-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FB27tUjSzSF2z8L8eGCnBnwme9UBSLxSOMKJk0RxsVZAY4/lrSEdb5ecNve2NZ3r z9877os5X7wwXgze2auoZw== 0000950134-98-002159.txt : 19980323 0000950134-98-002159.hdr.sgml : 19980323 ACCESSION NUMBER: 0000950134-98-002159 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980319 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELO A H CORP CENTRAL INDEX KEY: 0000356080 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 750135890 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 002-74702 FILM NUMBER: 98569237 BUSINESS ADDRESS: STREET 1: 400 S RECORD ST STREET 2: COMMUNICATIONS CENTER CITY: DALLAS STATE: TX ZIP: 75202 BUSINESS PHONE: 2149776600 MAIL ADDRESS: STREET 1: P O BOX 655237 CITY: DALLAS STATE: TX ZIP: 75265 10-K405 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1997 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 1-8598 A. H. BELO CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 75-0135890 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P. O. BOX 655237 DALLAS, TEXAS 75265-5237 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 977-6606 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED SERIES A COMMON STOCK, $1.67 PAR VALUE NEW YORK STOCK EXCHANGE PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: SERIES B COMMON STOCK, $1.67 PAR VALUE -------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the registrant's voting stock held by nonaffiliates on January 30, 1998, based on the closing price for the registrant's Series A Common Stock on such date as reported on the New York Stock Exchange, was approximately $2,985,680,000. * Shares of Common Stock outstanding at January 30, 1998: 62,347,236 shares. (Consisting of 53,083,301 shares of Series A Common Stock and 9,263,935 shares of Series B Common Stock.) * For purposes of this calculation, the market value of a share of Series B Common Stock was assumed to be the same as the share of Series A Common Stock into which it is convertible. Documents incorporated by reference: Portions of the registrant's Proxy Statement relating to the Annual Meeting of Shareholders to be held May 13, 1998 are incorporated by reference into Part III (Items 10, 11, 12 and 13). 2 A. H. BELO CORPORATION FORM 10-K TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.......................................................................................... 1 Item 2. Properties........................................................................................ 7 Item 3. Legal Proceedings................................................................................. 7 Item 4. Submission of Matters to a Vote of Security Holders............................................... 7 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................. 8 Item 6. Selected Financial Data........................................................................... 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 10 Item 7A. Quantitative and Qualitative Disclosures about Market Risks....................................... 17 Item 8. Financial Statements and Supplementary Data (see Index to Financial Statements below)............. 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............. 18 PART III Item 10. Directors and Executive Officers of the Registrant................................................ 18 Item 11. Executive Compensation............................................................................ 18 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................... 18 Item 13. Certain Relationships and Related Transactions.................................................... 18 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................... 18 Signatures .................................................................................................. 22 INDEX TO FINANCIAL STATEMENTS Report of Independent Auditors............................................................................... 24 Consolidated Statements of Earnings for the Years Ended December 31, 1997, 1996 and 1995..................... 25 Consolidated Balance Sheets as of December 31, 1997 and 1996................................................. 26 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1997, 1996 and 1995 ................................................................................................. 28 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995................... 29 Notes to Consolidated Financial Statements................................................................... 30 Management's Responsibility for Financial Statements......................................................... 42
3 PART I ITEM 1. BUSINESS A. H. Belo Corporation (the "Company" or "Belo") is one of the nation's largest media companies, with a diversified group of television broadcasting, newspaper publishing, cable news and electronic media assets. The Company's group of 17 television stations currently reaches 14.2 percent of U.S. television households. In addition, the Company manages four television stations through local marketing agreements ("LMA") and owns three local or regional cable news channels. Three of the Company's television stations are located in major metropolitan areas which are among the fastest growing in the country: WFAA (ABC) in Dallas-Fort Worth, KHOU (CBS) in Houston and KING (NBC) in Seattle-Tacoma. Belo has three stations in the top 12 television markets, seven stations in the top 30 markets, 12 stations in the top 50 markets, and network affiliations as follows: four ABC affiliates, six CBS affiliates, five NBC affiliates and two FOX affiliates. Thirteen of the Company's 17 stations are ranked either number one or two in overall sign-on/sign-off audience delivery. Belo's Publishing Division is headed by The Dallas Morning News, which has the country's eighth-largest Sunday circulation and ninth-largest daily circulation, and the Providence Journal-Bulletin, the leading newspaper in terms of both advertising and circulation in Rhode Island and southeastern Massachusetts. During 1997, Belo increased its ownership interest in The Press-Enterprise ("P-E"), a daily newspaper serving Riverside, California, from 38.45 percent to 100 percent. Belo's other daily newspapers are the Messenger-Inquirer in Owensboro, Kentucky; The Eagle in Bryan-College Station, Texas; and The Gleaner in Henderson, Kentucky. The Company also publishes the Arlington Morning News and eight community newspapers in the Dallas-Fort Worth suburban area and operates a commercial printing business. The Dallas Morning News is one of the leading newspaper franchises in America. The Dallas Morning News' success is founded upon the highest standards of journalistic excellence, with a special emphasis on local news, information and community service. The newspaper's reporting and editorial initiatives have earned six Pulitzer Prizes since 1986. The Providence Journal-Bulletin also has a long history of journalistic excellence and service to its community. It is America's oldest major daily newspaper of general circulation and continuous publication. The Providence Journal-Bulletin has earned four Pulitzer Prizes during its 168-year history. The Company believes the success of its media franchises is built upon providing local news, information and community service of the highest caliber. These principles have attracted and built relationships with viewers, readers and advertisers and have guided the Company's success for 156 years. Note 12 to the Consolidated Financial Statements contains information about the Company's industry segments for the years ended December 31, 1997, 1996 and 1995. TELEVISION BROADCASTING The Company's television broadcasting operations began in 1950 with the acquisition of WFAA in Dallas-Fort Worth shortly after the station commenced operations. In 1984, the Company expanded its television broadcast operations with the purchase of stations in Houston, Sacramento, Hampton-Norfolk and Tulsa. In June 1994 and February 1995, the Company acquired stations in New Orleans and Seattle, respectively. The Providence Journal Company ("PJC") acquisition in February 1997 added nine television stations, including the top-ranked NBC- affiliated KING-TV in Seattle, Washington. In accordance with Federal Communications Commission ("FCC" or "Commission") regulations prohibiting ownership of two or more stations in a single market, Belo exchanged its United Paramount Network ("UPN") affiliate, KIRO-TV in Seattle, for CBS affiliate KMOV-TV in St. Louis, Missouri, in June 1997. In October 1997, Belo acquired CBS affiliate KENS-TV in San Antonio, Texas. 4 The following table sets forth information for each of the Company's stations and their markets:
NUMBER OF STATION COMMERCIAL STATION AUDIENCE MARKET YEAR NETWORK STATIONS IN RANK IN SHARE IN MARKET RANK(1) STATION ACQUIRED AFFILIATION CHANNEL MARKET(2) MARKET(3) MARKET(4) ------ ------- ------- -------- ----------- ------- --------- --------- --------- Dallas-Fort Worth... 8 WFAA-TV 1950 ABC 8 14 1 17 Houston............. 11 KHOU-TV 1984 CBS 11 14 2* 14 Seattle-Tacoma...... 12 KING-TV 1997 NBC 5 9 1 18 Sacramento.......... 20 KXTV 1984 ABC 10 9 2* 13 St. Louis........... 21 KMOV-TV 1997 CBS 4 7 2 18 Portland............ 24 KGW-TV 1997 NBC 8 8 1* 15 Charlotte........... 28 WCNC-TV 1997 NBC 36 8 3 9 San Antonio......... 38 KENS-TV 1997 CBS 5 7 2* 13 Hampton-Norfolk..... 39 WVEC-TV 1984 ABC 13 7 1* 16 New Orleans......... 41 WWL-TV 1994 CBS 4 8 1 22 Albuquerque......... 48 KASA-TV 1997 FOX 2 6 4 8 Louisville.......... 50 WHAS-TV 1997 ABC 11 6 3 16 Tulsa............... 58 KOTV 1984 CBS 6 8 1* 20 Honolulu............ 71 KHNL-TV 1997 NBC 13 8 2* 13 Spokane............. 73 KREM-TV 1997 CBS 2 5 2* 16 Tucson.............. 78 KMSB-TV 1997 FOX 11 7 4 7 Boise............... 125 KTVB-TV 1997 NBC 7 5 1 27
- --------------- * Tied with one or more other stations in the market. (1) Market rank is based on the relative size of the television market, or Designated Market Area ("DMA"), among the 211 generally recognized DMAs in the United States, based on November 1997 Nielsen estimates. (2) Represents the number of television stations (both VHF and UHF) broadcasting in the market, excluding public stations and national cable channels. (3) Station rank is derived from the station's rating, which is based on November 1997 Nielsen estimates of the number of television households tuned to the Company's station for the Sunday-Saturday 7:00 a.m. to 1:00 a.m. period ("sign-on/sign-off") as a percentage of the number of television households in the market. (4) Station audience share is based on November 1997 Nielsen estimates of the number of television households tuned to the Company's station as a percentage of the number of television households with sets in use in the market for the sign-on/sign-off period. Generally, rates for national and local spot advertising sold by the Company are determined by each station, which receives all of the revenues, net of agency commissions, for that advertising. Rates are influenced both by the demand for advertising time and the popularity of the station's programming. Commercial television stations generally fall into one of three categories. The first category of stations includes those affiliated with one of the three major national networks (ABC, CBS and NBC), and in recent years, FOX has effectively evolved into a fourth major network. The second category is comprised of stations affiliated with newer national networks, such as UPN and the Warner Brothers ("WB") Television Network. The third category includes independent stations that are not affiliated with any network and rely principally on local and syndicated programming. Affiliation with a television network can have a significant influence on the revenues of a television station because the audience ratings generated by a network's programming can affect the rates at which a station can sell advertising time. The television networks compete for affiliations with licensed television stations through program commitments and local marketing support. From time to time, local television stations also solicit network affiliations on the basis of their ability to provide a network better access to a particular market. Each of the Company's network affiliation agreements provides the station with the right to broadcast all programs transmitted by the network with which the station is affiliated. In return, the network has the right to sell most of the advertising time during such broadcasts. Each station receives a specified amount of network compensation for broadcasting network programming. To the extent that a station's preemptions of network programming exceed a designated amount, that compensation may be reduced. These payments are also subject to decreases by the network during the term of an affiliation agreement under other circumstances, with provisions for advance notice and the right of termination by the station in the event of a reduction in such payments. The Company has long-term network affiliation agreements in place with ABC and CBS, and shorter-term agreements in 2 5 place with NBC and FOX. Final documentation of the ABC affiliation agreements has not been completed. However, the Company is currently compensated under the terms of the draft agreements with ABC. NEWSPAPER PUBLISHING The Company's principal newspaper, The Dallas Morning News, was established in 1885. In late 1991, after years of intense competition, The Dallas Morning News' principal newspaper competitor, the Dallas Times Herald, ceased operations, and the Company purchased its assets. In late 1995 and early 1996, the Company expanded its publishing division by acquiring daily newspapers serving Bryan-College Station, Texas and Owensboro, Kentucky. The Providence Journal-Bulletin was acquired in February 1997 and The Gleaner, serving Henderson, Kentucky, was acquired in March 1997. In July 1997, Belo completed the acquisition of The Press-Enterprise, a daily newspaper serving Riverside, California, in which Belo previously held a 38.45 percent equity interest. The following table sets forth information concerning the Company's daily newspaper operations:
1997 1996 ----------------------------- ----------------------------- DAILY SUNDAY DAILY SUNDAY NEWSPAPER LOCATION CIRCULATION(1) CIRCULATION(1) CIRCULATION(1) CIRCULATION(1) - ------------------------------- --------------------------- -------------- -------------- -------------- -------------- The Dallas Morning News Dallas, TX 517,215 789,004 513,099 785,934 Providence Journal-Bulletin Providence, RI 170,292 242,755 171,824 247,777 The Press-Enterprise Riverside, CA 162,551 170,478 160,004 166,745 Messenger-Inquirer Owensboro, KY 31,754 34,657 31,717 34,250 The Eagle Bryan-College Station, TX 21,939 27,358 21,336 26,948 The Gleaner Henderson, KY 11,247 13,476 11,292 13,667
(1) Average paid circulation for the six months ended September 30, 1997 and 1996, respectively, according to the Audit Bureau of Circulation's FAS-FAX report. Each of Belo's daily newspapers strives to serve community interests by maintaining a strong and independent voice in matters of public concern. It is the policy of the Company to allocate such resources as may be necessary to maintain excellence in news reporting and editorial comment in all of its newspaper publications. The Company's three largest newspapers, The Dallas Morning News, Providence Journal-Bulletin and The Press-Enterprise, provide coverage of local, state, national and international news. The Dallas Morning News is distributed throughout the Southwest, though its circulation is concentrated primarily in the 12 counties surrounding Dallas. The Providence Journal-Bulletin is the leading newspaper in Rhode Island and southeastern Massachusetts. The Press-Enterprise is distributed throughout Riverside County and the inland southern California area. Riverside County is expected to be among the fastest growing counties in California over the next decade. The basic material used in publishing Belo's newspapers is newsprint. During 1997, the Company's publishing operations consumed approximately 250,000 metric tons of newsprint at an average cost of $530 per metric ton. The average cost per ton of newsprint consumed in the previous year was approximately $660 per metric ton. The decrease in current year cost per ton was due to market-wide price decreases beginning in the second quarter of 1996. At present, newsprint is generally purchased from eight suppliers. In addition, Providence Journal-Bulletin and The Press-Enterprise purchased approximately 35 percent and 70 percent, respectively, of their newsprint from other suppliers under pre-existing contracts. These contracts provide for certain minimum purchases per year at rates commonly available throughout the region. Management believes its sources of newsprint, along with alternate sources that are available, are adequate for its current needs. COMPETITION The success of broadcast operations depends on a number of factors, including the general strength of the economy, the ability to provide attractive programming, audience ratings, relative cost efficiency for advertisers in reaching audiences as compared to other advertising media, technical capabilities and governmental regulations and policies. The Company's television broadcast stations compete for advertising revenues directly with other media such as newspapers (including those owned and operated by the Company), other television stations, direct satellite distribution, radio stations, cable television systems, outdoor advertising, magazines and direct mail advertising. 3 6 The four major national television networks are represented in each television market in which the Company has a television broadcast station. Competition for advertising sales and local viewers within each market is intense, particularly among the network-affiliated television stations. The entry of local telephone companies into the market for video programming services, as permitted under the Telecommunications Act of 1996 (the "1996 Act"), can be expected to have an impact on competition in the television industry. The Company is unable to predict the effect that these or other technological and related regulatory changes will have on the television industry or on the future results of the Company's operations. Each of the Company's daily newspapers compete for advertising with television and radio stations (including television stations owned and operated by the Company in overlapping markets), magazines, direct mail, cable television, direct satellite distribution, outdoor advertising and other newspapers. The Dallas Morning News' primary competitor in certain smaller cities located between Dallas and Fort Worth is the Fort Worth Star-Telegram. The Providence Journal-Bulletin and The Press-Enterprise each have five competing daily newspapers in the Rhode Island and Riverside County markets, respectively. REGULATION OF TELEVISION BROADCASTING The Company's television broadcasting operations are subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the "Act"). Among other things, the Act empowers the FCC to assign frequency bands; determine stations' frequencies, location and power; issue, renew, revoke and modify station licenses; regulate equipment used by stations; impose penalties for violation of the Act or of FCC regulations; impose fees for processing applications and other administrative functions; and adopt regulations to carry out the Act's provisions. The Act also prohibits the assignment of a broadcast license or the transfer of control of a broadcast licensee without prior FCC approval. Under the Act, the FCC also regulates certain aspects of the operation of cable television systems and other electronic media that compete with broadcast stations. The Act would prohibit the Company's subsidiaries from continuing as broadcast licensees if record ownership or power to vote more than one-fourth of the Company's stock were to be held by aliens, foreign governments or their representatives, or by corporations formed under the laws of foreign countries. The Act previously would have prohibited the Company's subsidiaries from continuing as broadcast licensees if any officer or more than one-fourth of the directors of the Company were aliens. The 1996 Act, however, eliminated the restriction on alien officers and directors. Prior to the passage of the 1996 Act, television broadcast licenses were granted for a period of five years. Renewal applications were granted without a hearing if there were no competing applications or issues raised by petitioners to deny such applications that would cause the FCC to order a hearing. If competing applications were filed, a full comparative hearing was required. Under the 1996 Act, the statutory restriction on the length of a broadcast term was amended to allow the FCC to grant broadcast licenses for terms of up to eight years. In January 1997, the FCC adopted specific procedures to extend broadcast license terms to the eight-year limit. The 1996 Act also requires renewal of a broadcast license if the FCC finds that (1) the station has served the public interest, convenience, and necessity; (2) there have been no serious violations of either the Act or the FCC's rules and regulations by the licensee; and (3) there have been no other violations of either the Act or the FCC's rules and regulations by the licensee which, taken together, constitute a pattern of abuse. In making its determination, the FCC cannot consider whether the public interest would be better served by a party other than the renewal applicant. Under the 1996 Act, competing applications for the same frequency may be accepted only after the Commission has denied an incumbent's application for renewal of license. An application for renewal of the broadcast license for KMOV, which expired on February 1, 1998, is pending before the FCC. The station's licenses are, by statute, continued in effect pending action on the renewal application. The current license expiration dates for each of the Company's other broadcast stations are as follows: KOTV, June 1, 1998; KENS, August 1, 1998; KHOU, August 1, 1998; WFAA, August 1, 1998; KASA, October 1, 1998; KMSB, October 1, 1998; KTVB, October 1, 1998; KXTV, December 1, 1998; KGW, February 1, 1999; KHNL, February 1, 1999; KING, February 1, 1999; KREM, February 1, 1999; WVEC, October 1, 2004; WCNC, December 1, 2004; WWL, June 1, 2005; and WHAS, August 1, 2005. 4 7 FCC ownership rules, as modified pursuant to the 1996 Act, limit the aggregate audience reach of television broadcast stations that may be under common ownership, operation and control, or in which a single person or entity may hold office or have more than a specified interest or percentage of voting power, to 35 percent of the total national audience. FCC rules also place certain limits on common ownership, operation and control of, or cognizable interests or voting power in, (a) broadcast stations serving the same area, (b) broadcast stations and daily newspapers serving the same area and (c) television broadcast stations and cable systems serving the same area. The 1996 Act left in place the FCC rule which prohibits common ownership of two television stations serving the same area, but directed the Commission to conduct a rulemaking proceeding to determine whether the restriction should be eliminated or modified. In addition, the 1996 Act eliminated a statutory prohibition against common ownership of television broadcast stations and cable systems serving the same area, but left the FCC rule in place. The 1996 Act stipulates that the FCC should not consider the repeal of this statutory ban in any review of its applicable rules. The 1996 Act also left in place the FCC rule which prohibits common ownership of a broadcast station and a daily newspaper serving the same area, but required the Commission to review this and all other cross-ownership rules biennially, beginning in 1998, to determine if they remain necessary. The FCC recently announced the beginning of the biennial review process, which will also include a review of a broad range of other rules affecting broadcasters. The Company's ownership of The Dallas Morning News and WFAA, which are both located in the Dallas-Fort Worth area, predates the adoption of the FCC's rules regarding newspaper/broadcast cross-ownership and was "grandfathered" by the FCC. The FCC ownership rules affect the number, type and location of newspaper, broadcast and cable television properties that the Company might acquire in the future. For example, under current FCC rules, the Company generally could not acquire any daily newspaper, broadcast or cable television properties in a market in which it now owns or has an interest deemed attributable under FCC rules in a television station. However, the FCC's rules and policies (as modified by the 1996 Act) provide that waivers of these restrictions generally would be available to permit the Company's acquisition of radio stations in any of the markets in which the Company currently owns television stations (other than Tulsa) or of "satellite" television stations located within a parent station's Grade B service contour which rebroadcasts all or most of the parent station's programming. The FCC has instituted proceedings looking toward possible relaxation of certain of its rules regulating television station ownership and changes in the standards used to determine what type of interests are considered to be attributable under its rules. For example, the FCC has initiated proceedings looking toward possible relaxation of its rules regulating the common ownership of two television stations. In addition, other parties have challenged the newspaper-television cross-ownership prohibition in court and in petitions to the FCC, and legislation to repeal that prohibition has been introduced in the U. S. Senate. The FCC has significantly reduced its 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 television 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 eliminated its rules that restricted network participation in program production and syndication. The FCC also eliminated the prime time access rule ("PTAR"), effective August 30, 1996. The PTAR limited the ability of some stations in the 50 largest television markets to broadcast network programming (including syndicated programming previously broadcast over a network) during prime time hours. The elimination of PTAR could increase the amount of network programming broadcast over a station affiliated with ABC, NBC or CBS. The U.S. Supreme Court refused to review a lower court decision that upheld FCC action invalidating most aspects of the Fairness Doctrine, which required broadcasters to present contrasting views on controversial issues of public importance. The FCC may, however, continue to regulate other aspects of fairness obligations in connection with certain types of broadcasts. 5 8 The FCC has adopted rules to implement the Children's Television Act of 1990, which, among other provisions, limits the permissible amount of commercial matter in children's television programs and requires each television station to present educational and informational children's programming. The Commission recently adopted stricter children's programming requirements, including a requirement that broadcasters provide a minimum of three hours of "core" children's educational programming per week. The FCC also has adopted various regulations to implement certain provisions of the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act") which, among other matters, includes provisions respecting the carriage of television stations' signals by cable television systems and requiring mid-license term review of television stations' equal employment opportunity practices. In March 1997, the Supreme Court upheld a statutory provision requiring cable systems to devote a specified portion of their channel capacity to the carriage of the signals of local television stations. Moreover, the 1992 Cable Act was amended in certain important respects by the 1996 Act. Most notably, the 1996 Act repealed the cross-ownership ban between cable and telephone entities and the FCC's video dial tone rules. These provisions, among others, foreshadow the possibility of significant future involvement by telephone companies in providing video services. In April 1997, the FCC adopted rules for implementing digital television ("DTV") service in the United States. Implementation of DTV will improve the technical quality of television signals received by viewers and will give television broadcasters the flexibility to provide new services, including high-definition television or multiple programs of standard definition television and data transmission. Under the FCC's recently adopted rules, all broadcasters who, as of April 3, 1997, held a license to operate a full-power television station or a construction permit for such a station will be assigned, for an eight-year transition period, a second channel on which to initially provide separate DTV programming or simulcast its analog programming. Stations must construct their DTV facilities and be on the air with a digital signal according to a schedule set by the FCC based on the type of station and the size of the market in which it is located. For example, all network affiliates in the 10 largest markets must be on the air with a digital signal by May 1, 1999. (Twenty-four stations in the top 10 markets, however, including WFAA, have voluntarily committed in writing to the FCC to build DTV facilities by November 1, 1998.) Affiliates in the top 30 markets must be transmitting digital signals by November 1999 and all other commercial broadcasters must follow suit by 2002. At the end of the transition period, analog television transmissions will cease, and DTV channels will be reassigned to a smaller segment of the broadcasting spectrum. It is likely that some of the vacated spectrum will be allocated to public safety, while the remainder will be auctioned for use by other telecommunication services. The FCC hopes to complete the full transition to DTV by 2006. Local zoning laws and the lack of qualified tall-tower builders to construct the facilities needed for DTV operations, among other factors, may cause delays in this transition. The FCC is currently considering a rule which would set strict time limits within which local zoning authorities must act on zoning petitions by local television stations. The Commission has announced that it will review the progress of DTV every two years and make adjustments to the 2006 target date, if necessary. The foregoing does not purport to be a complete summary of all the provisions of the Act or the regulations and policies of the FCC thereunder. 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. The Company cannot predict the effect of existing and proposed federal legislation, regulations and policies on its broadcast business. Also, various of the foregoing matters are now, or may become, the subject of court litigation, and the Company cannot predict the outcome of any such litigation or the impact on its broadcast business. EMPLOYEES As of December 31, 1997, the Company had 6,760 full-time employees. The Company has 966 employees who are represented by various employee unions. The majority of these employees are located in Providence, Rhode Island, with the remaining union employees working at various broadcast television stations. The Company believes its relations with its employees are satisfactory. 6 9 ITEM 2. PROPERTIES At December 31, 1997, the Company owned broadcast operating facilities in the following U. S. cities: Dallas, Texas (WFAA); Houston, Texas (KHOU); Seattle, Washington (KING); Sacramento, California (KXTV); Portland, Oregon (KGW); Charlotte, North Carolina (WCNC); San Antonio, Texas (KENS); Hampton-Norfolk, Virginia (WVEC); New Orleans, Louisiana (WWL); Albuquerque, New Mexico (KASA); Louisville, Kentucky (WHAS); Tulsa, Oklahoma (KOTV); Spokane, Washington (KREM); Tucson, Arizona (KMSB); and Boise, Idaho (KTVB). The Company also leases broadcast facilities for the operations of KMOV in St. Louis, Missouri and KHNL in Honolulu, Hawaii. Four of the Company's broadcast facilities use broadcast towers that are jointly owned with another network-affiliated television station in the same market (WFAA, KXTV, KENS and KOTV). The broadcast towers associated with the Company's other television stations are wholly owned by the Company. The Company leases a facility in Washington, D.C. that is used by its broadcasting and publishing operations for the gathering and distribution of news from the nation's capital. This facility includes a broadcast studio as well as general office space. The Company owns and operates a newspaper printing facility and distribution center in Plano, Texas in which eight high-speed offset presses are housed to print The Dallas Morning News. Certain other operations of The Dallas Morning News are housed in a Company-owned five-story building in downtown Dallas, which is equipped with computerized input and photocomposition equipment and other equipment that is used in the production of both news and advertising copy. The Company also owns and operates a newspaper printing facility in Providence, Rhode Island, in which three high-speed flexographic presses are housed to print the Providence Journal-Bulletin. The remainder of the Providence Journal-Bulletin's operations is housed in an historic Company-owned five-story building in downtown Providence. This facility is equipped with computerized input and photocomposition equipment and other equipment that is used in the production of both news and advertising copy. The Company owns and operates a newspaper publishing facility, a commercial printing facility and various other properties in southern California. The newspaper publishing facility is located in downtown Riverside, California and is equipped with three high-speed offset presses to print The Press-Enterprise. This facility also contains computerized input and photocomposition equipment and other equipment that is used in the production of both news and advertising copy. The Company owns other newspaper production facilities in Owensboro and Henderson, Kentucky and Bryan-College Station, Texas. The Company's corporate operations, several departments of The Dallas Morning News and certain broadcast administrative functions have offices located in downtown Dallas in a 17-story office building owned by the Company. All of the foregoing operations have additional leasehold and other interests that are used in their respective activities. The Company believes its properties are in satisfactory condition and are well maintained, and that such properties are adequate for present operations. ITEM 3. LEGAL PROCEEDINGS There are legal proceedings pending against the Company, including a number of actions for alleged libel and slander. In the opinion of management, liabilities, if any, arising from these actions would not have a material adverse effect on the consolidated results of operations or financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of shareholders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year covered by this Form 10-K. 7 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's authorized common equity consists of 150,000,000 shares of Common Stock, par value $1.67 per share. The Company has two series of Common Stock outstanding, Series A and Series B. Shares of the two series are identical in all respects except that Series B shares are entitled to 10 votes per share on all matters submitted to a vote of shareholders, while the Series A shares are entitled to one vote per share. Transferability of the Series B shares is limited to family members and affiliated entities of the holder, and Series B shares are convertible at any time on a one-for-one basis into Series A shares. Shares of the Company's Series A Common Stock are traded on the New York Stock Exchange (NYSE symbol: BLC). There is no established public trading market for shares of Series B Common Stock. The Company has also issued certain Preferred Stock Purchase Rights that accompany the outstanding shares of the Company's Common Stock. See Note 8 of the Notes to Consolidated Financial Statements. The following table lists the high and low trading prices and the closing prices for Series A Common Stock as reported on the New York Stock Exchange for each of the quarterly periods in the last two years.
- ---------------------------------------------------------------------------------------- HIGH LOW CLOSE DIVIDENDS - ---------------------------------------------------------------------------------------- 1997 Fourth Quarter $56 1/8 $45 $56 1/8 $.11 Third Quarter $51 1/4 $41 1/16 $48 1/2 $.11 Second Quarter $43 $34 1/8 $41 5/8 $.11 First Quarter $39 1/2 $33 1/4 $36 7/8 $.11 - ---------------------------------------------------------------------------------------- 1996 Fourth Quarter $40 $33 3/4 $34 7/8 $.11 Third Quarter $41 3/4 $33 5/8 $34 1/2 $.11 Second Quarter $39 7/8 $32 5/8 $37 1/4 $.11 First Quarter $37 3/8 $31 $34 $.08 - ----------------------------------------------------------------------------------------
On January 30, 1998, the closing price for the Company's Series A Common Stock, as reported on the New York Stock Exchange, was $53 11/16. The approximate number of shareholders of record of the Series A and Series B Common Stock at the close of business on such date was 870 and 492, respectively. 8 11 ITEM 6. SELECTED FINANCIAL DATA The following table presents selected financial data of the Company for each of the five years in the period ending December 31, 1997. For a more complete understanding of this selected financial data, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8. "Financial Statements and Supplementary Data," including the Notes thereto.
- --------------------------------------------------------------------------------------------------------------------------------- In thousands, except per share amounts 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------------- Broadcasting revenues (a) $ 536,737 $ 333,396 $ 322,642 $ 258,040 $ 209,083 Newspaper publishing revenues (b) 693,777 487,242 409,099 369,366 335,651 Other (c) 17,867 3,670 3,602 719 101 - --------------------------------------------------------------------------------------------------------------------------------- Net operating revenues $1,248,381 $ 824,308 $ 735,343 $ 628,125 $ 544,835 ========== ========== ========== ========== ========== Net earnings (d) $ 82,972 $ 87,505 $ 66,576 $ 68,867 $ 51,077 ========== ========== ========== ========== ========== Per share amounts (e): Basic earnings per share $ 1.43 $ 2.14 $ 1.71 $ 1.73 $ 1.28 Diluted earnings per share $ 1.42 $ 2.11 $ 1.68 $ 1.70 $ 1.26 Cash dividends declared $ .44 $ .41 $ .315 $ .30 $ .28 Other data: Segment operating cash flow (f): Broadcasting $ 216,654 $ 122,837 $ 121,716 $ 106,396 $ 83,356 Newspaper publishing $ 206,440 $ 128,118 $ 90,915 $ 87,284 $ 61,667 Segment operating cash flow margins: Broadcasting 40.4% 36.8% 37.7% 41.2% 39.9% Newspaper publishing 29.8% 26.3% 22.2% 23.6% 18.4% - --------------------------------------------------------------------------------------------------------------------------------- Total assets (a) (b) $3,622,954 $1,224,072 $1,154,022 $ 913,791 $ 796,156 Long-term debt (g) $1,614,045 $ 631,857 $ 557,400 $ 330,400 $ 277,400 - ---------------------------------------------------------------------------------------------------------------------------------
(a) The Company purchased WWL in June 1994, KIRO in February 1995, nine television stations as part of the PJC acquisition in February 1997 and KENS in October 1997. KMOV was acquired in exchange for KIRO in June 1997. (b) The Company purchased The Eagle in December 1995, the Messenger-Inquirer in January 1996, the Providence Journal-Bulletin in February 1997, The Gleaner in March 1997, and increased its ownership in The Press-Enterprise to 100 percent in July 1997. (c) "Other" includes revenues associated with the Company's television production subsidiary and a programming distribution partnership. The Company sold its interest in the partnership in February 1996. Beginning in March 1997, "Other" also includes certain cable news operations, a cable network and electronic media assets acquired in connection with the PJC transaction. The cable network was subsequently disposed of and its operations are excluded effective July 1, 1997. (d) Net earnings for 1993 include an increase of $6,599 (16 cents per share) representing the cumulative effect of adopting Statement of Financial Accounting Standards ("FAS") No. 109, "Accounting for Income Taxes," effective January 1, 1993. (e) In accordance with FAS No. 128, basic earnings per share ("EPS") is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding, while diluted EPS assumes the conversion of all dilutive securities. All periods presented have been restated to reflect the retroactive application of FAS No. 128. (f) Operating cash flow is defined as segment earnings from operations plus depreciation and amortization. Operating cash flow is used in the broadcasting and publishing industries to analyze and compare companies on the basis of operating performance, leverage and liquidity. However, operating cash flow should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Operating cash flow for "Other" and "Corporate" are not included herein. See Note 12 of Notes to Consolidated Financial Statements. (g) Long-term debt increased in 1997 as the Company borrowed $1,100,545 to finance various acquisitions. 9 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company is an owner and operator of 17 network-affiliated television stations and an established publisher of six daily newspapers. The following table sets forth the Company's major media assets by segment as of December 31, 1997:
- --------------------------- ------------------ -------------- ------------- -------------- ---------------------------- BROADCASTING - --------------------------- ------------------ -------------- ------------- -------------- ---------------------------- NETWORK MARKET MARKET RANK (a) STATION AFFILIATION STATUS ACQUIRED - --------------------------- ------------------ -------------- ------------- -------------- ---------------------------- Dallas-Fort Worth 8 WFAA ABC Owned March 1950 Houston 11 KHOU CBS Owned February 1984 Seattle-Tacoma 12 KING NBC Owned February 1997 Seattle-Tacoma 12 KONG IND LMA February 1997(b) Sacramento 20 KXTV ABC Owned February 1984 St. Louis 21 KMOV CBS Owned June 1997 Portland 24 KGW NBC Owned February 1997 Charlotte 28 WCNC NBC Owned February 1997 San Antonio 38 KENS CBS Owned October 1997 Hampton-Norfolk 39 WVEC ABC Owned February 1984 New Orleans 41 WWL CBS Owned June 1994 Albuquerque 48 KASA FOX Owned February 1997 Louisville 50 WHAS ABC Owned February 1997 Tulsa 58 KOTV CBS Owned February 1984 Honolulu 71 KHNL NBC Owned February 1997 Honolulu 71 KFVE UPN LMA February 1997 Spokane 73 KREM CBS Owned February 1997 Spokane 73 KSKN UPN LMA February 1997 Tucson 78 KMSB FOX Owned February 1997 Tucson 78 KTTU UPN LMA February 1997 Boise 125 KTVB NBC Owned February 1997 - --------------------------- ------------------ -------------- ------------- -------------- ----------------------------
- ------------------------------------ ------------------------------ ------------------ --------------- ---------------- NEWSPAPER PUBLISHING - ------------------------------------ ------------------------------ ------------------ --------------- ---------------- DAILY SUNDAY NEWSPAPER LOCATION ACQUIRED CIRCULATION(d) CIRCULATION(d) - ------------------------------------ ------------------------------ ------------------ --------------- ---------------- The Dallas Morning News Dallas, TX (c) 517,215 789,004 Providence Journal-Bulletin Providence, RI February 1997 170,292 242,755 The Press-Enterprise Riverside, CA July 1997 162,551 170,478 Messenger-Inquirer Owensboro, KY January 1996 31,754 34,657 The Eagle Bryan-College Station, TX December 1995 21,939 27,358 The Gleaner Henderson, KY March 1997 11,247 13,476 - ------------------------------------ ------------------------------ ------------------ --------------- ----------------
- ---------------------------------- ------------------------------------------------------------------------------------ OTHER - ---------------------------------- ------------------------------------------------------------------------------------ COMPANY DESCRIPTION - ---------------------------------- ------------------------------------------------------------------------------------ Belo Productions, Inc. Produces television programming Northwest Cable News Cable news network distributed to approximately 2 million homes in the Pacific Northwest Dallasnews.com Web site featuring daily content from The Dallas Morning News Projo.com Web site featuring daily content from the Providence Journal-Bulletin - ---------------------------------- ------------------------------------------------------------------------------------
(a) Market rank is based on the relative size of the television market, or Designated Market Area ("DMA"), among the 211 generally recognized DMAs in the United States, based on November 1997 Nielsen estimates. (b) The KONG local marketing agreement ("LMA") license was acquired in connection with the February 1997 acquisition of PJC; however, operations of KONG did not commence until July 1997. (c) The first issue of The Dallas Morning News was published October 1, 1885. (d) Average paid circulation for the six months ending September 30, 1997, according to the Audit Bureau of Circulation's FAS-FAX report. 10 13 The Company depends on advertising as its principal source of revenues. As a result, the Company's operations are sensitive to changes in the economy, particularly in the Dallas-Fort Worth metropolitan area, where two of its largest properties are located. The Company also derives revenues, to a much lesser extent, from the sale of newspapers and from compensation paid by the networks to its television stations for broadcasting network programming. All references herein to broadcast operating cash flow or newspaper publishing operating cash flow refer to segment earnings from operations plus depreciation and amortization, as defined in Item 6. "Selected Financial Data." Operating cash flow as defined should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Statements in Items 7 and 7A and elsewhere in this Annual Report on Form 10-K concerning the Company's business outlook or future economic performance, anticipated profitability, revenues, expenses, capital expenditures or other financial items, together with the Year 2000 impact and other statements that are not historical facts, are "forward-looking statements" as that term is defined under applicable Federal Securities Laws. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those statements. Such risks, uncertainties and factors include, but are not limited to, changes in advertising demand, interest rates and newsprint prices; technological changes; development of Internet commerce; industry cycles; changes in pricing or other actions by competitors and suppliers; regulatory changes; the effects of Company acquisitions and dispositions; and general economic conditions, as well as other risks detailed in the Company's filings with the Securities and Exchange Commission ("SEC"), including this Annual Report on Form 10-K. RESULTS OF OPERATIONS (dollars in thousands, except per share amounts) 1997 COMPARED TO 1996 Results for 1997 include the results of operations of the companies acquired during 1997, as follows: The Providence Journal Company ("PJC") beginning March 1, 1997; The Gleaner, a daily newspaper serving Henderson, Kentucky, effective April 1, 1997; The Press-Enterprise, a daily newspaper serving Riverside, California, beginning August 1, 1997; the effect of the KIRO/KMOV exchange, which closed on June 2, 1997; and KENS-TV in San Antonio, Texas, beginning October 15, 1997. Results also include the operations of the Television Food Network ("TVFN") through June 30, 1997, at which time plans were initiated to divest the Company's ownership interest in TVFN. The Company acquired its interest in TVFN through the PJC acquisition. Consolidated results The Company recorded net earnings for 1997 of $82,972 or $1.42 per share, compared to $87,505 or $2.11 per share in 1996. Results for 1996 included a net gain of $3,895 (6 cents per share) on the sale of Maxam Entertainment, a programming distribution partnership, to CBS. Net earnings and earnings per share for 1997 have been diluted by the amortization of intangibles, increased interest expense and an increase in shares outstanding as a result of the Company's acquisitions during 1997 as described above. Depreciation and amortization expense in 1997 was $134,993 compared to $65,183 in 1996. The majority of the current year increase is due to the PJC acquisition in February. Amortization of intangibles associated with PJC was approximately $39,024 for the year while additional depreciation expense due to the step-up in fixed asset basis was $4,729 in 1997. Interest expense for 1997 was $90,778 compared to $27,643 in 1996. Total borrowings for current year acquisitions were $1,100,545, a significant portion of which related to the PJC acquisition. Also contributing to the increase in 1997 interest expense was the additional debt associated with fourth quarter 1996 share repurchases of $306,146. In addition, during 1997 the Company converted $1 billion in revolving debt to fixed-rate debt to reduce the Company's exposure to interest rate risk. As a result, weighted average interest rates for 1997 increased to 6.6 percent from 5.7 percent in 1996. 11 14 The effective tax rate for 1997 was 46.2 percent compared to 39.2 percent in 1996. The increase in the effective rate in 1997 was due primarily to the amortization of nondeductible goodwill and higher state taxes, both of which were a result of the PJC acquisition. Segment results of operations To enhance comparability of the Company's segment results of operations for the years ended December 31, 1997 and 1996, certain information below is presented on an "as adjusted" basis and includes the acquisitions of PJC, The Gleaner, The Press-Enterprise, and KENS-TV and reflects the KIRO/KMOV exchange as though each had occurred at the beginning of the respective periods presented. The "as adjusted" amounts exclude TVFN, which was acquired from PJC but subsequently disposed of in connection with the KENS acquisition.
As Adjusted As Reported ------------------------------------ ---------------------------------------- Year ended December 31, 1997 1996 % change 1997 1996 % change - ----------------------------- ----------- ----------- ------------ --- ------------ ------------- ------------- Net Operating Revenues: Broadcasting $580,908 $560,759 3.6% $536,737 $333,396 61.0% Newspaper publishing 769,972 718,085 7.2% 693,777 487,242 42.4% Other 9,926 6,650 49.3% 17,867 3,670 * Operating Cash Flow: Broadcasting $235,375 $226,044 4.1% $216,654 $122,837 76.4% Newspaper publishing 219,591 165,277 32.9% 206,440 128,118 61.1% Other (4,159) (4,670) 10.9% (9,214) (1,038) * - ----------------------------- ----------- ----------- ------------ --- ------------ ------------- -------------
*Not meaningful. The discussion that follows compares segment operations on an "as adjusted" basis only. Broadcasting Broadcasting revenues in 1997 of $580,908 were $20,149 higher than 1996 broadcasting revenues of $560,759, an increase of 3.6 percent. Local and national spot revenues combined for an increase of $41,011 while political advertising revenues were down $24,636 compared to the prior year. Local revenues were 8.4 percent higher in 1997 compared to 1996, with increases in each of Belo's television markets with the exception of New Orleans and Honolulu, where local economic conditions were generally unfavorable throughout 1997. Of the 15 stations recording local revenue increases, 13 had increases of 5 percent or more and six were up 10 percent or more. The largest local revenue increases were in Seattle, Dallas, Houston, St. Louis, Sacramento, Portland and Louisville, due largely to strong ratings, market growth and substantial automotive advertising. National revenues in 1997 were 9.1 percent higher than 1996 revenues, with 10 of Belo's television stations recording increases ranging from 8.1 percent to 22.6 percent. The most significant growth in national revenues occurred in the Dallas, Seattle, Portland, Houston, St. Louis and San Antonio markets. Much of this growth was due to automotive, communications and financial advertising. Political revenues in 1997 decreased significantly from those in 1996, a Presidential election year that also included Senate races in Texas and California and several local and state political issues. Belo's broadcasting division is comprised of six CBS affiliates, five NBC affiliates, four ABC affiliates and two FOX stations. Additionally, the top three Belo stations are each associated with a different national network (ABC in Dallas, CBS in Houston and NBC in Seattle). This unique network balance allows Belo to have stable revenues despite variations in network performance, such as with prime-time programming and special events like the Olympics and the Superbowl. Year-to-year spot revenue increases by affiliate group were as follows: ABC, 6.1 percent; CBS, 1.1 percent; and NBC, 2.5 percent. 12 15 Broadcast operating cash flow for 1997 was $235,375, an increase of 4.1 percent over 1996 operating cash flow of $226,044. Operating cash flow margins grew slightly to 40.5 percent in 1997 compared to 40.3 percent in 1996. Revenues increased 3.6 percent, while cash expenses increased 3.2 percent. Salaries, wages and employee benefits expense was up 4.3 percent due to a greater number of employees, normal merit increases and higher bonuses. Programming expenses were 3.6 percent higher in 1997 due to increased rates for certain first-run programming. These increases were offset by savings of 8 percent in advertising and promotion expense, due to several significant advertising campaigns in 1996 that were not repeated in 1997. Newspaper publishing Newspaper publishing revenues increased 7.2 percent in 1997. Revenues were up at The Dallas Morning News ("TDMN") by 7.5 percent. Providence Journal-Bulletin ("PJB") revenues improved 7.8 percent while The Press-Enterprise ("P-E") revenues were up 6.7 percent. Advertising revenues comprised 84 percent of total 1997 newspaper publishing revenues while circulation contributed 13 percent. Commercial printing contributed most of the remainder. Newspaper advertising volume is measured in column inches. Volume for TDMN and PJB was as follows (in thousands):
TDMN PJB ---------------------------------- ---------------------------------- Years ended December 31, 1997 1996 1997 1996 - -------------------------------------------- ----------------- ---------------- ---------------- ----------------- Full-run ROP inches (1): Classified 2,053 2,057 548 527 Retail 1,485 1,435 754 730 General 327 296 74 70 ----- ----- ----- ----- Total 3,865 3,788 1,376 1,327 - -------------------------------------------- ----------------- ---------------- ---------------- -----------------
(1) Full-run ROP inches refers to the number of column inches of display and classified advertising that is printed and distributed in all editions of the newspaper. During the periods indicated above, TDMN ran more full-run ROP advertising than any other newspaper in the United States, according to Competitive Media Reporting. Classified advertising revenue at TDMN increased 11.2 percent despite relatively flat volumes, due to higher average rates. Employment advertising led the improvement in classified over last year with increases in both volume and rate, while automotive and real estate advertising had higher rates but lower volumes. Retail advertising at TDMN increased 7.7 percent due to a 3.5 percent increase in volume combined with a 4.1 percent increase in average rates. A 7.9 percent increase in general advertising revenue was driven by a 10.5 percent volume increase, primarily in the technology category, slightly offset by lower average rates. While year-to-year circulation volumes were relatively unchanged, circulation revenue at TDMN was down 3.4 percent due to changes in circulation mix between home delivery and single-copy sales. Advertising revenues at PJB increased 8.1 percent due to across-the-board rate increases effective January 1, 1997, PJB's first rate increases since October 1, 1995. Classified revenues in 1997 increased 12.5 percent over the prior year, due primarily to the rate increases in the employment and automotive categories. Volumes were also up 4 percent in classified advertising. Retail advertising revenues were 11.6 percent higher than last year, due to the higher rates and to a lesser extent, increased volumes of 3.3 percent. On average, retail rates were up 9.6 percent over last year. Contributing to the volume gains in 1997 were improvements in automotive and telecommunication advertising and gains from a new monthly Health & Fitness section. General advertising revenue was down slightly from last year as airline advertising, which was significant in 1996 due to the opening of a new airport in Providence, was replaced in 1997 by lower-rate automotive advertising. Circulation revenue for PJB was up slightly due to increases in Sunday prices in February 1996 and daily home delivery prices in January 1997, which were offset by volume declines of 1 percent and 2.4 percent for daily and Sunday, respectively. The majority of P-E's 1997 revenue improvement over 1996 was attributable to classified advertising, which was up 11.8 percent due to higher rates, offset somewhat by a reduction in volume. Circulation revenues for P-E were up 2.6 percent due to both rate and volume increases over last year. 13 16 Operating cash flow for newspaper publishing was $219,591 in 1997 and $165,277 in 1996, resulting in operating cash flow margins of 28.5 percent and 23 percent, respectively. The 32.9 percent increase in operating cash flow and corresponding improvement in operating cash flow margin were due to the 7.2 percent increase in revenues while cash expenses were substantially unchanged. Newsprint, ink and other supplies expense was 13.5 percent lower than last year, due primarily to lower prices for newsprint, offset somewhat by increased consumption. Salaries, wages and employee benefits expense in 1997 was 4 percent higher due to a greater number of employees and merit increases. Other operating expenses were up 10.5 percent over last year due to increases in distribution expenses, outside services, features and news services, solicitation fees, advertising and promotion, and bad debt expense. 1996 COMPARED TO 1995 Consolidated results The Company recorded 1996 net earnings of $87,505 or $2.11 per share, compared to $66,576 or $1.68 per share in 1995. Excluding non-recurring items in both periods, adjusted earnings per share were $2.05 for 1996 compared to $1.66 in 1995. Depreciation and amortization expense for 1996 was $65,183 compared to $59,447 in 1995. Expense was higher in 1996 due to the full-year effect of amortization of goodwill and intangibles and depreciation expense associated with the acquisitions of KIRO-TV in February 1995, The Eagle in December 1995 and the Messenger-Inquirer in January 1996. Interest expense in 1996 was $27,643 compared to $29,987 in 1995. The decrease in interest expense was primarily due to lower average rates, which were approximately 5.7 percent for 1996 compared to 6.3 percent in 1995. Average debt outstanding for the year was slightly lower than in 1995 as well. Belo used the proceeds from its May 1996 equity offering to retire approximately $198,500 in revolving debt. However, borrowings increased substantially during the fourth quarter of 1996 as Belo purchased 8,321,700 shares of treasury stock for an aggregate purchase price of $306,146. The effective tax rates for 1996 and 1995 of 39.2 percent and 40 percent, respectively, were substantially unchanged. Broadcasting Broadcast revenues in 1996 were $333,396, an increase of 3.3 percent over 1995 revenues of $322,642. Results for 1995 included only 11 months of revenue for KIRO-TV, which was purchased on February 1, 1995. On a same-station basis, 1996 revenues increased 2.5 percent over 1995. The increase in 1996 broadcast revenues over the prior year was primarily due to political advertising associated with the Presidential election, Senate races in Texas and California and issues advertising. Local advertising revenues also improved over 1995 due primarily to a contract between the Seattle Mariners and UPN affiliate KIRO. Both local and national revenues were up at WWL in New Orleans, as advertisers favored this long-established market leader when other stations in the New Orleans market switched network affiliations in the first part of 1996. These increases in revenues were offset by declining national advertising. Stiff competition from NBC's prime-time lineup and Olympics programming, as well as weak national sales in Dallas and Houston, combined for decreased national revenues of 2.7 percent. Broadcast operating cash flow for 1996 was $122,837, up slightly from 1995 operating cash flow of $121,716. Operating cash flow margins were 36.8 percent in 1996 and 37.7 percent in 1995. Excluding the effect of KIRO in January of 1996, earnings from operations and margins improved only slightly. Salaries, wages and employee benefits increased 7.1 percent (5.5 percent on a same-station basis) due primarily to a greater number of employees, merit increases and overtime associated with election coverage. Programming expense in 1996 was also up significantly, due to the Seattle Mariners contract and more syndicated programming at KIRO. Programming costs 14 17 also increased slightly at other stations for certain syndicated programming. These increases were partially offset by the elimination of a weekly news show in Dallas and the cancellation of the Oakland A's contract in Sacramento. Newspaper publishing In 1996, newspaper publishing revenues represented 59.1 percent of total revenues, compared to 55.6 percent in 1995. The increased contribution to total revenues was partly due to the acquisitions of The Eagle in December 1995 and the Messenger-Inquirer in January 1996. In addition, the Company's principal newspaper, TDMN, had a revenue increase of nearly 13 percent over 1995. Advertising revenues accounted for approximately 87 percent of publishing revenues, while circulation revenues represented approximately 11 percent. Other publishing revenues, primarily commercial printing, contributed the remainder. Newspaper advertising volume for TDMN was as follows:
------------------------------ -------------------------------------- ----------------------------- Years ended December 31, 1996 1995 ------------------------------ -------------------------------------- ----------------------------- Full-run ROP inches: Classified 2,057 2,125 Retail 1,435 1,429 General 296 254 ------ ------ Total 3,788 3,808 ------------------------------ -------------------------------------- -----------------------------
Revenues from newspaper publishing in 1996 were $487,242, an increase of 19.1 percent over 1995 revenues of $409,099. Excluding the effect of the recently acquired newspapers, revenues increased 12.4 percent. The full year effect of two advertising rate increases in 1995, combined with additional rate increases in January 1996, contributed the majority of the year-over-year revenue improvement at TDMN. The rate increases were implemented in response to escalating newsprint prices throughout 1995 and in the first quarter of 1996. Classified advertising linage fell 3.2 percent as a result of the rate increases, which were higher in classified than in other advertising categories. Retail advertising volume was relatively unchanged over last year, with additional grocery store ads offsetting declines in department store advertising. General advertising linage improved 16.5 percent despite the higher rates, with significant gains in the technology and automotive categories. TDMN's preprint, total market coverage ("TMC") and other advertising revenues increased 7.8 percent, primarily due to more TMC participation. Circulation revenues were up nearly 10 percent over last year due to an October 1995 increase in the daily single-copy rate from $.25 to $.50 and a February 1996 increase in the home delivery rate. Circulation volumes declined slightly from 534,197 in 1995 to 513,099 in 1996 for daily and from 800,147 in 1995 to 785,934 in 1996 for Sunday delivery due primarily to these rate increases. Newspaper publishing operating cash flow for 1996 was $128,118 compared to $90,915 in 1995, an increase of 40.9 percent. Excluding the effect of the newspaper acquisitions, operating cash flow increased 32.1 percent. The operating cash flow margin for 1996 of 26.3 percent (26.1 percent without the new newspapers) improved over the 1995 operating cash flow margin of 22.2 percent due to a combination of factors. While revenues increased 19.1 percent, expenses increased only 13.3 percent. Other production, distribution and operating expenses at TDMN were up the most compared to last year, due to higher TMC distribution expenses, transportation costs, advertising and promotion and outside services associated with election coverage, research and temporary help. Salaries, wages and employee benefits were also higher than last year due to more employees and higher performance bonuses. Newsprint, ink and other supplies expense was up 6.5 percent (3.6 percent excluding the new newspapers) over last year due to higher cost per ton, offset somewhat by lower consumption due to decreased circulation. There have been significant fluctuations in newsprint prices in recent years. Prices began increasing in mid 1994 from a low of $413 per metric ton to a high of nearly $745 per metric ton in February 1996 before declining to approximately $510 per metric ton in December. 15 18 LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands, except per share amounts) Long-term debt increased $982,188 from December 31, 1996 to December 31, 1997 due primarily to the purchase of PJC. Specifically, Belo paid $587,096 to shareholders of PJC, incurred approximately $100,000 in employee and transaction costs and assumed $200,000 of PJC's debt. Also in connection with the PJC acquisition, the Company issued 25,394,564 shares of Series A Common Stock. The Gleaner, P-E and KENS acquisitions also resulted in increases in long-term debt. Net cash provided by operations, bank borrowings and bond indebtedness are the Company's primary sources of liquidity. On an as reported basis, 1997 net cash provided by operations was $256,418, compared to $164,421 in 1996. The increase was due primarily to higher cash earnings (defined as net earnings plus depreciation and amortization) and timing of payments for income taxes resulting from acquisition related transactions, including taxes on the gain related to the disposal of TVFN. Other net working capital changes also resulted in slightly higher cash flow provided by operations, due mostly to the timing of cash payments and receipts. Net cash provided by operations was sufficient to fund capital expenditures and common stock dividends. During 1997, the Company issued $1 billion in fixed-rate debt securities as follows: $250,000 of 5-year 6-7/8% Senior Notes; $300,000 of 10-year 7-1/8% Senior Notes; $200,000 of 30-year 7-3/4% Senior Debentures; and $250,000 of 30-year 7-1/4% Senior Debentures. The weighted average effective interest rate for these debt instruments is 7.3 percent. The Company also has $500,000 available for issuance under a shelf registration statement filed in April 1997. The proceeds of the current year fixed-rate debt offerings were used to refinance variable-rate debt. Future issues of fixed-rate debt may also be used to refinance variable-rate debt in whole or in part. At December 31, 1997, the Company had a $1 billion five-year variable-rate revolving credit agreement with a syndicate of 27 banks led by The Chase Manhattan Bank, Bank of Tokyo-Mitsubishi, Ltd., Bank of America NT & SA, and NationsBank of Texas, N.A. under which borrowings were $570,000. This agreement had previously provided a credit line of $1.5 billion, but was renegotiated effective August 29, 1997. In addition, a $500,000 364-day credit facility was canceled during 1997. The Company had $18,000 of short-term unsecured notes outstanding at December 31, 1997. These borrowings may be converted at the Company's option to revolving debt. Accordingly, such borrowings are classified as long-term in the Company's financial statements. The Company is required to maintain certain ratios as of the end of each quarter, as defined in its revolving credit agreement. For the four quarters ended December 31, 1997, the Company's ratio of funded debt to pro forma operating cash flow, which is not to exceed 5.0, was 3.9. The Company's interest coverage ratio for the four quarters ended December 31, 1997 was 3.8 compared to a minimum coverage requirement of 2.5 times. At December 31, 1997, the Company had authority from the Board of Directors for the purchase of up to approximately 5,337,000 treasury shares. No treasury share purchases were made during 1997. All previously acquired treasury shares have been retired effective December 31, 1997. The Company paid dividends of $24,428 or 44 cents per share on Series A and Series B Common Stock outstanding during 1997, compared to $16,392 or 41 cents per share in 1996. The higher dividends in 1997 were due to a higher dividend rate and the shares issued in the PJC acquisition. During 1997, capital expenditures were $83,317 for additional production equipment and major building renovations at TDMN, a building and studio remodeling project at WFAA, broadcast equipment for each of the Company's other television stations and the purchase of new equipment for the Company's publishing operations. Total capital expenditures in 1998 are expected to be approximately $115,000, including around $30,000 for the conversion to digital television. Approximately one-half of the amount for digital television is expected to be spent at the Company's three largest stations in 1998. The remaining portion will be spent at smaller market stations to prepare for their conversion to digital television over the next several years. The Company expects to spend a total of approximately $150,000 (including the $30,000 to be expended in 1998) over the next five years to convert to digital television. Also included in 1998 is a capital investment of approximately $15,000 for a Texas cable news 16 19 facility. The channel, which will combine the news gathering efforts of the Company's Dallas, Houston and San Antonio properties, is expected to be launched in January 1999. As of December 31, 1997, required future payments for capital projects in 1998 were $12,657. The Company expects to finance future capital expenditures using cash generated from operations and, when necessary, borrowings under the revolving credit agreement. The Company believes its current financial condition and credit relationships are adequate to fund both its current obligations as well as near-term growth. OTHER MATTERS Year 2000 Management has initiated an enterprise-wide evaluation to assess the ability of the Company's computer systems and applications to properly execute transactions in the Year 2000. The Company believes its Year 2000 issues will be mitigated by the implementation of previously planned system replacements, which are expected to be completed in the near term. Costs associated with these system replacements have been included in the Company's capital plan (see "Liquidity and Capital Resources"). The Company has also incurred expenses related to assessing exposures and modifying certain systems, which totaled $2,800 for the year ended December 31, 1997. The Company does not expect expenses related to Year 2000 over the next two years to be material. While the Company expects its Year 2000 projects to be completed on a timely basis, there can be no assurance that systems of third parties which the Company may rely upon will be timely converted, the impact of which cannot be determined at this time. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The market risk inherent in the Company's financial instruments represents the potential loss arising from adverse changes in interest rates. The Company's strategy in managing its exposure to interest rate changes is to maintain a balance of fixed and variable-rate debt instruments. See Note 3 to the Consolidated Financial Statements for information concerning the contractual interest rates of the Company's debt. At December 31, 1997, the fair value of the Company's fixed-rate debt is estimated to be $1,024,515 using quoted market prices and yields obtained through independent pricing sources, taking into consideration the underlying terms of the debt, such as the coupon rate and term to maturity. Such fair value exceeded the carrying value of fixed-rate debt at December 31, 1997 by $24,515. Market risk is estimated as the potential change in fair value resulting from a hypothetical 10 percent change in interest rates and, on the Company's fixed-rate debt, amounts to $61,964 at December 31, 1997. The Company also had $588,000 in variable-rate debt outstanding at December 31, 1997. A hypothetical 10 percent change in interest rates underlying these borrowings would result in a $3,587 annual change in the Company's pre-tax earnings and cash flows. In addition to interest rate risk, the Company has exposure to changes in the price of newsprint. The average price of newsprint may rise as much as 13 to 14 percent in 1998, although future price changes cannot be predicted with certainty. The Company historically has managed such risk through a combination of rate increases and other expense reductions. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements, together with the Report of Independent Auditors, are included elsewhere in this document. Financial statement schedules have been omitted because the required information is contained in the Consolidated Financial Statements or related notes, or because such information is not applicable. 17 20 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the headings "Outstanding Capital Stock and Stock Ownership of Directors, Certain Executive Officers and Principal Shareholders," "Executive Officers of the Company" and "Election of Directors" contained in the definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on May 13, 1998, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the heading "Executive Compensation and Other Matters" and "Election of Directors" contained in the definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on May 13, 1998, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the heading "Outstanding Capital Stock and Stock Ownership of Directors, Certain Executive Officers and Principal Shareholders" contained in the definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on May 13, 1998, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the heading "Certain Transactions" contained in the definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on May 13, 1998, is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) The financial statements listed in the Index to Financial Statements included in the Table of Contents are filed as part of this report. (2) The financial schedules required by Regulation S-X are either not applicable or are included in the information provided in the Notes to Consolidated Financial Statements, which are filed as part of this report. (3) Exhibits Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by the Company with the Securities and Exchange Commission, as indicated. Exhibits marked with a tilde (~) are management contracts or compensatory plan contracts or arrangements filed pursuant to Item 601 (b)(10)(iii)(A) of Regulation S-K. All other documents are filed with this report. 18 21 EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 * Amended and Restated Agreement and Plan of Merger, dated as of September 26, 1996 (Appendix A of the Joint Proxy Statement/Prospectus of Belo and Providence Journal included in Belo's Registration Statement on Form S-4 (Registration No. 333-19337) filed with the Commission on January 8, 1997) 3.1 * Certificate of Incorporation of the Company (Exhibit 3.1 to the Company's Amended Annual Report on Form 10-K/A dated April 8, 1996 (the "1995 Form 10-K/A")) 3.2 * Certificate of Correction to Certificate of Incorporation dated May 13, 1987 (Exhibit 3.2 to the 1995 Form 10-K/A) 3.3 * Certificate of Designation of Series A Junior Participating Preferred Stock of the Company dated April 16, 1987 (Exhibit 3.3 to the 1995 Form 10-K/A) 3.4 * Certificate of Amendment of Certificate of Incorporation of the Company dated May 4, 1988 (Exhibit 3.4 to the 1995 Form 10-K/A) 3.5 * Certificate of Amendment of Certificate of Incorporation of the Company dated May 3, 1995 (Exhibit 3.5 to the Company's Annual Report on Form 10-K dated February 28, 1996 (the "1995 Form 10-K")) 3.6 * Amended Certificate of Designation of Series A Junior Participating Preferred Stock of the Company dated May 4, 1988 (Exhibit 3.6 to the 1995 Form 10-K/A) 3.7 * Certificate of Designation of Series B Common Stock of the Company dated May 4, 1988 (Exhibit 3.7 to the 1995 Form 10-K/A) 3.8 Amended and Restated Bylaws of the Company, effective February 13, 1998 4.1 Certain rights of the holders of the Company's Common Stock are set forth in Exhibits 3.1-3.8 above. 4.2 Specimen Form of Certificate representing shares of the Company's Series A Common Stock 4.3 Specimen Form of Certificate representing shares of the Company's Series B Common Stock 4.4 * Amended and Restated Form of Rights Agreement as of February 28, 1996 between the Company and Chemical Mellon Shareholder Services, L.L.C., a New York banking corporation (Exhibit 4.4 to the 1995 Form 10-K) 4.5 * Supplement No. 1 to Amended and Restated Rights Agreement between the Company and The First National Bank of Boston dated as of November 11, 1996 (Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996) 4.6 Instruments defining rights of debt securities: (1)* Indenture dated as of June 1, 1997 between the Company and The Chase Manhattan Bank, as Trustee (Exhibit 4.6(1) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (the "2nd Quarter 1997 Form 10-Q")) 19 22 EXHIBIT NUMBER DESCRIPTION (2) * (a) $200 million 6-7/8% Senior Note due 2002 (Exhibit 4.6 (2)(a) to the 2nd Quarter 1997 Form 10-Q) * (b) $50 million 6-7/8% Senior Note due 2002 (Exhibit 4.6 (2)(b) to the 2nd Quarter 1997 Form 10-Q) (3) * (a) $200 million 7-1/8% Senior Note due 2007 (Exhibit 4.6 (3)(a) to the 2nd Quarter 1997 Form 10-Q) * (b) $100 million 7-1/8% Senior Note due 2007 (Exhibit 4.6 (3)(b) to the 2nd Quarter 1997 Form 10-Q) (4) * $200 million 7-3/4% Senior Debenture due 2027 (Exhibit 4.6 (4) to the 2nd Quarter 1997 Form 10-Q) (5) * Officer's Certificate dated June 13, 1997 establishing terms of debt securities pursuant to Section 3.1 of the Indenture (Exhibit 4.6 (5) to the 2nd Quarter 1997 Form 10-Q) (6) * (a) $200 million 7-1/4% Senior Debenture due 2027 (Exhibit 4.6 (6)(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997 (the "3rd Quarter 1997 Form 10-Q")) * (b) $50 million 7-1/4% Senior Debenture due 2027 (Exhibit 4.6 (6) (b) to the 3rd Quarter 1997 Form 10-Q) (7) * Officer's Certificate dated September 26, 1997 establishing terms of debt securities pursuant to Section 3.1 of the Indenture (Exhibit 4.6 (7) to the 3rd Quarter 1997 Form 10-Q) 10.1 Contracts relating to television broadcasting: (1) * Form of Agreement for Affiliation between WFAA-TV in Dallas, Texas and ABC (Exhibit 10.1 (1) to the 1995 Form 10-K/A) 10.2 Financing agreements: (1) * Amended and Restated Credit Agreement (Five-year $1,000,000,000 revolving credit and competitive advance facility dated as of August 29, 1997 among the Company and The Chase Manhattan Bank, as Administrative Agent and Competitive Advance Facility Agent, Bank of America National Trust and Savings Association and Bank of Tokyo-Mitsubishi, Ltd. as Co-Syndication Agents, and NationsBank as Documentation Agent) (Exhibit 10.2 (1) to the 3rd Quarter 1997 Form 10-Q) 10.3 Compensatory plans: ~(1) The A. H. Belo Corporation Employee Savings and Investment Plan: (a) The A. H. Belo Corporation Employee Savings and Investment Plan Amended and Restated January 1, 1998 (b) Restated Master Trust Agreement between the Company and Fidelity Management Trust Company, as restated and dated March 13, 1998 20 23 EXHIBIT NUMBER DESCRIPTION - ------- ----------- ~(2) The A. H. Belo Corporation 1986 Long-Term Incentive Plan: * (a) The A. H. Belo Corporation 1986 Long-Term Incentive Plan (Effective May 3, 1989, as amended by Amendments 1, 2, 3, 4, and 5) (Exhibit 10.3 (2) to the Company's Annual Report on Form 10-K dated March 10, 1997 (the "1996 Form 10-K")) (b) Amendment No. 6 to 1986 Long-Term Incentive Plan * (c) Amendment No. 7 to 1986 Long-Term Incentive Plan (Exhibit 10.3(9) to the 1995 Form 10-K) ~(3) A. H. Belo Corporation 1995 Executive Compensation Plan as restated to incorporate amendments through December 4, 1997 ~(4) * Management Security Plan (Exhibit 10.3 (1) to the 1996 Form 10-K) ~(5) A. H. Belo Corporation Supplemental Executive Retirement Plan: * (a) A. H. Belo Corporation Supplemental Executive Retirement Plan (Exhibit 10.3(27) to the Company's Annual Report on Form 10-K dated March 18, 1994 (the "1993 Form 10-K")) * (b) Trust Agreement dated February 28, 1994, between the Company and Mellon Bank, N.A. (Exhibit 10.3(28) to the 1993 Form 10-K) 12 Ratio of Earnings to Fixed Charges 21 Subsidiaries of the Company 23 Consent of Ernst & Young LLP 27 Financial Data Schedule (filed electronically with the Securities and Exchange Commission) 99 Unaudited Pro Forma Combined Condensed Statements of Earnings reflecting the acquisition of the Providence Journal Company and the exchange of Television Food Network for KENS-TV for the year ended December 31, 1997 (b) Reports on Form 8-K. During the last quarter covered by this report, a report on Form 8-K/A was filed on October 30, 1997, containing information under Item 2. "Acquisition or Disposition of Assets," and Item 7. "Financial Statements, Pro Forma Financial Information and Exhibits" concerning the acquisition of KENS-TV and the disposition of TVFN. 21 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. A. H. BELO CORPORATION By: /s/ ----------------------------------- Robert W. Decherd Chairman of the Board, President & Chief Executive Officer Dated: March 18, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ Chairman of the Board, President March 18, 1998 - ------------------------------------ & Chief Executive Officer Robert W. Decherd /s/ Vice Chairman of the March 18, 1998 - ------------------------------------ Board and President, Ward L. Huey, Jr. Broadcast Division /s/ Director, President, Publishing March 18, 1998 - ------------------------------------ Division and Publisher, Burl Osborne The Dallas Morning News /s/ Director March 18, 1998 - ------------------------------------ John W. Bassett, Jr. /s/ Director March 18, 1998 - ------------------------------------ Henry P. Becton, Jr. /s/ Director March 18, 1998 - ------------------------------------ Fanchon M. Burnham /s/ Director March 18, 1998 - ------------------------------------ Judith L. Craven, M.D., M.P.H. /s/ Director March 18, 1998 - ------------------------------------ Roger A. Enrico /s/ Director March 18, 1998 - ------------------------------------ Peter B. Freeman /s/ Director March 18, 1998 - ------------------------------------ Stephen Hamblett /s/ Director March 18, 1998 - ------------------------------------ Dealey D. Herndon
22 25
SIGNATURE TITLE DATE --------- ----- ---- /s/ Director March 18, 1998 - ------------------------------------ Lester A. Levy /s/ Director March 18, 1998 - ------------------------------------ Arturo Madrid, Ph.D. /s/ Director and Former March 18, 1998 - ------------------------------------ Chairman of the Board James M. Moroney, Jr. /s/ Director March 18, 1998 - ------------------------------------ Hugh G. Robinson /s/ Director March 18, 1998 - ------------------------------------ William T. Solomon /s/ Director March 18, 1998 - ------------------------------------ Thomas B. Walker, Jr. /s/ Director March 18, 1998 - ------------------------------------ J. McDonald Williams /s/ Senior Corporate Vice President and March 18, 1998 - ------------------------------------ Chief Financial Officer Michael D. Perry
23 26 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders A. H. Belo Corporation We have audited the accompanying consolidated balance sheets of A. H. Belo Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of A. H. Belo Corporation and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ERNST & YOUNG LLP Dallas, Texas January 26, 1998 24 27 CONSOLIDATED STATEMENTS OF EARNINGS A. H. BELO CORPORATION AND SUBSIDIARIES
Years ended December 31, - ------------------------------------------------------------------------------------------------------------------- In thousands, except per share amounts 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- NET OPERATING REVENUES (Note 2) Broadcasting $ 536,737 $ 333,396 $322,642 Newspaper publishing 693,777 487,242 409,099 - ------------------------------------------------------------------------------------------------------------------- Other 17,867 3,670 3,602 - ------------------------------------------------------------------------------------------------------------------- Total net operating revenues 1,248,381 824,308 735,343 - ------------------------------------------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES Salaries, wages and employee benefits (Notes 5 and 6) 391,726 231,856 204,833 Other production, distribution and operating costs (Note 7) 328,719 215,295 196,506 Newsprint, ink and other supplies 152,141 146,325 137,994 Depreciation 73,089 45,408 42,270 Amortization 61,904 19,775 17,177 - ------------------------------------------------------------------------------------------------------------------- Total operating costs and expenses 1,007,579 658,659 598,780 - ------------------------------------------------------------------------------------------------------------------- Earnings from operations 240,802 165,649 136,563 - ------------------------------------------------------------------------------------------------------------------- OTHER INCOME AND EXPENSE Interest expense (Note 3) (90,778) (27,643) (29,987) Other, net (Note 9) 4,098 6,034 4,438 - ------------------------------------------------------------------------------------------------------------------- Total other income and expense (86,680) (21,609) (25,549) - ------------------------------------------------------------------------------------------------------------------- EARNINGS Earnings before income taxes 154,122 144,040 111,014 Income taxes (Note 4) 71,150 56,535 44,438 - ------------------------------------------------------------------------------------------------------------------- Net earnings $ 82,972 $ 87,505 $ 66,576 ========================================= Net earnings per share (Note 10): Basic $1.43 $2.14 $1.71 Diluted $1.42 $2.11 $1.68 Weighted average shares outstanding (Note 10): Basic 57,846 40,890 39,033 Diluted 58,561 41,502 39,534
See accompanying Notes to Consolidated Financial Statements. 25 28 CONSOLIDATED BALANCE SHEETS A. H. BELO CORPORATION AND SUBSIDIARIES
ASSETS December 31, - ------------------------------------------------------------------------------------------------------------------- In thousands 1997 1996 - ------------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments $ 11,852 $ 13,829 Accounts receivable (net of allowance of $8,314 and $5,276 in 1997 and 1996, respectively) 220,297 129,976 Inventories 20,356 13,873 Deferred income taxes (Note 4) 12,626 5,692 Other current assets 11,865 8,555 - ------------------------------------------------------------------------------------------------------------------- Total current assets 276,996 171,925 Property, plant and equipment, at cost: Land 70,710 27,468 Buildings and improvements 259,594 169,784 Broadcast equipment 222,523 165,752 Newspaper publishing equipment 278,037 212,401 Other 92,222 61,025 Advance payments on plant and equipment expenditures (Note 7) 30,146 21,765 - ------------------------------------------------------------------------------------------------------------------- Total property, plant and equipment 953,232 658,195 Less accumulated depreciation 344,914 287,415 - ------------------------------------------------------------------------------------------------------------------- Property, plant and equipment, net 608,318 370,780 Intangible assets, net (Note 2) 2,626,953 582,248 Other assets (Note 5) 110,687 99,119 - ------------------------------------------------------------------------------------------------------------------- Total assets $3,622,954 $1,224,072 - -------------------------------------------------------------------------------------------------------------------
26 29 CONSOLIDATED BALANCE SHEETS (CONTINUED) A. H. BELO CORPORATION AND SUBSIDIARIES
LIABILITIES AND SHAREHOLDERS' EQUITY December 31, - ------------------------------------------------------------------------------------------------------------------- In thousands, except share and per share data 1997 1996 - ------------------------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 43,818 $ 26,239 Accrued compensation and benefits 69,643 31,440 Other accrued expenses 41,374 10,326 Income taxes payable (Note 4) 29,355 7,908 Advance subscription payments 18,327 10,557 Accrued interest payable 11,945 2,843 - ------------------------------------------------------------------------------------------------------------------- Total current liabilities 214,462 89,313 Long-term debt (Note 3) 1,614,045 631,857 Deferred income taxes (Note 4) 435,695 121,808 Other liabilities 32,748 10,611 Commitments and contingent liabilities (Note 7) Shareholders' equity (Notes 6 and 8): Preferred stock, $1.00 par value. Authorized 5,000,000 shares; none issued. Common stock, $1.67 par value. Authorized 150,000,000 shares Series A: Issued 52,998,586 and 35,404,850 shares at December 31, 1997 and 1996, respectively; 88,508 59,126 Series B: Issued 9,283,001 and 9,177,133 shares at December 31, 1997 and 1996, respectively. 15,503 15,326 Additional paid-in capital 1,015,345 302,737 Retained earnings 207,420 301,316 - ------------------------------------------------------------------------------------------------------------------- Total 1,326,776 678,505 Less cost of 8,321,700 shares of Series A treasury stock - 306,146 Less deferred compensation - restricted shares 772 1,876 - ------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 1,326,004 370,483 - ------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $3,622,954 $1,224,072 - -------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. 27 30 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY A. H. BELO CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------ In thousands, except share and per share amounts Three years ended December 31, 1997 - ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCK Additional Shares Shares Paid-in Retained Shares Series A Series B Amount Capital Earnings Series A - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1994 14,238,888 5,621,988 $ 33,168 $ 124,431 $ 230,959 -- Exercise of stock options 405,448 18,590 708 8,674 Change in restricted share valuation 698 Amortization of restricted shares Forfeiture of restricted shares (27,905) (48) (917) Tax benefit from long-term incentive plan 3,427 Two-for-one stock split 15,137,977 4,709,794 33,146 (32,618) (316,000) Purchase of treasury stock (1,546,848) Retirement of treasury stock (1,862,848) (3,110) (5,765) (55,053) 1,862,848 Net earnings 66,576 Cash dividends declared ($.315 per share) (12,279) Conversion of Series B to Series A 1,070,193 (1,070,193) - ------------------------------------------ ----------- ----------- ----------- ----------- ----------- ---------- BALANCE AT DECEMBER 31, 1995 28,961,753 9,280,179 $ 63,864 $ 97,930 $ 230,203 -- Exercise of stock options 498,302 2,360 835 9,098 Change in restricted share valuation 7 Amortization of restricted shares Tax benefit from long-term incentive plan 3,589 Employer's matching contribution to Savings and Investment Plan 89,389 150 3,214 Sale of stock 5,750,000 9,603 188,899 Purchase of treasury stock (8,321,700) Net earnings 87,505 Cash dividends declared ($.41 per share) (16,392) Conversion of Series B to Series A 194,795 (194,795) - ------------------------------------------ ----------- ----------- ----------- ----------- ----------- ---------- BALANCE AT DECEMBER 31, 1996 35,404,850 9,177,133 $ 74,452 $ 302,737 $ 301,316 (8,321,700) Exercise of stock options 416,446 110,239 880 11,046 Stock issued in acquisition of PJC 25,394,564 42,409 827,990 Change in restricted share valuation 672 Amortization of restricted shares Tax benefit from long-term incentive plan 4,560 Employer's matching contribution to Savings and Investment Plan 100,055 167 4,005 Adjustment to unrealized gains on available-for-sale securities, net of tax 4,144 Retirement of treasury stock (8,321,700) (13,897) (135,665) (156,584) 8,321,700 Net earnings 82,972 Cash dividends declared ($.44 per share) (24,428) Conversion of Series B to Series A 104,426 (104,426) - ------------------------------------------ ----------- ----------- ----------- ----------- ----------- ---------- BALANCE AT DECEMBER 31, 1997 52,998,586 9,283,001 $ 104,011 $ 1,015,345 $ 207,420 -- - ------------------------------------------ ----------- ----------- ----------- ----------- ----------- ---------- - ------------------------------------------------------------------------------------------- In thousands, except share and per share amounts - ------------------------------------------------------------------------------------------- TREASURY STOCK Deferred Compensation- Restricted Amount Shares Total - ------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994 $ -- $ (6,023) $ 382,535 Exercise of stock options 9,382 Change in restricted share valuation (698) -- Amortization of restricted shares 2,718 2,718 Forfeiture of restricted shares 470 (495) Tax benefit from long-term incentive plan 3,427 Two-for-one stock split (528) -- Purchase of treasury stock (63,400) (63,400) Retirement of treasury stock 63,928 -- Net earnings 66,576 Cash dividends declared ($.315 per share) (12,279) Conversion of Series B to Series A -- - ------------------------------------------ ----------- ----------- ----------- BALANCE AT DECEMBER 31, 1995 $ -- $ (3,533) $ 388,464 Exercise of stock options 9,933 Change in restricted share valuation (7) -- Amortization of restricted shares 1,664 1,664 Tax benefit from long-term incentive plan 3,589 Employer's matching contribution to Savings and Investment Plan 3,364 Sale of stock 198,502 Purchase of treasury stock (306,146) (306,146) Net earnings 87,505 Cash dividends declared ($.41 per share) (16,392) Conversion of Series B to Series A -- - ------------------------------------------ ----------- ----------- ----------- BALANCE AT DECEMBER 31, 1996 $ (306,146) $ (1,876) $ 370,483 Exercise of stock options 11,926 Stock issued in acquisition of PJC 870,399 Change in restricted share valuation (672) -- Amortization of restricted shares 1,776 1,776 Tax benefit from long-term incentive plan 4,560 Employer's matching contribution to Savings and Investment Plan 4,172 Adjustment to unrealized gains on available-for-sale securities, net of tax 4,144 Retirement of treasury stock 306,146 -- Net earnings 82,972 Cash dividends declared ($.44 per share) (24,428) Conversion of Series B to Series A -- - ------------------------------------------ ----------- ----------- ----------- BALANCE AT DECEMBER 31, 1997 $ -- $ (772) $ 1,326,004 - ------------------------------------------ ----------- ----------- -----------
See accompanying Notes to Consolidated Financial Statements. 28 31 CONSOLIDATED STATEMENTS OF CASH FLOWS A. H. BELO CORPORATION AND SUBSIDIARIES
CASH PROVIDED (USED) Years ended December 31, - ------------------------------------------------------------------------------------------------------------------- In thousands 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- OPERATIONS Net earnings $ 82,972 $ 87,505 $ 66,576 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation and amortization 134,993 65,183 59,447 Deferred income taxes (4,198) 6,610 6,823 Other, net 8,443 1,671 (3,807) Net change in current assets and liabilities: Accounts receivable (21,244) (11,867) (19,732) Inventories and other current assets (3,859) 3,669 (12,918) Accounts payable 8,808 (1,003) 1,270 Accrued compensation and benefits 9,931 5,207 (2,043) Other accrued liabilities 12,735 785 2,796 Income taxes payable 27,837 6,661 (1,811) - ------------------------------------------------------------------------------------------------------------------- Net cash provided by operations 256,418 164,421 96,601 - ------------------------------------------------------------------------------------------------------------------- INVESTMENTS Capital expenditures (83,317) (49,800) (40,830) Acquisitions (946,259) (74,091) (217,428) Sale of investment 3,045 3,750 - Other, net 1,124 (3,788) 4,506 - ------------------------------------------------------------------------------------------------------------------- Net cash used for investments (1,025,407) (123,929) (253,752) - ------------------------------------------------------------------------------------------------------------------- FINANCING Net proceeds from sale of stock - 198,502 - Borrowings for acquisitions 1,100,545 75,180 216,934 Refinancing of Providence Journal debt (200,000) - - Net proceeds from fixed-rate debt offerings 989,994 - - Net proceeds from (payments on) revolving debt (1,111,025) (586) 10,066 Payments of dividends on stock (24,428) (16,392) (12,279) Net proceeds from exercise of stock options 11,926 9,933 9,382 Purchase of treasury stock - (306,146) (63,400) - ------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing 767,012 (39,509) 160,703 - ------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments (1,977) 983 3,552 - ------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of year 13,829 12,846 9,294 Cash and temporary cash investments at end of year $ 11,852 $ 13,829 $ 12,846 - ------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES (Note 11) - -------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. 29 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. H. BELO CORPORATION AND SUBSIDIARIES NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- A) Principles of Consolidation The consolidated financial statements include the accounts of A. H. Belo Corporation (the "Company" or "Belo") and its wholly owned subsidiaries after the elimination of all significant intercompany accounts and transactions. All dollar amounts are in thousands except per share amounts, unless otherwise indicated. Certain amounts for prior years have been reclassified to conform to the current year presentation. B) Cash and Temporary Cash Investments The Company considers all highly liquid instruments purchased with a remaining maturity of three months or less to be temporary cash investments. Such temporary cash investments are classified as available-for-sale and are carried at fair value. C) Accounts Receivable Accounts receivable are net of a valuation reserve that represents an estimate of amounts considered uncollectible. Expense for such uncollectible amounts, which is included in other production, distribution and operating costs, was $9,273, $5,647 and $5,888 in 1997, 1996 and 1995, respectively. Accounts written off during these years were $9,988, $4,535 and $5,683, respectively. D) Inventories Inventories, consisting primarily of newsprint, ink and other supplies used in printing newspapers, are stated at the lower of average cost or market value. E) Property, Plant and Equipment Depreciation of property, plant and equipment is provided principally on a straight-line basis over the estimated useful lives of the assets as follows:
- ------------------------------------------------------------- ESTIMATED USEFUL LIVES - ------------------------------------------------------------- Buildings and improvements 5-30 years Broadcast equipment 5-15 years Newspaper publishing equipment 5-20 years Other 3-10 years - -------------------------------------------------------------
F) Intangible Assets, Net Intangible assets, net consists of excess cost over values assigned to tangible assets of purchased subsidiaries and is amortized primarily on a straight-line basis over 40 years. Accumulated amortization of intangible assets was $218,067 and $163,278 at December 31, 1997 and 1996, respectively. The carrying values of all intangible assets are periodically reviewed to determine whether impairment exists, and adjustments to net realizable value are made as needed. No such adjustments were required in 1997. G) Other Assets The Company has classified its investments in equity securities with readily determinable fair values as available-for-sale. These equity securities are included in Other assets and are reported at fair value, with unrealized gains and losses excluded from income and reported as a component of shareholders' equity, net of tax. H) Stock Options Stock options granted to employees are accounted for using the intrinsic value of the options granted. Because it is the Company's policy to grant stock options at the market price on the date of the grant, the intrinsic value is zero, and therefore no compensation expense is recorded. I) 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 30 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. H. BELO CORPORATION AND SUBSIDIARIES NOTE 2: ACQUISITIONS - -------------------------------------------------------------------------------- On February 28, 1997, Belo completed the acquisition of The Providence Journal Company ("PJC") by issuing 25,394,564 shares of Series A Common Stock and paying $587,096 to former shareholders of PJC. Belo also incurred approximately $100,000 in employee and transaction costs and refinanced $200,000 of PJC debt. The acquisition has been accounted for as a purchase. The Company's consolidated financial results for the year ended December 31, 1997 include the operations of PJC since March 1, 1997 and exclude the results of the Company's interest in America's Health Network ("AHN"), a cable network acquired as part of the PJC transaction, but subsequently disposed of effective July 31, 1997. The results of the Television Food Network ("TVFN"), also acquired as part of the PJC transaction, are excluded effective July 1, 1997, as a result of the Company's decision in June to divest its interest in TVFN. The cost of the PJC acquisition has been allocated on the basis of the estimated fair market value of the assets acquired and liabilities assumed. This purchase price allocation resulted in goodwill and intangibles of $1,712,315, which includes $294,166 of deferred taxes based on book and tax basis differences of identifiable intangibles. Goodwill and intangibles arising from the purchase of PJC are being amortized on a straight-line basis over 40 years, except for the value assigned to the newspaper subscriber list, which is being amortized over 18 years. As a result of the PJC acquisition, the Company initially owned two television stations in the Seattle, Washington market (KIRO and KING). To comply with FCC regulations that required the Company to divest one of these stations, the Company completed an exchange of assets among multiple parties on June 2, 1997, whereby KIRO was exchanged for CBS affiliate KMOV-TV in St. Louis, Missouri. No gain was recorded on this exchange of like-kind assets. On July 25, 1997, the Company completed the acquisition of the Press-Enterprise Company ("P-E"), publisher of a daily newspaper serving Riverside County and the inland southern California area. The transaction has been accounted for as a purchase. The purchase price allocation, which is based upon the estimated fair market value of the net assets acquired, is still preliminary. The Company previously held a 38.45 percent interest in P-E. On October 15, 1997, Belo exchanged its partnership interest in TVFN and $75,000 in cash for CBS affiliate KENS-TV ("KENS") in San Antonio, Texas. The transaction was accounted for as a purchase. The purchase price allocation, which is based on the estimated fair market value of the net assets acquired, is still preliminary. The cash portion of each acquisition was financed through the Company's revolving credit facility, a portion of which was converted to fixed-rate debt during the current year. (See Note 3.) Following is a summary of the combined purchase price allocations for the current year acquisitions of PJC, P-E and KENS, based on the estimated fair market value of the assets acquired and liabilities assumed as of the dates of acquisition:
-------------------------------------------------- ---------------- Combined Purchase Price Allocation -------------------------------------------------- ---------------- Current assets $ 109,774 Property, plant and equipment 252,180 Goodwill and other intangible assets 2,047,363 Other assets 43,318 Total liabilities, including deferred taxes (640,528) ------------- Total $ 1,812,107 -------------------------------------------------- ----------------
31 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. H. BELO CORPORATION AND SUBSIDIARIES The pro forma financial results of operations below assume the PJC, P-E and KENS acquisitions, the KIRO/KMOV exchange and the disposition of TVFN were completed at the beginning of each of the periods presented and include adjustments for incremental interest costs, depreciation, amortization and taxes as they relate to the preliminary purchase price allocations of the transactions for the years ended December 31, 1997 and 1996:
- -------------------------------------------- ----------------- ----------------- 1997 1996 - -------------------------------------------- ----------------- ----------------- Net operating revenues $1,360,233 $1,274,738 Net earnings from continuing operations(a) $ 83,910 $ 50,730 Net earnings(b) $ 83,910 $ 48,052 Net earnings per share $ 1.34 $ .72 - --------------------------------------------------------------------------------
(a) Net earnings from continuing operations for the year ended December 31, 1997 include a pre-tax gain of $10,672 on the sale of an investment. Net earnings from continuing operations for the year ended December 31, 1996 include pre-tax charges for PJC stock-based compensation ($12,394) and PJC newspaper restructuring ($1,791). Both periods exclude the effect of AHN and TVFN. (b) Net earnings for the year ended December 31, 1996 include an after-tax charge of $2,678 representing discontinued operations attributable to PJC's former cable operations. The pro forma financial information is provided for informational purposes only and is not necessarily representative of the operating results that would have occurred had the aforementioned transactions been completed as of the indicated dates, nor is it indicative of future operating results. NOTE 3: LONG-TERM DEBT - -------------------------------------------------------------------------------- Long-term debt consists of the following at December 31, 1997 and 1996:
- ---------------------------------------------------------------------------------- 1997 1996 - ---------------------------------------------------------------------------------- 6-7/8% Senior Notes Due June 1, 2002 $ 250,000 $ - 7-1/8% Senior Notes Due June 1, 2007 300,000 - 7-3/4% Senior Debentures Due June 1, 2027 200,000 - 7-1/4% Senior Debentures Due September 15, 2027 250,000 - - ---------------------------------------------------------------------------------- Fixed-rate debt 1,000,000 - Revolving credit agreement, including short-term unsecured notes classified as long-term debt 588,000 615,800 Other 26,045 16,057 - ---------------------------------------------------------------------------------- Total $1,614,045 $ 631,857 - ----------------------------------------------------------------------------------
The Company's long-term debt maturities for the five years following December 31, 1997 are $310 in 1998, $3,310 in 1999, $6,967 in 2000, $310 in 2001 and $838,310 in 2002. Of the amount due in the year 2002, $570,000 represents revolving debt and $18,000 represents short-term unsecured notes, which could be converted, at the Company's option, to revolving debt. Revolving debt is extendable for one year periods, but not beyond August 2004, at the request of the Company and with the consent of the participating banks. During 1997, the Company issued $1 billion in fixed-rate debt. The net proceeds from these debt offerings were used to retire debt previously outstanding under the Company's revolving credit facility. At December 31, 1997, the weighted average effective interest rate on the fixed-rate debt was 7.3 percent, and the fair value exceeded the carrying value by $24,515. The fair value was estimated using quoted market prices for those instruments publicly traded. 32 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. H. BELO CORPORATION AND SUBSIDIARIES At the end of 1997, the Company had a revolving credit facility for $1 billion. Loans under the revolving credit agreement bear interest at a rate based, at the option of the Company, on the banks' alternate base rate, certificate of deposit rate, LIBOR or competitive bid. The rate obtained through competitive bid is either a Eurodollar rate or a rate agreed to by the Company and the bank. At December 31, 1997 and 1996, the weighted average interest rates for borrowings under the revolving credit agreement were 6.1 percent and 5.7 percent, respectively. The agreement also provides for a facility fee of up to 0.15 percent on the total commitment. Borrowings under the agreement mature upon expiration of the agreement on August 29, 2002, with one year extensions possible through August 29, 2004, at the request of the Company and with the consent of the participating banks. The carrying value of borrowings under the Company's revolving credit agreement approximates fair value. The revolving credit agreement contains certain covenants, including a requirement to maintain, as of the end of each quarter and measured over the preceding four quarters, (1) a Funded Debt to Pro Forma Operating Cash Flow ratio not exceeding 5.5 to 1.0, (2) a Funded Debt (excluding subordinated debt) to Pro Forma Operating Cash Flow ratio not exceeding 5.0 to 1.0, and (3) an Interest Coverage ratio of not less than 2.5 to 1.0, all as such terms are defined in the agreement. At December 31, 1997, the Company was in compliance with these requirements. During 1997, the Company used various short-term unsecured notes as an additional source of financing. The weighted average interest rate on this debt was 6.5 percent and 7.3 percent at December 31, 1997 and 1996, respectively. Due to the Company's intent to renew the short-term notes and its continued ability to refinance these borrowings on a long-term basis through its revolving credit agreement, $18,000 and $165,800 of short-term notes outstanding at December 31, 1997 and 1996, respectively, have been classified as long-term. In 1997, 1996 and 1995, the Company incurred interest costs of $91,288, $27,898 and $30,944, respectively, of which $510, $255 and $957, respectively, were capitalized as components of construction cost. At December 31, 1997, the Company had outstanding letters of credit of $31,557 issued in the ordinary course of business. NOTE 4: INCOME TAXES - -------------------------------------------------------------------------------- The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Income tax expense for the years ended December 31, 1997, 1996 and 1995 consists of the following:
- ---------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- Current Federal $ 56,792 $42,298 $32,094 State 18,556 7,627 5,521 - ---------------------------------------------------------------------------------------------------------- Total current 75,348 49,925 37,615 Deferred Federal 1,587 6,765 6,664 State (5,785) (155) 159 - ---------------------------------------------------------------------------------------------------------- Total deferred (4,198) 6,610 6,823 Total tax expense $ 71,150 $56,535 $44,438 - ---------------------------------------------------------------------------------------------------------- Effective tax rate 46.2% 39.2% 40.0% - ----------------------------------------------------------------------------------------------------------
33 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. H. BELO CORPORATION AND SUBSIDIARIES Income tax provisions for the years ended December 31, 1997, 1996 and 1995 differ from amounts computed by applying the applicable U.S. federal income tax rate as follows:
- ---------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- Computed expected income tax expense $ 53,943 $ 50,414 $ 38,855 Amortization of excess cost 9,645 2,235 2,235 State income taxes 8,301 4,857 3,692 Other (739) (971) (344) - ---------------------------------------------------------------------------------------------------------- $ 71,150 $ 56,535 $ 44,438 - ----------------------------------------------------------------------------------------------------------
Significant components of the Company's deferred tax liabilities and assets as of December 31, 1997 and 1996, are as follows:
- ----------------------------------------------------------------------------------------------------- 1997 1996 - ----------------------------------------------------------------------------------------------------- Deferred tax liabilities: Excess tax depreciation and amortization $ 442,949 $ 108,076 Basis differences in investments 22,769 18,252 Deferred compensation 10,600 - Expenses deductible for tax purposes in a year different from the year accrued 4,431 6,974 Other 1,328 367 - ----------------------------------------------------------------------------------------------------- Total deferred tax liabilities $ 482,077 $ 133,669 - ----------------------------------------------------------------------------------------------------- Deferred tax assets: Deferred compensation $ 11,198 $ 4,828 State net operating losses 8,004 - State taxes 6,179 4,561 Expenses deductible for tax purposes in a year different from the year accrued 21,298 3,592 Other 12,329 4,572 - ----------------------------------------------------------------------------------------------------- Total deferred tax assets 59,008 17,553 - ----------------------------------------------------------------------------------------------------- Net deferred tax liability $ 423,069 $ 116,116 - -----------------------------------------------------------------------------------------------------
State net operating loss carryforwards are generally associated with entities acquired in the PJC acquisition and have expiration dates ranging from 1998 through 2010. NOTE 5: EMPLOYEE RETIREMENT PLANS - -------------------------------------------------------------------------------- The Company sponsors a noncontributory defined benefit pension plan covering the majority of employees. The benefits are based on years of service and the average of the employee's five consecutive years of highest annual compensation earned during the most recently completed 10 years of employment. The funding policy is to contribute annually to the plan an amount at least equal to the minimum required contribution for a qualified retirement plan, but not in excess of the maximum tax deductible contribution. 34 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. H. BELO CORPORATION AND SUBSIDIARIES During 1997, the Company acquired PJC, which had a noncontributory defined benefit pension plan covering substantially all of its employees. Effective December 31, 1997, the PJC plan was merged into the Company's pension plan. The following disclosures reflect these combined pension plans for the year ended December 31, 1997. The following table sets forth the plan's funded status and prepaid pension costs (included in Other assets on the Consolidated Balance Sheets) at December 31, 1997 and 1996:
- ----------------------------------------------------------------------------------------------------- 1997 1996 - ----------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligation: Vested benefit obligation $ (198,845) $ (88,879) Accumulated benefit obligation $ (211,398) $ (92,124) Projected benefit obligation for service rendered to date $ (273,879) $ (116,740) Plan assets at fair value, invested primarily in equity securities 273,418 108,008 - ----------------------------------------------------------------------------------------------------- Plan assets less than projected benefit obligation (461) (8,732) Unrecognized net loss 18,422 26,742 Unrecognized net transition asset being recognized over 12.3 years (371) (1,604) Unrecognized prior service cost (2,113) (2,490) - ----------------------------------------------------------------------------------------------------- Prepaid pension cost $ 15,477 $ 13,916 - -----------------------------------------------------------------------------------------------------
The net periodic pension cost for the years ended December 31, 1997, 1996 and 1995 includes the following components:
- ------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Service cost - benefits earned during the period $ 8,851 $ 5,462 $ 3,697 Interest cost on projected benefit obligation 16,555 8,290 7,331 Actual return on plan assets (38,860) (14,121) (17,035) Net amortization and deferral 17,422 5,257 9,498 - ------------------------------------------------------------------------------------------------------------------- Net periodic pension cost $ 3,968 $ 4,888 $ 3,491 - -------------------------------------------------------------------------------------------------------------------
Assumptions used in the accounting for the defined benefit plan are as follows:
- ------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Discount rate in determining benefit obligation 7.25% 7.50% 7.25% Discount rate in determining net periodic pension cost 7.50% 7.25% 8.50% Expected long-term rate of return on assets 10.25% 10.25% 10.25% Rate of increase in future compensation 5.50% 5.50% 5.50% - -------------------------------------------------------------------------------------------------------------------
The Company sponsors defined contribution plans that cover substantially all of its employees. Subject to certain dollar limits, employees may contribute a percentage of their salaries to these plans, and the Company will match a portion of the employees' contributions. The Company's contributions totaled $6,069, $3,587 and $3,170 in 1997, 1996 and 1995, respectively. The Company also sponsors non-qualified retirement plans for key employees. Expense for the plans recognized in 1997, 1996 and 1995 was $1,138, $1,150 and $1,089, respectively. 35 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. H. BELO CORPORATION AND SUBSIDIARIES NOTE 6: LONG-TERM INCENTIVE PLAN - -------------------------------------------------------------------------------- The Company has a long-term incentive plan under which awards may be granted to employees in the form of incentive stock options, non-qualified stock options, restricted shares or performance units, the values of which are based on the long-term performance of the Company. In addition, options may be accompanied by stock appreciation rights and limited stock appreciation rights. Rights and limited rights may also be issued without accompanying options. Cash-based bonus awards are also available under the plan. The non-qualified options granted to employees under the Company's long-term incentive plan become exercisable in cumulative installments over periods of three to seven years and expire after 10 years. Shares of common stock reserved for grants under the plan were 2,697,816 and 2,626,904 at December 31, 1997 and 1996, respectively. Stock-based activity in the long-term incentive plan relates to non-qualified stock options and is summarized in the following table:
- ------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ Weighted Weighted Option Number of Average Number of Average Number of Price Per Options Price Options Price Options Share (a) - ------------------------------------------------------------------------------------------------------------------------------ Outstanding at January 1, .. 3,819,938 $ 28.43 3,097,777 $ 24.16 1,496,750 $24-$53 Two-for-one stock split -- -- -- -- 1,351,907 $12-$30 Granted ............... 947,100 $ 51.58 1,237,850 $ 35.63 699,300 $30-$35 Exercised ............. (526,685) $ 22.64 (500,662) $ 19.82 (424,038) $12-$27 Canceled .............. (18,012) $ 35.01 (15,027) $ 28.69 (26,142) $15-$27 --------- --------- --------- Outstanding at December 31, 4,222,341 $ 34.31 3,819,938 $ 28.43 3,097,777 $12-$35 - ------------------------------------------------------------------------------------------------------------------------------ Weighted average fair value of options granted $ 12.95 $ 9.68 - ------------------------------------------------------------------------------------------------------------------------------
(a) Disclosure of weighted average price information is required by Statement of Financial Accounting Standards ("FAS") No. 123 for years beginning after December 15, 1995. The following table summarizes information about non-qualified stock options outstanding at December 31, 1997:
- -------------------------------------------------------------------------------------------------------------- Range of Number of Weighted Average Weighted Average Number of Weighted Average Exercise Options Remaining Exercise Options Exercise Prices Outstanding Life (years) Price Exercisable Price - -------------------------------------------------------------------------------------------------------------- $12-$20 572,222 (a) 3.3 $16.64 572,222 $16.64 $22-$31 942,348 (b) 6.3 $25.76 921,348 $25.66 $35-$39 1,833,871 (c) 8.6 $35.48 697,745 $35.33 $44-$53 873,900 (c) 10.0 $52.65 - - ---------- ---------- ------- $12-$53 4,222,341 7.7 $34.31 2,191,315 $26.38 - --------------------------------------------------------------------------------------------------------------
(a) Comprised of Series A Shares, except for 60,000 Series B Shares (b) Comprised of Series A Shares (c) Comprised of Series B Shares Pro forma information regarding net earnings and earnings per share has been determined as if the Company had accounted for its employee stock options under the fair value method of FAS No. 123. The fair value for those options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1997 and 1996, respectively: risk-free interest rates of 5.56 percent and 6.22 percent, dividend yields of .91 percent and 1.23 percent, volatility factors of the expected market price of the Company's common stock of .228 and .206, and weighted average expected lives of the options of 4.03 and 5.07 years. 36 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. H. BELO CORPORATION AND SUBSIDIARIES For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. Because options vest over a period of several years and additional awards are generally made each year, the full effect of applying FAS No. 123 for providing pro forma disclosure will not be reflected until the completion of one full vesting cycle. Therefore, the pro forma information presented below is not indicative of the effects on reported or pro forma net earnings for future years. The Company's pro forma information for the three years ending December 31, 1997 follows:
- --------------------------------------------------------------------------------------------- 1997 1996 1995 - --------------------------------------------------------------------------------------------- Pro forma net earnings $ 79,474 $ 85,839 $ 66,505 Pro forma net earnings per share $ 1.37 $ 2.09 $ 1.68 - ---------------------------------------------------------------------------------------------
The Company's long-term incentive plan also provides for the grant of restricted shares of Series A Common Stock. These restricted shares generally vest over a four year period and contain certain performance requirements for a portion of the shares. Restricted stock activity for the three years ending December 31, 1997 is summarized as follows:
- ------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Price Price Price Shares Per Share Shares Per Share Shares Per Share - ------------------------------------------------------------------------------------------------------------------- Outstanding at January 1, 212,309 $15-$35 279,096 $15-$35 212,371 $29-$57 Two-for-one stock split - - - - 211,891 $15-$31 Granted - - - - - - Vested (126,917) $15-$56 (66,787) $20-$35 (117,261) $15-$35 Forfeited - - - - (27,905) $15-$35 ------- ------- --------- --------- Outstanding at December 31, 85,392 $27-$56 212,309 $15-$35 279,096 $15-$35 - -------------------------------------------------------------------------------------------------------------------
A provision for restricted shares is made ratably over the restriction period. Expense recognized under the plan for restricted shares was $1,776, $1,664 and $2,223 in 1997, 1996 and 1995, respectively. NOTE 7: COMMITMENTS AND CONTINGENT LIABILITIES - -------------------------------------------------------------------------------- The Company is involved in certain claims and litigation related to its operations. In the opinion of management, liabilities, if any, arising from these claims and litigation would not have a material adverse effect on the consolidated financial position or results of operations of the Company. Commitments for the purchase of broadcast film contract rights totaled approximately $176,943, at December 31, 1997 for broadcasts scheduled through August 2002. Advance payments on plant and equipment expenditures at December 31, 1997 primarily relate to newspaper production equipment, broadcast equipment and building renovations and improvements. Required future payments for capital expenditures for 1998 and 1999 are $12,657 and $705, respectively. 37 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. H. BELO CORPORATION AND SUBSIDIARIES Total lease expense for property and equipment was $8,342, $3,333 and $3,435 in 1997, 1996 and 1995, respectively. Future minimum rental payments for operating leases at December 31, 1997, are as follows:
--------------------------------------------------- ----------------- Operating Leases --------------------------------------------------- ----------------- 1998 $ 7,774 1999 6,488 2000 5,545 2001 3,344 2002 2,684 2003 & beyond 6,364 --------------------------------------------------- ----------------- Total commitments $ 32,199 --------------------------------------------------- -----------------
NOTE 8: COMMON AND PREFERRED STOCK - -------------------------------------------------------------------------------- The Company has two series of common stock authorized, issued and outstanding, Series A and Series B. The shares are identical except that Series B shares are entitled to 10 votes per share on all matters submitted to a vote of shareholders, while the Series A shares are entitled to one vote per share. Transferability of the Series B shares is limited to family members and affiliated entities of the holder. Series B shares are convertible at any time on a one-for-one basis into Series A shares. Each outstanding share of common stock is accompanied by one preferred share purchase right, which entitles shareholders to purchase 1/100 of a share of Series A Junior Participating Preferred Stock. The rights will not be exercisable until a party either acquires beneficial ownership of 30 percent of the Company's common stock or makes a tender offer for at least 30 percent of its common stock. At such time, each holder of a right (other than the acquiring person or group) will have the right to purchase common stock of the Company with a value equal to two times the exercise price of the right, which is initially $150 (subject to adjustment). In addition, if the Company is acquired in a merger or business combination, each right can be used to purchase the common stock of the surviving company having a market value of twice the exercise price of each right. Once a person or group has acquired 30 percent of the common stock but before 50 percent of the voting power of the common stock has been acquired, the Company may exchange each right (other than those held by the acquiring person or group) for one share of Company common stock (subject to adjustment). The Company may reduce the 30 percent threshold or may redeem the rights. The number of shares of Series A Junior Participating Preferred Stock reserved for possible conversion of these rights is equivalent to 1/100 of the number of shares of common stock issued and outstanding plus the number of shares reserved for options outstanding and for grant under the 1995 Executive Compensation Plan and for options outstanding under the Company's predecessor plan. The rights will expire in 2006, unless extended. As discussed in Note 2, on February 28, 1997, in connection with the acquisition of PJC, the Company issued 25,394,564 shares of Series A Common Stock. The Company has in place a stock repurchase program authorizing the purchase of up to $2,500 of Company stock annually and, as of December 31, 1997, the Company has authority to purchase an additional 5,336,872 shares. During 1996, the Company purchased 8,321,700 shares of its Series A Common Stock at an aggregate cost of $306,146. These shares were retired effective December 31, 1997. No shares of stock were purchased during 1997. NOTE 9: OTHER INCOME AND EXPENSE In 1997, the Company sold 220,000 shares of Gemstar International Group Limited ("Gemstar") common stock and donated 208,440 shares of Gemstar common stock to The A. H. Belo Corporation Foundation. These transactions did not have an effect on 1997 net earnings as the $4,560 charge for the charitable contribution was offset by a gain on the disposition of the shares and the tax benefit from the charitable contribution. 38 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. H. BELO CORPORATION AND SUBSIDIARIES In 1995, Belo sold Stauffer Communications, Inc. stock, resulting in a gain of $2,406 ($1,564 after tax or 4 cents per share). In 1996, the Company sold its interest in its programming distribution partnership, resulting in a gain of $3,895 ($2,337 after tax or 6 cents per share). NOTE 10: EARNINGS PER SHARE - -------------------------------------------------------------------------------- In 1997, the Financial Accounting Standards Board issued FAS No. 128, "Earnings Per Share," which replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Earnings per share amounts for all periods have been restated to conform to FAS No. 128, and all references herein to "per share" are assumed to be diluted earnings per share. The following table sets forth the reconciliation between weighted average shares used for calculating basic and diluted earnings per share for the three years ending December 31, 1997 (in thousands, except per share amounts):
-------------------------------------------------------- ---------- ---------- ----------- 1997 1996 1995 -------------------------------------------------------- ---------- ---------- ----------- Weighted average shares for basic earnings per share 57,846 40,890 39,033 Effect of employee stock options 715 612 501 ------- ------ ------ Weighted average shares for diluted earnings per share 58,561 41,502 39,534 Options excluded due to exercise price in excess of average market price Number outstanding 864 55 654 Exercise price $52.75 $38.50 $34.75 -------------------------------------------------------- ---------- ---------- -----------
NOTE 11: SUPPLEMENTAL CASH FLOW INFORMATION - -------------------------------------------------------------------------------- Supplemental cash flow information and significant non-cash investing and financing activities for the three years ending December 31, 1997, are as follows:
- ---------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- Supplemental cash flow information Cash paid during the period for: Interest, net of amounts capitalized $ 81,676 $ 27,201 $ 30,724 Income taxes, net of refunds $ 54,436 $ 43,344 $ 39,427 Supplemental non-cash investing and financing activities: Stock issued for PJC acquisition $ 870,399 $ - $ - KIRO/KMOV asset exchange $ 152,000 $ - $ - Non-cash consideration for KENS-TV $ 125,000 $ - $ - - ----------------------------------------------------------------------------------------------------------
NOTE 12: INDUSTRY SEGMENT INFORMATION - -------------------------------------------------------------------------------- The Company operates in two primary industries: television broadcasting and newspaper publishing. Operations in the broadcast industry involve the sale of air time for advertising and the broadcast of news, entertainment and other programming. The Company's television stations are located in Dallas, Houston and San 39 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. H. BELO CORPORATION AND SUBSIDIARIES Antonio, Texas; Seattle and Spokane, Washington; Sacramento, California; St. Louis, Missouri; Portland, Oregon; Charlotte, North Carolina; Norfolk, Virginia; New Orleans, Louisiana; Albuquerque, New Mexico; Louisville, Kentucky; Tulsa, Oklahoma; Honolulu, Hawaii; Tucson, Arizona; and Boise, Idaho. Operations in the newspaper publishing industry involve the sale of advertising space in published issues, the sale of newspapers to distributors and individual subscribers and commercial printing. The Company's major publishing units are The Dallas Morning News, located in Dallas, Texas; the Providence Journal-Bulletin, located in Providence, Rhode Island; and The Press-Enterprise, located in Riverside, California. The Company has other newspaper operations in Owensboro and Henderson, Kentucky and Bryan-College Station, Texas. The Company's other industry segment is comprised of miscellaneous operations that include television production and distribution, cable news and electronic media services. Selected segment data for the years ended December 31, 1997, 1996 and 1995 is as follows:
- ---------------------------------------------------------------------------------------------------------- 1997(a) 1996 1995 - ---------------------------------------------------------------------------------------------------------- Net operating revenues Broadcasting (b) $ 536,737 $ 333,396 $ 322,642 Newspaper publishing (c) 693,777 487,242 409,099 Other 17,867 3,670 3,602 - ---------------------------------------------------------------------------------------------------------- $ 1,248,381 $ 824,308 $ 735,343 - ---------------------------------------------------------------------------------------------------------- Earnings from operations Broadcasting (b) $ 132,237 $ 83,862 $ 83,921 Newspaper publishing (c) 159,090 103,046 69,999 Other (10,821) (1,238) (3,972) Corporate expenses (39,704) (20,021) (13,385) - ---------------------------------------------------------------------------------------------------------- $ 240,802 $ 165,649 $ 136,563 - ---------------------------------------------------------------------------------------------------------- Depreciation and amortization Broadcasting (b) $ 84,417 $ 38,975 $ 37,795 Newspaper publishing (c) 47,350 25,072 20,916 Other 1,607 200 31 Corporate 1,619 936 705 - ---------------------------------------------------------------------------------------------------------- $ 134,993 $ 65,183 $ 59,447 - ---------------------------------------------------------------------------------------------------------- Identifiable assets Broadcasting (b) $ 2,544,323 $ 709,884 $ 726,766 Newspaper publishing (c) 919,237 372,958 341,025 Other 3,554 6,118 8,126 Corporate 155,840 135,112 78,105 - ---------------------------------------------------------------------------------------------------------- $ 3,622,954 $ 1,224,072 $ 1,154,022 - ---------------------------------------------------------------------------------------------------------- Capital expenditures Broadcasting (b) $ 48,176 $ 22,814 $ 19,605 Newspaper publishing (c) 23,224 18,268 19,217 Other 1,787 1,338 154 Corporate 10,130 7,380 1,854 - ---------------------------------------------------------------------------------------------------------- $ 83,317 $ 49,800 $ 40,830 - ----------------------------------------------------------------------------------------------------------
(a) Segment results for 1997 include 10 months of operations of PJC, which Belo acquired on February 28, 1997. (See Note 2.) PJC operations include nine television stations, a daily newspaper, certain cable news operations, a cable network and electronic media services. The cable network was subsequently disposed of and its operations are excluded effective July 1, 1997. (b) In 1997, the broadcasting segment includes two-and-one-half months of operations of KENS, which Belo acquired on October 15, 1997. (See Note 2.) (c) In 1997, the newspaper publishing segment includes five months of operations of P-E, in which Belo increased its ownership interest from 38 percent to 100 percent on July 25, 1997. (See Note 2.) - -------------------------------------------------------------------------------- 40 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. H. BELO CORPORATION AND SUBSIDIARIES NOTE 13: QUARTERLY RESULTS OF OPERATIONS (unaudited) - ------------------------------------------------------------------------------- Following is a summary of the unaudited quarterly results of operations for the years ending December 31, 1997 and 1996:
- ------------------------------------------------------------------------------------------------------------------ 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter - ------------------------------------------------------------------------------------------------------------------ 1997 Net operating revenues Broadcasting (a) $ 92,002 $ 152,194 $ 132,957 $ 159,584 Newspaper publishing (b) 137,179 171,358 182,958 202,282 Other (c) 3,521 8,265 3,141 2,940 - ------------------------------------------------------------------------------------------------------------------ $ 232,702 $ 331,817 $ 319,056 $ 364,806 - ------------------------------------------------------------------------------------------------------------------ Earnings from operations Broadcasting (a) $ 16,869 $ 44,849 $ 26,063 $ 44,456 Newspaper publishing (b) 38,877 40,825 37,418 41,970 Other (c) (1,534) (5,755) (1,648) (1,884) Corporate expenses (6,761) (9,205) (9,725) (14,013) - ------------------------------------------------------------------------------------------------------------------ $ 47,451 $ 70,714 $ 52,108 $ 70,529 - ------------------------------------------------------------------------------------------------------------------ Net earnings $ 17,627 $ 26,313 $ 14,958 $ 24,074 - ------------------------------------------------------------------------------------------------------------------ Basic earnings per share $ .39 $ .43 $ .24 $ .39 Diluted earnings per share $ .38 $ .42 $ .24 $ .38 - ------------------------------------------------------------------------------------------------------------------ 1996 Net operating revenues Broadcasting $ 70,607 $ 90,385 $ 79,803 $ 92,601 Newspaper publishing 115,871 121,682 121,575 128,114 Other 766 752 769 1,383 - ------------------------------------------------------------------------------------------------------------------ $ 187,244 $ 212,819 $ 202,147 $ 222,098 - ------------------------------------------------------------------------------------------------------------------ Earnings from operations Broadcasting $ 10,213 $ 27,616 $ 16,804 $ 29,229 Newspaper publishing 20,803 25,257 26,355 30,631 Other (1,001) 7 (112) (132) Corporate expenses (4,104) (4,827) (6,612) (4,478) - ------------------------------------------------------------------------------------------------------------------ $ 25,911 $ 48,053 $ 36,435 $ 55,250 - ------------------------------------------------------------------------------------------------------------------ Net earnings $ 12,724 (d) $ 25,496 $ 18,926 $ 30,359 - ------------------------------------------------------------------------------------------------------------------ Basic earnings per share $ .33 $ .61 $ .43 $ .78 Diluted earnings per share $ .33 $ .60 $ .42 $ .77
- -------------------------------------------------------------------------------- (a) Broadcasting results include the operations of nine new television stations beginning in March 1997, and KENS beginning in October 1997. (See Note 2.) (b) Publishing results include the operations of the Providence Journal-Bulletin beginning in March 1997, and The Press-Enterprise beginning in August 1997. (See Note 2.) (c) Results for TVFN are included from March through June 1997. (See Note 2.) (d) Net earnings for the first quarter of 1996 include a gain of $3,895 on the sale of Belo's interest in its programming distribution partnership. (See Note 9.) 41 44 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The Management of A. H. Belo Corporation is responsible for the preparation of the Company's consolidated financial statements, as well as for their integrity and objectivity. Those statements are prepared using generally accepted accounting principles, they include amounts that are based on our best estimates and judgments, and we believe they are not misstated due to material fraud or error. Management has also prepared the other information in the Annual Report and is responsible for its accuracy and its consistency with the financial statements. Management maintains a system of internal control that is designed to provide reasonable assurance of the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition, and the prevention and detection of fraudulent financial reporting. This system of internal control provides for appropriate division of responsibility, and is documented in written policies and procedures. These policies and procedures are updated as necessary and communicated to those employees having a significant role in the financial reporting process. Management continually monitors the system of internal control for compliance. Management believes that as of December 31, 1997, the Company's system of internal control is adequate to accomplish the objectives described above. Management recognizes, however, that no system of internal control can ensure the elimination of all errors and irregularities, and it recognizes that the cost of the internal controls should not exceed the value of the benefits derived. Finally, Management recognizes its responsibility for fostering a strong ethical climate within the Company according to the highest standards of personal and professional conduct, and this responsibility is delineated in the Company's written statement of business conduct. This statement of business conduct addresses, among other things, the necessity for due diligence and integrity, avoidance of potential conflicts of interest, compliance with all applicable laws and regulations, and the confidentiality of proprietary information. /s/Robert W. Decherd Robert W. Decherd Chairman of the Board, President & Chief Executive Officer /s/Michael D. Perry Michael D. Perry Senior Corporate Vice President and Chief Financial Officer 42 45 EXHIBIT INDEX
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - ------- ----------- ---------- 2.1 Amended and Restated Agreement and Plan of Merger, dated as of September 26, 1996 (Appendix A of the Joint Proxy Statement/Prospectus of Belo and Providence Journal included in Belo's Registration Statement on Form S-4 (Registration No. 333-19337) filed with the Commission on January 8, 1997) N/A 3.1 Certificate of Incorporation of the Company (Exhibit 3.1 to the Company's Amended Annual Report on Form 10-K/A dated April 8, 1996 (the "1995 Form 10-K/A")) N/A 3.2 Certificate of Correction to Certificate of Incorporation dated May 13, 1987 (Exhibit 3.2 to the 1995 Form 10-K/A) N/A 3.3 Certificate of Designation of Series A Junior Participating Preferred Stock of the Company dated April 16, 1987 (Exhibit 3.3 to the 1995 Form 10-K/A) N/A 3.4 Certificate of Amendment of Certificate of Incorporation of the Company dated May 4, 1988 (Exhibit 3.4 to the 1995 Form 10-K/A) N/A 3.5 Certificate of Amendment of Certificate of Incorporation of the Company dated May 3, 1995 (Exhibit 3.5 to the Company's Annual Report on Form 10-K dated February 28, 1996 (the "1995 Form 10-K")) N/A 3.6 Amended Certificate of Designation of Series A Junior Participating Preferred Stock of the Company dated May 4, 1988 (Exhibit 3.6 to the 1995 Form 10-K/A) N/A 3.7 Certificate of Designation of Series B Common Stock of the Company dated May 4, 1988 (Exhibit 3.7 to the 1995 Form 10-K/A) N/A 3.8 Amended and Restated Bylaws of the Company, effective February 13, 1998 --- 4.1 Certain rights of the holders of the Company's Common Stock are set forth in Exhibits 3.1-3.8 above. 4.2 Specimen Form of Certificate representing shares of the Company's Series A Common Stock --- 4.3 Specimen Form of Certificate representing shares of the Company's Series B Common Stock --- 4.4 Amended and Restated Form of Rights Agreement as of February 28, 1996 between the Company and Chemical Mellon Shareholder Services, L.L.C., a New York banking corporation (Exhibit 4.4 to the 1995 Form 10-K) N/A 4.5 Supplement No. 1 to Amended and Restated Rights Agreement between the Company and The First National Bank of Boston dated as of November 11, 1996 (Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996) N/A
E-1 46
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - ------- ----------- ---------- 4.6 Instruments defining rights of debt securities: (1) Indenture dated as of June 1, 1997 between the Company and The Chase Manhattan Bank, as Trustee (Exhibit 4.6(1) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 (the "2nd Quarter 1997 Form 10-Q")) N/A (2) (a) $200 million 6-7/8% Senior Note due 2002 (Exhibit 4.6 (2)(a) to the 2nd Quarter 1997 Form 10-Q) N/A (b) $50 million 6-7/8% Senior Note due 2002 (Exhibit 4.6 (2)(b) to the 2nd Quarter 1997 Form 10-Q) N/A (3) (a) $200 million 7-1/8% Senior Note due 2007 (Exhibit 4.6 (3)(a) to the 2nd Quarter 1997 Form 10-Q) N/A (b) $100 million 7-1/8% Senior Note due 2007 (Exhibit 4.6 (3)(b) to the 2nd Quarter 1997 Form 10-Q) N/A (4) $200 million 7-3/4% Senior Debenture due 2027 (Exhibit 4.6 (4) to the 2nd Quarter 1997 Form 10-Q) N/A (5) Officer's Certificate dated June 13, 1997 establishing terms of debt securities pursuant to Section 3.1 of the Indenture (Exhibit 4.6 (5) to the 2nd Quarter 1997 Form 10-Q) N/A (6) (a) $200 million 7-1/4% Senior Debenture due 2027 (Exhibit 4.6 (6)(a) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997 (the "3rd Quarter 1997 Form 10-Q")) N/A (b) $50 million 7-1/4% Senior Debenture due 2027 (Exhibit 4.6 (6)(b) to the 3rd Quarter 1997 Form 10-Q) N/A (7) Officer's Certificate dated September 26, 1997 establishing terms of debt securities pursuant to Section 3.1 of the Indenture (Exhibit 4.6 (7) to the 3rd Quarter 1997 Form 10-Q) N/A 10.1 Contracts relating to television broadcasting: (1) Form of Agreement for Affiliation between WFAA-TV in Dallas, Texas and ABC (Exhibit 10.1 (1) to the 1995 Form 10-K/A) N/A 10.2 Financing agreements: (1) Amended and Restated Credit Agreement (Five-year $1,000,000,000 revolving credit and competitive advance facility dated as of August 29, 1997 among the Company and The Chase Manhattan Bank, as Administrative Agent and Competitive Advance Facility Agent, Bank of America National Trust and Savings Association and Bank of Tokyo-Mitsubishi, Ltd. as Co-Syndication Agents, and NationsBank as Documentation Agent) (Exhibit 10.2 (1) to the 3rd Quarter 1997 Form 10-Q) N/A
E-2 47
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - ------- ----------- ---------- 10.3 Compensatory plans: (1) The A. H. Belo Corporation Employee Savings and Investment Plan: (a) The A. H. Belo Corporation Employee Savings and Investment Plan Amended and Restated January 1, 1998 --- (b) Restated Master Trust Agreement between the Company and Fidelity Management Trust Company, as restated and dated March 13, 1998 --- (2) The A. H. Belo Corporation 1986 Long-Term Incentive Plan: (a) The A. H. Belo Corporation 1986 Long-Term Incentive Plan (Effective May 3, 1989, as amended by Amendments 1, 2, 3, 4, and 5)(Exhibit 10.3(2) to the Company's Annual Report on Form 10-K dated March 10, 1997 (the "1996 Form 10-K")) N/A (b) Amendment No. 6 to 1986 Long-Term Incentive Plan --- (c) Amendment No. 7 to 1986 Long-Term Incentive Plan (Exhibit 10.3(9) to the 1995 Form 10-K) N/A (3) A. H. Belo Corporation 1995 Executive Compensation Plan as restated to incorporate amendments through December 4, 1997 --- (4) Management Security Plan (Exhibit 10.3 (1) to the 1996 Form 10-K) N/A (5) A. H. Belo Corporation Supplemental Executive Retirement Plan: (a) A. H. Belo Corporation Supplemental Executive Retirement Plan (Exhibit 10.3(27) to the Company's Annual Report on Form 10-K dated March 18, 1994 (the "1993 Form 10-K")) N/A (b) Trust Agreement dated February 28, 1994, between the Company and Mellon Bank, N.A. (Exhibit 10.3(28) to the 1993 Form 10-K) N/A 12 Ratio of Earnings to Fixed Charges --- 21 Subsidiaries of the Company --- 23 Consent of Ernst & Young LLP --- 27 Financial Data Schedule N/A 99 Unaudited Pro Forma Combined Condensed Statements of Earnings reflecting the acquisition of the Providence Journal Company and the exchange of Television Food Network for KENS-TV for the year ended December 31, 1997 ---
E-3 EX-3.8 2 AMENDED & RESTATED BYLAWS 1 EXHIBIT 3.8 AMENDED AND RESTATED BYLAWS OF A. H. BELO CORPORATION (A Delaware Corporation) Effective February 13, 1998 2 INDEX TO BYLAWS OF A. H. BELO CORPORATION
Page ---- ARTICLE I - OFFICES Section 1. Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II - MEETINGS OF THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 3. Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 4. Notice of Annual or Special Meeting . . . . . . . . . . . . . . . . 2 Section 5. Business at Special Meeting . . . . . . . . . . . . . . . . . . . . 2 Section 6. Quorum of Stockholders . . . . . . . . . . . . . . . . . . . . . . 2 Section 7. Act of Stockholders' Meeting . . . . . . . . . . . . . . . . . . . 3 Section 8. Voting of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 9. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 10. Voting List . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 11. Order of Business . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 12. Notice of Stockholder Business . . . . . . . . . . . . . . . . . . 5 Section 13. Notice of Stockholder Nominees . . . . . . . . . . . . . . . . . . 6 ARTICLE III - BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 1. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 2. Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 3. Election and Term . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 5. Resignation and Removal . . . . . . . . . . . . . . . . . . . . . 10 Section 6. Compensation of Directors . . . . . . . . . . . . . . . . . . . . 10 ARTICLE IV - MEETINGS OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 1. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3. Business at Regular or Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 4. Quorum of Directors . . . . . . . . . . . . . . . . . . . . . . . 11 Section 5. Act of Directors' Meeting . . . . . . . . . . . . . . . . . . . . 12 Section 6. Action by Written Consent Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE V - COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE VI - NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(ii) 3 Section 1. Methods of Giving Notice . . . . . . . . . . . . . . . . . . . . 14 Section 2. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 3. Attendance as Waiver . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE VII - ACTION WITHOUT A MEETING BY USE OF A CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE VIII - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 1. Executive Officers . . . . . . . . . . . . . . . . . . . . . . . 16 Section 2. Election and Qualification . . . . . . . . . . . . . . . . . . . 16 Section 3. Division Officers . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 4. Other Officers and Agents . . . . . . . . . . . . . . . . . . . . 17 Section 5. Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 6. Term, Removal and Vacancies . . . . . . . . . . . . . . . . . . . 18 Section 7. Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . 18 Section 8. Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . 18 Section 9. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 10. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 11. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 12. Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . 20 Section 13. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 14. Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . 21 Section 15. Officers' Bond . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE IX - CERTIFICATES FOR SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 1. Certificates Representing Shares . . . . . . . . . . . . . . . . 21 Section 2. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . 23 Section 3. Lost, Stolen or Destroyed Certificate . . . . . . . . . . . . . . 23 Section 4. Closing of Stock Ledger and Fixing Record Date . . . . . . . . . 23 Section 5. Foreign Share Ownership . . . . . . . . . . . . . . . . . . . . . 24 Section 6. Registered Stockholders . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE X - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 1. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 2. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 3. Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 4. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 5. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE XI - INDEMNIFICATION OF OFFICERS AND DIRECTORS . . . . . . . . . . . . . . . . . . . . . . 28 Section 1. Actions, Suits, or Proceedings Other Than by or in the Right of the Corporation . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 2. Actions or Suits by or in the Right of the Corporation . . . . . . . . . . . . . . . . . . . 29 Section 3. Indemnification for Costs, Charges, and Expenses of Successful Party . . . . . . . . . . . . . . . 30 Section 4. Determination of Right to Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 5. Advance of Costs, Charges and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6. Procedure for Indemnification . . . . . . . . . . . . . . . . . . 31 Section 7. Other Rights; Continuation of
(iii) 4 Right to Indemnification . . . . . . . . . . . . . . . . . . . 32 Section 8. Extent of Indemnification . . . . . . . . . . . . . . . . . . . . 33 Section 9. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 10. Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE XII - AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(iv) 5 BYLAWS OF A. H. BELO CORPORATION (A Delaware Corporation) ARTICLE I OFFICES Section 1. Registered Office. The registered office shall be located in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The corporation also may have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or as the business of the corporation may require. ARTICLE II MEETINGS OF THE STOCKHOLDERS Section 1. Place of Meetings. All meetings of the stockholders for the election of directors or for any other proper purpose shall be held at such time and place, within or without the State of Delaware, as the Board of Directors may from time to time designate, as stated in the notice of such meeting or a duly executed waiver of notice thereof. Section 2. Annual Meeting. An annual meeting of the stockholders shall be held at 10:00 a.m. on the second Wednesday in May in each year, unless such day is a legal holiday, in which case such meeting shall be held at the specified time on the first full business day thereafter which is not a legal holiday. At such meeting the stockholders entitled to vote thereat shall elect, by a plurality vote of the voting power of all of the shares entitled to vote thereon, the successors to the directors whose terms shall expire that year, and may transact such other business as properly may be brought before the meeting. Section 3. Special Meeting. Special meetings of the stockholders may be called by the Chief Executive Officer, the Board of Directors or the holders of not less than one-fifth of the voting power of all shares entitled to vote at the meeting. Section 4. Notice of Annual or Special Meeting. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman 6 of the Board, the Secretary, or the officer or person calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the records of the corporation, with postage thereon prepaid. Section 5. Business at Special Meeting. The business transacted at any special meeting of the stockholders shall be limited to the purposes stated in the notice thereof. Section 6. Quorum of Stockholders. Unless otherwise provided in the Certificate of Incorporation, the holders of a majority of the voting power of all of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the stockholders, but in no event shall a quorum consist of the holders of less than one-third (1/3) of the shares entitled to vote and thus represented at such meeting. If, however, a quorum shall not be present or represented at any meeting of the stockholders, the stockholders present in person or represented by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 7. Act of Stockholders' Meeting. The vote of the holders of a majority of the voting power of all of the shares entitled to vote and thus represented at a meeting at which a quorum is present shall be the act of the stockholders' meeting, unless the vote of a greater number is required by law or the Certificate of Incorporation. Section 8. Voting of Shares. Each outstanding share shall be entitled to the number of votes per share as provided in the Certificate of Incorporation and the Certificate of Designation, if any, which relates to such share, on each matter submitted to a vote at a meeting of the stockholders. At each election of directors, every stockholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of votes alloted to the shares owned by him for as many persons as there are directors to be elected and for whose election he has the right to vote. Cumulative voting in the election of directors or otherwise is expressly prohibited by the Certificate of Incorporation. -2- 7 Section 9. Proxies. At any meeting of the stockholders, each stockholder having the right to vote shall be entitled to vote either in person or by proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated by the chairman of the meeting or in the order of business for so delivering such proxies. No proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. Each proxy shall be revocable unless expressly provided therein to be irrevocable and unless otherwise made irrevocable by law. Unless required by statute or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting or by such stockholder's proxy, if there be such proxy. Section 10. Voting List. The officer or agent having charge of the stock ledger for shares of the corporation shall make, at least ten (10) days before each meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and number of shares of each class or series of the corporation's stock registered in the name of each stockholder, which list, for a period of ten (10) days prior to such meeting, shall be open to the examination of any stockholder, for any purpose germane to the meeting, at any time during the usual business hours, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The corporation shall be entitled to rely upon the stock ledger as the only evidence as to who are the stockholders entitled to examine the stock ledger, the aforementioned list of stockholders or the books of the corporation, or to vote in person or by proxy at any such meeting of stockholders. Section 11. Order of Business. The order of business of each meeting of the stockholders of the corporation shall be determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations, and procedures and to do all such acts and things as are necessary or desirable for the conduct of the meeting, including, without limitation, the establishment of procedures for the dismissal of business not properly presented, the -3- 8 maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the corporation, restrictions on entry to such meetings after the time prescribed for commencement thereof, and opening and closing of the voting polls. Section 12. Notice of Stockholder Business. At an annual or special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the corporation entitled to vote at such annual or special meeting who complies with the notice procedures set forth in this Section 12. For business to be properly brought before an annual or special meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than thirty (30) days nor more than sixty (60) days prior to the meeting; provided, however, that in the event that less than forty (40) days' notice or prior public disclosure of the date of the meeting is given or made to the stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual or special meeting was mailed or such public disclosure was made. Such stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual or special meeting (a) a brief description of the business desired to be brought before the annual or special meeting and the reasons for conducting such business at the annual or special meeting; (b) the name and address, as they appear on the corporation's books, of such stockholder; (c) the class and number of each class or series of the shares of the corporation which are beneficially owned by such stockholder; and (d) any material interest of such stockholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual or special meeting except in accordance with the procedures set forth in this Section 12. The chairman of an annual or special meeting shall, if the facts warrant, determine that business was not properly brought before the meeting and in accordance with the provisions of this Section 12, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 12, a stockholder seeking to have a proposal included in the corporation's proxy statement shall comply with the requirements of -4- 9 Regulation 14A under the Securities Exchange Act of 1934, as amended (including, but not limited to, Rule 14a-8 or its successor provision). Section 13. Notice of Stockholder Nominees. Only persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 13. Nominations by stockholders shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than thirty (30) days nor more than sixty (60) days prior to the meeting; provided, however, that in the event that less than forty (40) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the corporation's books, of such stockholder and (ii) the class, series and number of shares of the corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in these Bylaws. The chairman of the meeting shall, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. -5- 10 ARTICLE III BOARD OF DIRECTORS Section 1. Powers. The business and affairs of the corporation shall be managed by its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute, the Certificate of Incorporation or by these Bylaws directed or required to be exercised and done by the stockholders. Section 2. Number of Directors. The number of directors of the corporation constituting the Board of Directors shall be not less than nine (9) nor more than eighteen (18), determined from time to time in accordance with these Bylaws by resolution of the Board of Directors or of the stockholders. Section 3. Election and Term. The directors shall be classified with respect to the time for which they shall severally hold office by dividing them into three (3) classes, each consisting of approximately one-third (1/3) of the whole number of the Board of Directors, and each director of the corporation shall hold office until his successor is elected and qualified or until his death, resignation, or removal. Each class of directors shall be as nearly equal in number of directors as possible and shall be denominated in such manner as the Board of Directors may determine. The term of office of those of the first class will expire at the first annual meeting of stockholders after adoption of this Bylaw provision; of the second class one year thereafter; of the third class two years thereafter; and at each annual election held after such classification and election, the successors to the class of directors whose terms shall expire that year shall be elected to hold office for a term of three (3) years, so that the term of office for one class of directors shall expire in each year. Directors need not be residents of the State of Delaware or stockholders of the corporation. Notwithstanding the foregoing, no person shall be eligible to stand for election as director if he or she has attained the age of 75 years. Furthermore, for directors elected to the Board at or after the 1995 Annual Meeting of Stockholders, a director shall be qualified to continue to serve as a director only until the first annual meeting of stockholders following the date on which such director attains the age of 75 years. The term of any director who has attained the age of 75 years shall automatically terminate upon the commencement of such next ensuing annual meeting of -6- 11 stockholders without further action by such director, the board of directors or the stockholders of the corporation. Section 4. Vacancies. Any vacancies occurring in the Board of Directors and any newly created directorships resulting from any increase in the authorized number of directors may be filled by the affirmative vote of a majority of the remaining directors although less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors may be filled by the affirmative vote of a majority of the directors, subject to the applicable provisions then in effect of the Delaware General Corporation Law pertaining thereto. A director elected to fill a newly created directorship shall hold office until his successor is elected and qualified or until his death, resignation, or removal. Section 5. Resignation and Removal. Any director may resign at any time upon giving written notice to the corporation. At any meeting of stockholders called expressly for the purpose of removing a director or directors, any director or the entire Board of Directors may be removed, but for cause only (removal of directors without cause being expressly prohibited), by a vote of the holders of a majority of the voting power of all of the shares then entitled to vote at an election of directors. Section 6. Compensation of Directors. As specifically prescribed from time to time by resolution of the Board of Directors, the directors of the corporation may be paid their expenses of attendance at each meeting of the Board and may be paid reasonable compensation for their services as directors. This provision shall not preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for their services in such capacities. -7- 12 ARTICLE IV MEETINGS OF THE BOARD Section 1. Regular Meetings. Regular meetings of the Board of Directors may be held with or without notice at such time and at such place either within or without the State of Delaware as from time to time shall be prescribed by resolution of the Board of Directors. Section 2. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer or the Secretary on the written request of two directors. Written notice of special meetings of the Board of Directors shall be given to each director at least three (3) days before the date of the meeting. Section 3. Business at Regular or Special Meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 4. Quorum of Directors. A majority of the Board of Directors shall constitute a quorum for the transaction of business, unless a greater number is required by law or the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement of the meeting, until a quorum shall be present. Section 5. Act of Directors' Meeting. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the vote of a greater number is required by law or the Certificate of Incorporation. Section 6. Action by Written Consent Without a Meeting. Any action required or permitted to be taken at a meeting of the Board of Directors or of any committee thereof under the applicable provisions of any statute, the Certificate of Incorporation or these Bylaws may be taken without a meeting if a consent in writing setting forth the action so taken is signed by all members of the Board of Directors or of the committee, as the case may be. Such consent shall have the same force and effect as a unanimous vote of the Board of Directors or of the committee, as the case may be. -8- 13 ARTICLE V COMMITTEES The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an executive committee and one or more other committees, each of which, to the extent provided in such resolution, the Certificate of Incorporation or these Bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it, except that no such committee shall have the power or authority of the Board of Directors in reference to amending the Certificate of Incorporation (except as permitted by the Delaware General Corporation Law), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease, or exchange of all or substantially all of the property and assets of the corporation otherwise than in the usual and regular course of its business, recommending to the stockholders a voluntary dissolution of the corporation or a revocation thereof, amending, altering, or repealing the Bylaws of the corporation or adopting new Bylaws for the corporation, filling vacancies in or removing members of the Board of Directors or any such committee, fixing the compensation of any member of such committee, or altering or repealing any resolution of the Board of Directors which by its terms provides that it shall not be so amendable or repealable. Unless such resolution, the Certificate of Incorporation or these Bylaws so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of shares of the corporation, or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. Vacancies in the membership of any such committee shall be filled by resolution adopted by the majority of the full Board of Directors at a regular or special meeting of the Board. The designation of any such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him by law. Any executive committee designated by the Board of Directors shall consist of the Chief Executive Officer and such number (not less than two (2)) of other directors as the Board may from time to time determine by resolution adopted by the majority of the full Board of Directors, one of the members of which committee shall be designated the chairman thereof by the Board of Directors. The executive committee may make rules for the conduct of its business, not inconsistent with this Article V, as it shall from time to time deem necessary and shall keep regular minutes of its -9- 14 proceedings and report the same to the Board when required. A majority of the members of the executive committee shall constitute a quorum for the transaction of business. If a quorum is not present at a meeting, the members present may adjourn the meeting until a quorum is present. The act of a majority of the members present at any meeting at which a quorum is present shall be the act of the executive committee, except as otherwise specifically provided by statute, the Certificate of Incorporation or the Bylaws of the corporation. Any member of the executive committee may be removed by the Board of Directors by the affirmative vote of a majority of the full Board, whenever in its judgment the best interests of the corporation will be served thereby. ARTICLE VI NOTICES Section 1. Methods of Giving Notice. Whenever any notice is required to be given to any stockholder or director under the provisions of any statute, the Certificate of Incorporation or these Bylaws, it shall be given in writing and delivered personally or mailed to such stockholder or director at such address as appears on the books of the corporation, and such notice shall be deemed to be given at the time the same shall be deposited in the United States mail with sufficient postage thereon prepaid. Notice to directors may also be given by telegram, telex, telecopy or similar means of visual data transmission, and notice given by any of such means shall be deemed to be delivered when transmitted for delivery to the recipient. Section 2. Waiver of Notice. Whenever any notice is required to be given to any stockholder or director under the provisions of any statute, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice shall be deemed equivalent to the giving of such notice. Section 3. Attendance as Waiver. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened. -10- 15 ARTICLE VII ACTION WITHOUT A MEETING BY USE OF A CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT Subject to the provisions required or permitted for notice of meetings, unless otherwise restricted by the Certificate of Incorporation or these Bylaws, stockholders, members of the Board of Directors or members of any committee designated by such Board may participate in and hold a meeting of such stockholders, Board or committee by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. ARTICLE VIII OFFICERS Section 1. Executive Officers. The officers of the corporation shall consist of a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents (with such supplemental designation to indicate seniority or scope of duties as the Board of Directors may determine from time to time), a Secretary, and a Treasurer, each of whom shall be elected by the Board of Directors as provided in Section 2 of this Article; provided that any of such offices except President, Secretary and Treasurer may be allowed to become vacant by failure of the Board of Directors to fill the office. Any two or more offices may be held by the same person, except that the Chairman of the Board or the President and the Secretary shall not be the same person. Section 2. Election and Qualification. The Board of Directors shall annually choose (subject to the provisions of Section 1 of this Article) a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, and a Treasurer, none of whom, except the Chairman of the Board, the Chief Executive Officer and the President need to be a member of the Board. Section 3. Division Officers. The Board of Directors may from time to time establish one or more divisions of the corporation and assign to such divisions responsibilities for such of the corporation's business, operations and affairs as the Board may designate. The Board of Directors may appoint or authorize an officer of the corporation to appoint in writing officers of a division. -11- 16 Unless elected or appointed an officer of the corporation by the Board of Directors or pursuant to authority granted by the Board, an officer of a division shall not as such be an officer of the corporation, except that he shall be an officer of the corporation for the purposes of executing and delivering documents on behalf of the corporation or for other specific purposes, if and to the extent that he may be authorized to do so by the Board of Directors. Unless otherwise provided in the writing appointing an officer of a division, such officer shall hold office until his successor is appointed and qualified. Any officer of a division may be removed with or without cause by the Board of Directors or by the officer, if any, of the corporation then authorized by the Board of Directors to appoint such officer of a division. The Board of Directors may prescribe or authorize an officer of the corporation or an officer of a division to prescribe in writing the duties and powers and authority of officers of divisions and may authorize an officer of the corporation or an officer of a division to determine the compensation for officers of divisions. Section 4. Other Officers and Agents. The Board of Directors may elect or appoint such other officers, assistant officers and agents as the Board may deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. Section 5. Salaries. Subject to the provisions of Section 3 of this Article, the compensation of all officers and agents of the corporation shall be determined by the Board of Directors. Section 6. Term, Removal and Vacancies. Each officer of the corporation shall hold office until his successor is elected and qualified, or until his earlier death, resignation or removal. Any officer may resign at any time upon giving written notice to the corporation. Any officer or agent or member of the executive committee elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise shall be filled (subject to the provisions of Sections 1 and 3 of this Article) by the Board of Directors. -12- 17 Section 7. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors and shall have such other powers and duties as usually pertain to such office or as may be prescribed by the Board of Directors. Section 8. Chief Executive Officer. The Board of Directors may designate whether the Chairman of the Board or the President shall be the Chief Executive Officer of the corporation. The officer so designated as the Chief Executive Officer shall have general powers of oversight, supervision and management of the business and affairs of the corporation, and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall execute bonds, mortgages and other contracts requiring a seal under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed, and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation. The Chief Executive Officer shall have such other powers and duties as usually pertain to such office or as may be prescribed by the Board of Directors. If a Chief Executive Officer is not otherwise designated by the Board of Directors, the Chairman of the Board shall be the Chief Executive Officer of the corporation. Section 9. President. The President, in the absence or disability of the Chairman of the Board, shall perform the duties and exercise the powers of the Chairman of the Board. The President shall perform such other duties and exercise such other powers as usually pertain to such office or as may be delegated from time to time by the Board of Directors. Section 10. Vice Presidents. Unless otherwise determined by the Board of Directors, the Vice Presidents, in the order of their seniority as such seniority may from time to time be designated by the Board of Directors, shall perform the duties and exercise the powers of the President in the absence or disability of the President. They shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 11. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders, and shall record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose, and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform -13- 18 such other duties as may be prescribed by the Board of Directors. He shall keep in safe custody the seal of the corporation, and, when authorized by the Board of Directors, affix the same to any instrument requiring it. When so affixed, such seal shall be attested by his signature or by the signature of the Treasurer or an Assistant Secretary. Section 12. Assistant Secretaries. Unless otherwise determined by the Board of Directors, the Assistant Secretaries, in the order of their seniority as such seniority may from time to time be designated by the Board of Directors, shall perform the duties and exercise the powers of the Secretary in the absence or disability of the Secretary. They shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 13. Treasurer. The Treasurer shall have the custody of the corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 14. Assistant Treasurers. Unless otherwise determined by the Board of Directors, the Assistant Treasurers, in the order of their seniority as such seniority may from time to time be designated by the Board of Directors, shall perform the duties and exercise the powers of the Treasurer in the absence or disability of the Treasurer. They shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 15. Officers' Bond. If required by the Board of Directors, any officer so required shall give the corporation a bond (which shall be renewed as the Board may require) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of any and all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. -14- 19 ARTICLE IX CERTIFICATES FOR SHARES Section 1. Certificates Representing Shares. The corporation shall deliver certificates representing all shares to which stockholders are entitled. Such certificates shall be numbered and shall be entered in the books of the corporation as they are issued, and shall be signed by the Chairman of the Board, the President or a Vice President, and the Secretary or an Assistant Secretary of the corporation, and may be sealed with the seal of the corporation or a facsimile thereof. The signatures of the Chairman of the Board, the President or Vice President, Secretary or Assistant Secretary, upon a certificate may be facsimiles, if the certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the corporation itself or an employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issuance. If the corporation is authorized to issue shares of more than one class of stock or more than one series of any class, there shall be set forth upon the face or back of the certificate, or the certificate shall have a statement that the corporation will furnish to any stockholder upon request and without charge, a full statement of all of the powers, designations, preferences, and rights of the shares of each class authorized to be issued and the qualifications, limitations or restrictions thereof, and, if the corporation is authorized to issue any preferred or special class in series, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined, and the authority of the Board of Directors to fix and determine the relative rights and preferences of subsequent series. Each certificate representing shares shall state upon the face thereof that the corporation is organized under the laws of the State of Delaware, the name of the person to whom issued, the number and the class and the designation of the series, if any, which such certificate represents and the par value of each share represented by such certificate or a statement that the shares are without par value. No certificate shall be issued for any share until the consideration therefor has been fully paid. Section 2. Transfer of Shares. Subject to the provisions of Section 5 of this Article IX and the provisions of Section 2 of Article Four of the Certificate of Incorporation, upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed -15- 20 or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction upon its books. Section 3. Lost, Stolen or Destroyed Certificate. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4. Closing of Stock Ledger and Fixing Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors may provide that the stock ledger shall be closed for a stated period but not to exceed, in any case, sixty (60) days. If the stock ledger shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such ledger shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the stock ledger, the Board of Directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than sixty (60) days, and, in case of a meeting of stockholders, not less than ten (10) days, prior to the date on which the particular action requiring such determination of stockholders is to be taken. If the stock ledger is not closed and no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When -16- 21 a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this Section 4, such determination shall apply to any adjournment thereof, except where the determination has been made through the closing of the stock ledger and the stated period of closing has expired. Section 5. Foreign Share Ownership. As used in these Bylaws, the word "Alien" shall include any individual not a citizen of the United States of America and any representative of any such individual; any corporation or other entity organized under the laws of any foreign government; any foreign government, its agencies or representatives; any partnership of which any partner is an alien, except for limited partners insulated in accordance with the rules and regulations of the Federal Communications Commission; any corporation or other entity controlled directly or indirectly by other than United States citizens; and any other entity or individual determined to be an alien under Section 310 of the Communications Act of 1934, as amended, or the rules and regulations of the Federal Communications Commission. At no time shall Aliens (i) own, directly or indirectly, more than one-fourth of the equity in the corporation, or in any other corporation directly or indirectly controlling the corporation, that is represented by the issued and outstanding capital stock of such corporation; or (ii) vote, directly or indirectly, more than one-fourth of the total voting rights in the corporation, or in any other corporation directly or indirectly controlling the corporation, that are represented by the issued and outstanding capital stock of such corporation. The percentage of voting rights and equity ownership of Aliens in the corporation's issued and outstanding capital stock shall be determined in accordance with the Communications Act of 1934, as amended, and the rules and regulations of the Federal Communications Commission, taking into account direct and indirect equity interests and direct and indirect voting rights in the corporation as may be required. As used in these Bylaws, a "Noncompliance Status" means the existence of circumstances in which, but for the following provisions of this Section 5, Aliens would own or hold voting rights or interests in the corporation in excess of the thresholds set forth in this paragraph. In the event a Noncompliance Status shall arise, then, so long as the Noncompliance Status continues to exist, those stockholders causing or contributing to the Noncompliance Status shall have no voting, dividend, or other rights with respect to the shares of the corporation that they -17- 22 may hold, except the right to transfer such shares in such a manner that the Noncompliance Status will cease to exist. No transfers of shares of domestic record to Aliens shall be made if a Noncompliance Status exists or if such transfer would result in a Noncompliance Status. If the corporation shall determine that stock of domestic record in fact is held or voted, in whole or in part, by or for the account of an Alien, and that such interest, but for this Section 5, would give rise to a Noncompliance Status, the holder of such stock shall not be entitled to vote, to receive dividends, or to exercise any other normal stockholder rights, except the right to transfer such stock to a citizen of the United States of America. Alien voting and equity interests and rights in stock of the corporation and the citizenship of transferees of the corporation's stock shall be determined in conformity with regulations prescribed by or upon the approval of the Board of Directors, which shall not be less restrictive than the requirements imposed by the Communications Act of 1934, as amended, and the rules and regulations of the Federal Communications Commission. The Board of Directors shall be authorized, at any time and from time to time, to adopt such other provisions as the directors may deem necessary or desirable to avoid violation of the provisions of Section 310 of the Communications Act of 1934 as now in effect or as it may hereafter from time to time be amended, and to carry out the provisions of this Section 5. Section 6. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. ARTICLE X GENERAL PROVISIONS Section 1. Dividends. The Board of Directors from time to time may declare, and the corporation may pay, dividends on its outstanding shares in cash, property, or its own shares pursuant to law and subject to the provisions of the Certificate of Incorporation and these Bylaws. -18- 23 Section 2. Reserves. The Board of Directors may by resolution create a reserve or reserves out of earned surplus for any proper purpose or purposes, and may abolish any such reserve in the same manner. Section 3. Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors from time to time may designate. Section 4. Fiscal Year. The fiscal year of the corporation shall be the calendar year. Section 5. Seal. The corporate seal shall have inscribed thereon the name of the corporation and may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. -19- 24 ARTICLE XI INDEMNIFICATION OF OFFICERS AND DIRECTORS Section 1. Actions, Suits, or Proceedings Other Than by or in the Right of the Corporation. The corporation shall indemnify any person 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) by reason of the fact that he is or was or has agreed to become a director, officer, employee or agent of the corporation, or is or was serving or has agreed to serve at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges, expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. Actions or Suits by or in the Right of the Corporation. The corporation shall indemnify any person 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 he is or was or has agreed to become a director, officer, employee or agent of the corporation, or is or was serving or has agreed to serve at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges and expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection with the defense or settlement of such action or suit and any -20- 25 appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such costs, charges and expenses which the Court of Chancery or such other court shall deem proper. Section 3. Indemnification for Costs, Charges, and Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against all costs, charges and expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection therewith. Section 4. Determination of Right to Indemnification. Any indemnification under Sections 1 and 2 of this Article (unless ordered by a court) shall be paid by the corporation unless a determination is made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the vote of the holders of a majority of the voting power of all of the shares entitled to vote thereon, that indemnification of the director, officer, employee or agent is not proper in the circumstances because he has not met the applicable standard of conduct set forth in Sections 1 and 2 of this Article. Section 5. Advance of Costs, Charges and Expenses. Costs, charges and expenses (including attorneys' fees) incurred by a person referred to in Sections 1 and 2 of this Article in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding; provided, however, that the payment of such costs, charges and expenses incurred by a director or officer in his capacity as a director or -21- 26 officer (and not in any other capacity in which service was or is rendered by such person while a director or officer) in advance of the final disposition of such action, suit or proceeding shall be made only upon receipt of an undertaking by or on behalf of the director or officer to repay all amounts so advanced in the event that it shall ultimately be determined that such director or officer is not entitled to be indemnified by the corporation as authorized in this Article. Such costs, charges and expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. The Board of Directors may, in the manner set forth above, and upon approval of such director, officer, employee or agent of the corporation, authorize the corporation's counsel to represent such person, in any action, suit or proceeding, whether or not the corporation is a party to such action, suit or proceeding. Section 6. Procedure for Indemnification. Any indemnification under Sections 1, 2 and 3, or advance of costs, charges and expenses under Section 5 of this Article, shall be made promptly, and in any event within 60 days, upon the written request of the director, officer, employee or agent. The right to indemnification or advances as granted by this Article shall be enforceable by the director, officer, employee or agent in any court of competent jurisdiction, if the corporation denies such request, in whole or in part, or if no disposition thereof is made within 60 days. Such person's costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be indemnified by the corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses under Section 5 of this Article where the required undertaking, if any, has been received by the corporation) that the claimant has not met the standard of conduct set forth in Sections 1 or 2 of this Article, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, its independent legal counsel, and its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 or 2 of this Article, nor the fact that there has been an actual determination by the corporation (including its Board of Directors, its independent legal counsel, and its stockholders) that the claimant has not met such applicable standard of -22- 27 conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 7. Other Rights; Continuation of Right to Indemnification. The indemnification and advancement of costs, charges and expenses provided by this Article shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of costs, charges and expenses may be entitled under any law (common or statutory), other Bylaw provision, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the corporation, and shall continue as to a person who has ceased to be a director, officer, employee or agent as to actions taken while he was such a director, officer, employee or agent, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. All rights to indemnification under this Article shall be deemed to be a contract between the corporation and each director, officer, employee or agent of the corporation who serves or served in such capacity at any time while this Article is in effect. Any repeal or modification of this Article or any repeal or modification of relevant provisions of the Delaware General Corporation Law or any other applicable laws shall not in any way diminish any rights to indemnification of such director, officer, employee or agent or the obligations of the corporation arising hereunder. Section 8. Extent of Indemnification. In addition to the specific indemnification provided for herein, the corporation shall indemnify each person who is or was or has agreed to become a director, officer, employee or agent of the corporation, or is or was serving or has agreed to serve at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, to the fullest extent authorized or permitted (i) by the General Corporation Law of Delaware, or any other applicable law, or by any amendment thereof or other statutory provisions in effect on the date hereof, or (ii) by the corporation's Certificate of Incorporation as in effect on the date hereof. The corporation shall also advance expenses to any of the foregoing individuals to the fullest extent authorized or permitted (i) by the General Corporation Law of Delaware, or any other applicable law, or by any amendment thereof or other statutory provision in effect on the date hereof, or (ii) by the corporation's Certificate of Incorporation as in effect on the date hereof. -23- 28 Section 9. Insurance. Notwithstanding the foregoing, the corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him or on his behalf in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article. Section 10. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director, officer, employee and agent of the corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law. ARTICLE XII AMENDMENTS 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 repeal or change by action of the stockholders, is vested in the Board of Directors. Thus, these Bylaws may be altered, amended, or repealed or new Bylaws may be adopted by the affirmative vote of a majority of the Board of Directors at any regular or special meeting of the Board, subject to repeal or change at any regular or special meeting of stockholders at which a quorum is present or represented by the affirmative vote of not less than two-thirds of the voting power of all of the shares entitled to vote at such meeting, voting together as a single class, and present or represented thereat, provided notice of the proposed repeal or change is contained in the notice of such meeting of stockholders. -24- EX-4.2 3 SPECIMEN FORM OF CERTIFICATE - SERIES A COMMON STK 1 EXHIBIT 4.2 COMMON COMMON SERIES A SERIES A PAR VALUE $1.67 EACH PAR VALUE $1.67 EACH [NUMBER] [SHARES] DS INCORPORATED UNDER THE LAWS SEE REVERSE SIDE FOR OF THE STATE OF DELAWARE RIGHTS PLAN CERTIFICATION THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 080555 10 5 BOSTON MASSACHUSETTS AND SEE REVERSE FOR CERTAIN DEFINITIONS NEW YORK, NEW YORK AND RESTRICTIONS A. H. BELO CORPORATION THIS CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF A. H. Belo Corporation transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued under and shall be subject to all of the provisions of the Certificate of Incorporation and Bylaws of the Corporation and any amendments thereto, copies of which are on file with the Corporation and the Transfer Agent, to all of which the holder, by acceptance hereof, assents. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. [A. H. BELO CORPORATION DELAWARE SEAL] /s/ ROBERT W. JECKERD CHAIRMAN OF THE BOARD /s/ BRENDA C. MADDOX TREASURER Dated: COUNTERSIGNED AND REGISTERED THE FIRST NATIONAL BANK OF BOSTON TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE
2 A.H. BELO CORPORATION The Corporation is authorized to issue three series of Common Stock (Series A, Series B, and Series C), and more than one series of preferred stock. Upon written request of the record holder of this Certificate to the Corporation at its principal place of business or registered office, a full statement of the powers, designations, preferences, and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations, or restrictions of such preferences and/or rights will be furnished without charge. The Communications Act of 1934 imposes restrictions on the ownership of shares of the Corporation by aliens. Article IX, Section 5 of the Bylaws of the Corporation provides that (a) not more than one-fourth of the equity or voting power of the Corporation shall at any time by owned of record or voted by or for the account of aliens, and (b) if the stock records of the Corporation shall at any time disclose one-fourth alien ownership or voting power, no transfers of shares to aliens will be made and, if it shall thereafter be found that such shares are in fact held by or for the account of an alien, such shares will not be entitled to vote, to receive dividends, or to any other rights, except the right to transfer such shares to a United States citizen. For these purposes, "alien" shall include the following or their representatives: any individual not a citizen of the United States of America and any representative of any such individual; any corporation or other entity organized under the laws of any foreign government; any foreign government, its agencies or representatives; any partnership of which any partner is an alien, except for limited partners insulated in accordance with the rules and regulations of the Federal Communications Commission; any corporation or other entity controlled directly or indirectly by other than a United States citizen; and any other entity or individual determined to be an alien under Section 310 of the Communications Act of 1934, as amended, or the rules and regulations of the Federal Communications Commission. ----------------------- ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ___________ TEN ENT -- as tenants by the entireties (Cust) (Minor) JT TEN -- as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act _______________________________ in common (State)
Additional abbreviations may also be used though not in the above list. For value received, __________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE [ ] _______________________________________________________________________________ PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASSIGNEE, INCLUDING ZIP CODE _______________________________________________________________________________ _______________________________________________________________________________ ________________________________________________________________________ Shares of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ____________________________________________ Attorney to transfer such stock on the books of the within-named Corporation with full power of substitution in the premises. Dated ---------------------------------- Signature(s) Guaranteed: - ---------------------------------------- THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between A.H. Belo Corporation and The First National Bank of Boston, dated as of March 10, 1986, amended and restated as of February 28, 1996, as amended or supplemented (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of A.H. Belo Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. A.H. Belo Corporation will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, Rights beneficially owned by Acquiring Persons (as defined in the Rights Agreement) may become null and void. EX-4.3 4 SPECIMEN FORM OF CERTIFICATE - SERIES B COMMON STK 1 EXHIBIT 4.3 THE SHARES REPRESENTED HEREBY ARE SUBJECT TO [NUMBER] (i) RESTRICTIONS ON TRANSFER AND THE REGISTRATION OF [SHARES] DB TRANSFER, AND (ii) MANDATORY CONVERSION UPON THE OCCURRENCE OF CERTAIN EVENTS - SEE REVERSE SIDE. A.H. BELO CORPORATION SERIES B COMMON CUSIP 080555 20 4 PAR VALUE $1.67 EACH INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE. SEE REVERSE FOR THIS CERTIFICATE IS TRANSFERABLE IN BOSTON MASSACHUSETTS CERTAIN DEFINITIONS AND NEW YORK, NEW YORK AND RESTRICTIONS SEE REVERSE SIDE FOR RIGHTS PLAN CERTIFICATION This Certifies that is the owner of FULLY PAID AND NONASSESSABLE SHARES OF SERIES B COMMON STOCK OF A.H. BELO CORPORATION transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued under and shall be subject to all of the provisions of the Certificate of Incorporation and Bylaws of the Corporation and any amendments thereto, copies of which are on file with the Corporation and the Transfer Agent, to all of which the holder, by acceptance hereof, assents. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. [A. H. BELO CORPORATION DELAWARE SEAL] Dated: /s/ ROBERT W. DECHERD /s/ BRENDA C. MADDOX CHAIRMAN OF THE BOARD TREASURER COUNTERSIGNED AND REGISTERED THE FIRST NATIONAL BANK OF BOSTON TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE SEE REVERSE SIDE FOR RESTRICTIONS ON THE RIGHTS, PRIVILEGES, AND PREFERENCES OF THESE SHARES AND HOLDERS THEREOF.
2 A.H. BELO CORPORATION The Corporation is authorized to issue three series of Common Stock (Series A, Series B, and Series C), and more than one series of preferred stock. Upon written request of the recordholder of this Certificate to the Corporation at its principal place of business or registered office, a full statement of the powers, designations, preferences, and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations, or restrictions of such preferences and/or rights will be furnished without charge. The holders of Series B Stock are entitled to ten (10) votes per share, voting as a single class with the holders of all outstanding shares of Series A Stock and outstanding shares, if any, of Series C Stock. Shares of Series B Stock are subject to significant restrictions on transfer and registration of transfer and to mandatory conversion upon the occurrence of certain events. In general, Series B Stock can be transferred only to "Permitted Transferees" (as defined in Article Four of the Corporation's Certificate of Incorporation). As a condition to transfer of Series B Stock the Corporation requires affidavits or other proof acceptable to the Corporation and its transfer agent that the transferee is a Permitted Transferee. Series B Stock presented for transfer shall be presumed to be presented for conversion and delivery of Series A Stock to a person who is not a Permitted Transferee unless accompanied by such evidence to the contrary when delivered to the Corporation or its transfer agent. Shares of Series B Stock are freely convertible into shares of Series A Stock. The holder of such shares may exercise the conversion privilege at any time by surrendering the certificate(s) representing Series B Stock to the Corporation or its transfer agent and completing and signing the written notice of election to convert such shares into Series A Stock set forth at the bottom of this certificate. All statements herein are qualified in their entirety by reference to the provisions of Article Four of the Corporation's Certificate of Incorporation and the Certificate of Designation by which the Series B Stock was created, both of which are incorporated herein by this reference. The Communications Act of 1934 imposes restrictions on the ownership of shares of the Corporation by aliens. Article IX, Section 5 of the Bylaws of the Corporation provides that (a) not more than one-fourth of the equity or voting power of the Corporation shall at any time by owned of record or voted by or for the account of aliens, and (b) if the stock records of the Corporation shall at any time disclose one-fourth alien ownership or voting power, no transfers of shares to aliens will be made and, if it shall thereafter be found that such shares are in fact held by or for the account of an alien, such shares will not be entitled to vote, to receive dividends, or to any other rights, except the right to transfer such shares to a United States citizen. For these purposes, "alien"" shall include the following: any individual not a citizen of the United States of America and any representative of any such individual; any corporation or other entity organized under the laws of any foreign government; any foreign government, its agencies or representatives; any partnership of which any partner is an alien, except for limited partners insulated in accordance with the rules and regulations of the Federal Communications Commission; any corporation or other entity controlled directly or indirectly by other than United States citizens; and any other entity or individual determined to be an alien under Section 310 of the Communications Act of 1934, as amended, or the rules and regulations of the Federal Communications Commission. ------------------------- ABBREVIATIONS The following abbreviations, when used in the inscription on the face of the certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ___________ TEN ENT -- as tenants by the entireties (Cust) (Minor) JT TEN -- as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act __________________ in common (State)
Additional abbreviations may also be used though not in the above list. -------------------------- For Value Received, __________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE [ ] _______________________________________________________________________________ PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASSIGNEE, INCLUDING ZIP CODE _______________________________________________________________________________ _______________________________________________________________________________ ________________________________________________________________________ Shares of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ____________________________________________ Attorney to transfer such stock on the books of the within-named Corporation with full power of substitution in the premises. Dated -------------------------------- Signature(s) Guaranteed: - --------------------------------------------- THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. Signature(s) - --------------------------------------------- NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. ------------------------------ UNLESS THE FOLLOWING CERTIFICATE OF PERMITTED TRANSFEREE IS COMPLETED AT TIME OF REQUEST FOR TRANSFER, SHARES OF SERIES A STOCK (RATHER THAN SERIES B STOCK) WILL BE ISSUED AUTOMATICALLY ON A SHARE-FOR-SHARE BASIS UPON TRANSFER PURSUANT TO THE FOREGOING ASSIGNMENT CERTIFICATE OF PERMITTED TRANSFEREE The undersigned hereby certifies that the undersigned, the assignee of ________________ shares of Series B Stock represented by the within certificate, is ____________________________________________________________________________ (State relationship to assignor) of the assignor and as such is a Permitted Transferee (as defined in Article Four of the Corporation's Certificate of Incorporation). The undersigned hereby requests that such shares of series B Stock be transferred to and registered in the name of the undersigned. The undersigned hereby acknowledges that such shares of Series B Stock may not be transferred into "street" or nominee name or to any person who is not a Permitted Transferee and that any such shares subsequently transferred to "street" or nominee name or to a person who is not such a Permitted Transferee will be deemed to have been converted automatically into shares of Series A Stock in accordance with Article Four of the Corporation's Certificate of Incorporation. _____________________________________ _____________________________________ Address Print Name _____________________________________ _____________________________________ City, State, Zip Code Signature Dated _____________________________________ NOTICE OF ELECTION TO CONVERT SHARES OF SERIES B STOCK INTO SHARES OF SERIES A STOCK The undersigned hereby converts ________________ shares of Series B Stock represented by this certificate into a like number of shares of series A Stock to be registered in the name of the undersigned (any balance of shares not converted hereby will be returned to the undersigned as shares of Series B Stock). Dated _______________________________ _____________________________________ Signature This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between A.H. Belo Corporation and The First National Bank of Boston, dated as of March 10, 1986, amended and restated as of February 28, 1996, as amended or supplemented (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of A.H. Belo Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. A.H. Belo Corporation will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, Rights beneficially owned by Acquiring Persons (as defined in the Rights Agreement) may become null and void. EX-10.3.1A 5 AMENDED & RESTATED EMPLOYEE SAVINGS & INVEST PLAN 1 EXHIBIT 10.3(1)(a) A. H. BELO CORPORATION EMPLOYEE SAVINGS AND INVESTMENT PLAN As Restated Effective January 1, 1998 2 A. H. BELO CORPORATION EMPLOYEE SAVINGS AND INVESTMENT PLAN A. H. Belo Corporation, a Delaware corporation, completely restates the A. H. Belo Corporation Employee Savings and Investment Plan effective January 1, 1998, to incorporate into the Plan amendments approved by the Compensation Committee of the Board of Directors since the date of the prior restatement. The Plan is a profit sharing plan with a cash or deferred arrangement intended to qualify under Code section 401(a) and to meet the requirements of Code section 401(k). The Company has entered into trust agreements with Fidelity Management Trust Company and U. S. Trust Company of California, N.A. that provide for the investment and reinvestment of the assets of the Plan. Effective January 1, 1998, the Journal Qualified Compensation Deferral Plan, the Journal Broadcasting 401(k) Plan, the Copley/Colony, Inc. Retirement Plan, the Press-Enterprise Tax Deferred Savings Plan and the Gleaner and Journal Publishing Co. 401(k) Retirement Plan, each of which is qualified defined contribution plan sponsored by a direct or indirect wholly-owned subsidiary of the Company, were merged with and into the Plan. The Copley/Colony, Inc. Retirement Plan holds benefits for certain deferred vested participants and does not cover any active employees of the Company or any of its subsidiaries. Words and phrases with initial capital letters used throughout the Plan are defined in Article 1. 3 TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2 PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 3 CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE 4 ALLOCATIONS TO PARTICIPANTS' ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE 5 VESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE 6 DISTRIBUTIONS TO PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE 7 DISTRIBUTIONS TO BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE 8 PROVISIONS REGARDING COMPANY STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE 9 ADMINISTRATION OF THE PLAN AND TRUST AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE 10 LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS TO PARTICIPANTS' ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE 11 RESTRICTIONS ON DISTRIBUTIONS TO PARTICIPANTS AND BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE 12 TOP-HEAVY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 ARTICLE 13 ADOPTION OF PLAN BY CONTROLLED GROUP MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . 57 ARTICLE 14 AMENDMENT OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 ARTICLE 15 TERMINATION, PARTIAL TERMINATION AND COMPLETE DISCONTINUANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 ARTICLE 16 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 APPENDIX A PARTICIPATING EMPLOYERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(ii) 4 ARTICLE 1 DEFINITIONS 1.1 "Account" means the records, including subaccounts, maintained by the Committee in the manner provided in Article 4 to determine the interest of each Participant in the assets of the Plan and may refer to any or all of the Participant's Deferral Contribution Account, Matching Contribution Account, Profit Sharing Account and Transfer Account. 1.2 "Beneficiary" means the one or more persons or entities entitled to receive distribution of a Participant's interest in the Plan in the event of his death as provided in Article 7. 1.3 "Board of Directors" or "Board" means the Board of Directors of the Company. 1.4 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 1.5 "Committee" or "Administrative Committee" means the Committee appointed under Article 9. 1.6 "Company" means A. H. Belo Corporation, a Delaware corporation. 1.7 "Company Stock" means the Series A Common Stock, par value $1.67 per share, and the Series B Common Stock, par value $1.67 per share, of the Company. 1.8 "Compensation" means the base pay, overtime pay, shift differential pay, premium pay, bonuses and commissions paid to an Employee by the Participating Employers for services performed for the Participating Employers, excluding any other form of remuneration. In addition, Compensation includes any contributions made by the Participating Employers on behalf of an Employee pursuant to a deferral election under the Plan or under any other employee benefit plan containing a cash or deferred arrangement under Code section 401(k) and any amounts that would have been received as cash but for an election to receive benefits under a cafeteria plan meeting the requirements of Code section 125. The annual Compensation of an Employee taken into account for any purpose will not exceed $200,000 for any Plan Year ending before January 1, 1994, as adjusted in regulations prescribed by the Secretary of the Treasury, and will not exceed $150,000 for any Plan Year beginning after December 31, 1993, as adjusted in regulations prescribed by the Secretary of the Treasury. The annual Compensation of an Employee who is covered by a collective bargaining agreement will also be subject to any applicable limit on the amount of such Compensation that may be taken into account for purposes of the Plan. 1.9 "Controlled Group" means the Company and all other corporations, trades and businesses, the employees of which, together with employees of the Company, are required by the first sentence of subsection (b), by subsection (c), by subsection (m) or by subsection (o) of Code section 414 to be treated as if they were employed by a single employer. 5 1.10 "Controlled Group Member" means each corporation or unincorporated trade or business that is or was a member of the Controlled Group, but only during such period as it is or was such a member. 1.11 "Deferral Contribution" means the amount of a Participant's Compensation that he elects to have contributed to the Plan by the Participating Employers rather than paid to him directly in cash. 1.12 "Deferral Contribution Account" means the Account established for each Participant, the balance of which is attributable to the Participant's Deferral Contributions and earnings and losses of the Trust Fund with respect to such contributions. 1.13 "Effective Date" means the first day of October, 1989. 1.14 "Employee" means any person who is: (i) employed by any Controlled Group Member if their relationship is, for federal income tax purposes, that of employer and employee, or (ii) "a leased employee" of a Controlled Group Member within the meaning of Code section 414(n)(2) but only for purposes of the requirements of Code section 414(n)(3). 1.15 "Entry Date" means January 1, April 1, July 1 and October 1 of each Plan Year. 1.16 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.17 "Hour of Service" means each hour credited in accordance with the following rules: (a) Credit for Services Performed. An Employee will be credited with one Hour of Service for each hour for which he is paid, or entitled to payment, by one or more Controlled Group Members for the performance of duties. (b) Credit for Periods in Which No Services Are Performed. An Employee will be credited with one Hour of Service for each hour for which he is paid, or entitled to payment, by one or more Controlled Group Members on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated); except that (i) no more than 501 Hours of Service will be credited under this subsection (b) to an Employee on account of any single continuous period during which he performs no duties (whether or not such period occurs in a single Plan Year), (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed will not be credited to the Employee if the payment is made or due under a plan maintained solely for the purpose of complying with applicable workers' compensation or unemployment compensation or disability insurance laws, and (iii) Hours of Service will not be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee. For purposes of this subsection (b), an Employee will be -2- 6 credited with Hours of Service on the basis of his regularly scheduled working hours per week (or per day if he is paid on a daily basis) or, in the case of an Employee without a regular work schedule, on the basis of 40 Hours of Service per week (or 8 Hours of Service per day if he is paid on a daily basis) for each week (or day) during the period of time during which no duties are performed; except that an Employee will not be credited with a greater number of Hours of Service for a period during which no duties are performed than the number of hours for which he is regularly scheduled for the performance of duties during the period or, in the case of an Employee without a regular work schedule, on the basis of 40 Hours of Service per week (or 8 Hours of Service per day if he is paid on a daily basis). (c) Credit for Back Pay. An Employee will be credited with one Hour of Service for each hour for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by one or more Controlled Group Members; except that an hour will not be credited under both subsection (a) or (b), as the case may be, and this subsection (c), and Hours of Service credited under this subsection (c) with respect to periods described in subsection (b) will be subject to the limitations and provisions under subsection (b). (d) Credit for Certain Absences. If an Employee is absent from work on or after the Effective Date for any period by reason of the pregnancy of the Employee, by reason of the birth of a child of the Employee, by reason of the placement of a child with the Employee, or for purposes of caring for a child for a period beginning immediately following the birth or placement of that child, the Employee will be credited with Hours of Service (solely for the purpose of determining whether he has a One Year Break in Service under the Plan) equal to (i) the number of Hours of Service which otherwise would normally have been credited to him but for his absence, or (ii) if the number of Hours of Service under clause (i) is not determinable, 8 Hours of Service per normal workday of the absence, provided, however, that the total number of Hours of Service credited to an Employee under this subsection (d) by reason of any pregnancy, birth or placement will not exceed 501 Hours of Service. Hours of Service will not be credited to an Employee under this subsection (d) unless the Employee furnishes to the Committee such timely information as the Committee may reasonably require to establish that the Employee's absence from work is for a reason specified in this subsection (d) and the number of days for which there was such an absence. (e) Manner of Counting Hours. No hour will be counted more than once or be counted as more than one Hour of Service even though the Employee may receive more than straight-time pay for it. With respect to Employees whose compensation is not determined on the basis of certain amounts for each hour worked during a given period and for whom hours are not required to be counted and recorded by any federal law (other than ERISA), Hours of Service will be credited on the basis of 10 Hours of Service daily, 45 Hours of Service weekly, 95 Hours of Service semi-monthly, or 190 Hours of Service monthly, if the Employee's compensation is determined on a daily, weekly, semi-monthly or monthly basis, respectively, for each period in which the Employee would be credited with at least one Hour of Service under this section. Except as otherwise provided in subsection (d), Hours of Service will be credited to eligibility -3- 7 and vesting computation periods in accordance with the provisions of 29 C.F.R. Section 2530.200b-2, which provisions are incorporated in this Plan by reference. 1.18 "Matching Contribution Account" means the Account established for each Participant, the balance of which is attributable to Participating Employer matching contributions made pursuant to Article 3, forfeitures and earnings and losses of the Trust Fund with respect to such contributions and forfeitures. 1.19 [Reserved] 1.20 "One Year Break in Service" means a period of at least 12 consecutive months in which an Employee is absent from service. A One Year Break in Service Year will begin on the Employee's termination date (as defined in Section 1.31) and will end on the day on which the Employee again performs an Hour of Service for a Controlled Group Member. If an Employee who is absent from work with a Controlled Group Member because of (i) the Employee's pregnancy, (ii) the birth of the Employee's child, (iii) the placement of a child with the Employee in connection with the Employee's adoption of the child, or (iv) caring for such child immediately following such birth or placement, will be absent for such reason beyond the first anniversary of the first date of his absence, his period of absence, solely for purposes of preventing a One Year Break in Service, will commence on the second anniversary of the first day of his absence from work. The period of absence from work between the first and second anniversaries of the first date of his absence from work will not be taken into account in determining whether the Employee has completed a Year of Service. The provisions of this paragraph will not apply to an Employee unless the Employee furnishes to the Committee such timely information that the Committee may reasonably require to establish (i) that the absence from work is for one of the reasons specified in this paragraph and (ii) the number of days for which there was such an absence. Notwithstanding the foregoing, if an Employee is classified as a part-time Employee in accordance with standard personnel practices of his Participating Employer and is subject to the 1,000 Hour of Service requirement of Section 1.31, the term 'One Year Break in Service' means a 12 consecutive month computation period (determined under Section 1.31) in which the Employee fails to complete more than 500 Hours of Service. 1.21 "Participant" means an Employee or former Employee who has met the applicable eligibility requirements of Article 2 and who has not yet received a distribution of the entire amount of his vested interest in the Plan. 1.22 "Participating Employer" means each Controlled Group Member set forth on Appendix A and any other Controlled Group Member or organizational unit of the Company or a Controlled Group Member which is designated as a Participating Employer under the Plan by the Board of Directors. -4- 8 1.23 "Plan" means the employee savings and investment plan set forth herein, as amended from time to time. 1.24 "Plan Year" means the period with respect to which the records of the Plan are maintained, which will be the 12-month period beginning on January 1 and ending on December 31. 1.25 "Qualified Plan" means an employee benefit plan that is qualified under Code section 401(a). 1.26 "Transfer Account" means the Account established for each Participant, the balance of which is attributable to the Participant's rollover and transfer contributions made pursuant to Article 3 and earnings and losses of the Trust Fund with respect to such contributions. 1.27 "Trust Agreement" means the agreement or agreements executed by the Company and the Trustee which establishes a trust fund to provide for the investment, reinvestment, administration and distribution of contributions made under the Plan and the earnings thereon, as amended from time to time. 1.28 "Trust Fund" means the assets of the Plan held by the Trustee pursuant to the Trust Agreement. 1.29 "Trustee" means the one or more individuals or organizations who have entered into the Trust Agreement as Trustee, and any duly appointed successor. 1.30 "Valuation Date" means the date with respect to which the Trustee determines the fair market value of the assets comprising the Trust Fund or any portion thereof. The regular Valuation Date will be the last day of each Plan Year. However, if the Committee determines that the fair market value of any asset comprising the Trust Fund has changed substantially since the previous Valuation Date, or if the Committee determines it to be in the best interests of the Plan and the Participants to value any asset of the Trust Fund at a time other than the regular Valuation Date, the Committee may fix, in a uniform and nondiscriminatory manner, one or more interim Valuation Dates. 1.31 "Year of Service" means each period of 365 days (determined by aggregating periods of service that are not consecutive) beginning on the date an Employee is first credited with an Hour of Service (or is again credited with an Hour of Service following his reemployment) and ending on the earlier of (i) the date on which the Employee quits, retires, is discharged or dies or (ii) the first anniversary of the date on which the Employee is absent from service with a Controlled Group Member for any other reason, such as vacation, holiday, sickness, disability, leave of absence or layoff (the earlier of such dates is hereafter referred to as the Employee's "termination date"). An Employee's period of service for purposes of determining a Year of Service will include each period in which the Employee is absent from service for less than 12 months (measured from the Employee's termination date) and any periods during which -5- 9 he is in the service of the armed forces of the United States and his reemployment rights are guaranteed by law, provided he returns to employment with a Controlled Group Member within the time such rights are guaranteed. Notwithstanding the foregoing, if an Employee is classified as a part-time Employee in accordance with standard personnel practices of his Participating Employer and did not participate in the Company's Employee Stock Purchase Plan immediately before the Effective Date, the term 'Year of Service' means the completion of 1,000 Hours of Service during the 12 consecutive months beginning on the date the Employee first performs an Hour of Service, or during the 12 consecutive months beginning on any anniversary of such date. If a part-time Employee who is subject to the 1,000 Hour of Service requirement of this Section transfers to full-time status, his service for the computation period in which the transfer occurs (but not for prior computation periods) will be determined under the elapsed time method, or if more favorable to the Employee, on the basis of his Hours of Service completed as of the date of such transfer. If a full-time Employee transfers to part-time status and becomes subject to the 1,000 Hour of Service requirement of this Section, he will receive credit for service under the elapsed time method through the date of the transfer, and his service during the computation period in which the transfer occurs will be credited on the basis of Hours of Service (with any fractional year prior to the date of transfer converted to hours on the basis of 190 Hours of Service for each month in which the Employee was credited with at least one Hour of Service). In determining whether an Employee of WWL-TV, Inc., a Delaware corporation ("WWL-TV"), has completed a Year of Service for purposes of eligibility to participate under Section 2.1, each such Employee who became an employee of WWL-TV on June 1, 1994, and who immediately prior to that date was an employee of Rampart Operating Partnership, a partnership organized under the laws of the State of Louisiana ("Rampart"), will receive credit for an Hour of Service for each hour for which the Employee was paid or entitled to payment by Rampart or any affiliate of Rampart determined in accordance with Section 1.17 and will receive credit for his period of employment with Rampart or any affiliate of Rampart calculated in the same manner as if it had been employment with a Controlled Group Member. In determining whether an Employee of Third Avenue Television, Inc., a Delaware corporation ("Third Avenue"), has completed a Year of Service for purposes of eligibility to participate under Section 2.1, each such Employee who became an employee of Third Avenue on February 1, 1995, and who immediately prior to that date was an employee of KIRO, Inc., a Washington corporation ("KIRO"), will receive credit for an Hour of Service for each hour for which the Employee was paid or entitled to payment by KIRO or any affiliate of KIRO determined in accordance with Section 1.17 and will receive credit for his period of employment with KIRO or any affiliate of KIRO calculated in the same manner as if it had been employment with a Controlled Group Member. In determining whether an Employee of Bryan-College Station Eagle, Inc., a Delaware corporation ("Bryan-College Station"), has completed a Year of Service for purposes of -6- 10 eligibility to participate under Section 2.1, each such Employee who became an employee of Bryan-College Station on December 26, 1995, and who immediately prior to that date was an employee of Worrell Enterprises, Inc. ("Worrell") or Eagle Publishing Limited Partnership ("Eagle Publishing"), or any affiliate of either company, will receive credit for an Hour of Service for each hour for which the Employee was paid or entitled to payment by Worrell, Eagle Publishing or any affiliate of either company determined in accordance with Section 1.17 and will receive credit for his period of employment with Worrell, Eagle Publishing or any affiliate of either company calculated in the same manner as if it had been employment with a Controlled Group Member. In determining whether an Employee of Owensboro Messenger-Inquirer, Inc., a Delaware corporation ("Owensboro"), has completed a Year of Service for purposes of eligibility to participate under Section 2.1, each such Employee who became an employee of Owensboro on January 1, 1996, and who immediately prior to that date was an employee of Owensboro Publishing Company ("OPC"), will receive credit for an Hour of Service for each hour for which the Employee was paid or entitled to payment by OPC or any affiliate of OPC determined in accordance with Section 1.17 and will receive credit for his period of employment with OPC or any affiliate of OPC calculated in the same manner as if it had been employment with a Controlled Group Member. An Employee who became an employee of KMOV-TV, Inc. (formerly, Third Avenue Television, Inc.) on June 2, 1997, and who immediately prior to that date was an employee of Viacom Broadcasting of Missouri, Inc. ("Viacom") will receive credit for an Hour of Service for each hour for which such Employee was paid or entitled to be paid by Viacom or any affiliate of Viacom determined in accordance with Section 1.17 and will receive credit for his period of employment with Viacom or any affiliate of Viacom calculated in the same manner as if it had been employment with a Controlled Group Member. An Employee who became an employee of Henderson-Gleaner, Inc. on March 31, 1997, and who immediately prior to that date was an employee of Gleaner and Journal Publishing Co. will receive credit for an Hour of Service for each hour for which such Employee was paid or entitled to be paid by Gleaner and Journal Publishing Co. or any affiliate of Gleaner and Journal Publishing Co. determined in accordance with Section 1.17 and will receive credit for his period of employment with Gleaner and Journal Publishing Co. or any affiliate of Gleaner and Journal Publishing Co. calculated in the same manner as if it had been employment with a Controlled Group Member. An Employee who was an employee of The Providence Journal Company or any affiliate of The Providence Journal Company on February 28, 1997, prior to its merger with and into Belo Holdings, Inc. will receive credit for an Hour of Service for each hour for which such Employee was paid or entitled to be paid by The Providence Journal Company or any affiliate of The Providence Journal Company determined in accordance with Section 1.17 and will receive credit for his period of employment with The Providence Journal Company or any affiliate of The Providence Journal Company calculated in the same manner as if it had been employment with a Controlled Group Member. -7- 11 An Employee who was an employee of The Press-Enterprise Company or any affiliate of The Press- Enterprise Company on July 25, 1997, will receive credit for an Hour of Service for each hour for which such Employee was paid or entitled to be paid by The Press-Enterprise Company or any affiliate of The Press-Enterprise Company determined in accordance with Section 1.17 and will receive credit for his period of employment with The Press- Enterprise Company or any affiliate of The Press-Enterprise Company calculated in the same manner as if it had been employment with a Controlled Group Member. An Employee who became an employee of BHI Sub, Inc. on October 15, 1997, and who immediately prior to that date was an employee of Harte-Hanks Communications, Inc. will receive credit for an Hour of Service for each hour for which such Employee was paid or entitled to be paid by Harte-Hanks Communications, Inc. or any affiliate of Harte- Hanks Communications, Inc. determined in accordance with Section 1.17 and will receive credit for his period of employment with Harte-Hanks Communications, Inc. or any affiliate of Harte-Hanks Communications, Inc. calculated in the same manner as if it had been employment with a Controlled Group Member. -8- 12 ARTICLE 2 PARTICIPATION 2.1 Eligibility to Participate. Each Employee who had both attained age 21 and completed a Year of Service before the Effective Date, or who participated in the Company's Employee Stock Purchase Plan immediately before the Effective Date, will be a Participant as of the first payroll period beginning on or after the Effective Date, if he is then employed by a Participating Employer. Each Employee who is not a Participant as of the Effective Date will become a Participant as of the first payroll period beginning on or after the first Entry Date following the date he has both attained age 21 and completed a Year of Service, if he is then employed by a Participating Employer. Notwithstanding the foregoing: (i) Each Employee of WWL-TV, Inc. who completed a Year of Service on or before May 31, 1994, will become a Participant on June 1, 1994, if he is classified as a full-time Employee in accordance with standard personnel practices of WWL-TV, Inc., and will become a Participant on July 1, 1994, if he is classified as a part-time Employee in accordance with such standard personnel practices. (ii) Each Employee of Third Avenue Television, Inc. who, on January 31, 1995, was making deferral contributions to the section 401(k) plan of KIRO, Inc. will become a Participant on February 1, 1995. Each other Employee of Third Avenue Television, Inc. who on February 1, 1995, had satisfied the age and service requirements of this Section for eligibility to participate will become a Participant as of the first payroll period beginning on or after April 1, 1995. (iii) Each Employee of Bryan-College Station Eagle, Inc. who on December 25, 1995, was making deferral contributions to the section 401(k) plan of Worrell Enterprises, Inc. or Eagle Publishing Limited Partnership will become a Participant on December 26, 1995. Each other Employee of Bryan-College Station Eagle, Inc. who on December 26, 1995, had satisfied the age and service requirements of this Section for eligibility to participate will become a Participant as of the first payroll period beginning on or after April 1, 1996. (iv) Each Employee of Owensboro Messenger-Inquirer, Inc. who on December 31, 1995, was making deferral contributions to the section 401(k) plan of Owensboro Publishing Company will become a Participant on January 1, 1996. Each other Employee of Owensboro Messenger-Inquirer, Inc. who on January 1, 1996, had satisfied the age and service requirements of this Section for eligibility to participate will become a Participant as of the first payroll period beginning on or after April 1, 1996. (v) Each Employee of KMOV-TV, Inc. (formerly, Third Avenue Television, Inc.) who on June 1, 1997, was making deferral contributions to a section 401(k) plan of -9- 13 Viacom Broadcasting of Missouri, Inc. will become a Participant as of the first payroll period beginning after June 2, 1997. Each other Employee of KMOV-TV, Inc. who on June 2, 1997, had satisfied the age and service requirements of this Section for eligibility to participate will become a Participant as of the first payroll period beginning on or after July 1, 1997. (vi) Each Employee of Henderson-Gleaner, Inc. who on December 31, 1997, was making deferral contributions to the Gleaner and Journal Publishing Co. 401(k) Retirement Plan will become a Participant as of the first payroll period that includes January 1, 1998. Each other Employee of Henderson-Gleaner, Inc. who on December 31, 1997, had satisfied the age and service requirements of this Section for eligibility to participate will become a Participant as of the first payroll period beginning on or after January 1, 1998. Notwithstanding any other provision of this Section to the contrary, an Employee of Henderson-Gleaner, Inc. whose date of employment is in 1997 will be eligible to become a Participant after completing 6 months of service and attaining age 21. (vii) Each Employee who was making deferral contributions to the Journal Qualified Compensation Deferral Plan or the Journal Broadcasting 401(k) Plan (a "Journal Plan") on December 31, 1997, will become will become a Participant as of the first payroll period that includes January 1, 1998. Each other Employee of a Controlled Group Member participating in a Journal Plan who on December 31, 1997, had satisfied the age and service conditions of this Section for eligibility to participate will become a participant as of the first payroll period beginning on or after January 1, 1998. Notwithstanding any other provision of this Section to the contrary, an Employee of a Controlled Group Member participating in a Journal Plan whose date of employment is in 1997 will be eligible to become a Participant after completing 6 months of employment (without regard to the Employee's age) if such Employee was classified as a "regularly scheduled Employee" under the provisions of a Journal Plan. (viii) Each Employee of The Press-Enterprise Company who on December 31, 1997, was making deferral contributions to the Press-Enterprise Tax Deferred Savings Plan will become a Participant as of the first payroll period that includes January 1, 1998. Each other Employee of The Press-Enterprise Company who on December 31, 1997, had satisfied the age and service requirements of this Section for eligibility to participate will become a Participant as of the first payroll period beginning on or after January 1, 1998. (ix) Each Employee of BHI Sub, Inc. who on October 14, 1997, was making deferral contributions to a section 401(k) plan of Harte-Hanks Communications, Inc. will become a Participant as of the first payroll period beginning after October 15, 1997. Each other Employee of BHI Sub, Inc. who on October 15, 1997 had satisfied the age and service requirements of this Section for eligibility to participate will become a Participant as of the first payroll period beginning on or after January 1, 1998. -10- 14 2.2 Exclusions from Participation. (a) Ineligible Employees. An Employee who is otherwise eligible to participate in the Plan will not become or continue as an active Participant if (i) he is covered by a collective bargaining agreement that does not expressly provide for participation in the Plan, provided that the representative of the Employees with whom the collective bargaining agreement is executed has had an opportunity to bargain concerning retirement benefits for those Employees; (ii) he is represented by a bargaining representative but is not covered by a collective bargaining agreement, unless the Company and the bargaining representative agree in writing that the Employee will be eligible to participate in the Plan; (iii) he is a nonresident alien who receives no earned income (within the meaning of Code section 911(d)(2)) from a Participating Employer which constitutes income from sources within the United States (within the meaning of Code section 861(a)(3)); (iv) he is a leased employee required to be treated as an Employee under Code section 414(n) or he is classified by a Participating Employer as an independent contractor whose compensation for services is reported on a form other than Form W-2 or any successor form for reporting wages paid to employees; (v) he is employed by a Controlled Group Member or an organizational unit thereof that has not been designated as a Participating Employer by the Board; or (vi) he is then on an approved leave of absence without pay or in the service of the armed forces of the United States. (b) Exclusion after Participation. A Participant who becomes ineligible under subsection (a) may not elect to have Deferral Contributions made or continued to the Plan. (c) Participation after Exclusion. An Employee or Participant who is excluded from active participation will be eligible to participate in the Plan on the first day he is no longer described in subsection (a) and is credited with one or more Hours of Service by a Participating Employer, provided that he has otherwise met the requirements of Section 2.1. This subsection will apply to an Employee who returns from an approved leave of absence or from military leave and who would otherwise be treated as a new Employee under Section 2.3 only if he returns to employment with a Controlled Group Member immediately following the expiration of the leave of absence or, in the case of an Employee on military leave, during the period in which reemployment rights are guaranteed by law. 2.3 Reemployment Provisions. All Hours of Service are counted in determining eligibility to participate, except as otherwise provided in this Section. (a) Termination of Employment before Participation. If an Employee terminates employment before becoming a Participant and is reemployed by a Controlled Group Member before incurring a number of consecutive One Year Breaks in Service at least equal to the greater of five or his aggregate Years of Service, he will become a Participant on the later of the Entry Date initially determined under Section 2.1 or the date he is credited with one or more Hours of Service by a Participating Employer after reemployment; but if he is reemployed by a Controlled Group Member after incurring a number of consecutive One Year Breaks in Service at least equal to the greater of five or his aggregate Years of Service, he will be treated as a new -11- 15 Employee for purposes of the Plan and his Hours of Service completed before his reemployment will be disregarded in determining when he will become a Participant. (b) Termination of Employment after Participation. A Participant who terminates employment will again become an active Participant immediately upon his reemployment by a Participating Employer. 2.4 Veterans' Reemployment Rights. (a) Service Credit. An Employee who returns to employment with a Controlled Group Member following a period of Qualified Military Service (as hereinafter defined) will not be treated as having incurred any One Year Breaks in Service because of his period of Qualified Military Service. In addition, each period of Qualified Military Service will, upon reemployment with a Controlled Group Member, be deemed to be employment with such Controlled Group Member for purposes of the Plan. (b) Compensation. An Employee described in subsection (a) above will be treated for Plan purposes as having received compensation from the Controlled Group Member during each period of Qualified Military Service equal to (i) the compensation the Employee would have received during such period of Qualified Military Service if he were not in Qualified Military Service, based on the rate of pay the Employee would have received from the Controlled Group Member but for his absence during the period of Qualified Military Service or (ii) if the compensation the Employee would have received during his period of Qualified Military Service is not reasonably certain, the Employee's average compensation from the employer during the 12-month period immediately preceding the Qualified Military Service, or if shorter, during the period of employment immediately preceding the Qualified Military Service. (c) Qualified Military Service. For purposes of the Plan, the term "Qualified Military Service" means service in the uniformed services (within the meaning of the Uniformed Services Employment and Reemployment Rights Act ("USERRA"), provided the Employee is entitled under USERRA to reemployment rights with a Controlled Group Member and the Employee returns to employment with the Controlled Group Member within the period in which such reemployment rights are guaranteed. (d) Make-Up Contributions. Pursuant to procedures adopted from time to time by the Committee, an Employee described in subsection (a) above may elect additional Deferral Contributions and will receive an allocation of additional Participating Employer matching contributions for the period of his Qualified Military Service. Such additional Deferral Contributions and Participating Employer matching contributions may be made during the period beginning on the date of the Employee's reemployment and ending on the date that is five years later or, if less, during the period that is three times the Employee's period of Qualified Military Service, which period will begin on the Employee's date of reemployment. An Employee's Deferral Contributions and allocation of Participating Employer matching contributions made pursuant to this Section will be subject to the limitations of the Plan and the Code applicable to -12- 16 the years of the Employee's period of Qualified Military Service, except that the Average Deferral Percentage and Average Contribution Percentage limitations described in Article 10 will not be recalculated for such years and will be determined for the Plan Years in which the make-up Deferral Contributions and Participating Employer matching contributions are made without regard to such make-up Deferral Contributions and Participating Employer matching contributions. -13- 17 ARTICLE 3 CONTRIBUTIONS 3.1 Participant Deferral Contributions. (a) Amount of Deferral Contributions. A Participant may elect, in accordance with procedures established by the Committee from time to time, to have Deferral Contributions made to the Plan by the Participating Employers, provided the amount of a Participant's Deferral Contributions for any Plan Year beginning before January 1, 1996, will not be less than 2% nor more than (i) for payroll periods beginning before July 1, 1993, 10% of his Compensation for the Plan Year and (ii) for payroll periods beginning on and after July 1, 1993, 15% of his Compensation for the Plan Year. For any payroll period beginning on or after January 1, 1996, a Participant may elect to have Deferral Contributions made to the Plan in any amount that does not exceed 15% of his Compensation for the payroll period. (b) Modification and Suspension of Deferral Contributions. A Participant may increase or decrease the amount of his Deferral Contributions during the Plan Year, provided that only one such modification may be made during each calendar quarter of the Plan Year. A Participant may suspend his Deferral Contributions at any time during the Plan Year, and a suspension of his Deferral Contributions will not be considered a modification for purposes of this subsection (b). A Participant who suspends his Deferral Contributions may not again authorize Deferral Contributions to the Plan until the first day of the calendar quarter following such suspension, or such other time as the Committee prescribes. For Plan Years beginning on or after January 1, 1996, if a Participant receives a distribution on account of hardship pursuant to Section 6.3, such Participant's Deferral Contributions will automatically be suspended for a 12- month period following the date on which such Participant receives the hardship distribution. The Committee will adopt from time to time procedures for administering the rules contained in this subsection. (c) Limitations on Deferral Contributions. The sum of a Participant's Deferral Contributions and his elective deferrals (within the meaning of Code section 402(g)(3)) under any other plans, contracts or arrangements of any Controlled Group Member will not exceed $7,000 (as adjusted for cost of living increases in the manner described in Code section 415(d)) for any taxable year of the Participant. A Participant's Deferral Contributions will also be subject to the deferral percentage limitation set forth in Section 10.6. In the event a Participant's Deferral Contributions and other elective deferrals (whether or not under a plan, contract or arrangement of a Controlled Group Member) for any taxable year exceed the foregoing $7,000 limitation, the excess allocated by the Participant to Deferral Contributions (adjusted for Trust Fund earnings and losses in the manner described in Section 10.6(d)) may, in the discretion of the Committee, be distributed to the Participant no later than April 15 following the close of such taxable year. The amount of Deferral Contributions distributed to a Participant for a Plan Year pursuant to this -14- 18 Section will be reduced by any excess Deferral Contributions previously distributed to him pursuant to Section 10.6(c) for the same Plan Year. 3.2 Participating Employer Matching Contributions. (a) Amount of Matching Contributions. (i) Prior to 1995. The Participating Employers will pay to the Trustee as a matching contribution for each Plan Year (A) for payroll periods beginning before July 1, 1993, an amount equal to 30% of each Participant's Deferral Contributions, but only to the extent that the Participant's Deferral Contributions do not exceed 5% of the Participant's Compensation for the Plan Year and (B) for payroll periods beginning on and after July 1, 1993, and prior to January 1, 1995, an amount equal to 50% of each Participant's Deferral Contributions, but only to the extent that the Participant's Deferral Contributions do not exceed 6% of the Participant's Compensation for the Plan Year, excluding in both cases Compensation earned before the Participant was eligible to participate under Section 2.1; provided, however, that the provisions of clause (B) will be effective with respect to Participants who are covered by the Collective Bargaining Agreement between The Dallas Morning News, Inc. and Dallas Typographical Union, No. 173, at such time as the increase in matching contributions is not prohibited by such Collective Bargaining Agreement or any successor agreement. In addition, each Participating Employer may make an additional matching contribution for any Plan Year if authorized by its board of directors, but no Participating Employer will be required to make an additional matching contribution for any Plan Year. Participating Employer matching contributions may be made in cash or in shares of Company Stock or both. (ii) After 1994. Effective with the first payroll period beginning on or after January 1, 1995, the Participating Employers will pay to the Trustee as a matching contribution for each payroll period an amount equal to 50% of each Participant's Deferral Contributions, but only to the extent that the Participant's Deferral Contributions do not exceed 6% of the Participant's Compensation for the payroll period. Effective with the first payroll period beginning on or after January 1, 1997, the Participating Employers will pay to the Trustee as a matching contribution for each payroll period an amount equal to 55% of each Participant's Deferral Contributions, but only to the extent that the Participant's Deferral Contributions do not exceed 6% of the Participant's Compensation for the period. In addition, each Participating Employer may make an additional matching contribution for any Plan Year if authorized by its board of directors, but no Participating Employer will be required to make an additional matching contribution for any Plan Year. Participating Employer matching contributions may be made in cash or in shares of Company Stock or both. Notwithstanding the foregoing, the Participating Employers will not make a matching contribution for any Employee of Third Avenue Television, Inc. who is covered by collective bargaining agreement with the Directors Guild of America, Inc., the International Brotherhood of Electrical Workers, Local Union No. 4, or the United Scenic Artists, Local Union No. 829, of the Brotherhood of Painters and Allied Trades, -15- 19 AFL-CIO, unless and until the terms of such collective bargaining agreement, as amended or renewed from time to time, permit employer matching contributions to be made. In no event will the matching contribution made for such an Employee exceed the amount of matching contributions permitted under such collective bargaining agreement. Notwithstanding the foregoing, the Participating Employers will not make a matching contribution for any Employee of KMOV-TV, Inc. who is covered by collective bargaining agreement with the Directors Guild of America, Inc., the International Brotherhood of Electrical Workers, Local Union No. 4, or the United Scenic Artists, Local Union No. 829, of the Brotherhood of Painters and Allied Trades, AFL-CIO, unless and until the terms of such collective bargaining agreement, as amended or renewed from time to time, permit employer matching contributions to be made. In no event will the matching contribution made for such an Employee exceed the amount of matching contributions permitted under such collective bargaining agreement. (b) Calculation of Matching Contributions. For Plan Years beginning before January 1, 1995, Participating Employer matching contributions initially will be calculated on the basis of Deferral Contributions and Compensation for each payroll period within the Plan Year. Except as otherwise set forth in Section 3.2(c), as of one or more dates within each Plan Year beginning before January 1, 1995, the Participating Employers will make an additional matching contribution for a Participant to the extent necessary to cause the matching contributions for such Participant for the Plan Year to be equal to the amount required by Section 3.2(a) calculated on the basis of the Participant's Deferral Contributions and Compensation for the entire Plan Year (excluding Compensation earned before the Participant was eligible to participate under Section 2.1). For Plan Years beginning on and after January 1, 1995, Participating Employer matching contributions will be calculated solely on the basis of Deferral Contributions and Compensation for each payroll period within the Plan Year. (c) Calculation of Matching Contributions for the 1993 Plan Year. Notwithstanding the provisions of Section 3.2(b), as of one or more dates within the 1993 Plan Year, the Participating Employers will make an additional matching contribution for a Participant to the extent necessary to cause the total matching contributions for such Participant for the Plan Year to be equal to the sum of (i) 35% of the Participant's Deferral Contributions for the Plan Year to the extent that such Deferral Contributions do not exceed 5% of the Participant's Compensation for the Plan Year, (ii) 15% of the Participant's Deferral Contributions made with respect to payroll periods beginning on and after July 1, 1993, to the extent that such Deferral Contributions do not exceed 5% of the Participant's Compensation for the Plan Year attributable to payroll periods beginning on and after July 1, 1993, and (iii) 50% of the Participant's Deferral Contributions made with respect to payroll periods beginning on and after July 1, 1993, to the extent that such Deferral Contributions are more than 5% and less than 6% of the Participant's Compensation for the Plan Year attributable to payroll periods beginning on and after July 1, -16- 20 1993. For purposes of this Section 3.2(c), Compensation does not include any wages or other remuneration for services earned before the Participant was eligible to participate under Section 2.1. (d) Participants Ineligible for Matching Contributions. Notwithstanding the foregoing provisions of this Section, (i) no matching contributions will be made for any payroll period beginning on or after April 1, 1994, and before December 31, 1996, with respect to any Employee who is employed by DFW Suburban Newspapers, Inc. and (ii) no matching contributions will be made for any payroll period beginning before January 1, 1995, with respect to any Employee who is employed by WWL-TV, Inc. (e) Limitation on Matching Contributions. Participating Employer matching contributions will be subject to the contribution percentage limitation set forth in Section 10.7. 3.3 Discretionary Profit Sharing Contributions. Each Participating Employer may, in the discretion of its board of directors, make a profit sharing contribution to the Plan for any payroll period in such amount as is determined by the Participating Employer and is approved by the Compensation Committee of the Board of Directors of the Company. No Participating Employer will be required to make a profit sharing contribution for any payroll period. A profit sharing contribution made by a Participating Employer for a payroll period will be allocated to Participants in the manner provided in Section 4.2(c). 3.4 Time of Payment. Deferral Contributions will be paid to the Trustee as soon as practicable following the close of each payroll period. Participating Employer matching contributions will be paid to the Trustee as soon as practicable following the close of each calendar month during the Plan Year, and discretionary profit sharing contributions may be paid to the Trustee on any date or dates selected by the Participating Employers, but in no event later than the time prescribed by law (including extensions) for filing the Participating Employer's federal income tax return for its tax year ending with or within the Plan Year. 3.5 Investment of Contributions. Participating Employer matching contributions will be invested by the Trustee pursuant to the Trust Agreement solely in shares of Company Stock, provided, however, that from and after January 1, 1994, a Participant who has attained age 55 may direct the Trustee to transfer all or any portion of his Matching Contribution Account to any other investment fund established under the Trust Agreement. The Deferral Contributions allocated to a Participant's Deferral Contribution Account will be invested by the Trustee in accordance with the Participant's directions in investment funds established pursuant to the Trust Agreement. The Committee from time to time will establish rules and procedures regarding Participant investment directions, including without limitation rules and procedures with respect to the manner in which such directions may be furnished, the frequency with which such directions may be changed during the Plan Year and the minimum portion of a Participant's Account that may be invested in any one investment fund. -17- 21 3.6 Rollover and Transfer Contributions. Unless directed to do so by the Committee, the Trustee is not authorized to accept (i) any part of the cash or other assets distributed to a Participant from a Qualified Plan or from an individual retirement account or annuity described in Code section 408, or (ii) a direct transfer of assets to the Plan on behalf of a Participant from the trustee or other funding agent of a Qualified Plan. Any amounts contributed to the Plan pursuant to this Section will be allocated to the Participant's Transfer Account. -18- 22 ARTICLE 4 ALLOCATIONS TO PARTICIPANTS' ACCOUNTS 4.1 Establishment of Accounts. The Committee will establish a Deferral Contribution Account and a Matching Contribution Account for each Participant, and to the extent applicable, a Profit Sharing Account and a Transfer Account. The Committee may also establish one or more subaccounts of a Participant's Accounts, if the Committee determines that subaccounts are necessary or desirable in administering the Plan. Notwithstanding any provision of the Plan to the contrary, any amounts transferred to the Plan on behalf of an Employee from the Journal Qualified Compensation Deferral Plan, the Journal Broadcasting 401(k) Plan, the Press-Enterprise Tax Deferred Savings Plan or the Gleaner and Journal Publishing Co. 401(k) Retirement Plan (each a "Transferror Plan") will be allocated as follows: (i) amounts held in the Employee's compensation deferral account under a Transferror Plan will be allocated to the Employee's Deferral Contribution Account; (ii) amounts held in the Employee's employer matching contribution account under a Transferror Plan will be allocated to the Employee's Matching Contribution Account; (iii) amounts held in the Employee's profit sharing account under a Transferror Plan will be allocated to the Employee's Profit Sharing Account; and (iv) amounts held in the Employee's after-tax account or rollover account under a Transferror Plan will be allocated to the Employee's Transfer Account. 4.2 Allocation of Contributions and Forfeitures. (a) Deferral Contributions. Each Deferral Contribution made by a Participating Employer on behalf of a Participant will be allocated by the Committee to the Participant's Deferral Contribution Account. (b) Matching Contributions. Prior to 1995, each Participating Employer matching contribution made with respect to a Plan Year and all forfeitures arising during that Plan Year will be allocated by the Committee to the Matching Contribution Accounts of Participants employed by that Participating Employer in the ratio that the Deferral Contributions made on behalf of each such Participant for the Plan Year bear to the total Deferral Contributions made on behalf of all such Participants for the Plan Year, taking into account for purposes of this ratio only Deferral Contributions that do not exceed (i) for payroll periods beginning before July 1, 1993, 5% of each Participant's Compensation and (ii) for payroll periods beginning on and after July 1, 1993, 6% of each Participant's Compensation; provided, however, that the provisions of clause (ii) will be effective with respect to Participants who are covered by the Collective Bargaining Agreement between The Dallas Morning News, Inc. and Dallas Typographical Union, No. 173, at such time as the increase in matching contributions is not prohibited by such Collective Bargaining Agreement or any successor agreement. Effective with the first payroll period beginning on and after January 1, 1995, each Participating Employer matching contribution made with respect to a payroll period and all forfeitures will be allocated by the Committee to the Matching Contribution -19- 23 Accounts of Participants employed by that Participating Employer in the ratio that the Deferral Contributions made on behalf of each such Participant for each payroll period in the Plan Year bear to the total Deferral Contributions made on behalf of all such Participants for each such payroll period, taking into account for purposes of this ratio only Deferral Contributions that do not exceed 6% of each Participant's Compensation for the payroll period. Notwithstanding the foregoing, no Participating Employer matching contributions will be allocated to the Matching Contribution Account of any Participant who is ineligible for matching contributions pursuant to Section 3.2(d), and any Deferral Contributions made on behalf of such ineligible Participant will be disregarded for purposes of allocating matching contributions to other Participants. (c) Profit Sharing Contributions. Each profit sharing contribution made by a Participating Employer for a payroll period will be allocated only to the Profit Sharing Accounts of Participants employed by the Participating Employer on the last day of the payroll period. For purposes of this allocation, an Employee will be a Participant in the Plan on the last day of a payroll period if the Employee is eligible to make Deferral Contributions as of the last day of the payroll period, without regard to whether the Participant has elected to make Deferral Contributions. The amount of a Participating Employer's profit sharing contribution to be allocated to the Profit Sharing Account of each eligible Participant for a payroll period will bear the same ratio to the Participating Employer's total profit sharing contribution for the payroll period as the Participant's Compensation for the payroll period bears to the total Compensation of all Participants eligible to receive an allocation of the Participating Employer's profit sharing contribution for the payroll period. 4.3 Limitation on Allocations. Article 10 sets forth certain rules under Code sections 401(k), 401(m) and 415 that limit the amount of contributions and forfeitures that may be allocated to a Participant's Accounts for a Plan Year. 4.4 Allocation of Trust Fund Income and Loss. (a) Accounting Records. The Committee, through its accounting records, will clearly segregate each Account and subaccount and will maintain a separate and distinct record of all income and losses of the Trust Fund attributable to each Account or subaccount. Income or loss of the Trust Fund will include any unrealized increase or decrease in the fair market value of the assets of the Trust Fund. (b) Method of Allocation. The share of net income or net loss of the Trust Fund to be credited to, or deducted from, each Account will be the allocable portion of the net income or net loss of the Trust Fund attributable to each Account determined by the Committee as of each Valuation Date in a uniform and nondiscriminatory manner, based upon the ratio that each Account balance as of the previous Valuation Date bears to all Account balances after adjustment for withdrawals, distributions and other additions or subtractions that may be appropriate. The share of net income or net loss to be credited to, or deducted from, any subaccount will be an allocable portion of the net income or net loss credited to or deducted from the Account under which the subaccount is established. -20- 24 4.5 Valuation of Trust Fund. The fair market value of the total net assets comprising the Trust Fund will be determined by the Trustee as of each Valuation Date. 4.6 No Guarantee. The Participating Employers, the Committee and the Trustee do not guarantee the Participants or their Beneficiaries against loss or depreciation or fluctuation of the value of the assets of the Trust Fund. 4.7 Annual Statement of Accounts. The Committee will furnish each Participant and each Beneficiary of a deceased Participant, at least annually, a statement showing (i) the value of his Accounts at the end of the Plan Year, (ii) the allocations to and distributions from his Accounts during the Plan Year, and (iii) his vested and nonforfeitable interest in his Accounts at the end of the Plan Year. No statement will be provided to a Participant or Beneficiary after the Participant's entire vested and nonforfeitable interest in his Accounts has been distributed. -21- 25 ARTICLE 5 VESTING 5.1 Determination of Vested Interest. Except as provided in Section 5.2 or 10.6(e) (with respect to discriminatory Matching Contributions), the interest of each Participant in his Deferral Contribution Account and his Matching Contribution Account will be 100% vested and nonforfeitable at all times. 5.2 Unclaimed Distribution. If the Committee cannot locate a person entitled to receive a benefit under the Plan within a reasonable period (as determined by the Committee in its discretion), the amount of the benefit will be treated as a forfeiture during the Plan Year in which the period ends. If, before final distributions are made from the Trust Fund following termination of the Plan, a person who was entitled to a benefit which has been forfeited under this Section makes a claim to the Committee or the Trustee for his benefit, he will be entitled to receive, as soon as administratively feasible, a benefit in an amount equal to the value of the forfeited benefit on the date of forfeiture. This benefit will be reinstated from Participating Employer contributions made to the Plan for this purpose. 5.3 Application of Forfeited Amounts. The amount of a Participant's Accounts which is forfeited pursuant to Sections 5.2 or 10.6(e) will be applied to reduce Participating Employer contributions pursuant to Article 3. -22- 26 ARTICLE 6 DISTRIBUTIONS TO PARTICIPANTS 6.1 Basic Rules Governing Distributions. (a) Timing of Distributions. Except as set forth in Sections 6.2 and 6.3, distribution of a Participant's vested Account Balances will be made as soon as practicable after the Valuation Date coinciding with or immediately following the Participant's termination of employment, or if earlier, the date on which the Participant becomes eligible to receive benefits under the Social Security Act on account of total and permanent disability. If a loan is outstanding from the Trust Fund to the Participant on the date his vested Account balances become distributable, the amount distributed to the Participant will be reduced by any security interest in his Accounts held by the Plan by reason of the loan. (b) Form of Distributions. (i) Normal Form of Distribution. The normal form of distribution will be a single lump sum payment. Shares of Company Stock allocated to a Participant's Accounts will be distributed in the form of whole shares plus cash for any fractional share, unless the Participant elects to receive the cash value of such shares. (ii) Optional Forms of Distribution for Journal Plan Participants. The optional forms of distribution described in this paragraph are available for distributions other than withdrawals described in Section 6.2 and hardship distributions described in Section 6.3 only to a Participant whose account balances were transferred to the Plan from the Journal Qualified Compensation Deferral Plan or the Journal Broadcasting 401(k) Plan and whose vested Account balances exceed $3,500 ($5,000 for Plan Years beginning after December 31, 1997). The optional forms of benefit will be (A) periodic installment payments over a period of years not to exceed the life expectancy of the Participant or the joint life expectancy of the Participant and his Beneficiary and (B) a single life annuity or a Qualified Joint and Survivor Annuity (as hereinafter defined) purchased from an insurance company with the amount of the Participant's vested Account balances, provided, however, that the annuity option will be available to a former participant in the Journal Broadcasting 401(k) Plan only if he was a participant in such Plan prior to December 31, 1996. For purposes of this Section, the term "Qualified Joint and Survivor Annuity" means an annuity payable monthly for the life of the Participant with a survivor annuity payable monthly for the life of the Participant's surviving spouse in an amount equal to 50% of the amount of the monthly payment to the Participant during his life. (iii) Optional Form of Distribution for Press-Enterprise and Gleaner Plan Participants. The optional form of distribution described in this paragraph is available -23- 27 for distributions other than withdrawals described in Section 6.2 and hardship distributions described in Section 6.3 only to a Participant whose account balances were transferred to the Plan from the Press-Enterprise Tax Deferred Savings Plan or the Gleaner and Journal Publishing Co. 401(k) Retirement Plan and whose vested Account balances exceed $3,500 ($5,000 for Plan Years beginning after December 31, 1997). The optional form of benefit will be periodic installment payments over a period of years not to exceed the life expectancy of the Participant or the joint life expectancy of the Participant and his Beneficiary. (iv) Rules Relating to Annuities. If a married Participant elects to receive his vested Account balances in the form of a single life annuity, the Participant's election will not be effective without the written consent of his spouse, witnessed by a notary public and acknowledging the effect of such election, unless it is established to the satisfaction of the Committee that such consent cannot be obtained because there is no spouse, because the spouse cannot be located, or because of such other circumstances as regulations under Code section 417 permit. An election under this Section must be made, in accordance with rules and procedures established from time to time by the Committee, within 90 days of the date on which the Participant would receive his first payment of benefits under the Plan. A Participant may revoke an election to receive an annuity without the consent of his spouse before the date on which the Trustee purchases the annuity. If a married Participant revokes a prior election to receive an annuity, he may elect without the consent of his spouse to receive his vested Account balances in a lump sum payment, installments or a Qualified Joint and Survivor Annuity. If a Participant who has elected to receive an annuity dies before the Trustee has purchased the annuity from an insurance company, the Participant's vested Account balances will be paid to the Participant's surviving spouse, if any, and if none, to the Participant's Beneficiary. If the Participant dies after the Trustee has purchased the annuity, any benefits payable after the Participant's death will be determined under the terms of the annuity. For purposes of the Qualified Joint and Survivor Annuity, the term "spouse" means the spouse to whom the Participant was married at the time he elected the Qualified Joint and Survivor Annuity. If such spouse dies before the Participant, the amount of the Participant's monthly annuity will not be increased. (c) Participant's Consent to Certain Payments. If the amount of a Participant's vested Account balances exceed $3,500 ($5,000 for Plan Years beginning after December 31, 1997), the Committee will not distribute the Participant's vested Account balances to him prior to his attainment of age 62 unless he consents to the distribution. A distribution may be made less than 30 days after the Participant has been furnished an explanation of his distribution options provided that (i) the Committee clearly informs the Participant that he has the right to consider whether to accept a distribution and whether to consent to a particular form of distribution for at least 30 days after he has been provided the relevant information, (ii) the Participant affirmatively elects to waive the 30-day notice period and receive a distribution, and (iii) with respect to a distribution to which Code section 417 applies, the Participant is permitted to revoke the election and make a new election at any time prior to the later of the date of distribution or the expiration -24- 28 of the seven-day period after the explanation of distribution options is provided to the Participant. The foregoing provision will not apply to any distributions required under Sections 10.6 and 10.7. 6.2 Withdrawals after Age 59-1/2. A Participant who has not terminated employment may request a distribution from his Accounts if he has reached age 59-1/2. A Participant who is a director, officer or principal stockholder of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934 may exercise the foregoing withdrawal right only in accordance with rules and procedures established from time to time by the Committee. All other Participants may exercise their withdrawal rights at any time or times during the Plan Year. 6.3 Hardship Distributions. (a) General Rule. A Participant who has not terminated employment may request a distribution from his Deferral Contribution Account in the event of his hardship. A distribution will be on account of hardship only if the distribution is necessary to satisfy an immediate and heavy financial need of the Participant, as defined below, and satisfies all other requirements of this Section. For Plan Years beginning on or after January 1, 1996, pursuant to Section 3.1(b), a Participant's Deferral Contributions will automatically be suspended for a 12-month period after the date on which such Participant receives a distribution on account of hardship. (b) Deemed Financial Need. For purposes of this Section, a distribution is made on account of an immediate and heavy financial need of the Participant only if the distribution is for (i) the payment of medical expenses described in Code section 213(d) previously incurred by the Participant, the Participant's spouse or any dependents of the Participant (as defined in Code section 152) or necessary for such persons to obtain medical care described in Code section 213(d); (ii) costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments); (iii) the payment of tuition and related educational fees for the next 12 months of post-secondary education for the Participant, his spouse, children, or dependents (as defined in Code section 152); (iv) payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence; or (v) the payment of funeral expenses of a family member. (c) Reasonable Reliance Test. A distribution will be considered necessary to satisfy an immediate and heavy financial need of the Participant only if all three of the following requirements are satisfied: (i) the distribution is not in excess of the amount required to relieve the immediate and heavy financial need of the Participant (taking into account the taxable nature of the distribution); (ii) the Participant represents in writing, on forms provided by the Committee, that the need cannot be relieved through reimbursement or compensation by insurance or otherwise, by reasonable liquidation of the Participant's assets, to the extent such liquidation would not itself cause an immediate and heavy financial need, by cessation of Deferral Contributions under the Plan, or by distributions other than hardship distributions or nontaxable (at the time of the loan) loans from the Plan and any other plans maintained by any Controlled Group Member or any other entity by which the Participant is employed, or by borrowing from -25- 29 commercial sources on reasonable commercial terms; and (iii) the Committee determines that it can reasonably rely on the Participant's written representation. (d) Limitation for Loans. No distribution under this Section will be made in an amount that is greater than the excess of the Participant's vested interest in his Accounts over the aggregate amount of outstanding loans, plus accrued interest, secured by the Participant's Accounts. (e) Source of Hardship Distributions. The cumulative amount distributed to a Participant on account of hardship will not exceed the amount of his Deferral Contributions that have not been previously withdrawn (but not the income allocable to his Deferral Contributions) and, with respect to hardship distributions on and after June 1, 1994, the balance, if any, of his Transfer Account. 6.4 Distribution Procedures. Distributions pursuant to Sections 6.2 and 6.3 will be made as soon as practicable following the Committee's approval of the Participant's written request for withdrawal and will be made in the form described in Section 6.1(b). Distributions pursuant to Section 6.2 will be made first from the Participant's Transfer Account, next from the vested portion of his Profit Sharing Account, next from the vested portion of his Matching Contribution Account, and last from his Deferral Contribution Account. No distribution under this Section will be made in an amount that is greater than the excess of the Participant's vested interest in the Accounts from which the distributions are made over the aggregate amount of outstanding loans, plus accrued interest, secured by such Accounts. For purposes of determining the amount available for distribution, a Participant's Accounts will be valued as of the Valuation Date immediately preceding the date on which the Participant requests a distribution. 6.5 Loans to Participants. (a) Effective Date. The provisions of this Section will be effective as of a date determined by the Committee in its discretion and communicated to Participants. (b) General Provisions. A Participant may, subject to the provisions of this Section, borrow from the vested interest in his Accounts, provided, however, that no loan may be made from the portion of the Trust Fund that is invested in Company Stock. All such loans will be subject to the requirements of this Section and such other rules as the Committee may from time to time prescribe, including without limitation any rules restricting the purposes for which loans will be approved. The Committee will have complete discretion as to approval of a loan hereunder and as to the terms thereof, provided that its decisions will be made on a uniform and nondiscriminatory basis and in accordance with this Section. If the Committee approves a loan, the Committee will direct the Trustee to make the loan and will advise the Participant and the Trustee of the terms and conditions of the loan. Nothing in this Section will require the Committee to make loans available to Participants. -26- 30 (c) Terms and Conditions. Loans to Participants will be made according to the following terms and conditions and such additional terms and conditions as the Committee may from time to time establish: (i) no loan will be for a term of longer than five years; (ii) all loans will become due and payable in full upon termination (by death or otherwise) of the Participant's employment with the Controlled Group and upon the occurrence of such other events as the Committee may from time to time specify; (iii) all loans will bear a reasonable rate of interest as determined by the Committee from time to time; (iv) all loans will be made only upon receipt of adequate security (the security for a loan will be the Participant's interest in the separate investment fund established under subsection (g) for that loan) in an amount that does not exceed 50% of the Participant's vested interest under the Plan); (v) payments of principal and interest will be made through payroll deductions sufficient to provide for substantially level amortization of principal and interest with payments not less frequently than quarterly, which will be irrevocably authorized by the Participant in writing on a form provided by the Committee at the time the loan is made; (vi) the amount of any indebtedness (including accrued and unpaid interest) under any loan will be deducted from a Participant's interest in the Trust Fund if and only if such indebtedness or any installment thereof is not paid when due (including amounts due by acceleration) unless the Committee determines that there is adequate security for such loan other than the Participant's interest in the Trust Fund; (vii) for Plan Years beginning before January 1, 1996, no more than one outstanding loan will be permitted with respect to a Participant at any time, except that a Participant may have a home loan and a loan which is not a home loan outstanding at the same time; (viii) for Plan Years beginning on or after January 1, 1996, no more than two outstanding loans will be permitted with respect to a Participant at any time; (ix) for Plan Years beginning on or after January 1, 1996, no new home loans will be permitted; and (x) all loans will be evidenced by a note containing such additional terms and conditions as the Committee will determine. Notwithstanding anything in the foregoing to the contrary, no amount of any indebtedness will be deducted pursuant to subsection (vi) above from a Participant's Deferral Contribution Account prior to the time that such Account is otherwise distributable. (d) Maximum Amount of Loans. The amount of any loan made pursuant to this Section, when added to the outstanding balance of all other loans to the Participant from all qualified employer plans (as defined in Code section 72(p)(4)) of the Controlled Group, will not exceed the lesser of (i) one-half of the nonforfeitable interest in his Accounts, or (ii) $50,000 reduced by the excess, if any, of (A) the highest outstanding balance of all other loans from qualified employer plans of the Controlled Group to the Participant during the 1-year period ending on the date on which such loan was made, over (B) the outstanding balance of all loans from qualified employer plans of the Controlled Group to the Participant on the date on which such loan was made. (e) Minimum Loan. The minimum loan permitted under this Section is $1,000. If such minimum amount exceeds the limitations of subsection (d), no loan will be made. (f) Source of Loans. All loans will be made first from a Participant's Transfer Account, next from his Profit Sharing Account, next from his Matching Contribution Account, and last from his Deferral Contribution Account. -27- 31 (g) Investment of Loan Payments. All loans will be treated as a separate investment fund of the borrowing Participant. All payments with respect to a loan will be credited to the borrowing Participant's Accounts and will be invested in the investment funds under the Trust Agreement in accordance with the Participant's latest investment directions pursuant to Section 3.5. (h) Grandfathered Loans. Loans that are transferred to the Plan from another Qualified Plan will be administered in accordance with their terms, notwithstanding the fact that the terms of such loans do not satisfy the foregoing provisions of this Section. 6.6 Reemployment of Participant. If a Participant who terminated employment again becomes an Employee before receiving a distribution of his Account balances, no distribution from the Trust Fund will be made while he is an Employee, and amounts distributable to him on account of his prior termination will be held in the Trust Fund until he is again entitled to a distribution under the Plan. 6.7 Valuation of Accounts. A Participant's distributable Account balances will be valued as of the Valuation Date immediately preceding the date the Accounts are to be distributed, except that there will be added to the value of his Accounts the fair market value of any amounts allocated to his Accounts under Article 4 after that Valuation Date. 6.8 Direct Rollovers (a) Distributions after 1992. Notwithstanding any other provision of the Plan, for distributions made on or after January 1, 1993, a Distributee (as hereinafter defined) may elect, at any time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution (as hereinafter defined) paid directly to an Eligible Retirement Plan (as hereinafter defined) specified by the Distributee. (b) Eligible Rollover Distribution. An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include (i) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life or life expectancy of the Distributee or the joint lives or life expectancies of the Distributee and the Distributee's designated beneficiary, or for a specified period of ten years or more, (ii) any distribution to the extent such distribution is required by Code section 401(a)(9), and (iii) the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (c) Eligible Retirement Plan. An Eligible Retirement Plan is an individual retirement account described in Code section 408(a), an individual retirement annuity described in Code section 408(b), an annuity plan described in Code section 403(a), or a qualified trust described in Code section 401(a) that is a defined contribution plan within the meaning of Code section 414(i), that accepts the Distributee's Eligible Rollover Distribution. However, in the case -28- 32 of an Eligible Rollover Distribution to a Participant's surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (d) Distributee. A Distributee includes a Participant, the Participant's Spouse, or a Participant's former spouse who is an alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code. 6.9 Restrictions on Distributions. Article 11 sets forth certain rules under various provisions of the Code relating to restrictions on distributions to Participants. -29- 33 ARTICLE 7 DISTRIBUTIONS TO BENEFICIARIES 7.1 Designation of Beneficiary. Each Participant will have the right to designate a Beneficiary or Beneficiaries to receive his vested Account balances upon his death. The designation will be made on forms prescribed by the Committee and will be effective upon receipt by the Committee. A Participant will have the right to change or revoke any designation by filing a new designation or notice of revocation with the Committee, but the revised designation or revocation will be effective only upon receipt by the Committee. 7.2 Consent of Spouse Required. A Participant who is married may not designate a Beneficiary other than, or in addition to, his spouse unless his spouse consents to the designation by means of a written instrument that is signed by the spouse, contains an acknowledgment by the spouse of the effect of the consent, and is witnessed by a member of the Committee (other than the Participant) or by a notary public. The designation will be effective only with respect to the consenting spouse, whose consent will be irrevocable. A Beneficiary designation to which a spouse has consented may not be changed by the Participant without spousal consent (other than to designate the spouse as Beneficiary), unless the spouse's consent expressly permits Beneficiary designations by the Participant without any further consent of the spouse. 7.3 Failure to Designate Beneficiary. In the event a Participant has not designated a Beneficiary, or in the event no Beneficiary survives a Participant, the distribution of the Participant's vested Account balances upon his death will be made (i) to the Participant's spouse, if living, (ii) if his spouse is not then living, to his then living issue by right of representation, (iii) if neither his spouse nor his issue are then living, to his then living parents, and (iv) if none of the above are then living, to his estate. 7.4 Distributions to Beneficiaries. Distribution of a Participant's vested Account balances to the Participant's Beneficiary will be made as soon as practicable after Participant's death. The Participant's vested Account balances will be distributed to the Beneficiary in a single lump sum payment and will be in the same form as provided for Participants in Section 6.1(b). In addition, a Beneficiary may elect any optional form of distribution that was available to the Participant under Section 6.1(b). The Participant's Account balances will be valued as of the Valuation Date coinciding with or immediately preceding the date the Accounts are to be distributed to his Beneficiary, except that there will be added to the value of the Participant's Accounts the fair market value of any amounts allocated to his Accounts under Article 4 after that Valuation Date. If a loan is outstanding from the Trust Fund to the Participant on the date of his death, the amount distributed to his Beneficiary will be reduced by any security interest in the Participant's Accounts held by the Plan by reason of the loan. 7.5 Restrictions on Distributions. Article 11 sets forth certain rules under various provisions of the Code relating to restrictions on distributions to Beneficiaries. -30- 34 ARTICLE 8 PROVISIONS REGARDING COMPANY STOCK 8.1 Powers and Duties of the Committee. (a) Committee as Named Fiduciary. Except as otherwise provided in this Section, the Committee will be the named fiduciary within the meaning of ERISA section 402(a)(2) for purposes of all shareholder action authorized or permitted to be taken with respect to Company Stock held in the Trust Fund. The powers and duties of the Committee as named fiduciary for this purpose will include, without limitation, the powers and duties to direct the Trustee with respect to the voting of all shares of Company Stock; to direct the Trustee to accept or reject a tender offer for shares of Company Stock; to direct the Trustee to sell shares of Company Stock under any other circumstances to any person, including the Company, provided that any sale to the Company or other "disqualified person" within the meaning of Code section 4975 or "party in interest" within the meaning of ERISA section 3(14) is made at a price which is not less than adequate consideration as defined in ERISA section 3(18) and no commission is charged with respect to the sale; and to exercise any options, warrants or other rights in connection with shares of Company Stock held in the Trust Fund. The Committee will also have the power, in its discretion, to permit each Participant and Beneficiary to direct the Trustee to take or to refrain from taking any action with respect to the shares of Company Stock allocated to his Accounts that the Committee could have directed the Trustee to take or refrain from taking. If the Committee permits Participants and Beneficiaries to direct the Trustee in connection with any matter relating to Company Stock held in the Trust Fund, each Participant and Beneficiary who furnishes instructions to the Trustee will be a named fiduciary within the meaning of ERISA section 402(a)(2) with respect to such matter, but the Committee will retain the power and duty to direct the Trustee with respect to shares of Company Stock allocated to the Accounts of Participants and Beneficiaries who fail to furnish timely instructions to the Trustee and with respect to any shares of Company Stock that have not been allocated to Participants' Accounts. The Committee will adopt from time to time whatever procedures it determines to be appropriate in order to exercise its powers and duties under this subsection (a) and may retain advisors and consultants (including, without limitation, legal counsel and financial advisors) who are independent of the Company, the Board and the Trustee to the extent the Committee determines such independent advice to be necessary or appropriate. (b) Delegation of Powers and Duties. The Committee may, in its discretion, delegate any power or duty allocated to it pursuant to subsection (a) above to another person or entity, who will act as an independent fiduciary and will exercise such power or duty to the same extent as it could have been exercised by the Committee. The persons or entities to which such powers and duties may be delegated will include, without limitation, the Board or any committee of the Board, the Trustee, any other person or entity that meets the requirements of an investment manager under ERISA section 3(38), or any other person or entity that the Committee determines in good faith has the requisite knowledge and experience concerning the matter with respect to -31- 35 which the delegation is made. The Committee may also remove any fiduciary to whom it has delegated any power or duty and exercise such power or duty itself or appoint a successor fiduciary. For purposes of Sections 8.2 and 8.3, the term "Committee" will also mean any fiduciary to which the Committee has delegated any power or duty pursuant to this subsection (b). 8.2 Voting Company Stock. Unless the Committee determines otherwise pursuant to Section 8.1, voting rights with respect to shares of Company Stock held in the Trust Fund will be exercised by Participants and Beneficiaries and the procedures of this Section will apply. Before each annual or special meeting of its shareholders, the Committee will cause to be sent to each Participant and Beneficiary who has Company Stock allocated to his Accounts on the record date of such meeting a copy of the proxy solicitation material for the meeting, together with a form requesting confidential instructions to the Trustee on how to vote the shares of Company Stock allocated to his Accounts. Upon receipt of such instructions, the Trustee will vote the shares allocated to such Participant's or Beneficiary's Accounts as instructed. The Trustee will vote allocated shares of Company Stock for which it does not receive timely instructions from Participants or Beneficiaries in accordance with the Committee's instructions. A Participant's or Beneficiary's right to instruct the Trustee with respect to voting shares of Company Stock will not include rights concerning the exercise of any appraisal rights, dissenters' rights or similar rights granted by applicable law to the registered or beneficial holders of Company Stock. These matters will be exercised by the Trustee in accordance with the Committee's instructions. 8.3 Tender Offer for Company Stock. Unless the Committee determines otherwise pursuant to Section 8.1, the right to accept or reject a tender offer for shares of Company Stock held in the Trust Fund will be exercised by Participants and Beneficiaries and the procedures of this Section will apply. In the event of a tender offer for shares of Company Stock subject to Section 14(d)(1) of the Securities Exchange Act of 1934 or subject to Rule 13e-4 promulgated under that Act (as those provisions may from time to time be amended or replaced by successor provisions of federal securities laws), the Committee will advise each Participant and Beneficiary who has shares of Company Stock allocated to his Accounts in writing of the terms of the tender offer as soon as practicable after its commencement and will furnish each Participant and Beneficiary with a form by which he may instruct the Trustee confidentially to tender shares allocated to his Accounts. The Trustee will tender those shares it has been properly instructed to tender, and will not tender those shares which it has been properly instructed not to tender. The Committee will also advise Participants and Beneficiaries that the Committee will furnish instructions to the Trustee with respect to allocated shares for which no instructions are received from Participants and Beneficiaries and will furnish such related documents as are prepared by any person and provided to the shareholders of the Company pursuant to the Securities Exchange Act of 1934. The Committee may also provide Participants with such other material concerning the tender offer as the Committee in its discretion determines to be appropriate. The number of shares to which a Participant's instructions apply will be the total number of shares allocated to his Accounts as of the latest date for which Participant statements were prepared. The Committee will advise the Trustee of the commencement date of any tender offer and, until receipt of that advice, the Trustee will not be obligated to take any action under this Section. Funds received in exchange for tendered stock will be credited to the Accounts of the Participant or Beneficiary -32- 36 whose stock was tendered and will be used by the Trustee to purchase Company Stock, if available on a national securities exchange, commencing on the earlier of the following dates: (a) the trading day following the first date on which the closing price of the Company Stock on a national securities exchange on which the Company Stock is then traded is within 20% of the closing price on the tenth trading day preceding the commencement date of the tender offer or (b) the thirtieth trading day after the expiration date of the tender offer, of which date the Committee will advise the Trustee. In the interim, or if Company Stock is not available for purchase, the Trustee will invest such funds in short term investments permitted under the Trust Agreement. -33- 37 ARTICLE 9 ADMINISTRATION OF THE PLAN AND TRUST AGREEMENT 9.1 Appointment of Committee Members. The Board will appoint an Administrative Committee consisting of at least three or more members, to hold office at the pleasure of the Board. Members of the Committee are not required to be Employees or Participants. Any member may resign by giving notice, in writing, filed with the Board. 9.2 Officers and Employees of the Committee. The Committee will choose from its members a Chairman and a Secretary. The Secretary will keep a record of the Committee's proceedings and all dates, records and documents pertaining to the Committee's administration of the Plan. The Committee may employ and suitably compensate such persons or organizations to render advice with respect to the duties of the Committee under the Plan as the Committee determines to be necessary or desirable. 9.3 Action of the Committee. Action of the Committee may be taken with or without a meeting of Committee members, provided that action will be taken only upon the vote or other affirmative expression of a majority of the Committee's members qualified to vote with respect to such action. The Chairman or the Secretary of the Committee may execute any certificate or other written direction on behalf of the Committee. In the event the Committee members qualified to vote on any question are unable to determine such question by a majority vote or other affirmative expression of a majority of the Committee members qualified to vote on such question, such question will be determined by the Board. A member of the Committee who is a Participant may not vote on any question relating specifically to himself unless he is the sole member of the Committee. 9.4 Expenses and Compensation. The expenses of administering the Plan, including without limitation the expenses of the Committee properly incurred in the performance of its duties under the Plan, will be paid from the Trust Fund, and all such expenses paid by the Participating Employers on behalf of the Plan will be reimbursed from the Trust Fund unless the Participating Employers in their discretion elect not to submit such expenses for reimbursement. Notwithstanding the foregoing, the members of the Committee will not be compensated by the Plan for their services as Committee members. 9.5 General Powers and Duties of the Committee. The Committee will have the full power and responsibility to administer the Plan and the Trust Agreement and to construe and apply their provisions. For purposes of ERISA, the Committee will be the named fiduciary with respect to the operation and administration of the Plan and the Trust Agreement. In addition, the Committee will have the powers and duties granted by the terms of the Trust Agreement. The Committee, and all other persons with discretionary control respecting the operation, administration, control, and/or management of the Plan, the Trust Agreement, and/or the Trust -34- 38 Fund, will perform their duties under the Plan and the Trust Agreement solely in the interests of Participants and their Beneficiaries. 9.6 Specific Powers and Duties of the Committee. The Committee will administer the Plan and the Trust Agreement and will have the authority and discretion to (i) resolve all questions relating to the eligibility of Employees to become Participants; (ii) determine the amount of benefits payable to Participants or their Beneficiaries, and determine the time and manner in which such benefits are to be paid; (iii) authorize and direct all disbursements by the Trustee from the Trust Fund; (iv) engage any administrative, legal, accounting, clerical, or other services it deems appropriate in administering the Plan or the Trust Agreement; (v) construe and interpret the Plan and the Trust Agreement, supply omissions from, correct deficiencies in, and resolve ambiguities in the language of the Plan and the Trust Agreement, and adopt rules for the administration of the Plan and the Trust Agreement which are not inconsistent with the terms of such documents; (vi) compile and maintain all records it determines to be necessary, appropriate or convenient in connection with the administration of benefit payments; (vii) determine the disposition of assets in the Trust Fund in the event the Plan is terminated; (viii) review the performance of the Trustee with respect to the Trustee's administrative duties, responsibilities and obligations under the Plan and the Trust Agreement, report to the Board regarding such administrative performance of the Trustee, and recommend to the Board, if necessary, the removal of the Trustee and the appointment of a successor Trustee; and (ix) resolve all questions of fact relating to any matter for which it has administrative responsibility. 9.7 Allocation of Fiduciary Responsibility. The Committee from time to time may allocate to one or more of its members and may delegate to any other persons or organizations any of its rights, powers, duties and responsibilities with respect to the operation and administration of the Plan and the Trust Agreement that are permitted to be delegated under ERISA. Any such allocation or delegation will be made in writing, will be reviewed periodically by the Committee, and will be terminable upon such notice as the Committee in its discretion deems reasonable and proper under the circumstances. Whenever a person or organization has the power and authority under the Plan or the Trust Agreement to delegate discretionary authority respecting the administration of the Plan or the Trust Fund to another person or organization, the delegating party's responsibility with respect to such delegation is limited to the selection of the person to whom authority is delegated and the periodic review of such person's performance and compliance with applicable law and regulations. Any breach of fiduciary responsibility by the person to whom authority has been delegated which is not proximately caused by the delegating party's failure to properly select or supervise, and in which breach the delegating party does not otherwise participate, will not be considered a breach by the delegating party. 9.8 Information to be Submitted to the Committee. To enable the Committee to perform its functions, the Participating Employers will supply full and timely information to the Committee on all matters relating to Employees and Participants as the Committee may require and will maintain such other records required by the Committee to determine the benefits due to Participants or their Beneficiaries under the Plan. -35- 39 9.9 Notices, Statements and Reports. The Company will be the "administrator" of the Plan as defined in ERISA section 3(16)(A) for purposes of the reporting and disclosure requirements imposed by ERISA and the Code. The Committee will assist the Company, as requested, in complying with such reporting and disclosure requirements. 9.10 Claims Procedure. (a) Filing Claim for Benefits. If a Participant or Beneficiary does not receive the benefits which he believes he is entitled to receive under the Plan, he may file a claim for benefits with the Committee. All claims will be made in writing and will be signed by the claimant. If the claimant does not furnish sufficient information to determine the validity of the claim, the Committee will indicate to the claimant any additional information which is required. (b) Notification by the Committee. Each claim will be approved or disapproved by the Committee within 90 days following the receipt of the information necessary to process the claim. In the event the Committee denies a claim for benefits in whole or in part, the Committee will notify the claimant in writing of the denial of the claim. Such notice by the Committee will also set forth, in a manner calculated to be understood by the claimant, the specific reason for such denial, the specific Plan provisions on which the denial is based, a description of any additional material or information necessary to perfect the claim with an explanation of why such material or information is necessary, and an explanation of the Plan's claim review procedure as set forth in subsection (c). If no action is taken by the Committee on a claim within 90 days, the claim will be deemed to be denied for purposes of the review procedure. (c) Review Procedure. A claimant may appeal a denial of his claim by requesting a review of the decision by the Committee or a person designated by the Committee, which person will be a named fiduciary under ERISA section 402(a)(2) for purposes of this Section. An appeal must be submitted in writing within six months after the denial and must (i) request a review of the claim for benefits under the Plan, (ii) set forth all of the grounds upon which the claimant's request for review is based and any facts in support thereof, and (iii) set forth any issues or comments which the claimant deems pertinent to the appeal. The Committee or the named fiduciary designated by the Committee will make a full and fair review of each appeal and any written materials submitted in connection with the appeal. The Committee or the named fiduciary designated by the Committee will act upon each appeal within 60 days after receipt thereof unless special circumstances require an extension of the time for processing, in which case a decision will be rendered as soon as possible but not later than 120 days after the appeal is received. The claimant will be given the opportunity to review pertinent documents or materials upon submission of a written request to the Committee or named fiduciary, provided the Committee or named fiduciary finds the requested documents or materials are pertinent to the appeal. On the basis of its review, the Committee or named fiduciary will make an independent determination of the claimant's eligibility for benefits under the Plan. The decision of the Committee or named fiduciary on any claim for benefits will be final and conclusive upon all parties thereto. In the event the Committee or named fiduciary denies an appeal in whole or in part, it will give written notice of the decision to the claimant, which notice will set forth in a -36- 40 manner calculated to be understood by the claimant the specific reasons for such denial and which will make specific reference to the pertinent Plan provisions on which the decision was based. 9.11 Service of Process. The Committee may from time to time designate an agent of the Plan for the service of legal process. The Committee will cause such agent to be identified in materials it distributes or causes to be distributed when such identification is required under applicable law. In the absence of such a designation, the Company will be the agent of the Plan for the service of legal process. 9.12 Correction of Participants' Accounts. If an error or omission is discovered in the Accounts of a Participant, or in the amount distributed to a Participant, the Committee will make such equitable adjustments in the records of the Plan as may be necessary or appropriate to correct such error or omission as of the Plan Year in which such error or omission is discovered. Further, a Participating Employer may, in its discretion, make a special contribution to the Plan which will be allocated by the Committee only to the Account of one or more Participants to correct such error or omission. 9.13 Payment to Minors or Other Persons Under Legal Disability. If any benefit becomes payable to a minor, payment of such benefit will be made only to the guardian of the person or the estate of the minor, provided the guardian acknowledges in writing, in a form acceptable to the Committee, receipt of the payment on behalf of the minor. If any benefit becomes payable to any other person under a legal disability, payment of such benefit will be made only to the conservator or the guardian of the estate of such person appointed by a court of competent jurisdiction. Any payment made in accordance with the provisions of this Section on behalf of a minor or other person under a legal disability will fully discharge the Plan's obligation to such person. 9.14 Uniform Application of Rules and Policies. The Committee in exercising its discretion granted under any of the provisions of the Plan or the Trust Agreement will do so only in accordance with rules and policies established by it which will be uniformly applicable to all Participants and Beneficiaries. 9.15 Funding Policy. The Plan is to be funded through Participating Employer contributions and earnings on such contributions; and benefits will be paid to Participants and Beneficiaries as provided in the Plan. 9.16 The Trust Fund. The Trust Fund will be held by the Trustee for the exclusive benefit of Participants and Beneficiaries. The assets held in the Trust Fund will be invested and reinvested in accordance with the terms of the Trust Agreement, which is hereby incorporated into and made a part of the Plan. All benefits will be paid solely out of the Trust Fund, and no Participating Employer will be otherwise liable for benefits payable under the Plan. -37- 41 ARTICLE 10 LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS TO PARTICIPANTS' ACCOUNTS 10.1 Priority over Other Contribution and Allocation Provisions. The provisions set forth in this Article will supersede any conflicting provisions of Articles 3 and 4. 10.2 Definitions Used in this Article. The following words and phrases, when used with initial capital letters, will have the meanings set forth below. (a) "Annual Addition" means the sum of the following amounts with respect to all Qualified Plans and Welfare Benefit Funds maintained by the Controlled Group Members: (i) the amount of Controlled Group Member contributions with respect to the Limitation Year allocated to the Participant's account; (ii) the amount of any forfeitures for the Limitation Year allocated to the Participant's account; (iii) the amount, if any, carried forward pursuant to Section 10.4 or a similar provision in another Qualified Plan and allocated to the Participant's account; (iv) the amount of a Participant's voluntary nondeductible contributions for the Limitation Year, provided, however, that the Annual Addition for any Limitation Year beginning before January 1, 1987 will not be recomputed to treat all of the Participant's nondeductible voluntary contributions as part of the Annual Addition; (v) the amount allocated after March 31, 1984 to an individual medical benefit account (as defined in Code section 415(l)(2)) which is part of a Defined Benefit Plan or an annuity plan; and (vi) the amount derived from contributions paid or accrued after December 31, 1985 in taxable years ending after such date that are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code section 419A(d)(3)) under a Welfare Benefit Fund. A Participant's Annual Addition will not include any nonvested amounts restored to his account following his reemployment before incurring five consecutive One Year Breaks in Service, and a corrective allocation pursuant to Section 9.12 will be considered an Annual Addition for the Limitation Year to which it relates. (b) "Average Contribution Percentage" means the average of the Contribution Percentages of each Participant in a group of Participants. -38- 42 (c) "Average Deferral Percentage" means the average of the Deferral Percentages of each Participant in a group of Participants. (d) "Contribution Percentage" means the ratio (expressed as a percentage) determined by dividing the Matching Contributions made to the Plan on behalf of a Participant who is eligible to receive an allocation of Matching Contributions for a Plan Year (but only to the extent such Matching Contributions are not taken into account in determining the Participant's Deferral Percentage for the Plan Year) by the Participant's Compensation for the Plan Year. A Participant is eligible to receive an allocation of Matching Contributions for purposes of determining his Contribution Percentage even though no Matching Contributions are made to the Plan on his behalf because of the suspension of his Deferral Contributions under the terms of the Plan, because of an election not to participate, or because of the limitations contained in Sections 10.3 through 10.5 of the Plan. (e) "Deferral Percentage" means the ratio (expressed as a percentage) determined by dividing the Deferral Contributions made to the Plan on behalf of a Participant who is eligible to make Deferral Contributions for all or any portion of a Plan Year by the Participant's Compensation for the Plan Year. In addition, if the Matching Contributions to the Plan for any Plan Year satisfy the requirements of Code section 401(k)(2)(B) and (C), a Participant's Deferral Percentage will be determined by aggregating the Deferral Contributions and the Matching Contributions made to the Plan on his behalf for such Plan Year, unless such aggregation is prohibited in regulations prescribed by the Secretary of the Treasury. A Participant is eligible to make Deferral Contributions for purposes of determining his Deferral Percentage even though he does not make Deferral Contributions because of the suspension of his Deferral Contributions under the terms of the Plan, because of an election not to participate, or because of the limitations contained in Sections 10.3 through 10.5 of the Plan. A Deferral Contribution will be taken into account for a Plan Year only if (i) the allocation of such contribution is not contingent on participation in the Plan or the performance of services after the Plan Year, (ii) such contribution is paid to the Trustee within 12 months after the end of the Plan Year, and (iii) such contribution relates to Compensation that either would have been received by the Participant in the Plan Year, or that is attributable to services performed during the Plan Year and that would have been received within two and one-half months after the Plan Year, but for the election to defer. (f) "Defined Benefit Dollar Limitation" means for any Limitation Year, $90,000 or such amount as determined by the Commissioner of Internal Revenue under Code section 415(d)(1) as of the January 1 falling within such Limitation Year. (g) "Defined Benefit Fraction" means a fraction, the numerator of which is the Projected Annual Benefit of a Participant under all Defined Benefit Plans maintained by a Controlled Group Member determined as of the close of the Limitation Year and the denominator of which is the lesser of (i) 140% of the Participant's average Includable Compensation that may be taken into account for the Limitation Year under Code section 415(b)(1)(B), or (ii) 125% of the Defined Benefit Dollar Limitation, determined as of the close of the Limitation Year. If the Participant was a participant in a Defined Benefit Plan maintained by a Controlled Group Member -39- 43 in existence on July 1, 1982, or on May 6, 1986, the denominator of the Defined Benefit Fraction will not be less than 125% of the greater of the Participant's accrued Projected Annual Benefit under such plan as of the end of the last Limitation Year beginning before January 1, 1983, or his accrued Projected Annual Benefit of the end of the last Limitation Year beginning January 1, 1987. The preceding sentence applies only if the Defined Benefit Plan satisfied the requirements of Code section 415 as in effect at the end of such Limitation Year. (h) "Defined Benefit Plan" means a Qualified Plan other than a Defined Contribution Plan. (i) "Defined Contribution Dollar Limitation" means for any Limitation Year, $30,000 or, if greater, 25% of the Defined Benefit Dollar Limitation for the same Limitation Year. If a short Limitation Year is created because of a Plan amendment changing the Limitation Year to a different 12-consecutive month period, the Defined Contribution Dollar Limitation for the short Limitation Year will not exceed the amount determined in the preceding sentences multiplied by a fraction, the numerator of which is the number of months in the short Limitation Year and the denominator of which is 12. (j) "Defined Contribution Fraction" means a fraction, the numerator of which is the sum of the Annual Additions allocated to the Participant's accounts for the applicable Limitation Year and each prior Limitation Year, and the denominator of which is the sum of the lesser of the following products for each Limitation Year in which the Participant was an Employee (regardless of whether a Defined Contribution Plan was in existence for such Limitation Year) (i) the Defined Contribution Dollar Limitation (determined for this purpose without regard to the provisions of Code section 415(c)(6)) effective for the Limitation Year multiplied by 125%, or (ii) 35% of the Participant's Includable Compensation for such Limitation Year. (k) "Defined Contribution Plan" means a Qualified Plan described in Code section 414(i). (l) [Reserved.] (m) "Highly Compensated Employee" means any Employee who performs services for a Controlled Group Member during the determination year (as hereinafter defined) and who during the look-back year (as hereinafter defined): (i) received Compensation from a Controlled Group Member in excess of $75,000 (as adjusted pursuant to Code section 415(d)); (ii) received Compensation from a Controlled Group Member in excess of $50,000 (as adjusted pursuant to Code section 415(d)) and was a member of the top-paid group (as hereafter defined) for such year; or (iii) was an officer of a Controlled Group Member and received Compensation during such year that is greater than 50% of the dollar limitation in effect under Code section 415(b)(1)(A) (but limited to no more than 50 Employees or, if lesser, the greater of three Employees or 10% of the Employees). The term Highly Compensated Employee also includes: (i) an Employee who is both described in the preceding sentence if the term "determination year" is substituted for the term "look-back year" and the Employee is one of the 100 Employees who -40- 44 received the most Compensation from the Controlled Group during the determination year; and (ii) an Employee who is a 5-percent owner at any time during the look-back year or determination year. If no officer has satisfied the Compensation requirement of (ii) above during either a determination year or look-back year, the officer with the highest Compensation for such year will be treated as a Highly Compensated Employee. For purposes of this subsection, the determination year is the Plan Year, and the look-back year is the twelve-month period immediately preceding the determination year. A Highly Compensated Employee also includes any Employee who separated from service (or was deemed to have separated) prior to the determination year, performs no services for a Controlled Group Member during the determination year, and was a Highly Compensated Employee for either the separation year or any determination year ending on or after the Employee's 55th birthday. The term "top-paid group" means that group of Employees consisting of the top 20% of such Employees ranked on the basis of Compensation received during the Plan Year. For purposes of this subsection, Compensation will include Deferral Contributions under the Plan or any other 401(k) arrangement and any amounts that would have been received as cash but for an election to receive benefits under a Code section 125 cafeteria plan. All determinations under this definition will be made in accordance with Code section 414(q) and the Treasury Regulations thereunder. For Plan Years beginning after December 31, 1996, the term "Highly Compensated Employee" means an Employee who was a 5-percent owner of a Controlled Group Member at any time during the Plan Year or who for the preceding Plan Year had Compensation in excess of $80,000 (as adjusted pursuant to Code Section 415(d)) and, if the Company elects for the preceding Plan Year, was in the top-paid group of Employees for the preceding Plan Year. (n) "Includable Compensation" means an Employee's wages as defined in Code section 3401(a) for purposes of income tax withholding at the source (but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or services performed) that are paid to a Participant by the Participating Employers. In addition, effective for Plan Years beginning after December 31, 1997, Compensation includes any contributions made by the Participating Employers on behalf of an Employee pursuant to a deferral election under the Plan or under any other employee benefit plan containing a cash or deferred arrangement under Code section 401(k) and any amounts that would have been received as cash but for an election to receive benefits under a cafeteria plan meeting the requirements of Code section 125. (o) "Limitation Year" means the 12-consecutive-month period used by a Qualified Plan for purposes of computing the limitations on benefits and annual additions under Code section 415. The Limitation Year for this Plan is the Plan Year. (p) "Maximum Annual Addition" means with respect to a Participant for any Limitation Year an amount equal to the lesser of (i) the Defined Contribution Dollar Limitation or (ii) 25% of the Participant's Includable Compensation. -41- 45 (q) "Nonhighly Compensated Employee" means an Employee who is neither a Highly Compensated Employee. (r) "Projected Annual Benefit" means the annual benefit (as defined in Code section 415(b)(2)) to which a Participant would be entitled under the terms of a Defined Benefit Plan maintained by a Controlled Group Member, assuming that the Participant will continue employment until his normal retirement age under the Defined Benefit Plan (or current age, if later) and that the Participant's Includable Compensation for the current Limitation Year and all other relevant factors used to determine benefits under the Defined Benefit Plan will remain constant for all future Limitation Years. (s) "Matching Contribution" means the Participating Employer matching contribution made to the Plan on behalf of a Participant pursuant to Article 3. (t) "Welfare Benefit Fund" means an organization described in paragraph (7), (9), (17) or (20) of Code section 501(c), a trust, corporation or other organization not exempt from federal income tax, or to the extent provided in Treasury Regulations, any account held for an employer by any person, which is part of a plan of an employer through which the employer provides benefits to employees or their beneficiaries, other than a benefit to which Code sections 83(h), 404 (determined without regard to section 404(b)(2)) or 404A applies, or to which an election under Code section 463 applies. (u) "Compensation" means the wages as defined in Code section 3401(a) for purposes of income tax withholding at the source (but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or services performed) that are paid to a Participant by the Participating Employers. In addition, Compensation includes any contributions made by the Participating Employers on behalf of an Employee pursuant to a deferral election under the Plan or under any other employee benefit plan containing a cash or deferred arrangement under Code section 401(k) and any amounts that would have been received as cash but for an election to receive benefits under a cafeteria plan meeting the requirements of Code section 125. The annual Compensation of an Employee taken into account for any purpose will not exceed $200,000 for any Plan Year ending before January 1, 1994, as adjusted in regulations prescribed by the Secretary of the Treasury, and will not exceed $150,000 for any Plan Year beginning after December 31, 1993, as adjusted in regulations prescribed by the Secretary of the Treasury. 10.3 General Allocation Limitation. The Annual Addition of a Participant for any Limitation Year will not exceed the Maximum Annual Addition. If, except for the application of this section, the Annual Addition of a Participant for any Limitation Year would exceed the Maximum Annual Addition, the excess Annual Addition attributable to this Plan will not be allocated to the Participant's Account for the Plan Year included in such Limitation Year, but will be subject to the provisions of Section 10.4. The limitations contained in this Article will apply on an aggregate basis to all Defined Contribution Plans and all Defined Benefit Plans (whether or not any of such plans have terminated) established by the Controlled Group Members. -42- 46 10.4 Excess Allocations. (a) Participants Covered by One Defined Contribution Plan. If the Participant is not covered under another Defined Contribution Plan or a Welfare Benefit Fund maintained by a Controlled Group Member during the Limitation Year and the amount allocated or otherwise allocable to his Account would exceed the Maximum Annual Addition, the Participant's Deferral Contributions will be returned to the Participant (together with earnings, if any, attributable to the returned Deferral Contributions) to the extent necessary to reduce the excess Annual Addition. If an excess Annual Addition remains after the return of such Deferral Contributions plus earnings, the Participating Employer contributions and forfeitures which would continue to cause the Participant's Annual Addition to exceed the Maximum Annual Addition will be successively allocated in the manner described in Section 4.2 among the Accounts of eligible Participants whose Annual Additions do not exceed the Maximum Annual Addition. If, after such allocations have been made, there remain Participating Employer contributions or forfeitures which cannot be allocated without causing the Annual Addition of a Participant to exceed the Maximum Annual Addition, the forfeitures which cause the Annual Addition to exceed the Maximum Annual Addition and the Participating Employer contributions which result from a reasonable error in estimating the Participant's Includable Compensation or from any other limited facts and circumstances which the Commissioner of Internal Revenue finds justifiable under section 1.415-6(b)(6) of the Treasury Regulations and which cause the Participant's Annual Addition to exceed the Maximum Annual Addition will be held in a suspense account in the Trust Fund to be carried forward and used in subsequent Limitation Years to reduce Participating Employer contributions to the Plan. If a suspense account is in existence at any time during a Limitation Year, all amounts in the suspense account must be allocated before any contributions which would constitute Annual Additions will be made to the Plan for that Limitation Year. Such suspense account will not participate in the allocation of the net income or net loss of the Trust Fund. (b) Participants Covered by Two or More Defined Contribution Plans. If, in addition to this Plan, the Participant is covered under another Defined Contribution Plan or a Welfare Benefit Fund maintained by a Controlled Group Member during the Limitation Year, the following provisions will apply. The Annual Addition which may be credited to a Participant's Account under this Plan for any such Limitation Year will not exceed the Maximum Annual Addition reduced by the Annual Addition credited to a Participant's accounts under the other Defined Contribution Plans and Welfare Benefit Funds for the same Limitation Year. If the Annual Addition with respect to the Participant under the other Defined Contribution Plans and Welfare Benefit Funds maintained by a Controlled Group Member is less than the Maximum Annual Addition and the Participating Employer contribution that would otherwise be contributed or allocated to the Participant's Account under this Plan would cause the Annual Addition for the Limitation Year to exceed the Maximum Annual Addition, the amount to be contributed or allocated to the Participant's Account under this Plan will be reduced so that the Annual Addition under all such Defined Contribution Plans and Welfare Benefit Funds for the Limitation Year will equal the Maximum Annual Addition. If the aggregate Annual Addition with respect to the Participant under such other Defined Contribution Plans and Welfare Benefit Funds is equal to or -43- 47 greater than the Maximum Annual Addition, no amount will be contributed or allocated to the Participant's Account under this Plan for the Limitation Year. An excess Annual Addition will be reduced in the manner described in subsection (c). (c) Reduction of Excess Allocations. As soon as is administratively feasible after the end of the Limitation Year, the Maximum Annual Addition for the Limitation Year will be determined on the basis of the Participant's Includable Compensation for the Limitation Year. If a Participant's Annual Addition under this Plan and the other Defined Contribution Plans and Welfare Benefit Funds maintained by Controlled Group Members would result in the Annual Addition exceeding the Maximum Annual Addition for the Limitation Year, the excess amount will be deemed to consist of the Annual Addition last allocated. In making this determination, the Annual Addition attributable to a Welfare Benefit Fund will be deemed to have been allocated first regardless of the actual date of allocation. If an excess amount was allocated to a Participant on an allocation date of this Plan that coincides with an allocation date of another plan, the excess amount attributed to this Plan will be the product of (i) the total excess amount allocated as of such date and (ii) the ratio of the Annual Addition allocated to the Participant for the Limitation Year as of such date under this Plan to the total Annual Addition allocated to the Participant for the Limitation Year as of such date under this and all the other Defined Contribution Plans. Any excess amount attributed to this Plan will be disposed of in the manner described in subsection (a). 10.5 Aggregate Benefit Limitation. The provisions of this Section will apply to Plan Years ending before January 1, 2000. If a Controlled Group Member maintains, or at any time maintained, one or more Defined Benefit Plans covering any Participant in this Plan, the sum of the Defined Benefit Fraction and the Defined Contribution Fraction for any Limitation Year will equal no more than one (1.0). The provisions of the Defined Benefit Plans will govern the order of reduction of Annual Additions or benefit accruals necessary to meet this limitation. If the provisions of the Defined Benefit Plans are silent, the current Annual Addition under this Plan will be reduced first, and then the rate of accrual under the Defined Benefit Plans will be reduced, if necessary to meet this limitation. If the Defined Contribution Plans taken into account in determining the Participant's Annual Addition under this Article satisfied the requirements of Code section 415 as in effect for all Limitation Years beginning before January 1, 1987, an amount will be subtracted from the numerator of the Defined Contribution Fraction (not exceeding such numerator) as prescribed by the Secretary of the Treasury so that the sum of the Defined Contribution Fraction and the Defined Benefit Fraction does not exceed 1.0. For purposes of this Section, a Participant's voluntary nondeductible contributions to a Defined Benefit Plan will be treated as being part of a separate Defined Contribution Plan. 10.6 Limitation on Deferral Contributions. (a) Average Deferral Percentage Test. Notwithstanding any other provision of the Plan, the Average Deferral Percentage for a Plan Year for Participants who are Highly Compensated Employees will not exceed the greater of: (i) the Average Deferral Percentage for the preceding Plan Year of Participants who are Nonhighly Compensated Employees multiplied by 1.25; or (ii) the lesser of (A) the Average Deferral Percentage for the preceding Plan Year of Participants who are Nonhighly Compensated Employees plus two percentage points or (B) the Average Deferral Percentage for the preceding Plan Year of -44- 48 Participants who are Nonhighly Compensated Employees multiplied by 2.0. The multiple use of the alternative test in clause (ii) of this subsection will be restricted as provided in regulations prescribed by the Secretary of the Treasury. (b) Suspension of Deferral Contributions. If at any time during a Plan Year the Committee determines, on the basis of estimates made from information then available, that the limitation described in subsection (a) above will not be met for the Plan Year, the Committee in its discretion may reduce or suspend the Deferral Contributions of one or more Participants who are Highly Compensated Employees to the extent necessary (i) to enable the Plan to meet such limitation or (ii) to reduce the amount of excess Deferral Contributions that would otherwise be distributed pursuant to subsection (c) below. (c) Reduction of Excess Deferral Contributions. If, for any Plan Year, the Average Deferral Percentage for Participants who are Highly Compensated Employees exceeds the limitation described in subsection (a) above, the dollar amount of excess Deferral Contributions for each Highly Compensated Employee will be calculated in the manner described in Code section 401(k)(8)(B) and the regulations thereunder, and the aggregate dollar amount of the excess Deferral Contributions for all Highly Compensated Employees will be distributed on the basis of the dollar amount of Deferral Contributions for each such Participant (as hereinafter provided) until the aggregate amount of excess Deferral Contributions has been distributed. The Deferral Contributions of the Highly Compensated Employee with the highest dollar amount of Deferral Contributions will be reduced first by the amount required to cause that Participant's Deferral Contributions to equal the dollar amount of the Deferral Contributions of the Highly Compensated Employee with the next highest dollar amount, and this process will be repeated until the total amount of excess Deferral Contributions has been distributed. Upon distribution of the total excess Deferral Contributions in this manner, the Plan will be treated as satisfying the limitations of subsection (a) above. Matching Contributions made with respect to a Participant's excess Deferral Contributions will be forfeited and applied as provided in Section 5.3. All distributions under this subsection will be increased by Trust Fund earnings and decreased by Trust Fund losses for the Plan Year and for the period between the end of the Plan Year and the date of distribution and will be made within two and one-half months following the close of the Plan Year, if practicable, but in no event later than the last day of the immediately following Plan Year. The amount of excess Deferral Contributions distributed pursuant to this Section with respect to a Participant for the Plan Year will be reduced by any Deferral Contributions previously distributed to the Participant for the same Plan Year pursuant to Section 3.1(c). (d) Determination of Earnings and Losses. The earnings and losses of the Trust Fund for the Plan Year allocable to the portion of a Participant's Deferral Contributions that are distributed pursuant to subsection (c) above will be determined by multiplying the Trust Fund earnings or losses for the Plan Year allocable to the Participant's Deferral Contribution Account by a fraction, the numerator of which is the amount of Deferral Contributions to be distributed to the Participant and the denominator of which is the balance of the Participant's Deferral Contribution Account on the last day of the Plan Year, reduced by the earnings and increased by the losses allocable to such Account for the Plan Year. The earnings and losses of the Trust Fund allocable to the Participant's Deferral -45- 49 Contributions that are distributed pursuant to subsection (c) for the period between the end of the Plan Year and the date of such distribution will be determined in accordance with regulations prescribed by the Secretary of the Treasury interpreting Code section 401(k). (e) Discriminatory Matching Contributions. If the allocation of Matching Contributions to a Participant's Matching Contribution Account results in a discriminatory matching contribution (as determined under Code sections 401(a)(4) or 401(m) and the regulations thereunder) for such Participant because the Matching Contribution relates to a Deferral Contribution that exceeds the limitations described in Section 3.1(c) or this Section 10.6, or because of any other reason, and such discriminatory matching contribution cannot be distributed as an excess Matching Contribution pursuant to Section 10.7, such discriminatory matching contribution, or the portion thereof that results in prohibited discrimination, will be forfeited notwithstanding any other provision of the Plan to the contrary. 10.7 Limitation on Matching Contributions. (a) Average Contribution Percentage Test. Notwithstanding any other provision of the Plan, the Average Contribution Percentage for a Plan Year for Participants who are Highly Compensated Employees will not exceed the greater of: (i) the Average Contribution Percentage for the preceding Plan Year of Participants who are Nonhighly Compensated Employees multiplied by 1.25; or (ii) the lesser of (A) the Average Contribution Percentage Test for the preceding Plan Year of Participants who are Nonhighly Compensated Employees plus two percentage points or (B) the Average Contribution Percentage for the preceding Plan Year of Participants who are Nonhighly Compensated Employees multiplied by 2.0. The multiple use of the alternative test contained in clause (ii) of this subsection will be restricted as provided in regulations prescribed by the Secretary of the Treasury. (b) Reduction of Excess Matching Contributions. If, for any Plan Year, the Average Contribution Percentage for Participants who are Highly Compensated Employees exceeds the limitation described in subsection (a) above, the dollar amount of excess Matching Contributions for each Highly Compensated Employee will be calculated in the manner described in Code section 401(m)(6)(B) and the regulations thereunder, and the aggregate dollar amount of the excess Matching Contributions for all Highly Compensated Employees will be forfeited (if forfeitable) or (if not forfeitable) will be distributed on the basis of the dollar amount of Matching Contributions for each such Participant (as hereinafter provided) until the aggregate amount of excess Matching Contributions has been forfeited or distributed. The Matching Contributions of the Highly Compensated Employee with the highest dollar amount of Matching Contributions will be reduced first by the amount required to cause that Participant's Matching Contributions to equal the dollar amount of the Matching Contributions of the Highly Compensated Employee with the next highest dollar amount, and this process will be repeated until the total amount of excess Matching Contributions has been forfeited or distributed. Upon forfeiture or distribution of the -46- 50 total excess Matching Contributions in this manner, the Plan will be treated as satisfying the limitations of subsection (a) above. All distributions under this subsection will be increased by Trust Fund earnings and decreased by Trust Fund losses for the Plan Year and for the period between the end of the Plan Year and the date of distribution and will be made within two and one-half months following the close of the Plan Year, if practicable, but in no event later than the last day of the immediately following Plan Year. (c) Determination of Earnings and Losses. The earnings and losses of the Trust Fund for the Plan Year allocable to the portion of a Participant's Matching Contributions that are forfeited pursuant to Section 10.6 or distributed pursuant to subsection (b) above will be determined by multiplying the Trust Fund earnings or losses for the Plan Year allocable to the Participant's Matching Contribution Account by a fraction, the numerator of which is the amount of Matching Contributions to be distributed or forfeited and the denominator of which is the balance of the Participant's Matching Contribution Account on the last day of the Plan Year, reduced by the earnings and increased by the losses allocable to such Account for the Plan Year. The earnings and losses of the Trust Fund allocable to a Participant's Matching Contributions that are forfeited pursuant to Section 10.6 or distributed pursuant to subsection (b) above for the period between the end of the Plan Year and the date of such distribution or forfeiture will be determined in accordance with regulations prescribed by the Secretary of the Treasury interpreting Code sections 401(k) and 401(m). 10.8 Aggregation Rules. (a) Code Section 415. For purposes of the allocation limitations under Code section 415 set forth in this Article, (i) all Defined Benefit Plans ever maintained by a Controlled Group Member will be treated as one Defined Benefit Plan, and all Defined Contribution Plans ever maintained by a Controlled Group Member will be treated as one Defined Contribution Plan, and (ii) Controlled Group Members will be determined in accordance with the 50% control rule of Code section 415(h). (b) Code Section 401(k). For purposes of the limitation on Deferral Contributions set forth in this Article, the Average Deferral Percentage for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have deferral contributions allocated to his account under two or more plans or arrangements described in Code section 401(k) that are maintained by the Company or any Controlled Group Member will be determined as if all such deferral contributions were made under a single arrangement (unless such plans or arrangements may not be permissively aggregated under applicable regulations). Plans that are aggregated for purposes of satisfying the minimum coverage rules of Code section 410(b) (other than for purposes of the average benefits percentage test) will be treated as a single plan for such purposes. (c) Code Section 401(m). The Contribution Percentage of a Participant who is a Highly Compensated Employee for a Plan Year and who is eligible to make voluntary Employee contributions or receive deferral contributions or matching employer contributions allocated to his -47- 51 account under two or more Defined Contribution Plans maintained by the Company or a Controlled Group Member will be determined as if all such contributions were made to a single plan (unless such plans may not be permissively aggregated under applicable regulations). Plans that are aggregated for purposes of satisfying the minimum coverage rules of Code section 410(b) (other than for purposes of the average benefits percentage test) will be treated as a single plan for such purposes. -48- 52 ARTICLE 11 RESTRICTIONS ON DISTRIBUTIONS TO PARTICIPANTS AND BENEFICIARIES 11.1 Priority over Other Distribution Provisions. The provisions set forth in this Article will supersede any conflicting provisions of Article 6 or Article 7. 11.2 General Restrictions. (a) Distributions Prior to a Separation from Service. Except for distributions permitted under Article 6 with respect to Participants who attain age 59-1/2 or suffer a hardship, a Participant's interest in the Plan will not be distributed before the Participant's separation from service, disability or death unless: (i) the Plan is terminated without the establishment or maintenance by the Participating Employers of another defined contribution plan (other than an employee stock ownership plan as defined in Code section 4975(e)(7)); (ii) a Participating Employer that is a corporation sells all or substantially all of the assets used by the Participating Employer in a trade or business to a person other than a Controlled Group Member and the Participant becomes an employee of the acquiring employer; or (iii) a Participating Employer that is a corporation disposes of its interest in a subsidiary to a person other than an Controlled Group Member but only if the Participant continues employment with the subsidiary. An event will not be treated as described in clause (ii) or (iii) above unless the Participating Employer continues to maintain the Plan after the disposition. (b) Lump Sum Distribution Required. An event described in subparagraph (a) that would otherwise permit distribution of a Participant's interest in the Plan will not be treated as described in subparagraph (a) unless the Participant receives a lump sum distribution by reason of the event. A lump sum distribution for this purpose will be a distribution described in Code section 402(d)(4), without regard to clauses (i), (ii), (iii), and (iv) of subparagraph (A), subparagraph (B), or subparagraph (F) thereof. 11.3 Restrictions on Commencement of Distributions. The provisions of this Section will apply to restrict the Committee's ability to delay the commencement of distributions. Unless a Participant elects otherwise in writing, distribution of the Participant's vested interest in his Account will begin no later than the 60th day after the close of the Plan Year in which occurs the latest of (i) the date on which the Participant attains age 62, (ii) the tenth anniversary of the Plan Year in which the Participant began participation in the Plan, or (iii) the Participant's termination of employment. 11.4 Restrictions on Delay of Distributions. The following provisions will apply to limit a Participant's ability to delay the distribution of benefits. -49- 53 (a) General Rule. Distribution of a Participant's entire vested and nonforfeitable interest will be made or commence not later than April 1 following the calendar year in which he attains age 70-1/2. On or before December 31 of such calendar year and of each succeeding calendar year, distribution of the entire amount of any additional balances in the Participant's Accounts (determined as of the preceding Valuation Date) will be made in a lump sum. (b) Rule for Certain Participants Who Attained Age 70-1/2 Before 1988. Notwithstanding subsection (a), if a Participant attained age 70-1/2 before January 1, 1988 and was not a 5-percent owner (as such term is defined in Code Section 416(i)) at any time during the five-plan-year period ending in the calendar year in which he attained age 70-1/2, then distribution of his entire vested and nonforfeitable interest will be made or commence not later than April 1 following the earlier of (i) the calendar year in which his employment with the Controlled Group terminates or (ii) the calendar year in which he becomes a 5-percent owner. (c) Rule for Participants Who Attained Age 70-1/2 in 1988. If a Participant attained age 70-1/2 during 1988 and had not terminated employment with the Controlled Group as of January 1, 1989, distribution of his entire vested and nonforfeitable interest will be made or commence not later than April 1, 1990. 11.5 Limitation to Assure Benefits Payable to Beneficiaries are Incidental. In the event that any payments under the Plan are to be made to someone other than the Participant or jointly to the Participant and his spouse or other payee, such payments must conform to the "incidental benefit" rules of Code section 401(a)(9)(G) and Treasury Regulation section 1.401(a)(9)-2. 11.6 Restrictions in the Event of Death. Upon the death of a Participant, the following distribution provisions will apply to limit the Beneficiary's ability to delay distributions. If the Participant dies after distribution of his benefit has begun, the remaining portion of his benefit will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Participant's death; but if he dies before distribution of his benefit commences, his entire benefit will be distributed no later than five years after his death, unless an individual who is a designated Beneficiary elects to receive distributions in substantially equal installments over the Beneficiary's life or life expectancy beginning no later than one year after the Participant's death. If the designated Beneficiary is the Participant's surviving spouse, the date distributions are required to begin will not be earlier than the date on which the Participant would have attained age 70-1/2, and, if the spouse dies before payments begin, subsequent distributions will be made as if the spouse had been the Participant. Any amount paid to a child of the Participant will be treated as if it had been paid to the surviving spouse if the amount becomes payable to the surviving spouse when the child reaches the age of majority. 11.7 Compliance with Regulations. Distributions under the Plan to Participants or Beneficiaries will be made in accordance with Treasury Regulations issued under Code section 401(a)(9). -50- 54 11.8 Delayed Payments. If the amount of a distribution required to begin on a date determined under the applicable provisions of the Plan cannot be ascertained by such date, or if it is not possible to make such payment on such date because the Committee has been unable to locate a Participant or Beneficiary after making reasonable efforts to do so, a payment retroactive to such date may be made no later than 60 days after the earliest date on which the amount of such payment can be ascertained or the date on which the Participant or Beneficiary is located (whichever is applicable). -51- 55 ARTICLE 12 TOP-HEAVY PROVISIONS 12.1 Priority over Other Plan Provisions. If the Plan is or becomes a Top-Heavy Plan in any Plan Year, the provisions of this Article will supersede any conflicting provisions of the Plan. However, the provisions of this Article will not operate to increase the rights or benefits of Participants under the Plan except to the extent required by Code section 416 and other provisions of law applicable to Top-Heavy Plans. 12.2 Definitions Used in this Article. The following words and phrases, when used with initial capital letters, will have the meanings set forth below. (a) "Defined Benefit Dollar Limitation" means the limitation described in Section 10.2(f). (b) "Defined Benefit Plan" means the Qualified Plan described in Section 10.2(h). (c) "Defined Contribution Dollar Limitation" means the limitation described in Section 10.2(i). (d) "Defined Contribution Plan" means the Qualified Plan described in Section 10.2(k). (e) "Determination Date" means for the first Plan Year of the Plan the last day of the Plan Year and for any subsequent Plan Year the last day of the preceding Plan Year. (f) "Determination Period" means the Plan Year containing the Determination Date and the four preceding Plan Years. (g) "Includable Compensation" means the compensation described in Section 10.2(n). (h) "Key Employee" means any Employee or former Employee (and the Beneficiary of a deceased Employee) who at any time during the Determination Period was (i) an officer of a Controlled Group Member, if such individual's Includable Compensation (modified as described below) exceeds 50% of the Defined Benefit Dollar Limitation, (ii) an owner (or considered an owner under Code section 318) of one of the ten largest interests in a Controlled Group Member, if such individual's Includable Compensation exceeds the Defined Contribution Dollar Limitation, (iii) a 5% owner of a Controlled Group Member, or (iv) a 1% owner of a Controlled Group Member who has annual Includable Compensation of more than $150,000. The determination of who is a Key Employee will be made in accordance with Code section -52- 56 416(i). For purposes of this subsection, Includable Compensation will include the amount of any salary reduction contributions pursuant to a cash or deferred arrangement meeting the requirements of Code section 401(k) or a cafeteria plan meeting the requirements of Code section 125. (i) "Minimum Allocation" means the allocation described in the first sentence of Section 12.3(a). (j) "Permissive Aggregation Group" means the Required Aggregation Group of Qualified Plans plus any other Qualified Plan or Qualified Plans of a Controlled Group Member which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Code sections 401(a)(4) and 410 (including simplified employee pension plans). (k) "Present Value" means present value based only on the interest and mortality rates specified in a Defined Benefit Plan. (l) "Required Aggregation Group" means the group of plans consisting of (i) each Qualified Plan (including simplified employee pension plans) of a Controlled Group Member in which at least one Key Employee participates, and (ii) any other Qualified Plan (including simplified employee pension plans) of a Controlled Group Member which enables a Qualified Plan to meet the requirements of Code sections 401(a)(4) or 410. (m) "Top-Heavy Plan" means the Plan for any Plan Year in which any of the following conditions exists: (i) if the Top-Heavy Ratio for the Plan exceeds 60% and the Plan is not a part of any Required Aggregation Group or Permissive Aggregation Group of Qualified Plans; (ii) if the Plan is a part of a Required Aggregation Group but not part of a Permissive Aggregation Group of Qualified Plans and the Top-Heavy Ratio for the Required Aggregation Group exceeds 60%; or (iii) if the Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group of Qualified Plans and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60%. (n) "Top-Heavy Ratio" means a fraction, the numerator of which is the sum of the Present Value of accrued benefits and the account balances (as required by Code section 416)) of all Key Employees with respect to such Qualified Plans as of the Determination Date (including any part of any accrued benefit or account balance distributed during the five-year period ending on the Determination Date), and the denominator of which is the sum of the Present Value of the accrued benefits and the account balances (including any part of any accrued benefit or account balance distributed in the five-year period ending on the Determination Date) of all Employees with respect to such Qualified Plans as of the Determination Date. The value of account balances and the Present Value of accrued benefits will be determined as of the most recent Top-Heavy Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Code section 416 for the first and second Plan Years of a Defined Benefit Plan. The account balances and accrued benefits of a participant who is not a Key -53- 57 Employee but who was a Key Employee in a prior year will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, transfers and contributions unpaid as of the Determination Date are taken into account will be made in accordance with Code section 416. Employee contributions described in Code section 219(e)(2) will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. The accrued benefit of any Employee other than a Key Employee will be determined under the method, if any, that uniformly applies for accrual purposes under all Qualified Plans maintained by all Controlled Group Members and included in a Required Aggregation Group or a Permissive Aggregation Group or, if there is no such method, as if the benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rate of Code section 411(b)(1)(C). Notwithstanding the foregoing, the account balances and accrued benefits of any Employee who has not performed services for an employer maintaining any of the aggregated plans during the five-year period ending on the Determination Date will not be taken into account for purposes of this subsection. (o) "Top-Heavy Valuation Date" means the last day of each Plan Year. 12.3 Minimum Allocation. (a) Calculation of Minimum Allocation. For any Plan Year in which the Plan is a Top-Heavy Plan, each Participant who is not a Key Employee will receive an allocation of Participating Employer contributions and forfeitures of not less than the lesser of 3% of his Includable Compensation for such Plan Year or the percentage of Includable Compensation that equals the largest percentage of Participating Employer contributions (including Deferral Contributions) and forfeitures allocated to a Key Employee. The Minimum Allocation is determined without regard to any Social Security contribution. Deferral Contributions made on behalf of Participants who are not Key Employees will not be treated as Participating Employer contributions for purposes of the Minimum Allocation. Matching Contributions that are allocated to Participants who are not Key Employees and that are taken into account in determining a Participant's Deferral Percentage or Contribution Percentage will not be treated as Participating Employer contributions for such Plan Year for purposes of the Minimum Allocation. The Minimum Allocation applies even though under other Plan provisions the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the Plan Year because (i) the non-Key Employee fails to make mandatory contributions to the Plan, (ii) the non-Key Employee's Includable Compensation is less than a stated amount, or (iii) the non-Key Employee fails to complete 1,000 Hours of Service in the Plan Year. (b) Limitation on Minimum Allocation. No Minimum Allocation will be provided pursuant to subsection (a) to a Participant who is not employed by a Controlled Group Member on the last day of the Plan Year. (c) Minimum Allocation When Participant is Covered by Another Qualified Plan. If a Controlled Group Member maintains one or more other Defined Contribution Plans -54- 58 covering Employees who are Participants in this Plan, the Minimum Allocation will be provided under this Plan, unless such other Defined Contribution Plans make explicit reference to this Plan and provide that the Minimum Allocation will not be provided under this Plan, in which case the provisions of subsection (a) will not apply to any Participant covered under such other Defined Contribution Plans. If a Controlled Group Member maintains one or more Defined Benefit Plans covering Employees who are Participants in this Plan, and such Defined Benefit Plans provide that Employees who are participants therein will accrue the minimum benefit applicable to top-heavy Defined Benefit Plans notwithstanding their participation in this Plan, then the provisions of subsection (a) will not apply to any Participant covered under such Defined Benefit Plans. If a Controlled Group Member maintains one or more Defined Benefit Plans covering Employees who are Participants in this Plan, and the provisions of the preceding sentence do not apply, then each Participant who is not a Key Employee and who is covered by such Defined Benefit Plans will receive a Minimum Allocation determined by applying the provisions of subsection (a) with the substitution of "5%" in each place that "3%" occurs therein. (d) Nonforfeitability. The Participant's Minimum Allocation, to the extent required to be nonforfeitable under Code section 416(b) and the special vesting schedule provided in this Article, may not be forfeited under Code section 411(a)(3)(B) (relating to suspension of benefits on reemployment) or 411(a)(3)(D) (relating to withdrawal of mandatory contributions). 12.4 Modification of Aggregate Benefit Limit. (a) Modification. Subject to the provisions of subsection (b), in any Plan Year in which the Top-Heavy Ratio exceeds 60%, the aggregate benefit limit described in Article 10 will be modified by substituting "100%" for "125%" in Sections 10.2(g) and (j). (b) Exception. The modification of the aggregate benefit limit described in subsection (a) will not be required if the Top-Heavy Ratio does not exceed 90% and one of the following conditions is met: (i) Employees who are not Key Employees do not participate in both a Defined Benefit Plan and a Defined Contribution Plan which are in the Required Aggregation Group, and the Minimum Allocation requirements of Section 12.3(a) are met when such requirements are applied with the substitution of "4%" for "3%"; (ii) the Minimum Allocation requirements of Section 12.3(c) are met when such requirements are applied with the substitution of "7 1/2%" for "5%"; or (iii) Employees who are not Key Employees have an accrued benefit of not less than 3% of their average Includable Compensation for the five consecutive Plan Years in which they had the highest Includable Compensation multiplied by their Years of Service in which the Plan is a Top-Heavy Plan (not to exceed a total such benefit of 30%), expressed as a life annuity commencing at the Participant's normal retirement age in a Defined Benefit Plan which is in the Required Aggregation Group. -55- 59 12.5 Minimum Vesting. (a) Required Vesting. For any Plan Year in which this Plan is a Top-Heavy Plan, the minimum vesting schedule set forth in subsection (b) will automatically apply to the Plan to the extent it provides a higher vested percentage than the regular vesting schedule set forth in Article 5. The minimum vesting schedule applies to all Account balances including amounts attributable to Plan Years before the effective date of Code section 416 and amounts attributable to Plan Years before the Plan became a Top-Heavy Plan. Further, no reduction in vested Account balances may occur in the event the Plan's status as a Top-Heavy Plan changes for any Plan Year, and any change in the effective vesting schedule from the schedule set forth in subsection (b) to the regular schedule set forth in Article 5 will be treated as an amendment subject to Section 14.1(iii). However, this subsection does not apply to the Account balances of any Employee who does not have an Hour of Service after the Plan has initially become a Top-Heavy Plan, and such Employee's Account balances will be determined without regard to this Section. (b) Minimum Vesting Schedule.
Percentage Vested Years of Service and Nonforfeitable ---------------- ------------------ Less than 2 0 2 but less than 3 20 3 but less than 4 40 4 but less than 5 60 5 but less than 6 80 6 or more 100
-56- 60 ARTICLE 13 ADOPTION OF PLAN BY CONTROLLED GROUP MEMBERS 13.1 Adoption Procedure. Any Controlled Group Member may become a Participating Employer under the Plan provided that (i) the Board approves the adoption of the Plan by the Controlled Group Member and designates the Controlled Group Member as a Participating Employer; (ii) the Controlled Group Member adopts the Plan and Trust Agreement together with all amendments then in effect by appropriate resolutions of the board of directors of the Controlled Group Member; and (iii) the Controlled Group Member by appropriate resolutions of its board of directors agrees to be bound by any other terms and conditions which may be required by the Board, provided that such terms and conditions are not inconsistent with the purposes of the Plan. 13.2 Effect of Adoption by Controlled Group Member. A Controlled Group Member that adopts the Plan pursuant to this Article will be deemed to be a Participating Employer for all purposes hereunder, unless otherwise specified in the resolutions of the Board designating the Controlled Group Member as a Participating Employer. In addition, the Board may provide, in its discretion and by appropriate resolutions, that the Employees of the Controlled Group Member will receive credit for their employment with the Controlled Group Member prior to the date it became a Controlled Group Member for purposes of determining either or both the eligibility of such Employees to participate in the Plan and the vested and nonforfeitable interest of such Employees in their Account balances provided that such credit will be applied in a uniform and nondiscriminatory manner with respect to all such Employees. -57- 61 ARTICLE 14 AMENDMENT OF THE PLAN 14.1 Right to Amend the Plan. (a) In General. The Company reserves to the Compensation Committee of the Board of Directors the right to amend the Plan at any time and from time to time to the extent it may deem advisable or appropriate, provided that (i) no amendment will increase the duties or liabilities of the Trustee without its written consent; (ii) no amendment will cause a reversion of Plan assets to the Participating Employers not otherwise permitted under the Plan; (iii) no amendment will have the effect of reducing the percentage of the vested and nonforfeitable interest of any Participant in his Account nor will the vesting provisions of the Plan be amended unless each Participant with at least three Years of Service (including Years of Service disregarded pursuant to the reemployment provisions (if any) of Article 5) is permitted to elect to continue to have the prior vesting provisions apply to him, within 60 days after the latest of the date on which the amendment is adopted, the date on which the amendment is effective, or the date on which the Participant is issued written notice of the amendment; and (iv) no amendment will be effective to the extent that it has the effect of decreasing a Participant's Account balance or eliminating an optional form of distribution as it applies to an existing Account balance. (b) Authority of the Board. The Company also reserves to the Board of Directors the right to amend the Plan at any time and from time to time to the extent it may deem advisable or appropriate, subject to the limitations on amendments set forth in subsection (a). 14.2 Amendment Procedure. Any amendment to the Plan will be made only pursuant to action of the Board or of the Compensation Committee of the Board. A certified copy of the resolutions adopting any amendment and a copy of the executed amendment will be delivered to the Trustee, the Committee and the Company. Upon such action by the Board or the Compensation Committee of the Board, the Plan will be deemed amended as of the date specified as the effective date by such action or in the instrument of amendment. The effective date of any amendment may be before, on or after the date of such action, except as otherwise set forth in Section 14.1. 14.3 Effect on Participating Employers. Unless an amendment expressly provides otherwise, all Participating Employers will be bound by any amendment to the Plan. -58- 62 ARTICLE 15 TERMINATION, PARTIAL TERMINATION AND COMPLETE DISCONTINUANCE OF CONTRIBUTIONS 15.1 Continuance of Plan. The Participating Employers expect to continue the Plan indefinitely, but they do not assume an individual or collective contractual obligation to do so, and the right is reserved to the Company, by action of the Board, to terminate the Plan or to completely discontinue contributions thereto at any time. In addition, subject to remaining provisions of this Article, any Participating Employer at any time may discontinue its participation in the Plan with respect to its Employees. 15.2 Complete Vesting. If the Plan is terminated, or if there is a complete discontinuance of contributions to the Plan by the Participating Employers, the amounts allocated or to be allocated to the Accounts of all affected Participants will become 100% vested and nonforfeitable without regard to their Years of Service. For purposes of this Section, a Participant who has terminated employment and is not again an Employee at the time the Plan is terminated or there is a complete discontinuance of Participating Employer contributions will not be an affected Participant entitled to full vesting if the Participant had no vested interest in his Account balance attributable to Participating Employer contributions at his termination of employment. In the event of a partial termination of the Plan, the amounts allocable to the Accounts of those Participants who cease to participate on account of the facts and circumstances which result in the partial termination will become 100% vested and nonforfeitable without regard to their Years of Service. 15.3 Disposition of the Trust Fund. If the Plan is terminated, or if there is a complete discontinuance of contributions to the Plan, the Committee will instruct the Trustee either (i) to continue to administer the Plan and pay benefits in accordance with the Plan until the Trust Fund has been depleted, or (ii) to distribute the assets remaining in the Trust Fund, unless distribution is prohibited by Section 11.2. If the Trust Fund is to be distributed, the Committee will make, after deducting estimated expenses for termination of the Trust Fund and distribution of its assets, the allocations required under the Plan as though the date of completion of the Trust Fund termination were a Valuation Date. The Trustee will distribute to each Participant the amount credited to his Account as of the date of completion of the Trust Fund termination. 15.4 Withdrawal by A Participating Employer. A Participating Employer may withdraw from participation in the Plan or completely discontinue contributions to the Plan only with the approval of the Board. If any Participating Employer withdraws from the Plan or completely discontinues contributions to the Plan, a copy of the resolutions of the board of directors of the Participating Employer adopting such action, certified by the secretary of such board of directors and reflecting approval by the Board, will be delivered to the Committee as soon as it is administratively feasible to do so, and the Committee will communicate such action to the Trustee and to the Employees of the Participating Employer. -59- 63 ARTICLE 16 MISCELLANEOUS 16.1 Reversion Prohibited. (a) General Rule. Except as provided in subsections (b), (c) and (d), it will be impossible for any part of the Trust Fund either (i) to be used for or diverted to purposes other than those which are for the exclusive benefit of Participants and their Beneficiaries (except for the payment of taxes and administrative expenses), or (ii) to revert to a Controlled Group Member. (b) Disallowed Contributions. Each contribution of the Participating Employers under the Plan is expressly conditioned upon the deductibility of the contribution under Code section 404. If all or part of a Participating Employer's contribution is disallowed as a deduction under Code section 404, such disallowed amount (reduced by any Trust Fund losses attributable thereto) may be returned by the Trustee to the Participating Employer with respect to which the deduction was disallowed (upon the direction of the Committee) within one year after the disallowance. (c) Mistaken Contributions. If a contribution is made by a Participating Employer by reason of a mistake of fact, then so much of the contribution as was made as a result of the mistake (reduced by any Trust Fund losses attributable thereto) may be returned by the Trustee to the Participating Employer (upon direction of the Committee) within one year after the mistaken contribution was made. (d) Failure to Qualify. In the event the Internal Revenue Service determines that the Plan and the Trust Agreement, as amended by amendments acceptable to the Company, initially fail to constitute a qualified plan and establish a tax-exempt trust under the Code, then notwithstanding any other provisions of the Plan or the Trust Agreement, the contributions made by the Participating Employers prior to the date of such determination will be returned to the Participating Employers within one year after such determination and the Plan and Trust Agreement will terminate, but only if the application for determination was made within the time prescribed by law for filing the Company's income tax return for the taxable year in which the Plan and the Trust Agreement were adopted, or such later date as the Secretary of the Treasury may prescribe. 16.2 Bonding, Insurance and Indemnity. (a) Bonding. To the extent required under ERISA, the Participating Employers will obtain, pay for and keep current a bond or bonds with respect to each Committee member and each Employee who receives, handles, disburses, or otherwise exercises custody or control of, any of the assets of the Plan. -60- 64 (b) Insurance. The Participating Employers, in their discretion, may obtain, pay for and keep current a policy or policies of insurance, insuring the Committee members, the members of the board of directors of each Participating Employer and other Employees to whom any fiduciary responsibility with respect to the administration of the Plan has been delegated against any and all costs, expenses and liabilities (including attorneys' fees) incurred by such persons as a result of any act, or omission to act, in connection with the performance of their duties, responsibilities and obligations under the Plan and any applicable law. (c) Indemnity. If the Participating Employers do not obtain, pay for and keep current the type of insurance policy or policies referred to in subsection (b), or if such insurance is provided but any of the parties referred to in subsection (b) incur any costs or expenses which are not covered under such policies, then the Participating Employers will indemnify and hold harmless, to the extent permitted by law, such parties against any and all costs, expenses and liabilities (including attorneys' fees) incurred by such parties in performing their duties and responsibilities under this Plan, provided that such party or parties were acting in good faith within what was reasonably believed to have been the best interests of the Plan and its Participants. 16.3 Merger, Consolidation or Transfer of Assets. There will be no merger or consolidation of all or any part of the Plan with, or transfer of the assets or liabilities of all or any part of the Plan to, any other Qualified Plan unless each Participant who remains a Participant hereunder and each Participant who becomes a participant in the other Qualified Plan would receive a benefit immediately after the merger, consolidation or transfer (determined as if the other Qualified Plan and the Plan were then terminated) which is equal to or greater than the benefit they would have been entitled to receive under the Plan immediately before the merger, consolidation or transfer if the Plan had then terminated. 16.4 Spendthrift Clause. The rights of any Participant or Beneficiary to and in any benefits under the Plan will not be subject to assignment or alienation, and no Participant or Beneficiary will have the power to assign, transfer or dispose of such rights, nor will any such rights to benefits be subject to attachment, execution, garnishment, sequestration, the laws of bankruptcy or any other legal or equitable process. This Section will not apply to a "qualified domestic relations order". A "qualified domestic relations order" means a judgment, decree or order made pursuant to a state domestic relations law which satisfies the requirements of Code section 414(p). Payment to an alternate payee pursuant to a qualified domestic relations order will be made in an immediate lump sum payment, if the order so provides. 16.5 Rights of Participants. Participation in the Plan will not give any Participant the right to be retained in the employ of a Controlled Group Member or any right or interest in the Plan or the Trust Fund except as expressly provided herein. 16.6 Gender, Tense and Headings. Whenever any words are used herein in the masculine gender, they will be construed as though they were also used in the feminine gender in all cases where they would so apply. Whenever any words used herein are in the singular form, -61- 65 they will be construed as though they were also used in the plural form in all cases where they would so apply. Headings of Articles, Sections and subsections as used herein are inserted solely for convenience and reference and constitute no part of the Plan. 16.7 GOVERNING LAW. THE PLAN WILL BE CONSTRUED AND GOVERNED IN ALL RESPECTS IN ACCORDANCE WITH APPLICABLE FEDERAL LAW AND, TO THE EXTENT NOT PREEMPTED BY SUCH FEDERAL LAW, IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, INCLUDING WITHOUT LIMITATION, THE TEXAS STATUTE OF LIMITATIONS, BUT WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS OF SUCH STATE. Executed at Dallas, Texas, this 5th day of January, 1998. A. H. BELO CORPORATION By /s/ ILLEGIBLE ---------------------------- -62- 66 APPENDIX A PARTICIPATING EMPLOYERS A. H. Belo Corporation BHI Sub, Inc. (as of October 15, 1997) Belo Capital Bureau, Inc. (As of January 1, 1997) Belo Management Services, Inc. (As of January 1, 1996) Belo Production, Inc. (as of April 1, 1994) Bryan-College Station Eagle, Inc. (as of December 26, 1995) Dallas-Ft. Worth Suburban Newspapers, Inc. (through March 31, 1994) The Dallas Morning News Company DFW Printing Company, Inc. (as of April 1, 1994) DFW Suburban Newspapers, Inc. (for the period from April 1, 1994, through December 31, 1994; and for the period beginning on January 1, 1997) Great Western Broadcasting Corporation KHOU-TV, Inc. (formerly Gulf Television Corporation) KMOV-TV, Inc. (formerly Third Avenue Television, Inc. as of February 1, 1995) KOTV, Inc. -63- 67 Owensboro Messenger-Inquirer, Inc. (as of January 1, 1996) Third Avenue Television, Inc. (as of February 1, 1995) WFAA Television, Inc. WVEC Television, Inc. WWL-TV, Inc. (as of June 1, 1994) Henderson-Gleaner, Inc. The Press-Enterprise Company The Providence Journal Company Rhode Island Monthly Communications, Inc. King Broadcasting Company King News Corporation Belo Kentucky, Inc. KMSB-TV, Inc. WCNC-TV, Inc. KASA-TV, Inc. (all as of January 1, 1998) -64- EX-10.3.1B 6 RESTATED MASTER TRUST AGREEMENT 1 EXHIBIT 10.3(1)(b) RESTATED MASTER TRUST AGREEMENT BETWEEN ----------------------------------------------------------------------- A. H. BELO CORPORATION AND FIDELITY MANAGEMENT TRUST COMPANY ----------------------------------------------------------------------- A. H. BELO CORPORATION DEFINED CONTRIBUTION TRUST RESTATED AND DATED AS OF MARCH 13, 1998 2 TABLE OF CONTENTS -----------------
SECTION PAGE - ------- ---- 1 TRUST...................................................................................2 2 EXCLUSIVE BENEFIT AND REVERSION OF SPONSOR CONTRIBUTIONS................................2 3 DISBURSEMENTS...........................................................................3 (a) Directions from Administrator (b) Limitations 4 INVESTMENT OF TRUST......................................................................4 (a) Selection of Investment Options (b) Available Investment Options (c) Participant Direction (d) Mutual Funds (e) Sponsor Stock (f) Participant Loans (g) Guaranteed Investment Contracts (h) Reliance of Trustee on Directions (i) Trustee Powers 5 RECORDKEEPING AND ADMINISTRATIVE SERVICES TO BE PERFORMED...............................9 (a) General (b) Accounts (c) Inspection and Audit (d) Effect of Plan Amendment (e) Returns, Reports and Information 6 COMPENSATION AND EXPENSES...............................................................10 7 DIRECTIONS AND INDEMNIFICATION..........................................................10 (a) Identity of Administrator and Named Fiduciary (b) Directions from Administrator (c) Directions from Named Fiduciary (d) Co-Fiduciary Liability (e) Indemnification (f) Survival
i 3 TABLE OF CONTENTS ----------------- (CONTINUED)
SECTION PAGE - ------- ---- 8 RESIGNATION OR REMOVAL OF TRUSTEE.......................................................11 (a) Resignation (b) Removal 9 SUCCESSOR TRUSTEE.......................................................................12 (a) Appointment (b) Acceptance (c) Corporate Action 10 TERMINATION.............................................................................12 11 RESIGNATION, REMOVAL, AND TERMINATION NOTICES...........................................12 12 DURATION................................................................................13 13 AMENDMENT OR MODIFICATION...............................................................13 14 GENERAL.................................................................................13 (a) Performance by Trustee, its Agents or Affiliates (b) Entire Agreement (c) Waiver (d) Successors and Assigns (e) Partial Invalidity (f) Section Headings (g) Delegation by Employer 15 GOVERNING LAW...........................................................................14 (a) Massachusetts Law Controls (b) Trust Agreement Controls SCHEDULES A. Administrative Services B. Fee Schedule C. Investment Options D. Administrator's Authorization Letter E. Named Fiduciary's Authorization Letter F. IRS Determination Letter or Opinion of Counsel G. Existing GICs H. Stock Operating Procedures Agreement I. Operational Guidelines for Non-Fidelity Mutual Funds J. Operating Procedures for the Managed Income Fund K. Telephone Exchange Guidelines ii
4 TRUST AGREEMENT, restated and dated as of the thirteenth day of March, 1998, between A. H. BELO CORPORATION, a Delaware corporation, having an office at Communications Center, Houston and Young Streets, Dallas, Texas 75265 (the "Sponsor"), and FIDELITY MANAGEMENT TRUST COMPANY, a Massachusetts trust company, having an office at 82 Devonshire Street, Boston, Massachusetts 02109 (the "Trustee"). WITNESSETH: WHEREAS, the Sponsor or a wholly owned subsidiary of the Sponsor is the sponsor of the A.H. Belo Corporation Employee Savings and Investment Plan, the Journal Broadcasting 401(k) Plan, the Journal-Guild 401(k) Plan, the Journal Qualified Compensation Deferral Plan, the Copley/Colony, Inc. Retirement Plan and the Colony Communications, Inc. Retirement Plan (collectively and individually, the "Plan"); and WHEREAS, the Sponsor wishes to establish three trusts: one, for which State Street Bank and Trust Company serves as trustee, to hold assets attributable to Sponsor loans extended to fund participant payouts due under a Confederated Life guaranteed investment contract previously held by the Journal Qualified Compensation Deferral Plan; a second, for which U.S. Trust serves as trustee, to hold its Sponsor Stock assets of the Plan; and the third, for which the Trustee serves as trustee, a trust to hold and invest the remaining plan assets under the Plan for the exclusive benefit of participants in the Plan and their beneficiaries; and WHEREAS, the Sponsor now desires, and hereby directs the Trustee, in accordance with Section 7(c), to liquidate all participant balances held in the Fidelity Overseas Fund on March 31, 1998 and to invest the proceeds in the Templeton Foreign Fund I. The parties hereto agree that the Trustee shall have no discretionary authority with respect to this sale and transfer directed by the Sponsor. Any variation from the procedure described herein may be instituted only at the express written directions of the Sponsor; and WHEREAS, the Administrative Committee (the "Named Fiduciary") is the named fiduciary of the Plan (within the meaning of section 402(a) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")); and 5 WHEREAS, the Trustee is willing to hold and invest the aforesaid Plan assets in trust among several investment options selected by the Named Fiduciary; and WHEREAS, the Trustee shall maintain a separate account reflecting the equitable share of each Plan in the Trust and in all investments, receipts, disbursements and other transactions hereunder, and shall report the value if such equitable share at such times as may be mutually agreed upon by the Trustee and the Sponsor. Such equitable share shall be used solely for the payments of benefits, expenses and other charges properly allocable to each such Plan and shall not be used for the payment of benefits, expenses or other charges properly allocable to any other Plan; and WHEREAS, the Sponsor wishes to have the Trustee perform certain ministerial recordkeeping and administrative functions under the Plan; and WHEREAS, Administrative Committee (the "Administrator") is the administrator of the Plan (within the meaning of section 3(16)(A) of ERISA); and WHEREAS, the Trustee is willing to perform recordkeeping and administrative services for the Plan if the services are purely ministerial in nature and are provided within a framework of plan provisions, guidelines and interpretations conveyed in writing to the Trustee by the Administrator. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements set forth below, the Sponsor and the Trustee agree as follows: SECTION 1. TRUST. The Sponsor hereby establishes the A. H. Belo Defined Contribution Trust (the "Trust"), with the Trustee. The Trust shall consist of an initial contribution of money or other property acceptable to the Trustee in its sole discretion, made by the Sponsor or transferred from a previous trustee under the Plan, and such additional sums of money as shall from time to time be delivered to the Trustee under the Plan, all investments made therewith and proceeds thereof, and all earnings and profits thereon, less the payments that are made by the Trustee as provided herein. The Trustee hereby accepts the Trust on the terms and conditions set forth in this Agreement. In accepting this Trust, the Trustee shall be accountable for the assets received by it, subject to the terms and conditions of this Agreement. SECTION 2. EXCLUSIVE BENEFIT AND REVERSION OF SPONSOR CONTRIBUTIONS. (a) Except as provided in paragraphs (b), (c) and (d) of this Section, or under applicable law, no part of the Trust may be used for, or diverted to, purposes other than the exclusive benefit of the participants in the Plan or their beneficiaries or the reasonable expenses of Plan administration. 2 6 (b) In the case of contributions made by the Sponsor prior to the receipt of an initial favorable determination letter from the Internal Revenue Service with respect to the Plan, the Sponsor may direct the Trustee to return to the Sponsor those contributions and all earning thereon within one year after the Internal Revenue Service refuses in writing to issue such a letter. (c) In the case of any portion of a contribution made by the Sponsor by a mistake of fact, the Sponsor may direct the Trustee to return to the Sponsor that portion of the contribution within one year after the payment of that portion of the contribution. (d) In the case of any portion of a contribution made by the Sponsor and disallowed by the Internal Revenue Service as a deduction under Section 404 of the Internal Revenue Code of 1986, as amended, the Sponsor may direct the Trustee to return to the Sponsor that portion of the contribution within one year after the Internal Revenue Service disallows the deduction in writing. (e) Earnings attributable to the contributions returnable under paragraph (c) or (d) shall not be returned to the Sponsor, and any realized loss in asset value attributable to those contributions shall reduce the amount returned. SECTION 3. DISBURSEMENTS. (a) Directions from Administrator. The Trustee shall make disbursements in the amounts and in the manner that the Administrator directs from time to time in writing. The Trustee shall have no responsibility to ascertain any direction's compliance with the terms of the Plan or of any applicable law or the direction's effect for tax purposes or otherwise; nor shall the Trustee have any responsibility to see to the application of any disbursement. (b) Participant Withdrawal Requests. The Sponsor hereby directs that, pursuant to the Plan, a participant withdrawal request (in-service or full withdrawal) may be made by the participant by telephone, or in such other manner as may be agreed to from time to time by the Sponsor and Trustee, and the Trustee shall process such request only after the identity of the participant is verified by use of a personal identification number ("PIN") and social security number. The Trustee shall process such withdrawal in accordance with written guidelines provided by the Sponsor and documented in the Plan Administrative Manual. (c) Limitations. The Trustee shall not be required to make any disbursement in excess of the net realizable value of the assets of the Trust at the time of the disbursement. The Trustee shall make 3 7 cash disbursements in accordance with the applicable source and fund withdrawal hierarchy as documented in the Plan Administrative Manual, unless the Administrator has provided a written direction to the contrary. SECTION 4. INVESTMENT OF TRUST. (a) Selection of Investment Options. The Trustee shall have no responsibility for the selection of investment options under the Trust and shall not render investment advice to any person in connection with the selection of such options. (b) Available Investment Options. The Named Fiduciary shall direct the Trustee as to the investment options in which the Trust shall be invested during the period beginning on the date of the initial transfer of assets to the Trust and ending on the date of the completion of the reconciliation of participant records ("recordkeeping reconciliation period"), and the investment options which Plan participants may invest following the reconciliation period, subject to the following limitations. The Named Fiduciary may determine to offer as investment options only: (i) securities issued by the investment companies advised by Fidelity Management & Research Company and certain securities issued by investment companies not advised by Fidelity Management & Research Company (collectively, "Mutual Funds"), (ii) notes evidencing loans to Plan participants in accordance with the terms of the Plan, (iii) equity securities issued by the Sponsor or an affiliate which are publicly-traded and which are "qualifying employer securities" within the meaning of Section 407(d)(5) of ERISA ("Sponsor Stock"), (iv) guaranteed investment contracts chosen by the Trustee, (v) guaranteed investment contracts heretofore entered into by the Sponsor or predecessor trustee and specifically identified on Schedule "G" attached hereto ("Existing GICs"), and (vii) collective investment funds maintained by the Trustee for qualified plans. The Named Fiduciary hereby directs the Trustee to continue to hold such Existing GICs until contract maturity or until the Named Fiduciary directs otherwise, it being expressly understood that such direction is given in accordance with Section 403(a) of ERISA. The Trustee shall be considered a fiduciary with investment discretion only with respect to Plan assets (including the proceeds from any existing GICs) that are invested in guaranteed investment contracts chosen by the Trustee or in collective investment funds maintained by the Trustee for qualified plans. The investment options initially selected by the Named Fiduciary are identified on Schedules "A" and "C" attached hereto. The Named Fiduciary may add additional investment options with the consent of the Trustee and upon mutual amendment of this Trust Agreement and the Schedules thereto to reflect such additions. 4 8 (c) Participant Direction. As authorized under the Plan, each Plan participant shall direct the Trustee in which investment option(s) to invest the assets in the participant's individual accounts. Such directions may be made by Plan participants by use of the telephone exchange system maintained for such purposes by the Trustee or its agent, in accordance with written Telephone Exchange Guidelines attached hereto as Schedule "K". In the event that the Trustee fails to receive a proper direction, the assets shall be invested in the investment option set forth for such purpose on Schedule "C", until the Trustee receives a proper direction. (d) Mutual Funds. The Named Fiduciary hereby acknowledges that it has received from the Trustee a copy of the prospectus for each Mutual Fund selected by the Named Fiduciary as a Plan investment option or short-term investment fund. All transactions involving Mutual Funds not advised by Fidelity Management & Research Company ("Non-Fidelity Mutual Funds") shall be done in accordance with the Operational Guidelines attached hereto as Schedule "I". Trust investments in Mutual Funds shall be subject to the following limitations: (i) Execution of Purchases and Sales. Purchases and sales of Mutual Funds (other than for exchanges) shall be made on the date on which the Trustee receives from the Administrator in good order all information, documentation and wire transfer of funds (if applicable) necessary to accurately effect such transactions. Exchanges of Mutual Funds shall be made in accordance with the Telephone Exchange Guidelines attached hereto as Schedule "K". (ii) Voting. At the time of mailing of notice of each annual or special stockholders' meeting of any Mutual Fund, the Trustee shall send a copy of the notice and all proxy solicitation materials to each Plan participant who has shares of the Mutual Fund credited to the participant's accounts, together with a voting direction form for return to the Trustee or its designee. The participant shall have the right to direct the Trustee as to the manner in which the Trustee is to vote the shares credited to the participant's accounts (both vested and unvested). The Trustee shall vote the shares as directed by the participant. The Trustee shall not vote shares for which it has received no directions from the participant. During the recordkeeping reconciliation period, the Named Fiduciary shall have the right to direct the Trustee as to the manner in which the Trustee is to vote the shares of the Mutual Funds in the Trust. Following the recordkeeping reconciliation period the Named Fiduciary shall continue to have the right to direct the Trustee as to the manner in which the Trustee is to vote the Mutual Funds shares held short-term liquidity reserve for a unitized investment option. 5 9 With respect to all rights other than the right to vote, the Trustee shall follow the directions of the participant and if no such directions are received, the directions of the Named Fiduciary. The Trustee shall have no further duty to solicit directions from participants or the Named Fiduciary. (e) Sponsor Stock in which Fidelity Management Trust Company is not the trustee. Transactions involving Sponsor Stock shall be executed in accordance with the Operating Procedures set forth on Schedule "H" and attached hereto. (f) Participant Loans. The Administrator shall act as the Trustee's agent for participant loan notes and as such shall (i) separately account for repayments of such loans and clearly identify such assets as Plan assets and (ii) collect and remit all principal and interest payments to the Trustee. To originate a participant loan, the Plan participant shall direct the Trustee as to the term and amount of the loan to be made from the participant's individual account. Such directions shall be made by Plan participants by use of the telephone exchange system maintained for such purpose by the Trustee or its agent. The Trustee shall determine, based on the current value of the participant's account on the date of the request and any guidelines provided by the Sponsor, the amount available for the loan. Based on the interest rate supplied by the Sponsor in accordance with the terms of the Plan, the Trustee shall advise the participant of such interest rate, as well as the installment payment amounts. The Trustee shall distribute the Participant loan agreement and truth-in-lending disclosure with the proceeds check to the participant. To facilitate recordkeeping, the Trustee may destroy the original of any promissory note made in connection with a loan to a participant under the Plan, provided that the Trustee first creates a duplicate by a photographic or optical scanning or other process yielding a reasonable facsimile of the promissory note and the Plan participant's signature thereon, which duplicate may be reduced or enlarged in size from the actual size of the original promissory note. (g) Guaranteed Investment Contracts. Trust investments in guaranteed investment contracts ("GICs") shall be subject to the following limitations: (i) Collective Investment Funds. To the extent that the Named Fiduciary selects as an investment option the Managed Income Portfolio of the Fidelity Group Trust for Employee Benefit Plans (the "Group Trust"), the Sponsor hereby (A) agrees to the terms of the Group Trust and adopts said terms as a part of this Agreement and (B) acknowledges that it has received from the Trustee a copy of the Group Trust, the Declaration of Separate Fund for the Managed Income Portfolio of the Group Trust, and the Circular for the Managed Income Portfolio. 6 10 (ii) Managed Income Fund. The Managed Income Fund shall consist of existing GICs defined in Schedule "G" and the Managed Income Portfolio. All transactions involving the Managed Income Fund shall be done in accordance with the Operating Procedures attached hereto as Schedule "J". (iii) In order to provide the necessary monies for exchanges or redemptions from the GIC investment option, if any, under the Plan, the Sponsor agrees that the Plan shall maintain a liquidity reserve allocated to the Plan GIC investment option in Fidelity Institutional Cash Portfolios: Money Market Portfolio: Class I or such other Mutual Fund or commingled money market pool as agreed to by the Sponsor and the Trustee. (h) Reliance of Trustee on Directions. (i) The Trustee shall not be liable for any loss, or by reason of any breach, which arises from any participant's exercise or non-exercise of rights under this Section 4 over the assets in the participant's accounts. (ii) The Trustee shall not be liable for any loss, or by reason of any breach, which arises from the Named Fiduciary's exercise or non-exercise of rights under this Section 4, unless it was clear on their face that the actions to be taken under the Named Fiduciary's directions were prohibited by the fiduciary duty rules of section 404(a) of ERISA or were contrary to the terms of the Plan or this Agreement. (i) Trustee Powers. The Trustee shall have the following powers and authority: (i) Subject to paragraphs (b) and (c) of this Section 4, to sell, exchange, convey, transfer, or otherwise dispose of any property held in the Trust, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or other property delivered to the Trustee or to inquire into the validity, expediency, or propriety of any such sale or other disposition. (ii) Subject to paragraphs (b) and (c) of this Section 4, to invest in guaranteed investment contracts and short term investments (including interest bearing accounts with the Trustee or money market mutual funds advised by affiliates of the Trustee) and in collective investment funds maintained by the Trustee for qualified plans, in which case the provisions of each collective investment 7 11 fund in which the Trust is invested shall be deemed adopted by the Sponsor and the provisions thereof incorporated as a part of this Trust as long as the fund remains exempt from taxation under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended. (iii) To cause any securities or other property held as part of the Trust to be registered in the Trustee's own name, in the name of one or more of its nominees, or in the Trustee's account with the Depository Trust Company of New York and to hold any investments in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust. (iv) To keep that portion of the Trust in cash or cash balances as the Named Fiduciary or Administrator may, from time to time, deem to be in the best interest of the Trust. (v) To make, execute, acknowledge, and deliver any and all documents of transfer or conveyance and to carry out the powers herein granted. (vi) To borrow funds from a bank not affiliated with the Trustee in order to provide sufficient liquidity to process Plan transactions in a timely fashion; provided that the cost of such borrowing shall be allocated in a reasonable fashion to the investment fund(s) in need of liquidity. (vii) To settle, compromise, or submit to arbitration any claims, debts, or damages due to or arising from the Trust; to commence or defend suits or legal or administrative proceedings; to represent the Trust in all suits and legal and administrative hearings; and to pay all reasonable expenses arising from any such action, from the Trust if not paid by the Sponsor. (viii) To employ legal, accounting, clerical, and other assistance as may be required in carrying out the provisions of this Agreement and to pay their reasonable expenses and compensation from the Trust if not paid by the Sponsor. (ix) To invest all of any part of the assets of the Trust in any collective investment trust or group trust which then provides for the pooling of the assets of plans described in Section 401(a) and exempt from tax under Section 501(a) of the Internal Revenue Code ("Code"), or any comparable provisions of any future legislation that amends, supplements, or supersedes those sections, provided that such collective investment trust or group trust is exempt from tax under the Code or regulations or rulings issued by the Internal Revue Service: the provisions of the document governing such collective 8 12 investment trusts or group trusts, as it may be amended from time to time, shall govern any investment therein and are hereby made a part of this Trust Agreement. (x) To do all other acts although not specifically mentioned herein, as the Trustee may deem necessary to carry out any of the foregoing powers and the purposes of the Trust. SECTION 5. RECORDKEEPING AND ADMINISTRATIVE SERVICES TO BE PERFORMED. (a) General. The Trustee shall perform those recordkeeping and administrative functions described in Schedule "A" attached hereto. These recordkeeping and administrative functions shall be performed within the framework of the Administrator's written directions regarding the Plan's provisions, guidelines and interpretations. (b) Accounts. The Trustee shall keep accurate accounts of all investments, receipts, disbursements, and other transactions hereunder, and shall report the value of the assets held in the Trust as of the last day of each fiscal quarter of the Plan and, if not on the last day of a fiscal quarter, the date on which the Trustee resigns or is removed as provided in Section 8 of this Agreement or is terminated as provided in Section 10 (the "Reporting Date"). Within thirty (30) days following each Reporting Date or within sixty (60) days in the case of a Reporting Date caused by the resignation or removal of the Trustee, or the termination of this Agreement, the Trustee shall file with the Administrator a written account setting forth all investments, receipts, disbursements, and other transactions effected by the Trustee between the Reporting Date and the prior Reporting Date, and setting forth the value of the Trust as of the Reporting Date. Except as otherwise required under ERISA, upon the expiration of six (6) months from the date of filing such account with the Administrator, the Trustee shall have no liability or further accountability to anyone with respect to the propriety of its acts or transactions shown in such account, except with respect to such acts or transactions as to which the Sponsor shall within such six (6) month period file with the Trustee written objections. (c) Inspection and Audit. All records generated by the Trustee in accordance with paragraphs (a) and (b) shall be open to inspection and audit, during the Trustee's regular business hours prior to the termination of this Agreement, by the Administrator or any person designated by the Administrator. Upon the resignation or removal of the Trustee or the termination of this Agreement, the Trustee shall provide to the Administrator, at no expense to the Sponsor, in the format regularly provided to the Administrator, a statement of each participant's accounts as of the resignation, removal, or termination, and the Trustee shall provide to the Administrator or the Plan's new recordkeeper such further records as are reasonable, at the Sponsor's expense. 9 13 (d) Effect of Plan Amendment. A confirmation of the current qualified status of the Plan is attached hereto as Schedule "F". The Trustee's provision of the recordkeeping and administrative services set forth in this Section 5 shall be conditioned on the Sponsor delivering to the Trustee a copy of any amendment to the Plan as soon as administratively feasible following the amendment's adoption, with, if requested, an IRS determination letter or an opinion of counsel substantially in the form of Schedule "F" covering such amendment, and on the Administrator providing the Trustee on a timely basis with all the information the Administrator deems necessary for the Trustee to perform the recordkeeping and administrative services and such other information as the Trustee may reasonably request. (e) Returns, Reports and Information. The Administrator shall be responsible for the preparation and filing of all returns, reports, and information required of the Trust or Plan by law. The Trustee shall provide the Administrator with such information as the Administrator may reasonably request to make these filings. The Administrator shall also be responsible for making any disclosures to Participants required by law, except such disclosure as may be required under federal or state truth-in-lending laws with regard to Participant loans, which shall be provided by the Trustee. SECTION 6. COMPENSATION AND EXPENSES. Within thirty (30) days of receipt of the Trustee's bill, which shall be computed and billed in accordance with Schedule "B" attached hereto and made a part hereof, as amended from time to time, the Sponsor shall send to the Trustee a payment in such amount or the Sponsor may direct the Trustee to deduct such amount from participants' accounts. All expenses of the Trustee relating directly to the acquisition and disposition of investments constituting part of the Trust, and all taxes of any kind whatsoever that may be levied or assessed under existing or future laws upon or in respect of the Trust or the income thereof, shall be a charge against and paid from the appropriate Plan participants' accounts. SECTION 7. DIRECTIONS AND INDEMNIFICATION. (a) Identity of Administrator and Named Fiduciary. The Trustee shall be fully protected in relying on the fact that the Named Fiduciary and the Administrator under the Plan are the individuals or persons named as such above or such other individuals or persons as the Sponsor may notify the Trustee in writing. (b) Directions from Administrator. Whenever the Administrator provides a direction to the Trustee, the Trustee shall not be liable for any loss, or by reason of any breach, arising from the direction (i) if the direction is contained in a writing (or is oral and immediately confirmed in a writing) signed by any individual whose name and signature have been submitted (and not withdrawn) in writing to the 10 14 Trustee by the Administrator in the form attached hereto as Schedule "D", and (ii) if the Trustee reasonably believes the signature of the individual to be genuine, unless it is clear on the direction's face that the actions to be taken under the direction would be prohibited by the fiduciary duty rules of Section 404(a) of ERISA or would be contrary to the terms of this Agreement. For purposes of this Section, such direction may also be made via electronic data transfer (EDT) in accordance with procedures agreed to by the Administrator and the Trustee; provided, however, that the Trustee shall be fully protected in relying on such direction as if it were a direction made in writing by the Administrator. (c) Directions from Named Fiduciary. Whenever the Named Fiduciary or Sponsor provides a direction to the Trustee, the Trustee shall not be liable for any loss, or by reason of any breach, arising from the direction (i) if the direction is contained in a writing (or is oral and immediately confirmed in a writing) signed by any individual whose name and signature have been submitted (and not withdrawn) in writing to the Trustee by the Named Fiduciary in the form attached hereto as Schedule "E" and (ii) if the Trustee reasonably believes the signature of the individual to be genuine, unless it is clear on the direction's face that the actions to be taken under the direction would be prohibited by the fiduciary duty rules of Section 404(a) of ERISA or would be contrary to the terms of this Agreement. Such direction may also be made via electronic EDT in accordance with procedures agreed to by the Named Fiduciary and the Trustee; provided, however, that the Trustee shall be fully protected in relying on such direction as if it were a direction made in writing by the Named Fiduciary. (d) Co-Fiduciary Liability. In any other case, the Trustee shall not be liable for any loss, or by reason of any breach, arising from any act or omission of another fiduciary under the Plan except as provided in section 405(a) of ERISA. (e) Indemnification. The Sponsor shall indemnify the Trustee against, and hold the Trustee harmless from, any and all loss, damage, penalty, liability, cost, and expense, including without limitation, reasonable attorneys' fees and disbursements, that may be incurred by, imposed upon, or asserted against the Trustee by reason of any claim, regulatory proceeding, or litigation arising from any act done or omitted to be done by any individual or person with respect to the Plan or Trust, excepting only any and all loss, etc., arising solely from the Trustee's negligence, bad faith or willful misconduct. (f) Survival. The provisions of this Section 7 shall survive the termination of this Agreement. 11 15 SECTION 8. RESIGNATION OR REMOVAL OF TRUSTEE. (a) Resignation. The Trustee may resign at any time upon sixty (60) days' notice in writing to the Sponsor, unless a shorter period of notice is agreed upon by the Sponsor. (b) Removal. The Sponsor may remove the Trustee at any time upon sixty (60) days' notice in writing to the Trustee, unless a shorter period of notice is agreed upon by the Trustee. SECTION 9. SUCCESSOR TRUSTEE. (a) Appointment. If the office of Trustee becomes vacant for any reason, the Sponsor may in writing appoint a successor trustee under this Agreement. The successor trustee shall have all of the rights, powers, privileges, obligations, duties, liabilities, and immunities granted to the Trustee under this Agreement. The successor trustee and predecessor trustee shall not be liable for the acts or omissions of the other with respect to the Trust. (b) Acceptance. When the successor trustee accepts its appointment under this Agreement, the predecessor trustee shall execute all instruments and do all acts that reasonably may be necessary or reasonably may be requested in writing by the Sponsor or the successor trustee to vest title to all Trust assets in the successor trustee or to deliver all Trust assets to the successor trustee. (c) Corporate Action. Any successor of the Trustee or successor trustee, through sale or transfer of the business or trust department of the Trustee or successor trustee, or through reorganization, consolidation, or merger, or any similar transaction, shall, upon consummation of the transaction, become the successor trustee under this Agreement. SECTION 10. TERMINATION. This Agreement may be terminated at any time by the Sponsor upon sixty (60) days' notice in writing to the Trustee. On the date of the termination of this Agreement, the Trustee shall forthwith transfer and deliver to such individual or entity as the Sponsor shall designate, all cash and assets then constituting the Trust. If, by the termination date, the Sponsor has not notified the Trustee in writing as to whom the assets and cash are to be transferred and delivered, the Trustee may bring an appropriate action or proceeding for leave to deposit the assets and cash in a court of competent jurisdiction. The Trustee shall be reimbursed by the Sponsor for all costs and expenses of the action or proceeding including, without limitation, reasonable attorneys' fees and disbursements. SECTION 11. RESIGNATION, REMOVAL, AND TERMINATION NOTICES. All notices of resignation, removal, or termination under this Agreement must be in writing and mailed to the party to which the notice is being given by certified or registered mail, return receipt requested, to the Sponsor c/o Assistant General Counsel, Communications Center, Houston and Young Streets, Dallas, Texas 75265, and to the Trustee 12 16 c/o John M. Kimpel, Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109, or to such other addresses as the parties have notified each other of in the foregoing manner. SECTION 12. DURATION. This Trust shall continue in effect without limit as to time, subject, however, to the provisions of this Agreement relating to amendment, modification, and termination thereof. SECTION 13. AMENDMENT OR MODIFICATION. This Agreement may be amended or modified at any time and from time to time only by an instrument executed by both the Sponsor and the Trustee. Notwithstanding the foregoing, to reflect increased operating costs the Trustee may once each calendar year amend Schedule "B" without the Sponsor's consent upon seventy-five (75) days written notice to the Sponsor. SECTION 14. GENERAL. (a) Performance by Trustee, its Agents or Affiliates. The Sponsor acknowledges and authorizes that the services to be provided under this Agreement shall be provided by the Trustee, its agents or affiliates, including Fidelity Investments Institutional Operations Company, Inc. or its successor, and that certain of such services may be provided pursuant to one or more other contractual agreements or relationships. (b) Entire Agreement. This Agreement together with the schedules attached hereto, which are hereby incorporated herein, contains all of the terms agreed upon between the parties with respect to the subject matter hereof. (c) Waiver. No waiver by either party of any failure or refusal to comply with an obligation hereunder shall be deemed a waiver of any other or subsequent failure or refusal to so comply. (d) Successors and Assigns. The stipulations in this Agreement shall inure to the benefit of, and shall bind, the successors and assigns of the respective parties. (e) Partial Invalidity. If any term or provision of this Agreement or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 13 17 (f) Section Headings. The headings of the various sections and subsections of this Agreement have been inserted only for the purposes of convenience and are not part of this Agreement and shall not be deemed in any manner to modify, explain, expand or restrict any of the provisions of this Agreement. (g) Delegation by Employer. By authorizing the assets of any Plan as to which it is an Employer to be deposited in the Trust, each Employer, other than the Sponsor, hereby irrevocably delegates and grants to the Sponsor full and exclusive power and authority to exercise all of the powers conferred upon the Sponsor and each Employer by the terms of this Agreement, and to take or refrain from taking any and all action which such Employer might otherwise take or refrain from taking with respect to this Agreement, including the sole and exclusive power to exercise, enforce or waive any rights whatsoever which such Employer might otherwise have with respect to the Trust, and irrevocably appoints the Sponsor as its agent for all purposes under this Agreement. The Trustee shall have no obligation to account to any such Employer or to follow the instructions of or otherwise deal with any such Employer, the intention being that the Trustee shall deal solely with the Sponsor. SECTION 15. GOVERNING LAW. (a) Massachusetts Law Controls. This Agreement is being made in the Commonwealth of Massachusetts, and the Trust shall be administered as a Massachusetts trust. The validity, construction, effect, and administration of this Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, except to the extent those laws are superseded under Section 514 of ERISA. (b) Trust Agreement Controls. The Trustee is not a party to the Plan, and in the event of any conflict between the provisions of the Plan and the provisions of this Agreement, the provisions of this Agreement shall control. 14 18 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. A. H. BELO CORPORATION Attest: Mike McCarthy By: /s/Jeff Lamb ----------------------- ------------------------------ Secretary Name: Jeff Lamb ------------------------------ Title: Vice President/Administration ------------------------------ Date: March 13, 1998 ------------------------------ FIDELITY MANAGEMENT TRUST COMPANY Attest: By: /s/Cheryl Gladstone ----------------------- ------------------------------ Assistant Clerk Name: Cheryl Gladstone ------------------------------ Title: Vice President ------------------------------ Date: March 13, 1998 ------------------------------ 15 19 SCHEDULE "A" ADMINISTRATIVE SERVICES Administration * Establishment and maintenance of Participant account and election percentages. * Maintenance of the following plan investment options for the A.H. Belo Corporation Employee Savings and Investment Plan: o Fidelity Retirement Government Money Market o Fidelity Puritan Fund o Fidelity Magellan Fund o Fidelity Growth & Income Portfolio o A.H. Belo Series A Common Stock Fund o Fidelity Intermediate Bond Fund o Fidelity Overseas Fund (no longer an option effective 4/1/98) o A.H. Belo Series B Common Stock Fund o Spartan U.S. Equity Index Fund o PBHG Growth Fund o Fidelity Dividend Growth Fund o Templeton Foreign Fund I o Managed Income Fund * Maintenance of the following plan investment options for the Journal-Guild 401(k) Plan: o Fidelity Puritan Fund o Spartan U.S. Equity Index Fund o Fidelity Dividend Growth Fund o Templeton Foreign Fund o Managed Income Fund * Maintenance of the following plan investment options for the Copley/Colony, Inc. Retirement Plan: o Fidelity Puritan Fund o Spartan U.S. Equity Index Fund o Fidelity Dividend Growth Fund o Templeton Foreign Fund o Managed Income Fund * Maintenance of the following plan investment options for the Colony Communications, Inc. Retirement Plan: o Fidelity Puritan Fund o Spartan U.S. Equity Index Fund o Fidelity Dividend Growth Fund o Templeton Foreign Fund o Managed Income Fund 16 20 * Maintenance of the following money classifications for the A.H. Belo Corporation Employee Savings and Investment Plan: o After Tax Contributions o Company Match o Rollover o Employee Pre-Tax o IRA Contribution - QVEC o Prior Company o Profit Sharing o Unmatched Comp. Deferral * Maintenance of the following money classifications for the Journal-Guild 401(k) Plan: o Matched Compensation Deferral o Unmatched Compensation Deferral o After-Tax Contributions o Matching Company o Rollover o Company Basic Contribution * Maintenance of the following money classifications for the Copley/Colony, Inc. Retirement Plan (frozen): o Pre-tax Contributions o Employer Match o Rollover o Employer Base * Maintenance of the following money classifications for the Colony Communications, Inc. Retirement Plan (frozen): o Pre-tax Contributions o Employer Match o Rollover o Employer Base * Processing of mutual fund trades. The Trustee will provide only the recordkeeping and administrative services set forth on this Schedule "A" and no others. 17 21 A) PROVIDE PARTICIPANT TELEPHONE SERVICES 1.Fidelity registered representatives are available from 8:30 a.m. - 12:00 midnight ET to provide toll free telephone service for participant inquiries and transactions. Additionally, participants have 24 hour account balance inquiry access utilizing our automated voice response system. 2.For security purposes, all calls are recorded. In addition, several levels of security are available including the verification of a Personal Identification Number (PIN) and/or any other indicative data resident on the system. 3.Through our telephone services, Fidelity provides the following services: o Provide mutual fund investment information. o Maintain plan and GIC specific provisions. o Process exchanges (transfers) between Fidelity's mutual funds on a daily basis. o Perform exchanges between Mutual Funds and/or GICs. o Maintain and process changes to participants' contribution allocations for all money sources. o Allow participants to change their deferral and after-tax percentages and provide updates via EDT for customer to apply to its payrolls accordingly. o Consult with participants in various loan scenarios and generate all documentation. o Process all participant loan and withdrawal requests via o Fidelity's toll-free telephone service according to plan provisions on a daily basis. o Enroll new participants via telephone; provide confirmation of enrollment within five (5) days of the request. o In-service withdrawals via telephone due to certain circumstances previously approved by the Sponsor. o Hardship withdrawals via telephone as directed and approved by Sponsor. B) PLAN ACCOUNTING 1. Process payroll contributions according to your payroll frequency via electronic data transfer (EDT). The data format will be provided by Fidelity. 2. Provide plan and participant level accounting for all money classifications for each Plan. 3. Audit and reconcile the plan and participant accounts daily. 4. Provide daily plan and participant level accounting for all investment options. 5. Reconcile and process participant withdrawal requests as approved and directed by the Sponsor. All requests are paid based on the current market values of participants' accounts, not advanced or estimated values. A distribution report will accompany each check. 6. Track individual participant loans; process loan withdrawals; re-invest loan repayments; and prepare and deliver comprehensive reports to plan sponsor to assist in the administration of participant loans. 18 22 7. Fidelity's Guaranteed Investments Daily Equity System (GUIDE) is an automatic GIC daily portfolio accounting system. GUIDE provides the Sponsor with daily valuation of their plan assets whether individually managed or in our Managed Income Portfolio. 8. Maintain and process changes to participants' prospective and existing investment mix elections via Fidelity's toll-free telephone service. C) PARTICIPANT REPORTING 1. Mail confirmation to participants of all transactions initiated via Fidelity Telephone Services within three (3) calendar days of the transaction. 2. Prepare and mail via first class to each plan participant a quarterly detailed participant statement reflecting all activity for the period. Statements will be mailed no later than twenty (20) calendar days after each quarter end. 3. Mail required 402(f) notification for distributions from the plan. This notice advises participants of tax consequences of their plan distribution. D) PLAN REPORTING 1. Prepare, reconcile and deliver a monthly Trial Balance Report presenting all money classes and investments. This report is based on the market value as of the last business day of the month. The report will be delivered not later than twenty (20) days after the end of each month in the absence of unusual circumstances. 2. Prepare, reconcile and deliver a Quarterly Administrative Report presenting both on a participant and a total plan basis all money classes, investment positions and a summary of all activity of the participant and plan as of the last business day of the quarter. The report will be delivered not later than twenty (20) days after the end of each quarter in the absence of unusual circumstances. E) GOVERNMENT REPORTING Process year-end tax reports for participants - 1099R, as well as financial reporting to assist in the preparation of Form 5500. F) COMMUNICATION SERVICES Employee communications describing available investment options, including multimedia informational materials and group presentations. 19 23 G) OTHER Performance of non-discrimination limitation testing upon request. In order to obtain this service, the client shall be required to provide the information identified in the Fidelity Discrimination Testing Package Guidelines.
A.H. BELO CORPORATION FIDELITY MANAGEMENT TRUST BENEFITS ADMINISTRATIVE COMPANY COMMITTEE By: /s/Jeff Lamb March 13, 1998 By: /s/Cheryl Gladstone March 13, 1998 ----------------------------------------- ---------------------------------------- Date Vice President Date
20 24 SCHEDULE "B" FEE SCHEDULE
Annual Participant Fee: $5.00 per participant*, billed and payable quarterly. The Copley/Colony, Inc. Retirement Plan and the Colony Communications Retirement Plan will each be subject to a $1,500 annual minimum for this fee. Enrollments by Phone: $5.00 per non-active employee residing on Fidelity's participant recordkeeping system. Loan Fee: Establishment fee of $35.00 per loan account; annual fee of $15.00 per loan account. Non-Fidelity Mutual Funds: .35% annual administration fee on Non-Fidelity Mutual Fund assets which are equity/balanced funds in the Templeton and PBHG fund families (to be paid by the Non-Fidelity Mutual Fund vendor). Stock Administration Fee: $6,500 per year. Return of Excess Contribution Fee: $25.00 per participant, one-time charge per calculation and check generation. Plan Sponsor WebStation: First two User IDs provided free of charge. Each additional User ID, $500 per year.
* This fee will be imposed pro rata for each calendar quarter, or any part thereof, that it remains necessary to keep a participant's account(s) as part of the Plan's records, e.g., vested, deferred, forfeiture, top-heavy and terminated participants who must remain on file through calendar year-end for 1099-R reporting purposes. GIC FEES Existing GIC Recordkeeping Fee .05% on all existing GIC assets. Expenses associated with the custody of assets underlying synthetic investment contracts will be borne by the portfolio. 21 25 OTHER FEES Separate charges for optional non-discrimination testing, extraordinary expenses resulting from large numbers of simultaneous manual transactions or from errors not caused by Fidelity, or for reports not contemplated in this Agreement. The Administrator may withdraw reasonable administrative fees from the Trust by written direction to the Trustee. Note: These fees have been negotiated and accepted based on the following: current plan assets of $249 million, current participation of 7,180 participants, $127 million in Fidelity actively managed mutual funds, $28 million in Fidelity non-actively managed mutual funds, $39 million in stable value investment options, $46 million in Sponsor Stock, $8 million in non-Fidelity Mutual Funds and projected cash flows of $16.5 million per year. Fees will be subject to revision if these plan characteristics change significantly by either falling below or exceeding current projected levels.
A.H. BELO CORPORATION FIDELITY MANAGEMENT TRUST COMPANY By: /s/Jeff Lamb March 13, 1998 By: /s/Cheryl Gladstone March 13, 1998 ---------------------------------- ----------------------------------------- Date Vice President Date
22 26 SCHEDULE "C" INVESTMENT OPTIONS In accordance with Section 4(b), the Named Fiduciary hereby directs the Trustee that participants' individual accounts may be invested in the following investment options: * Maintenance of the following plan investment options for the A.H. Belo Corporation Employee Savings and Investment Plan: o Fidelity Retirement Government Money Market o Fidelity Puritan Fund o Fidelity Magellan Fund o Fidelity Growth & Income Portfolio o A.H. Belo Series A Common Stock Fund o Fidelity Intermediate Bond Fund o Fidelity Overseas Fund (no longer an option effective 4/1/98) o A.H. Belo Series B Common Stock Fund o Spartan U.S. Equity Index Fund o PBHG Growth Fund o Fidelity Dividend Growth Fund o Templeton Foreign Fund I o Managed Income Fund * Maintenance of the following plan investment options for the Journal-Guild 401(k) Plan: o Fidelity Puritan Fund o Spartan U.S. Equity Index Fund o Fidelity Dividend Growth Fund o Templeton Foreign Fund o Managed Income Fund * Maintenance of the following plan investment options for the Copley/Colony, Inc. Retirement Plan: o Fidelity Puritan Fund o Spartan U.S. Equity Index Fund o Fidelity Dividend Growth Fund o Templeton Foreign Fund o Managed Income Fund * Maintenance of the following plan investment options for the Colony Communications, Inc. Retirement Plan: o Fidelity Puritan Fund o Spartan U.S. Equity Index Fund o Fidelity Dividend Growth Fund o Templeton Foreign Fund o Managed Income Fund 23 27 The investment option referred to in Section 4(c) and Section 4(e)(v) (B)(5)shall be the Spartan U.S. Equity Index Fund.
A. H. BELO CORPORATION BENEFITS ADMINISTRATIVE COMMITTEE By: /s/Jeff Lamb March 13, 1998 By: /s/Joe Daume March 13, 1998 -------------------------------------- ---------------------------------------- Date Date By: /s/Kerri McSween March 13, 1998 By: /s/Dunia Shive March 13, 1998 -------------------------------------- ----------------------------------------- Date Date By: /s/Michael D. Perry March 13, 1998 By: /s/Vicky Teherani March 13, 1998 --------------------------------------- ---------------------------------------- Date Date By: /s/Lee Salzberger March 13, 1998 By: /s/Brenda Maddox March 13, 1998 -------------------------------------- ---------------------------------------- Date Date By: /s/Jeff Lamb March 13, 1998 By: /s/Joe Daume March 13, 1998 --------------------------------------- ----------------------------------------- Date Date By: /s/Marian Spitzberg March 13, 1998 By: /s/Mark Ryan March 13, 1998 -------------------------------------- --------------------------------------------- Date Date By: /s/Ellen Wilson March 13, 1998 By: /s/Lisa Kovacs March 13, 1998 --------------------------------------- ---------------------------------------- Date Date
24 28 SCHEDULE "D" [ADMINISTRATOR'S LETTERHEAD] [DATE] Ms. Carolyn Redden Fidelity Investments Institutional Operations Company, Inc. 82 Devonshire Street- MM3H Boston, Massachusetts 02109 [NAME OF PLAN] *** NOTE: This schedule should contain names and signatures for ALL individuals who will be providing directions to Fidelity representatives in connection with the Plan. Fidelity representatives will be unable to accept directions from any individual whose name does not appear on this schedule. *** Dear Ms. Redden: This letter is sent to you in accordance with Section 7(b) of the Trust Agreement, dated as of [date], between [name of Plan Sponsor] and Fidelity Management Trust Company. [I or We] hereby designate [name of individual], [name of individual], and [name of individual], as the individuals who may provide directions upon which Fidelity Management Trust Company shall be fully protected in relying. Only one such individual need provide any direction. The signature of each designated individual is set forth below and certified to be such. You may rely upon each designation and certification set forth in this letter until [I or we] deliver to you written notice of the termination of authority of a designated individual. Very truly yours, [ADMINISTRATOR] By [signature of designated individual] - ------------------------------------ [name of designated individual] [signature of designated individual] - ------------------------------------ [name of designated individual] [signature of designated individual] - ------------------------------------ [name of designated individual] 25 29 SCHEDULE "E" [NAMED FIDUCIARY'S LETTERHEAD] [DATE] Ms. Carolyn Redden Fidelity Investments Institutional Operations Company, Inc. 82 Devonshire Street - MM3H Boston, Massachusetts 02109 [NAME OF PLAN] Dear Ms. Redden: This letter is sent to you in accordance with Section 7(c) of the Trust Agreement, dated as of [date], between [name of Plan Sponsor] and Fidelity Management Trust Company. [I or We] hereby designate [name of individual], [name of individual], and [name of individual], as the individuals who may provide directions upon which Fidelity Management Trust Company shall be fully protected in relying. Only one such individual need provide any direction. The signature of each designated individual is set forth below and certified to be such. You may rely upon each designation and certification set forth in this letter until [I or we] deliver to you written notice of the termination of authority of a designated individual. Very truly yours, [NAMED FIDUCIARY] By [signature of designated individual] - ------------------------------------ [name of designated individual] [signature of designated individual] - ------------------------------------ [name of designated individual] [signature of designated individual] - ------------------------------------ [name of designated individual] 26 30 SCHEDULE "F" [LAW FIRM LETTERHEAD] ** NOTE: MAY SUBSTITUTE THE PLAN'S IRS DETERMINATION LETTER IF THE LETTER IS NO MORE THAT TWO YEARS OLD. Ms. Carolyn Redden Fidelity Investments Institutional Operations Company, Inc. 82 Devonshire Street - MM3H Boston, MA 02109 [NAME OF PLAN] Dear Ms. Redden In accordance with your request, this letter sets forth our opinion with respect to the qualified status under section 401(a) of the Internal Revenue Code of 1986 (including amendments made by the Employee Retirement Income Security Act of 1974) (the "Code"), of the [name of plan], as amended to the date of this letter (the "Plan"). The material facts regarding the Plan as we understand them are as follows. The most recent favorable determination letter as to the Plan's qualified status under section 401(a) of the Code was issued by the [location of Key District] District Director of the Internal Revenue Service and was dated [date] (copy enclosed). The version of the Plan submitted by [name of company] (the "Company") for the District Director's review in connection with this determination letter did not contain amendments made effective as of [date]. These amendments, among other matters, [brief description of amendments]. [Subsequent amendments were made on [date] to amend the provisions dealing with [brief description of amendments].] The Company has informed us that it intends to submit the Plan to the [location of Key District] District Director of the Internal Revenue Service and to request from him a favorable determination letter as to the Plan's qualified status under section 401(a) of the Code. The Company may have to make some modifications to the Plan at the request of the Internal Revenue Service in order to obtain this favorable determination letter, but we do not expect any of these modifications to be material. The Company has informed us that it will make these modifications. Based on the foregoing statements of the Company and our review of the provisions of the Plan, it is our opinion that the Internal Revenue Service will issue a favorable determination letter as to the qualified status of the Plan, as modified at the request of the Internal Revenue Service, under section 401(a) of the Code, subject to the customary condition that continued qualification of the Plan, as modified, will depend on its effect in operation. [Furthermore, in that the assets are in part invested in common stock issued by the Company or an affiliate, it is our opinion that the Plan is an "eligible individual account plan" (as defined under Section 407(d)(3) of ERISA) and that the shares of common stock of the Company held and to be purchased under the Plan are "qualifying employer securities" (as 27 31 defined under Section 407(d)(5) of ERISA). Finally, it is our opinion that interests in the Plan are not required to be registered under the Securities Act of 1933, as amended, or, if such registration is required, that such interests are effectively registered under said Act.] Sincerely, [name of law firm] By [signature] ----------------------------- [name of partner] 28 32 SCHEDULE "G" EXISTING GICS In accordance with Section 4(e), the Named Fiduciary hereby directs the Trustee to continue to hold the following Existing GICs until such time as the Named Fiduciary directs otherwise: -- Principal Financial #4-06074-01 -- Principal Financial #4-06074-02 -- John Hancock GAC 7466 -- John Hancock GAC 7912 -- John Hancock GAC 8563 A. H. BELO CORPORATION BENEFITS ADMINISTRATIVE COMMITTEE By: /s/Jeff Lamb March 13, 1998 ------------------------------------ Date 29 33 SCHEDULE "I" OPERATIONAL GUIDELINES FOR NON-FIDELITY MUTUAL FUNDS PRICING By 7:00 p.m. Eastern Time ("ET") each Business Day, the Non-Fidelity Mutual Fund Vendor (Fund Vendor) will input the following information ("Price Information") into the Fidelity Participant Recordkeeping System ("FPRS") via the remote access price screen that Fidelity Investments Institutional Operations Company, Inc. ("FIIOC"), an affiliate of the Trustee, has provided to the Fund Vendor: (1) the net asset value for each Fund at the Close of Trading, (2) the change in each Fund's net asset value from the Close of Trading on the prior Business Day, and (3) in the case of an income fund or funds, the daily accrual for interest rate factor ("mil rate"). FIIOC must receive Price Information each Business Day (a "Business Day" is any day the New York Stock Exchange is open). If on any Business Day the Fund Vendor does not provide such Price Information to FIIOC, FIIOC shall pend all associated transaction activity in the Fidelity Participant Recordkeeping System ("FPRS") until the relevant Price Information is made available by Fund Vendor. TRADE ACTIVITY AND WIRE TRANSFERS By 7:00 a.m. ET each Business Day following Trade Date ("Trade Date plus One"), FIIOC will provide, via facsimile, to the Fund Vendor a consolidated report of net purchase or net redemption activity that occurred in each of the Funds up to 4:00 p.m. ET on the prior Business Day. The report will reflect the dollar amount of assets and shares to be invested or withdrawn for each Fund. FIIOC will transmit this report to the Fund Vendor each Business Day, regardless of processing activity. In the event that data contained in the 7:00 a.m. ET facsimile transmission represents estimated trade activity, FIIOC shall provide a final facsimile to the Fund Vendor by no later than 9:00 a.m. ET. Any resulting adjustments shall be processed by the Fund Vendor at the net asset value for the prior Business Day. The Fund Vendor shall send via regular mail to FIIOC transaction confirms for all daily activity in each of the Funds. The Fund Vendor shall also send via regular mail to FIIOC, by no later than the fifth Business Day following calendar month close, a monthly statement for each Fund. FIIOC agrees to notify the Fund Vendor of any balance discrepancies within twenty (20) Business Days of receipt of the monthly statement. 30 34 For purposes of wire transfers, FIIOC shall transmit a daily wire for aggregate purchase activity and the Fund Vendor shall transmit a daily wire for aggregate redemption activity, in each case including all activity across all Funds occurring on the same day. PROSPECTUS DELIVERY FIIOC shall be responsible for the timely delivery of Fund prospectuses and periodic Fund reports ("Required Materials") to Plan participants, and shall retain the services of a third-party vendor to handle such mailings. The Fund Vendor shall be responsible for all materials and production costs, and hereby agrees to provide the Required Materials to the third-party vendor selected by FIIOC. The Fund Vendor shall bear the costs of mailing annual Fund reports to Plan participants. FIIOC shall bear the costs of mailing prospectuses to Plan participants. PROXIES The Fund Vendor shall be responsible for all costs associated with the production of proxy materials. FIIOC shall retain the services of a third-party vendor to handle proxy solicitation mailings and vote tabulation. Expenses associated with such services shall be billed directly to the Fund Vendor by the third-party vendor. PARTICIPANT COMMUNICATIONS The Fund Vendor shall provide internally-prepared fund descriptive information approved by the Funds' legal counsel for use by FIIOC in its written participant communication materials. FIIOC shall utilize historical performance data obtained from third-party vendors (currently Morningstar, Inc., FACTSET Research Systems and Lipper Analytical Services) in telephone conversations with plan participants and in quarterly participant statements. The Sponsor hereby consents to FIIOC's use of such materials and acknowledges that FIIOC is not responsible for the accuracy of such third-party information. FIIOC shall seek the approval of the Fund Vendor prior to retaining any other third-party vendor to render such data or materials under this Agreement. COMPENSATION FIIOC shall be entitled to fees as set forth in a separate agreement with the Fund Vendor. 31 35 SCHEDULE "J" OPERATING PROCEDURES FOR THE MANAGED INCOME FUND I. DESCRIPTION OF INVESTMENT OPTION The Managed Income Fund (the "Fund") will be comprised of units in the Fidelity Institutional Cash Portfolios: Money Market Portfolio: Class I ("STIF"), units in the Fidelity Group Trust for Employee Benefits Plan Managed Income Portfolio ("MIP") and the existing Guaranteed Investment Contracts ("GICs") outlined in Schedule "G" of the Trust Agreement between the Trustee and the Sponsor. II. INVESTMENT OPTION TRANSACTIONS All transactions for the Fund will be coordinated by the Trustee based on the procedures outlined in this document. III. VALUATION The Trustee will value the Fund, at a net asset value of $1 per share, on a daily basis and produce a blended mil rate to reflect the net income earned by the Fund. IV. MONEY MOVEMENT All money transfers to and from the Fund will be made through the STIF portion of the Fund. V. CASH MANAGEMENT The Sponsor will maintain 3% of the Fund in STIF. The Trustee will monitor the cashflows and the balance of the STIF. If the STIF balance exceeds 3%, the Trustee will transfer the excess to the MIP. If the STIF balance falls below 3%, the Trustee will request money from the GIC carriers and/or the MIP on a LIFO Prorata basis to replenish the balance to 3%. VI. INVESTMENT CONTRACT MATURITIES AND PAYMENTS The proceeds from a maturing investment contract will be transferred to the STIF portion of the Fund for subsequent reinvestment in the MIP. The Trustee will provide wiring instructions to the investment contract issuer. VII. RECONCILIATION The Fidelity Participant Recordkeeping System (FPRS) will be reconciled to the Managed Income Portfolio Accounting System (GUIDE) on a daily and monthly basis. The investment contracts positions on GUIDE will be reconciled to the issuer balances on a monthly basis. 32 36 VIII. FEE COLLECTION FOR ACCOUNTING SERVICES The Trustee will accrue its fee for Accounting services on a daily basis, and will deduct the fee monthly from the earnings of the Fund. IX. CHANGES TO THE SCHEDULE This Schedule may be amended or modified by a written instrument executed by both the Trustee and the Sponsor. X. DISCONTINUANCE OF ACCOUNTING SERVICES The Trustee will discontinue accounting services for the Managed Income Fund once all the GICs have matured.
A.H. BELO CORPORATION FIDELITY MANAGEMENT TRUST BENEFITS ADMINISTRATIVE COMPANY COMMITTEE By: /s/Jeff Lamb March 13, 1998 By: /s/Cheryl Gladstone March 13, 1998 ---------------------------- --------------------------------------------- Date Date
33 37 SCHEDULE "K" TELEPHONE EXCHANGE GUIDELINES The following telephone exchange guidelines are currently employed by Fidelity Institutional Retirement Services Company (FIRSCO). Telephone exchange hours are 8:30 a.m. (ET) to 12:00 midnight (ET) on each Business Day. A "Business Day" is any day on which the New York Stock Exchange is open. FIRSCO reserves the right to change these telephone exchange guidelines at its discretion. MUTUAL FUNDS EXCHANGES BETWEEN MUTUAL FUNDS Participants may call on any Business Day to exchange between the mutual funds. If the request is received before 4:00 p.m. (ET), it will receive that day's trade date. Calls received after 4:00 p.m. (ET) will be processed on a next Business Day basis. SPONSOR STOCK I. EXCHANGES FROM MUTUAL FUNDS INTO SPONSOR STOCK Sponsor Stock exchanges are processed on a monthly cycle. Participants who wish to exchange out of a mutual fund into Sponsor Stock may call between the 1st and the 15th of the month. No calls will be accepted after 4:00 p.m. (ET) on the 15th (or previous Business Day if the 15th is not a Business Day). Mutual fund shares are sold on the 15th of the month (or the previous Business Day if the 15th is not a Business Day) and the Sponsor Stock is purchased within two (2) Business Days after the date on which the mutual fund shares are sold. II. EXCHANGES FROM SPONSOR STOCK INTO MUTUAL FUNDS Participants who wish to exchange out of Sponsor Stock into mutual funds may call between the 1st and the 15th of the month. No calls will be accepted after 4:00 p.m. (ET) on the 15th (or previous Business Day if the 15th is not a Business Day). The Sponsor Stock is sold on the 16th (or the next Business Day if the 16th is not a Business Day) and the subsequent purchase into mutual funds will take place three (3) Business Days later. This allows for settlement of the stock trade at the custodian and the corresponding transfer to Fidelity. 34 38 MANAGED INCOME FUND I. EXCHANGES BETWEEN MUTUAL FUNDS AND MANAGED INCOME FUND Participants who wish to exchange between a mutual fund and the Managed Income Fund may call on any Business Day. If the request is received before 4:00 p.m. (ET), it will receive that day's trade date. Calls received after 4:00 p.m. (EST) will be processed on a next Business Day basis. II. EXCHANGES FROM MANAGED INCOME FUND INTO SPONSOR STOCK Participants who wish to exchange out of the Managed Income Fund into Sponsor Stock may call between the 1st and the 15th of the month. No calls will be accepted after 4:00 p.m. (ET) on the 15th (or previous Business Day if the 15th is not a Business Day). Managed Income Fund shares are sold on the 15th of the month (or the previous Business Day if the 15th is not a Business Day) and the Sponsor Stock is purchased within two (2) Business Days after the date on which the Managed Income Fund shares are sold. III. EXCHANGES FROM SPONSOR STOCK INTO MANAGED INCOME FUND Participants who wish to exchange out of Sponsor Stock into Managed Income Funds may call between the 1st and the 15th of the month. No calls will be accepted after 4:00 p.m. (ET) on the 15th (or previous Business Day if the 15th is not a Business Day). The Sponsor Stock is sold on the 16th (or the next Business Day if the 16th is not a Business Day) and the subsequent purchase into Managed Income Funds will take place three (3) Business Days later. This allows for settlement of the stock trade at the custodian and the corresponding transfer to Fidelity. IV. EXCHANGE RESTRICTIONS Participants will not be permitted to make direct transfers from the Managed Income Fund into a competing fund. Participants who wish to exchange from the Managed Income Fund into a competing fund, must first exchange into a non-competing fund for a period of 90 days. A.H. BELO CORPORATION BENEFITS ADMINISTRATIVE COMMITTEE By: /s/Jeff Lamb March 13, 1998 -------------------------------------- Date 35 EX-10.3.2B 7 AMENDMENT NO.6 TO 1986 LONG-TERM INCENTIVE PLAN 1 EXHIBIT 10.3(2)(b) AMENDMENT NO. 6 TO THE A. H. BELO CORPORATION 1986 LONG TERM INCENTIVE PLAN WHEREAS, A. H. Belo Corporation (the "Company") has heretofore adopted THE A. H. BELO CORPORATION 1986 LONG TERM INCENTIVE PLAN (the "1986 Plan"); and WHEREAS, pursuant to the provisions of paragraphs 16 and 18 of the 1986 Plan, the Board of Directors of the Company desires herein to amend the 1986 Plan; and WHEREAS, the shareholders of the Company approved the proposed amendment at their Annual Meeting on May 6, 1992; NOW, THEREFORE, the 1986 Plan is hereby amended as follows: 1. Paragraph 2 of the 1986 Plan is amended by substituting the number "3,600,000" at each place the number "2,400,000" appears. 2. Paragraph 4 of the 1986 Plan as previously amended by Amendment No. 3 is further amended by adding the following paragraphs immediately after the fourth paragraph: "Each nonemployee director at the close of business of the 1992 annual meeting of shareholders of the Corporation shall also be granted an option to purchase 2,500 shares of Series A Common Stock (the "additional option") on the date of each annual meeting of the shareholders beginning with the 1992 annual meeting of shareholders and ending with the 1996 annual meeting of shareholders, provided that the director continues to be a nonemployee director at the close of business of each such annual meeting. An individual who first becomes a nonemployee director on or after the date of the 1992 annual meeting of shareholders shall be granted an option for 10,000 shares on the date of such election as a director and shall be granted an additional option for 2,500 shares on the date of each of the five following annual meetings of shareholders, provided that the director continues to be a nonemployee director at the close of business of each such annual meeting. For purposes of this paragraph, the date of an annual meeting of shareholders is the date on which the meeting is convened or, if later, the date of the last adjournment thereof. Notwithstanding the provisions of paragraph 18 of the 1986 Plan, the provisions of the two immediately preceding paragraphs may not be amended more than once every six months, other than to comply with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules and regulations thereunder." 2 IN WITNESS WHEREOF, the Company has caused this instrument to be executed in its name and on its behalf by the officer thereunto duly authorized as of the 6th day of May, 1992. H. BELO CORPORATION By: /s/Robert W. Decherd --------------------------------- Chairman of the Board and Chief Executive Officer ATTEST: /s/Michael J. McCarthy - ---------------------------- Secretary STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged before me on May 2, 1992, by Robert W. Decherd, Chairman of the Board of A. H. Belo Corporation, a Delaware corporation, on behalf of said corporation. /s/Ulrike J. Conway ------------------------------------- Notary Public in and for the State of Texas My Commission Expires: Print Name of Notary: 5/1/93 /s/Ulrike J. Conway - ---------------------- ------------------------------------- EX-10.3.3 8 1995 EXECUTIVE COMPENSATION PLAN AS RESTATED 1 EXHIBIT 10.3(3) A. H. BELO CORPORATION 1995 EXECUTIVE COMPENSATION PLAN (As Restated to Incorporate Amendments through December 4, 1997) A. H. Belo Corporation, a Delaware corporation (the "Company"), established the A. H. Belo Corporation 1995 Executive Compensation Plan (the "Plan"), effective as of January 1, 1995, and has restated the Plan to incorporate amendments through December 4, 1997. 1. Purpose. The purpose of the Plan is to attract and retain the best available talent and encourage the highest level of performance by directors, executive officers and selected employees, and to provide them incentives to put forth maximum efforts for the success of the Company's business, in order to serve the best interests of the Company and its shareholders. 2. Definitions. The following terms, when used in the Plan with initial capital letters, will have the following meanings: (a) "Appreciation Right" means a right granted pursuant to Paragraph 7. (b) "Award" means an Executive Compensation Plan Bonus, an Appreciation Right, a Stock Option, a Performance Unit or a grant or sale of Restricted Stock. (c) "Board" means the Board of Directors of the Company. (d) "Change in Control" means the first to occur of the events described in (i) through (iv) below, unless the Board has adopted a resolution prior to or promptly following the occurrence of any such event stipulating, conditionally, temporarily or otherwise, that any such event will not result in a change in control of the Company: (i) the commencement of, or first public announcement of the intention of any person or group (within the meaning of Section 3(b) of and Rule 13d-5(b) promulgated under the Securities Exchange Act of 1934, as amended, respectively) to commence, a tender offer or exchange offer (other than an offer by the Company or any Subsidiary) for all, or any part of, the Common Stock; (ii) the public announcement by the Company or by any group (as defined in clause (i) above), entity or person (other than the Company, any Subsidiary, or any savings, pension or other benefit plan for the benefit of employees of the Company or any Subsidiary) which, through a transaction or series of transactions has acquired, directly or indirectly, beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange -1- 2 Act of 1934, as amended) of more than 30% of the total number of shares of Common Stock that such group, entity or person has become such a beneficial owner; (iii) the approval by the Company's shareholders (or, if such approval is not required, the consummation) of a merger in which the Company does not survive as an independent publicly owned corporation, a consolidation, or a sale, exchange, or other disposition of all or substantially all the Company's assets; or (iv) a change in the composition of the Board during any period of two consecutive years such that individuals who at the beginning of such period were members of the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period. (e) "Code" means the Internal Revenue Code of 1986, as in effect from time to time. (f) "Committee" means the Compensation Committee of the Board and, to the extent the administration of the Plan has been assumed by the Board pursuant to Paragraph 15, the Board. (g) "Common Stock" means the Series A Common Stock, par value $1.67 per share, and the Series B Common Stock, par value $1.67 per share, of the Company or any security into which such Common Stock may be changed by reason of any transaction or event of the type described in Paragraph 12. Shares of Common Stock issued or transferred pursuant to the Plan will be shares of Series A Common Stock or Series B Common Stock, as determined by the Committee in its discretion. Notwithstanding the foregoing, the Committee will not authorize the issuance or transfer of Series B Common Stock if the Committee determines that such issuance or transfer would cause the Series A Common Stock to be excluded from trading in the principal market in which the Common Stock is then traded. (h) "Date of Grant" means (i) with respect to Participants, the date specified by the Committee on which a grant of Stock Options, Appreciation Rights or Performance Units or a grant or sale of Restricted Stock will become effective (which date will not be earlier than the date on which the Committee takes action with respect thereto) and (ii) with respect to Directors, the date of the applicable annual meeting of shareholders of the Company as specified in Paragraph 6. -2- 3 (i) "Director" means a member of the Board who is not a regular full-time employee of the Company or any Subsidiary. (j) "Executive Compensation Plan Bonus" means the right to receive an annual incentive compensation payment made pursuant to and subject to the conditions set forth in Paragraph 10. (k) "Grant Price" means the price per share of Common Stock at which an Appreciation Right not granted in tandem with a Stock Option is granted. (l) "Management Objectives" means the objectives, if any, established by the Committee for a Performance Period that are to be achieved with respect to an Award granted to a Participant under the Plan. Management Objectives may be described in terms of Company-wide objectives or in terms of objectives that are related to performance of the division, Subsidiary, department or function within the Company or a Subsidiary in which the Participant receiving the Award is employed or on which the Participant's efforts have the most influence. The Management Objectives established by the Committee for any Performance Period under the Plan will consist of one or more of the following: (i) earnings per share and/or growth in earnings per share in relation to target objectives; (ii) cash flow and/or growth in cash flow in relation to target objectives; (iii) net income and/or growth in net income in relation to target objectives, excluding the effect of extraordinary items; (iv) total shareholder return (measured as the total of the appreciation of and dividends declared on the Common Stock) in relation to target objectives; (v) return on invested capital in relation to target objectives; (vi) return on shareholder equity in relation to target objectives; and (vii) return on assets in relation to target objectives. Management Objectives may be established in absolute terms or relative to the performance of a specified group of other companies. The Committee may adjust Management Objectives and any minimum acceptable level of achievement with respect to any Management Objectives if, in the sole judgment of the Committee, events or transactions have occurred after the establishment of the Management Objectives -3- 4 (including without limitation any change in accounting standards by the Financial Accounting Standards Board) which are unrelated to performance and result in a distortion of the Management Objectives or such minimum acceptable level of achievement. (m) "Market Value per Share" means, at any date, the closing sale price of the Common Stock on that date (or, if there are no sales on that date, the last preceding date on which there was a sale) in the principal market in which the Common Stock is traded. (n) "Option Price" means the purchase price per share payable on exercise of a Stock Option. (o) "Participant" means a person who is selected by the Committee to receive benefits under the Plan and who is at that time an executive officer or other key employee of the Company or any Subsidiary. Except for Stock Options granted to Directors pursuant to Paragraph 6, a Director will not receive benefits under the Plan. (p) "Performance Period" means, with respect to an Award, a period of time established by the Committee within which the Management Objectives relating to such Award are to be measured. The Performance Period for an Executive Compensation Plan Bonus will be a period of 12 months. The Performance Period for all other Awards will be a period of not less than three years. (q) "Performance Unit" means a unit equivalent to $100 (or such other value as the Committee determines) granted pursuant to Paragraph 9. (r) "Restricted Stock" means shares of Common Stock granted or sold pursuant to Paragraph 8 as to which neither the ownership restrictions nor the restrictions on transfer referred to therein has expired. (s) "Rule 16b-3" means Rule 16b-3 under the Section 16 of the Securities Exchange Act of 1934, as amended, as such Rule is in effect from time to time. (t) "Spread" means the excess of the Market Value per Share on the date an Appreciation Right is exercised over (i) the Option Price provided for in the related Stock Option or (ii) if there is no tandem Stock Option, the Grant Price provided for in the Appreciation Right, multiplied by the number of shares of Common Stock in respect of which the Appreciation Right is exercised. (u) "Stock Option" means the right to purchase a share of Common Stock upon exercise of an option granted pursuant to Paragraph 5 or Paragraph 6. -4- 5 (v) "Subsidiary" means any corporation, partnership, joint venture or other entity in which the Company owns or controls, directly or indirectly, not less than 50% of the total combined voting power or equity interests represented by all classes of stock issued by such corporation, partnership, joint venture or other entity. 3. Shares Available Under Plan. Subject to adjustment as provided in Paragraph 12, the shares of Common Stock which may be issued or transferred and covered by outstanding Awards granted under the Plan will not exceed in the aggregate 5,000,000 shares. Such shares may be shares of original issuance or treasury shares or a combination of the foregoing. Upon exercise of any Appreciation Rights that are paid in shares of Common Stock, there will be deemed to have been delivered under the Plan for purposes of this Paragraph 3 only the number of shares of Common Stock paid to the Participant, and the balance (if any) of the shares of Common Stock covered by the Appreciation Rights or the related Stock Options will remain available for issuance under the Plan. Upon exercise of any Appreciation Rights that are paid in cash, the total number of shares of Common Stock covered by the Appreciation Rights or the related Stock Options will remain available for issuance under the Plan. Subject to the provisions of the preceding sentences, any shares of Common Stock which are subject to Stock Options or Appreciation Rights or are granted or sold as Restricted Stock that are terminated, unexercised, forfeited or surrendered or which expire for any reason will again be available for issuance under the Plan. 4. Limitations on Awards. Subject to adjustment as provided in Paragraph 12, awards under the Plan will be subject to the following limitations: (a) Of the aggregate 5,000,000 shares reserved for issuance under the Plan, no more than 1,200,000 shares of Common Stock will be issued or transferred as Restricted Stock. (b) No more than 5,000,000 shares of Common Stock reserved for issuance under the Plan will be issued under Stock Options. (c) The maximum aggregate number of shares of Common Stock that may be subject to Stock Options, Appreciation Rights and Restricted Stock granted to a Participant during any calendar year will not exceed 500,000 shares. The foregoing limitation will apply to the grant of Appreciation Rights whether the Spread on exercise is paid in cash or in shares of Common Stock. (d) The maximum aggregate cash value of payments to any Participant for any Performance Period pursuant to an award of Performance Units will not exceed $3,000,000. (e) The payment of an Executive Compensation Plan Bonus to any Participant will not exceed $1,500,000. -5- 6 5. Stock Options for Participants. The Committee may from time to time authorize grants to any Participant of options to purchase shares of Common Stock upon such terms and conditions as it may determine in accordance with the following provisions: (a) Each grant will specify the number of shares of Common Stock to which it pertains. (b) Each grant will specify the Option Price, which will not be less than 100% of the Market Value per Share on the Date of Grant. (c) Each grant will specify that the Option Price will be payable (i) in cash or by check acceptable to the Company, (ii) by the transfer to the Company of shares of Common Stock owned by the Participant for at least six months (or, with the consent of the Committee, for less than six months) having an aggregate Market Value per Share at the date of exercise equal to the aggregate Option Price, (iii) with the consent of the Committee, by authorizing the Company to withhold a number of shares of Common Stock otherwise issuable to the Participant having an aggregate Market Value per Share on the date of exercise equal to the aggregate Option Price or (iv) by a combination of such methods of payment; provided, however, that the payment methods described in clauses (ii) and (iii) will not be available at any time that the Company is prohibited from purchasing or acquiring such shares of Common Stock. Any grant may provide for deferred payment of the Option Price from the proceeds of sale through a broker of some or all of the shares to which such exercise relates. (d) Successive grants may be made to the same Participant whether or not any Stock Options previously granted to such Participant remain unexercised. (e) Each grant will specify the required period or periods of continuous service by the Participant with the Company or any Subsidiary and/or the Management Objectives 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 Options in the event of a Change in Control or other similar transaction or event. (f) Stock Options granted under this Paragraph 5 may be (i) options which are intended to qualify under particular provisions of the Code, (ii) options which are not intended to so qualify or (iii) combinations of the foregoing. (g) No Stock Option will be exercisable more than ten years from the Date of Grant. (h) If a Participant terminates employment by reason of death, disability or retirement at or after attaining the earliest age that qualifies as the Participant's Early -6- 7 Retirement Age under the G. B. Dealey Retirement Pension Plan, as amended from time to time, each outstanding Stock Option granted to the Participant will remain exercisable until the term of the Stock Option expires (determined without regard to the Participant's termination of employment). (i) Each grant of Stock Options will be evidenced by an agreement executed on behalf of the Company by the Chief Executive Officer (or another officer designated by the Committee) and delivered to the Participant and containing such terms and provisions, consistent with the Plan, as the Committee may approve. 6. Stock Options for Directors. On the date of each annual meeting of shareholders of the Company that is held on or after the date of the 1998 annual meeting of shareholders, each Director will be granted (i) options to purchase Common Stock that have a fair market value (as hereinafter determined) on the Date of Grant equal to 50% of the Director's annual compensation from the Company and (ii) at the Director's election made prior to the date of the annual meeting on which the applicable option is granted in accordance with the terms of this Plan and procedures adopted from time to time by the Committee, options to purchase Common Stock that have a fair market value on the Date of Grant equal to all or any portion of the Director's remaining annual compensation from the Company that the Director elects. A Stock Option granted to a Director pursuant to this paragraph as payment of all or a portion of the Director's annual compensation will be in payment for services to be performed by the Director for the 12-month period beginning on the date of the annual meeting of shareholders on which the Stock Option is granted. Any portion of the Director's annual compensation from the Company that is not paid to the Director in the form of a Stock Option will be paid in cash on the date of the annual meeting of shareholders. For purposes of this Paragraph 6, (i) a Director's annual compensation, as described in the preceding paragraph, does not include unscheduled meeting fees which may become payable to the Director, and any such fees will be paid in cash; (ii) the date of an annual meeting of shareholders of the Company is the date on which the meeting is convened or, if later, the date of the last adjournment thereof; and (iii) the fair market value of options granted to a Director will be determined by the Committee using the Black-Scholes Option Pricing Model. Each Stock Option granted to a Director will contain the following terms and conditions: (a) Each grant will specify the number of shares of Common Stock to which it pertains. (b) Each grant will specify the Option Price, which will be 100% of the Market Value per Share on the Date of Grant. -7- 8 (c) Each grant will specify that the Option Price will be payable (i) in cash or by check acceptable to the Company, (ii) by the transfer to the Company of shares of Common Stock owned by the Director for at least six months having an aggregate Market Value per Share at the date of exercise equal to the aggregate Option Price, (iii) by authorizing the Company to withhold a number of shares of Common Stock otherwise issuable to the Director having an aggregate Market Value per Share on the date of exercise equal to the aggregate Option Price or (iv) by a combination of such methods of payment; provided, however, that the payment methods described in clauses (ii) and (iii) will not be available at any time that the Company is prohibited from purchasing or acquiring such shares of Common Stock. Any grant may provide for deferred payment of the Option Price from the proceeds of sale through a broker of some or all of the shares to which such exercise relates. (d) Each grant will specify that the Stock Option may not be exercised until the first anniversary of the Date of Grant and will be fully exercisable thereafter, without regard to whether the Director continues to be a member of the Board on such first anniversary, until the Stock Option expires by its terms. No Stock Option will be exercisable more than ten years from the Date of Grant. (e) Each grant of Stock Options will be evidenced by an agreement executed on behalf of the Company by the Chief Executive Officer (or another officer designated by the Committee) and delivered to the Director and containing such terms and provisions, consistent with the Plan, as the Committee may approve. 7. Appreciation Rights. The Committee may also from time to time authorize grants to any Participant of Appreciation Rights upon such terms and conditions as it may determine in accordance with this Paragraph 7. Appreciation Rights may be granted in tandem with Stock Options or separate and apart from a grant of Stock Options. An Appreciation Right will be a right of the Participant to receive from the Company upon exercise an amount which will be determined by the Committee at the Date of Grant and will be expressed as a percentage of the Spread (not exceeding 100%) at the time of exercise. An Appreciation Right granted in tandem with a Stock Option may be exercised only by surrender of the related Stock Option. Each grant of an Appreciation Right may utilize any or all of the authorizations, and will be subject to all of the limitations, contained in the following provisions: (a) Each grant will state whether it is made in tandem with Stock Options and, if not made in tandem with any Stock Options, will specify the number of shares of Common Stock in respect of which it is made. (b) Each grant made in tandem with Stock Options will specify the Option Price and each grant not made in tandem with Stock Options will specify the Grant Price, -8- 9 which in either case will not be less than 100% of the Market Value per Share on the Date of Grant. (c) Any grant may specify that the amount payable on exercise of an Appreciation Right may be paid by the Company in (i) cash, (ii) shares of Common Stock having an aggregate Market Value per Share equal to the percentage of the Spread to be paid to the Participant or (iii) any combination thereof, as determined by the Committee in its sole discretion at the time of payment. (d) Any grant may specify that the amount payable on exercise of an Appreciation Right may not exceed a maximum amount specified by the Committee at the Date of Grant (valuing shares of Common Stock for this purpose at their Market Value per Share at the date of exercise). (e) Each grant will specify the required period or periods of continuous service by the Participant with the Company or any Subsidiary and/or Management Objectives to be achieved before the Appreciation Rights or installments thereof will become exercisable, and will provide that no Appreciation Right may be exercised except at a time when the Spread is positive and, with respect to any grant made in tandem with Stock Options, when the related Stock Option is also exercisable. Any grant may provide for the earlier exercise of the Appreciation Rights in the event of a Change in Control or other similar transaction or event. (f) If a Participant terminates employment by reason of death, disability or retirement at or after attaining the earliest age that qualifies as the Participant's Early Retirement Age under the G. B. Dealey Retirement Pension Plan, as amended from time to time, each outstanding Appreciation Right granted to the Participant will remain exercisable until the Appreciation Right expires by its terms (determined without regard to the Participant's termination of employment). (g) Each grant of an Appreciation Right will be evidenced by an agreement executed on behalf of the Company by the Chief Executive Officer (or another officer designated by the Committee) and delivered to and accepted by the Participant receiving the grant, which agreement will describe such Appreciation Right, identify any Stock Option granted in tandem with such Appreciation Right, state that such Appreciation Right is subject to all the terms and conditions of the Plan and contain such other terms and provisions, consistent with the Plan, as the Committee may approve. 8. Restricted Stock. The Committee may also from time to time authorize grants or sales to any Participant of Restricted Stock upon such terms and conditions as it may determine in accordance with the following provisions: -9- 10 (a) Each grant or sale will constitute an immediate transfer of the ownership of shares of Common Stock to the Participant in consideration of the performance of services, entitling such Participant to voting and other ownership rights, but subject to the restrictions hereinafter referred to. Each grant or sale may limit the Participant's dividend rights during the period in which the shares of Restricted Stock are subject to any such restrictions. (b) Each grant or sale will specify the Management Objectives, if any, that are to be achieved in order for the ownership restrictions to lapse. (c) Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value per Share at the Date of Grant. (d) Each such grant or sale will provide that the shares of Restricted Stock covered by such grant or sale will be subject, for a period to be determined by the Committee at the Date of Grant, to one or more restrictions, including, without limitation, a restriction that constitutes a "substantial risk of forfeiture" within the meaning of Section 83 of the Code and the regulations of the Internal Revenue Service thereunder, and any grant or sale may provide for the earlier termination of any such restrictions in the event of a Change in Control or other similar transaction or event. (e) Each such grant or sale will provide that during the period for which such restriction or restrictions are to continue, the transferability of the Restricted Stock will be prohibited or restricted in a manner and to the extent prescribed by the Committee at the Date of Grant (which restrictions may include, without limitation, rights of repurchase or first refusal in the Company or provisions subjecting the Restricted Stock to continuing restrictions in the hands of any transferee). (f) Each grant or sale of Restricted Stock will be evidenced by an agreement executed on behalf of the Company by the Chief Executive Officer (or another officer designated by the Committee) and delivered to and accepted by the Participant and containing such terms and provisions, consistent with the Plan, as the Committee may approve. 9. Performance Units. The Committee may also from time to time authorize grants to any Participant of Performance Units, which will become payable upon achievement of specified Management Objectives, upon such terms and conditions as it may determine in accordance with the following provisions: (a) Each grant will specify the number of Performance Units to which it pertains. -10- 11 (b) Each grant will specify the Management Objectives that are to be achieved. (c) Each grant will specify the time and manner of payment of Performance Units which have become payable, which payment may be made in (i) cash, (ii) shares of Common Stock having an aggregate Market Value per Share equal to the aggregate value of the Performance Units which have become payable or (iii) any combination thereof, as determined by the Committee in its sole discretion at the time of payment. (d) Each grant of a Performance Unit will be evidenced by an agreement executed on behalf of the Company by the Chief Executive Officer (or another officer designated by the Committee) and delivered to and accepted by the Participant and containing such terms and provisions, consistent with the Plan, as the Committee may approve, including provisions relating to a Change in Control or other similar transaction or event. 10. Executive Compensation Plan Bonuses. The Committee may from time to time authorize payment of annual incentive compensation in the form of an Executive Compensation Plan Bonus to a Participant, which will become payable upon achievement of specified Management Objectives. Executive Compensation Plan Bonuses will be payable upon such terms and conditions as the Committee may determine in accordance with the following provisions: (a) The Committee will specify the Management Objectives that are to be achieved by the Participant in order for the Participant to receive payment of the Executive Compensation Plan Bonus. (b) The Committee will specify the time and manner of payment of an Executive Compensation Plan Bonus which becomes payable, which payment may be made in (i) cash, (ii) shares of Common Stock having an aggregate Market Value per Share equal to the aggregate value of the Executive Compensation Plan Bonus which has become payable or (iii) any combination thereof, as determined by the Committee in its sole discretion at the time of payment. (c) As soon as practicable after the beginning of a Performance Period, the Committee will notify each Participant of the terms of the Executive Compensation Plan Bonus program for that Performance Period, which notification will state that such Executive Compensation Plan Bonus is subject to all the terms and conditions of the Plan, and contain such other terms and provisions, consistent with the Plan, as the Committee may approve. 11. Transferability. Except as otherwise provided in the agreement evidencing a Participant's Award or an award of Stock Options to a Director under Paragraph 6, (i) no Stock -11- 12 Option, Appreciation Right, Performance Unit that has not become payable or Executive Compensation Plan Bonus that has not become payable will be transferable by the Participant or the Director other than by will or the laws of descent and distribution and (ii) no Stock Option or Appreciation Right granted to the Participant or the Director will be exercisable during the Participant's or Director's lifetime by any person other than the Participant or Director, or such person's guardian or legal representative. 12. Adjustments. The Committee will make or provide for such adjustments in the maximum number of shares specified in Paragraphs 3, 4 and 6 in the numbers of shares of Common Stock covered by outstanding Stock Options and Appreciation Rights granted hereunder, in the Option Price or Grant Price applicable to any such Stock Options and Appreciation Rights, and/or in the kind of shares covered thereby (including shares of another issuer), as the Committee in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of Participants that otherwise would result from any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, merger, consolidation, spin-off, reorganization, partial or complete liquidation, issuance of rights or warrants to purchase securities or any other corporate transaction or event having an effect similar to any of the foregoing. 13. Fractional Shares. The Company will not be required to issue any fractional share of Common Stock pursuant to the Plan. The Committee may provide for the elimination of fractions or for the settlement of fractions in cash. 14. Withholding Taxes. To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with any payment made or benefit realized by a Participant or other person under the Plan, or is requested by a Participant to withhold additional amounts with respect to such taxes, and the amounts available to the Company for such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such benefit that the Participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes required or requested to be withheld. In addition, if permitted by the Committee, a Participant may elect to have any withholding obligation of the Company satisfied with shares of Common Stock that would otherwise be transferred to the Participant in payment of the Participant's Award. 15. Administration of the Plan. (a) Unless the administration of the Plan has been expressly assumed by the Board pursuant to a resolution of the Board, the Plan will be administered by the Committee, which at all times will consist of two or more Directors appointed by the Board, all of whom will qualify as "non-employee directors" as defined in Rule 16b-3 and as "outside directors" as defined in regulations adopted under Section 162(m) of the Code, as such terms may be amended from time to time. A majority of the Committee will constitute a quorum, and the action of the members of the Committee present at any meeting at which a quorum is present, or acts unanimously approved in writing, will be the acts of the Committee. -12- 13 (b) The Committee has the full authority and discretion to administer the Plan and to take any action that is necessary or advisable in connection with the administration of the Plan, including without limitation the authority and discretion to interpret and construe any provision of the Plan or of any agreement, notification or document evidencing the grant of an Award. The interpretation and construction by the Committee of any such provision and any determination by the Committee pursuant to any provision of the Plan or of any such agreement, notification or document will be final and conclusive. No member of the Committee will be liable for any such action or determination made in good faith. 16. Amendments, Etc. (a) The Plan may be amended from time to time by the Committee or the Board but may not be amended without further approval by the shareholders of the Company if such amendment would result in the Plan no longer satisfying any applicable requirements of the New York Stock Exchange (or any other exchange or market system upon which shares of Common Stock are listed or admitted to trading), Rule 16b-3 or Section 162(m) of the Code. (b) The Plan may be terminated at any time by action of the Board. The termination of the Plan will not adversely affect the terms of any outstanding Award. (c) The Plan will not confer upon any Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate such Participant's employment or other service at any time. (d) If the Committee determines, with the advice of legal counsel, that any provision of the Plan would prevent the payment of any Award intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code from so qualifying, such Plan provision will be invalid and cease to have any effect without affecting the validity or effectiveness of any other provision of the Plan. -13- EX-12 9 RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 A. H. Belo Corporation Computation of Ratio of Earnings to Fixed Charges (dollars in thousands)
Year Ended December 31, ------------------------------------------------------------ 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- Earnings: Earnings before income taxes and the cumulative effect of accounting changes $ 75,578 $107,897 $111,014 $144,040 $154,122 Add: Total fixed charges 18,792 17,294 32,089 29,009 94,069 Less: Interest capitalized 1,961 138 957 255 510 -------- -------- -------- -------- -------- Adjusted earnings $ 92,409 $125,053 $142,146 $172,794 $247,681 ======== ======== ======== ======== ======== Fixed Charges: Interest $ 16,976 $ 16,250 $ 30,944 $ 27,898 $ 91,288 Portion of rental expense representative of the interest factor (1) 1,816 1,044 1,145 1,111 $ 2,781 -------- -------- -------- -------- -------- Total fixed charges $ 18,792 $ 17,294 $ 32,089 $ 29,009 $ 94,069 ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges 4.92 x 7.23 x 4.43 x 5.96 x 2.63 x ======== ======== ======== ======== ========
- ------------------------------ (1) For purposes of calculating fixed charges, an interest factor of one third was applied to total rent expense for the period indicated. EX-21 10 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY (AS OF DECEMBER 31, 1997)
STATE OF NAME OF CORPORATION INCORPORATION - ------------------- ------------- NEWSPAPER PUBLISHING: The Dallas Morning News, Inc. d/b/a The Dallas Morning News Delaware The Providence Journal Company d/b/a Providence Journal-Bulletin Delaware Press-Enterprise Company d/b/a The Press-Enterprise California Owensboro Messenger-Inquirer, Inc. d/b/a Messenger-Inquirer Delaware Bryan-College Station Eagle, Inc. d/b/a The Eagle Delaware Henderson Gleaner, Inc. d/b/a The Gleaner Delaware DFW Printing Company, Inc. Delaware DFW Suburban Newspapers, Inc. Delaware TELEVISION BROADCASTING: Great Western Broadcasting Corp. d/b/a KXTV, Channel 10 Delaware KHOU-TV, Inc. d/b/a KHOU, Channel 11 Delaware KOTV, Inc. d/b/a KOTV, Channel 6 Delaware WFAA-TV, Inc. d/b/a WFAA, Channel 8 Delaware WVEC Television, Inc. d/b/a WVEC, Channel 13 Delaware WWL-TV, Inc. d/b/a WWL, Channel 4 Delaware KENS-TV, Inc. d/b/a KENS, Channel 5 Delaware KMOV-TV, Inc. d/b/a KMOV, Channel 4 Delaware KASA-TV, Inc. d/b/a KASA, Channel 2 New Mexico KMSB-TV, Inc. d/b/a KMSB, Channel 11 Arizona WCNC-TV, Inc. d/b/a WCNC, Channel 36 North Carolina Belo Kentucky, Inc. d/b/a WHAS, Channel 11 Kentucky King Broadcasting Company d/b/a KING, Channel 5 Washington d/b/a KHNL, Channel 13 d/b/a KREM, Channel 2 d/b/a KTVB, Channel 7 d/b/a KGW, Channel 8 King News Corporation d/b/a Northwest Cable News Washington Hill Tower, Inc. Texas Transtower, Inc. California Tulsa Tower Joint Venture Oklahoma Texas Tall Tower Texas
Except as noted below, all of the subsidiaries are wholly owned subsidiaries of the Company. The Company through wholly owned subsidiaries owns 50% of the outstanding common stock of Hill Tower, Inc, Tulsa Tower Joint Venture and Texas Tall Tower, and 33 1/3% of the outstanding common stock of Transtower, Inc. EX-23 11 CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-30994, Form S-8 No. 33-32526, Form S-8 No. 33-18771, Form S-8 No. 33-61439, and Form S-3 No. 333-25579) pertaining to the Employee Savings and Investment Plan, Long-Term Incentive Plan, 1995 Executive Compensation Plan, and the registration of $1,500,000,000 of debt securities and warrants to purchase debt securities of A. H. Belo Corporation of our report dated January 26, 1998, with respect to the consolidated financial statements of A. H. Belo Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 1997. /s/ ERNST & YOUNG LLP Dallas, Texas March 17, 1998 EX-27 12 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 11,582 0 228,611 (8,314) 20,356 276,996 953,232 (344,914) 3,622,954 214,462 1,614,045 0 0 104,011 1,221,993 3,622,954 0 1,248,381 0 872,586 134,993 9,273 90,778 154,122 71,150 82,972 0 0 0 82,972 1.43 1.42
EX-99 13 UNAUDITED PRO FORMA COMBINED CONDENSED STMT OF ERN 1 EXHIBIT 99 A. H. Belo Corporation Unaudited Pro Forma Combined Condensed Statement of Earnings Year Ended December 31, 1997 (in thousands, except per share amounts)
Historical -------------------------------------------------------------- Providence A. H. Belo Journal Less: Add: Corporation Company TVFN KENS ----------- ----------- ----------- ----------- Net Operating Revenues Broadcasting $ 536,737 $ 28,421 $ -- $ 21,186 Newspaper Publishing 693,777 19,590 -- -- Other 17,867 4,351 (9,480) -- ----------- ----------- ----------- ----------- Total Net Operating Revenues 1,248,381 52,362 (9,480) 21,186 Operating Costs and Expenses 872,586 56,324 (18,527) 11,485 Depreciation 73,089 6,289 (753) 805 Amortization 61,904 3,080 (1,233) -- ----------- ----------- ----------- ----------- Earnings (Loss) From Operations 240,802 (13,331) 11,033 8,896 Interest Expense (90,778) (2,700) 46 -- Other, Net 4,098 13,946 (771) -- ----------- ----------- ----------- ----------- Earnings (Loss) Before Income Taxes 154,122 (2,085) 10,308 8,896 Income Taxes 71,150 (509) 3,992 3,374 ----------- ----------- ----------- ----------- Net Earnings (Loss) $ 82,972 $ (1,576) $ 6,316 $ 5,522 =========== =========== =========== =========== Net Earnings Per Share (j): $ 1.42 =========== Weighted Average Shares Outstanding 58,561 =========== PRO FORMA ----------------------------------------------------------------- Elimination PJC TVFN/KENS AHN (a) Adjustments Adjustments Combined ----------- ----------- ----------- ----------- Net Operating Revenues Broadcasting $ -- $ -- $ -- $ 586,344 Newspaper Publishing -- -- -- 713,367 Other (297) -- -- 12,441 ----------- ----------- ----------- ----------- Total Net Operating Revenues (297) -- -- 1,312,152 Operating Costs and Expenses (8,069) -- -- 913,799 Depreciation (305) 946 (b) 1,862(b) 81,933 Amortization -- 4,725 (c) 3,827(f) 72,303 ----------- ----------- ----------- ----------- Earnings (Loss) From Operations 8,077 (5,671) (5,689) 244,117 Interest Expense -- (6,054)(d) (3,919)(g) (103,405) Other, Net (2,454) -- (1,273)(h) 13,546 ----------- ----------- ----------- ----------- Earnings (Loss) Before Income Taxes 5,623 (11,725) (10,881) 154,258 Income Taxes -- (2,800)(e) (4,203)(i) 71,004 ----------- ----------- ----------- ----------- Net Earnings (Loss) $ 5,623 $ (8,925) $ (6,678) $ 83,254 =========== =========== =========== =========== Net Earnings Per Share (j): $ 1.33 =========== Weighted Average Shares Outstanding 62,666 ===========
See Notes to Pro Forma Combined Condensed Statements of Earnings 2 A. H. Belo Corporation Unaudited Pro Forma Combined Condensed Statement of Earnings Year Ended December 31, 1996 (in thousands, except per share amounts)
Historical -------------------------------------------------------- Providence A. H. Belo Journal Less: Add: Corporation Company TVFN KENS ----------- ---------- --------- ---------- Net Operating Revenues Broadcasting $ 333,396 $ 213,770 $ -- $ 26,110 Newspaper Publishing 487,242 130,486 -- -- Other 3,670 15,343 (13,404) -- --------- --------- --------- --------- Total Net Operating Revenues 824,308 359,599 (13,404) 26,110 Operating Costs and Expenses 593,476 329,370 (30,495) 14,222 Depreciation 45,408 25,295 (1,424) 1,044 Amortization 19,775 18,222 (734) -- --------- --------- --------- --------- Earnings (Loss) From Operations 165,649 (13,288) 19,249 10,844 Interest Expense (27,643) (18,892) 87 -- Other, Net 6,034 24,670 1,925 -- --------- --------- --------- --------- Earnings (Loss) Before Income Taxes 144,040 (7,510) 21,261 10,844 Income Taxes 56,535 3,542 9,355 4,113 --------- --------- --------- --------- Net Earnings (Loss) $ 87,505 $ (11,052) $ 11,906 $ 6,731 ========= ========= ========= ========= Net Earnings Per Share (j): $ 2.11 ========= Weighted Average Shares Outstanding 41,502 ========= Pro Forma ----------------------------------------------------------------------- Elimination of PJC TVFN/KENS AHN (a) Adjustments Adjustments Combined -------------- ----------- ----------- ----------- Net Operating Revenues Broadcasting $ -- $ -- $ -- $ 573,276 Newspaper Publishing -- -- -- 617,728 Other (475) 3,677(k) -- 8,811 ----------- ----------- ----------- ----------- Total Net Operating Revenues (475) 3,677 -- 1,199,815 Operating Costs and Expenses (33,169) 8,436(k) -- 881,840 Depreciation (1,367) 6,129(b)(k) 2,235(b) 77,320 Amortization -- 28,608(c)(k) 4,593(f) 70,464 ----------- ----------- ----------- ----------- Earnings (Loss) From Operations 34,061 (39,496) (6,828) 170,191 Interest Expense -- (32,226)(d)(k) (4,500)(g) (83,174) Other, Net (13,488) 1,131(k) (2,311)(h) 17,961 ----------- ----------- ----------- ----------- Earnings (Loss) Before Income Taxes 20,573 (70,591) (13,639) 104,978 Income Taxes (5,699) (5,884)(e) (5,312)(i) 56,650 ----------- ----------- ----------- ----------- Net Earnings (Loss) $ 26,272 $ (64,707) $ (8,327) $ 48,328 =========== =========== =========== =========== Net Earnings Per Share (j): $ 0.72 =========== Weighted Average Shares Outstanding 66,897 ===========
See Notes to Pro Forma Combined Condensed Statements of Earnings 3 A. H. Belo Corporation Notes to Unaudited Pro Forma Combined Condensed Statements of Earnings NOTE 1: GENERAL The pro forma combined condensed statements of earnings reflect the acquisition of The Providence Journal Company and other significant transactions occurring during the period, as follows: (i) Issuance of 25,395,000 shares of A. H. Belo Corporation (the "Company" or "Belo") Series A Common Stock at a price of $34.275 per share and the payment of $587,096,000 in cash to acquire all of the issued and outstanding shares of The Providence Journal Company ("PJC") effective February 28, 1997; (ii) Exclusion of the operations of America's Health Network ("AHN"). The Company's interest in AHN was terminated effective July 31, 1997; (iii) In 1996, acquisition by PJC for controlling interest in Television Food Network ("TVFN") prior to execution of the PJC acquisition agreement; (iv) Purchase of KENS-TV in exchange for Belo's interest in TVFN and $75 million in cash, effective October 15, 1997. NOTE 2: UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS Pro forma adjustments giving effect to the PJC acquisition and the TVFN/KENS exchange in the unaudited pro forma combined condensed statements of earnings reflect the following: (a) Elimination of the results of operations of AHN. See Note 1 (ii). (b) Depreciation of the step-up in basis to the fair market value for fixed assets acquired. (c) Amortization of the excess of the purchase price over net tangible assets acquired, on a straight-line basis over 40 years, except for certain amounts attributable to newspaper subscriber lists, which are being amortized over 18 years. This adjustment is net of the elimination of the PJC historical amortization of excess acquisition costs over the values assigned to net tangible assets acquired in prior acquisitions. (d) Increase in interest expense resulting from net borrowings incurred to finance a portion of the purchase price. The interest rate on borrowings is assumed to be 6.1% and 5.8% for 1997 and 1996, respectively, which is based on Belo's weighted average borrowing rates during the periods. (e) Income tax effect of PJC pro forma adjustments. (f) Amortization of the excess of the KENS purchase price over net tangible assets acquired, on a straight-line basis over 40 years. (g) Increase in interest expense resulting from net borrowings incurred to finance the cash portion of the KENS purchase price. The interest rate on borrowings is assumed to be 6.6% and 6.0% for 1997 and 1996, respectively, which is based on Belo's weighted average borrowing rates during the periods. (h) Reversal of TVFN minority interest included in the consolidated results. 4 (i) Income tax effect of TVFN/KENS pro forma adjustments. (j) Earnings per share based upon the weighted average number of shares of Belo common and common equivalent shares outstanding, including 25,395,000 shares of Series A Common Stock issued in connection with the acquisition, as if they had been issued at the beginning of the year. (k) To reflect the pro forma effect of PJC increasing its investment and obtaining a controlling interest in TVFN as if the transaction had been effected as of the beginning of 1996. -----END PRIVACY-ENHANCED MESSAGE-----