the foregoing, we are of the opinion that:
(1) The Company has been duly incorporated and is in good standing under
the laws of the State of Delaware; and
(2) The Shares, upon issuance and delivery after consummation of the
Merger in accordance with the Merger Agreement, duly executed by the
Company and countersigned by its Transfer Agent, will be validly
issued, fully paid and non-assessable.
We hereby consent to the use of our name in the Registration Statement and
in the related Proxy Statement/Prospectus and to the filing of a copy of this
opinion as Exhibit 5.1 to the Registration Statement. In giving such consent,
we do not hereby admit that we are within the
<PAGE>
Argyle Television, Inc.
July 29, 1997
Page 2
category of persons whose consent is required by Section 7 of the Securities Act
or the related rules promulgated by the Securities and Exchange Commission.
Very truly yours,
LOCKE PURNELL RAIN HARRELL
(A Professional Corporation)
By: /s/ Guy Kerr
--------------------------
Guy Kerr
<PAGE>
Exhibit 8.1
[Letterhead of Locke Purnell Rain Harrell]
July 29, 1997
Argyle Television, Inc.
200 Concord Plaza, Suite 700
San Antonio, Texas 78216
Ladies/Gentlemen:
We have acted as special tax counsel to Argyle Television, Inc. ("Argyle")
in connection with the Proxy Statement/Prospectus prepared by Argyle in
connection with the solicitation by its Board of Directors of proxies for use at
Argyle's annual meeting of stockholders, which was originally filed with the
Securities and Exchange Commission on June 9, 1997. Capitalized terms used
hereunder but not defined have the meaning ascribed to them in the Proxy
Statement/Prospectus.
In rendering this opinion we have examined such documents as we have deemed
relevant or necessary, including the Proxy Statement/Prospectus. The initial and
continuing accuracy of these facts constitutes an integral basis for the opinion
expressed herein.
In our opinion, the discussion contained in the final Proxy
Statement/Prospectus in the subsection entitled "The Hearst Transaction Proposal
- - Certain Federal Income Tax Consequences" correctly sets forth the material
federal income tax consequences of the Hearst Transaction for certain holders of
Argyle Common Stock. This opinion is based upon existing statutes and
regulations and positions of the Internal Revenue Service as of the date hereof,
all of which are subject to change, both retroactively or prospectively.
This opinion is furnished to you solely for use in connection with the
Proxy Statement/Prospectus. We hereby consent to the incorporation by reference
of this opinion as an exhibit to the Proxy Statement/Prospectus and to the
reference to our Firm in the Proxy Statement/Prospectus under the caption "The
Hearst Transaction Proposal - Certain Federal Income Tax Consequences" and
"Legal Matters." In giving this consent we do not hereby admit that we come
within the category of persons whose consent is required under the Securities
Act
<PAGE>
Argyle Television, Inc.
July 29, 1997
Page 2
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
LOCKE PURNELL RAIN HARRELL
(A Professional Corporation)
By: /s/ C. Ronald Kalteyer
------------------------------------
C. Ronald Kalteyer
<PAGE>
Exhibit 10.23
AMENDMENT NO 1 TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
Argyle Television, Inc., a Delaware corporation (the "Company"), and Bob
Marbut ("Employee"), as of this 31st day of July, 1996, hereby enter into this
Amendment No. 1 to that certain Amended and Restated Employment Agreement
effective as of January 4, 1995 (the "Employment Agreement") between the Company
and Employee. All capitalized terms not defined herein shall have the meanings
ascribed to them in the Employment Agreement.
The Company and Employee hereby amend the Employment Agreement as
follows:
Section 14(e) of the Employment Agreement is amended by deleting such
Section 14(e) in its entirety and replacing it with the following:
Compensation After Termination. In the event of the termination of
------------------------------
Employee's employment by either party prior to the expiration of the term of
this Agreement, Employee shall be entitled to compensation earned by him prior
to the date of termination as provided herein computed on a pro rata basis to
and including such date of termination and shall be entitled to reimbursement,
pursuant to Paragraphs 5 and 9 hereof, of all expenses incurred on or prior to
such date of termination. Employee authorizes the Company to deduct any sums due
the Company from the Employee from such payments and/or any other
post-termination payments due Employee.
If Employee terminates his employment pursuant to Paragraph 14(b) above,
or if the Company terminates Employee's employment without cause pursuant to
Paragraph 14(c) above, Employee shall be entitled to receive upon such
termination a lump sum amount equal to his base salary for a period not to
exceed the lesser of (i) two (2) years or (ii) the balance of the five (5) year
term of this Agreement. Employee shall be under no duty to mitigate damages by
securing other employment, and his compensation payable hereunder shall not be
reduced as a result of such other employment or any compensation received by him
with respect thereto. Notwithstanding any provision of this Agreement to the
contrary, this Agreement shall automatically terminate, without further act of
the Company, upon a sale of substantially all of the capital stock or assets of
the Company or other comparable liquidity event (a "Liquidation Event"), in
which case Employee shall not be entitled to the post-termination payments
described in this Subparagraph unless, as a result of such Liquidation Event,
the limited partners of Argyle Television Investors, L.P. ("ATI") receive the
return of their capital plus the Preferred Return (as defined in the Amended and
Restated Agreement of Limited Partnership of ATI) on such capital.
If Employee's employment is terminated by Employee pursuant to Paragraph
14(a) or by the Company pursuant to Paragraph 14(d), then Employee shall be
entitled
<PAGE>
to no further compensation; except that (i) Employee shall be entitled to a pro
rata portion (through the date of termination) of any base salary and bonus
earned for the year in which termination of his employment occurs, if Employee's
employment is terminated under Paragraph 14(d)(1) or (2) above, and (ii)
Employee shall be entitled to the disability benefit provided for by Paragraph
8, if Employee's employment is terminated under Paragraph 14(d)(1) above.
Notwithstanding anything to the contrary contained in this Agreement, in no
event shall Employee be entitled to receive any salary or bonus payments
hereunder during any period in which he is in violation of the provisions of
Paragraph 12 hereof.
The Amendment No. 1 is entered into as of the date first above written.
COMPANY:
Argyle Television, Inc.
By: /s/ Dean H. Blythe
--------------------------------------
Name: Dean H. Blythe
------------------------------------
Title: Vice President & General Counsel
-----------------------------------
EMPLOYEE:
/s/ Bob Marbut
-----------------------------------------
Bob Marbut
<PAGE>
Exhibit 10.24
AMENDMENT NO. 1 TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
Argyle Television, Inc., a Delaware corporation (the "Company"), and Blake
Byrne ("Employee"), as of this 31st day of July, 1996, hereby enter into this
Amendment No. 1 to that certain Amended and Restated Employment Agreement
effective as of January 4, 1995 (the "Employment Agreement") between the Company
and Employee. All capitalized terms not defined herein shall have the meanings
ascribed to them in the Employment Agreement.
The Company and Employee hereby amend the Employment Agreement as follows:
Section 14(e) of the Employment Agreement is amended by deleting such
Section 14(e) in its entirety and replacing it with the following:
Compensation After Termination. In the event of the termination of
------------------------------
Employee's employment by either party prior to the expiration of the term of
this Agreement, Employee shall be entitled to compensation earned by him prior
to the date of termination as provided herein computed on a pro rata basis to
and including such date of termination and shall be entitled to reimbursement,
pursuant to Paragraphs 5 and 9 hereof, of all expenses incurred on or prior to
such date of termination. Employee authorizes the Company to deduct any sums
due the Company from the Employee from such payments and/or any other
post-termination payments due Employee.
If Employee terminates his employment pursuant to Paragraph 14(b) above, or
if the Company terminates Employee's employment without cause pursuant to
Paragraph 14(c) above, Employee shall be entitled to receive upon such
termination a lump sum amount equal to his base salary for a period not to
exceed the lesser of (i) two (2) years or (ii) the balance of the five (5) year
term of this Agreement. Employee shall be under no duty to mitigate damages by
securing other employment, and his compensation payable hereunder shall not be
reduced as a result of such other employment or any compensation received by him
with respect thereto. Notwithstanding any provision of this Agreement to the
contrary, this Agreement shall automatically terminate, without further act of
the Company, upon a sale of substantially all of the capital stock or assets of
the Company or other comparable liquidity event (a "Liquidation Event"), in
which case Employee shall not be entitled to the post-termination payments
described in this Subparagraph unless, as a result of such Liquidation Event,
the limited partners of Argyle Television Investors, L.P. ("ATI") receive the
return of their capital plus the Preferred Return (as defined in the Amended and
Restated Agreement of Limited Partnership of ATI) on such capital.
If Employee's employment is terminated by Employee pursuant to Paragraph
14(a) or by the Company pursuant to Paragraph 14(d), then Employee shall be
entitled
<PAGE>
to no further compensation; except that (i) Employee shall be entitled to a pro
rata portion (through the date of termination) of any base salary and bonus
earned for the year in which termination of his employment occurs, if Employee's
employment is terminated under Paragraph 14(d)(1) or (2) above, and (ii)
Employee shall be entitled to the disability benefit provided for by Paragraph
8, if Employee's employment is terminated under Paragraph 14(d)(1) above.
Notwithstanding anything to the contrary contained in this Agreement, in no
event shall Employee be entitled to receive any salary or bonus payments
hereunder during any period in which he is in violation of the provisions of
Paragraph 12 hereof.
This Amendment No. 1 is entered into as of the date first above written.
COMPANY:
Argyle Television, Inc.
By: /s/ Dean H. Blythe
-------------------------------------
Name: Dean H. Blythe
-----------------------------------
Title: Vice President & General Counsel
----------------------------------
EMPLOYEE:
/s/ E. Blake Byrne
----------------------------------------
E. Blake Byrne
<PAGE>
Exhibit 10.25
AMENDMENT NO 1 TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
Argyle Television, Inc. a Delaware corporation (the "Company"), and Ibra
Morales ("Employee"), as of this 31st day of July, 1996 hereby enter into this
Amendment No. 1 to that certain Amended and Restated Employment Agreement
effective as of January 4, 1995 (the "Employment Agreement") between the
Company and Employee. All capitalized terms not defined herein shall have the
meanings ascribed to them in the Employment Agreement.
The Company and Employee hereby amend the Employment Agreement as follows:
Section 14(e) of the Employment Agreement is amended by deleting such
Section 14(e) in its entirety and replacing it with the following:
Compensation After Termination. In the event of the termination of
------------------------------
Employee's employment by either party prior to the expiration of the term of
this Agreement, Employee shall be entitled to compensation earned by him prior
to the date of termination as provided herein computed on a pro rata basis to
and including such date of termination and shall be entitled to reimbursement,
pursuant to Paragraphs 5 and 9 hereof, of all expenses incurred on or prior to
such date of termination. Employee authorized the Company to deduct any sums due
the Company from the Employee from such payments and/or any other
post-termination payments due Employee.
If Employee terminates his employment pursuant to Paragraph 14(b) above,
or if the Company terminates Employee's employment without cause pursuant to
Paragraph 14(c) above, Employee shall be entitled to receive upon such
termination a lump sum amount equal to his base salary for a period not to
exceed the lesser of (i) two (2) years or (ii) the balance of the five (5) year
term of this Agreement. Employee shall be under no duty to mitigate damages by
securing other employment, and his compensation payable hereunder shall not be
reduced as a result of such other employment or any compensation received by him
with respect thereto. Notwithstanding any provision of this Agreement to the
contrary, this Agreement shall automatically terminate, without further act of
the Company, upon a sale of substantially all of the capital stock or assets of
the Company or other comparable liquidity event (a "Liquidation Event"), in
which case Employee shall not be entitled to the post-termination payments
described in this Subparagraph unless, as a result of such Liquidation Event,
the limited partners of Argyle Television Investors, L.P. ("ATI") receive the
return of their capital plus the Preferred Return (as defined in the Amended and
Restated Agreement of Limited Partnership of ATI) on such capital.
If Employee's employment is terminated by Employee pursuant to Paragraph
14(a) or by the Company pursuant to Paragraph 14(d), then Employee shall be
entitled
<PAGE>
to no further compensation; except that (i) Employee shall be entitled to a pro
rata portion (through the date of termination) of any base salary and bonus
earned for the year in which termination of his employment occurs, if Employee's
employment is terminated under Paragraph 14(d)(1) or (2) above, and (ii)
Employee shall be entitled to the disability benefit provided for by Paragraph
8, if Employee's employment is terminated under Paragraph 14(d)(1) above.
Notwithstanding anything to the contrary contained in this Agreement, in no
event shall Employee be entitled to receive any salary or bonus payments
hereunder during any period in which he is in violation of the provisions of
Paragraph 12 hereof.
This Amendment No. 1 is entered into as of the date first above written.
COMPANY:
Argyle Television, Inc.
By: /s/ Dean H. Blythe
------------------------------------
Name: Dean H. Blythe
----------------------------------
Title: Vice President & General Counsel
---------------------------------
EMPLOYEE:
/s/ Ibra Morales
---------------------------------------
Ibra Morales
<PAGE>
EXHIBIT 10.26
THE CHASE MANHATTAN BANK/CHASE SECURITIES INC.
June 17, 1997
Hearst-Argyle Television, Inc.
------------------------------
Senior Credit Facilities
------------------------
Commitment Letter
-----------------
Argyle Television, Inc.
200 Concord Plaza, Suite 700
San Antonio, Texas 78216
Attention: Harry T. Hawks
Ladies and Gentlemen:
You have advised The Chase Manhattan Bank ("Chase") and Chase
Securities Inc. ("CSI") that Argyle Television, Inc. ("Argyle"), a Delaware
corporation, and The Hearst Corporation, a Delaware corporation ("Hearst"),
propose to enter into a merger transaction (the "Merger") in which the survivor,
to be renamed "Hearst-Argyle Television, Inc." (the "Borrower"), will require
senior credit facilities in an aggregate amount of up to $1,000,000,000 (the
"Facilities"). You have supplied us a copy of the Agreement and Plan of Merger
dated as of March 26, 1997 (the "Agreement and Plan of Merger") by and among
Hearst, the subsidiaries of Hearst named therein and Argyle pursuant to which
the Merger and certain related transactions are to be consummated. In that
connection, we have been discussing arrangements under which CSI would agree to
structure, arrange and syndicate the Facilities and Chase would commit to
provide the entire principal amount of the Facilities and to serve as
administrative agent for the Facilities.
CSI is pleased to advise you that it is willing to act as exclusive
advisor and syndication agent for the Facilities.
Furthermore, Chase is pleased to advise you of its commitment to
provide the entire amount of the Facilities upon the terms and subject to the
conditions set forth or referred to in this commitment letter (the "Commitment
Letter") and in the Summary of Terms and Conditions attached hereto as Exhibit A
(the "Term Sheet"). We intend to syndicate the Facilities to a group of
financial institutions (together with Chase, the "Lenders") identified by us in
consultation with you. Chase shall be relieved of its obligation
<PAGE>
- 2 -
to provide the entire amount of the Facilities to the extent that you accept the
offers of Lenders other than Chase to provide any portion of the Facilities.
CSI intends to commence syndication efforts promptly upon the
execution of this Commitment Letter, and you agree actively to assist CSI in
completing a syndication mutually satisfactory to the parties hereto. Such
assistance shall include (a) your using reasonable efforts to ensure that the
syndication efforts benefit materially from the existing lending relationships
of Argyle and Hearst, (b) direct contact between senior management and (if
reasonable and necessary) advisors of Argyle, Hearst and the proposed Lenders,
(c) assistance in the preparation of a Confidential Information Memorandum and
other marketing materials to be used in connection with the syndication and (d)
the hosting, with CSI, of one or (if reasonable and necessary) more meetings of
prospective Lenders.
It is agreed that Chase will act as the sole and exclusive
Administrative Agent, and that CSI will act as the sole and exclusive advisor
and Syndication Agent, for the Facilities, and each will, in such capacities,
perform the duties and exercise the authority customarily performed and
exercised by it in such roles. No other agents or co-agents will be appointed,
no other titles will be awarded (other than those expressly contemplated by the
Term Sheet) and no compensation (other than that expressly contemplated by the
Term Sheet and the Fee Letter referred to below) will be paid in connection with
the Facilities, in each case unless you and we shall so agree. Although the Term
Sheet contemplates that Morgan Guaranty Trust Company of New York will act as
Documentation Agent, its agreement to the terms and conditions set forth herein
is not necessary since Chase will provide the entire amount of the Facilities
upon the terms and subject to the conditions previously stated.
CSI will manage, in consultation with you, all aspects of the
syndication, including decisions as to the selection of institutions to be
approached and when they will be approached, when their commitments will be
accepted, which institutions will participate, the allocations of the
commitments among the Lenders and the amount and distribution of fees among the
Lenders. To assist CSI in its syndication efforts, you agree promptly to prepare
and provide to CSI and Chase all information with respect to the Borrower and
its subsidiaries, the Merger and the other transactions contemplated hereby,
including all financial information and projections (the "Projections"), as we
may reasonably request in connection with the arrangement and syndication of the
Facilities. You hereby represent and covenant that (a) all information other
than the Projections (the "Information") that has been or will be made available
to Chase or CSI by you or any of your representatives is or will be, when
furnished, complete and correct in all material respects and does not or will
not, when furnished, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein, when taken as a whole, not materially misleading in light of the
circumstances under which such statements are made and (b) the Projections, and
any forward-looking statements, that have been or will be made available to
Chase or CSI by you or any of your representatives have been or will be prepared
in good faith based upon reasonable assumptions in light of conditions in effect
on the date prepared it being understood that such Projections do not constitute
a warranty as to the future
<PAGE>
- 3 -
performance of the Borrower and that actual results may vary from the
Projections. You have indicated that most of the Information and Projections
will be derived from information set forth in the Argyle's Form S-4 Registration
Statement being prepared in connection with the Merger. You understand that in
arranging and syndicating the Facilities we may use and rely on the Information
and Projections without independent verification thereof.
As consideration for Chase's commitment hereunder and CSI's agreement
to perform the services described herein, you agree to pay and to cause the
Borrower to pay to Chase the non-refundable fees set forth in the Term Sheet and
in the Fee Letter dated the date hereof and delivered herewith (the "Fee
Letter").
Chase's commitment hereunder and CSI's agreement to perform the
services described herein are subject to (a) there not occurring or becoming
known to us any material adverse condition or material adverse change in or
affecting the business, operations, property, condition (financial or otherwise)
or prospects of the Borrower and its subsidiaries, taken as a whole (excluding
adverse changes to prospects as a result of changes affecting the television
broadcasting industry generally), (b) our completion of and satisfaction in all
material respects with a due diligence investigation of the Borrower and its
subsidiaries, (c) our not becoming aware after the date hereof of any
information or other matter affecting the Borrower and its subsidiaries, or the
transactions contemplated hereby, which is inconsistent in a material and
adverse manner with any such information or other matter disclosed to us prior
to the date hereof, (d) there not having occurred a material disruption of or
material adverse change in financial, banking or capital market conditions that,
in our judgment, could materially impair the syndication of the Facilities, (e)
our satisfaction that, after the date hereof but prior to and during the
syndication of the Facilities (currently contemplated to conclude July 18,
1997), there shall be no offering, placement or arrangement of any debt
securities or bank financing that competes with the syndication of the
Facilities to the prospective Lenders by or on behalf of the Borrower or Hearst
or any affiliate thereof controlled by the Borrower or Hearst, other than the
current renegotiation of the principal Hearst bank credit facility or any other
financings by Hearst not related to its broadcast operations (it being
understood that Hearst cable network operations do not constitute broadcast
operations for purposes of this clause (e)), the renegotiation of the Private
Placement Debt (the "Private Placement Debt") referred to in the Agreement and
Plan of Merger and the Bridge Debt (the "Bridge Debt") referred to in the
Agreement and Plan of Merger, (f) the negotiation, execution and delivery on or
before September 16, 1997 of definitive documentation with respect to the
Facilities mutually satisfactory to the parties and their counsel and (g) the
other conditions set forth or referred to in the Term Sheet. The terms and
conditions of Chase's commitment hereunder and of the Facilities are not limited
to those set forth herein and in the Term Sheet. Those matters that are not
covered by the provisions hereof and of the Term Sheet are subject to the
approval and agreement of Chase, CSI and the Borrower.
You agree (a) to indemnify and hold harmless Chase, CSI, their
affiliates and their respective officers, directors, employees, advisors, and
agents (each, an "indemnified person") from and against any and all losses,
claims, damages and liabilities to which any such indemnified person may become
subject arising out of or in connection with this Commitment Letter, the
Facilities, the use of the proceeds thereof, the Merger or any related
<PAGE>
- 4 -
transaction or any claim, litigation, investigation or proceeding relating to
any of the foregoing, regardless of whether any indemnified person is a party
thereto, and to reimburse each indemnified person upon demand for any legal or
other expenses incurred in connection with investigating or defending any of the
foregoing, provided that the foregoing indemnity and reimbursement obligations
--------
will not, as to any indemnified person, apply to losses, claims, damages,
liabilities or related expenses to the extent they arise from the bad faith,
willful misconduct or gross negligence of such indemnified person, and (b) to
reimburse Chase, CSI and their affiliates, upon presentation of invoices and
reasonable supporting documentation, for all reasonable out-of-pocket expenses
(including due diligence expenses, syndication expenses, travel expenses, and
reasonable fees, charges and disbursements of counsel) incurred in connection
with the Facilities and any related documentation (including this Commitment
Letter, the Term Sheet, the Fee Letter and the definitive financing
documentation) or the administration, amendment, modification or waiver thereof.
No indemnified person shall be liable to the Borrower, Hearst or any of their
affiliates for any indirect or consequential damages in connection with its
activities related to the Facilities. Notwithstanding the foregoing, the term
"indemnified person" shall not include any affiliate of Chase or CSI that holds
a direct or indirect equity interest in Argyle insofar as any loss, claim,
damage or liability relates to such equity interest.
You acknowledge that Chase and/or CSI may be providing debt financing,
equity capital or other services (including financial advisory services) to
other companies in respect of which you may have conflicting interests. Neither
Chase nor CSI will use confidential information obtained from you or your
representatives by virtue of the transactions contemplated hereby or other
relationships with you in connection with the performance by Chase or CSI of
services for other companies, and neither Chase nor CSI nor its or their
affiliates will furnish any such information to other companies. You also
acknowledge that neither Chase nor CSI has any obligation to use in connection
with the transactions contemplated hereby, or to furnish to you, confidential
information obtained from other companies.
This Commitment Letter shall not be assignable by you without the
prior written consent of Chase and CSI (and any purported assignment without
such consent shall be null and void), is intended to be solely for the benefit
of the parties hereto and is not intended to confer any benefits upon, or create
any rights in favor of, any person other than the parties hereto (it being
understood that Argyle, as the surviving corporation in the Merger, will
continue to be entitled to the benefits of this Commitment Letter). This
Commitment Letter may not be amended or waived except by an instrument in
writing signed by you, Chase and CSI. This Commitment Letter may be executed in
any number of counterparts, each of which shall be an original, and all of
which, when taken together, shall constitute one agreement. Delivery of an
executed signature page of this Commitment Letter by facsimile transmission
shall be effective as delivery of a manually executed counterpart hereof. This
Commitment Letter and the Fee Letter are the only agreements that have been
entered into among us with respect to the Facilities and set forth the entire
understanding of the parties with respect thereto. This Commitment Letter shall
be governed by, and construed in accordance with, the laws of the State of New
York.
<PAGE>
- 5 -
Chase and CSI each agrees that it will maintain in confidence and will
not disclose, publish or disseminate, any confidential information designated as
such by the Borrower which it has or shall acquire in connection herewith
relating to the business, operations and condition, financial or otherwise, of
the Borrower, Hearst and their respective subsidiaries, except that such
information may be disclosed by Chase and CSI if and to the extent that: (a)
such information is in the public domain at the time of disclosure; (b) such
information is required to be disclosed by subpoena or similar process of
applicable law or regulations; (c) such information is required to be disclosed
to any regulatory or administrative body or commission to whose jurisdiction
Chase and CSI may be subject; (d) such information is disclosed to counsel,
auditors or other professional advisors to Chase and CSI, and to any affiliates
of Chase or CSI provided that such affiliates agree to keep such information
confidential as set forth herein; (e) such information is disclosed in
connection with any litigation or dispute between either of Chase and CSI or the
Borrower concerning the Facilities; or (f) such information is disclosed in
connection with the syndication of the Facilities, so long as the Person to whom
such information shall be disclosed shall have agreed to keep such information
confidential as set forth herein, provided that, unless specifically prohibited
--------
by applicable law or court order, Chase and CSI (as applicable) shall, prior to
disclosure thereof, notify the Borrower of any request for disclosure of any
such non-public information by any governmental agency or representative thereof
(other than any such request in connection with an examination of the financial
condition of Chase by such governmental agency).
This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter, the Term Sheet or the Fee Letter nor any of
their terms or substance shall be disclosed, directly or indirectly, to any
other person except (a) to your officers, agents and advisors who are directly
involved in the consideration of this matter or (b) as may be compelled in a
judicial or administrative proceeding or as otherwise required by law (in which
case you agree to inform us promptly thereof), provided, that the foregoing
--------
restrictions shall cease to apply (except in respect of the Fee Letter and its
terms and substance) after this Commitment Letter has been accepted by you.
The reimbursement, indemnification and confidentiality provisions
contained herein and in the Fee Letter shall remain in full force and effect
regardless of whether definitive financing documentation shall be executed and
delivered and notwithstanding the termination of this Commitment Letter or
Chase's commitment hereunder; provided, that your obligations under this
--------
Commitment Letter, other than those arising under the fourth, fifth, sixth and
thirteenth paragraphs hereof, shall automatically terminate and be superseded by
the provisions of the definitive documentation relating to the Facilities upon
the initial funding thereunder, and you shall automatically be released from all
liability in connection therewith at such time.
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof and of the Term Sheet and the Fee Letter by
returning to us executed counterparts hereof and of the Fee Letter not later
than 5:00 p.m., New York City time, on June 17, 1997. Chase's commitment and
CSI's agreements herein will expire at such time
<PAGE>
-6-
Chase and CSI are pleased to have been given the opportunity to assist
you in connection with this important financing.
Very truly yours,
THE CHASE MANHATTAN BANK
By: /s/ Mitchell J. Gervis
------------------------------
Name: Mitchell J. Gervis
Title: Vice President
CHASE SECURITIES INC.
By: /s/ Stephen P. Mumblow
------------------------------
Name: Stephen P. Mumblow
Title: Managing Director
Accepted and agreed to
as of the date first
written above by:
ARGYLE TELEVISION, INC.
By: /s/ Harry T. Hawks
----------------------
Name:
Title:
HARRY T. HAWKS
Chief Financial Officer
Assistant Secretary
& Treasurer
<PAGE>
Exhibit A
HEARST-ARGYLE TELEVISION, INC.
SENIOR CREDIT FACILITIES
Summary of Terms and Conditions
June 17, 1997
Capitalized terms used herein and not defined herein have the
meanings set forth in the letter (the "Commitment Letter") to
------------------
which this Term Sheet is annexed.
I. Parties
-------
Borrower: Hearst-Argyle Television, Inc. (the "Borrower").
Guarantors: Each of the Borrower's direct and indirect
subsidiaries (the "Guarantors"; the Borrower and
the Guarantors, collectively, the "Credit
Parties"). The definitive documentation will
permit the release of a Guarantor upon
consummation of a permitted sale or exchange of
such Guarantor.
Advisor Chase Securities Inc.
and Syndication Agent:
Administrative Agent: The Chase Manhattan Bank ("Chase" and, in such
capacity, the "Administrative Agent").
Documentation Agent: Morgan Guaranty Trust Company of New York (the
"Documentation Agent" and, together with the
Administrative Agent, the Agents")
Co-Agents: To be determined.
Lenders: A syndicate of banks, financial institutions and
other entities, including Chase, arranged by CSI
in consultation with the Borrower (collectively,
the "Lenders").
<PAGE>
-2-
II. Types and Amounts of Facilities
-------------------------------
1. Principal Facility
------------------
Type and Amount: Seven and one-half year, $1,000,000,000
unsecured revolving credit/term loan facility
(the "Principal Facility").
Availability: The revolving credit portion of the Principal
Facility shall be available on a revolving basis
during the period commencing on the Closing Date
through the Maturity Date.
Maturity Date: December 31, 2004 (the "Principal Facility
Maturity Date")
Conversion Date: On December 31, 1999, the portion of the
Principal Facility (up to a maximum of
$750,000,000) in excess of a $250,000,000
revolving credit facility will convert into a
five-year term loan. The $250,000,000 revolving
credit facility will remain available through
the Principal Facility Maturity Date.
Amortization: The term loan portion of the Principal Facility
shall be repayable in quarterly installments,
with the totals for each year indicated below
being as follows:*
<TABLE>
<CAPTION>
Percentage of
Aggregate
Principal
Amount Due
----------
<S> <C>
December 31, 2000 10%
December 31, 2001 15%
December 31, 2002 20%
December 31, 2003 25%
December 31, 2004 30%
</TABLE>
*Measured as a percentage of the outstanding
principal amount of the term loan portion of the
Principal Facility at the close of business on
the Conversion Date.
<PAGE>
-3-
Letters of Credit: Up to $50,000,000 of the revolving credit
portion of the Principal Facility shall be
available for the issuance of letters of credit
(the "Letters of Credit") by Chase (in such
capacity, the "Issuing Lender"). No Letter of
Credit shall have an expiration date after the
earlier of (a) twelve months after the date of
issuance and (b) five business days prior to the
Principal Facility Maturity Date, provided that
--------
any Letter of Credit with a one-year tenor may
provide for the renewal thereof for additional
one-year periods (which shall in no event extend
beyond the date referred to in clause (b)
above).
Drawings under any Letter of Credit shall be
reimbursed by the Borrower (whether with its own
funds or with the proceeds of Loans) on the same
business day. To the extent that the Borrower
does not so reimburse the Issuing Lender, the
Lenders under the Principal Facility shall be
irrevocably and unconditionally obligated to
reimburse the Issuing Lender on a pro rata
--------
basis.
Swing Line Loans: A portion of the revolving credit portion of the
Principal Facility, in minimum amounts of
$500,000 and in an aggregate amount not in
excess of $20,000,000 shall be available for
swing line loans (the "Swing Line Loans") from
Chase and one other Lender to be designated (in
such capacity, the "Swing Line Lenders") on
same-day notice. Any such Swing Line Loans will
reduce availability under the revolving credit
portion of the Principal Facility on a dollar-
for-dollar basis. Each Lender under the
Principal Facility shall acquire, under certain
circumstances, an irrevocable and unconditional
pro rata participation in each Swing Line Loan.
--------
2. Incremental Facility
--------------------
Type and Amount: Seven and one-half year, $250,000,000 unsecured
reducing revolving credit facility (the
"Incremental Facility").
Availability: At any time prior to December 31, 1998, the
Borrower may solicit any or all of the Lenders
to provide additional commitments: (i) in
minimum
<PAGE>
-4-
amounts of $10,000,000 and (ii) in aggregate
amounts up to $250,000,000. The Incremental
Facility will be governed by the Credit
Documentation (as defined below) and will have
the same terms and conditions as the Principal
Facility with the exception of the scheduled
commitment reductions. No Lender will commit to
the Incremental Facility at closing.
Maturity Date: December 31, 2004
Commitment
Reductions: The Incremental Facility shall be reduced in
sixteen equal quarterly installments commencing
March 31, 2001. If after giving effect to any
commitment reduction the Incremental Facility
commitments shall exceed the outstandings, the
Borrower will prepay any excess.
3. Purpose The proceeds of the Loans (whether under the
------- Principal Facility or the Incremental Facility)
shall be used to finance the cash portion of the
Merger (up to an amount not exceeding
$690,000,000) and fees and expenses relating
thereto, to finance future acquisitions, to
refinance existing debt (including Argyle's
outstanding 9-3/4% Senior Subordinated Notes due
2005, the existing Argyle June 13, 1995 Amended
and Restated Credit Agreement, the Private
Placement Debt and the Bridge Debt), to
repurchase equity (to the extent permitted) and
for the general corporate purposes of the
Borrower and its subsidiaries.
III. Certain Payment Provisions
--------------------------
Fees and
Interest Rates: As set forth on Annex 1.
Optional Prepayments and
Commitment Reductions: Commitments may be reduced by the Borrower in
minimum amounts of $5,000,000. ABR Loans (as
defined in Annex I) may be prepaid in whole or
in part with one business day's notice in
minimum amounts of $5,000,000 and in $1,000,000
increments in excess thereof. Eurodollar Loans
(as defined in Annex I) may be prepaid in whole
or in part with
<PAGE>
-5-
two business day's notice in minimum amount of
$10,000,000 and in $1,000,000 increments in
excess thereof, subject to breakage costs.
Optional commitment reductions and prepayments
will be applied to the Principal Facility and
Incremental Facility ratably (after the
Conversion Date, such application will be
applied ratably to the revolving credit and term
loan portions of the Principal Facility), in
each case applied, first to the first
-----
installment in the next calendar year and,
second, ratably across scheduled amortization
------
or commitment reductions.
Mandatory Prepayments
and Commitment
Reductions: The following amounts shall be applied to prepay
the Loans, to reduce the Incremental Facility
and to reduce the revolving credit portion of
the Principal Facility:
(a) 100% of the net cash proceeds received from
asset sales (reduced by reinvested proceeds
within a 350 day reinvestment period), other
than those in the ordinary course of business
(and other than proceeds from the sale of the
Dayton, Ohio and Providence, Rhode Island
stations), provided, however, if after giving
effect to any asset sale, the ratio of Total
Consolidated Debt to Consolidated Operating Cash
Flow is less than 4.00x, no mandatory prepayment
shall be required.
(b) 100% of all net casualty insurance
recoveries in excess of amounts used to replace
or restore any properties within an agreed-upon
period.
Mandatory prepayments will be applied to the
Principal Facility and Incremental Facility
ratably (after the Conversion Date, such
application will be applied ratably to the
revolving credit and term loan portions of the
Principal Facility), in each case applied,
first, to the first installment in the next
-----
calendar year and, second, ratably across
------
scheduled amortization or commitment
reductions.
<PAGE>
-6-
IV. Certain Conditions
------------------
Initial Conditions: The availability of the Facilities shall be
conditioned upon satisfaction of, among other
things, the following conditions precedent (the
date upon which all such conditions precedent
shall be satisfied, the "Closing Date") on or
before September 16, 1997:
(a) Each Credit Party shall have executed and
delivered satisfactory definitive financing
documentation with respect to the Facilities
(the "Credit Documentation").
(b) The capital structure of each Credit Party
after the Merger shall be consistent with that
provided for in the Agreement and Plan of Merger
and with the current capital structure of Argyle
and its subsidiaries.
(c) The Merger shall have been consummated in
all material respects in accordance with the
Agreement and Plan of Merger, and no provision
thereof shall have been waived, amended,
supplemented or otherwise modified, except for
waivers, amendments and supplements previously
delivered to Chase of the Agreement and Plan of
Merger and except for waivers, amendments and
supplements that would not have a material
adverse change (as defined below) or that would
not otherwise be inconsistent with the
conditions set forth herein.
(d) The Lenders, the Administrative Agent and
CSI shall have received all fees required to be
paid, and all reimbursable expenses for which
invoices have been presented, on or before the
Closing Date.
(e) All governmental and third party approvals
necessary or, in the discretion of the
Administrative Agent, advisable in connection
with the Merger, the financing contemplated
hereby and the continuing operations of the
Borrower and its subsidiaries shall have been
obtained and be in full force and effect, and
all applicable waiting periods shall have
expired without any action being taken or
threatened by any competent authority which
would restrain, prevent or otherwise impose
adverse conditions on the Merger
<PAGE>
-7-
or the financing thereof, FCC orders with
respect to the Merger need not be final unless
any pre-grant objections shall have been filed.
(f) The Agents shall have received (i)
satisfactory audited combined financial
statements of the broadcasting group of Hearst
and the audited consolidated financial
statements of Argyle for the two most recent
fiscal years ended prior to the Closing Date as
to which such financial statements are available
and (ii) satisfactory unaudited interim combined
and consolidated, as the case may be, financial
statements of the broadcasting group of Hearst
and Argyle for each quarterly period ended
subsequent to the date of the latest financial
statements delivered pursuant to clause (i) of
this paragraph as to which such financial
statements are available.
(g) The Agents shall have received a
satisfactory pro forma consolidated balance
---------
sheet of the Borrower as at the date of the most
recent consolidated balance sheet delivered
pursuant to paragraph (f) above, adjusted to
give effect to the consummation of the Merger
and the financings contemplated hereby as if
such transactions had occurred on such date.
(h) The Agents shall have received a
satisfactory business plan for fiscal year 1997
and a satisfactory written analysis of the
business and prospects of the Borrower and its
subsidiaries for the period from the Closing
Date through the Maturity Date.
(i) The Agents shall have received the results
of a recent lien search in each relevant
jurisdiction with respect to the Borrower and
its subsidiaries, and such search shall reveal
no liens on any of the assets of the Borrower or
its subsidiaries except for liens permitted by
the Credit Documentation or liens to be
discharged on or prior to the Closing Date
pursuant to documentation satisfactory to the
Administrative Agent.
(j) The Agents shall have received a
satisfactory Phase I environmental audit with
respect to the real property owned or leased by
the Borrower and its
<PAGE>
-8-
subsidiaries from a firm satisfactory to the
Administrative Agent (or otherwise shall be
satisfied as to the absence of any material
environmental liabilities with respect to the
properties being contributed to the Borrower by
Hearst in connection with the Merger).
(k) The Agents shall have received such legal
opinions (including opinions (i) from special
corporate and special communications counsel to
the Borrower and its subsidiaries, (ii)
delivered in connection with the Merger,
accompanied by reliance letters in favor of the
Lenders, and (iii) from such special counsel as
may be reasonably required by the Administrative
Agent), documents and other instruments as are
customary for transactions of this type or as
they may reasonably request.
On-Going Conditions: The making of each extension of credit shall be
conditioned upon (a) the accuracy of all
representations and warranties in the Credit
Documentation (including, without limitation,
the material adverse change and litigation
representations) and (b) there being no default
or event of default in existence at the time of,
or after giving effect to the making of, such
extension of credit. As used herein and in the
Credit Documentation a "material adverse change"
shall mean any event, development or
circumstance that has had a material adverse
effect on (a) the Merger, (b) the business,
condition (financial or otherwise), operations,
properties or prospects of the Borrower and its
subsidiaries taken as a whole (excluding adverse
changes to prospects as a result of changes
affecting the television broadcasting industry
generally), or (c) the validity or
enforceability of any of the Credit
Documentation or the rights and remedies of the
Administrative Agent and the Lenders thereunder.
V. Certain Documentation Matters
-----------------------------
The Credit Documentation shall contain
representations, warranties, covenants and
events of default customary for financings of
this type and
<PAGE>
-9-
other terms deemed appropriate by the Lenders,
including, without limitation:
Representations and
Warranties: Usual and customary for credit facilities of
this type, including financial statements
(including pro forma financial statements);
absence of undisclosed liabilities; no material
adverse change; corporate existence; compliance
with law; corporate power and authority;
enforceability of Credit Documentation; no
conflict with law or contractual obligations in
any material respect; no material litigation; no
material default; ownership of property; liens;
intellectual property; no burdensome
restrictions; taxes; Federal Reserve
regulations; ERISA; Investment Company Act;
capitalization; subsidiaries; environmental
matters; solvency; FCC matters; and accuracy of
disclosure.
Affirmative Covenants: Delivery of financial statements, reports,
accountants' letters (subject to confidentiality
requirements consistent with those required for
a public company), projections, officers'
certificates and other information requested by
the Lenders (quarterlies within 60 days and
annual auditeds within 90 days); payment of
other obligations; continuation of business and
maintenance of existence and material rights and
privileges; compliance in all material respects
with laws and material contractual obligations;
maintenance of property and insurance;
maintenance of books and records; right of the
Lenders to inspect property and books and
records; notices of defaults, litigation and
other material events; and compliance in all
material respects with environmental laws.
Financial Covenants:
Leverage Ratio: Leverage Ratio -- the ratio of Total
Consolidated Debt to Consolidated Operating Cash
Flow (on a rolling four-quarter basis and pro
forma for acquisitions or dispositions) shall
not exceed:
<TABLE>
<S> <C>
Through 12/30/99 5.50x
12/31/99 through 12/30/00 5.00x
12/31/00 through 12/30/01 4.50x
</TABLE>
<PAGE>
-10 -
<TABLE>
<S> <C>
12/31/01 and thereafter 4.00X
</TABLE>
Interest
Coverage Ratio: Interest Coverage Ratio -- the ratio of
Consolidated Operating Cash Flow to Consolidated
Interest Expense (in each case on a rolling
four-quarter basis) must be greater than 2.00X
at each fiscal quarter end through 12/31/99 and
greater than 2.50x at each fiscal quarter end
thereafter.
Fixed Charges
Coverage Ratio: Fixed Charges Coverage Ratio -- the ratio of
Consolidated Operating Cash Flow to Consolidated
Fixed Charges (in each case on a rolling four
quarter basis) shall not at any fiscal quarter
end be less than 1.1 Sx. The Capital Expenditure
component of Fixed Charges shall be equal to the
lesser of (x) actual Capital Expenditures for
the relevant period, and (y) $15,000,000,
provided that the amount of actual Capital
--------
Expenditures in excess of $15,000,000 shall not
be excluded from the determination of Fixed
Charges unless and to the extent that, at the
time of calculation, the Borrower has unused and
available credit (determined on a pro forma
--- -----
basis) under the revolving credit portion of the
Principal Facility.
Negative Covenants: 1. Line of Business. 75% of Consolidated
----------------
Operating Cash Flow to be derived from the
broadcast business at all times. With respect to
any station that currently has a major network
affiliation (i.e. ABC, CBS, Fox and NBC) a major
network affiliation shall be maintained (i.e.
shifts among any such major networks at any such
station shall be permitted). With respect to any
station that is not currently affiliated with a
major network (including any station that is now
affiliated with the WB or UPN networks), shifts
to non-affiliated status, shifts between WB and
UPN, and vice versa, and shifts to affiliation
---- -----
with a major network will be permitted.
2. Indebtedness. Limitation on additional
------------
indebtedness (including guarantees and
contingent obligations), except for:
(i)indebtedness of the Borrower or
Guarantors, provided that (w) such
--------
<PAGE>
-11-
indebtedness has a stated maturity at least
one year longer than the Maturity Date
(although the existing maturity of Argyle's
9-3/4% Senior Subordinated Notes due 2005,
and of the Private Placement Debt, will be
deemed acceptable), (x) no principal payments
are required during the life of the
Facilities, (y) such indebtedness has
covenants which are no more restrictive and
which do not conflict with covenants under
the Facilities, and (z) the Borrower is in
compliance prior to and after giving effect
to such indebtedness;
(ii) mutually agreed upon baskets for
capitalized leases, purchase money
indebtedness, debt assumed in connection with
acquisitions and other secured and unsecured
indebtedness; and
(iii) interest rate protection, equity
derivatives and other hedging transactions
not entered into for speculative purposes.
3. Liens. Limitation on liens (other than in the
-----
ordinary course of business and securing certain
permitted indebtedness (see clause (ii) above)).
4. Mergers and Acquisitions. Permitted so long
------------------------
as no Event of Default would exist before or after
giving effect to such acquisitions. Acquisitions of
television stations will not be limited and other
acquisitions related to the broadcast industry will
be permitted in an amount (excluding transaction
fees and expenses) up to $100,000,000 for any
single transaction and $200,000,000 over the life
of the Principal Facility.
5. Asset Sales and Exchanges. So long as no
-------------------------
Event of Default would exist before and after
giving effect thereto, the Borrower may enter into
sales or exchanges provided that (i) asset sales
are in the ordinary course of business or (ii) the
broadcast cash flow attributed to all stations sold
or exchanged shall not exceed 25% of broadcast cash
flow in any year and 50% for any rolling 5-year
period (excluding the
<PAGE>
- 12 -
sales of the Dayton and Providence stations, which
shall in any event be permitted).
6. Restricted Payments. The aggregate amount of
-------------------
all Restricted Payments, including capital stock
repurchase programs and repurchases of Argyle's
9-3/4% Senior Subordinated Notes due 2005 (other
than any redemption of such Notes as a result of a
"change of control" event in connection with the
Merger), but excluding cash paid to stockholders in
connection with the Merger, shall not exceed the
sum of (w) $100,000,000, (x) the net cash proceeds
from the issuance of common stock or preferred
stock of the Borrower, (y) the net cash proceeds
received by the Borrower from the sale of stock or
assets in Subsidiaries, except to the extent
required to be applied to the prepayment of the
Facilities and (z) 33-1/3% of cumulative Excess
Cash Flow, provided, however, if before and after
-------- -------
giving effect to any Restricted Payments the
Leverage Ratio does not exceed 4.00X and the
Borrower is in compliance with all covenants and no
default or Event of Default shall exist, Restricted
Payments shall be unlimited.
7. Affiliates. Transactions with affiliates to
----------
be on commercially reasonable terms pursuant to
agreements comparable to those that would result in
arm's-length arrangements, provided that
arrangements between Hearst and Argyle with respect
to payroll, insurance, employee benefits, tax
services, accounting, corporate, legal and other
administrative items that are on terms no less
favorable to Argyle than those historically charged
by Hearst to the stations being contributed by it
to the Borrower in the Merger and reflected in the
projections previously delivered to the Lenders are
deemed to satisfy this standard.
8. Other Limitations. Other limitations usual
-----------------
and customary for credit facilities of this type,
including limitations on investments, loans and
advances; optional payments and modifications of
subordinated and other debt instruments; and
changes in fiscal year.
<PAGE>
-13-
Events of Default: Usual and customary for credit facilities of this
type, including payment default; material
inaccuracy of representations and warranties;
covenant default after giving effect to applicable
cure periods; cross-default to debt of Borrower or
a Guarantor in any case in an amount exceeding
$15,000,000; bankruptcy or insolvency; certain
ERISA events; material judgments; and change of
control, subject in certain cases, to notice, grace
and cure provisions as agreed. "Change of control"
will be defined as Hearst (and identified
affiliates) ceasing to own at least 35% of the
outstanding stock of the Borrower and ceasing to be
able to control the board of directors of the
Borrower.
Required Banks: Greater than 50%.
Assignments and
Participations: The Lenders shall be permitted to assign and sell
participations in their Loans and commitments,
subject, in the case of assignments (other than to
another Lender or to an affiliate of a Lender), to
the consent only of the Administrative Agent, the
Issuing Lender and the Swing Line Lenders and, in
the case of any assignment of Commitments, of the
Borrower (which consent shall not be unreasonably
withheld or delayed). Assignments to a Federal
Reserve Bank permitted without consent. Non-pro
rata assignments shall be permitted. In the case of
partial assignments (other than to another Lender
or to an affiliate of a Lender), the minimum
assignment amount shall be $5,000,000 unless
otherwise agreed by the Borrower and the
Administrative Agent. Participants shall have the
same benefits as the Lenders with respect to yield
protection and increased cost provisions, so long
as the claim made by a participant shall not exceed
the amounts that could have been made by the Lender
that sold such participation. Voting rights of
participants shall be limited to those matters with
respect to which the affirmative vote of 100% of
the Lenders would be required. Pledges of Loans in
accordance with applicable law shall be permitted
without restriction.
Yield Protection: The Credit Documentation shall contain customary
provisions (a) protecting the Lenders against
<PAGE>
-14-
increased costs or loss of yield resulting from
changes in reserve, tax, capital adequacy and
(subject to usual and customary limitations) other
requirements of law and from the imposition of or
changes after the date of the Credit Documentation
in withholding or other taxes (subject to usual and
customary limitations) and (b) indemnifying the
Lenders for "breakage costs" incurred in connection
with, among other things, any prepayment of a
Eurodollar Loan on a day other than the last day of
an interest period with respect thereto.
Expenses and
Indemnification: The Borrower shall pay reasonable legal (Milbank,
Tweed, Hadley & McCloy, FCC and any special counsel
for the Lenders, but not of separate counsel for
the Lenders other than Chase, generally) and other
out-of-pocket expenses incurred in connection with
the negotiation, preparation and execution of the
Credit Documentation regardless of whether a
closing thereunder shall occur. Credit
Documentation shall contain certain expense and
indemnification provisions for the benefit of the
Administrative Agent and the Lenders customary for
transactions of this type.
Governing Law: State of New York.
Waiver of Jury Trial
and Consent to New
York Jurisdiction: Required
Legal Counsel: Milbank, Tweed, Hadley & McCloy
<PAGE>
Annex I
-------
Interest and Certain Fees
-------------------------
Interest Rate Options: The Borrower may elect that the Loans comprising
each borrowing bear interest at a rate per annum
equal to:
the ABR; or
the Eurodollar Rate plus the Applicable
Margin.
provided, that all Swing Line Loans shall
--------
bear interest based upon the ABR or upon
quotes for short-term borrowings provided by
each Swing Line Lender in its sole
discretion.
As used herein:
"ABR" means the highest of (i) the rate of interest
publicly announced by Chase as its prime rate in
effect at its principal office in New York City
(the "Prime Rate"), (ii) the secondary market rate
for three-month certificates of deposit (adjusted
for statutory reserve requirements) plus 1% and
----
(iii) the federal funds effective rate from
time to time plus 0.5%.
----
"Applicable Margin" means 0% in the case of ABR
Loans and, in the case of Eurodollar Loans, shall
be based upon the ratio of Consolidated Total Debt
to Consolidated Operating Cash Flow as outlined
below:
<PAGE>
-2-
<TABLE>
<CAPTION>
Leverage Applicable Commitment
Ratio Margin Fee
----- ------ ---
<S> <C> <C>
Greater than 0.625% 0.1875%
5.00x
Greater than 0.500% 0.1500%
4.50x but less
than or equal
to 5.00x
Greater than 0.400% 0.1250%
4.00X but less
than or equal
to 4.50x
Less than or
equal to 4.00x 0.325% 0.1250%
</TABLE>
"Eurodollar Rate" means the rate (adjusted
for statutory reserve requirements for
eurocurrency liabilities) at which eurodollar
deposits, in the interbank eurodollar market,
for one, three or six or (if agreed upon by
each Lender) nine months (as selected by the
Borrower) are quoted on the Dow Jones
Telerate Screen. Statutory reserve
requirements for eurocurrency liabilities are
presently zero percent.
Interest Payment Dates: In the case of Loans bearing interest based
upon the ABR ("ABR Loans"), quarterly in
arrears.
In the case of Loans bearing interest based
upon the Eurodollar Rate ("Eurodollar
Loans"), on the last day of each relevant
interest period and, in the case of any
interest period longer than three months, on
each successive date three months after the
first day of such interest period.
Commitment Fees: The Borrower shall pay a commitment fee at
the rate indicated above under "Commitment
Fee" on the average daily unused portion of
the committed Incremental Facility and the
revolving credit portion of the Principal
Facility, payable quarterly in arrears.
Swing Line Loans shall, for purposes of the
commitment fee calculations only, not be
deemed to be a utilization of the revolving
credit portion of the Principal Facility of
the respective Swing Line Lender.
<PAGE>
-3-
Outstanding Letters of Credit shall, for
purposes of the commitment fee calculations,
be deemed to be a utilization of the
revolving credit portion of the Principal
Facility.
Letter of Credit Fees: The Borrower shall pay a commission on all
outstanding Letters of Credit at a per annum
rate equal to the Applicable Margin then in
effect with respect to Eurodollar Loans on
the face amount of each such Letter of
Credit. Such commission shall be shared
ratably among the Lenders participating in
the revolving credit portion of the Principal
Facility and shall be payable quarterly in
arrears.
A fronting fee equal to 3/16% per annum on
the face amount of each Letter of Credit
shall be payable quarterly in arrears to the
Issuing Lender for its own account. In
addition, customary administrative, issuance,
amendment, payment and negotiation charges
shall be payable to the Issuing Lender for
its own account.
Default Rate: At any time when the Borrower is in default
in the payment of any amount of principal due
under the Facilities, all outstandings shall
bear interest at 2% above the rate otherwise
applicable thereto. Overdue interest, fees
and other amounts shall bear interest at 2%
above the rate applicable to ABR Loans.
Rate and Fee Basis: All per annum rates shall be calculated on
the basis of a year of 360 days (or 365/366
days, in the case of ABR Loans the interest
rate payable on which is then based on the
Prime Rate) for actual days elapsed.
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP
We consent to the references to our firm under the caption "Experts" and to
the use of our reports dated March 6, 1995 with respect to the financial
statements of Northstar Television of Grand Rapids, Inc., Northstar Television
of Jackson, Inc., and Northstar Television of Providence, Inc. and February
12, 1997, except for the second paragraph of Note 11, as to which the date is
March 26, 1997, with respect to the financial statements and financial
statement schedule of Argyle Television, Inc., in the Registration Statement
(on Form S-4) and related Proxy Statement/Prospectus of Argyle Television,
Inc.
San Antonio, Texas /s/ Ernst & Young LLP
ERNST & YOUNG LLP
July 29, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Argyle Television,
Inc. on Form S-4 of our report dated May 1, 1997, relating to the combined
financial statements of the Hearst Broadcast Group of The Hearst Corporation
for the years ended December 31, 1994, 1995 and 1996, appearing in the
Prospectus, which is part of this Registration Statement and of our report
dated May 1, 1997 relating to the financial statement schedule of the Hearst
Broadcast Group of The Hearst Corporation appearing elsewhere in this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
- ------------------------------
DELOITTE & TOUCHE LLP
New York, New York
July 29, 1997
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Proxy Statement/Prospectus constituting part
of this Registration Statement on Form S-4 of Argyle Television, Inc. of our
reports dated February 7, 1997 relating to the combined financial statements of
the Selected Gannett Television Stations and the financial statements of
Multimedia Entertainment, Inc. d.b.a. WLWT-TV (a subsidiary of Multimedia,
Inc.), which appear in such Proxy Statement/Prospectus. We also consent to the
reference to us under the heading "Experts" in such Proxy Statement/Prospectus.
/s/ Price Waterhouse LLP
- --------------------------
PRICE WATERHOUSE LLP
Washington, DC
July 29, 1997
<PAGE>
Exhibit 23.5
Consent of
Merrill, Lynch, Pierce, Fenner & Smith Incorporated
We hereby consent to the use of our opinion letter dated July 31, 1997 to the
Board of Directors of Argyle Television, Inc. included as Appendix B to the
Schedule 14A that forms a part of the Proxy Statement/Prospectus relating to the
proposed merger of HAT Merger Sub, Inc., a wholly-owned subsidiary of The Hearst
Corporation, with and into Argyle Television, Inc. and to the references to such
opinion in such Proxy Statement/Prospectus. In giving such consent, we do not
admit that we come within the category of persons the consent of whom is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ John Trousdale
----------------------------------
July 29, 1997.
<PAGE>
EXHIBIT 23.6
CONSENT OF DAVID J. BARRETT
The undersigned hereby consents to be named in this Registration Statement on
Form S-4 as a person designated to become a director of Hearst-Argyle
Television, Inc. upon the consummation of the Hearst Transaction (as defined in
the Proxy Statement/Prospectus contained in the Registration Statement).
Signature: /s/ David J. Barrett
--------------------------
Date: July 9, 1997
<PAGE>
EXHIBIT 23.7
CONSENT OF FRANK A. BENNACK, JR.
The undersigned hereby consents to be named in this Registration Statement on
Form S-4 as a person designated to become a director of Hearst-Argyle
Television, Inc. upon the consummation of the Hearst Transaction (as defined in
the Proxy Statement/Prospectus contained in the Registration Statement).
Signature: /s/ Frank A. Bennack, Jr.
-------------------------------
Date: July 9, 1997
<PAGE>
EXHIBIT 23.8
CONSENT OF JOHN G. CONOMIKES
The undersigned hereby consents to be named in this Registration Statement on
Form S-4 as a person designated to become a director of Hearst-Argyle
Television, Inc. upon the consummation of the Hearst Transaction (as defined in
the Proxy Statement/Prospectus contained in the Registration Statement).
Signature: /s/ John G. Conomikes
--------------------------------
Date: July 9, 1997
<PAGE>
CONSENT OF VICTOR F. GANZI
EXHIBIT 23.9
The undersigned hereby consents to be named in this Registration Statement on
Form S-4 as a person designated to become a director of Hearst-Argyle
Television, Inc. upon the consummation of the Hearst Transaction (as defined in
the Proxy Statement/Prospectus contained in the Registration Statement).
Signature: /s/ Victor F. Ganzi
----------------------------
Date: July 10, 1997
<PAGE>
EXHIBIT 23.10
CONSENT OF GEORGE R. HEARST, JR.
The undersigned hereby consents to be named in this Registration Statement on
Form S-4 as a person designated to become a director of Hearst-Argyle
Television, Inc. upon the consummation of the Hearst Transaction (as defined in
the Proxy Statement/Prospectus contained in the Registration Statement).
Signature: /s/ George R. Hearst, Jr.
-----------------------------
Date: July 10, 1997
<PAGE>
EXHIBIT 23.11
CONSENT OF WILLIAM RANDOLPH HEARST, III
The undersigned hereby consents to be named in this Registration Statement on
Form S-4 as a person designated to become a director of Hearst-Argyle
Television, Inc. upon the consummation of the Hearst Transaction (as defined in
the Proxy Statement/Prospectus contained in the Registration Statement).
Signature: /s/ William Randolph Hearst, III
--------------------------------------
Date: July 9, 1997
<PAGE>
EXHIBIT 23.12
CONSENT OF GILBERT C. MAURER
The undersigned hereby consents to be named in this Registration Statement on
Form S-4 as a person designated to become a director of Hearst-Argyle
Television, Inc. upon the consummation of the Hearst Transaction (as defined in
the Proxy Statement/Prospectus contained in the Registration Statement).
Signature: /s/ Gilbert C. Maurer
-------------------------
Date: July 9, 1997
<PAGE>
EXHIBIT 23.13
Consent of Virginia H. Randt
The undersigned hereby consents to be named in this Registration Statement on
Form S-4 as a person designated to become a director of Hearst-Argyle
Television, Inc. upon the consummation of the Hearst Transaction (as defined in
the Proxy Statement/Prospectus contained in the Registration Statement).
Signature: /s/ Virginia H. Randt
-----------------------
Date: July 9, 1997
<PAGE>
EXHIBIT 99.1
ARGYLE TELEVISION, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ARGYLE
TELEVISION, INC.
P
The undersigned hereby appoints Bob Marbut, Harry T. Hawks and Dean H.
R Blythe, or any one or more of them, as Proxies, each with the power to
appoint his substitute, and hereby authorizes each of them to represent and
O to vote as designated below all the shares of Series A Common Stock of
Argyle Television, Inc., held of record by the undersigned on July 14, 1997,
X at the Annual Meeting of Stockholders to be held on August 28, 1997, or any
adjournment thereof.
Y
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
(continued on reverse side)
<PAGE>
ARGYLE TELEVISION, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
[ ]
Item 1. APPROVAL OF THE HEARST TRANSACTION PROPOSAL. For Against Abstain
[_] [_] [_]
_______________________
to vote for the nominee
listed above
Item 2. APPROVAL OF THE PLAN PROPOSAL. For Against Abstain
[_] [_] [_]
Wittheld
Item 3. ELECTION OF DIRECTOR: For Authority Against
Class II (Term expires in [_] [_] [_]
1999)--David Pulver
Item 4. At the discretion of such
Proxies, on any other For Against Abstain
matter that properly may [_] [_] [_]
come before the meeting
or any adjournment
thereof.
Dated: _________________________________, 1997
----------------------------------------------
Signature
----------------------------------------------
Signature if Held Jointly
Please sign exactly as name appears. When
shares are held by joint tenants, both should
sign. When signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such. If a corporation,
please sign in the full corporate name by
President or other authorized officer. If a
partnership, please sign in partnership name
by authorized person.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ITEMS 1, 2, 3 AND 4.
<PAGE>
EXHIBIT 99.2
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS AND
THE PROXY STATEMENT/PROSPECTUS PRIOR TO MAKING ANY ELECTION
BOX A: DESCRIPTION OF ARGYLE CERTIFICATE(S) ENCLOSED
(ATTACH ADDITIONAL SHEETS IF NECESSARY.)
SEE INSTRUCTION 1.
- -------------------------------------------------------------------------------
NAME(S) AND ADDRESS OF REGISTERED ARGYLE HOLDER(S)
(PLEASE FILL IN EXACTLY AS THE NAME(S) APPEAR(S) ON
CERTIFICATE(S) (PLEASE PRINT)*
CERTIFICATES ENCLOSED
- -------------------------------------------------------------------------------
NUMBER OF
CERTIFICATE SHARES
NUMBER(S) REPRESENTED
BY
CERTIFICATE
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
TOTAL SHARES
* Only Argyle Certificates registered in a single form may be deposited
with this Form of Election and Letter of Transmittal. If Argyle
Certificates are registered in different forms (e.g., John R. Doe and
J.R. Doe), it will be necessary to fill in, sign and submit as many
separate Forms of Election and Letters of Transmittal as there are
different registrations of Argyle Certificates. Additional copies of this
Form of Election and Letter of Transmittal may be obtained from the
Exchange Agent at the address or phone numbers shown below.
[_] Check here if your Argyle Certificate(s) has (have) been lost, stolen or
destroyed and see Instruction 13. Fill out the remainder of this Form of
Election and Letter of Transmittal and indicate here the number of Shares
represented by the lost, stolen or destroyed certificate(s): (number of
Shares).
FORM OF ELECTION
AND
LETTER OF TRANSMITTAL
to accompany certificates representing shares of Series A Common Stock of
ARGYLE TELEVISION, INC.
This Form of Election and Letter of Transmittal is being delivered to
holders of the Series A Common Stock of Argyle Television, Inc. ("Argyle") in
connection with the proposed merger (the "Merger") of HAT Merger Sub, Inc.
("Merger Sub"), a wholly owned subsidiary of The Hearst Corporation
("Hearst"), with and into Argyle, with Argyle as the surviving corporation to
be renamed "Hearst-Argyle Television, Inc." ("Hearst-Argyle"), pursuant to the
Amended and Restated Agreement and Plan of Merger, dated as of March 26, 1997,
among Hearst, Merger Sub, HAT Contribution Sub, Inc., a wholly owned
subsidiary of Hearst, and Argyle (the "Merger Agreement"). This Form of
Election and Letter of Transmittal must be completed by registered holders of
shares of Argyle's Class A Common Stock, par value $.01 per share (the
"Shares" or the "Argyle Common Stock"), that wish to make an election (an
"Election") as to the form of Merger Consideration (as defined below) into
which such holder's Shares will be converted upon consummation of the Merger.
For an election to be effective, this Form of Election and Letter of
Transmittal, properly completed, together with the certificate(s) representing
shares of Argyle Common Stock (each such certificate, an "Argyle Certificate")
as to which an Election is being made (or guarantee of delivery as provided
herein or affidavit and indemnification regarding the loss, theft or
destruction
5:00 P.M., NEW YORK CITY TIME, ON AUGUST 28, 1997, IS THE ELECTION DEADLINE
BY WHICH TIME A COMPLETED FORM OF ELECTION AND LETTER OF TRANSMITTAL,
TOGETHER WITH ALL REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE EXCHANGE AGENT
IN ORDER FOR ANY ELECTION CONTAINED HEREIN TO BE VALID.
<PAGE>
of such Argyle Certificate(s) reasonably acceptable to Hearst and Argyle in
accordance with Instruction 13 below), or the Shares delivered by book-entry
transfer to the Exchange Agent's account at a Book-Entry Transfer Facility (as
defined below), and all other required documents, must be received by the
Exchange Agent prior to 5:00 p.m., New York City time, on August 28, 1997 (the
"Election Deadline"). Such Election is subject to the terms, conditions and
limitations set forth in (i) the Merger Agreement, which is attached as
Appendix A to the Proxy Statement/Prospectus, dated July 31, 1997, relating to
the Merger (the "Proxy Statement/Prospectus") and (ii) the instructions
accompanying this Form of Election and Letter of Transmittal (the
"Instructions").
The tax consequences to holders of Argyle Common Stock of the receipt of
different forms of Merger Consideration (as defined below) will differ. For
information as to the federal income tax consequences of the receipt of
different forms of Merger Consideration, see "THE HEARST TRANSACTION
PROPOSAL--Certain Federal Income Tax Consequences" in the Proxy
Statement/Prospectus. Holders of Argyle Common Stock also are urged to consult
their tax advisors regarding the tax consequences to them of the Merger and of
the receipt of different forms of Merger Consideration.
IF YOUR ARGYLE CERTIFICATE(S) HAS (HAVE) BEEN LOST, STOLEN OR DESTROYED AND
YOU REQUIRE ASSISTANCE IN REPLACING IT (THEM), SEE INSTRUCTION 13 TO THIS FORM
OF ELECTION AND LETTER OF TRANSMITTAL. YOU CANNOT SUBMIT AN EFFECTIVE FORM OF
ELECTION AND LETTER OF TRANSMITTAL WITHOUT ATTACHING YOUR ARGYLE
CERTIFICATE(S) TO THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL OR,
ALTERNATIVELY, (1) DELIVERING THE SHARES BY BOOK-ENTRY TRANSFER TO THE
EXCHANGE AGENT'S ACCOUNT AT A BOOK-ENTRY TRANSFER FACILITY, (2) SUBMITTING A
GUARANTEE OF DELIVERY AS PROVIDED HEREIN OR (3) SUBMITTING AN AFFIDAVIT AND
INDEMNIFICATION REGARDING THE LOSS, THEFT OR DESTRUCTION OF SUCH ARGYLE
CERTIFICATE(S) REASONABLY ACCEPTABLE TO HEARST AND ARGYLE.
Questions and requests for assistance or additional copies of the Proxy
Statement/Prospectus or this Form of Election and Letter of Transmittal may be
directed to the Exchange Agent at the address set forth below.
The Exchange Agent is:
HARRIS TRUST AND SAVINGS BANK
By Mail: By Overnight Delivery or by Hand:
Harris Trust and Savings Bank c/o Harris Trust and Savings Bank c/o
Harris Trust Company of New York P. O. Harris Trust Company of New York 77
Box 1010 Wall Street Station New York, Water Street 4th Floor New York, NY
NY 10268 10004
By Facsimile Transmission:
(For Eligible Institutions Only)
(212) 701-7636
Confirm by telephone:
(212) 701-7624
DELIVERY, OR TRANSMISSION VIA FACSIMILE, OF THIS INSTRUMENT TO AN ADDRESS
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
2
<PAGE>
To Harris Trust and Savings Bank:
In connection with the Merger, and pursuant to the Merger Agreement, the
undersigned hereby makes the Election set forth herein and surrenders to you
for cancellation, as exchange agent (the "Exchange Agent"), Argyle
Certificates representing each share of the undersigned's Argyle Common Stock,
listed above in Box A. In exchange for each share of Argyle Common Stock
surrendered herewith, the undersigned hereby elects to receive: (i) one share
of Hearst-Argyle Series A Common Stock, par value $.01 per share ("Hearst-
Argyle Series A Common Stock"); (ii) cash, without interest, in the amount of
$26.50; or (iii) a combination consisting of 0.5 share of Hearst-Argyle Series
A Common Stock and $13.25 in cash, without interest. Such Election may be to
receive only shares of Hearst-Argyle Series A Common Stock (a "Stock
Election"), only cash (a "Cash Election") or a combination consisting of
$13.25 in cash, without interest, and 0.5 share of Hearst-Argyle Series A
Common Stock (a "Mixed Election"), in each case subject to the limitations and
allocation prorations set forth in the Merger Agreement. If an Argyle Holder
does not make an effective Election, fails to properly make an Election or
fails to submit a Form of Election and Letter of Transmittal (including
submission of your Argyle certificate(s)) by the Election Deadline, such
Holder will be deemed to have made a non-election (a "Non-Election"). If the
shares making a Non-Election are not converted pursuant to the limitations and
allocation prorations, then the Exchange Agent will at first determine by lot
(or by such other method as deemed reasonable by Hearst and Argyle) which
Argyle Holders making a Non-Election will receive cash, without interest, in
the amount of $26.50 in exchange for each share of Argyle Common Stock,
provided that such selection by lot (or such other method) will cease when the
sum of all shares receiving cash (including such shares making a Non-Election)
is as close as practicable to the limitation described below. Thereafter, each
share of Argyle Common Stock held by an Argyle Holder making a Non-Election
which is not so converted to the cash consideration will be converted into the
right to receive one share of Hearst-Argyle Series A Common Stock. The
undersigned understands that the total number of shares of Hearst-Argyle
Series A Common Stock to be issued to the Argyle Holders and optionholders in
the Merger will not exceed 8,277,054 shares and will not be less than
6,025,319 shares, and the total amount of cash to be paid to Argyle Holders
and optionholders in the Merger will not be less than $100 million or greater
than approximately $160 million. In addition, the undersigned understands that
Hearst-Argyle will pay cash in lieu of any fractional shares of Hearst-Argyle
Series A Common Stock otherwise issuable in connection with Merger as
specified herein. The consideration to be provided in exchange for each share
of Argyle Common Stock herein is referred to as "Merger Consideration."
The undersigned understands that the Election by the undersigned is subject
to certain terms, conditions and limitations that have been set forth in (i)
the Merger Agreement which is included as Appendix A to, and is described in
the Proxy Statement/Prospectus (including, but not limited to the fact that
because the aggregate number of shares of Hearst-Argyle Series A Common Stock
to be issued in the Merger and the aggregate amount of cash (other than cash
paid in lieu of fractional shares of Hearst-Argyle Series A Common Stock) to
be paid in the Merger are fixed, an Argyle Holder (as defined below) may not
receive exactly the consideration elected in this Form of Election and Letter
of Transmittal) and (ii) the Instructions. Extra copies of this Form of
Election and Letter of Transmittal and the Proxy Statement/Prospectus may be
requested from the Exchange Agent, at the address shown above. The filing of
this Form of Election and Letter of Transmittal with the Exchange Agent will
constitute acknowledgment of the receipt by the undersigned of the Proxy
Statement/Prospectus.
The undersigned hereby represents and warrants that the undersigned is the
registered holder of the Shares represented by the Argyle Certificate(s)
surrendered herewith, with good title to the Shares described in Box A above
and full power and authority to sell, assign and transfer such Shares, free
and clear of all liens, claims and encumbrances, and not subject to any
adverse claims (an "Argyle Holder").
The undersigned authorizes and instructs you, as Exchange Agent, to deliver
such Argyle Certificate(s) and receive on behalf of the undersigned, in
exchange for the shares of Argyle Common Stock represented thereby, any check
for cash or any certificate for shares of Hearst-Argyle Series A Common Stock
issuable in the Merger pursuant to the Merger Agreement. If the Argyle
Certificate(s) is (are) not delivered herewith or by book-entry transfer,
there is furnished herewith (i) a guarantee of delivery of such Argyle
Certificate(s) from a number of a registered national securities exchange, a
member of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office in the United States (provided below)
in accordance with Instruction 6 or (ii) an affidavit and indemnification
regarding the loss, theft or destruction of such Argyle Certificate(s)
reasonably acceptable to Hearst and Argyle in accordance with Instruction 13.
The undersigned understands and acknowledges that all questions as to be
validity, form and eligibility of any Election and surrender of the Shares
hereunder shall be reasonably determined by the Exchange Agent, and such
determination shall be final and binding.
3
<PAGE>
Unless otherwise indicated under "Special Issuance and Payment Instructions"
below, please issue any check and/or any certificate for shares of Hearst-
Argyle Series A Common Stock issuable in exchange for the Shares represented by
the Argyle Certificate(s) submitted hereby in the name of the Argyle Holder(s).
Similarly, unless otherwise indicated under "Special Delivery Instructions"
below, please mail any check and/or any certificate for shares of Hearst-Argyle
Series A Common Stock issuable in exchange for the Shares represented by the
Argyle Certificate(s) submitted hereby to the registered holder(s) of the
Shares at the address shown above in Box A.
The undersigned will, upon request, execute any additional documents
necessary or desirable to complete the surrender and exchange of such Shares.
In addition, subject to the consummation of the Merger, the undersigned hereby
irrevocably appoints the Exchange Agent as attorney-in-fact for the undersigned
to exercise all authority conferred in this Form of Election and Letter of
Transmittal for the purposes contemplated in the Merger Agreement, and such
authority will be binding on successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned and will survive
the death or incapacity of the undersigned.
ELECTION
The appropriate box below must be checked in order to make a Stock Election,
a Cash Election or a Mixed Election (each as defined above). FAILURE TO CHECK
ANY BOX WILL BE DEEMED A NON-ELECTION.
Because the Merger Agreement provides for a fixed number of shares of Hearst-
Argyle Series A Common Stock to be issued in the Merger (not to exceed
8,277,054 shares and not less than 6,025,319 shares of Hearst-Argyle Series A
Common Stock) and a fixed amount of cash (other than cash paid in lieu of
fractional shares of Hearst-Argyle Series A Common Stock) to be paid in the
Merger (not less than $100 million or greater than approximately $160 million),
an Argyle Holder may not receive exactly the consideration elected in Box B
below. In all cases, however, an Argyle Holder making the Mixed Election will
receive a combination consisting of $13.25 in cash, without interest, and 0.5
share of Hearst-Argyle Series A Common Stock. The determination of whether cash
or stock has been oversubscribed and the exact composition of the Merger
Consideration to be received by each Argyle Holder will be made by the Exchange
Agent as soon as practicable after the closing date. The amount of cash and/or
the number of shares of Hearst-Argyle Series A Common Stock that an Argyle
Holder will receive will depend on (i) the stated preferences of all Argyle
Holders on the Forms of Election and Letters of Transmittal, (ii) the stated
preferences of all holders of options or similar rights to purchase Argyle
Common Stock (each a "Company Option") on applicable forms of election and
(iii) the limitations and allocation prorations to be applied under the Merger
Agreement if the aggregate number of shares of Argyle Common Stock and Company
Options for which Cash Elections are made exceeds the number of shares of
Argyle Common Stock and Company Options that can be converted into cash or the
aggregate number of shares of Argyle Common Stock and Company Options for which
Stock Elections are made exceeds the number of shares of Argyle Common Stock
and Company Options that can be converted into shares of Hearst-Argyle Series A
Common Stock.
ARGYLE HOLDERS WILL KNOW THE EXACT COMPOSITION OF THE MERGER CONSIDERATION
PAID FOR THEIR SHARES OF ARGYLE COMMON STOCK ONLY UPON RECEIPT OF THE MERGER
CONSIDERATION PAYABLE TO THEM, WHICH PAYMENT WILL BE ACCOMPANIED BY A BRIEF
EXPLANATION OF THE APPLICATION OF THE LIMITATIONS AND ALLOCATION PRORATIONS
MECHANISMS PROVIDED IN THE MERGER AGREEMENT, ABSENT MANIFEST ERROR, ALL
DECISIONS BY HEARST, ARGYLE AND THE EXCHANGE AGENT WITH RESPECT TO SUCH PROCESS
SHALL BE FINAL AND BINDING.
ALL HOLDERS OF SHARES OF ARGYLE COMMON STOCK WISHING TO MAKE A STOCK
ELECTION, A CASH ELECTION OR A MIXED ELECTION MUST DELIVER TO THE EXCHANGE
AGENT A PROPERLY COMPLETED FORM OF ELECTION AND LETTER OF TRANSMITTAL AND THE
ARGYLE CERTIFICATE(S) AS TO WHICH SUCH ELECTION IS BEING MADE (OR GUARANTEE OF
DELIVERY AS PROVIDED HEREIN OR AFFIDAVIT AND INDEMNIFICATION REGARDING THE
LOSS, THEFT OR DESTRUCTION OF SUCH ARGYLE CERTIFICATE(S) REASONABLY ACCEPTABLE
TO HEARST AND ARGYLE IN ACCORDANCE WITH INSTRUCTION 13), OR ARRANGE FOR
DELIVERY OF SUCH CERTIFICATE(S) BY BOOK-ENTRY TRANSFER TO THE EXCHANGE AGENT'S
ACCOUNT AT A BOOK-ENTRY TRANSFER FACILITY, AND ALL OTHER REQUIRED DOCUMENTS
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON AUGUST 28, 1997. ALL HOLDERS OF
SHARES OF ARGYLE COMMON STOCK SUBMITTING
4
<PAGE>
A FORM OF ELECTION AND LETTER OF TRANSMITTAL AFTER SUCH ELECTION DEADLINE WILL
BE DEEMED TO HAVE MADE A NON-ELECTION REGARDLESS OF THE ELECTION SPECIFIED IN
BOX B BELOW.
BOX B: ELECTION CHECK ONE BOX ONLY*
[_] STOCK ELECTION
[_] CASH ELECTION
[_] MIXED ELECTION
* Nominees must use a separate Form of Election and Letter of Transmittal
to make an Election for themselves and on behalf of each beneficial owner
of shares of Argyle Common Stock. If an Argyle Holder desires to make
differing Elections with respect to shares of Argyle Common Stock
actually held of record by such holder, each such Election must be made
on a separate Form of Election and Letter of Transmittal. See the
Instructions below.
DELIVERY BY BOOK-ENTRY TRANSFER
SEE INSTRUCTION 1.
[_] Check here if Shares are being delivered by book-entry transfer to the
Exchange Agent's account on one of the book-entry transfer facilities (each
a "Book-Entry Transfer Facility") and complete the following:
Check the Box of the applicable Book-Entry Transfer Facility:
[_] The Depository Trust Company
[_] Philadelphia Depository Trust Company
YOU WILL BE DEEMED TO HAVE MADE A NON-ELECTION IF:
A. NO CHOICE IS INDICATED ABOVE;
B. YOU FAIL TO FOLLOW THE INSTRUCTIONS ON THIS FORM OF ELECTION AND LETTER
OF TRANSMITTAL (INCLUDING THE FAILURE TO SUBMIT YOUR ARGYLE CERTIFICATE(S)) OR
OTHERWISE FAIL TO PROPERLY MAKE AN ELECTION; OR
C. A COMPLETED FORM OF ELECTION AND LETTER OF TRANSMITTAL (INCLUDING
SUBMISSION OF YOUR ARGYLE CERTIFICATE(S)) IS NOT ACTUALLY RECEIVED BY THE
ELECTION DEADLINE.
In order to receive Merger Consideration, this Form of Election and Letter
of Transmittal must be (i) completed and signed in the space provided in Box C
below and on the Substitute Form W-9 and (ii) mailed or delivered with your
Argyle Certificate(s) (or a guarantee of delivery as provided herein or an
affidavit and indemnification regarding the loss, theft or destruction of such
Argyle Certificate(s) reasonably acceptable to Hearst and Argyle in accordance
with Instruction 13) to the Exchange Agent at any of the addresses set forth
above, or delivered by book-entry transfer to the Exchange Agent's account at
a Book-Entry Transfer Facility. In order to properly make a Stock Election, a
Cash Election or a Mixed Election, these actions must be taken in a timely
fashion such that the Form of Election and Letter of Transmittal is received
by the Exchange Agent prior to the Election Deadline.
The method of delivery of the Form of Election and Letter of Transmittal,
the Argyle Certificate(s) and any other required document is at the election
and risk of the Argyle Holder and delivery will be deemed made only when
actually received by the Exchange Agent. The risk of loss of such Shares will
pass only after the Exchange Agent has actually received the Shares. If the
Argyle Certificate(s) is (are) sent by mail, it is recommended that it (they)
be sent by registered mail, appropriately insured, with return receipt
requested. In all cases, sufficient time for delivery should be allowed to
ensure timely delivery.
CONSUMMATION OF THE MERGER IS STILL SUBJECT TO APPROVAL OF THE STOCKHOLDERS
OF ARGYLE AND TO THE SATISFACTION OF CERTAIN CONDITIONS SET FORTH IN THE
MERGER AGREEMENT. NO PAYMENTS RELATED TO ANY SURRENDER OF ARGYLE CERTIFICATES
WILL BE MADE PRIOR TO THE EFFECTIVE TIME. IN THE EVENT THAT THE MERGER
AGREEMENT IS TERMINATED, THE EXCHANGE AGENT WILL PROMPTLY RETURN TO YOU THE
ARGYLE CERTIFICATE(S) PREVIOUSLY SUBMITTED WITH THIS FORM OF ELECTION AND
LETTER OF TRANSMITTAL OR DELIVERED TO THE EXCHANGE AGENT BY GUARANTEE OF
DELIVERY OR BY BOOK-ENTRY TRANSFER.
5
<PAGE>
GUARANTEE OF DELIVERY
(TO BE USED ONLY IF CERTIFICATES ARE NOT SURRENDERED HEREWITH)
SEE INSTRUCTIONS 1 AND 6.
The undersigned is a member of a registered national securities exchange, a
member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company in the United States; and guarantees to
deliver to the Exchange Agent the certificate(s) for shares of Argyle Common
Stock to which this Form of Election and Letter of Transmittal relates, duly
endorsed in blank or otherwise in form acceptable for transfer on the books
of Argyle, no later than 5:00 p.m., New York City time, within three Nasdaq
National Market trading days after the execution hereof. IF YOU COMPLETE THIS
GUARANTEE OF DELIVERY, YOU WILL NEED A SIGNATURE GUARANTEE BY AN ELIGIBLE
INSTITUTION. SEE INSTRUCTION 6.
Dated: ______________________________________ ------------------------------
(Firm -- Please Print)
Number of Shares: ___________________________ ------------------------------
(Authorized Signature)
Check applicable box if Shares will be
delivered by book-entry transfer: ------------------------------
------------------------------
[_] The Depository Trust Company (Address)
------------------------------
[_] Philadelphia Depository Trust Company (Area Code and Telephone
Number)
Account Number: _____________________________
NOTICE OF DELIVERY UNDER GUARANTEE
(TO BE COMPLETED UPON DELIVERY OF SHARES PURSUANT TO A GUARANTEE OF DELIVERY)
Name(s) of Registered Holder(s): _____________________________________________
Window Ticket No. (if any): __________________________________________________
Date of Execution of Guarantee of Delivery: __________________________________
Name of Institution which provided Guarantee of Delivery: ____________________
If delivered by book-entry transfer (assuming such procedure is available),
check box of applicable Book-Entry Transfer Facility:
[_] The Depository Trust Company
[_] Philadelphia Depository Trust Company
Account Number: ______________________ Transaction Code Number: _____________
6
<PAGE>
SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS
SEE INSTRUCTIONS 1, 5, 6, 11 AND 12.
To be completed ONLY if the certificate representing shares of Hearst-
Argyle Series A Common Stock or the check representing cash or the cash in
lieu of fractional shares, as the case may be, is to be issued in the name of
and mailed to someone other than the undersigned. NOTE: THE PERSON NAMED IN
THESE SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS MUST BE THE PERSON WHO
COMPLETES THE SUBSTITUTE FORM W-9. IF YOU COMPLETE THIS BOX, YOU WILL NEED A
SIGNATURE GUARANTEE BY AN ELIGIBLE INSTITUTION. SEE INSTRUCTION 6.
Issue the Merger Consideration in the name of and mail to:
Name: ________________________________________________________________________
(Please Print)
Address: _____________________________________________________________________
------------------------------------------------------------------------------
------------------------------------------------------------------------------
(Include Zip Code)
SPECIAL DELIVERY INSTRUCTIONS
SEE INSTRUCTIONS 1, 5 AND 11.
To be completed ONLY if the certificate representing shares of Hearst-
Argyle Series A Common Stock or the check representing cash or the cash in
lieu of fractional shares, as the case may be, issued in the name of the
undersigned is to be sent to someone other than the undersigned or to the
undersigned at an address other than that shown in Box A above. Mail the
Merger Consideration to:
Name: ________________________________________________________________________
(Please Print)
Address: _____________________________________________________________________
------------------------------------------------------------------------------
------------------------------------------------------------------------------
(Include Zip Code)
CHECK THIS BOX [_] IF THIS IS A PERMANENT CHANGE OF ADDRESS.
7
<PAGE>
BOX C MUST BE COMPLETED. SEE INSTRUCTION 1.
BOX C: SIGNATURE(S)
The undersigned represents and warrants that the undersigned has full power
and authority to transfer the shares of Argyle Common Stock surrendered
hereby and that the transferee will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim when such Shares are accepted for
exchange by the Exchange Agent. The undersigned will, upon request, execute
and deliver any additional documents deemed by Hearst-Argyle or the Exchange
Agent to be necessary and desirable to complete the transfer of the Shares
surrendered hereby:
Date: ____________
PLEASE SIGN HERE
Signature: ___________________________________________________________________
Signature: ___________________________________________________________________
Signature: ___________________________________________________________________
Signature(s) of registered holder(s) must be EXACTLY as name(s) appear(s)
in Box A above or on the assignment authorizing transfer.
If signed by a trustee, executor, administrator, guardian, attorney-in-
fact, officer of a corporation or other person acting in a fiduciary or
representative capacity, the capacity of the person signing should be
indicated. See Instruction 9.
Date: ____________
Name(s): _____________________________________________________________________
(Please Print)
Capacity: ____________________________________________________________________
Daytime Area Code and Telephone Number: ______________________________________
THE EXCHANGE AGENT HAS BEEN INSTRUCTED NOT BE MAKE ANY EXCHANGE OF YOUR
SHARES UNTIL THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL HAS BEEN
EXECUTED AND DELIVERED TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEE
(REQUIRED ONLY IN CASES SPECIFIED IN INSTRUCTION 6.)
The undersigned hereby guarantees the signature(s) which appear(s) on this
Letter of Transmittal.
Date: ____________
---------------------------------------------
(Name of Firm Issuing Guarantee) (Please Print)
---------------------------------------------
(Fix Medallion Stamp Above)
8
<PAGE>
TAXPAYER IDENTIFICATION NUMBER
SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
PAYER'S NAME: HARRIS TRUST AND SAVINGS BANK
- --------------------------------------------------------------------------------
Name(s) as shown on
Argyle Certificate(s)
(if joint ownership,
list first and circle
the name of the person
or entity whose number
is entered in Part I
below).
- --------------------------------------------------------------------------------
Address (if Argyle
Holder does not
complete, signature in
Part I will constitute a
certification that the
address listed in Box A
is correct).
- --------------------------------------------------------------------------------
PART I -- PLEASE ENTER YOUR Social Security Number
SUBSTITUTE TIN IN THE BOX AT RIGHT AND
CERTIFY BY SIGNING AND
FORM W-9 DATING BELOW: See the OR_____________________
(SEE INSTRUCTION 12) enclosed "Guidelines for
Certification of Taxpayer Employer identification
Identification Number on number
Substitute Form W-9" for
instructions.
---------------------------------------------------------
Department of the PART II -- Exempt Payees [_]
Treasury Internal I am a payee exempt from information and backup
Revenue Service withholding.
---------------------------------------------------------
PAYER'S REQUEST FOR PART III -- Awaiting TIN [_]
TAXPAYER You must also complete the Certificate of Awaiting
IDENTIFICATION Taxpayer Identification Number if you check this box.
NUMBER (TIN)
- --------------------------------------------------------------------------------
CERTIFICATION -- UNDER PENALTY OF PERJURY, I CERTIFY THAT:
(1) The number shown on the form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because: (a) I am exempt from
backup withholding, (b) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends or (c) the IRS has notified
me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you are subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2). If you are exempt from backup
withholding, check the box in Part II above. (Also see the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.")
- --------------------------------------------------------------------------------
Signature ______________________________ Date ________________________________
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalty of perjury that a taxpayer identification number
has not been issued to me and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that, notwithstanding that I have checked the box in Part III (and
have completed this Certificate of Awaiting Taxpayer Identification Number),
31% of all reportable payments made to me will be withheld until I provide a
properly certified taxpayer identification number to the Exchange Agent.
Signature ______________________________ Date ________________________________
CERTIFICATE FOR FOREIGN HOLDERS
I certify under penalty of perjury that I am not a United States citizen or
resident of the United States.
Signature ______________________________ Date ________________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM OF ELECTION AND LETTER OF
TRANSMITTAL, INCLUDING THE SUBSTITUTE FORM W-9 CONTAINED HEREIN, MAY
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU
PURSUANT TO THE MERGER OR WITH RESPECT TO ANY SUBSEQUENT DIVIDEND
PAYMENTS MADE BY HEARST-ARGYLE. PLEASE REVIEW THE ENCLOSED "GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9" FOR ADDITIONAL DETAILS.
9
<PAGE>
INSTRUCTIONS
This Form of Election and Letter of Transmittal must be completed and
submitted to the Exchange Agent prior to the Election Deadline, which is 5:00
p.m., New York City time, on August 28, 1997, by any Argyle Holder desiring to
make an Election other than a Non-Election. It must also be used a letter of
transmittal for Argyle Holders not making an effective Election to receive the
Merger Consideration. Until a record holder's Argyle Certificates are received
by the Exchange Agent at one of the addresses set forth above (or affidavit
and indemnification regarding the loss, theft or destruction of such Argyle
Certificate reasonably acceptable to Hearst and Argyle), together with this
Form of Election and Letter of Transmittal and such other documents as the
Exchange Agent may require, and until the same are processed for exchange by
the Exchange Agent, such holders will not receive (i) any certificates
representing shares of Hearst-Argyle Series A Common Stock or any check
representing cash consideration or the cash in lieu of fractional shares (if
any) in exchange for their Argyle Certificates or (ii) any dividends or other
distributions payable on shares of Hearst-Argyle Series A Common Stock to be
received by such holders. No interest will accrue on any cash consideration,
cash in lieu of fractional shares or such dividends. No such dividends or
other distributions will be reinvested pursuant to any plan. If your Argyle
Certificate(s) is (are) lost, stolen or destroyed, please contact the Exchange
Agent immediately. See Instruction 13.
Each Argyle Holder is entitled to make an Election and submit a Form of
Election and Letter of Transmittal covering all shares of Argyle Common Stock
actually held of record by such holder. HOWEVER, THE HOLDER MUST CHECK ONLY
ONE BOX IN BOX B ABOVE TO MAKE AN EFFECTIVE ELECTION. If an Argyle Holder
desires to make differing Elections with respect to shares of Argyle Common
Stock actually held of record by such holder, each such Election must be made
on a separate Form of Election and Letter of Transmittal. Nominee record
holders, which include nominees, trustees or any other person that holds
shares of Argyle Common Stock in any capacity whatsoever on behalf of more
than one person or entity ("Nominees"), are entitled to make an Election for
themselves, as well as an Election on behalf of each beneficial owner of
shares of Argyle Common Stock held through such nominee record holders, but
each such Election must be made on a separate Form of Election and Letter of
Transmittal. Beneficial owners who are not record holders are not entitled to
submit a Form of Election and Letter of Transmittal. Nominees submitting a
Form of Election and Letter of Transmittal on behalf of a registered
stockholder as trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or acting in another fiduciary or representative
capacity should refer to Instruction 9 below.
Each Election is subject to certain terms, conditions and limitations that
have been set out in the Merger Agreement (and as described in the Proxy
Statement/Prospectus) and these Instructions. The Merger Agreement is included
as Appendix A to the Proxy Statement/Prospectus. Extra copies of the Proxy
Statement/Prospectus may be requested from the Exchange Agent at the address
shown above. The delivery of this Form of Election and Letter of Transmittal
to the Exchange Agent will constitute acknowledgement of the receipt of the
Proxy Statement/Prospectus.
1. Election Deadline. Each Argyle Holder is entitled to make an Election.
For any Election contained herein to be effective, this Form of Election and
Letter of Transmittal, properly completed, and the related Argyle
Certificate(s) must be received by the Exchange Agent at one of the addresses
shown above no later than THE ELECTION DEADLINE OF 5:00 P.M., NEW YORK CITY
TIME, ON AUGUST 28, 1997. If an Argyle Holder does not make an effective
Election or fails to submit a Form of Election and Letter of Transmittal by
the Election Deadline, such Argyle Holder must properly complete Box A, Box C
and the remaining applicable sections (other than Box B) of this Form of
Election and Letter of Transmittal and deliver this Form of Election and
Letter of Transmittal, together with the certificate(s) representing the
shares of Argyle Common Stock (or a duly signed guarantee of delivery of such
certificate(s) or affidavit and indemnification regarding the loss, theft or
destruction of such Argyle Certificate(s) reasonably acceptable to Hearst and
Argyle), or arrange for delivery of such Shares by book-entry transfer to the
Exchange Agent's account at a Book-Entry Transfer Facility, in order to
receive Merger Consideration. To properly complete Box A, the number of each
Argyle Certificate surrendered herewith must be written in the column under
the heading "Certificate Number."
Argyle Holders whose stock certificate(s) is (are) not immediately available
or Argyle Holders who cannot complete the procedure for delivery by book-entry
transfer on a timely basis may deliver the Shares and may also make an
effective Election by (a) completing Boxes A, B and C herein, having the Box
entitled "Guarantee of Delivery" herein properly completed and duly executed
with any required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message) and delivering such documents to the Exchange
Agent prior to the Election Deadline; and (b) delivering their Argyle
Certificates, in proper form for transfer, or a confirmation of a book-entry
transfer of such Shares, if such procedure is available, into the Exchange
Agent's account at one of the Book-Entry Transfer Facilities within three
Nasdaq National Market trading days after the date of execution
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<PAGE>
hereof. In addition, at the time the Argyle Certificate(s) (or the Shares
pursuant to a book-entry transfer) are delivered pursuant to the Guarantee of
Delivery, the guarantor must submit to the Exchange Agent another Form of
Election and Letter of Transmittal with only the section entitled "Notice of
Delivery Under Guarantee" properly completed (or must otherwise provide such
information to the Exchange Agent). If the guarantor fails to deliver the
Argyle Certificate(s) (or the Shares by book-entry transfer) in accordance
with the guaranteed deliver procedures contained herein, without limitation of
any other recourse, any purported Election with respect to the Shares subject
to such guarantee will be void. The term "Agent's Message" means a message,
transmitted by a Book-Entry Transfer Facility to, and received by, the
Exchange Agent and forming a part of a book-entry confirmation, which states
that such Book-Entry Transfer Facility has received an express acknowledgement
from the participant in such Book-Entry Transfer Facility delivering the
Shares, that such participant has received and agrees to be bound by the terms
of this Form of Election and Letter of Transmittal and that Hearst-Argyle may
enforce such agreement against the participant.
The Exchange Agent will determine whether any Form of Election and Letter of
Transmittal or any other required document is received on a timely basis and
whether any Form of Election and Letter of Transmittal or any other required
document has been properly completed. Any such determinations shall be
conclusive and binding. IF AN ARGYLE HOLDER DOES NOT MAKE AN EFFECTIVE
ELECTION BY THE ELECTION DEADLINE, SUCH HOLDER SHALL BE DEEMED TO HAVE MADE A
NON-ELECTION. For lost, stolen or destroyed Argyle Certificate(s), see
Instruction 13.
2. Revocation or Change of Election Form and Letter of Transmittal. Any Form
of Election and Letter of Transmittal may be (i) revoked by written notice
duly executed or (ii) changed by written notice duly executed and accompanied
by a new Form of Election and Letter of Transmittal, from the person
submitting such Form of Election and Letter of Transmittal, but to be
effective such notice must be received by the Exchange Agent at or prior to
the Election Deadline of 5:00 p.m., New York City time, on August 28, 1997.
Such notice must specify the person in whose name the shares of Argyle Common
Stock to be withdrawn had been deposited, the name of the registered holder
thereof, and the serial numbers shown on the certificate(s) representing the
Shares to be withdrawn. The Exchange Agent will have reasonable discretion to
determine whether any revocation or change is received on a timely basis and
whether any such revocation or change has been properly made. If a Form of
Election and Letter of Transmittal is revoked, and the Argyle Certificate(s)
withdrawn, the Argyle Certificate(s) submitted therewith will be promptly
returned by the Exchange Agent to the person who submitted such
certificate(s). Upon any such revocation, unless a duly completed Form of
Election and Letter of Transmittal is thereafter submitted before the Election
Deadline, such holder will be deemed to have made a Non-Election.
3. Termination of Merger Agreement. If for any reason the Merger is not
consummated or is abandoned, all Forms of Election and Letters of Transmittal
will be void and of no effect whatsoever, and all Argyle Certificates
previously received by the Exchange Agent and thereafter held by the Exchange
Agent will be returned promptly by the Exchange Agent to the person who
submitted such certificate(s).
4. Election Procedures/Allocation. As set forth on pages 60 through 63 of
the Proxy Statement/Prospectus and as described above, because the Merger
Agreement provides for a fixed number of shares of Hearst-Argyle Series A
Common Stock to be issued in the Merger (not to exceed 8,277,054 shares and
not less than 6,025,319 shares) and a fixed amount of cash (other than cash
paid in lieu of fractional shares of Hearst-Argyle Series A Common Stock) to
be paid in the Merger (not less than $100 million or greater than
approximately $160 million), an Argyle Holder may not receive exactly the
consideration elected above in Box B. If too many Argyle Holders and holders
of Company Options elect either cash or shares of Hearst-Argyle Series A
Common Stock, the limitations and allocation prorations set forth in the
Merger Agreement and described in the Proxy Statement/Prospectus will be
followed by the Exchange Agent. THUS, AN ELECTION MADE BY YOU MAY NOT BE
HONORED UNDER CERTAIN CIRCUMSTANCES. See "THE MERGER AGREEMENT--Merger
Consideration and Conversion of Shares" in the Proxy Statement/Prospectus.
5. No Fractional Shares. No certificate representing a fraction of a full
share of Hearst-Argyle Series A Common Stock will be issued. In lieu thereof,
the Exchange Agent will remit on Hearst-Argyle's behalf cash, without
interest, equal to the product of such fractional amount and $26.50. No Argyle
Holder shall be entitled to dividends, voting rights or any other rights in
respect to any fractional shares.
6. Guarantee of Signatures. Signatures on this Form of Election and Letter
of Transmittal need not be guaranteed unless the "Special Issuance and Payment
Instructions" section or the "Guarantee of Delivery" section has been
completed. In such event, signatures on this Form of Election and Letter of
Transmittal must be guaranteed by an eligible guarantor institution pursuant
to Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934, as
amended (an "Eligible Institution"). PUBLIC NOTARIES CANNOT EXECUTE ACCEPTABLE
GUARANTEES OF SIGNATURES.
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<PAGE>
7. Method of Delivery. THE METHOD OF DELIVERY OF THE ARGYLE CERTIFICATE(S)
AND ANY OTHER REQUIRED DOCUMENT IS AT THE ELECTION AND RISK OF THE ARGYLE
HOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. THE RISK OF LOSS OF SUCH SHARES WILL PASS ONLY AFTER THE
EXCHANGE AGENT HAS ACTUALLY RECEIVED THE SHARES. IF SUCH CERTIFICATE(S) IS
(ARE) SENT BY MAIL, IT IS RECOMMENDED THAT IT (THEY) BE SENT BY REGISTERED
MAIL, APPROPRIATELY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES,
SUFFICIENT TIME FOR DELIVERY SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. For
lost, stolen or destroyed certificates, see Instruction 13.
8. Inadequate Space. If the space provided herein is inadequate, the stock
certificate numbers and the number of shares of Argyle Common Stock
represented thereby should be listed on additional sheets and attached hereto.
9. Signatures on Form of Election and Letter of Transmittal, Stock Powers
and Endorsements.
(a) All signatures must correspond exactly with the name written on the
face of the Argyle Certificate(s) surrendered herewith without any
alteration, variation or change whatsoever.
(b) If the Argyle Certificate(s) surrendered is (are) held of record by
two or more joint owners, all such owners must sign this Form of Election
and Letter of Transmittal.
(c) If any surrendered shares of Argyle Common Stock are registered in
different names on several Argyle Certificates, it will be necessary to
complete, sign and submit as many separate copies of this Form of Election
and Letter of Transmittal as there are different registrations of Argyle
Certificates.
(d) If this Form of Election and Letter of Transmittal is signed by a
person other than a record holder of the Argyle Certificate(s) listed in
Box A above (other than as set forth in paragraph (e) below), such
certificate(s) must be endorsed or accompanied by appropriate stock powers,
in either case signed exactly as the name(s) of the record holder(s)
appears on such certificate(s).
(e) If this Form of Election and Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative
capacity and such person is not the record holder of the accompanying
Argyle Certificates, he or she must indicate the capacity when signing and
must submit proper evidence of his or her authority to act.
10. Stock Transfer Taxes. In the event that any transfer or other taxes
become payable by reason of the issuance of the Merger Consideration in any
name other than that of the Argyle Holder, such transferee or assignee must
pay such tax to the Exchange Agent or must establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable.
11. Special Issuance and Delivery Instructions. Indicate the name and/or
address of the person(s) in whose name and to whom the Merger Consideration is
to be issued and sent, respectively, if different from the name and/or address
of the person(s) signing this Form of Election and Letter of Transmittal.
Signatures must be guaranteed if the "Special Issuance and Payment
Instructions" section has been completed. See Instruction 6.
12. Withholding. Each Argyle Holder surrendering certificates representing
shares of Argyle Common Stock is required to provide the Exchange Agent with
such holder's correct Taxpayer Identification Number ("TIN") on the Substitute
Form W-9 and to certify whether such holder is subject to backup withholding.
The TIN that must be provided is that of the Argyle Holder with respect to the
Argyle Certificate(s) surrendered herewith or of the last transferee appearing
on the transfers attached to or endorsed on such certificate(s) (or, if a
check is made payable to another person as provided in the box entitled
"Special Issuance and Payment Instructions," then the TIN of such person).
Failure to provide the information on the Substitute Form W-9 may subject the
Argyle Holder to 31% federal income tax withholding on payments made to such
holder with respect to the shares of Argyle Common Stock and on future
dividends paid by Hearst-Argyle. An Argyle Holder must cross out Item (2) in
the Certification box of the Substitute Form W-9 if such holder has been
notified by the Internal Revenue Service ("IRS") that such holder is currently
subject to backup withholding. The box in Part III of the Substitute Form W-9
should be checked if the surrendering Argyle Holder has not been issued a TIN
and has applied for a TIN or intends to apply for a TIN in the near future. If
the box in Part III is checked and the Exchange Agent is not provided with a
TIN within 60 days thereafter, Hearst-Argyle will withhold 31% of all such
payments and dividends until a TIN is provided to the Exchange Agent. Foreign
investors should consult their tax advisors regarding the need to complete IRS
Form W-8 and any other forms that may be required.
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<PAGE>
13. Lost, Stolen, or Destroyed Certificates. If your Argyle Certificate(s)
has (have) been lost, stolen or destroyed, please check the box on the first
page of this Form of Election and Letter of Transmittal, fill in the blank to
show the number of Shares represented by the lost, stolen or destroyed
certificate(s) and complete the remainder of this Form of Election and Letter
of Transmittal. The Exchange Agent will then contact you with further
instructions as to the steps to be taken in order to receive the Merger
Consideration. In addition, the Exchange Agent will provide you with a form of
an affidavit and indemnification regarding the loss, theft or destruction of
your Argyle Certificate(s) that is in form and substance reasonably acceptable
to Hearst and Argyle. Such form may be completed and submitted as an
alternative to attaching your Argyle Certificate(s) to this Form of Election
and Letter of Transmittal.
14. Miscellaneous. NEITHER HEARST, ARGYLE NOR THE EXCHANGE AGENT IS UNDER
ANY DUTY TO GIVE ANY ARGYLE HOLDER NOTICE OF DEFECTS IN ANY FORM OF ELECTION
AND LETTER OF TRANSMITTAL. HEARST, ARGYLE AND THE EXCHANGE AGENT SHALL NOT
INCUR ANY LIABILITY FOR FAILURE TO GIVE SUCH NOTIFICATION, AND EACH OF HEARST,
ARGYLE AND THE EXCHANGE AGENT HAS THE ABSOLUTE RIGHT TO REJECT ANY AND ALL
FORMS OF ELECTION AND LETTERS OF TRANSMITTAL NOT PROPERLY COMPLETED OR TO
WAIVE ANY IRREGULARITIES IN ANY FORM OF ELECTION AND LETTER OF TRANSMITTAL.
15. Information and Additional Copies. Information and additional copies of
this Form of Election and Letter of Transmittal may be obtained by contacting
the Exchange Agent at the address set forth above.
IMPORTANT TAX INFORMATION
Under federal income tax law, each registered holder of Shares of Argyle
Common Stock receiving cash pursuant to the Merger is required to provide the
Exchange Agent, as Payer, with such holder's correct taxpayer identification
number ("TIN") on the Substitute Form W-9 above. If such holder is an
individual, the TIN is his or her social security number. If the Exchange
Agent is not provided with the correct TIN, the Argyle Holder may be subject
to $50.00 penalty imposed by the Internal Revenue Service (the "IRS"). In
addition, payments that are made to such holder may be subject to federal
income tax backup withholding at a rate of 31%.
Certain Argyle Holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, that holder must submit a statement, signed under penalties
of perjury, attesting to that individual's exempt status. This may be
accomplished by executing the certification for foreign holders at the bottom
of the Substitute Form W-9 above. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the Argyle Holder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
FOR INFORMATION AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE RECEIPT OF
DIFFERENT FORMS OF MERGER CONSIDERATION, SEE "THE HEARST TRANSACTION
PROPOSAL--CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THE PROXY STATEMENT/
PROSPECTUS. IN ADDITION, ARGYLE HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
RECEIPT OF DIFFERENT FORMS OF MERGER CONSIDERATION IN THE MERGER, AS WELL AS
REGARDING THEIR ELIGIBILITY TO CLAIM AN EXEMPTION FROM BACKUP WITHHOLDING.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to an Argyle Holder,
the holder is required to notify the Exchange Agent of his, her or its correct
TIN by completing the form above certifying that the TIN provided on
Substitute Form W-9 is correct (or that such holder is awaiting a TIN) and
that (i) the Argyle Holder has not been notified by the IRS that he, she or it
is subject to backup withholding as a result of the failure to report all
interest or dividends or (ii) the IRS has notified the Argyle Holder that he,
she or it is no longer subject to backup withholding.
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<PAGE>
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
Each Argyle Holder is required to give the Exchange Agent his, her or its
social security number or employer identification number. If the Argyle
Certificate(s) is (are) in more than one name or are not in the name of the
actual owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
number to report. An Argyle Holder who does not have a TIN should check the
box in Part III of the Substitute Form W-9 and complete the Certificate of
Awaiting Taxpayer Identification Number if the holder has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part III is
checked, payments to the holder will not be subject to backup withholding for
60 days. Payments made after 60 days will be subject to withholding unless the
holder has furnished the Exchange Agent with his, her or its TIN. A holder who
checks the box in Part III in lieu of furnishing his or her TIN should furnish
the Exchange Agent with his or her TIN as soon as it is received.
STATUS OF HOLDER
The term "United States Person" means any person who is not a Foreign
Person. The term "Foreign Person" means any person who (as to the United
States, its territories and possessions, and all areas subject to its
jurisdiction) is a foreign corporation, a non-resident alien individual, a
non-resident fiduciary of a foreign estate or trust or a foreign partnership.
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<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens:
i.e., 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payer.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------- ------------------------------------------------------
FOR THIS TYPE OF GIVE THE SOCIAL SECURITY FOR THIS TYPE OF GIVE THE EMPLOYER
ACCOUNT: NUMBER OF-- ACCOUNT: IDENTIFICATION NUMBER OF--
- ---------------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C>
1. An individual's The individual 8. Association, club, The organization
account religious, charitable
or educational
2. Two or more The actual owner of the account or, organization account
individuals if combined funds, the first
(joint account) individual on the account(1) 9. Partnership account The partnership
held in the name of
3. Custodian account The minor(2) the business
of a minor
(Uniform Gift to 10. Association, club or The organization
Minors Act) other tax exempt
organization
4. (a) The usual The grantor-trustee(1)
revocable 11. A broker or The broker or nominee
savings trust registered nominee
account (grantor
is also trustee) 12. Account with the The public entity
Department of
(b) So-called The actual owner(1) Agriculture in the
trust account name of a
that is not a public entity (such
legal or valid as a state or local
trust under state government, school
law district or prison)
that receives
5. Sole proprietorship The owner(3) agricultural program
account payments
6. A valid trust, The legal entity (Do not furnish the
estate or pension identifying number of the personal
trust representative or trustee, unless the
legal entity itself is not designated
in the account title.)(4)
7. Corporate account The corporation
- ---------------------------------------------------------------- ------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner.
(4) List first and circle the name of the legal trust, estate or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
OBTAINING A NUMBER.--If you do not have a taxpayer identification number or
you do not know your number, obtain Form SS-5, Application for a Social
Security Number Card, or Form SS-4, Application for Employer Identification
Number, at the local office of the Social Security Administration or the
Internal Revenue Service and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a) or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A state, the District of Columbia, a possession of the United States or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government or
any agency or instrumentality thereof.
. An international organization or any agency or instrumentality thereof.
. A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
. A real estate investment trust.
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<PAGE>
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Advisors Act of
1940 who regularly acts as a broker.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
Exempt payees described above should file the Substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THE SUBSTITUTE FORM W-9 WITH THE
EXCHANGE AGENT, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, CHECK THE BOX IN
PART II AND RETURN IT TO THE EXCHANGE AGENT. IF THE PAYMENTS ARE INTEREST,
DIVIDENDS OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041(a),
6045 and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to payers
(such as the Exchange Agent) who must report the payments to the IRS. The IRS
uses the numbers for identification purposes. Payers must be given the numbers
whether or not recipients are required to file tax returns. Beginning January
1, 1984, payers must generally withhold 31% of taxable interest, dividend and
certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX ADVISOR OR THE INTERNAL REVENUE
SERVICE.
16
